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Impact of Information Technology Management Practices on Customer Service JAHANGIR KARIMI, TONI M. SOMERS. ANDYASH P. GUPTA received his Ph.D. in Management Information Systems from the University of Arizona. He !s presently Professor of Information Systems and serves as the Director of the Information Systems Program at the College of Bu!.il1ess, Un:versity of Colorado at Denver. During the 1993-1994 academic year he was oc sabbatical leave at the university of Hong Kong's Department 01 computer science. H:s research interests include information technology managemerlt in national and international environments, information systems modeling, analysis and design, software engineering, and telecommuting. He has pl.lbHshed in IEEE Transactions on Software Engineering, IEEE Transactions on Engineering Maywgement, Management Infonnation Systems Quarterly, the Communications of the AeM, Journal of Management Information Systems, Journal of System.! and Software, Concurrency Practice and Experience, and a number of conference proceeding~). He if, on the editorial board of the International Journal of Electronic Commerce ,~nd IEEE Tran.W:J.Ctions on Engineering Management. He IS also a member of the Association for Comp:Jting Machinery, the Computing Society, an": the Sodety for Information Management JAHANGIR KARIMI

TONI M. SOMERS is presently Associate Professor and lnteril ,1 Chair of Information Systems and Manufacturing, School of Business Administration, at Wayne State University. Dr. Somers received her MBA from Bowling G!'e~:" State University and her Ph.D. from The University of Toledo. Her research interC'sts include Enterprise Resource Planning Systems implementation issues and IT disaster preparedness. She is a member of the ASSOCIation for Information Syste;I1§, Decision Sciences Institute, POMS, and The Institute for Operations Research and :'le Management Sciences. Y ASH P. GUPTA received his Ph.D. in Management Sciences from the University of Bradford. He is presently Dean of the Univers:ty of Washington Business School and Kirby L. Cramer ChaIr in Bus~ness Admimstration. Prior l:J this he was the Dean of the Ll1iversity of Colorado--Denver College 0: Business alld Adm:nistration. His research interests focus 0111 planning and control sys~ems for :;dvuoced mmmfacturing systems, information systems strategies, and total :jIJaiit), management. He has over 160 Joumal articles p:Jblished internationally 3G'ld serves as a reviewer and editorial board member for many c~ ilis field's leading journals. ABSTRACT: Recently, despite huge incentives and subsequent increases in investment in customer relationship rr.anagement technOlogy, many firms have not been able to Increase their customer satisfaction index ratings. The purpnters, and tecnnicai support orgarllzations

Marketing Automation

by using lead generation, lead q,Jailfll::atlon, data analysIs, campatgn managemefli, and encyclopedia software products

Online Sales

by enabling on/iris business-fa-Dusines!; and busmessHoconsumer sales IJsing contacts, opportUnities, product configuration, and quotation software products for creating new retSil channels; efT'powenng existing dlsmbullon channels and salespaople to sell compiel-t, configure-to-order products

Operations Focus Supply Chain Management

Order Management

Field Service

by faCilitating the informafion flow throughout the supply cham from raw materials suppliers to retaliers for beUer and more efficient rllventory a.nd production management, and faster response to customer demand by enhancmg the sDeed and accuracy of order processing and fulfillment for superior pUfcnas,ng experience lor customers and business partners by uSing dispatch, spare parts inllentory. and repalf depot software products

confidence (especially when it's combined with training and other organizational changes) l79J. In addition, when IT is mismanaged. it can dl:'ter rather than enhance customer service [31. Eve:! when used as intended, IT i~ not al'va)'s customer-friendly. For examp~e, some CRM appEca~ioi1s are meant to help busi:tesses track interactions with customers, which does not necessarily translate into better service [79].

Customer Service Topology Applegate et at l2j suggested that 0) IT has the potential to impact dIfferent industries and firms within them in fundamentally dlfferent ways, (2) some firms use IT to transform their marketing and/or operations functions, and IT's impact on both ;narketing and operations is high among the key players within a particular industry and in firms where IT plays a strategic role. Figure 1 idenUies how IT's potential impact on customer service may vary depending on the range of the marketing and/or operations activities that are transformed (automated) by firms, which are labeled as customer/ocus versus operatiom; focus dimensions. Customer focus refers to those firms that have the potential to use IT to trans/onn marketin,!( and clistomer service

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KARIMi. SOMERS. AND GUPTA

O,stomer F'JCIN>

Cv

I I

IT's Pote:1lia" l:npac( 0;: Marketmg

iT-Enabled

I

Ohtomer ?OClli>

Fim:s

'I

I

CO

I

IT-Leader

I

Flrm~

i

i

"

I

Average

,CD

CD

I

iT-Enabled Operalions Focus Fim:s

IT-Laggard Ftrms

L~'

Low

Avcrag~

[Ts Pole::ttal Kmpac, or. Opera,j()lls

OperatIOns Focus

F!gure 1. Customer Service Tecrmoiogy

activities that are considered necessary to directlY meet customers' expectations it: marketing products and offering extra services. See Table L for the examples of customer focl1 ~ CRM applications in customer services, marketing automation, and oTIiHne sales ar::G promotion. Operationfocl1s refers to those firms t.hat have the potevuial to use IT to trarl.lform production and operations activities that are considered necessary to directly produce new products, improve quality, and provide various channels of deliver; to meet customers' expectations. Also see Table] for the examples of the operations focus CRM applications in supply chain management, order management, and field service. Qm:drant 1 dassl1ies firms tha: have an above average level potential for IT to i:npact their marketing and operations functions. We call these firms "IT-leader" fin:Js. "IT-enabled customerfoeus" firms in quadrant 2 have the same level potential for IT to impact theIr marketi:'ig, but bve a less than average level potential for IT to impact their operations functions. "IT-enabled operations focus" firms (quacrant 3) 1:ave a less than average level IT potential for IT to impact their marketing and have an above average level potential for rr to impact thdr operations functions. "ITlagga,yl" t1rms (quadrant 4) cave a ie'ls than average :evell potential for IT to impact their ma:>keting and operatlOns functions. Based on the customer-service topology shown in Figure 1, IT-leader t1rms are those tha: have the pO':entml to make dramatic transformations in the marketing and opemt:ons area and to be IKJSlt~aned strongly relative to the competItion. IT-enabled customer focus firms are those flrn:s :ha: I:ave the pOlen:ial to use n to differentiate

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their products and services to meet the needs of focused markets and customers. KTenabled operations focus firms are those where marketing and customer service are relatively unimportant but where major IT investments Clm potentially be made in operations to offer new products and to increase integration" control costs, and catch up with the IT-leader firms. Finally, IT-laggard firms are those that are potentially outmaneuvered on both dimensions vis-It-vis the indus:ry leaders. In short, IT can play very different roles in various finns. In some firms, it C,ID have a predominantly operational focus, while in others it can have primarily a customer focus, or it can have both or neither.

IT Management Practices New competitive and technological challenges faced by firms have resulted in escalating complexity ill IT management (2, 13, 15,30,481. Effective IT management requires a set of coordinated efforts associated with plarm;ng, organizing, contrOlling. and directing the illtroouction and use of IT resources within a firm [12,56]. A number of other studies have also suggested that the role of IT within a firm significantly influences IT planning and management control sysh,ms and the nmk and ~he role of the IT leader [2, 43, 63, 65]. IT management practices are defined here as the level onT management sophistication and the IT-leader's :ro~e in a firm. TIle research related to IT management sophistication and the role of the 'iT·leader forms the basis for this study.

IT Management Sophistication IT management sophistka~ion has traditionally been used to characterize a firm's evolution 111 its management orientation, planning, organiza~ion, and control aspects of its IT function [44,55,58,65,69, 701. In some firms th;~ lack of clear organizational processes for effective 1T management prevent them from using IT strategicall y [13, 14]. Greater IT management sophistication is characterized by the IT manager being mrvare of the finn's long-tern] strategic plans [5Q, 891, the firm's future strategic plans being explicitly considered during IT planning l20, ::0], and IT peT:ormance being evaluated based on contribution to the overall firm's objectives, and not exclusively on cost savings !20, 89], Concomitantly, in firms with a high level of IT management sophistication, top mal1agenent may be expected tCr have greater knowledge about IT [43, 50] and participate more actlvely during IT planning 1501, This, in tum, would suggest that the IT function in a firm with higher kvels of IT management sophistication would have evolved from the data processing orienmtion into the strategic IT orientation [44,53,55, 89}. The following paragraphs provide the theorew::al reasons for the four criteria identified for measuring IT management sophistication. iT Phmnfng: As firms move toward a higher sophistication in IT management, tile nature of the IT planning changes from a computing plan wLh a :echnology management focus to a long-range strategic plan with a data resourCt' management focus [25,

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KARIM!, SOMERS, AND GUPTA

59]. The pnmary objectives of IT planning are then to (1) align the IT plans wIth the firm's business plans, (2) address key aspects of business strategy [91], and (3) extend the infusion and diffusion of IT within the finn :78, 81]. New concerns are: what information systems de the firm's business strategy dcrr.and; what strategic opportunities are presented by IT; and how should IT project priorities be set. IT Controh Control of IT activities ~as changed drastically during the past two decades, from being loose/informal, project, and technically based to being more tight/refined and managerially based, New methods of contmts are based on benefits, pnorities (selective chargeout) and techmcal standards, and are based on the orgamzationat goals rather than cost :6, 10, 19,67]." As firms move toward higher IT management sophistication, :hey become more con~ident in managing computing as other resources, the applications development positively pursues economic benefit, and IT managers seek to manage the balance between short-term dehvery and investment for the future 130]. Firms with high levels of IT management sophistication can derive significant benefits from strategic usc of IT by (1) establishing mechanisms to permit key line managers to exercise controls over budgeting, priority setting, and resource planning for the IT function, and (2) deady defining the role and responsibilities of the IT functmn. New concerns are: how much shou:d finns s:?end on IT; how should IT proposals be evaluated; and how should the responsibility and authority for IT dllrectlOn, development, and operations he set IT Organi.zation: In tte early stages of data processing, firms could organize IT activities autonomously because early applicalions were hmited to tnmsaction-oriented func:lOns requirbg only hm:ted user aware!',ess and involveoent The increasing trend :oward distributed client-server computing and ERP systems requires that Ilsers' ideas be given special attention in the planning and implementation of IT applicatiOns [8, 6l]. Consequcndy, the direction, development, and operations may be colocated in the hands of business units and IT organizations, and may be customized tc meet specific business uni: needs 116, n~. IT departments are likely to 0) be much flatter, with specialized suhunits nrganized around technologies and business needs, (2) respond better to changing user neecs hy better alignment between l:se:- areas and the IT function, and (3) leverage IT investmi!nt more effectively. New concerns are: how IT affect the firm's organizatim:ai structure, and should IT have a dIrector and what should be his or her roIcs and responsibilities. IT Integration: Traditional management strategy for automation has been a bottom-up approach, in which vario!.ls functional areas were automated on an application-bY-clppiicatioi1 iJasIs, without cO!1sideration for integration and optimization at the firm leveL As a 11r;n moves toward gre"ter 1T management sophistication it should (1) institutionalize a formal top-dow:1 p:anmng process for linking information systems strategy to bl.lsinc!>s needs, (2) transfer the technology to a wider spectr:1l:1 of applicatIOns, and (3) contribute to a higb degree of technology mtegratior: for better exploitation ofIT within the 11rm [20, 63~. The end result ofthe change in IT management perspective from a local bottom-t:p approach to a global top-down (busincssbased and across the organization)
Research Hypotheses Applegate et aL [2] stated that "in (Efferent settings, IT can profoundly affect one or more of a firm's value chain activities, sometimes simply by improving effectiveness, sometimes by funda:nentaHy changing the activity, and sometimes by altering the relatIOnship between activities. In addition, the action of one firm can significantly affect the value chain of key customers and suppliers (p. 57)." Prior research has reported that (l) IT's impact on both marketing aed operations is high among finns where IT plays a strategic role [2], and (2) in firms where IT has a strategic role the level of IT plarmmg , organization, control, integration, and IT leaders' role differ significantly from the firms where IT plays it support role [2, 20, 30, 39, 63, 65]. Earl [30j posited that as the role anT within a firm changes from being a "support" ::ole 10 a "strategic" role (1) the nature of IT pla.nning changes fmm being a computing ptan with a technology focus to it more multilevel plan and s:rategic focus; (2) tne nature of IT organization changes from being a "back room" operation to 11 more "complex" and decelli:-al:zed operation; (3) IT control mode changes from being "project"-based with no chargeout to a more "mixed" approach w1th refined technical standards and management controls; and finally (4) IT policies change from being "eclectic" to more "architectural" and integrated with business planning. S:milar!y, Cash et aI. [20] argued that in firms where IT plays a strategic role, it has enabled massive transformation of operational and marketing aspects of the value chain, In those firms, IT is being used to improve customer service and quality, and to link independent functions into integrated systems to enable firms to deliver new and more complex products quickly.1O From the abov~ discussion, it is reasonable to propose the following hypotheses:

H j : There are differences in IT pla'lning among IT-leaders, IT-enabled customer focus, IT-enabled opemlions focus, tl'ld IT-laggard firms. H 2: There are differences in IT control among IT-leaders, IT-enabled customer focus, iT-enabled operations focus, and IT-laggard firms.

H3: There are differences in iT organization among IT-leaders, IT-enabled customer focus, IT-enabled operations focus, and IT-laggard firms. H 4 : There are differences in IT integration among IT-leaders, iT-enabled customer focus, IT-enabled operations focus, and IT-laggard firms. Applegate et al. [2] suggested that in many firms, where IT is used to transform marketing and operatlOl1.§, senior business leaders assume responsibility for planning and executing IT strategy and/or the IT leader sits on the company's executive committee. In many firms where IT-enabled mar;';'eting is minimal, but significant opportunities exist to use IT to support mU!fl.ufactur:ng and logistics. IT investments are often targeted toward streamlmi!:g. integrating. and coord11l1ating production and d1Stribution while co:ltrolHng costs and improving prodl,ct quality. b these firms, "strong

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relationships between IT and senior management must Ix in place to support the requirements for inter-functional integration" (p. 24). In many firms faced with the primary challenge of differentiating their products and services to catch up with the industry leaders, IT investment is used in the development of marketing support systems and infrastructures needed to track industry leaders and manage marketing and execution. In these firms "strong IT and general management lin~s were needed to assure success" (p. 2~). Pnor research has also suggested t.'at there are significamt relationships between (1) the organizational role of IT and the nmk of the IT leader (45, 651. and (2) the role and qualification of the IT leader and a firm's IT strategic or;entation, and (3) the role and qualification ofthe IT leader and the firm's IT use [2,30, 8:J. Applegate et aL (2] argued that "the IT manager's status must align with the role that IT plays, ... If IT has a strategic role, a low-status IT manager will have difticlJ!ty getting the necessary infonnation from general management in the planning pmcess, . , . In a company where IT is and should ":Je serving a support function, lower status is appropriate for the IT director" (pp. 237, 239). This leads us to hypothesizl! the following:

H,: There are differences in the IT leader's >"ole among IT-leaders, IT-enabled CIASiOmer focus, iT-enabled operations focus, and iT-laggard firms.

Research Methodology I:.; nns SECTION, WE DISCUSS ISSUES related to instrument vdlidation, data collection, and the measurement of the research variab1es.

Instrument Validation A detmled ql.lestiom:aire instrument was constructed in order to assess top level executive perceptions of several aspects of the nrm's IT management sophistication, the IT leader's role and IT's potentiai for impact on marketing and operations, The survey instrument was drafted using the literature pertaining to the constructs. Tne process included an exhaustive review of the literature to deriv,c multi-item scates for the constructs. Wherever possible, existing scales with previously estgblished levels of reliability and validity were used to measure the variables. The IT management soplustication items were expanded and adapted fmm previous work: involving IT maturity scales [10, 30, 70]. the IT leader's role was based f,/1 measures derived from several sources [1, 30, 31, 45, 75] and IT's impacts 011 mari
501 to 1000

1001 to 5000 Ovsr5000

9.5

11"'213

have affected its entire stmcture---the indusuy is now faced with market conditions completely different from those prevailing tess than a de~;ade ago [13, 81]. In the fmandal services and retail banking sectors, many applications ofIT are considered strategic necessities [9,22,23, 39}. This has enabled the industry to vastly expan.d the level and extent of its services [24]. In this industry, the differentiation of service quality and introduction of new services through IT investments have become important competitive tools [15]. Specifically, IT is suggested to have a strategic role because it is the means of delivery of goods and services, and the infrastruc:ure of the business is often IT itself [30, 55, 54]. The questionnaire was mailed to approximately 1,035 senior executives of the IT departments at these firms, along with a letter explaining the objective of the study and assuring respondents ofthe cont1dentiality of their answers. Ali respondents were corporate-level IT executives--CEO's, vice presidents, directors, and managers of IT. Responses were received from 213 firms, representing a 21 percent response rate, which is typicaHy achieved in mail surveys in this stream cfresearch [66, 84, 87~. The characteristics of the sample, shown in Tables 2 to 4, suggest that over 50 percent of the 213 respondents had annual sales exceeding 250 minion. A large number of firms (39 percent) had more than 1000 employeeso Another 37 percent had

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K.A.RIMr. SOMERS. AND GUP'fA

Table 4. Business Classification

Industry :=lrlanCe firms

Percentage of Respondents

47

8anklng

42.3

Insurance

40,4 2,3

Brokerage firms Others

iO.3

11=213

between 251 to 1,000 employees, and only 23 percent had 250 or fewer employees. Most companies in the survey were banking (42 percent), though a faiJriy large percer.tage (40 percent) were insurance firms. We performed two tests to check for l1onresponse bias. No statisticaJ:y significant differences were found between responding and nonresponding firms using categorical data on firm type or n;Jmber of employees. There was little reason to suspect t~at IT executives who did not respond to the questionnaire perceived their ilrms much differently from those executives who did respond. siIlce :he mix of the respondents induded all sectors within the fnancial services incllstry. Generalizing the bilis tests to ::he entire study, it would appear that there were no apparent flaws in the data coHection process or survey instrument that SKewed responses.

:T's Impact on Marketing and Operations Applegate et 201. [2J proposed twelve questions for managers as they contemplate :he IT opportunities in marketing. They suggested that "if the answers to most of the questions are no, IT probably would playa rather limited role in :ransforming marketmg. Conversely, if the answers to nost are yes, te:;::hno~ogy has played or will playa major role 10 transforming the firm's :naroceting organization." A similar set of :en questions was proposed for the IT opportunities in operation. In this study, the respondents were asked to indicate their extent of agreemen: with ~he items shown En Appendix A on a scale ranging from X-"strongly disagree" to 5-"strongly agree." Therefore, by strongly agreeing with the items shown b Appendix A, the respondents are suggesting that IT elther 0) has already had an impact on marketing and/or operations functions or (2) has the potential to impact these functions in the future. Henceforth either of ~hese two forms of IT's impact on marketing and/or operatIOns are referred to as "IT's potentia! for impact" on marketing and/or operations f;Jllctions. As shown in Appendix A, IT's potential for impact on marketing and operatlons functions was assessed using 11 items: 7 items measured IT's potential for impact on marketing and 4 items measured IT's potential for impact on operations. The 11 items were derived from 22 items originally proposed by Appiegate et al. [2], To do so, an internal consistency analysis was done for each scale to maximize Cronbach alphas [26]. The

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Table 5. Descriptive Statistics of Measures Employed

Variables·

Mean

Standard Deviation

Number of Reliability'

Items

IT's Potential for Impact

3.50

0.85

0.7200

3.15

0.76

072'10

7 4

IT Planning IT Orgamzatlon IT Control IT Integration

371 3.70 3.48 3,37

0.66 0.76 0.82

0.8848 ::;.8019

-4

0,82

tJ.n92

6 4

IT leade(s Role

3.67

0,60

tJ.7345

8

On Marketing On Operations iT Management Sophistication

:::1.8595

6

• Number of cases 213. b Reliability measure is Cronbach alpha

con'ected Item total correlatiol1§ and alphas (in case the items were deleted) were examined. Individual item total correlations exceeded 0.50 and were all significant, ranging from a low of 0.57 to a high of 0.79 for marketing and 0.54 to 0.75 for the operations. The alpha foreaeh deleted item indicated that removal ofthre-E items (one from marketing anri two from operations) would increase the consistency of the entire scale. As seen in Table 5, the reliability for each scale was satisfactory according to accepted guidelines for newly developed scales. The genera1:y agreed upon lower limit for the Cronbach alpha ~s 0.70, alithol.lgh it may decrease ttl 0.60 in exploratory research [60]. The internal consistency measure of Cronbach alphas for each scale for marketing was 0.72 and for operations it was 0.721.

IT Management Sophistication IT management sophistication was measured using 20 items corresponding to liT planning, control, organization, and integration, which were an 'Idaptaaaon and extension of the IT maturity scales [10, 30.70], Responses to the items were on a 5-point Likert format that ranged from (1) "strongly disagree" to (5) "stron!:iy agree." The reason for ollr choice of these measures was based on our discussion with ]T managers, who clearly suggested that factors affecting IT management shadd include more than the five items used in previous research by Sabherwal and Ktrs [70], The large number of items required that they be condensed into a meaningf;.il illternal rate of reWrn ::1f payback calculatIOns :nay Sliit cost displacemellt projects, but do not cope with competitive edge projects or strategic trusts to change business IImts dymm,ics, 7. AnOther ~tudy [31: found eight cha:-acteristics Ihat distinguisi:ed firms with high imegradOll frorr. those with low integmtio:1 All these factors were present where integration was high; mme were present where integratIOn was low: 0) business ullit mallagemellt perceived that future exploitation of IT was of strategic Importance. (2) an IT executive was establis~ed as part of me executive team, (3} there was ongomg education for b.lsiness •.mit mailagement in IT capabilicy, (4) there was a top-down plarmlng process for iillkillg IT strategy to business needs, (5) the bu~ii'ie~s mandate for IT wa~ centrally planned, (6) some IT developmcct resource was positIOned wah:n the ::)!Jsilless I::nit, (7) the introdw.:tkm of new technoiogies took place at the busiIless tmit :evelulJ(ler hlsmess unit comrol, a:ld (8) there was 11 cost center rather tl:an profit center orientation in cO!liIoHing IT activities, with relatively a.msophistlc8ted chargoout procedures 8. A~ stated by the chaimum of Amerkan Mar;agement Systems and a member of the board of director~ at Capital Oi1e Fbancia; Corp, with a $] 00 millioll armual IT budget, "Without it [partnersh;p between the Chief Information Office~ (CIO) and the Cluef Executive Officer (CEO)] there would be llO Cap:tal Olle." He comirlues "to tell you the truth it woalc be impos~ible [i"or Capital Olle] 10 execute its strategy without having IT Enked :0 the bt:siness as effectively as they do" [4]. Such profitable sYllc!Hollicity betweer.. the CIO alld the other executives at Capital One has reslllted in a11l ;.IIlUsual partnership between operatlOrls alld technology. The CO's presence III the e);ccl.dve incer circle and luslibera; access w the company's Sevellpersoll board of di~eclors are as rare ii1 corporate America as :s the ,darity or' the Capital One's CEO's vlslon of technology to g:-ow Capital One's busmess. 9 A strategic gric. framework for delil1cating ,he differences in the strategic relevance alld :mpo.ct ;)f IT was proposed by McFarlan et at [55J, and Applegate et a2. [2]. This fra.'llcwork :dcntities four d:fferent IT roles, which are referred to as c,;tegories of strategic relevance and im;xict The grid is a usefd framework [0: lInderstal1dil1g the pe~itiolling of all organizaqion's IT, and as the basis for de&igning app:'opriate planlling al1d control systems for IT management [42,52, 74J. Applegate et aL [2] describe two (future and current) aspects of strategic relevance am! impac: of IT, whIch are referred to as the future and curren! portfolios, respectively. The strategic relev:mce alld impact of IT for a firm call be positioned anywhere on a c::mtinuu:n rangillg from low lmpacc and relevance to ~ign impact al1d relevance aloilg each of these dimensiolls ofthe grid. Applegate et al.[2J propose mat understanding an ()rganization's position alollg this continuum :5 cri:ka! to developing "ppm?riate IT manageme:Jt seategies. The COlnbillatlOr: of faturc/clIrrcnl portfolio with bgl'Jlow impact presents four types of IT envIrollmellts and is ~epresented by the four cells (strategiC. turnaround, jactory and Sl4pport) of the strategic grid W. Airline reservation systens at both Umted Airlines and American Airlines, for example, played a strategic role, in the sense that they have been the foundation for beuer aircraft utiliz,ltion and new services, such as "frequent flyer" progrlh'lls, and have also allowed the development of jO:llt i1~celltive programs w:d: hote~s ll.:J.d car f