1-03-30 IT Decision Making and the Business Manager Edward G. Cale, Jr. Jerry Kanter Paul J. Saia, Jr. Payoff Making effective decisions regarding information technology and its deployment during times of technical and organizational discontinuity is a challenge. This article describes how IS and business management are coping with IT decision making today. The article reveals the hybrid organizational styles some companies employ and the processes, participants, and relationships that produce IT decisions.
Introduction There has been a wide range of studies on decision-making responsibilities for IT over the years. A report entitled “Whose Responsibility Is IT Management?” distinguishes between the IT technical architecture and the IT management architecture. 4 The IT technical architecture refers to the hardware, software, and data base, as well as the people who develop and operate computer equipment and the computer network. The IT management architecture is more encompassing and is defined as “the location, distribution, and pattern of managerial responsibilities and control that ultimately affect how IT resources are applied and then implemented.” Most studies have focused on the evolution of the IT function from its role as an extension of the financial organization with limited impact on operating management to its more significant role in today's organization, in which the head of the IT function often reports directly to the CEO. Among the organizations in this study, some of the power and authority that were built into the IT function are now decentralized and are becoming the province of line and staff management. Today's IT organizations are hybrid organizations, choosing to centralize some functions while decentralizing others. This study of end-user business managers was performed to determine the role that IT plays within their operations and the expanding role they play in the management of IT.
Relationship Between IT Management and the User Community From the IT executive's point of view, users have become more knowledgeable about IT and are playing an important role in IT decision making. Most IT executives interviewed in an earlier study argued for a sharing of responsibilities, with the IT specialist playing the dominant role in the management of technology(i.e., architecture, standards, and operations) and the user playing a dominant role in use of technology (i.e., application development and use).5 To gain an even more accurate picture of IT management approaches in the hybrid organization, input from the user community was sought. This study was directed to the
4 A. Boynton, G. Jacobs, R. Zmud, “Whose Responsibility Is IT Management?” Sloan Management Review (Summer 1992). 5 E. Cale, J. Kanter, and P. Saia, “The Changing Locus of IT Decision Making,” Center for Information Management Studies Working Paper 93-04,Babson Park MA: Babson College, 1991. same Fortune 1000 organizations involved in the study of IT executives. In all, 30 end-user managers were interviewed. They worked in medium-sized to large companies that covered a range of industries, including insurance, manufacturing, consumer products, pharmaceuticals, chemicals, and energy production and distribution. The interviews took place at the company site and lasted approximately an hour. Two interviewers were present at all but a few interviews. The titles of the interviewees ranged from controller to sales and marketing manager, manufacturing manager, human resources manager, and director of operations.
Research Objectives The study had the following objectives:
á To determine the relationship between IT management and line management of a sampling of organizations.
á To focus on the role of business managers in making decisions regarding the use of IT resources.
á To ascertain the characteristics of those IT/business relationships that appear to work best.
á To understand the forces driving change in the management of IT today.
Company Culture and Management Style One of the most radical changes in management style occurred in a large, high- technology defense company, in which reduced revenues brought about a major reorganization. Moving from a traditional functional organization, the company adopted a strategy of ad hoc project groups, in which personnel are assigned to a group according to their skills and the current needs of the projects. When the project is finished or an individual's skills are no longer needed by the group, the members are reassigned to another group. Thus, should a particular group need IT skills, someone with those skills would become a member of the group and that person's allegiance would be to the group, not to the IT department. With the exception of basic business functions such as payroll, accounts payable, and accounts receivable, little remained of a formal IT organization. The transformation of the company has caused the IT resources to be totally distributed to the process teams. Much of the hierarchy of the company has been shattered because essential members of teams are viewed as peers. Exhibit 1 summarizes the changes, especially downsizing and client/server architecture, that are compressing business and IT management—they are becoming one and the same. This trend is not universal, but it was present in the majority of organizations in this study.
Forces of Change
Improving Relationships Almost every user expressed dissatisfaction with the past “glass house” environment in which IT functioned. Users believed that systems were weak in service and support. Users were skeptical of their value because the systems had been built by IT with little (if any) user involvement. Although users were not universally satisfied with their current relationships with the IT department, most of those interviewed said that the relationship had improved substantially in the recent past. One of the key contributors to this improvement appeared to be a major increase in communication between the IT function and the user departments. This increase in communication appeared to help both parties: IT departments were becoming more responsive to user needs, and the users were becoming more conscious of the necessary compromises that they needed to make.
Impact of Downsizing. Users attributed the improved communication to two factors. First, downsizing and reorganizations have forced the survivors to focus on business needs and their department's role in meeting those needs. Thus, in recent years, there has been a common ground on which IT and functional managers could meet.
Assignment of IT Workers to Business Units. A second significant factor contributing to improved communication has been the frequent assignment of IT personnel to the business function. In some organizations, this assignment was permanent, reflected in a solid-line reporting responsibility between the IT personnel and the user department management. In other organizations, the reporting relationship remained within the IT department, with only a temporary or dotted-line reporting relationship to the user department. Whatever the relationship, this method seemed to improve relations greatly. According to one manager, although IS people do not know the business function, they play an invaluable role in implementing the system because they know the IT function. In some cases, the assignment of IT personnel to user departments was extreme, with the users gaining direct control over parts of the IT function, such as relevant applications development, maintenance, and use. In all cases, a sense of user ownership (whether actual or implied) contributed to increased satisfaction when the acquisition of funds, the allocation of resources, and the priority of work was concerned.
Sample Scenarios. In the human resources (HR) department of one of the interviewed companies, the HR manager had an IT background as well as experience in the human resources function. By mutual agreement with the CIO, the HR manager had built a powerful suite of applications that was responsive to the department's needs and priorities—as they should be, because HR established the priorities. The downside is that HR used software that runs uniquely on the departmental hardware platform. It is not the standard for the organization, and the CIO is aware of it. The HR manager would just as well turn the operation of the applications back to the CIO in order to concentrate on the functional aspects of the HR job, which is managing personnel, not IT applications. On the technical side, several managers said they wanted to see the adoption of the open systems concept. Open systems were considered important because they would allow users to either develop or purchase applications that could be easily integrated into other applications. From the perspective of user managers, most of the new work would be developed on PC platforms or in a client/server environment. Most new systems would be based on shrink-wrapped software packages. In this environment, users said the IT department's role should be one of consultation and advice, along with operating and maintaining the backbone network. In a few cases, the users' approval of the IT function had actually improved following a centralization effort. In these cases, economies of scale and technology had allowed the centralized IT function to replace and improve on a hodgepodge of ineffective and incompatible homegrown systems. However, the instances of centralization or recentralization ran counter to most observed trends. Although most of the people interviewed indicated that there had been substantial improvement in the performance of the IT function in their organizations, some problems remain. A continuing source of dissatisfaction in many organizations was the sense that insufficient IT resources were being allocated to the department to which the interviewee belonged, and that users were not participating in setting priorities. In addition, a few respondents said that they were not getting their full money's worth relative to what they were being charged. Finally, when queried about the technical and managerial capabilities of the people in the IT department, most of the users identified three or four IT individuals as being highly capable but said these IT personnel were not necessarily typical of the remainder of the department.
Openness and Flexibility. In all of the companies interviewed, whether or not the end users were satisfied with the IT decision-making process seemed to depend on the quality of the relationship between the IT manager and the line manager. Successful relationships showed similar characteristics in every case: they began with each person understanding the other's role. Furthermore, each individual either possessed or was prepared to obtain an understanding of the perspective of the other with regard to the problem at hand. Good relationships flowed from a sense of being on the same team and sharing not only in the problems but also in the successes. The most satisfied users stated that their IT managers had open and flexible attitudes. The most commonly stated attribute contributing to a good relationship was constant communication between the IT manager, the line manager, and their respective staffs. The conversations were frank, open, and honest; they allowed the transfer of understanding about each group's problems, needs, and priorities. Having a low turnover of IT personnel also had a positive impact on the relationship between end-user managers and IT managers. Continuity of people builds confidence. As the IT people become familiar with the end-user problems and begin to solve those problems a team feeling takes over. As the IT expertise in the business grows, the comfort level of the line manager grows. In a related fashion, the interviewees emphasized that it is important that the IT department create realistic expectations. Failure to live up to exaggerated expectations about IT inevitably leads to a loss of credibility and standing for the IT department. All of these elements emphasize that the key to a positive relationship is trust and understanding between the parties. It is at this juncture that the IT decision-making process begins to benefit.
The Information Technology Decision-Making Process Whereas in the past the IT organization made most IT decisions, the situation is now changed. In all of the organizations studied, there appeared to be a real attempt to rationalize the decision-making process—that is, to determine which decisions should be made by which people in the organization. To the extent that a decision is mostly technical (i.e., negotiating a contract with a value- added network) or has little impact on the business units (i.e., adopting a new payroll package), the decision still resides with the IT organization. However, when decisions have a significant impact on a business unit, its products, or its customers, functional managers play an increasingly strong role in the decision-making process. Many IT decisions are being made as a joint effort, involving a team including IT and functional management. Decision making, in these cases, was somewhat recursive and involved a progression toward consensus.
Role of the Business Manager In many cases, the functional manager is the champion for a specific project and the major advocate for its execution. On small projects, funding may be within the province of the functional manager who, in this case, basically contracts with the IT department for project implementation. On larger projects, the champion takes the problem to an executive or steering committee to obtain approval, getting senior management buy-in along with funding and resources. With that, the line manager and the IT manager set the project in motion. Once a project is approved, the process separates into individual roles, with the line managers developing the application specifications and IT creating and executing the development plan. In other cases in which functional managers were not the project initiators, they still played a significant role, either as a decision maker, co-decision maker, or an influencer in the process. Not surprisingly, their role was most significant in determining application specifications and less so in executing the actual details of applications development. User involvement was usually a function of how close the projects (whether microcomputer or mainframe related)were to the direct interest of functional management.
The Core IT Group In the companies studied, their plans are to make their divisions more autonomous in IT decision making, while still maintaining a core IT group for the information infrastructure, including networks, data bases, and other cross-functional activities. Although functional managers generally want more control over IT decision making, their desire for increased control related almost exclusively to system capabilities and use, not to the technical issues of systems architecture and operations. Many of the line managers expressed a desire to have some resources, such as systems analysis and programming, under their direct control. Others indicated that a dotted-line responsibility between them and their resources would be sufficient. Indirect control would allow for greater flexibility, so resources could be used when needed but freed up for other functions when not in demand. In other words, functional managers want to influence the people who are assigned to develop their applications and set priorities within their areas, but they do not want to directly manage the people (i.e., assume responsibilities that include salary reviews and promotions), nor do they want to manage the hardware. From this perspective, they would prefer that the hardware be all part of the central IT budget, as long as it does not become impossible to obtain a PC or a piece of software when the department decides it is necessary. Emerging Model of Decision Making Throughout the business, individuals in functional management areas, as well as in different strategic business units, are playing the pivotal role in determining system needs and capabilities. It is these individuals who are primarily responsible for selection or development of major applications. In some cases, these individual departments or units are also responsible for acquisition and operation of hardware; in others, this responsibility remains with the central IS function. This applications orientation, together with an increasing reliance on software packages, places a premium on matching application needs with available software. End users seem to be relying on consultants, trade groups, and other outside sources to help them identify and evaluate appropriate software solutions. From an applications perspective, the central IS department has been left with developing corporate and interunit applications, which often is a significant diminution from its previous role. Even in the fairly decentralized organization, the central IT department continues to perform functions that are quite important to effective IT management. Key activities include:
á Establishing hardware and software standards.
á Establishing corporatewide policies and procedures.
á Technology scanning.
á The provision of training and advisory services for end users and the development and implementation of career paths for IT professionals in the business.
IT Decision-Making Matrix Exhibit 2 depicts the stages of IT decision making; it was adopted from similar frameworks developed by others. The cycle begins with the traditional centralized stage 1, in which mainframes handle major transaction systems that are focused on individual company functions, such as order processing and inventory control. In stage 2, still primarily in a centralized strategy, the beginnings of downsizing emerge with PC workstations used primarily for department-unique applications. In stage 3, downsizing is extended to interdepartmental or interdivisional applications executed on client/server platforms. In stage 4, there is often a pullback from the user-centric approach with the development of hybrid arrangements, wherein the IT department defines the architecture and assumes prime responsibility for systems infrastructure and operations. This may involve (in some cases)a degree of recentralization of the IT function, but the prevailing computing architecture remains client/server computing. In stage 4, applications are built to facilitate business process reengineering.
IT Decision-Making Matrix ------IT Development Management Stage 1: Stage 2: Stage 3: Stage 4: Cycle Activity Involvement Traditional Individual Cross- Effective Centralized IT Department Department Hybrid Downsizing Downsizing ------BUSINESS IT Prime Prime Joint Influencer REQUIREMENTS Business Not Involved Influencer Joint Prime
INFORMATION IT Prime Prime Joint Prime ARCHITECTURE Business Not Involved Not Involved Joint Influencer
SYSTEMS IT Prime Prime Joint Influencer DEVELOPMENT Business Not Involved Influencer Joint Prime AND MAINTENANCE
OPERATIONS IT Prime Prime Joint Prime INFRASTRUCTURE Business Not Involved Influencer Joint Influencer ------
The IT development cycle starts with the establishment of overall business requirements and continues through the creation of an information architecture to support those requirements, the development of business system applications with provisions for their maintenance, and finally the operational management of applications on the selected hardware, software, and communications platforms. Exhibit 2 also displays the various degrees of involvement in IT decision making, from the perspective of both IT management and business management. Levels of involvement range from no involvement at all to that of prime decision maker. Results of this study support this decision matrix, although few of the organizations studied have evolved to stage 4. In summary, according to the matrix, the role of business management increases as a company moves through the four stages, with the exception of stage 4. In an effective hybrid organization, IT regains primary responsibility for infrastructure and operations. At the same time, the role of the IT department in the decision process decreases, though it does not disappear. This phenomenon is accentuated in the higher levels of IT development. IT remains prime in the establishment of the IT architecture and in operations and infrastructure. Business becomes prime in the establishment of business requirements and in systems development. There are exceptions to these practices depending on company culture, the particular industry, and the maturity of a company, but for the most part the decision matrix applies.
Implications for Providing Services in the Evolving Organization The changes in IT resources decision making can be assessed by looking at the decision process and its participants from the perspective of a vendor trying to provide hardware, software, or services to such organizations. The initial challenge is to position the prospect on the stage evolution shown in Exhibit 2. Most companies are at stage 3 and are moving to stage 4. For a vendor to succeed, the needs of at least two (and possibly three) necessary but individually insufficient groups must be satisfied: the potential end user of the system, the central IT function, and in some cases, outside consultants. To complicate matters, the interests and orientation of these three groups are quite different. To be effective, a vendor has to understand the individual decision culture of every client. In some cases, the central IT function has approval authority over all purchases; in other cases, the central function may be limited to the power of persuasion. Understanding the differences between clients is critical in determining who in a given organization has the leverage to influence decisions and just how they should be approached. End users are almost totally driven by their business problems or situations. The application and its immediate utility for satisfying their needs is paramount; technological elegance, or even fit with central IT plans, is of little value. Selling to these individuals requires business savvy, with communication that emphasizes business problems and their solutions. Conversations with the central IS group, too, must have a strong business orientation but also must include a recognition of how a given solution fits into a larger picture of corporatewide computing and makes sense for the overall organization. In many cases, the best solutions are those that allow the individual department to go its own way, while still allowing the pieces to be combined when necessary.
Standards Widely available standards, which allow different platforms and packages to work together, are a high priority for the central IT managers. Several business managers interviewed in this study were interested in and involved with standards. According to the human resources department of one company, in which PCs and LANs proliferate, standards are acceptable if users view them as ways to easily tap into data bases and to use support software and if users have training and help-desk assistance. Another company has a well-developed manual of company IT standards and the procedures for setting them. The standards apply to support functions and not to the operating applications that are viewed as the prerogative of department or divisional management. In each case, there is either a single standard or several options. As new standards are developed and approved by the operating departments, the procedure calls for a phased compliance over an agreed-on time period. This buy-in approach works for them. They have realized that standards are all the more important because of the multiplicity of software applications and tools generated by client/server computing. Business users are beginning to realize that standards and common platforms actually give them more freedom to do their own business needs analysis and applications development. They have experienced serious software difficulties with no one to turn to either inside or outside of the company. They know the cost of unmanaged system proliferation. IS , in the role a vendor, should offer a product set that is compatible with and can link to industry standards as they are emerging so that users are not-dead-ended after they have come to rely on a specific application.
Conclusion Organizations are attempting to find an appropriate rationalization of the roles and relationships of IT managers and business managers. Business managers are now responsible for defining and, in a growing number of cases, producing the needed information and information products. However, an important role remains for IT management. With more businesses making heavy commitments to business process reengineering , IT management must play a strong role in maintaining a businesswide perspective. As processes (and therefore departments)are altered, shifted, or eliminated, IT management becomes responsible for providing an architecture flexible enough to allow for and effectively support these rather profound changes. Education in information technology should be integrated into the regular business disciplines. Computer applications—starting with word processing and spreadsheets and including advanced expert system and business process reengineering—should be taught as a natural offshoot to running a business today. This path forward will not be a steady one in all cases; there will be perturbations along the road with some companies returning to a more centralized IT approach. However, these exceptional cases are only temporary deviations from the eventual integration of IT and business and the responsibility of businesspeople to chart their own IT course, to make the decisions, set priorities, and spend their own money to get there. Author Biographies Edward G. Cale, Jr. Edward G. Cale, Jr. is an associate professor of IS at Babson College, Babson Park MA. He is a member of the ACM, the Society for Information Management, and Decision Sciences Institute, among other industry associations. He holds a DBA degree in computer-based information systems and an MBA degree from Harvard University. Jerry Kanter Jerry Kanter is director of Babson College's Center for Information Management Studies, a cooperative effort of business and acadamia to improve the use of information technology. Previously, he held IS management and technical positions at Bull HN Information Systems (formerly Honeywell)in Boston and at the Kroger Co. in Cincinnati. He is the author of Managing With Information (Englewood Cliffs NJ: Prentice Hall, 1992). Paul J. Saia, Jr. Paul J. Saia, Jr. is CEO of Saia & Saia Enterprises, an IS consulting practice specializing in IS organization evaluations and computer systems design. Previously, he worked with Digital Equipment Corp. as a sales training IS consultant and as group manager of the artificial intelligence advanced development group. He is also an adjunct professor of IS at Babson College.