Chapter 2: Literature Review

The use of IS/IT [1] as strategic tools to respond to meet the growing needs of their people is currently the norm for most governments worldwide and the Government of Abu Dhabi is no exception. Increasingly today more and more governments are relying more heavily on SIS (Norris & Demeter, 1999).

IT continues to be an indispensable and integral component of the services industry and in consequence IT has had a major impact on the organisational performance of the services sector of the private sector as well as the government over the past few decades (Charalabidis, Sarantis, and Askounis, 2009). Furthermore, the use of IS/IT has changed the way organisations compete today as IT is increasingly considered as a strategic resource which requires top management attention (McFarlan, 1984; Norris & Demeter, 1999). As SIS focuses on the strategic use of IS/IT in the complex managerial process of the organisation, the role of SIS has been analysed by using the concepts from strategic management literature and IS/IT by many researchers.

Accordingly, this chapter discusses the relevant literature from the areas of strategic management and information systems to obtain an understanding of the strategic management of information systems for the purpose of this research study.

As SIS is developed and implemented within a strategic management environment, the chapter first reviews the different views on strategy from the literature on strategic management and thereafter reviews the role of information systems in obtaining competitive advantages from a strategic viewpoint. It also discusses the role of Information Technology (IT) in a firm from the strategic management literature and the impact which IT has on an organisation. Thereafter a brief discussion on the use of information systems in the Abu Dhabi public sector is presented.

Strategy and Strategic Orientation to Management

The term ‘strategy’ is difficult to define as it continues to be evolving and as a result the term ‘strategy’ has been defined differently by different authors (Andersen, Belardo, and Dawes, 1994). Likewise, De Wit and Meyer (2004) state that there is no consensus among the authors on most of the key issues within the field of strategic management which had resulted in widespread disagreements such that having an acceptable definition of the term ‘strategy’ is illusive.

For instance, Mintzberg, Lampel, Quinn, and Ghoshal (2002) assert that strategy has been viewed from various different perspectives which include: plan, process, pattern, position, politics, and ploy. Furthermore, strategic activities like, strategic planning (Harrison, 2003), strategic decisions and strategic management (Fitzroy & Hulbert, 2005) are used interchangeably, which together make defining strategy more complicated.

Nonetheless the following definitions from the strategic management literature have been given here to provide an understanding of strategy, the most notable being Chandler’s (1962) early definition of strategy.

Chandler (1962, p.13) defined ‘strategy’ as, “the determination of the basic long term goals of an enterprise and the adoption of courses of action and the allocation of resources necessary to carry out these goals”.

According to Andrews (1980), “strategy is the pattern of objectives, purposes, or goals and major policies and plans … to define what business the company is in or is to be in and the kind of company it is or is to be”.

Johnson and Scholes (2001) have defined strategy as, “the direction and scope of an organization over the long term, which achieves advantage for the organization through its configuration of resources within a changing environment, to meet the needs of markets and to fulfil stakeholder expectations”.

In Barney’s (2002) words, “… Strategy is … a firm’s theory about how to compete successfully”.

De Wit and Meyer (2004) define strategy as, “a course of action for achieving an organization’s purpose”.

Increasingly today in the strategic management literature, strategy is seen as the interrelationship between these processes: strategic thinking, strategic planning, and strategic decisions (Harrison, 2003; Fitzroy & Hulbert, 2005).

Fitzroy and Hulbert (2005) distinguish between: Strategy, Strategic Decisions, and Strategic Management as follows:

“Strategic Decisions: are those that affect the long-term well-being of the organization

Strategy: is the common theme underlying a set of strategic decisions

Strategic Management: is concerned with creating organizations that generate values”.

On the other hand, Harrison (2003) distinguishes Strategic Thinking, Strategic Planning and Strategic Management as follows:

“Strategic Thinking: a creative and intuitive process that leads to creative solutions and new ideas

Strategic Planning: the formal planning elements of strategy formulation that result in a strategic plan: a process that tends to be rather rigid and unimaginative

Strategic Management: a process through which organizations analyze and learn from their internal and external environments, establish strategic direction, create strategies that are intended to move the organization in that direction, and implement those strategies, all in effort to satisfy key stakeholders”.

What Strategy is all about?

Many authors have quite different interpretations as to what strategy is all about. Andrews (1980) who coined the terms ‘strategy formulation’ and ‘corporate strategy’, considers that strategy mainly is about strategy formulation and corporate strategy (organisation-wide). And to Porter (1985) strategy broadly consists of ‘corporate strategy’ and ‘competitive strategy’ and it is critical for managers in modern organisations operating in increasingly market-based economies today to effectively formulate both corporate strategy and competitive strategy.

Porter (1996), in his influential article, argues that strategy is essentially about a firm’s choice and about deliberately and intentionally choosing to be different from other firms. Strategy means doing different things and doing it differently. Similarly, Barney (2002) asserts that, to managers operating in today’s market economies strategy is about the creation of ‘sustainable competitive advantages’. And according to Normann and Ramirez (1993) strategy is about creating ‘strategic value’.

Major Roles of Strategy

There are three major critical roles of strategy in today’s organisations; and these are Grant (2002):

Strategy as a target

Strategy as decision support

Strategy as a process of coordination and communication.

Characteristics of Strategy

From the above discussion it appears that strategy, whether in the public sector or private sector, has the following key characteristics:

Long-term

Organisation-wide

Involves significant commitments and resources.

Together these significant characteristics indicate that strategy and the management of it is critical for today’s organisations and its managers.

Strategic, Administrative, and Operational Management

The above mentioned characteristics of strategy indicate that strategic management is quite different and distinct from the other kinds of management, administrative and operational. Ansoff (1968) calls them as strategic, administrative, and operational management.

‘Strategic Management’ deals with the broad long-term future of an organisation and the possible ways for it to develop and implement strategies to prepare for change and manage change effectively (ibid).

‘Administrative Management’ is concerned with structuring an organisation’s resources and its activities to create successful organisational performance and involves allocating and scheduling an organisation’s resources and activities to support as well as facilitate the organisation’s strategy (ibid).

‘Operational Management’ deals with the smooth running of the organisation’s day-to-day activities (ibid).

Nonetheless all these aspects of strategic, administrative, and operational management are interrelated between each other. In other words strategic, administrative, and operational management are in nature interdisciplinary (Barney, 2002). Yet the scope of strategic management is much wider than both administrative and operational management (Fitzroy & Hulbert, 2005). In consequence it is imperative for managers to recognise this and operate accordingly in order to develop and pursue a holistic strategic approach to their organisations to obtain successful organisational performance (ibid).

Creating a Successful Strategy

Managers make strategic decisions in the present yet the effect of those strategic decisions is in the future. As a result it is impossible to determine in the present whether a strategy is successful or not before the outcome happens. However, Grant (2002) suggests a useful framework which shows the links between the most common elements that are found in successful strategies. See Figure 1 below:

Figure 1: Common Elements in Successful Strategies

(Source: Grant (2002)

The purpose of long-term objectives is to achieve the strategic intent of the enterprise (Grant, 2002). In order to do this it is vital for the organisation to assess and obtain a profound knowledge and understanding of its internal and external environments (ibid). Further a clear and objective appraisal of resources needed must be carried out before committing them to strategic plans (ibid).

In order to realise the objectives of a strategy managers should ensure that these elements are implemented effectively in their organisation (ibid). And to successfully implement strategies managers must identify and evaluate the required changes in their organisational processes, organisation culture, and organisational structure (Mathur & Kenyon, 1997).

Competitive Strategy

The major objective of competitive strategy is to create competitive advantage in the industry in which the firm is operating and the competitive strategy determines how the firm will compete (Porter, 1985). Researchers and the organisations, in both the public and private sectors, have written on SIS theory by adopting Porter’s (1985) competitive strategy framework. According to Porter the ‘Five forces’ that make up the industry structure determine the organisational performance of the individual firms that make up the industry. In Porter’s ‘positioning strategy’ the strategic position chosen by the firm is usually across the path of cost leadership and differentiation (ibid; Turban, King, and Lang, 2010).can select have a choice of four generic strategies available to achieve better organisational performance:

“Cost leadership,

Differentiation,

Cost focus, and

Focussed differentiation”.

Although absolute differentiation does not exist within the public sector organisations yet the operations of the public sector organisations can be divided into a series of organisational activities (for e.g. in Abu Dhabi: Abu Dhabi Water & Electricity Company (ADWEC), General Directorate of Abu Dhabi Police (ADP), Abu Dhabi Customs Administration, etc). In consequence competitive advantage accrues out of the unique ways in which a firm organises and performs its activities.

Achieving sustained competitive advantage in any competitive environment, according to Porter, results from being the lowest-cost producer of the product/service or by successfully differentiating it from those of its competitors in terms of ‘value’. The business processes which a firm carries out and the activities it performs result in creating value for its customers (Porter & Millar, 1985). In Porter and Millar’s view, to achieve competitive advantage over its competitors, a firm must either create better value to its customers and perform its activities relatively more efficiently than its competitors (lowest cost); or perform its activities in a distinct and unique way which creates greater value to buyers and commands a premium price (differentiation). And in order to improve their existing business processes to enhance organisational performance, organisations make investments in IT for enabling efficient, low cost operations, cost control in the organisation’s value-creation activities (Miller, 1988).

Strategic Information Systems

The strategic use of information systems by firms for obtaining competitive advantage was first strongly posited by Porter and Millar (1985). And since the work of Porter and Millar, many researchers have asserted that the strategic use of IS by a firm can generally lead to gaining competitive advantage or reducing a competitive advantage of the firm’s competitors (Wiseman, 1985; Porter & Millar, 1985, Porter, 1996; Turban et al 2010).

Definitions

Strategic Information Systems (SIS) is the application of Information systems, “used to support and shape an organization’s competitive strategy” (Wiseman, 1985, in Cavaye & Cragg 1993, p.126). According to Reponen (1993, cited in Turunen & Kämäräinen, 1999), “Strategic Information Systems are information systems which are designed to bring competitive advantage or have resulted in a competitive edge”. A more recent definition of Strategic Information Systems is given by Hemmatfar, Salehi, and Bayat (2010, p.160). They define a Strategic Information System as, “the information system to support or change enterprise’s strategy” (ibid).

SIS and Competitive Advantage

SIS is used to support an organisation’s strategic decision making and for driving, formulating, supporting, and implementing strategy (Doyle, 1991). And in practice, the strategic use of IS has been found to create competitive advantages by linking organisations with their customers and suppliers through efficient information sharing between them (ibid). Further, SIS has created higher information processing capabilities for industry collectively which any member firm in the industry could not achieve on its own (Norris & Demeter, 1999). This is because SIS can strongly influence the way in which an organisation performs its individual activities and can improve the linkages both within and between the organisations (McFarlan, 1984; Wiseman, 1984).

The terms ‘Strategic IS’ and ‘Competitive IS’ appear to be confusing in the literature (Cavaye & Cragg 1993, p.126). This is because IS applications are used for developing internal strategy for the purpose of improving an organisation’s internal operations which in turn contribute to the development of the organisation’s competitive strategy (ibid). From a study of fourteen SIS-based organisations Neo (1988) concluded that many SIS that are internally oriented evolve eventually have a competitive orientation. Cavaye & Cragg (1993) assert that SIS that is internally oriented can lead an organisation to enhance its product and service offerings which in turn would lead the organisation to become much more competitive. Furthermore, many empirical studies indicate that SIS applications are used at the internal strategy level and at the competitive level as well as at the overall business portfolio level (King & Sabherwal, 1992). SIS thus has both an internally strategic role and a competitive strategic role (Cavaye & Cragg 1993).

Modern organisations today develop and use SIS to obtain and gain a comparative competitive edge over other firms (O’Brien, 2004). And competitive edge may be gained through rendering better services than the competitors at lower costs (Reponen, 1993, cited in Turunen & Kämäräinen, 1999).

Although the competitive advantage can be sustained only till the competitors build a better or similar SIS, yet a firm can still obtain significant differentiation from its competitors through its distinct organisation structure or superior management of institutional context (Turunen & Kämäräinen, 1999). The public sector organisations, in particular, have unique structure in terms of group-organisation structure and common integrated organisational functions (ibid). The presence of these unique elements in the public sector organisations generally helps them to sustain competitive advantage (ibid). When the information system of the public sector organisation is integrated with these elements it not only lead the firm to gain sustainable competitive advantage, but also would make it extremely difficult for the competitors to replicate the IS (ibid).

From their study of eighty-one SIS, King and Sabherwal (1992) found that Strategic Information Systems can successfully provide cost advantages and differentiation. Likewise, there are sufficient evidences available to show that SIS has provided sustained competitive advantages (Cavaye & Cragg 1993).

Use of SIS in public sector enterprises can lead to gaining competitive advantages (Turunen, 1998). Instances of use of SIS for competitive advantage are when the information systems in organisations are (Ward & Griffiths, 1996):

Linking the organisation to its customers.

Creating effective integration of the use of information resources in the value-adding process and value-chain activities.

Giving the management useful information to help in developing and implementing appropriate strategy for the organisation.

It is imperative for the public sector organisations to sustain competitive advantage since the budgetary allocations are made by the Government to which other public organisations compete as well (Turunen, 1998).

The major goal of developing an SIS is to manage information systems effectively for improving operational efficiency, promote and deliver high quality products and services, and build strategic information resources to enhance organisation competency (Ward & Peppard, 2003). As a result, the key objective of SIS is to improve competitiveness by changing the nature or conduct of business through investments in IS/IT for obtaining competitive advantage (ibid). This key SIS objective is directly related to the organisation’s success as SIS can significantly contribute to successful organisational performance and further improvements can be obtained as well with the enhancements to IT capabilities that can lead to cost reductions (Wiseman, 1985).

In the context of the public sector, the major focus of the application of SIS is to serve the vital purposes of providing high quality goods and services for the citizens for promoting the economic development of nations and international trade to sustain socio-economic welfare (Palvia, Palvia, and Zigli, 1990). As a result, the use of SIS is indispensable for today’s organisations to support, shape, and implement organisational vision and missions as well as organisational policies and direction (ibid).

Strategic Information Systems Planning

An integral part of business planning and a subsystem of SIS, Strategic Information Systems Planning (SISP) is concerned with the efficient and effective use of organisation’s IS resources (Lederer & Sethi, 1996; O’Brien, 2004).

SISP is defined by Lederer and Sethi (1996, p.105) as, “the process of identifying a portfolio of computer-based applications to assist an organisation in executing its business plans and realizing its business goals”.

Research indicates that the top two major goals of SISP are to (Earl, 1993):

Align IS with the organisation’s needs, and

Search for opportunities for use of IT to create competitive advantage.

It is critically important to ensure that the strategic goals, aims, and objectives of the organisation should drive all the plans; and all the plans of the organisation should support the same strategy and goals to ensure alignment of IS with the organisation’s needs for creating competitive advantage (Grover & Segars, 2005). Since information systems have a strong potential to change the way a firm performs its activities it is imperative that any changes to IS must be aligned with the goals of the organisation (Li & Chen, 2001).

In many organisations today SISP is directly parallel to their business planning processes and it supports and facilitates the formulation of corporate strategy and in doing so SISP contributes to successful organisational performance (Earl, 1993; Grover & Segars, 2005).

According to King (1988) IS planning as used in todays organisation has evolved through three stages (see Figure 2):

Systems planning

Strategic Information Systems Planning

Information age.

Figure 2: Three-Stage Evolution of IS Planning

(Source: King, 1988)

King was the first researcher to model IS planning which paved the way for further researches (Teo & Ang, 2000; Li & Chen, 2001). King’s IS planning model is based on ‘input – process – output – impact’ shows organisational goals and organisational resources as inputs to the system that creates IS plan which is composed of the organisation’s IS mission, IS goals, and IS resource requirements which together is intended to produce positive impact on organisational performance (see Figure 3).

Figure 3: King’s IS Planning Model

(Source: King, 1988)

SISP today addresses planning not only at the strategic level but also at the tactical and operational levels and thus it handles information in many different ways (Grover & Segars, 2005). As a result more and more organisations are integrating their planning activities with SIS for effective information generation and dissemination for obtaining successful organisational performance (ibid).

SISP and Organisational Performance

Organisational performance covers the broad range between the organisation and management system for obtaining information for the purpose of driving strategy. The extent to which information systems actually contribute to obtaining the desired organisational goals and their effects on organisational performance, determines SISP effectiveness (Hamilton & Chervany, 1981).

Organisational performance, according to Huselid (1995), is the final outcome of the organisation’s effective use of its resources which produce improved financial benefits and contribute to organisational growth. Furthermore, organisations that possess distinctive competence have a higher likelihood of achieving successful organisational performance and organisational growth (Snow & Hrebiniak, 1980). Organisational performance can be ascertained from appropriate measures established for directing and monitoring activities in order to obtain desired outcomes (Huselid, 1995).

SISP processes are a vital component for organisational performance (Li & Chen, 2001). Since SISP is composed of systems and IS processes which are interconnected with the organisation it directly influences organisational performance (Ward & Peppard, 2003). Additionally, SISP processes include how an organisation performs its activities which in turn affect organisational performance (Grover & Segars, 2005).

Facing an ever changing external environment which also warrants internal organisational changes, organisations increasingly depend on SISP to rationalise their decision making with IS processes to provide strategic information. This is because IS processes establish communication networks to inform effective organisational decisions and to keep the organisation’s operations going on successfully (Neo, 1988). Management must design and develop SISP to ensure that the organisation’s operations are focussed toward customer-orientation in order to implement strategy effectively for a positive organisational performance (King & Sabherwal, 1992).

Higher likelihood of successful organisation performance is possible when the IS has been appropriately aligned with the firm’s competitive capacities and the management should ensure that their SIS incorporates this (Henderson & Sifonis, 1988).

Measuring Organisational Performance

Formal assessment processes are required to evaluate organisational performance. The Balanced Scorecard (Kaplan & Norton, 1996) is a widely used tool for planning and managing the performance of organisations and laterally for developing the business strategy (Ward & Peppard, 2003). Many organisations are using Kaplan and Norton’s Balanced Scorecard (BSC) framework to manage effectively and measure their IS/IT efforts (Keyes, 2005). Kaplan and Norton assert that traditional performance evaluation based on financial accounting parametres is insufficient and weak as they are historical. They argue that the traditional financial measures can be augmented by four key evaluation processes (see Table 1) which integrate a firm’s strategic goals with tactical and operational actions for improved assessment of organisational performance. The four interrelated evaluation measures for examining and assessing organisational performance are (Kaplan & Norton, 1996; 2000):

Financial

Customer

Internal Business Process

Learning and Growth.

Table 1: The Four Perspectives in a Balanced Scorecard

(Source: Kaplan & Norton, 1996)

For each of these four perspectives objectives can be established and key performance indicators (KPIs) assigned for each objective which leads to the information needed to measure organisational performance.

Given the current business strategy, the outputs from the construction of the Balanced Scorecard can enable organisations to carry out a rigorous assessment of their IS/IT requirements and prioritised IS/IT opportunities and thus facilitate SISP as well as assessing and evaluating organisational performance. This is because the KPIs within a BSC framework help monitor the feed-forward measurements to determine whether the objectives and work processes contribute to desired outcomes (Kaplan & Norton, 2000).

Abu Dhabi Public Sector

An oil-rich nation, Abu Dhabi is one of the seven emirates that make up the federation of the United Arab Emirates (UAE). Abu Dhabi lies across the Arabian Gulf flanked on the west by Qatar and on the east by the Sultanate of Oman. As at end of year 2009 Abu Dhabi’s population stood at 1.643 million [2] .

The Government of the Emirate of Abu Dhabi began its Government restructuring programme in year 2005, which includes public sector reform among all the Government undertakings, in order to boost the efficiency of the workforce in the public sector as well as to enhance Government productivity to best serve the welfare needs of its people [3] . As a result of the public reform the Government of Abu Dhabi expects its managers of the public sector organisations to use the resources allocated efficiently and effectively for achieving successful organisational performance. And in order to do this the various public sector organisations should have automated information systems and develop appropriate performance measurement systems to ensure effective and efficient service delivery to people [4] .

Currently, there are 706 public sector organisations in the Emirate of Abu Dhabi [5] . The major public sector organisations among these are (only ten of them are listed here as key examples):

General Directorate of Abu Dhabi Police (ADP)

Abu Dhabi Airports Company (ADAC)

Abu Dhabi Customs Administration

Abu Dhabi Education Council (ADEC)

Abu Dhabi Systems & Information Centre (ADSIC)

Abu Dhabi Tourism Authority (ADTA)

Abu Dhabi Urban Planning Council (UPC)

Department of Economic Development (DED)

Department of Finance (DOF)

Health Authority-Abu Dhabi.

Today’s public sector organisations operate in an increasingly competitive and tight financial environment (Salminen, A. & Niskanen, 1996 cited in Turunen & Kämäräinen, 1999). It can be seen from the above sampled list that all these public sector organisations of Abu Dhabi are service-based organisations. Each of these public sector organisations compete for budgetary allocations from the Government of Abu Dhabi.

Furthermore, there is also indirect competition between the public sector organisations and the organisations in the private sector (Turunen & Kämäräinen, 1999) in Abu Dhabi as well as in the other Emirates. A good example in this regard is the competition for the provision of healthcare services between the Health Authority-Abu Dhabi and private sector healthcare providers in Abu Dhabi. Likewise, the Health Authority-Abu Dhabi competes with Dubai Health Authority.

A well designed SIS not only enables strategy but also has the potential to provide competitive advantage for the public sector organisations in Abu Dhabi through improved services as well as lower costs which would also strengthen the formulation of effective strategy.

Information Systems and Abu Dhabi Public Sector

There are three categories of IS in use in Abu Dhabi public sector.

Category 1

Category 1 consists of information systems that include population-related registers, transportation registers, commercial registers, and legal registers (e.g. public utility companies, national library, and records of immovable property).

Category 2

Category 2 comprises information systems that handle the Government of Abu Dhabi’s central planning and government budgeting, and national accounting and financial reporting. More important function of Category 2 information systems is concerned with income transfers through taxes and subsidies.

Category 3

Category 3 is composed of information systems that handle the management of critical resources of the Government of Abu Dhabi namely, finance information systems, human resource information systems, and information systems used for the management of the Abu Dhabi Government’s plant and machinery, materials, and documents.

The output from these three categories of information systems provide critical information, given the sensitive nature of Government information, which needs to be managed effectively and efficiently at all times. In consequence, the Government of Abu Dhabi has designed the functionality of these informational systems to enable their chosen strategy to provide enhanced public services to its citizens.

Summary

The chapter discussed the literature that is related to this research study. Based on the literature a questionnaire would be developed to collect the necessary empirical evidences in order to fulfil the aims and objectives of this study.