Management of Business Informatics – Opportunities, Threats, Solutions
Jiří Voříšek
Vysoká škola ekonomická (ČR)
e-mail: vorisek@vse.cz
Dennis Dunn
Manchester Metropolitan University (UK)
e-mail:
D.Dunn@mmu.ac.uk
Published: June 2001
Key words: business processes, information services, information resources, business management, information systems management, systems integration, model of management
Summary:
The
influence of fast information and communication development on public, businesses
and state has been strengthening. The induced changes are reflected in new
requirements on business management and management of business information
system and information technologies (IS/IT). Once successful forms and
procedures are not applicable any longer. There is, therefore, a strong need
for changing the concepts and principles of business management and management
of IS/IT.
This
article analyses the causes of difficulties arising when managing business
IS/IT and suggests a model of IS/IT management. The model consists of 4 layers.
Separate layers deal with the management of: 1) business on a strategic level,
2) business processes, 3) information services, 4) information resources. The
main role of information services in this model is to make the relationship
between management of business processes and management of information
technologies more transparent, and to clarify the responsibilities of business
and IT managers for the effectiveness of business IS/IT.
1. Introduction – motives for suggesting new
model of IS/IT management
Changes in economic and social environment have greatly accelerated at the turn of the third millennium. Many of these changes are caused by fast development of information and communication technologies. The dependence on IS/IT is felt not only by the public – e.g. influence of mobile phone network on life-styles, but also by business managers – e.g. role of IS/IT when improving business competitiveness, and by national governments – e.g. electronic signature law and its execution. The changes in economic and social environment are also being analysed by eminent authors – as in [Drucker, 1999], [Hesselbein, 1999], [Thurow, 1997].
Fast IS/IT development is followed by fast development of theoretical and practical opinions of optimal forms and methods of IS/IT management, opinions of content and extent of systems integration and also the role of supplier and customer when developing and operating IS/IT. This idea may be supported by opinions development published in Proceedings of 8 Systems Integration Conferences – as in [SI 1993] to [SI 2000], or in [Hackney, 2000]. IS/IT management is influenced by wider range of problems and therefore, new levels of integration are being placed into systems integration [Voříšek, 1995, 1997, 2000]:
1. Hardware integration – interconnection of various hardware components in a computer network.
2. Data integration – interconnection of databases of various applications into one integrated database.
3. Software integration – establishment of mutual communication among various applications via unified interface. This led e.g. to the reduction of number of program systems from 1849 in 1993 to 770 in the year 2000 at the US Ministry of Defence [http://www.dtic.mil/execsec],
4. Integration of user interfaces – e.g. Internet browser as a universal user interface for majority of applications.
5. Integration of internal business processes with IS/IT – interconnection of projects aimed at BPR with informatics projects and direct linkage of application functionality to individual process activities.
6. Integration of external business processes with IS/IT – interconnection of information system with information systems of business partners. This is tied to the implementation of following applications: EDIFACT, SCM and CRM.
7. Integration of top management visions – unification of goals and priorities of IS/IT projects.
8. Integration of methods and tools used for developing and operating IS/IT - e.g. functions of modern CASE tools.
9. Integration of business knowledge and IS/IT – interconnection of individual employee knowledge and accumulated business knowledge with IS/IT.
It would be difficult to find anyone who would claim that any of the above-described types of integration and the interconnected area of IS/IT management are not substantial in themselves, however, some important points may still be missing – e.g. security, quality, and price of business IS/IT. Thus, it may be inferred that the IS/IT management is becoming more and more complicated as it deals with a wider diversity of problems. How do the IS/IT suppliers and users respond to this situation?
Suppliers deal with the fact of increasing extent and depth of problems connected with IS/IT by increasing specialisation of firms and by establishing new firms. Recently, this trend may be observed as more firms are orientated toward application outsourcing and outhousting, such as the deliveries of applications as SCM (Supply Chain Management), CRM (Customer Relationship Management), WF (Workflow), etc. Large firms tend to establish small-specialised teams within the framework of their organisation structure according to the problematic area. Key problem of suppliers is the creation and development of knowledge relevant to the complex IS/IT deliveries. Project leader has become one of the most valuable and challenging professions. Project leader has to know how to integrate all products and services within a delivery as described above.
The situation is far more complicated from the users‘ point of view. It is not economically sustainable for even a medium-size firm to employ specialists for every area described above. If a company decides to develop and operate its IS/IT itself, using its own resources, then the situation is even harder. The most important tasks of managing business IS/IT are nowadays following:
· Which applications are optimal for business processes support?
· How to respond to fast changes in business processes – i.e. how to ensure high IS/IT flexibility at reasonable costs while managing its integrity?
· How to plan, manage and measure the contribution of applications?
· Which applications and services to buy and which to outsource?
· How to structure and organize IS/IT management?
· Which specialists do a company need to have ? and, how should it acquire and keep them?
If the solutions to the above mentioned problems are not of good quality then they could not only cause lower fruitfulness of information projects, but also lead to weaker business competitiveness.
Inappropriate approaches to IS/IT management may be characterised as:
· Ignorance: Business IS/IT are not considered to be a factor of competitiveness; top management does not deal with IS/IT at all; the management of IS/IT is delegated way down the organisation structure; and the integration of IS/IT of any layer is a completely unknown measure. Such a firm could be a representative only in the times of industrial revolution.
· Naivism: top management does understand the role of IS/IT, declares its importance for organisation competitiveness and supports investment into IS/IT, however it does not have its own role in IS/IT management clarified. Then the IS/IT may be well developed, but unfortunately there is no one responsible for its integration into other business systems and business goals and priorities. This situation may be expressed in a way that the goal of information projects in a company is only a delivery of certain information technologies (e.g. implementation of ERP, SCM or CRM), but not an achievement of a planned economic contribution – innovation of any business process. Naivism may be clearly explained in the following example:
IT director suggests the purchase a new system that would enable better relationshisp with customers (CRM) for 1mil. USD. He supports his suggestion by Gartner Group analysis and by calculation of investment efficiency. Company management agrees. New system is purchased and implemented, however, the business processes and business culture remain unchanged. Thus, the real return on investment is never properly calculated nor maximised in actual business performance.
Distrust in one’s capabilities: the management does not believe in its capabilities and knowledge, nor does it believe in the capabilities and knowledge of its employees. Thus, it is fully relying on the IS/IT supplier (systems integrator, consulting firm). It fails to consider conditions leading to the transparency and effective usage of knowledge. The suppliers, however, do not have to necessarily know all details ranging from technological novelties to specifications of managing a business in a given field and if by any chance, they were so smart, it would be extremely difficult for them to enforce usage of new applications and methods in a customer’s firm. Communication difficulties between supplier and customer and their employees often arise from distinct „tacit knowledge[1]“ of both groups of employees and from diverse business cultures. For the customer employees to fully and correctly understand the conveyed explicit knowledge (e.g. certain work methodology), they need to share the same or at least very similar tacit knowledge, as their explicit knowledge is based on the tacit understanding of issues. It is burdensome to apply principles of process management and leadership into a strictly hierarchically managed firm.
· Alibism: is an extreme example coming out from the previous situation. The management wants to achieve economic benefits through the information project but uses only its power and position to do so. It tries to transfer the responsibility for its achievement on the IS/IT supplier through the contract for IS/IT delivery. Thus, it gives up its role and obligation to create such conditions and resources in the organisation that would enable to promote necessary changes. This is in effect a dereliction of management duty.
Arrogance: top management and also the IS/IT management believe only in their own abilities and thus, deal with key IS/IT problems only themselves, using only their own resources. This situation may be based on prior negative experience with IS/IT deliveries. The management, therefore, is not interested in using external resources that could enable achieving the set goals faster and cheaper.
What we regard as the most important problem of managing business IS/IT is the way of addressing IS/IT contributions for business activities and the delegation of responsibility for the achievement of these contributions. We are persuaded that the underlying problem is caused by inappropriate behaviours, i.e. with reality not corresponding to the necessity of IS/IT management. We realise that very often an organisations scheme, responsibility and authority of functional positions, as well as the information processes, have sometimes lagged behind the development of the economic environment, the development of IT, the situation at the IT market and connected services.
The aim of the described model is to suggest such a system of managing business informatics that would lead to the formation of favourable conditions for solving the above mentioned problems.
2. Model ‘S-P-S-R’ – model of managing
business informatics
The model of managing business informatics described in this article proceeds from the process business management model as dealt with in [Vorisek, 2000] - see figure 1.
The suggested model deals especially with the relationship between management of business processes and management of business IS/IT - see figure 2. The basis of the model is formed by four interacting layers (S-Strategy, P-Processes, S-Services, R-Resources) - see figure 3.
The purpose of dividing business management into four layers is to clearly identify the responsibilities of different types of managers in a more transparent way that delineates the business goals, up to the layer of IS/IT management. It also enables us to create a scheme that is useful for indicating the appropriate metrics of success of each type of process and, managers responsible for these processes.
Strategic business management, its roles, forms and methods used have been described in many publications, e.g. [Earl, 1989], [Hardy, 1987], [Hill 1992], [Vorisek, 1999]. Our model is not intended to change the understanding of strategic management. Let us, therefore, only mention what the strategic management is responsible for. It is responsible for indicating the business goals and priorities and for creating conditions and resources enabling achievement of these goals. It means that its tasks consist of indicating core business, core customers – those the business is orientated on, products and services, main business partners (esp. for finding one’s position in a value chain). It is also responsible for creating and sustaining resources (people, knowledge, finance, technology, etc.) necessary for achieving set goals.
Layer of core and support processes includes following activities (in the context of figure 1): a) definition and optimisation of business processes, b) operational management of processes and capacities, c) processes monitoring and d) process performing.
Now we are coming to the first important characteristics of the SPSR model. The manager responsible for the process definition and optimisation is responsible for suggesting the process (individual activities, their sequences, etc. – as in [Vorisek, 2000]) in such a way that the process leads to the production of competitive product/service in the optimal time, volume, quality and at acceptable costs. The following metrics may be used to measure the efficiency: volume of sold production/service, profit from the sale of product/service, etc.
A
part of the process definition must also be the suggestion of information
services that will optimally support the process. This is, in fact, an
explicitly described responsibility of a process manager for “ordered volume
and ordered quality” of information services. The
process manager has to calculate an acceptable price of ordered information
services. The price of information services is one of the cost items and once
it becomes too high, the final product/service would be no longer competitive
at the market. This is one of the key points of the model. When it is not possible to ensure required information services for
this limited price, then it is crucial to adjust the main process and its
requirements for information services.
The process manager is buying the necessary information services from the Information services manager(s). In the case of the centralised model of IS/IT management, the CIO is the one in charge of all information services. He also decides the form (internal / external / combination) of their assurance. However, in the case of the decentralised model, the Process manager can himself also approach the external providers of information services and buy the service from them. In each model, it is advantageous to apply the same information services definition and its structure for both, internal and external providers. The convenient document frequently used when outsourcing, is called SLA (Service Level Agreement). SLA defines the subject, volume, quality and price for every service – as more detailed in [Bruckner, 1998]. Once we apply the same structure of the service definition, then it is relatively easy to decide whether to purchase the service (e.g. functionality of application used for support of product logistics) from an internal or an external provider.
Having done this, we have managed to reach the third layer of business management – the layer of information services. Information service is an activity that forms new information product by the integration of certain IS/IT resources. This product forms input into the core or support business process. It is, de facto, also a process (supporting process), but we call it a service as - from the point of view of the main process that consumes the service - the result of the support process but not its internal order plays a role. A good example may be: the information about customer’s financial standing is important for business process, whilst the service (supporting), is the way this information was acquired.
The IS/IT services manager is responsible for the formation, delivery and operation of the contracted services. Information service is created by means of IS/IT projects. The creation of the service and its further operation draws on information resources such as: technological infrastructure (hardware, network, operating system, database system), application software, data and IS/IT personnel.
In case the manager decides to purchase the information service from an external provider, the problem of information service management reduces to the contract making and control of its carrying out. The contract includes SLA for all contracted services. When the service is ensured by in-house provision, the IS/IT service manager is obliged to ensure and integrate all necessary resources.
The criterion of IS/IT services manager effectiveness and efficiency is not only the measure of fulfilling the service parameters as agreed within SLA (non-problematic application functionality, necessary service availability, etc.), but also achieving such service costs that are lower or equal to the contracted price, and at the same time are comparable (by using benchmarking) with the prices of similar services on the IT market. When the service is provided internally, then the low price requirement leads to the necessity of maximum information resource sharing among all internally provided services – as figure 1. This can be achieved by setting business standards (e.g. same type of database and operation systems for operated applications, same type of office system for all users, etc.) and by sharing business information specialists among services. The requirement of maximum information resource sharing relates to a considerate examination of whether to provide the services internally or whether to outsource them – as explained in the following example.
There are three major information services in a firm: S1-commerce, S2-production and S3-finance. The are each provided by internal operator of given application software and they, mutually, utilize technological infrastructure (servers, database licences, etc.). The CIO decided to delegate S1 to external provider – outsourcer, as a lower price (cost) is offered in comparison with the internal price. As a result, price of S1 drops, but the total costs for S1, S2 and S3 grew as lower utilization of internal technological infrastructure led to higher costs of S2 and S3. In other words, the drop in S1 price did not offset the lower utilization of internal resources in the remaining services S2 and S3.
The last layer in our model is the management of separate IS/IT resources. Managers on this level exercise classical IS professions such as: application administrator, network administrator, database administrator, etc. Their responsibility is to operate and maintain the resource at acceptable costs. Activities belonging to the administration of technological resources are as follows: observation of resource utilization and its capacity changes consequent with changes in service requirements, observation of developing trends and planning of time – when the resource is going to be upgraded, etc. Human resources management deals with recruiting new employees with required qualifications, career development planning, retraining, etc. The criterion of Resources manager effectiveness and efficiency is acquisition; maintenance and development of resource at the level that is, in the matter of quality, comparable with the quality available in the market, and in the matter of capacity, corresponding with the requirements of internally provided information services.
3. Model Application when Managing Business Informatics
Now, we are going to describe the procedure of model application when managing business informatics. The procedure is managed by principles of process management described in [Vorisek, 2000] – also in figure 1 and 2. Model application includes following phases:
1) Definition and optimisation of processes, services and resources that encompasses following steps:
a) Definition of processes, services and resources,
b) Definition of relations ‘Process-Service’ and ‘Service-Resource’,
c) Definition of metrics,
2) Operational management of processes, services and resources,
3) Monitoring of processes, services and resources according to defined metrics; analysis of metrics,
4) Realization of processes, provision of services and resources.
The key phase is the first one, therefore, we will describe it most detail.
(a) Definition
of processes, services and resources
The model uses the following structure of data for definition of these basic entities:
· Responsible manager (role, owner of process)
· Customer
· Content. The description of content obviously differs if we describe process, service or resource:
· process – structure of process (activities, their sequence, inputs and outputs of activities, positions responsible for individual activities, etc., in detail in [Vorisek, 2000])
· information service – application functionality and/or delivered data
· resource – resource characteristics (dependent on type)
· Volume (number, capacity, performance,…)
· Quality (availability, time necessary for response, security,…)
· Price.
This structure of data is merely a recommendation and, thus, may be easily adjusted, amended by more data, etc.
(b) Definition
of relations ‘Process-Service’ and ‘Service-Resource’
“Process-Service” relationship represents
information services used by given business process and the related
“Service-Resource” shows whether the service is provided internally or
externally (outsourcing, outhosting). In the former case, it shows which
business resources are drawn and in what extent – e.g. example in 2 following
tables.
|
Processes (main business) / IS/IT Services |
Process-1 |
Process-2 |
Process-3 |
… |
|
Service-1 |
SLA1 |
-- |
SLA2 |
|
|
Service-2 |
-- |
SLA3 |
-- |
|
|
Service-3 |
SLA4 |
SLA5 |
SLA6 |
|
|
… |
|
|
|
|
|
Services
/ Resources |
Service-1 |
Service-2 |
Service-3 |
… |
|
Externally provided service (yes/no) |
no |
yes |
no |
|
|
ASW |
SAP R/3 |
-- |
CRM-Siebel |
|
|
Technological SW |
MS Office |
-- |
|
|
|
ZSW |
DB Oracle UNIX |
-- |
DB Oracle UNIX |
|
|
LAN |
x |
x |
x |
|
|
WAN |
x |
-- |
x |
|
|
HW |
server-1 |
-- |
server-2 |
|
|
personnel |
3 employees |
-- |
2 employees |
|
|
finance |
price-1 |
price -2 |
price -3 |
|
|
Other resources (material, buildings,…) |
OR-1 |
-- |
OR-2 |
|
(c) Definition
of metrics
The goal of the metrics in the model is to measure the volume and quality of products/services transferred amongst model layers (e.g. measurement of volume and quality of products delivered by the main process to external customers, measurement of volume and quality of information service delivered to business process, etc.) and to measure quantities used by managers at given layers for operational management of the process, service or resource, that they are responsible for (e.g. number of active service users during a day, amount of transferred data, etc.).
The purpose of this step is to define a set of metrics that are going to be used for process, service and resource management. It is usually important to define the following measures for each:
· formula for metrics calculation
· dimension in which the value of metrics is going to be observed (e.g. number of SW licences may be monitored in these dimensions: according to SW type, according to supplier, according to business units)
· date of start and finish of measurement
· time and period of measurement
· employee position responsible for measurement
· interval for the value of metrics
· the impact of metrics value on price.
Detailed description of other phases of model application (operational management, monitoring, and realization) are not going to be mentioned due to the limited size of this article. Let us, thus, only briefly mention four types of exercises that are taking place in model application:
· architectonic
· integration
· organisation
· development and operation.
In the frame of architectonic exercises the following types of IS/IT architectures are developed:
· global IS/IT architecture that defines all information services and their mutual linkages,
· software architecture that describes individual software components and their mutual linkages. It does also determine what software ensures required functionality of information services,
· data architecture describes individual data objects and their linkages,
· technological architecture deals with technological infrastructure of information system (WAN, LAN, hardware and basic software).
The goal of integration exercises is to ensure integrity of business information system. They are distinguished according to IS/IT dimension in which they are specialised. We have defined individual types of integration exercises in the first part of this article (hardware integration, data integration, etc.). A decisive factor influencing integration exercises is the existence/non-existence of standards (international, national and business).
The goal of the organization exercises is to suggest and carry out optimal business organization and organization of business informatics. The outcome of these exercises is business organization structure, description of positions and roles including responsibilities and authorities, business directives valid for management of processes, services and resources, evidence of individual resources, etc.
The goal of development and operation exercises is:
· strategic planning and IS/IT managing, i.e. formulation and realization of information strategy,
· tactical planning and IS/IT managing, i.e. planning and managing individual informatics projects,
· operational IS/IT management, i.e. managing individual information services and information resources.
The first two exercises influence the state of business IS/IT according to the changes in business processes requirements and according to the changes in information technologies available in the market. The third exercise ensures good quality of operation and maintenance IS/IT services and resources.
4. Conclusions
If we want to manage our business with the assistance of modern IS/IT successfully, we need to realise that the critical factor of success is successful integration of business processes management with IS/IT management. The above-described SPSR model assists to achieve the integration as it clearly defines individual areas of management, their interdependencies and interfaces.
When we come back to the inappropriate approaches to IS/IT management, as discussed at the beginning of this article, we realise that the application of SPSR model changes these approaches in many ways.
Ignorance: Top management can clearly see their role as champions of IT/IS and that whilst in practice, responsibility might to some extent be delegated further down the organisation, strategically, ultimate responsibility rests with them. The competitiveness factors for the organisation are provinced within their domain of responsibilities and as it is increasingly the case that IT/IS provides a principal weapon for competitive advantage, to be gained and sustained, then their role and involvement is clarified. As a consequence, top management can be seen as integral to the organisation IT/IS endeavours, now and in the future, as the organisation and its systems develop.
Naivism: With top management role clarified then the platitudes and rhetoric often espoused by senior members of the organisation are likely to be more considered and meaningful, not only to others but also to themselves. By knowing the contribution they are expected to make, via the SPSR model, they might be relied upon to perform as members of an integrated team, rather than as mavericks making pronouncements that might be less than helpful or achievable. A rational’e for systems integration is often put forward by top management, although frequently without any real vision of how the organisation might achieve this position, and without any compelling evidence that they themselves wish to be seen as part of the profile. A case of “do as we say” rather than “do as we ourselves do”. Often it is advisable that individuals at senior level have responsibility for how IT/IS is integrated to deliver business goals and priorities. This does not negate the need for others to be concerned about these issues, indeed it strengthens the process through which the involvement of all top managers can be sustained.
Distrust in one’s capabilities: Having knowledge, leveraging and managing that knowledge is rapidly becoming recognised as being of fundamental to effective resource management. The capability to deliver on these knowledge management issues might be a critical differentiating factor between organisational efficiency, performance and success. The popularity of outsourcing might mean that for some organisations a sense of loss of IT/IS knowledge and control is evident, and that those retained within the organisation are somehow less skilled or knowledgeable. The ‘SPSR’ model provides a framework which might remedy these perceptions, for at its ‘Services’ and ‘Resources’ levels, third party contracted activities can be viewed as part of the larger integrated organisational picture, for the benefit of all concerned, not least the outsource provider themselves. Crucially, the model also positions these services as still the primary responsibility of the Process Manager at level ‘Processes’ and by inference, ultimately the responsibility of top-management at level ‘Strategy’. Thus the integration is transparent at all levels of the organisation. Often, distrust in capability is a symptom of not knowing where systems responsibility lie’s, the model helps to clarify such issues.
Alibism: Clearly the above provides the response to those, at any organisational level, who would have sought to relinquish the role and responsibility for IT/IS to others, whether within or outside the organisation. The obligation to create the conditions for success, including the planning, introduction and management of necessary resources remain the clear province of management. The only constant in contemporary organisational life is change itself. This fundamental truth means that Alibism is both dysfunctional and unacceptable.
Arrogance: The ‘SPSR’ model, when applied, reveals the visibility and nature of top-management role within an integrated IT/IS organisational context. It could be reasonably suggested that this visibility provides all within the organisation the ability to understand the rational’e for senior management decisions in relating to strategy. Such decisions will require to be accompanied by clear reasoning, transparent to others. Prior experiences and strategy will be influential of course, future decisions will be made on a benefits management basis, which can only prove to re-enforce the value and application of the SPSR model.
It is our belief that described model suggests an effective way of managing business informatics, leading as it does to establishing a more favourable set of conditions that might be en-cultured, over time, in organisational life.
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