It has set standards to highlight customer satisfaction, workforce empowerment and increased productivity. William M. Daley, U.S. Secretary of Commerce, says, ...
A Strategic Framework for Information Technology Planning Michael W. Usrey1, K. Radhakrishnan2 1
Lockheed Martin Engineering Management Program, University of Colorado, Boulder, CO, 80309-0435 USA 2 U S West Advanced Technologies, 4001 Discovery Dr. - Suite #240, Boulder, CO, 80303 USA
Abstract-Most frameworks for planning of Information Technology (IT) projects are based on functional models of the organization, where investments are justified based on rate of return analysis comparing an existing, manual process with an automated substitute. The Malcolm Baldridge National Quality Award (MBNQA) is considered herein as the basis for a strategic approach to IT planning. The benefits and shortcomings of this approach are discussed. The lack of consideration for the protection of intellectual property is identified as a key shortcoming, not only in the context of IT planning, but also in the broader context of MBNQA as a business assessment tool.
I. BACKGROUND Information technology (IT) has become the key infrastructure component in almost every industry [11]. The evolution and spread of information system technology has reshaped the business world, providing a number of firms with the means to become more effective competitors [32]. Goldberg and Lorin [13] successfully predicted that a host of economic and other factors would make this impact increasingly inevitable. Intuitive approaches for selecting information technology projects lack the rigor and repeatability necessary for widespread implementation [20]. Financial analysis, including net present value and rate of return analysis, is frequently used to justify technological investments. Unfortunately, this approach suffers from a lack of explicit attention to strategic concerns and often leads to sub-optimal results [29]. One of the key foundations for assessing and improving business is the set of Malcolm Baldrige National Quality Award (MBNQA) Criteria. It serves as a checklist of the important areas where a business must concentrate its efforts to achieve improvement. The relative importance of these areas can be measured by the ratings assigned to them. The seven categories classified by the Baldrige criteria [24] are: • Leadership, • Strategic planning, • Customer and market focus, • Information and analysis, • Human resource focus, • Process management and • Business results. Information technology is primarily beneficial to the extent that it supports business strategy. In that context, the Baldrige categories are considered as dimensions for planning the implementation of Information Technology.
II IMPACT OF INFORMATION TECHNOLOGY The U. S. economy and job production is growing faster than that of almost all other countries in the world [25]. The 1990’s have seen a surge in U. S. productivity; new technology, particularly in communications and information processing, is credited for this phenomenon [ibid.]. Meanwhile, the amount of information that we are expected to absorb will double in every 4 to 5 years; even now more new information has been generated for mass distribution in the last three decades than in the previous 5,000 years [22]. “The more acreage you bring under irrigation, the more water you must put into the system.” With this analogy, Hiam [17] suggests that once a company comes to recognize quality as a competitive tool, it becomes more urgent to fully integrate quality management throughout the organization. The same appears to hold true for information technology; U. S. investment in information technology exceeds investments in industrial machinery, while international consumption of IT has created a U. S. export boom [25]. Technology sets new performance standards. This has created a role for “Technology Brokers” [15] that disseminate technology to and for others, driving the spiral in development and adoption of information technology. Productivity gains are realized in both individual productivity and group performance. Robert Metcalfe, the “Father of Ethernet”, claims that the utility of the computer network increases exponentially, and not linearly, as the number of users increases [34]. Companies that once thought of themselves as independent enterprises in charge of their own destinies are now being pulled into the global economy and the web of virtual enterprises [6]. Some companies have clearly reached a very high level of complexity where they cannot survive with a conventional approach to management; they need shared responsibility and decision making from their employees, regardless of their position in the company [28; 21]. Information technology has the potential to facilitate this model [26]. The proverb, “Change is the only constant factor” seems very obvious in today’s environment. Bancroft [2] states that there are five different ways in which a change can occur. They are: Isolated and reactive, Technically driven and reactive, Organizationally driven, Linked, and Integrated.
Each of the first four types is inherently dangerous to the success of the desired change because it fails to anticipate the impact of change at all levels of the organization. The fifth – an integrated environment for change - is the goal that companies must achieve. Planning in such a fluid environment is no trivial exercise. Structures, policies and procedures, skill sets, even languages are unraveling under the intense pressure of continuous change [33].
III MALCOLM BALDRIGE CRITERIA The Malcolm Baldrige criteria are considered as an important basis for the assessment of the performance of the business establishment [4]. The National Institute of Standards and Technology provides the nation’s measurement and standards infrastructure. It has set standards to highlight customer satisfaction, workforce empowerment and increased productivity. William M. Daley, U.S. Secretary of Commerce, says, “In our quest for quality, you cannot find a better guide than the Baldrige Award criteria. These are used by thousands of organizations for training, self-assessment and as a tool to develop performance and business processes.” The primary and secondary Baldrige criteria are enumerated in the Appendix. In the following subsections, information technology efforts that support the Baldrige criteria are identified. A. Leadership Five of the seven areas within the leadership category mention communications as a key activity, so information technology appears well suited to foster leadership activities. IT projects that would support the communication components of the leadership imperative include: • widespread deployment of computing devices, • a high degree of network interconnectivity, • standardization of software applications and network protocols, • conference calling, • desktop video conferencing, • networked access to high quality hardcopy devices, • web sites, • mailing lists, • online forums, and • training in the use of these tools. • Each of these areas is amenable to measurement and benchmarking. B. Strategic Planning Strategic planning calls for the collection of information to measure and forecast performance. It also includes the identification of markets, customers, suppliers, competitors
and internal competencies. Risk analysis is another key component of strategic planning. Performance measurement involves defining measures, collecting pertinent information and reporting. Information collection and reporting are inherently communication tasks, so the projects identified for the leadership category synergistically support this aspect of strategic planning. Identification of competitive risks and opportunities relies on the vigilance of hundreds of managers and not on the wisdom of a few planners [16]. This also suggests that communication is also an important component of strategic planning. Additional IT tools to support the identification and risk analysis tasks include: • open database and query systems, • survey creation, administration and analysis tools, • access to third-party databases, • Monte Carlo simulation, and • visualization tools. C. Customer and Market Focus Five of the six elements in this category are communication and identification activities, so many of the projects outlined above will benefit this category as well. For many products, virtual shopping via the World Wide Web can help gauge customer response more quickly and inexpensively. Another recent IT development that holds great potential for customer and market focus is Simulated Test Marketing or STM [5]. Simulation has been used for years in the aerospace industry and the technology is now inexpensive enough to find broad application in product development. This approach promises earlier, more realistic exposure for customers as the product is being developed and lower cost than test marketing via physical product distribution. With virtual reality environments becoming less expensive and more realistic, STM has the potential to involve customers intimately in the early phases of product development. Other technologies that can improve customer responsiveness include: • cyber cash, • electronic funds transfer, • fax on demand, • touch-tone accessible support bulletins, • paging, and • cellular phone/PCS. D. Information and Analysis As the category name implies, information technology is well suited to facilitate the information and analysis category. Communications tools are necessary for internal measurement and assessment. Identification tools, Internet, and thirdparty database access can facilitate development of a large pool of potential benchmarking partners. Communications tools would again be useful, in this case to efficiently narrow
down the benchmarking candidates to find the most suitable partners. Projects to support this category display a high degree of synergy with all of the other Baldrige criteria. E. Human Resource Focus This category focuses on how a company enables its employees to develop and utilize their full potential in alignment with the company’s objectives. Several of the areas in this category relate to communication, identification and benchmarking, so there is synergy between this category and the “Leadership” and “Strategic Planning” categories. This result is not surprising given the recent emphasis on empowerment [12] and learning organizations [23]. Additional technologies that facilitate this category include: • automated building and security controls, • self-paced, computer-aided instruction, and • distance learning. F. Process Management Process management demands process definition, consistency and repeatability. The keys to an efficient system of process control are simplicity, speed, commitment, communication, and visibility [10]. These characteristics are well suited to realization via information technology. Tools that are specifically appropriate for the process management category include: • computer-aided design, • computer-aided manufacturing, and • automatic test and measurement. G. Business Results This category focuses on measuring customer satisfaction, financial performance, market performance, and the results of process improvement activities. All five items within the category mention communication, identification, measurement, and monitoring. Since achieving optimal business results depends upon solid performance in strategy, leadership, human resources, processes, customer focus, and information and analysis, it is not surprising to see a high level of synergy between the IT needs of this category and others. To achieve peak performance, sluggish, vertically integrated companies are finding it increasingly necessary to form agile, virtual organizations [6]. Diverse companies combine their unique competencies to pursue business opportunities that would otherwise be unattainable. Information technology to support this paradigm must be easy to use, functional in a heterogeneous environment, and provide a high level of security given a constantly changing pool of suppliers and customers whose relationships vary enormously in intimacy and scope [31]. Given the need for
such alliances, additional tools to support this category include: • electronic data interchange • access control • encryption, and • virtual private networks
IV CIM PLANNING VIA THE BALDRIGE CRITERIA There are three criteria for technology project selection: strategic fit, balance between the projects selected, and maximum payback [8]. Strategic fit is the extent to which the project supports the fundamental competitive thrusts of the organization. Balance is defined as an appropriate mix of incremental projects, like connecting existing computers via a local area network, and radical projects simulated test marketing. Maximum payback is the extent to which the predicted costs and benefits maximize some financial measure such as net present value or rate of return. Unfortunately, there is no single evaluation method that simultaneously optimizes on all three of these criteria [ibid.]. A. Strategic Fit A popular method for assuring strategic fit assumes that the implementation of strategy equates to the extent of resource allocation to specific projects. Resource pools or buckets are allocated based on the strategic relevance of a project [9]. The Baldrige categories and category weightings provide a framework for resource pooling. For entrepreneurial organizations, the categories would provide a top-level template for resource allocation. In diversified businesses, the Baldrige-based allocation of resources would most likely occur within initial pools established for each Strategic Business Unit (SBU) and each division. IT projects that support multiple categories would receive the combined weights of the categories they support. A resource allocation scheme based on this approach and the 1998 Baldrige weights is shown in the Appendix. An alternate approach to achieving strategic fit is the strategic check [ibid.]. Resources are initially allocated using either the maximum payback or balance method. Upon completion, the weights shown in the Appendix would be used to audit whether the level of resources assigned to projects was consistent with their strategic value. If significant deviations were between the resources allocated to projects and their strategic value are identified, constraints are placed on the planning process and another planning iteration is undertaken. B. Project Balance An ideal portfolio of IT projects must be balanced with respect to numerous factors including project cost, risk, reward, time to completion, and potential competitive
advantage. Graphical models are favored for visualizing balance. Unfortunately, these techniques can, at best, draw attention to an out of balance condition; they do not provide a decision model or prioritized project list [9]. Balancing mechanisms are necessarily used in combination with other evaluation techniques. C. Project Payback Financial analysis methods are well understood and widely practiced, but their implied precision and focus on tangible benefits can cause valuable projects to be overlooked [29]. To overcome these shortcomings, an integrated approach (Fig 1) is recommended. Given the multi-attribute nature of the objective, the process would be iterative in practice. First, a group of projects would be identified and classified in terms of the Baldrige object(s) to which each contributed. This group would be culled based on a minimum hurdle rate, but the remaining projects would not be ranked by rate of return. The third step would subject the candidates to portfolio balance analysis. The remaining projects would be audited to assure that the relative allocation of resources is consistent with the overall Baldrige framework. At any point in the process, the projects that remain after screening may be insufficient to consume available IT resources. At that point, it may be necessary to return the project identification step and iterate through the process.
V CONCLUSIONS The importance of computer security has been recognized for at least two decades [7, 18, 19]. The importance of intellectual property protection in developing a sustainable competitive advantage has been know for even longer [1, 3, 14, 30]. The need for information security is even more acute in the age of the Internet and virtual organizations. While many IT planning references pay proper attention to information protection, the subject is absent in the Baldrige criteria. It is recommended that any IT planning process and, indeed, any comprehensive organizational assessment
recognize the critical importance of security. The authors predict that it is only a matter of time before this shortcoming in the Baldrige criteria is addressed by the NIST. There is nothing more difficult to plan, more doubtful of success or more dangerous to manage than the creation of a new system. The initiators have the enmity of all who would profit by the preservation of the old institutions and merely luke-warm defenders in those who would gain by the new ones [27]. The bureaucratic structures and traditions of many organizations hinder change, rather than help people see each other as resources [17]. Cultural change is a requirement to improve a business. No matter how brilliant the IT plan, ownership must be widely embraced for implementation success.
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APPENDIX % Weight 1998 Malcolm Baldrige Quality Award Area Description Leadership a) Setting company directions b) Communicating values and expectations c) Reviewing company performance d) Gathering personnel feedback e) Communicating legal, regulatory, and ethical requirements f) Addressing public concerns on company's products g) Supporting customer communities Strategic planning a) Identifying customers and market requirements b) Identifying competitive environment c) Analyzing risks in developing products d) Identifying resource needs e) Analyzing organizational capabilities f) Identifying supplier/partner capabilities g) Implementing action plans h) Projecting performance i) Measuring the performance Customer and market focus a) Selecting customers b) Identifying product features to match market needs c) Improving knowledge about customers and markets d) Accessibility and support to customers e) Getting customer feedback f) Building long term relationship with customers Information and analysis a) Selecting and using information on key company processes and action plans to improve company performance b) Selecting and using benchmarking information from industry leaders to improve performance and competitive postion c) Analyzing company data to assess the performance d) Reviewing findings to prioritize areas for improvement Human resource management a) Designing work for employees b) Identifying approaches for compensation and recognition for employees c) Training, education and development of employees to support the company needs and action plans d) Maintaining a safe and congenial work environment e) Motivating employees and improving employee satisfaction
11% 2% 2% 2% 2% 1% 1% 1% 8% 1% 1% 1% 1% 1% 1% 2% 1% 1% 8% 1% 1% 1% 1% 1% 1% 8% 3% 2% 2% 2% 10% 2% 2% 3% 2% 1%
Process management a) Designing, implementing and improving products and services b) Developing and improving production and installation processes c) Managing and improving product and customer support processes d) Implementing partnership with suppliers and improving cooperation Business results a) Identifying current level of customer satisfaction or dissatisfaction b) Measuring financial results, marketplace performance, and business growth c) Monitoring human resource development, productivity, and work system performance d) Measuring suppliers/partners performance and its effect on company performance e) Determining company operational performance results including product quality, operational effectiveness, customer satisfaction, and achievement of performance goals
10% 3% 3% 2% 2% 45% 13% 13% 5% 3% 13%
