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Transforming IT From A Cost Centre To A Value Centre Perspective

Transforming IT From A Cost Centre To A Value Centre Perspective: A Case Study On The British Standards Institute

By incorporating a specific case study, the aim of this qualitative research is to examine the level of shared domain knowledge and common understanding between Information Technology(IT) and the line managers; regarding how IT can be used to improve the performance of a specific process, that generates value for the organisation. From the strategic point of view, it is essential to promote IT as a critical and crucial business issue. On the other hand, the CIO (Chief Information Officer) of the British Standard Institute (BSI) would need to understand and keep tight control of the cost dynamics of the IT function. An effective outsourcing strategy is highly critical to the success of the organisation within the rapidly changing business environment. Outsourcing offers new avenue for BSI to efficiently leverage their IT resources and to focus on their core business activities.

INTRODUCTION

Nowadays, in the era of the 21st century, a significant number of local and international companies are focusing on IT investment to facilitate their business operations. In order to achieve competitive advantage, one of the key success factors of IT investment is to ensure synergy between IT functions and the firm’s business strategies. However, professionals are in a dilemma on how to achieve such synergies within a complex and dynamic business environment. Shared IT and business understanding is critical to deriving value and competitive advantage. Shared understanding can be fostered and nurtured through integrated business and IT planning; at both the strategic and tactical levels and the maintenance of a reward structure that encourages collaboration. It is clear that shared IT and business understanding that enables a firm to conceptualize innovative IT applications; is very specific to the firm and needs to be developed and accumulated over time through various knowledge sharing and trust building initiatives. A firm specific shared IT and business understanding will enable the firm to continuously design and implement improved processes that can keep the firm ahead of its competition.

Often enterprises will look to IT as being the root cause of what are, in fact, business process issues. IT executives should endeavour to understand business processes and partner with the business team to address and solve problems, rather than spend unnecessary money on technology to camouflage problems. In this way, IT can demonstrate its business value proposition to the enterprise. It is time for the IT department to shed their cost centre image and seek to morph into becoming value centres. To be successful, IT executives should not only have a vision of what they wish to accomplish, but a thorough understanding of their current position. IT executives should then decide what approach would provide the most value to the business, determine what differentiates them from external competitors, adopt best practices, and use technology enablers to reduce costs. Moreover, IT executives should understand their business processes, and encourage their staff to move beyond technology and understand the business as well. By demonstrating that it can have a significant and positive effect on the enterprise by helping reduce costs, IT can make significant strides in becoming a value centre and elevating its position within the enterprise.

Research Problem

During the last two decades the levels of business spending on IT have surged. This growth in IT investments has catalyzed significant interest as to whether, and if so how, the anticipated economic benefits of investments are being realized. However, the disillusionment with IT following the failure of many dotcom ventures and the subsequent economic downturn, has led many to question the strategic value of IT. Many senior executives within BSI still often view IT as a cost centre, with negative effects on the company’s bottom line. Considering this kind of critical situation, it is crucial that IT executives should seek to transform IT from a cost to a value centre, so that it can shed the stigma of being considered as an overhead cost.

Research Questions
• Is IT perceived as a strategic function or as a support function?
• Is the IT function creating value for the enterprise?
• What best practice processes need to be adopted, to enable the IT function to be perceived as a value centre?

Objectives of the Study

The CIO at BSI has a tough task at hand managing the expectations of the management. His department is being perceived as a cost centre. The CIO is clearly of the opinion that the IT department is adding value to the business. Clearly there is a mismatch between the perceptions of the BSI Management team and the IT Department. The main objective of this paper is to investigate the key facts within the BSI business environment, and present to the CIO a roadmap which will enable him to change the perception within BSI management; that IT function is one of the key drivers for business growth rather than just a support function. Through the discussions with the CIO, the list of key stakeholders was prepared.

Scope of the Study

The current IT landscape within BSI has software applications like SAP Enterprise Resource Planning (ERP) software, Business Intelligence (Bl) software and many other software systems, which enable tight integration across the business processes of the enterprise. The view of the CIO is that they have the best of breed software applications which gives them an edge, as the business processes are tightly integrated across the enterprise. Many senior executives within the British Standards Institute (BSI) view IT as a cost centre, with no value creation for the enterprise and having negative effects on the company’s bottom line. But the CIO at BSI is of the opinion that, it’s really a profit and value centre. The hurdle which the CIO is currently facing i,s pushing that branding as far as possible and changing the mindset in the boardroom. The CIO is facing a major challenge of transforming the perception of IT from a cost to a value centre, and to shed the stigma of being considered an overhead cost. The research framework at BSI involves studying the internal IT system landscape, and critically analysing if IT is contributing real value to the business. This would involve interviewing the IT and business teams within BSI, and finally the investigation would focus on the IT spend within BSI.

Research Methodology

The choice of the research method is critical, as it determine the accuracy and reliability of the results, which this paper is aiming to achieve. For the purpose of this study, qualitative research has been carried out; and the representations of facts were not based on numerical interpretations but depended on subjective understanding. To achieve this purpose, past records and data have been taken into consideration to assist this research study. The choice of secondary data includes the use of internet research, professional magazines, newspapers, journal articles, text books and case studies. These sources have been used to support the research, and offer a solid understanding of the behaviour of the firm under study. More specifically a case study method has been adopted, which involves the use of descriptive analysis of situations pertaining to the specific problem issue. Yin (2014) stated that a case study is one of the qualitative research methods, and an empirical inquiry that examines contemporary complex phenomenon within a real life practical situation in a constructive fashion, particularly when the areas between phenomenon and context are quite unclear. It is also true, that a case study is an “extremely flexible method” stated Burton (2000), an excellent instrument for better understanding of the dynamics of the firm opined Gummesson (2000); Cronin, (2014). It also permits the researchers to study many different crucial components, examine them in relation to each other and view the process within its total environment.

Since the investigation covered both the IT and the business teams, interviews have been taken from the key managers and incorporated in the case study for interpretation and analysis. All the interviews were held face to face at the BSI headquarter in Chiswick, London. In total 7 members were interviewed (CIO, CFO, IT Director, Publishing Manager, Training Manager and 2 Product Managers). The challenge was to get an appointment keeping in mind their work schedules. Seven visits were made to the BSI office to meet all the key stakeholders. All the information gathered was documented by taking notes during the interview process. Besides the interviews, other tasks involved were gathering data and information on their current IT landscape; in terms of their range of software products, the value being derived from these systems and the current initiatives involving them.

LITERATURE REVIEW

IT and Business Strategy

Substantial number of studies reveal that in a complex business environment, firms fail to achieve full benefits from IT investment due to lack of synergy between IT and the firm’s business strategies , observed authors such as Wu, Straub, and Liang (2015); Ravishankar, Pan, Sl., and Leidner, De (2011); Benko and McFarlan (2003); Broadbent and Weil (1993); Croteau and Bergeron (2001). On the contrary, there are firms that are performing significantly well when they are able to ensure a high degree of alignment between IT functions and competitive business strategies stated Tallon and Pinsonneault (2011); Broadbent and Weil (1993); Croteau and Bergeron (2001); Kearns and Lederer (2003) andPrairie (1996). As a result it is evident that, one of the crucial issues for business professionals is to ensure the strategic alignment between business and IT functions opined.

Gerow, Thatcher, and Grover (2015); Luftman, Lewis, and Oldach (1993); and Sabherwal and Chan (2001). Findings from a survey of ClOs and top executives conducted by Luftman and McLean (2004) indicated, that IT and business alignment is the top most crucial issue for business firms. Siurdyban (2014) and Luftman et al. (1993) also argued, that to sustain in the competitive and fast changing business environment, firms need to accommodate business strategy, IT strategy, organizational culture, and IT infrastructure in a harmonized manner as these elements are not independent but interdependent on each other. Considering all these interdependent elements, a firm should have a constructive and integrated business framework to generate and deliver value to the stakeholders. Recognizing the importance of aligning IT with business and the fact, that firms struggle to achieve such alignment, IT researchers and practitioners alike made many attempts to address the issue of how to achieve alignment observed Chen, Mocker, Preston, and Teubner (2010); Baets (1992); Chan, Huff, Barclay, and Copeland (1997); Chan (2002); and Hoffman (2003). Apart from the strategic alignment model quoted by Henderson and Venkatraman (1993) and social dimension alignment model discussed by Reich and Benbasat (2000), there are some other frameworks also been developed recently that have been implemented by number of companies stated authors Luftman (1996) and Prairie (1996).Yet,Chan (2002) stated, that “alignment is not a state, but a journey—one that is not always predictable, rational, or tightly planned”.

A number of steps need to be followed to ensure strategic alignment, considering some other crucial components like the monitoring system, change management, organisational culture, and the competitive market structure to deliver value creating activities stateHenderson and Venkatraman (1993). As more innovative applications of information technology are contemplated within a firm, the culture of the organisation and technological sophistication of the organisation’s management team must be strongly considered. Those organisations that achieve the highest levels of IT value are those, that generally have a higher level of technology savvy and a culture of operational innovation reaching out to all levels observed Luftman and McLean (2004). IT executives cannot achieve innovative levels of the IT value hierarchy on their own. Hoffman (2003) pointed out, that success at these levels requires a very strong partnership with other organisational leaders, and a common vision for creative information technology enablement within the enterprise .

Organisations achieve a recognized level of competitive differentiation and advantage, through the use of information technology. IT should become an integral part of the firm’s strategic planning process not only as an enabler of a more efficient entity, but also as a means of leapfrogging the competition. The IT role must move from the back office into the forefront of the organisational strategy, and extend directly into the enablement of unique products or services. To realize differentiation, organisations must develop and deploy proprietary IT solutions in order to achieve a unique competitive advantage state Kohli and Devaraj (2004). IT is by no means a back office function. Roseman and Brocke (2015) stateIT enablement must be woven into the fabric of the organisation and considered an enabler of every phase of the business process. Firms must develop their IT infrastructure and business processes to automate core capabilities, from which it can then be more flexible, and therefore responsive to business requirements. In this way, IT is no longer a bottleneck but instead can enable change within the organisation.

Value Chain

Firms can be in business only, if the activities they perform add value for their customers. If they can add value efficiently and effectively and charge a price which is more than the total cost of the activities, they can make a profit. The value chain, a concept developed by Michael Porter (1985), is a useful tool to carefully analyse the value adding activities of a company. While the value chain is important for all companies, in the case of global companies, a highly sophisticated and well-coordinated approach to value chain management becomes critical. This is because global companies have to locate different activities in different countries, to optimize the effectiveness of the value chain as a whole. The idea of the value chain is based on the process view of organisations, the idea of seeing an organisation as a system, made up of subsystems each with inputs, transformation processes and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of resources like money, labour, materials, equipment, buildings, land, administration and management. Gereffi and Fernandez-Stark (2016) and Omar (1999) postulated, that value chain activities carried out determine costs and affects profits. Organisations engage in hundreds, even thousands, of activities in the process of converting inputs to outputs. These activities can be classified generally as either primary or support activities, that all businesses must undertake in some form or the other.

Business Process Design

The idea of the value chain serving as a network of value creating activities became the foundation of a movement called business process design, or sometimes referred to as business process redesign. The central idea is that organisations should not automate or improve existing functional systems. Rather they should create new, more efficient, business processes that integrate the activities of all departments involved in a value chain. The goal was Kohli & Devaraj (2004) state, was to take advantage of as many activities of all departments involved in a value chain. Linkages are interactions across value activities. Linkages are important sources of efficiencies and are readily supported by information systems like SAP, R/3, Enterprise Resource Planning software applications pointed out Luftman et al. (1993).

IT Outsourcing Model

Motivation for IT outsourcing evolves from a primary focus on cost reduction, to an emerging emphasis on improving business performance. It is imperative for organisations to align their outsourcing strategy with their business strategy, in order to reap better outsourcing benefits and firm performance. Accordingly, a critical challenge facing organisations is, how to effectively organize and manage a well-planned outsourcing strategy in alignment with their business strategy. The decision to outsource IT functions are crucial but however, it is not an easy task. Since outsourcing has influence over an organisation’s market share and technical leadership, it can make the organisation either agile and proactive, or sluggish and reactive in responding to customer needs and market opportunities observed Saunders, Gebelt, and Hu, (1997); Quinn and Hilmer (1994); and Tas and Sunder (2004). Thus, outsourcing is not just an operational decision but a strategic one, with far reaching consequences. An effective strategy is highly critical to the success of outsourcing, in the rapidly changing external environment opined Su, Levina, and Ross (2016); Lacity and Willcocks (1998); Lee et al. (2004); Saunders et al. (1997) and Miranda and Kavan (2005). A misaligned outsourcing decision can result in loss of competencies and capabilities, exposure to unexpected risks, and even business failures. From the business point of view, IT and business managers will go for outsourcing IT functions in order to reduce costs. Particularly this was logical, with regard to outsourcing the IT function to achieve significant lower wages. Moreover, significant number of studies propogated by Kern and Willcocks (2000); Ross and Westerman (2004); Kishore, Rao, Nam, Rajagopalan, and Chaudhury (2003); Kaiser and Hawk (2004); Lander, Purvis, McCray, and Leigh (2004) and; Smith and McKeen (2004) reveal, that motivation is critical to achieve goals and secure a competitive position in the market. Again, considering the real world situation, many academicians suggest that strategic collaboration is obviously one of the key success factors for IT outsourcing. Literature reveals several pragmatic practices to ensure IT outsourcing deliverable are achieved, g after the contracts have been made between two parties stated Smith and McKeen (2004), Delmonte and McCarthy (2003); and Carmel and Agarwal (2002).

The Basic Model for IT Outsourcing

With the help of strategic collaboration with external business partners, firm can have new levels of IT competencies, aimed to achieve fundamental business goals and mission. For instance, a research study conducted by Kimzey and Kurokawa’s (2002) on US and Japanese firms reveal, that firms have achieved competitive advantage in their business arena by implementing IT outsourcing in a constructive manner. They also argued that through access to larger technology pools, enhanced the ability to develop products which couldn’t have been developed internally, shortened cycle times and reduced development costs, helping companies to gain distinctive competitive advantage. It should be noted here, that there are other information system (IS) models that can also be implemented to address the present issues of IT outsourcing. In addition, Gorry and Scott-Morton (1989) suggest that a well-constructed IT framework can assist information system managers in their strategic decision making, problem solving process, and determine the benefits of technology. Gorry and Scott-Morton (1989), gurus in IS research, recognised the importance for a common well constructed framework for organisations, in order to plan for management of information systems (MIS) activities and allocate resources. Khan, Currie and Guah (2003) conducted a research survey on 17 Indian firms, and proposed a basic model for IT outsourcing. Their findings reveal that to ensure organisational success, a number of components such as contracts, infrastructure, quality management, security, and culture are critically important.

Smith and McKeen (2004) have conducted focus group studies with professional IT managers, to examine the critical success factors of an outsourcing model. Their studies reveal that there are four types of crucial managerial activities that drive an organisation to go for IT outsourcing. Such as pragmatic strategy, risk mitigation techniques, governance, and cost management activities opined Smith and McKeen (2004). As IT is subject to on-going scrutiny in enhancing value to the organisations, it is important for the concerned authorities to build and maintain strategic partnership with contractual parties. Carr (2003) argued that organisations may achieve limited opportunities to reap the benefit from IT, if devaluation of IT occurs due to changing times. Managers should bear in mind that, IT has been considered as a commodity and its value can be decreased at a certain period. Carr (2003) also logically stated, that management of organisations should be advised to spend less and be “followers” on the leading edge. The CIO of BSI should have a well-developed strategic plan, in order to exploit market opportunities and gain competitive advantage through investing in IT related activities. Schrage (2003) further enumerated that, quality management issues need to be considered to generate expected value from IT related functions. Without quality management, IT can neither transform economics of innovation, nor ensure differentiation.

Alignment to Business Strategy

From the practical and technical point of view, Kohli and Devaraj (2004) and Hefner (2003) stated the importance of accommodating IS to business strategies. It is an essential step for enhancing the IT value. Kohli and Devaraj (2004) also argued, that organisations should consider four key steps in evaluating IT’s contribution to business investments. They are alignment, involvement, systematic analysis, and superior communication systems. Carmel and Agarwal (2002) addressed, that designated business alignment is a fundamental element in IT outsourcing. Luftman, Papp and Brier (1999) provided support, for the significance of business alignment through their extensive studies to identify the “enablers and inhibitors” of IT/business alignment. Luftman (2000) has identified the maturity level and maturity criteria that organisations could utilize to ensure their present state of alignment maturity and desired state. By proposing a constructive model, Henderson and Venkatraman’s (1993) argued that firms’ business strategy creates the platform for well- organised IT strategy. Business strategy along with IT strategy drive IT infrastructure. Although their model is to some extent cyclical and technical point of view IT strategy must always be the enabler. From strategic management perspective, IT strategy can also drive firm infrastructure, business strategy, and IS strategy. By applying the model of Henderson and Venkatraman (1993) concern managers can leverage IT to transform the firm for gaining competitive advantage. Henderson and Venkatraman’s (1993) work is important to the development of a management model for IT outsourcing, because it supports the view that “strategic” must be an essential constituent. It will force an organisation beyond orthodox business process re- engineering and automation, both internal and external providers of service. A constructive model for IT outsourcing  would enable an organisation to be motivated by business strategy, IT strategy and organisational infrastructure. A study was conducted by Luftman and McLean (2004), considering 301 Society of Information Management members (CIO level managers) and their findings reveal that alignment as the number one IT management concern. In addition, Luftman and McLean’s (2004) research findings pointed out that the number one inhibitor to alignment was executive level support and the number one enabler was the executive’s understanding of the firm’s changing business environment.

Management Support

Rivard and Lapointe (2012) and Keen (1981) postulated that, management support is key to reducing resistance to change. They suggested that to overcome the resistance to change and implement IT outsourcing requires, all through management support on a continuous basis. In many cases, due to IT outsourcing, internal workers are displaced, which is a cause for emotional concern and frustration for staff. Management support needs to address the side effects of IT outsourcing, downsizing, employee dissatisfaction, and enhancing a strategic trustworthy relationship with new business partners. Management support is also needed to avoid information distortion and other counter implementation tactics mention Rivard and Lapointe (2012); Ba, Stallaert, and Whinston (2001) and Keen (1981).
Management support entails the management setting clear objectives, and developing the maturity of teams and organisational processes opined Delmonte and McCarthy (2003). Carmel and Agarwal (2002) recommend three key issues for IT executives to consider with regard to offshore outsourcing/
They are giving strategic importance to offshore outsourcing, overcoming the fears of employees being displaced, and IT executive should take a positive initiative to foster internationalisation. Carmel and Agarwal (2002) further proposed number of techniques to mitigate cultural differences between offshore workers and onshore workers; through managing cultural diversity in the workplace.

Culture

Organisational stability and favourable culture are important for enhancing value derived from IT outsourcing state Zwass (2003); Carmel and Agarwal (2002, Khan et al.(2003), Delmonte and McCarthy (2003), Sakaguchi and Raghavan (2003), Omar (1999) and Davison (2004). Delmonte and McCarthy (2003) logically recommended that a perfect organisational setting drive managers, to accept change and take risks associated with IT outsourcing. There are many inherent risks associated with IT outsourcing Therefore, it is the professional manager’s responsibility to manage such risks in a cost effective manner postulated Samantra, Datta, and Mahapatra (2014). The CIO magazine published a report by the Meta Group where Davison (2004) pointed out, the number of loopholes of IT outsourcing.
As per the report, culture was a critical issue which required to be addressed properly. The CIO magazine also reveals that firms encouraging IT development should take a positive initiative to train employees on language accents, religious diversity and socio-cultural values. Davison (2004) also recommend that, CIOs should not treat cultural education as trivial. To overcome all these important challenges regarding IT outsourcing and organisational maturity, cultural readiness could play a vital role from the strategic management point of view.

Infrastructure

A well organised, stable, and integrated technological infrastructure obviously creates a solid platform for IT development. Medjahed, Benatallah, Bouguettaya, Ngu and Elmagarmid (2003) enumerated, that distinctive infrastructure creates solid foundation for B2B interactions. Organisations should have the ability and capability to manage and integrate business process, for instance ERP softwares. It is also critical for organisation to have a standard format, an established communications network system, business process conversations and security. Finally, major technologies such as EDI, OBI, XML etc. must function properly together, with integration of internal and external applications in a pragmatic manner state Medjahed et al (2003).

Contracts

Framing effective contracts is a legal issue related to business. A constructive contract expresses and defines roles, responsibilities, requirements, and performance measurement mechanisms. A well-defined contract helps to build and maintain relationships. Yet, only having a contract is not sufficient enough for laying down a true strategic long term partnership. Ross and Westerman (2004) gave importance to “on-demand” computing and a well-defined relationship management. They argued that the contract cannot predict all the future changes, challenges and demands. The most important consideration is that the relationship must be stronger, distinctive, and more strategic than the contract, much like a marriage. Kern and Willcocks (2000) argued, that organisations may face problem in a situation, where service level agreements do not reveal whether the customer is actually satisfied or not. In such a case, achieving organisational goals are difficult. Therefore, they suggested that the suppliers need to understand the business mechanisms and communicate honestly, all the critical issues to the concerned managers and become vertically integrated with the client organisation.

Strategic Partnership

A strategic partnership is a collaborative relationship between a vendor and a client, who agree to provide joint efforts for achieving mutually beneficial goals. The concept of a strategic partner extends beyond the supplier client operational and contractual relationship. With regards to IT outsourcing, the maintenance of a strategic partnership extends to charging a fee for services rendered. From the management point of view, in the competitive business world, a strategic partnership is a key issue for motivating outsourcing activities state Smith and McKeen (2004). They also argued that the traditional motivator of IT outsourcing, is to reduce costs but it is no longer considered as a valid long term strategy. Kimzey and Kurokawa (2002) and Ross and Westerman (2004,) identified number of new goals of IT outsourcing like on demand and utility computing, agility, time to market, innovation progression, and decisions regarding finding strategic solutions. Kern and Willcocks (2000) stated that a welldeveloped trustworthy relationship between client and suppliers, creates favourable situations for suppliers to share business strategy, and develop a strong strategic integration. In addition, Kern and Willcocks (2002) recommended number of actions that can be taken to ensure high integration. Measures recommended were a well-established management infrastructure, a supplier account term, and post-management support.

Governance Committees

Governance mechanisms play a vital role to ensure strategic IT and business decisions. Weill’s (2004) extensive research paper titled “Don’t Just Lead, Govern”, studied over 250 enterprises in 23 countries, linking governance positively to re-enforcing performance goals and other enterprise assets and desired behaviours. Although Weill’s study was not specific to IT outsourcing, the point is very clear. IT value can be perfectly generated if the organisation can ensure a systematic transparent governance system. Human behaviour and IT functions can be controlled through experience and effective governance committees. Flannery and Heckathorn (2003) strongly argued, that both tactical and strategic committees are responsible to govern decisions regarding IT outsourcing.

IT Value Hierarchy

Over the past twenty years, there has been an explosion in the application of IT within organisations of all types. Companies providing hardware, software, networking, and consulting services have been created and have flourished The number of IT professionals have increased exponentially, and billions of dollars have been spent by organisations in the quest to become and remain IT enabled by the standards of the day. Despite the ongoing cost, reach of information technology, and enablement within their organisations, many executives still struggle to clearly articulate the value that is being derived from IT. In 2003, Nicolas Carr raised the ire of many IT leaders by suggesting that the use of IT no longer provides any significant advantage to companies. Carr (2003) argued that IT has become a commodity of sorts and therefore does not offer any competitive advantage to companies. To leading IT executives, Carr’s argument is without merit. Although IT products and services may be equally available, the innovative use of IT to create competitive differentiation has clearly been achieved by many organisations. What IT executives often lack is a contextual framework, in which they can explain their path to increasing value for their firms.
Urwiler and Frolick (2008) reveal that as executives contemplate the value of IT to their respective organisations, a needs hierarchy can be derived. This consists of information and connectivity needs, stability and security needs, integrated information needs, competitive differentiation and a paradigm shifting. This may help create context for understanding, comparing, and articulating the progressive value of IT to competitive organisations. At the most basic level, mid-to-large sized companies need IT infrastructure and connectivity in order to survive. Upon meeting this need, they seek stability and security of the technology infrastructure. As they achieve acceptable levels of security and stability, the need for integrated information systems to provide accurate and consistent information with which they can make sound business decisions becomes the focus. In general, many organisations feel reasonably satisfied reaching this level of maturity. In many cases however, companies can achieve a higher level of maturity by using information technology to attain competitive differentiation; or even as a means to fundamentally change consumer behaviour and expectations. It is important to understand that not all organisations need to strive for the highest level of maturity in the IT value hierarchy. Just as with human needs, any level of maturity may be appropriate, depending on the prevailing environmental conditions. The intention of the IT value hierarchy model is to provide a framework for understanding, categorizing, and describing the value derived by increasingly sophisticated use of information technology within competitive organisations. Using the IT value hierarchy as a framework, executives will be able to more readily explain the importance of meeting the basic IT needs of the organisation; by considering the more sophisticated or innovative applications that may generate competitive advantage. They will also be better equipped to explain the difference between commodities IT investments, and those aimed at providing differentiation in the marketplace.

Strategy and the Internet

The internet is an extremely important new technology, and it is no surprise that it has received so much attention from entrepreneurs, executives, investors, and business observers. Some companies for example, have used internet technology to shift the basis of competition away from quality, features, and services towards price, and making it harder for anyone in their industries to turnaround a profit. It is the uses of the internet that ultimately creates economic value. The basic tool for understanding the influence of IT on companies is the value chain, the set of activities through which a product or service is created and delivered to customers as propagated by Porter (2001).Because every activity involves the creation, processing, and communication of information, information technology has a pervasive influence on the value chain. The special advantage of the internet is the ability to link one activity with others and make real time data created in one activity widely available, both within the company and with outsiders such as suppliers, channels, and customers opines Porter (2001). For firms to create value by deploying IT, they need to look at their value chain as a whole, because it is traditionally considered as a support function and can have a critical impact in the value chain activities.

The Case on the British Standards Institution

The BSI Group is a leading business services provider to organisations worldwide, offering a range of services for management system certification, product testing, certification and standardization. BSI operates in a range of sectors as diverse as building, construction, medical devices and nanotechnology. Since its foundation in 1901 as the  Engineering Standards Committee, the BSI Group has grown into a leading global independent business services organisation. The BSI Group is also a large and diverse organisation having clients at 60,000 sites in more than 100 countries.
With over 2,000 staff it operates globally, especially in Europe, Middle East, Africa, Americas and the Asia Pacific. BSI generates £160m in revenues from its operations around the globe. BSI is split into three divisions:
3.1 The British Standards: BSI British Standards is the UK’s National Standards Body (NSB) and was the world’s first. It represents UK economic and social interests across all European and international standards organisations, through the development of business information solutions for British organisations of all sizes and sectors. BSI British Standards works with manufacturing and service industries, businesses, governments and consumers to facilitate the production of British, European and international standards. Part of the BSI Group, BSI British Standards has a close working relationship with the UK government, primarily through the Department for Innovation, University and Skills (DIUS).
3.2 Management Systems: BSI Management Systems works in partnership with companies, helping them to bring out the best in their businesses and achieve high benchmarks for the implementation and administration of their management systems and processes. With more than 60,000 certified clients and more full time assessors than any other certification body worldwide, BSI Management Systems is one of the largest and most experienced registrars around.
Services: BSI has one of the largest United Kingdom Accreditation Services (UKAS) approvals in the UK. BSI can identify technical requirements, product testing and certification schemes for most countries in the world. They have reciprocal agreements to accept their test reports with many countries including Japan, USA, Australia, New Zealand, South Africa, EU member states, China and Russia. In the UK, they perform testing for a variety of Government departments, regulatory bodies and trade associations, such as number plate testing for the Department of Transport and cables testing for the British Approvals Service for Cables (BASEC).
Going by Porter’s (1985) value chain activities within BSI are:

BSI had since its inception, fifteen software legacy systems catering to the organisation needs. Individual legacy software served the needs of a particular business area and going forward it was a huge challenge maintaining and integrating software applications. Like any other organisation and as per industry trend, BSI has been steadily replacing the old legacy applications with more robust scalable service oriented architecture type software applications. The current IT landscape is made up of the following software applications:

SAP R/3 Enterprise Resource Planning Software System BSI implemented SAP R/3 Enterprise Resource Planning (ERP) software system to replace the various legacy systems. SAP R/3 ERP software system has enabled BSI in generating real time data, enabling linkages across functional areas and divisions, and thereby promoting the integration of information across all units of the business at one time. SAP is instrumental in providing cross functional integration of business process.

Crystal Reports and Business Objects Enterprise

BSI required a flexible reporting and analysis platform to allow users to easily access and analyze business information. BSI’s wealth of data was not easily accessible. The company needed a common platform to query and deliver key information to multiple sources. BSI selected Crystal Reports and Business Objects Enterprise from Business Objects to create a standardized, web-based solution that enables its employees and customers to use information more effectively. Business Objects reduced the processing time of daily reports from hours to seconds, and helped the company save on training and consulting costs with online support services.

EPiServer Content Management System

EPiServer CMS 5 is a .NET 3.0-based Web Content Management (WCM) system, which has been designed to be used by editors, authors, designers, developers, and .NET solution houses to create and manage end-user websites and create complex web solutions. WCM solutions enable organisations like BSI to speedily build and easily maintain websites eliminating which was previously a bottleneck, the Webmaster, by allowing business users to create and publish web content. EPiServer enhances this experience by enabling seamless collaboration in the production, approval, and delivery processes.

New Communications Portal

BSI is rolling out a global portal to bring its different business divisions closer together and provide all relevant corporate information in one place. A new portal, Connect, links offices globally, superseding a number of geographic intranets, and promoting a common BSI culture.

ANALYSIS OF FINDINGS AND DISCUSSION
This critical analysis and discussion is based on the representation and interpretation of facts acquired through face to face interviews with key managers of BSI (see Appendix 1); who have vast experience and are actively involved in the planning, implementation and decision making process regarding IT activities.

The role of IT perceived within the organisation

There is a mixed opinion within BSI on the perceived value of the IT function in terms of its contribution to the business. The CIO and the IT Director are clearly an advocate of value creation by the IT function. Whereas the CFO and the Business Managers believed that IT is a support function. In the past most of the initiatives were mapping and integrating the back office functions, and as such IT was not contributing much in the front office functions. When the SAP R/3 Enterprise Resource Planning software application was first installed, the users had great difficulty using the system. There were certain changes to the business process, and the users were not adequately trained to use the SAP R/3 system. This gave a perception to the users that, the software system installed was complex and they were not getting the benefits of the ERP system in terms of cross functional business process integration. Hence, the impression of IT was considered as a support function and not seen as business operations.
However, there is a slight shift in the perception between the CFO and Business Managers, as IT has started to contribute to the front office functions like marketing and sales which have high visibility and impact within the enterprise. It is also apparent, that the current IT function is more aligned towards e-commerce initiatives. At present expenditure on e-commerce initiatives is 40% of the total IT budget.

Current IT Functions and Value Creation for Business

BSI has implemented software applications like SAP, Cognos, EPiServer, Communications Portal, and Salesforce.com and e-commerce engine on the .Net framework. All these systems help BSI in integrating the activities in the value chain (both the primary and support activities) and driving value within the enterprise, by providing critical business information for making effective business decisions in time. With the SAP ERP, the company has consolidated and streamlined functional areas including financials, sales and distribution, R&D, purchasing, project management, service management and corporate service processes.SAP R/3 software system gathers accurate and timely information from these functional areas, and makes available integrated information for all operations within BSI, including those in global locations. This has fostered more effective decision making across the organisation and helped the company to be agile and responsive. Crystal Enterprise software solution has enabled employees to share the information extracted from any one of BSI’s value chain activities, thus maximising effective decision making.
Business Objects improved the visibility of key business data contributing to an increase in debt recovery of several million dollars per annum, while considerably minimizing expenditure on specialised programming. The finance department uses the new system regularly, to monitor uninvoiced income and outstanding debt. BSI employees can now process monthly reports within a short time which took 48 hours to accomplish in the past. Improved access to information across the organisation has increased productivity and revenue. BSI has reduced its expenditure on external resources by about 75% by giving importance to the Crystal Enterprise. The next step for the company is to leverage Crystal Enterprise’s web based reporting capabilities to improve customer service. So far, the development has been quite inward looking, but now the plan is to integrate their data warehouse with the functionality of the Crystal Enterprise to deliver better information to their customers. For BSI, the use of EPiServer CMS reduces the dependence and therefore cost of highly skilled web developers. BSI is able to quickly take advantage of the built in functionality by rapid development of their IT system. It allows knowledge workers to work and manage content, carry on commerce via their websites, enforce schematic maintenance of content, and enforces high web presentation standards faster.
Referring to the IT value hierarchy, BSI is definitely meeting the need for integrated information. They are currently at the IT commodity level, where the major activities involve tight integration between the software systems. There is a current initiative in progress to integrate SAP with Microsoft Office for seamless access to information and enabling decision making agility. Through the integration of all the software systems, the IT function is providing efficient processes for the firm to be agile and responsive. It is evident that through the e-commerce initiatives, both IT and the Business are collaborating together to roll out new products and services. Clearly this is the way forward for the firm to drive value through the IT function, and a good opportunity for the CIO to trumpet IT achievements among the key stakeholders. The IT systems are driving value in the primary and support activities of the enterprise. All the software applications are tightly integrated and have improved the company’s ability to manage, track, and control product and service related information; enabling various stakeholder groups to work together more closely. With the recent e-commerce initiatives, BSI is able to offer few products and services through the online channel. The online channel provides number of advantages such as cost mitigation, quicker delivery and just in time customer service for the purpose of improving the organisation’s profitability. Online sales are now contributing 60% of the total sales within the division of British Standards.

Collaboration between the IT and Business teams

The information gathered from the interviews with key managers, reveal that the IT and the Business teams are not completely aligned with each other. Certainly there is a gap between them which needs to be aligned. The business team and IT team do not communicate with each other during the initial stage of defining the requirement. This creates problems for the IT team, as they have to work out a solution at the very last stages and they are under pressure to deliver from a time to market perspective. The CIO also spends very little time in his interaction with the business teams, to understand their business needs as well as communicate the current achievements of the IT department. There are no initiatives to build personal relationships apart from the focus group meetings every quarter. It is also evident that by not spending enough time with the management and business teams, the CIO is not championing the cause of IT initiatives and the value it is creating for the business. The CIO is spending more time with his IT team, which has led to a gap between the Business and IT teams. The CFO has commented that the gap does exist and hence very recently they have initiated focus group meeting every quarter which provides a platform for all the IT and Business Managers to come forward, to build personal relationships and share the business initiatives in line with the company’s growth direction. The IT Director has commented that the Business Managers share the requirements at the very last stage of the process and hence IT is not able to give the best possible solution. Business Managers have the perception that the IT team is more technology focused. It is also important for them to understand the requirements of business. They need to learn to communicate with the business team by using business terms rather than technical terms.

IT Budget Trends

In the dot com era, BSI had an IT budget which represented 10% of the company’s revenue. There were lot of initiatives to have the best of breed software applications installed to give them an edge in the marketplace. The best of breed software applications promised implementation of best practice processes and integration of these processes, across all levels of business process activities within the enterprise. Compared to the dotcom era, BSI now has an IT expenditure of 4.5% of the company’s revenue which has been steady since the last two years. Going forward IT budgets are likely to remain the same. The CIO is under tremendous pressure to manage the IT initiatives within a limited budget. BSI’s IT department size overall consists of 35 members. Around 10 team members are dedicated to e-commerce initiatives. BSI now has an established clear strategic roadmap for the business and going forward will focus their effort towards extending their global footprint and developing innovative products and services that provide solutions to the key issues confronting any business, within local or global shores. The management has decided to invest a significant amount in e-commerce software applications to deliver efficient and cost effective services to their global customers, specifically in the areas of publishing, training and certification. The Business Managers across the enterprise are responsible to push their projects for budget approvals. There is a review by the senior management in which, the CFO plays a very crucial role in approving the budgets. Currently there is a priority within the business, to spend more in e-commerce initiatives approximately amounting to 40% of the overall IT budget.

Outsourcing Initiatives

BSI does not have a mature outsourcing strategy in place to drive business value within the enterprise. It is more in the initial evolving stage and going forward will play a significant role in driving down costs and equally adding value to the business by focusing on the core activities. A small part of the IT software development has been outsourced but in terms of commercial spend, it is an insignificant amount. BSI currently spends roughly about 2% of IT budget amount on outsourcing initiatives. Most of the IT development and support activities are carried in house. With the expansion of business in Asia Pac region, the current IT team structure is not able to effectively serve the global business needs. Due to a restricted IT budget, there is a recent move by the CIO towards outsourcing certain IT functions. This is an entirely new field and the CIO will need to drive the strategic value through outsourcing initiatives.

RECOMMENDATIONS

IT and Business Alignment

IT management within BSI needs to understand the business needs better and align these to the IT strategy. Misalignment of IT and business strategy can be so expensive and so detrimental to a business, that a small number of corporate organisations have started to appoint their senior IT Managers to the Board. The CIO at BSI should be placed roughly at the same level of consulting priority as the Chief Financial Officer. Clearly this is not the case within BSI, as the CIO is not on the management Board. BSI’s management will have to look into this matter and plan to give more strategic importance to IT initiatives. In applying the IT Value Hierarchy, it is essential for BSI to understand that all preceding levels must be considered, regardless of the level that the organisation is striving to break through. The absence of performance at any preceding level draws attention to that level and can cause reduced confidence in IT capabilities. BSI executives should therefore consider each level in the IT Value Hierarchy, as a channel when developing IT strategies and initiatives within the organisation.” ClOs prefer a supportive business environment, but if that’s missing, they need to ask questions and try to form alliances with members of the leadership team to discover where the business urgencies are, and what the priorities are”. At present the CIO is not spending enough time with the business team and the management team in building relationships, and to convey to them the message that IT is a value generating activity within the enterprise.
The CIO of BSI needs to spend significant amount of his time consciously demonstrating the importance of IT initiatives to the business goals of various managers, and ensuring their support on IT strategy and direction. This inability to quantify the value that IT delivers to the business is what separates the CIO from a seat in the boardroom. The CIO should communicate ROI to the business in terms of Return on Value (ROV). The ROV of a proposed or on-going project can be determined in eight key areas including its competitive, financial, functional, process, relationship, strategic, technical, and usage values. IT executives within BSI should develop a omprehensive picture, using the appropriate key values to communicate the ROV of the project they are championing to the upper management. With the new e-commerce initiatives, sales within the British Standards division through the online channel are now 60% of the total sales. The CIO should champion the cause of IT contribution to the key stakeholders in the organisation. This will help facilitate a very positive message of IT contribution to the business. The IT department at present do not categorise their projects into buckets, for representing projects portfolio in terms of replacement of current systems, introduction of a new system in line with the organisation’s strategy, to improve relationships with customer and vendors or simply to enhance current processes. The IT team should formalise the projects under the following four categories:
• Replacement of a current system or process that no longer works or adequately performs a process or function.
• Introduction of a new system or process that will deliver on an enterprise’s strategic goals and/or improve its competitive position in the marketplace.
• Purchase or develop tools and initiatives that will improve relationships with customers, suppliers, and business partners.
• Introduction of initiatives to enhance current processes.

The Outsourcing Strategy

From the interviews with the CIO and the CFO, it was apparent that there is a restrained IT budget and the CIO needs to accomplish his tasks within this budget. With increasing pressure on the IT resourcing front, the CIO is certainly having challenges in deploying the right IT resources for the current and planned IT projects. Clearly the mantra now for the CIO is to accomplish more with less. With this in background, outsourcing offers an excellent framework to accomplish all IT objectives. Outsourcing will give BSI access to skilled resources on demand, to accomplish their IT objectives. The CIO will be able to focus his existing team on more important matters like interacting with the business teams, with customers and vendors and understand their needs better. Also this gives an excellent opportunity to build relationships between them.

Alignment to the Business Strategy

This is the first fundamental stage, where the IT strategy should mesh with the business strategy. The CIO and his team should spend more time to understand the current and future business needs and align accordingly. The CIO is aware of the current e-commerce initiatives of the business, and clearly his focus should be on how his team could drive value to the business by providing an appropriate e-commerce platform to accomplish further sales through this online channel. His focus on other software applications should be, to maintain these applications and improve on the integration areas between them. BSI is rapidly expanding into the Asia Pacific region and their employee headcount is growing in this region. The IT department within BSI will face a daunting task of supporting the Asia Pacific region as the major IT staff is based out of the UK. BSI will have to plan local IT development and support activities for the IT initiatives, and support the business in the Asia Pacific region. For this to be accomplished, BSI’s CIO will have to take a decision to either have their own local staff in the Asia Pacific region or outsource the IT development and support function to an external vendor based in the Asia Pacific region. Outsourcing offers an excellent opportunity to the CIO to meet the business needs of the organisation in the Asia Pacific region. BSI will need to configure its value chain activities across different countries, to maximize their efficiency and effectiveness.

Management Support

The CIO will need to spend significant amount of time championing the positive aspects of outsourcing to the management. The CIO will need to come up with an outsourcing plan to clearly show the drivers and the value creation for the enterprise. Management support is a key for any outsourcing  initiative to succeed.

Culture

Culture plays an important part in outsourcing initiatives. Both the culture internal to the organisation as well as the culture of the external vendor should support the outsourcing initiatives. A significant amount of time will have to be spent to nurture the culture, for the smooth functioning of outsourcing initiatives. Internally, top management support is essential to create an atmosphere, that outsourcing is good for the business and communicate this message to the concerned teams who feel threatened by the outsourcing function. The vendors should understand the culture of BSI, which is one of the key success factors for building relationship and practically make the outsourcing model work in a rational fashion.

Contracts

The CIO and his core team needs to spend good amount of time drafting the contracts. Service Level Agreements play a key role in the contract negotiations. The CIO should be aware that there are hidden costs such as BSI team’s involvement towards communication with the external vendor, and these costs should be kept in mind. Also the expectations should be at  ground reality, as the benefits of outsourcing is visible in the mid to long term timeframe; as initially most of the time is spent in understanding of processes and knowledge transfer. Accordingly, the contracts should be drafted keeping in mind low productivity from the external vendor, during the initial phase of the engagement. This way the expectations are set correctly both within the BSI management and with the external vendor. The proposed outsourcing model of IT creates a strategic platform for the CIO to take crucial outsourcing decisions, in a complex and dynamic situation.

CONCLUSION

The future of an organisation relies heavily on the quality of information services being used. Attempts to achieve sustainable competitiveness through IT however, increases the burden on organisations as the scope and the complexity of IT expand. An organisation’s overarching objective in managing its information resources should be, to maximize flexibility and control in order to pursue different options as its circumstances change. To accomplish this objective, BSI should consider partial IT outsourcing from external service providers rather than pursuing complete inhouse development.)outsourcing offers a variety of ways for BSI to better leverage their resources and focus on core activities to increase IT’s value in the achievement of corporate objectives. As the growing role and importance of IT is being recognized internally, BSI faces a significant gap between the capabilities and skills required to realize the potential of IT, and the reality of the existing in-house IT capabilities and skills. BSI is growing significantly outside the UK and the IT team is at a disadvantage supporting the software applications in the Asia Pacific region, due to time zones and localisation issues. IT outsourcing plays a critical role in terms of meeting the firm’s objectives.
Therefore, outsourcing becomes a strategic business practice for BSI that has a significant impact on the firm performance. Outsourcing will help BSI’s IT team to focus on the core business areas and they will have the bandwidth, to effectively work with the business team in a collaborative manner. This will enable the IT team to have the internal buy in from the business, and develop cost effective solutions to drive the business growth. A collaborative way of working between the IT and business teams will ensure, further new products and services being introduced in the most cost effective manner giving them a competitive edge in the marketplace. The CIO of BSI needs to spend significant amounts of time demonstrating the importance of IT initiatives for achieving business goals. He should also gain support from business managers on IT strategy and direction. There has to be a shared vision and synergy between the IT teams and business team’s aim to accomplish corporate objectives. This will lead to a collaborative and innovative culture within BSI, for the purpose of enhancing the firm’s competitive advantages.

Limitation of the Study

It has to be acknowledged that there are some limitations to bear in mind when representing and interpreting the findings of this qualitative research study. Data for this study hasbeen collected through face to face interview by the principal author, during his higher study in the UK in the year 2014. Due to time and resource constraints, multiple case studies in the same domain have not been incorporated for this research. Despite the critical nature of the topic, it is limited to one single case study only. Findings from a case study may not reveal the true picture of the total real world situation. For this reason, further research should be based on a broader sample size to get more valid results. The case company represents a single industry and the business environment varies industry to industry. Knowledge acquired from a single case in a particular industry is not sufficient, to generalise the critical issues and draw meaningful conclusions. Moreover, managers in different organisations have different personalities and perceptions, which could influence the strategic business decisions regarding IT functions. Finally, this study has interpreted truly qualitative data for exploratory research purposes. It is justified to apply quantitative research methods and a number of hypothesis can be tested with the help of statistical tools, to validate the findings.

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Shanewaz Mahmood Sohel, Associate Professor, Department of Management, Faculty of Business Administration, University of Chittagong, Chittagong, Bangladesh. E-mail: sohel_cumgt@yahoo.com.

Mohammed Shahedul Quader, Associate Professor, Department of Marketing, Faculty of Business Administration, University of Chittagong, Chittagong, Bangladesh. E-mail: shahedulquader@yahoo.com.

 

 

 

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