THE DELIVERY OF INFORMATION TECHNOLOGY SERVICES:
The delivery of Information technology services:
The cases of the united states and the netherlands
CIMS Working Paper Series 99-10
by
Judith R. Gordon
Associate Professor of Management
Boston College
Chestnut Hill, MA 02467
and
Steven R. Gordon
Associate Professor of Information Systems
Babson College
Babson Park, MA 02457
October, 1999
The delivery of Information technology services:
The cases of the united states and the netherlands
Abstract
This paper describes the delivery of information technology (IT) services in a sample of companies in the United States and The Netherlands. It compares the sample companies in these countries along four dimensions of IT services – setting of priorities, standard setting, development, and operations. It also examines how the delivery of IT services has been changing in recent years and how these companies have dealt with such change. Finally, it addresses the implications of these results for the delivery of IT services in a global environment and offers directions for future research.
The delivery of Information technology services:
The cases of the united states and the netherlands
The complex and dynamic environment most organizations face today has had significant implications for their structure. Overall, organizations have shifted from mechanistic, bureaucratic, structures with highly formalized reporting relationships and centralized decision making to organic, flexible structures with less formalized reporting relationships and decentralized decision making (Stebbins & Shani, 1998). As organizations restructure to respond to their unique environments, the way that they deliver information technology (IT) services also changes, and the organizational units responsible for the delivery of IT services change as well.
The organization structure of the IT function also reflects its leadership. Each executive brings an individual view on issues of control, locus of decision making, project management, and standard setting. IT executives may differ in their experiences of interacting with parts of the organization outside of the IT function. Some may have successfully involved business units in all facets of decision making, whereas others may have more effectively retained control of IT decisions.
Restructuring of the IT function, therefore, has become more common. For example, Procter & Gamble Company’s plans to replace regional business with global organizations devoted to individual product areas likely will mean increased centralization of IT staff (Scheier, 1998). In such restructuring, IT executives must consider questions such as the following:
• What structures do organizations implement to facilitate their response to today's dynamic market conditions?
• Do the structures differ for companies depending on their location?
• How have these structures changed over time?
• What structures work best for organizations?
Several years ago we began a study to help practitioners answer these questions. The first part of the research involved a pilot study of eight multinational companies. We interviewed the chief information officer or another top-ranking IT executive in each company to try to understand the interaction between IT and business units in the delivery of IT services. The data reported in this paper have been collected as part of this ongoing study of the delivery of information systems services.
Early research on the IT structure and delivery of IT services in multinational companies mainly focused on whether to locate the IT function at corporate headquarters or within geographical units (Alavi & Young, 1996; Burn & Cheung, 1996; Gibson, 1994; Karimi & Konsynski, 1991; Roche, 1992). The advantages of placing the resources directly into the geographical units provided an early model for locating resources into business units. Complementary research looked at the interaction of the IT function with the business units. It has focused primarily on issues of centralization versus decentralization of the IT function (Adhikari, 1996; Alter, 1990; Alter, 1996; Burn & Cheung, 1996; Dearden, 1987; Kim, 1989; Meyer, 1991; Moad, 1989; von Simson, 1990). (Alter, 1996), for example, concluded that the need for standardization and data sharing has prompted a return to more centralized IS organization, but one that involves business units in standard setting and spending decisions. (Burn & Cheung, 1996) similarly concluded that key to IS differences among firms in centralization and decentralization are the degree of data sharing among subsidiaries, the degree of corporate-wide data standardization, and the difference in maturity among subsidiaries. Research about the nature of the IT architecture (Gibson, 1994; Gibson, 1996; Sabherwal & Kirs, 1994; Sankar, Apte, & Palvia, 1993; Targowski, 1990) further elucidated issues related to the delivery of IT services. For example, (Gibson, 1996) and (Gibson, 1994) develop a statistically validated typology of global IT architectural structures by applying cluster and discriminant analyses to 63 global firms.
A greater focus on the centrality of business units in organizations has occurred during the past decade (Mazur, 1994; Sweeney, 1995; Westoby, 1996). The shifting of responsibility, expertise, and control to business units has accompanied this increased focus (Allen & Boynton, 1991; Cale, Kanter, & Saia, 1993; Cummings & Guynes, 1994). The results of our pilot study of eight U.S.-based multinationals supported the centrality of the business unit in IT service delivery (Gordon & Gordon, 1998a; Gordon & Gordon, 1998b). Business units created a vision and direction that served as a starting point for providing IT support. IT success depended on the business units feeling responsibility and accountability for IT processes.
Do business units have the same saliency for companies that are not multinationals and for companies outside the United States? How might the interaction of IT and business units be the same and how might these interactions differ in companies based in different countries? The research presented here continues to explore questions about the delivery of IT services addressed by out pilot study. We expanded our pilot study by collecting more systematic and comprehensive data about a range of companies in terms of size and industry in two countries. We chose the United States and the Netherlands for several reasons: the countries were relatively comparable in the development and use of technology; the industrial base of the two countries is relatively similar; the level of education of IT staff and executives is comparable and relatively high; and we had access to data in both countries. This sample lets us begin to evaluate structures both within and across cultures.
In the rest of this paper we first describe the study methodology. Then we discuss the results. Next we consider implications of the results for IT executives and departments and for business unit managers and employees. We conclude with some directions for future research.
The Study Methodology
We decided to use a survey to assess the nature of the interaction between IT and business units in four areas for the larger sample of companies. A survey method allowed companies to quickly describe each area along a variety of dimensions. For example, we asked about the allocation of resources and project management at both the corporate and local levels as a way of more fully understanding the setting of priorities in the company. The survey (see Appendix A) was designed to take no more than 30 minutes to complete. Respondents provided some basic information about themselves and their organization. Then they described various aspects of the allocation of responsibility in their organization for establishing IT priorities, setting IT standards, developing information systems, and conducting IT operations using both five-point Likert-type scales and checklists of responses. We also asked questions about the stability of their structure for delivering IT services, as well as its strengths and weaknesses.
We administered the survey by mail to two groups of respondents. We first mailed it to chief information officers of companies affiliated with the Center for Information Management Systems at Babson College. We asked them to complete the questionnaire themselves or to give it to another IT staff person who would better be able to respond to the questions. This group provided us with a diverse set of companies, as well as with a set of respondents who had expressed interest in research in information technology. We mailed 50 questionnaires and received 23 responses after using follow-up letters to those who did not initially return the surveys. Shortly after we completed this mailing we had the opportunity to mail the same questionnaire to a group of companies in the Netherlands as a result of our affiliation with the University of Amsterdam Prima Vera research group. We mailed questionnaires to 180 graduates of the masters degree program in Information Systems at the University of Amsterdam, but did not send follow-up reminders. We also asked them to pass it to another IT staff member if they would be better able to complete the questionnaire. We received a disappointing return – only 17 questionnaires. Because we relied on convenience samples, and the Dutch sample in particular had a low response rate, we primarily report the data descriptively in this paper and carefully draw preliminary comparisons between the two samples.
Respondents in both the U.S. and Dutch groups worked in a variety of industries, including high technology, manufacturing, healthcare, and government. They held an array of positions, including chief information officer, director of advanced technology, senior consultant, and IT manager. Table 1 presents the type of companies surveyed and
Table 1
Description of Respondents’ Companies
| |Percentage of |Percentage of |
| |U.S. Companies (N=23) |Dutch Companies (n=17) |
|Type | | |
|Domestic |35 |35 |
|Sell internationally, manufacture domestically |9 |0 |
|Manufacture internationally, sell almost solely |0 |0 |
|domestically | | |
|Sell and manufacture internationally, but primarily |9 |12 |
|domestic company | | |
|International company |9 |29 |
|Global company |30 |12 |
|Other |9 |12 |
|Revenues of Company | | |
|Greater than $1 billion |39 |41 |
|$500 million to $1 billion |30 |0 |
|Less than $500 million |22 |47 |
|Data not available |9 |12 |
their revenues. About one-third of the U.S. companies were domestic and another one-third global, with the remainder having some international presence or activity. All but one of the U.S. companies that reported the data had revenues that exceeded $100 million. The Dutch sample also included about one-third domestic companies but only 2 companies had a global presence. Most had a more limited international presence. Revenue data were less available for the Dutch companies. Those companies that provided it more often had revenues between one and ten million dollars, suggesting that the Dutch sample included a larger percentage of small companies than the U.S. sample.
Looking at the internal structure of the U.S. and Dutch companies also suggests some similarities and differences. Table 2 reports the number of business units and the
Table 2
Structure of the Companies
| |Percentage of |Percentage of |
| |U.S. Companies (N=23) |Dutch Companies (n=17) |
|Number of Business Units | | |
|1 |13 |12 |
|2 |5 |6 |
|3 or 4 |26 |18 |
|5 or more |57 |65 |
|Structure | | |
|Functional divisions |35 |29 |
|Product line |13 |12 |
|Geographical |4 |6 |
|Matrix |17 |12 |
|Virtual |0 |6 |
|Hybrid |13 |18 |
|Other |17 |18 |
structural configuration for the participating companies. Note that the largest percentage of both U.S. and Dutch companies has at least five business units, suggesting again their large size and complexity. The largest group of companies in both countries has structured their companies into functional divisions. Product line, matrix, or a hybrid of two types listed in Table 2 were equally common in the U.S. and Dutch samples. The overall picture that emerges is a sample of U.S. and Dutch companies dominated by global/international companies with revenues greater than $500 million, with multiple business units, and most often organized into functional divisions, product, matrix, or hybrid structures.
In looking at the data, we were interested in patterns that emerged to answer the following questions:
• Who was responsible – IT or business units – for setting priorities in allocating resources and scheduling projects?
• Who was responsible – IT or business units – for setting and enforcing standards?
• Who was responsible – IT or business units – for developing information systems?
• Who was responsible – IT or business units – for IT operations?
• How dynamic is the structure for delivering IT services?
The Results
Our pilot study suggested that the business unit was the focal point of the delivery of IT services in the eight multinationals we studied. Its vision served as the starting point for designing and providing IT support. Does this centrality of the business unit exist in a broader sample of companies? Table 3 suggests that business units have extensive autonomy in about one-third of the companies in both the United States and the Netherlands, not 100% as in the pilot study sample. In the broader array of companies surveyed, corporate headquarters exerts control over most major decisions in almost one-fifth of the U.S. companies and close to one-third of the Dutch companies. Decision making tends to occur collaboratively among corporate headquarters and business units in almost one-half of the U.S. companies and slightly less than one-third of the Dutch companies. Since the involvement of IT and business units in setting priorities, setting standards, developing systems, and overseeing operations occurs within the context of decision making in the company as a whole, we might expect more variation in the locus of these activities than in our pilot sample companies.
Setting IT Priorities
Our original study of eight U.S. companies indicated that business units uniformly set IT priorities. This was somewhat unexpected because historically IT’s specialized knowledge about available technology and its applications made it logical for them to set IT priorities. Within the context of the increased focus on the business unit observed in our pilot study, a change in responsibility for setting priorities seemed logical. Given the variation in the locus of decision making in the companies we surveyed for this study, unlike in the pilot, we expect that the responsibility for setting priorities may extend beyond business units. We attempted to determine who set IT priorities by having respondents assess their companies along four dimensions, as shown in Table 4: (1) resource allocation at the company-wide level, (2) resource allocation at the local level, (3) project scheduling at the company-wide level, and (4) project scheduling at the local level. We asked respondents to indicate the involvement of corporate IT and business units on a five-point scale, with 1 representing greatest involvement by the IT department and 5 greatest involvement by business units. We then grouped the responses into three categories: we classified a response of 1 or 2 as IT, 3 as mixed, and 4 or 5 as business unit.
The data from the larger and more diverse set of companies shown in Table 4 indicated a more varied approach to determining IT priorities. Looking first at the U.S. companies, for example, we see that company-wide resource allocation and project scheduling more often resided with IT than with the business units. The reverse was true for local resource allocation and project scheduling. The Dutch companies demonstrated a similar pattern, but were somewhat less likely to give responsibility to IT for company-wide project scheduling. U.S. companies more often involved IT and business units in all but local project scheduling than did their Dutch counterparts. Conversely, the Dutch companies more often allocated responsibility for setting priorities to either IT (at the corporate level) or to business units (at the local level). Still, some movement toward giving business units responsibility for company-wide priority setting had occurred, particularly in allocating resources. Business units solely or jointly with IT determined company-wide resource allocation in 57% of U.S. companies and in 41% of Dutch companies, and significantly influenced company-wide project scheduling in 52% of U.S. companies and 53% of Dutch companies.
Setting IT Standards
IT has traditionally assumed the major responsibility for setting standards, primarily because of the technical expertise required to make informed decisions about software, hardware, and telecommunications. Has this changed as business units have become more central? We saw in the pilot study that in some companies, as the needs of business units begin to dominate IT decision making, the responsibility for setting standards shifted and the involvement of business units in standard setting increased. Nevertheless, some companies still gave sole responsibility to IT, while others began to delegate it to business units. In still other organizations, partnerships between IT and business units set standards.
In our larger sample of U.S. and Dutch companies, we looked at two components of the standard setting process – the original setting of standards and their enforcement. We grouped the responses along a five-point scale once more into three categories: setting or enforcement by the IT department, mixed IT and business units, and business units alone. Table 5 shows that in almost all (91%) of the U.S. companies, corporate IT was responsible for setting standards but shared responsibility for enforcement in 43% of the companies. In the Dutch companies, corporate IT more often held responsibility for both setting standards (82%) and enforcing them (76%).
Even when responsibility rests with IT departments, the voice of the business units is often heard in the decision-making process, as shown in Table 6. When respondents checked the approach that best describes their company, they described decision making about standards as negotiated or collaborative among corporate IT and business units in almost three-fourths of the U.S. companies and almost one-half of the Dutch companies.
Table 6
Approach to Making Decisions about Standards
| |Percentage of |Percentage of |
| |U.S. Companies |Dutch Companies |
| |(N = 23 ) |(N =17) |
|It is directive (from corporate IT) |26 |35 |
|It is negotiated among corporate IT and the business units |30 |24 |
|It is collaborative |43 |24 |
|It is directive (from the business units) |0 |0 |
|Other |0 |18 |
Hearing the voice of the business units fits with the fact that the respondents felt that business needs alone or combined with technological expertise often drove standard setting, as shown in Table 7. Yet, the importance of technological expertise may explain why IT retains responsibility for standard setting and enforcement in so many companies. IT still has the specialized knowledge to process the requirements of the business units and understand what technologies best meet these needs.
In a large U.S. publishing firm, for example, business needs drive the setting of standards, but IT ultimately sets and enforces them after collaboration with business units about appropriate decisions. In a large U.S. financial services firm, in contrast, technological expertise drives standards, but setting and enforcing them are shared by IT and business units, and decision making about standards is also collaborative. In a large Dutch firm, technological expertise drives standards, but IT sets and enforces them and makes decisions about appropriate ones. In conclusion, then, we see a number of patterns of standard setting, with some variation across countries. This variation may be due to differences in the size and industry of the companies in each sample or to national preferences; future research is necessary to determine the actual causes.
Developing Information Systems
In the pilot we found that IS development demonstrated the greatest variation of responsibility: it ranged from IT-centric to business unit-centric with hybrid versions that included user-led corporate development, IT led with users involved, and truer user-IT partnerships. These results were not surprising because IS development is the logical place for business units to express their needs and make sure that they are met. We expected to see a similar variation in the U.S. and Dutch companies that we surveyed. Table 8 shows a similar pattern for the Dutch companies: 12% characterized IS development as led and performed by corporate IT; 18% characterized it as led and performed by the business unit leadership; and the rest saw it as a type of partnership between IT and business leaders or users or as involving users heavily under IT’s direction. In the U.S. companies, in contrast, users or business unit leadership were always involved in IS development. Whether the pilot sample or the larger sample better represents U.S. companies, and hence whether a significant difference exists in IS development between U.S. and Dutch companies, remains a subject of future research.
Conducting Operations
Traditionally, responsibility for conducting IT operations was consolidated in the IT function. IT staff was viewed as having the expertise to monitor operations, and economies of scale resulted from centralizing IT operations. Table 9 suggests that this
Table 9
Responsibility for Operations
|Percentage of |Percentage of |
|U.S. Companies (N = 23 ) |Dutch Companies (N =16) |
|Corporate IT |Mixed |Business Units |Corporate IT |Mixed |Business Units |
|87 |4 |9 |63 |19 |19 |
pattern continues for the U.S. companies that we surveyed. In 87 % of the U.S. companies, IT had responsibility for operations, with only 13% of the companies allocating some responsibility to the business units. In the Dutch companies, however, a slightly different pattern existed. While almost two-thirds of the companies gave corporate IT responsibility for IT operations, more than one-third gave business units some responsibility. While differences in corporate size, industry, or type might explain the greater allocation of responsibility to business units, it may also result from a lesser concern with economies of scale, a different traditional placement of IT operations, or the increasing strength of business units in The Netherlands.
Changes in IT Delivery
The data we have presented so far are a snapshot of the delivery of IT services. In fact, the delivery of IT services is not a static process. The organizational structure of the IT group in almost one-half of both U.S. and Dutch companies has changed within the last year or two, as shown in Table 10. Most of the remaining Dutch companies and
Table 10
Changes in the Organizational Structure of the IT Group(s)
| |Percentage of |Percentage of |
| |U.S. Companies |Dutch Companies |
| |(N = 23 ) |(N =17) |
|More than 2 years ago |26 |12 |
|Within the last year or two |48 |47 |
|Currently changing or soon to change |26 |41 |
about one-fourth of the U.S. companies are currently changing or soon will change the organizational structure of the IT group. For example, as shown in Table 11, almost one-half of both the U.S. and Dutch companies have changed the process of responsibility for
Table 11
Changes in the Process or Responsibility for Setting Standards
| |Percentage of |Percentage of |
| |U.S. Companies |Dutch Companies |
| |(N = 23 ) |(N =17) |
|More than 2 years ago |48 |29 |
|Within the last year or two |43 |47 |
|Currently changing or soon to change |9 |24 |
setting standards within the last year or two. Almost one-fourth of the Dutch companies are currently or soon to change. Other examples of change include the complete redesign and implementation of a global infrastructure and enterprise applications, a switch to client/server from the mainframe, and the complete reorganization of the IT function establishing CIO & CIO Office. Changes such as these occurred, for example, because of a misalignment between functions, a high cost due to decentralized decision making by the information management departments, the need to have a single message and better ways of communicating changes, and a lack of trust in the local units to police themselves. These and many other reasons for change continue to exist in the dynamic environment faced by most organizations.
Discussion
We described the structure of the delivery of IT services in a sample of U.S. and Dutch companies. We found that the centrality of the business unit is increasing and has significant implications for the delivery of IT services. This observation is well supported in the trade literature. One report estimates that business units will control about 85% of IT spending by 2001, up from about 70% in 1999 (Cole-Gomolski, 1999). Another cites widespread support among CIOs for the claim that "IT will no longer be a separate business unit" (Saia, 1999).
Still, variation existed in both the U.S. and Dutch companies regarding the involvement of the business units and corporate headquarters in decision making. This variation extends to the structuring of the delivery of IT services in the four areas we studied: setting IT priorities, setting standards, developing information systems, and conducting IT operations.
The United States and Dutch companies demonstrated both similarities and differences in their delivery of IT services. In both U.S. and Dutch companies, for example, IT more often allocated resources and scheduled projects at the company-wide level, whereas business units had these responsibilities at the local level. Some differences in standard setting existed, with the Dutch companies relying on IT for both setting and enforcing standards, whereas the U.S. companies more often involved business units in enforcing standards. U.S. companies more often create some type of partnership between corporate IT and business unit leadership or users in developing information systems than the Dutch companies. A larger percentage of Dutch companies relied solely on corporate IT or solely on business units to lead and perform information system development. Finally, U.S. companies more often assigned responsibility for IT operations solely to corporate IT, whereas Dutch companies more often involved business units solely or jointly with corporate IT.
Clearly, companies in both countries use diverse structures for delivering IT services. These structures frequently undergo change. Corporate, business unit, and IT leadership seem to experiment with different structures, in response to dynamic and complex environmental conditions. They recognize that a successful structure may last only a short time, as changing conditions mandate new types of interactions between corporate IT and business units.
What are some of the issues that IT professionals and business leaders should consider in selecting the appropriate structure? They need to consider the nature of the existing organizational structure, particularly the role of the business units, and structure the delivery of IT services in a congruent fashion. They also need to determine the location of various types of expertise and what type of structure that allows the most effective communication of this expertise to business units and users. They also need to consider the best way to allocate resources for IS development and operations to create economies of scale while ensuring that user needs are met.
Future research needs to more closely link the type of structures with desired outcomes, such as efficiency, high-quality performance, and employee satisfaction. It also needs to further examine the types of relationships between IT and business units and determine the conditions under which each type works best. In addition, more careful examination of cultural differences and their significance for the delivery of IT services should occur.
References
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Alavi, M., & Young, G. (1996). Information technology in an international enterprise: An organizing framework. In P. C. Palvia, S. C. Palvia, & E. M. Roche (Eds.), Global Information Technology and Systems Management: Key Issues and Trends (pp. 495-516). Marietta, GA: Ivy League Publishing.
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Gordon, J. R., & Gordon, S. R. (1998a). Setting IS standards in multinational companies: The interaction between IS and business units. Paper presented at the Northeast Decision Sciences Institute, Boston, MA.
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-----------------------
Table 3
Decision Making in the Company as a Whole
| |Percentage of |Percentage of |
| |U.S. Companies (N=23) |Dutch Companies (n=17) |
|Business units have a great deal of autonomy. |39 |35 |
|Corporate headquarters exerts control over most major|18 |29 |
|decisions. | | |
|Decision making tends to occur collaboratively among |43 |29 |
|corporate headquarters and business units. | | |
|Other |0 |6 |
Table 4
Priority Setting in the United States and the Netherlands
| |Percentage of U.S. Companies |Percentage of Dutch Companies (N = 18) |
| |(N = 23) | |
| |IT |Mixed |Business Units|IT |Mixed |Business Units|
|Company-wide resource allocation |44 |35 |22 |59 |6 |35 |
|Company-wide project scheduling |48 |39 |13 |47 |24 |29 |
|Local resource allocation |22 |30 |48 |29 |12 |59 |
|Local project scheduling |26 |22 |43 |12 |29 |59 |
Table 5
Responsibility for Standard Setting and Enforcement
| |Percentage of U.S. Companies |Percentage of Dutch Companies |
| |(N = 23 ) |(N =17) |
| |Corporate IT |Mixed |Business Units|Corporate IT |Mixed |Business Units |
|Responsibility for setting |91 |9 |0 |82 |18 |0 |
|Responsibility for enforcement |52 |43 |4 |76 |12 |12 |
Table 7
The Drivers of Standard Setting in the United States and the Netherlands
| |Percentage of U.S. Companies |Percentage of Dutch Companies |
| |(N = 23) |(N = 17) |
|Technological Expertise |43 |41 |
|Mixed |30 |12 |
|Business Needs |26 |47 |
Table 8
Approach to Information Systems Development
| |Percentage of |Percentage of |
| |U.S. Companies |Dutch Companies |
| |(N = 23 ) |(N =17) |
|Led and performed by corporate IT |0 |12 |
|Led by corporate IT, but involving users heavily |22 |12 |
|A partnership between corporate IT and users |26 |18 |
|A partnership between corporate IT and business unit |39 |35 |
|leadership | | |
|Led and performed by the business unit leadership |4 |18 |
|Other |9 |6 |
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