Agile information systems: How to align IT with business

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The following is an excerpt from Agile Information Systems: Conceptualization, Construction, Management, by Kevin DeSouza. The featured chapter is written by Marcel van Oosterhout, Eric Waarts, Eric van Heck and Jos van Hillegersberg. It has been reprinted here with permission from Elsevier; copyright 2007. Read the chapter below to learn how to align IT with business, or download a free .pdf of "Agile information systems: How to align...

IT with business" to read later.

The central question of this chapter is: What are the contributing factors that require business agility, and what IT strategies can be implemented for enhancing business agility? The sub-questions are:

  • How can we define the concept of business agility?
  • Do change factors that create a high business agility need to be generic or sector-specific?
  • Is there a difference between various industry sectors on the perceived business agility readiness?
  • Are there differences between three domains of business agility (operational, customer, and network) with regard to the need for business agility and the perceived readiness of organizations?
  • Which IT strategies can be defined for enhancing business agility, depending on the business agility need and business agility readiness level?

Business agility

Even though much has been said and written on agility, a consensus on a definition of agility has not yet emerged. Wadhwa and Rao (2003) describe the differences and overlap between flexibility and agility. Flexibility is defined as a predetermined response to a predictable change, while agility entails an innovative response to an unpredictable change. Flexibility is focused on single systems for low to medium rates of change, while agility is focused on groups of systems to deal with high rates of change. A variety of views on business agility can be found in the literature (Goldman et al., 1995; Sharifi and Zhang, 1999; Dove, 2001; Hooper et al., 2001; Ramasesh et al., 2001; Conboy and Fitzgerald, 2004). The definitions provide some common aspects.

Business agility is the ability to sense highly uncertain external and internal changes, and respond to them reactively or proactively, based on innovation of the internal operational processes, involving the customer in exploration and exploitation activities, while leveraging the capabilities of partners in the business network.

Agility is a way to cope with external and internal changes, which are highly uncertain. Three types of perceived uncertainty can be distinguished: state uncertainty, effect uncertainty, and response uncertainty (Milliken, 1987). State uncertainty relates to unpredictability about whether or when a certain change will happen. Effect uncertainty relates to the inability to predict what the nature of the impact (i.e., effects) of a change will be on the organization. Some changes are quite predictable (e.g., deregulation in the telecom and energy sector); however, often the speed and exact requirements to the organization and processes are quite uncertain. Response uncertainty is defined as a lack of knowledge of response options and/or an inability to predict the likely consequences of a response choice.

Business agility can be implemented either proactively (leading or initiating a change -- placing organizations in a leadership position) or reactively (responding to change, either opportunistic or degenerative, in order to retain competitiveness) (Canter, 2000). Dove (2001) highlights the importance of both sensing capabilities (detecting, anticipating) and responding capabilities (physical ability to act rapidly and with relative ease) (Dove, 2001). The concept of quickness and therefore speed is at the heart of agility -- it is the capability of an organization to rapidly execute decision making and operational cycles (Canter, 2000). Speed can be required in various areas, like time to market new products, time to process an order or service request, time to assemble a virtual business network for collaboration, time to reconfigure organizational processes and systems to react to certain changes, and so on.

Sambamurthy, Bharadwaj, and Grover (2003) distinguish three interrelated capabilities of agility: operational agility, customer agility, and partnering agility. For each capability, they describe the role and impact of IT. This distinction is in line with types of strategic agility as defined by Weill, Subramani, and Broadbent (2002), who make a distinction between business initiatives aimed at increasing strategic agility based on their position on the value net: demand-side initiatives (customer agility), supply-side initiatives (partnering agility) and internally focused initiatives (operational agility).

Taking all of the above considerations into account, the definition of business agility in this study will be:

An agility framework

Building on the work by Sharifi and Zhang (1999) we constructed a framework to analyze business agility in detail (Figure 5.1).

Figure 5.1 Conceptual Framework


Click to see larger image

The starting point of our model is the contributing factors, which are external and internal changes that can create a need for business agility (based on Sharifi and Zhang, 1999). In this chapter, we focus on the analyses of change factors, where a required response of the organization is related, directly or indirectly, to the organization's IT capability.

An organization's business agility readiness is determined by its business agility capabilities. Business agility capabilities are the means or barriers for a business to enhance its business agility. Business agility capabilities can be categorized based on the work of Sambamurthy, Bharadwaj, and Grover (2003) and Weill, Subramani, and Broadbent (2002). The business agility capabilities are the reasons behind the existence or nonexistence of agility gaps. If there is a mismatch between the businesses agility need and the business agility readiness, there is a business agility gap. This has implications for the business agility IT strategy.

In this chapter, we will report on the perceived business agility need (BAN) and the perceived business agility readiness (BAR) for external and internal change factors that are directly or indirectly related to the organization's IT. We will also discuss implications for business agility IT strategies to close the business agility gap (BAG).

Methodology

Based on the literature review, we constructed a questionnaire. We used feedback from experts and two workshops to test and improve the questionnaire. We chose to use multiple methods for data gathering in order to provide a rich description on the topic. We gathered quantitative data via an online questionnaire (110 respondents).

This was complemented with in-depth qualitative data, gathered via interviews with 50 managers and workshop discussions. The results were validated by interviews with 14 sector experts.

Based on literature research and workshops with experts, we constructed a questionnaire containing 27 change factors, covering the three agility capabilities of our framework: factors requiring operational agility, factors requiring customer agility, and factors requiring business network and partnering agility. An overview of these change factors can be found in Table 5.1.2

Each change factor in the survey had to be scored on a Likert-5 scale. If the perceived BAN due to a certain change factor was high (score 4 or 5), a second question was posed regarding the perceived BAR (also on a Likert-5 scale). The BAG was measured as BAN minus BAR. In the next part of the questionnaire for the 10 change factors with the highest BAG score of the respondent, open questions were generated. For each BAG, the respondent was asked to elaborate on the bottleneck(s) and measures in the required business agility capabilities to deal with the BAG. This way, the questionnaire generated both quantitative as well as qualitative data on agility capabilities as enablers or disablers. We did a cross-check on possible survey fatigue which might bias our results. We found no difference in the variance of answers between the first half of the survey with the second half. Furthermore, we checked the number of responses to individual items in the second half of the questionnaire and compared it with the first half.

For the interviews with managers within each sector, a sample of organizations was selected. Criteria to select organizations were their position in the market (in the business sectors top market share players with considerable size). Within each organization, at least two managers were asked to fill out the survey, as a basis for the in-depth interviews. One interview was held to cover the general business or policy perspective (mainly with CEOs, marketing executives, and general managers) and one to cover the operations and IT perspective (mainly with COOs, CIOs, and CTOs). The average duration of the interview was 90 to 120 minutes. Basis for the interviews were the perceived agility gaps identified by the respondents in the survey. From each interview, minutes were taken and checked for accuracy with the interviewee.

We chose to study four business sectors and three public sectors in the Netherlands:

  • Logistics (logistics service providers)
  • Finance (retail banking)
  • Utilities (distribution and sales of energy)
  • Mobile telecom (mobile telecom operators)
  • Central government (Dutch ministries)
  • Higher education institutes
  • Other public sectors (operational authorities such as tax authorities, local authorities, etc.)

These sectors constitute an important segment of the total Dutch business and public sector. Furthermore, these sectors are confronted with a wide variety of external and internal change factors, such as regulations, shifts in customer demands, reorganizations, and changes in IT.

Table 5.1

 

Business Agility Change Factor Scores
Change Factors Absolute scores
(Scale from 1 to 5)
Variance
(Max-min score over 7) sectors
Capability 1: Operational BAN BAR BAG BAN Variance BAR Variance
1) Growing demand for financial transparency and accountability (Basel-2, IAS etc.) 3.40 2.93 0.47 1.80 0.72
2) New regulation at the national level 3.49 3.00 0.49 1.30 2.00
3) New security measures/IS security 3.35 3.42 0.93 1.10 1.00
4) Increased outsourcing of noncore business activities* 3.05 2.79 0.26 0.50 2.33
5) Increased outsourcing of IT-related systems and personnel* 3.28 2.83 0.45 0.80 1.10
6) Emerging price war (market focused on price)/shrinking margins 4.06 1.94 2.12 1.45 1.20
7) Need for lower-priced services 3.32 2.43 0.89 1.50 1.33
8) Changing requirements take too long to implement into the organization and systems* 3.30 2.01 1.29 1.26 1.62
9) Major organizational change (e.g., merger, acquisition)* 3.34 2.34 1.00 1.31 1.00
10) Digitalization of documents and e-signatures* 2.79 2.49 0.30 1.09 1.25
11) Increasing time and money spent on maintenance and support of existing IT infrastructure* 3.25 2.17 1.08 0.70 1.90
12) Desire to increase the levels of expertise of employees* 2.59 2.12 0.47 0.67 1.17
13) Reorganization of internal processes* 3.49 2.65 0.84 0.48 0.04
Capability 2: Customer BAN BAR BAG BAN Variance BAR Variance
14) Shortening of competitors' time to market of new products and services 3.00 2.20 0.80 1.40 0.50
15) Decreasing loyalty of customers 3.18 2.46 0.72 1.97 1.70
16) Need to decrease delivery time of services toward customers 3.23 2.43 0.80 2.50 2.00
17) Need for (more) online facilities toward customers 3.50 2.98 0.52 1.53 0.91
18) Need for more customized/tailored services toward customers 3.30 2.65 0.65 0.63 1.93
19) Need for multichannel anytime anyplace access to information and services by customers 3.33 2.63 0.70 1.50 1.21
20) Need for quicker response to customer-service requests 3.62 2.75 0.87 1.50 0.83
21) Emerging technologies to easily connect to customers' information systems 3.45 2.20 1.25 1.10 1.10
Capability 3: Business Network and Partnering BAN BAR BAG BAN Variance BAR Variance
22) Increasing number of partnerships 3.08 2.83 0.25 1.20 1.50
23) Complexity in processes due to increasing number of interdependencies with services of other organizational units 3.34 2.55 0.79 1.10 0.79
24) Information sharing in the network 3.40 2.91 0.49 1.20 1.47
25) Need for structured information exchange with other organizations/integration with systems of partners in network 3.25 2.72 0.53 2.60 1.90
26) Need for easier switching between suppliers of products and services 3.58 2.73 0.85 1.30 0.70
27) Accelerating rate of innovation of product technology 2.70 2.35 0.35 1.70 0.70
*Internal change factors are marked with an asterisk. 3.28 2.54 0.75    

Findings

We will present three types of findings. First, we will present an overview of the average scores on BAN, BAR, and BAG per sector and per dimension of business agility. Next, we will compare the public sectors with the business sectors on BAN, BAR, and BAG. Finally, we will analyze the importance of individual change factors per dimension of business agility.

Overall differences between sectors

Table 5.2 compares the seven sectors on BAN, BAR, and BAG per dimension of business agility. When we look at the overall BAN scores, logistics has the highest BAN (3.63) on all three dimensions. The lowest BAN is found in the education sector for the operational dimension (3.17), in the energy sector on the customer dimension (2.91), and in the finance sector on the network dimension (2.85).

When we look at the overall BAR scores, the energy sector has the lowest BAR on the operational dimension (2.08) and the customer dimension (1.91), while the lowest BAR is found in the other public sector on the network dimension (2.42). The highest BAR is found in the telecom sector on the operational dimension (2.91), in the government sector on the customer dimension (3.15), and in the logistics sector on the network dimension (3.07).

When we look at the overall BAG scores, the highest scores are found in the logistics (1.08) and energy (0.96) sectors, and on the operational (0.81) and customer (0.79) dimensions. On the operational dimension, the highest BAG scores are found within the logistics (1.33) and energy (1.21) sectors, on the customer dimension in the energy (1.00) and finance (0.96) sectors, and on the network dimension in the other public sector (1.15).

Public versus Business

When we compare the three public sectors with the four business sectors on BAN, BAR, and BAG, we find a few differences. BAN is about the same within public and business, only BAN on the business network dimension scores higher in public (3.41) compared to business (3.19). BAR is higher in public on the operational and customer dimensions, but slightly lower on the business network dimension. These differences are also found when we compare the BAG scores. Overall BAG scores within public are lower compared to business, with the exception of the average BAG score on the business network dimension, which is considerably larger within public (0.81) compared to business (0.51).

Importance of individual change factors and the role of IT

An analysis of the individual change factors will further clarify the differences between the seven sectors on changes which are related to the three dimensions of business agility. Table 5.1 presents the average scores on the 27 IT-related change factors on BAN, BAR, and BAG. Furthermore, we have included the variance between the seven sectors analyzed on BAN and BAR. The change factors have been grouped into the three major business agility capabilities: factors affecting operational agility, factors affecting customer agility, and factors affecting business network and partnering agility. We will now discuss the largest BAGs per agility capability category and the effects of IT on BAR, as found in our survey and discussed during the interviews. We will use examples from the different sectors to illustrate our findings.

Operational business agility

The change factor with the highest BAG (overall and within the operational dimension; BAG = 2.12) is the emerging price war and shrinking margins (#6). This change factor influences all the business sectors analyzed and, to a lower degree, the public sectors. Companies have a lot of difficulties coping with the required changes in their internal processes. Lowering the prices requires changes in operational processes to cut costs as it influences the way companies are structured and operate. This is an important driver for re-organizing the internal processes (#13) and major organizational change (#9). Many respondents mentioned the case of mergers and acquisitions as an example of major organizational change, where merging and integrating the various IT infrastructures was most time-consuming and caused the highest gaps.

Some of the deeper reasons behind the agility gaps in the operational agility capability can be found in the fact that implementing changing requirements into the organization and IT systems takes too long (#8). Many respondents indicated that in many legacy systems business rules are embedded. There is no distinction between, data, applications, and business rules, which hampers BAR. Since increasingly time and money is spent on maintenance and support of the existing IT infrastructure (#11), insufficient budget remains for investing in innovation and creating options for a more agility-enhancing architecture.

As a solution to the problems described, many organizations are considering or are already active in the outsourcing of IT resources and personnel (#4 and #5). In our research, we saw a large variance between the sectors in the perceived BAR to deal with outsourcing (#4 BAR variance = 2.33). Lowest BAR was found in the other public sector segment (#4 BAR = 1.67), followed by the finance sector (#5 BAR = 2.10). Main reasons for outsourcing are reduction of costs, standardization of the IT infrastructure, and a focus on core competences. Respondents mentioned a number of difficulties involved in outsourcing. Strategic decisions need to be made on the degree of outsourcing. Furthermore, governance of the outsourcing provider creates new transaction costs. If part of the outsourcing deal is based on off-shoring, governance requires dealing with cultural issues and very clear and detailed specifications of change requests. In general, respondents provided both pros and cons for the proposition that outsourcing enhances BAR.

Another important change factor leading to a high BAN is new regulation on national level (#2) (BAN = 3.49) and specifically, increasing demands from transparency and accountability regulation (#1) (BAN = 3.40). Financial transparency and accountability causes the highest gap in the finance sector (BAG = 2.20). Examples of accountability regulation directly impacting organizations within finance are Basel 2, International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), and Sarbanes Oxley. A lot of organizations within finance have IT systems, organized per product (group). This makes it difficult to comply with the transparency requirements from the new regulations, which are needed on a horizontal level crossing the various products groups.

Executives in all sectors that we studied perceive a high effect-and-response uncertainty with regard to government regulation measures. This leads to high BAN scores. The amount of new regulation, the problem of lack of implementation details, and the timing make it necessary to implement the required changes in a short time frame. This is causing BAGs within the energy (2.00), finance (1.20), and education (1.05) sectors. It is interesting to note that telecom organizations feel that they are overprepared (#2 BAG = −1.3). Apparently, telecom organizations have found ways to deal with uncertainty in regulation.

Some change factors are dependent on the domain (business or public). Within the public sectors, we find two change factors that cause relatively large BAGs. Digitization of documents and the usage of e-signatures (#10) create BAGs within central government (1.26) and the other public sector (0.96). Digitalization of documents and signatures plays an important role to streamline policy decision making and transactions between citizens and government agencies, but has far-reaching impacts on the whole workflow throughout and between organizations, which explains the low BAR scores. Another BAG we found in all three public sectors (with average BAG = 0.97) is increasing the levels of expertise of employees (#12). The information society and changing role of the public sector requires other types of expertise. Main factors hindering agility as found during our interviews were the aging workforce, insufficient change-oriented people, and a loss of expertise due to the usage of temporary external expertise, which insufficiently remains anchored in the organization.

This was first published in October 2007
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