Copyright 2004 Monash University IMS5042 Information Systems Strategic Planning Week 4: Elements of IS planning Theory: 1. Stages of Growth Models

Copyright 2004 Monash University 2 Agenda 1. Introduction to Stages Theories 2. Nolan’s ‘Stages of Growth’ 3. Further Stages Models: McFarlan 4. More Stages Models: Earl, Galliers and Organisational Theory 5. Stages of Growth and Their Implications for IS Planning

Copyright 2004 Monash University 3 1. Introduction to Stages of Growth Models These are the first significant theoretical models of what IS planning is about and how to do it Started as theories about computers in organisations, then led in to links to theories of organisational management, innovation, etc; Note links to SIS and Alignment approaches

Copyright 2004 Monash University 4 2. Nolan’s ‘Stages of Growth’ Model The original evolutionary ‘stages of growth’ model for organisational computing Now looks a bit out-dated, but its influence was/is very strong

Copyright 2004 Monash University 5 Origins of Nolan’s Model Originally a Harvard University academic; then a principal of Nolan Norton Consulting; then back to Harvard; now at Washington University Stages model was developed in a series of papers published chiefly in HBR through the 1970s Was one of the most widely-cited research articles on IS and regarded by many as a key development in adding some ‘science’ to the task of IS planning and management Formed the foundation of various planning methodologies

Copyright 2004 Monash University 6 Basis of Nolan’s Stages Model: (1) The Problem EDP is a very complex and technical activity which executives outside the IT area find hard to understand Organisations get worried about the apparently never-ending increases in EDP budgets Organisations find it hard to know what strategies to adopt for managing their EDP expenditure IT managers find it hard to explain to executive groups how their budgetary needs should be handled

Copyright 2004 Monash University 7 Basis of Nolan’s Stages Model: (2) Nolan’s View of the Situation Organisational use of IS/IT involves a blend of external knowledge (computing theory) and internal knowledge (how the organisation uses it) The internal knowledge is mainly experiential Experiential learning requires a blend of organisational ‘slack’ and control IS/IT expenditure will follow an S-curve. There is no need to get worried about periods of rapid expenditure growth because they show that things are happening; they will flatten out eventually

Copyright 2004 Monash University 8 Basis of The Model IT within an organisation goes through several stages of growth Each stage has its own distinctive applications, rewards, and problems Each stage has to be managed in a way which is sensitive to the issues in that stage and with an eye for the issues which will arise in the next Only by going through these stages will an organisation be able to get maximum benefit from IS/IT

Copyright 2004 Monash University 9 Development of the ‘Stages of Growth’ Model (1) Version 1 (see diagram from Gibson & Nolan, 1974) S-curve for expenditure: Slow growth during initiation; rapid growth during expansion; reducing growth during formalisation; slow growth during maturity Changes in applications portfolio, personnel specialisation and appropriate management/ control measures

Copyright 2004 Monash University 10 Development of the ‘Stages of Growth’ Model (2) Version 2 (see diagram from Nolan, 1979) Same basic expenditure curve Two extra stages Benchmarks to define stages

Copyright 2004 Monash University 11 Indicators/Benchmarks for each Stage (1) Key indicators can be used to identify the stage of development of an organisation’s data processing Individual benchmarks may be misleading, but taken together they are reliable Benchmarks should be assessed for all major business units, though they may not be applicable in every case A large company may have different divisions at different stages, but …. “…every division that I have studied has its DP concentrated in a particular stage” (Nolan, 1979)

Copyright 2004 Monash University 12 Indicators/Benchmarks for each Stage (2) See diagrams First level benchmarks Shape of DP expenditure curve; rate of growth vs company sales Nature of technology used for data processing Second level benchmarks Applications portfolio DP organization DP planning and control User awareness

Copyright 2004 Monash University 13 Using the Stages Model Use the model to explain to executive management what is happening - ie model is for communication Use the model to identify the current stage of IT/IS usage in the organisation - ie model is for analytical purposes Use the stages to understand the current set of IT management problems - ie model is for action purposes Use the stages to predict how the organisation’s use of IS/IT will evolve over time - ie model is for predictive purposes

Copyright 2004 Monash University 14 The Validity/Generalisability of the Model: (According to Nolan) The problems which arise at each stage and the management techniques to solve them are very similar regardless of variations in the EDP installation and the type of company The model is a simplified picture and may need to change somewhat as IT evolves with new technologies and new applications

Copyright 2004 Monash University 15 Comments on Nolan’s Model: Consistency and Clarity Multiple versions, variations; inconsistencies Uncertainty over language and meaning Uncertainty over details of application (proprietary control!)

Copyright 2004 Monash University 16 Comments on Nolan’s Model: Experimental Verification Considerable doubt over the empirical basis of Nolan’s original work (How many organisations? How reliable was the data?) Attempts at verification by subsequent studies Suitability of benchmarks Vagueness of language and problems of measurement

Copyright 2004 Monash University 17 Comments on Nolan’s Model: Questions One S-curve or many? Descriptive or normative? Budget growth or learning growth? Technological validity (batch vs on-line; mainframe vs mini, database, etc)? Only a DP-to-MIS transition (no concept of SIS)?

Copyright 2004 Monash University Further ‘Stages’ Models: McFarlan McFarlan worked at Harvard with Nolan His work clearly ties in closely with Nolan’s (don’t know who was influencing whom!) Theory developed in three papers published in HBR (see references)

Copyright 2004 Monash University 19 Basis for McFarlan’s Work In most organisations, the key information technologies - office automation, telecommunications and data processing - have evolved as separate “islands” of technology Historical, technological and organisational factors have driven this These technologies should now be treated under the single title of Information Services These services must be co-ordinated and integrated to improve their efficiency and effectiveness

Copyright 2004 Monash University 20 Problems in Managing IT Integration Merging technologies is difficult, because management approaches to new information technologies should be different to those for established technologies Organisations change more slowly than technology Therefore an organisation’s use of a technology will go through some evolutionary stages These stages relate both to Nolan’s stages and also to theories of organisational change Each organisation must map its own paths towards successful integration of technologies

Copyright 2004 Monash University 21 McFarlan’s ‘Phases of Assimilation’ (See diagram) Phase 1: Investment or project initiation Phase 2: Technology learning and adaptation Phase 3: Management control Phase 4: Widespread technology transfer

Copyright 2004 Monash University 22 Managing the Assimilation Phases Merging “islands’ of technology must be sensitive to the different phases which each island is in; each phase needs a different management/planning approach Separation of Phase 1&2 from Phase 3&4 technologies may be needed to ensure that effectiveness and efficiency goals do not collide Full integration may take a long time; disorder and ‘inefficiency’ may be a necessary part of learning The right balance between centralised and user-based control is crucial - balance should change over time

Copyright 2004 Monash University 23 McFarlan’s ‘Strategic Impact’ of IT Planning must not only be sensitive to the phase of a technology, but also its impact on the organisation As technology, environment and organisation change, so too must the priorities which organisations give to their IS portfolios. The strategic impact of IS/IT on an organisation will vary over time Organisational approaches to ISP must reflect the contribution which IT/IS can make to the organisation

Copyright 2004 Monash University 24 McFarlan’s Strategic Grid (See diagram) ISP must first seek to get agreement about where in the grid the organisation fits (perceptions may differ) Different organisational units may be in different grid positions Grid position is central to deciding the planning and management approach which is needed for each business unit

Copyright 2004 Monash University 25 Comments on McFarlan’s Model McFarlan’s work points to links in two directions: assimilation phases link to theories of diffusion of innovation; strategic grid links to business planning The ‘assimilation’ work is a re-development and extension of the ‘experiential learning’ aspect to Nolan’s model. The ‘strategic grid’ work incorporates the concept of SIS which was missing from Nolan Each of these areas opens up a a whole new set of literature

Copyright 2004 Monash University 26 Comments on McFarlan’s Model: Questions To what extent are McFarlan’s stages descriptive or normative? Subjectivity of the stage descriptions (benchmarks)? Organisational status vs organisational unit status?

Copyright 2004 Monash University Further Evolution of Stages Theories: Sullivan, Earl and Galliers These writers come more from the organisation and management side of things Focus now on SIS, not DP; management and organisational context, not budgets As with Nolan, these theories have gone through multiple versions over time Initially combined Nolan and Mcfarlan approaches, then developed their own specialised flavours Eventual transition (in my view) to the “Organisational Alignment” approach

Copyright 2004 Monash University 28 Sullivan’s Model Reviewed IS planning effectiveness in 37 major US companies Argued that there are only two key determinants of IS planning success: Infusion (impact/importance of IS/IT) Diffusion (decentralisation/spread of IS/IT) Strong correlation between these factors and the type of planning approach which is effective (see diagrams from Sullivan (1985) p6) (Note similarity to McFarlan’s Strategic Grid) Organisations need to adapt their planning strategy to the quadrant they occupy at that time

Copyright 2004 Monash University 29 Earl’s Model Developed from Sullivan’s model (“… sympathetic,... but more complex”) Explicitly focuses on planning and organisational maturity in regard to planning Tries to give more specific direction about what actions an organisation should be taking at each phase

Copyright 2004 Monash University 30 Earl’s Stages (See diagram from Earl, 1989) Stage 1: The organisation lacks IS resources and experience Stage 2: The IS department lacks understanding of the business and where IS can contribute Stage 3: Growing demand for IS creates a need for prioritisation and control Stage 4: Business units starts to seek to use IS for competitive advantage Stage 5: IS/IT becomes a key aspect of organisational business planning and directions

Copyright 2004 Monash University 31 Galliers: IS Planning & Organisational Theory Another version of Earl’s approach (see diagram from Galliers & Sutherland, 1991) Key organisational elements are taken from McKinsey & Co: Strategy; Structure; Systems; Staff Style; Skills; Super-ordinate goals Stages of IS growth and maturity are: Ad Hocracy Starting the foundations Centralised dictatorship Democratic dialectic and co-operation Entrepreneurial opportunity Integrated harmonious relationships

Copyright 2004 Monash University 32 Stages: Note changing focus as to what the stages relate to Stages in level of experience in using IS/IT (Norton) Stages in organisational impact of IT (McFarlan, Sullivan) Stages in organisational maturity for IS planning and management (Earl, Galliers)

Copyright 2004 Monash University Stages and Their Implications for IS Planning The concept of stages has been a very popular element of IS planning approaches Models described in this lecture are merely some important examples; many others exist involving variants of these or introducing new aspects Many methodologies contain some elements of stages theory of some kind

Copyright 2004 Monash University 34 Common Elements of Stages Models The need for planning to cope with the rapidly (and unpredictably) changing nature of IS and IT The nature and importance of processes of evolution, diffusion of innovation, etc; (to be discussed later as emergent strategy) The nature and importance of organisational IS maturity to its ability to deal with innovation and change The need for management strategies sympathetic to the problems of innovation and change

Copyright 2004 Monash University 35 Some General Thoughts on Stages Models Intuitively very appealing; conform to concept of stages in a person’s learning/understanding/ application/etc of something new Suit our desire for orderliness and classification (stereotypes)? Make use of some very simplified (simplistic?) versions of organisation and innovation theory

Copyright 2004 Monash University 36 Some General Questions of Stages Models How do you recognise and measure ‘stages’ so you can identify which stage you are in? (Can we even agree what constitutes a stage and agree on whether we are in it?) Can you categorise an entire organisation as being in a ‘stage’? (If not, what are the implications for planning approach(es)?) Do you have to go through the stages or can you skip some? Can you get through them faster? Should you try? Do stages iterate as technologies change? Does it ever really end happily ever after (maturity, harmony, integration, nirvana etc)??

Copyright 2004 Monash University Implications of Stages Models: Planning philosophy?? Formalised Unified Comprehensive Utopian Rational Deterministic Directed Dictatorial Democratic Emergent Political Contingent Pluralist Pragmatic Ad hoc Incrementalist

Copyright 2004 Monash University 38 Implications of Stages Models: Planning purpose What is planning for? Note the transition in what ISP is about: managing budgets managing innovation business planning managing organisational processes Note the implied position about the predictability of the future Note the importance of vision, positioning, etc Note the varying relative positions of business strategy and IS strategy

Copyright 2004 Monash University 39 Implications of Stages Models: Planning outcomes What do we finish up with as a result of the planning process? How closely tied to action is the strategy? What does this tell us about what these approaches define as being “strategic”? Note focus on general management strategies, organisational directions, links between business and IS, etc Note lack of focus on specific actions - systems, technology, infrastructure, skills, etc

Copyright 2004 Monash University 40 Implications of Stages Models: Planning Process How do we plan? What are the steps/tasks to be undertaken by the planner? Different ISP processes for different stages? Who plans? Who identifies the stages for the business and for each business unit? When do we plan? … before the stages happen? … during each stage?