Business Dynamics in Information Technology

382 Pages·2007·5.075 MB·English

by  Petter Gottschalk

i
Business
Dynamics in
Information
Technology
Petter Gottschalk
Norwegian School of Management, Norway
IDEA GROUP PUBLISHING
Hershey • London • Melbourne • Singapore
ii
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Library of Congress Cataloging-in-Publication Data
Gottschalk, Petter, 1950-
Business dynamics in information technology / Petter Gottschalk.
p. cm.
Summary: “This book presents business-technology alignment processes, interaction processes, and deci-
sion making processes, in order to help the reader study information technology from a dynamic, rather than a
static, perspective. By introducing two simple tools from system dynamic modeling - causal loops and refer-
ence modes - the dynamic perspective will become important to both students and practitioners”--Provided by
publisher.
Includes bibliographical references and index.
ISBN 978-1-59904-429-3 (hardcover) -- ISBN 1-59904-430-7 (softcover) -- ISBN 978-1-59904-431-6 (ebook)
1. Information technology--Management. 2. Information resources management. 3. Industrial management--
Technological innovations. 4. Electronic commerce. I. Title.
HD30.2.G672 2007
658.4’038--dc22
2006033761
British Cataloguing in Publication Data
A Cataloguing in Publication record for this book is available from the British Library.
All work contributed to this book is new, previously-unpublished material. The views expressed in this book are
those of the authors, but not necessarily of the publisher.
iii
Business Dynamics in
Information Technology
Table of Contents
Forewords ..............................................................................................vi
Preface .....................................................................................................x
Chapter I. Resource-Based Theory of the Firm ..................................1
Organizational Resources ...............................................................2
Capabilities and Resources .............................................................4
Strategic Resources .........................................................................6
Slack Resources .............................................................................11
Firm Boundaries ...........................................................................13
Activity-Based Theory of the Firm ................................................14
Information Technology Resources ...............................................16
Characteristics of Value Configurations .......................................21
Comparison of Value Configurations ............................................28

Chapter II. Organizational Business Dynamics ................................32
Dynamic Business Performance ...................................................33
Causal Loop Diagramming...........................................................35
System Dynamics Modeling ..........................................................38
Organizational Performance ........................................................40

Chapter III. Information Technology Governance ...........................45
Dynamics of IT Principles.............................................................48
Dynamics of IT Infrastructures .....................................................50
Dynamics of IT Architectures ........................................................52
Dynamics of IT Applications .........................................................54
Dynamics of IT Investments ..........................................................56
IT Governance Capability .............................................................58
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Chapter IV. Dynamics of E-Business Infrastructure ........................62
Electronic Business Models ..........................................................67
Determining Appropriate Models .................................................78
Infrastructure Capabilities ............................................................84
Infrastructure Dynamics ...............................................................92
Strategic Agility.............................................................................94
Chapter V. Dynamics of Knowledge Management Systems ...........103
Characteristics of Knowledge .....................................................104
Knowledge Value Level ...............................................................109
Identification of Knowledge Needs .............................................111
Knowledge Categories ................................................................112
Knowledge Management Systems ...............................................121
Knowledge Technology Stages ....................................................125
Stages of Growth Models ............................................................126
The KMT Stage Model ................................................................132
Technology Stage Dynamics .......................................................144
Chapter VI. Dynamics of Outsourcing Relationships ....................153
Agency Theory ............................................................................154
Partnership and Alliance Theory ................................................157
Relational Exchange Theory .......................................................161
Partnership Quality Determinants ..............................................166
Partnership Quality Dynamics ...................................................171

Chapter VII. Corporate Strategic Management .............................174
Strategic Planning ......................................................................176
The Y Model for Strategy Work ...................................................193
Resource-Based Strategy ............................................................196
Activity-Based Strategy ...............................................................199
Strategic Alignment .....................................................................201
Strategic Management Dynamics ...............................................205
Chapter VIII. Dynamics of CIO Performance ................................209
The Chief Information Officer .....................................................210
The Chief Executive Officer ........................................................216
The CEO-CIO Relationship ........................................................218
Business Dynamics for Executive Performance .........................220
Changing Role of CIO to CEO ...................................................221
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Chapter IX. Knowledge Business Examples ...................................230
Dynamics of Law Firm Performance ..........................................230
Dynamics of Police Investigation Performance .........................252
Dynamics of E-Business Knowledge ...........................................271
Dynamics of Outsourcing Knowledge .........................................303
Chapter X. Conclusion ......................................................................352
About the Authors ..............................................................................356
Index ....................................................................................................358
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Forewords
Interactions between organizational performance and information technology
create dynamics over time. Some of these dynamics are counterintuitive and
surprising to management. Some of these dynamics have a spiraling effect
of information technology that can cause not only exponential growth and
prosperity, but also decline and collapse. Understanding the dynamics is es-
sential to successful information technology management.
In my own research, I have found several factors in the work practice that
can cause new information systems to fail rather than succeed. One factor
is territory guarding between different value areas and between operational
organization structures. Another factor is legal obstacles. Territory guarding
between different initiatives for organizational development in combination
with legal obstacles is also decreasing the possibility to develop information
technology systems that are useful to the workplace. Instead of implemented
IT systems, development work has often resulted in visions on paper.
According to the sociotechnical tradition, system development should not
only be focused on the technology but also take into account organizational
and human needs. It is important that information technology affects the
work place in such a way that it will contribute to a thought-through and
planned development of the work practice. System and work practice must
be studied together.
Toward the end of this book, dynamics of police investigation performance is
presented as an example of organizational dynamics. Decisions made by the
police are often based on information from IT systems. My research shows
that important work practice knowledge is filtered out by the IT systems.
Information technology people usually have a great influence on the deci-
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sions taken concerning the development of IT systems, which means that
there often is much focus on technical questions. The technical demands,
rather than the core activity, form the central issues.
This is what makes this book so important. Only by increased insight into
the use of information technology in supporting organizational activity over
time will management be able to make smarter decisions. Understanding how
executives themselves influence and are part of the dynamics will further
enhance the chances of success.
From action research it becomes clear that conflicts easily arise among
employees who have a floor perspective and those who have a managerial
perspective. Employees who have a floor perspective must dare to get into
conflicts with management. In a large number of interviews that were carried
out throughout Sweden, police officers pointed out factors that are negative
influences on their working performance. Based on these interviews I com-
piled a list over the mentioned factors and divided them into nine categories.
The first category was discontent of present management—the way the
organization is run and work practice follow-ups.
Management has a lot to learn from this book, to avoid IT systems contributing
to a counterproductive work practice, and to enable information technology
to create successful business dynamics.
Stefan Holgersson, PhD
Police Officer, Stockholm Police, Sweden
* * *
In this book, Petter Gottschalk gives a rich analysis and description of the
role of IT in business dynamics, derived from both his wealth of experience
as an IT and corporate executive in several organizations as well as his aca-
demic research and teaching position, which enable reflection on and the
incorporation of current scientific insights in the field.
The book attempts to give answers to questions such as what makes infor-
mation technology management successful in business, how one can avoid
failures of the application of IT in business, and how can we apply systems
methodology, and more specifically system dynamics, in the understanding
of such issues.
The book examines step-by-step, logically and exhaustively, a wide variety
of relevant processes and elements that are put in a strategic, systems, and
viii
governance perspective. However, not only an exhaustive analysis is made.
Without an integrating approach it is hardly comprehensible to grasp the
elements and their interactions in such a way that the reader is able to apply
those in his own management or business environment. It is here that Petter
Gottschalk has introduced a systems approach, which interlinks these ele-
ments.
A red thread through the book is the concept of systems thinking, whereby
simultaneous stimuli and processes unroll and show certain different behav-
iors depending on the system structure and the role of IT in the management
of organizations. This integrative and descriptive systems approach proclaims
a novel way to management sciences in information technology applied in
business dynamics. Business dynamics in information technology can now
be seen as one of the major fields of the application of system dynamics.
System dynamics is used as a methodology for analyzing, describing, and un-
derstanding systems behavior, and the book succeeds in classifying different
settings that cause different outcomes, explaining the role of stakeholders in
obtaining more successful outcomes and survival strategies of businesses. The
different facets and dynamic interactions described in this book are extremely
useful for management information professionals, general management and
business schools, and universities that teach information technology-related
management sciences and skills.
System dynamics was founded in the early 1960s by Jay W. Forrester of
the MIT Sloan School of Management, with the establishment of the MIT
System Dynamics Group, which is still leading in the field. At that time, he
began applying what he had learned about technical systems to everyday
kinds of systems, such as several societal systems. The difference to other
approaches of studying complex systems is the use of feedback loops and
conceptual tools, which assist in the final formal mathematical modeling.
Since then, system dynamics has been applied for the purpose of understand-
ing the behavior of complex systems in disciplines such as demographics,
environmental sciences, and economics. Although the book does not explain
the actual formal mathematical modeling, it gives a valuable step up for the
first phases one has to go through before the actual mathematical modeling
for making simulations and studying behavior, robustness, tactics, and the
like.
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I take this opportunity to share some of my own experience. From the year
at the System Dynamics Group at Dartmouth College in the U.S., where I
had the pleasure to work with Petter Gottschalk on several projects in which
system dynamics was applied, I remember the discussions we had with one
of the prominent advocates of system dynamics, Dana Meadows, who sadly
has passed away. At that time, the late seventies, the implications of the intro-
duction of information technology in society was hardly felt or understood.
However, we developed a strong notion that IT would have a tremendous
impact on society and would lead to trend shifts that were hard to predict.
At that time, mainly linear models and regression techniques were en vogue.
With the compilation of this book, I am delighted to see how much technol-
ogy and systems understanding have been developed since then.
The book represents another milestone in the application of system dynam-
ics in such an important and relatively new field as business dynamics in
information technology. Although I have been involved in the scientific re-
search and application of system dynamics only a short period of time, and
my professional focus has moved into business development of high-tech
companies and research projects in life sciences, I still feel the richness of
the system dynamics experience, which I still apply in my profession in ba-
sically the same way as described in this book—namely, in terms of causal
loops and reference modes.
Though not mainly in information technology, I do frequently apply system
dynamics thinking in the identification, selection, and development of new
technologies that are suitable for further development into high-tech busi-
ness enterprises. My work concerns combinations of various high-quality
technologies that lead to solutions for which market demand exists. In my
consulting and business development work I find that the complexity of
factors and their interactions play a role that is nicely suited for system dy-
namics modeling.
With the step-by-step and comprehensive approach presented in this book
and the cases that illustrate the systems approach, I recommend the book for
information technology managers, researchers, policy makers, and system
dynamics professionals alike.

Rob Tweehuysen
Tweehuysen BV, the Netherlands
www.tweehuysen.nl
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Preface
Emerging business models, value configurations, and information technolo-
gies interact over time to create competitive advantage. Modern information
technology has to be studied, understood, and applied along the time dimen-
sion of months and years, where changes are the rule. Such changes created
by interactions between business elements and resources are very well suited
for system dynamics modeling. System dynamics models represent a frame-
work for understanding both successful and unsuccessful IT management
over time. Systems dynamics simulations provide insights into the important
interactions between IT investments and firm performance over time.
So many organizations fail in their applications of modern information
technology. An important reason for such failure is the lack of understand-
ing of relationships between corporate management and IT management.
Relationships between corporate and IT management are not static. Rather,
they evolve over time, creating growth or decline in firm performance. The
objective of this book is to integrate systems dynamics modeling and IT
management to provide a framework for understanding relationships and
interactions between business and technology over time.
The most important consequence of this approach to the topic of IT man-
agement is that our understanding shifts from event-oriented and sequential
management thinking to feedback-oriented and parallel management think-
ing. The event-oriented thinking is illustrated in Figure 1. Here management
discovers a gap between current and desired business situation, leading to
decisions, actions, and results.
The feedback-oriented thinking is illustrated in Figure 2. Here management
decision-making is part of the business dynamics.