Framing the System Replacement Decision: A Library Illustration E. Burton Swanson and Carlos Zozaya-Gorostiza UCLA Anderson School of Management 110 Westwood Plaza | Los Angeles, CA 90095 May 2, 2000 INFORMATION SYSTEMS | WORKING PAPER 2-00 Information Systems Working Paper Series The IS Working Paper series is a publication of the Information Systems Research Program (ISRP). It provides for the early dissemination of research by the IS faculty, students, and visitors, usually prior to its more formal publication elsewhere. The IS Reprint series includes these more formal publications, many of which supersede the original working papers. To obtain a downloadable index to both series, please visit our website at: http://www.anderson.ucla.edu/documents/areas/fac/isrp/wp-index.pdf Comments and feedback on our working papers are welcome and should be directed to the authors. Because their authors typically revise working papers within months of their issuance, we maintain only the most recent three years of the series for distribution. Most of these are downloadable from our website (see above). For copies of older papers, please contact the authors directly. Publication of the IS Working Paper Series is made possible in part through the generous support of the ISRP by the IS Associates. For further information on the IS Associates, please visit their website at: http://www.anderson.ucla.edu/x574.xml Framing the System Replacement Decision: A Library Illustration E. Burton Swanson1 and Carlos Zozaya-Gorostiza2 1The Anderson School at UCLA 110 Westwood Plaza, Los Angeles, CA. 90095, USA [email protected] 2Instituto Tecnológico Autónomo de México Río Hondo # 1, México D.F. 01000, México [email protected] Revised May 2, 2000 Copyright 2000 by the authors Abstract. How should a firm arrive at the decision to retire and replace one of its information systems? Here we offer a proposed method for “framing” the prospective replacement decision by putting it in appropriate environmental context, that is, in the context of the larger industry where application innovations are presently underway. An applications assessment grid is presented to guide the suggested process. An illustrative example of its use in deciding upon the replacement of an existing library management system in a University is described. The proposed method brings together both internal and external logic in assessing whether an application system may have reached the end of its useful life. 1 Introduction Research suggests that the average life of an information system (IS) within a firm may presently be about twelve years, and that expected life may further be declining (Swanson and Beath 1989; Joseph and Swanson 1998). One study (Swanson 1995) reports that managers among some 54 firms were planning to retire and replace about one third of the application systems in their portfolios within the next three years. Extrapolating from this sample to the broader population, a collective replacement effort of extraordinary magnitude is underway. Yet research on system replacement is on the whole scant and relatively little is known about it and how it actually takes place, or for that matter, how it should take place1. 1 There have been several worthy research efforts. Barua and Mukhopadhyay (1989) and Gode, Barua, and Mukhopadhyay (1990) may be the first to theoretically address the economics of software replacement. Sakthival (1994) and Chan, Chung, and Ho (1994; 1996) offer more recent contributions. Except for Sakthival's broader framework, these works provide normative models focused rather narrowly on when software should be recoded to facilitate ongoing maintenance. They do not address obsolescence or functional enhancement. None are empirically based. 1 How should the firm or other organization arrive at the decision to retire and replace one of its systems? In practice, a system may simply be viewed to be failing and to have reached the end of its useful life. Both users and IS staff may be frustrated with it for any of several reasons. Most basically, when systems become aged their integrity tends to erode and they become more error- prone and problematic to maintain (Lientz and Swanson 1980; Hanna 1993). They may therefore need to be “rewritten” in new code. At the same time, older systems may also require improved functionality and usability. They may further need to be better integrated with other systems in the portfolio. In some instances, they may need to be redeveloped to support revamped business processes. Within the firm, there may thus be an “internal” logic for a system's retirement and replacement. But systems may also need to be replaced for reasons that originate externally. However comfortable they are to their users, a firm's systems may come to compare poorly to new alternatives arising through innovation in the broader business environment. Certain competitor firms may now have or be developing systems which are substantially more advanced in their functionality and which ultimately deliver more value to the business customer. These firms may be seen as gaining a possible competitive advantage. Elsewhere in the industry, commercial application packages may be purchasable which provide (or promise) superior functionality, usability and maintainability to the many firms now adopting them. Here the industry may be seen as converging around a common business logic for the application (Brady, Tierney and Williams 1992; Joseph and Swanson 1998) with widespread ramifications. In this broader context of the firm's competitive environment, there may thus also be an “external” logic for any application system's retirement and replacement. Whether internal or external or both, where it is not comprehended well beforehand, the logic for a system's retirement and replacement may eventually force itself upon the firm. For instance, it may become all too painfully obvious that a system is failing to meet urgent user needs or that a competitor possesses a more advanced system which is taking market share from the firm. In such circumstances, perhaps much too often, management may eventually come to act out of perceived dire necessity, playing a game of catch-up which may or may not be successful. Here system replacement can become an act of desperation. “(We replace our systems) when they have screamingly reached end-of-life,” one manager has said (Swanson and Beath 1989, p. 194). Alternatively, management may plan purposefully for system retirement and replacement. It may institute an assessment process that better anticipates the need. In this spirit, we offer in the present paper a proposed method for “framing” the prospective system replacement decision in terms of its internal and external logic. Central to the suggested method is an applications assessment grid. While further research is required to confirm the method's validity and usefulness, our hope is that it may ultimately enable managers to make their system replacement decisions more wisely and with less desperation. The paper proceeds as follows. In the next section, we describe the requisite planning environment for undertaking the application assessment. The assessment method itself is next introduced and discussed in its basic details. Following, an example that illustrates the application of the method to the decision of replacing a library management system is described. A concluding section summarizes, offers several caveats and points the way to further needed research. 2 2 The Requisite Planning Environment The application assessment process suggested here presumes that the firm has an established IS planning environment. For present purposes, we assume that this includes a management steering committee or the equivalent (Nolan 1982) which undertakes an annual review of an IS plan under which the development, implementation, and maintenance of each system within an applications portfolio is articulated and approved over say a three-year horizon. Thus, in this context, each application system already in production is planned for continued maintenance and enhancement over this horizon, or it is planned to be retired and (usually but not always) replaced by a new system. As a first step in the annual process, we assume that the present established plans for the application systems in the portfolio are given a cursory preliminary review, individually and as a whole. From this preliminary review, a selected few of the systems are subjected to the assessment process described next. Included would be those systems for which the present plans are believed to be most problematic. Among these would be those systems currently planned for continued maintenance but believed to be approaching the end of their useful lives. The assessment process would then aim to “frame” the issue as to whether each selected system should indeed be retired and replaced. It would do so by systematically calling upon both internal and external logic in support of the decision. We describe the assessment process next in it suggested details. 3 The Application Assessment Process In the context of the planning environment described above, we outline a suggested five-step process for assessing the individual application system preparatory to deciding whether to retire and replace it. The process as a whole is guided by the Applications Assessment Grid shown in Figure 1. As will be seen, the special purpose of this grid is to “frame” the prospective replacement decision by putting it in appropriate environmental and temporal context, that is, in the context of the larger industry where application innovations are presently underway. Focus Operational Developmental Leading Edge State-of-the-art Innovative Frontier Local Position Current System Future System Global Norming Common Practice Business Convergence Figure 1: Applications Assessment Grid From Figure 1, the AAG is seen to have two focal dimensions: environmental and temporal. Along the environmental dimension, the firm's local position with its application is of obvious primary interest. This position is situated both internally, within the enterprise, and externally, in terms of the broader industry.