Some empirical evidence on IS Strategy Alignment in banking

ELSEVIER

Information & Management 30 (1996) 155-177

Research

Some empirical evidence on IS Strategy Alignment in banking Walter R.J. Baets

*

Nijenrode UniversiO', The Netherlands Business School. Straatweg 25. 3621 BG Breukelen. The Netherlands

Abstract

Recent research amongst North-American and European IS managers shows that for both groups the alignment of IS strategy and corporate strategy is a top priority. IS alignment approaches do, however, exist, describing a generic process, independent of the characteristics of any particular industry or company. Here, an attempt is made to apply IS Strategy Alignment to banking, with the aim to identity major issues and to attempt to determine the relationships between these issues, based on a research project in a number of European banks. This work suggests that the main problem in generating improved IS Strategy Alignment is a lack of overall sector knowledge (not skills) amongst banking managers. Awareness of IS issues (even the softer ones) does not cause problems, but the application of these issues in the banking world does. The influence of mind sets on IS Strategy Alignment awareness proved to be important. Based on an experience with the analytical methods used and the results obtained, other methods of empirical investigation are suggested, including new issues in IS Strategy Alignment. Keywords: IS Strategy Alignment; IS in banking; IS strategy and planning

I. Introduction

Within the broad scope of literature on corporate strategy, a number of authors have stressed the importance of aligning the IS planning process with the overall corporate strategy [21,27,37,39]. In these models, the different steps of successful alignment of IS strategy with corporate strategy are considered in terms of both the issues and the process. Notwithstanding the extensive literature on the topic, results of research amongst North American and European IS managers [14,35] show that, for both groups, the alignment of IS and corporate strategy remains or becomes a top priority. Some extensions have been proposed to prior IS Strategy Alignment models [2]. It is argued, that if the process uses knowledge tools as facilitators, IS Strategy Alignment can be improved. A number of different alternatives have been suggested: cognitive maps [17]; neural networks [3]. However, only limited research has attempted to quantify issues and relationships in IS Strategy Alignment. The use of quantitative analysis has been advocated in a number of recent papers [8,22,36]. Broadbent and Weill [8] used case studies to generate hypotheses for IS Strategy Alignment in banking. They concluded that, in

* Current address: De Vlerick School voor Management, University of Gent, Bellevue 6, 9050 Ledeberg, Belgium. 0378-7206/96/$15.00 © 1996 Elsevier Science B.V. All rights reserved SSDI 0378-7206(95)00056-9

WR.J, Baets/ h!frwmation&Management30 (1996)155-177

156

Global IT platform

Competition

Business strategy

Strategic plan

Business

domam

Organization

]~

Impact

1-

TechnologyopponunJhes

~:Ce~

Organizational infrastructures and process

Business organization and process

IT strategy

Opportunity

I Ahgnment

Technology

domain

IS infrastructure and process

IS architecture. organization

Organizational change and human resource issues

IS implementation process, tools...

Fig. I.

ISstrategicalignmentprocess(copyofFig.1 in [2]).

order to generate further insight, quantitative analysis must take place. Norden [36] and Keen [22] argue that there is a need for the general case of quantification in IS Strategy Alignment.

2. The alignment of IS and corporate strategy The previously cited authors assume essentially the same general concepts: IS Strategy Alignment is a process, including some business strategy, business organisation, IS infrastructure and process, and IT strategy (opportunities) (see Fig. 1). The IS alignment process becomes a collaborative process between the business strategy, the business organisation, the IS infrastructure, and the IT strategy. It is assumed, in carrying out this process, that managers have sufficient information and knowledge about these four issues and that they are able to apply them to the company. To apply the IS Strategic Alignment model, the identification of issues in each of the four parts, as well as an understanding of the interrelation between them, will be required. This project attempts to identify these issues and relationships for the banking industry.

3. Research methodology As much as strategy is a process, the research methodology on corporate strategy and IS Strategy Alignment is itself a process. A literature review, a simulation tool [1] and interviews with some bank executives made it possible to identify a number of issues that are important in the process of IS Strategy Alignment in banking. A pilot project for one specific bank was designed. This gave an indication of the importance of suggested issues and relationships and allowed further completion of the proposed list of issues and relationships. Research

W.R.Z Baets / Information & Management 30 (1996) 155-177

157

hypotheses could then be defined. Finally, a questionnaire was developed. This has been used in a number of European banks.

4. The banking sector A number of issues mentioned as key to the banking sector today were tested as to their relevance through interviews with bank executives and in a simulation tool, simulating different scenarios. The following issues were identified and retained: • Squeezed margins on the interest rate products [38]; the fact that the difference between the interest rates on loans and deposits is decreasing, which, in the past, was a major source of income for banks. Competition [ 15,38]. Geographic deregulation [38]. Dilution of identity [15,26]. Human resources management [5,6,18]. Rules and regulations [20,43]. Information technology [4]. A number of different reports suggest some remarkable changes in attitude over the last five years in respect to the use of computers in the banking industry, e.g., in the Benelux countries. The capacity of the central systems used in Belgian banks has grown by a factor of 4.2. The capacity of branch offices has grown by a factor of 3; almost all are computerised today. The number of workstations has more than doubled; it has gone from 48 to 82 workstations per 100 employees. Nevertheless, considerable concern is expressed as to whether this evolution guarantees a better use of computing. In The Netherlands a similar trend has occurred. The operational cost of banks (computers, personnel, etc.) has, on average, tripled over the last ten years. However, the strategic impact of the growth has not really been assessed. It is not clear whether or not banking firms build their strategies around IT based market opportunities. On the other hand, a trend is observed in the use of IT from a support function to a competitive weapon [16,25,33,34]. This terminology is based on the strategic frameworks of the Design School [30,31]. These frameworks have contributed considerably to current thinking on the strategic use of Information Systems [9-13,44,45]. IS Strategy Alignment, however, is based on the strategy process approach, more common within the "Learning School" of strategists [31]. Feed-back of strategy execution on opportunities and hence on strategy re-formulation is inherent to this process. This process tackles integration, organisational structure, human acceptance, change management, and performance measurement; these are of paramount importance for strategic use of IT [25,42,44].

5. Pilot research project In order to make a preliminary validation of the issues, a pilot project was undertaken in a middle-sized European bank. A questionnaire with 99 questions was developed using the Question Mark software (automated questionnaire; product of QM Computing, London), so that people could respond to it at their own convenience. The questions covered a wide range of issues. Kotter's [24] framework for developing questionnaires was used. It has several subdivisions: external environment; dominant coalitions and formal organisational arrangements; employees/resources; internal social system; the organisation's use of technology; key organisational processes; I S / I T opportunity analysis. Other special issues were covered, such as the use of Information Systems within the bank, the integration of corporate strategy and policy with Information Systems Planning, organisational structure, human mind sets, etc.

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The pilot questionnaire was validated on a test sample of students and distributed to the executives of a middle-sized European bank. A matrix of participants was created, combining different functionalities at different hierarchical levels. In total, 32 executives responded. In-depth research at a single bank, covering different hierarchical levels and different functions, was chosen so that we could determine how the (line) managers, who actually carry out the corporate strategy to the clients, perceive IT and its relation to corporate strategy. We did not want to limit the work to the CEO and/or the CIO, since strategy is a process involving all layers of management. This is obviously in opposition to the "command and control" or "one single actor" mentality of the Design School. However, an "in depth" approach has limitations and only a few banks were found able to cooperate. Once one is steeped in the corporate strategy of one bank, it is extremely difficult to do comparative research in this highly competitive sector. The average age of the respondents was 40. Most had always worked in banking (86%), and most in the same bank (77%). 68% of the respondents considered themselves to be middle-managers. Their formal education was almost equally divided between high-school level, undergraduate, and graduate level. The majority of the people had low (42%) or medium (26%) level of formal I S / I T education. Most respondents (58%) were non-IS users in a non-IS service. Their functional breakdown was:

Commercial functions (branches) Administration (back-office) International activities Organisational services (IS and EDP) Financial department (accounting etc.)

Percentage of respondents 32% 26% 16% 21% 5%

We used this pilot profile of respondents as a way to show the needed breakdown to the person responsible for establishing the matrix of participating executives at other organisations. Demographic questions were not asked in the final questionnaire.

5.1. Findings of the pilot research hypotheses A number of issues were identified as important for IS Strategy Alignment (see Appendix A). An attempt was then made to link the different groups of variables, into a descriptive map (corporate map) (see Fig. 2), where the variables were regrouped as shown. The map shows a number of possible links between the issues. It pictures the way they are related to IS Strategy Alignment. A number of research hypotheses were formulated. H1. Bank executives are unable to draw an explicit link between banking problems and their solutions using IT. H2. Awareness of banking issues improves the understanding of the IS planning and strategy process. H3. Most IS issues are known by managers, even those issues related to organisational matters and IS process. H4. Awareness of IT related banking problems improves the understanding of the IS planning and strategy process.

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Observed Economic Variables

Banking Problems

/

ITBefated

"~

Banking ) \ ~ _ _P_r o_b l e m s y

t~

Ill C

ganisational~'\ ~ Slr,,ct.re

.~

; ~

GrowthModel

Alignment

(~

Managerial MindSets

Beheviour

- - local - international

Observed

I

Observed

i

Alignment

Fig. 2. Map for strategic IS alignment in banking (after Baets [2]).

HS. Different organisational structures have a different impact on the IS planning and strategy process. H6. Managerial mind sets are relevant for the understanding of and attitude towards the IS planning and strategy process. H7. High awareness of IS planning and strategy processes improves the understanding and awareness of the issues of IS Strategy Alignment. H8, High understanding of the stages involved in IS Strategy Alignment, improves the understanding of the dynamics of the process.

6. Research findings

6.1. Target group and sample of the project The hypotheses were tested using survey research in four Continental European banks, using an English questionnaire. The target group for this project was the same as that of the pilot project; i.e., (line) managers at different hierarchical levels operating in different functional areas. Thus we did not have to mail out a questionnaire; we believe that the responses are representative for the sample, since bankers were followed up in

160

WR.J. Baets / Information & Management 30 (1996) 155-177

order to make sure that they responded. However, this approach obviously biases the sample from a statistical point of view. The questionnaire used Likert-type scales from 1 to 6; this stopped the respondent from taking an average position. For some questions inverted scales were used. Each bank had to design a matrix of participating managers, covering the entire organisation. The rows of the matrix represented the different hierarchical levels in the company, the lowest was the manager of a large branch office. The columns of the matrix covered the different departments or business units. Each bank was asked to provide about 20 participating managers. It proved practically different to obtain this kind of involvement, however. Eventually, we received a sample consisting of 59 observations from four banks, operating in three countries. The individual responses per bank were 17, 18, 16, and 3. For the analysis of individual banks we only consider the first three, since the latter one had too few observations (degrees of freedom). Hence, the response rate for the sample was 90%. It is interesting to note that originally nine banks in six European countries committed, in writing, to participate.

6.2. Hypothesis testing 1. Bank executives are unable to draw an explicit link between banking problems and their solutions using IT. It seems reasonable to assume that bank managers should have a clear idea of market forces, buyer behaviour, etc., before they make a decision or even decide what information is needed for the decision. Here we consider the overall capacity of managers to deal with strategy. Furthermore, bank managers should have reasonably similar ideas about these issues. In order to measure this "awareness", we used six (macro) economic variables: Short term interest rate Long term interest rate Inflation rate Public debt Volume of private investment Volume of business investment The categories of bank products that influence buyer behaviour appear to be: Interest rate products Fee based products (portfolio management) IT products (credit cards, etc.) For each of these product groups, both for the local and international market, buyer sensitivities are considered to depend on: Price Marketing expenses Investment in technology Research and development (financial engineering) Human resources investment (training, etc.) A number of questions were asked about these product sensitivities. The perception of the managers on the buyer behaviour for this selected list of influencing policies could be tested. Appendix B summarises the scores for the overall sample. The results differ per issue and per bank considerably. The results shown in Appendix B only have descriptive value. From a statistical point of view, it is arguable whether one can calculate means while using Likert-scales and how they should be interpreted. Furthermore, the variables are sometimes overlapping, which could cause additional imperfections. For the purpose of this research, however, the mean and standard deviation have been chosen for their clarity.

W.R.J. Baets / In[ormation & Management 30 (1996) 155-177

161

Most of the means of the responses are between 3 and 4, which is essentially average. However, the standard deviation in most cases is larger than 1. Since the issues were identified by top bankers as those of importance, one would have expected the scores amongst the line managers to be above average. If we assume that the issues are important, apparently line management is well aware of this. Furthermore, a standard deviation larger than 1 indicates a spread of perception amongst the managers. With respect to the international market, the spread seems even more important. Awareness of buyer behaviour in the international market is even less consistent. Fewer people responded to elasticity issues in the international market then to that of the local market. In fee based and interest rate products, price and research are perceived as important differentiators. IT and

Table I 1T s o l u t i o n s for b a n k i n g p r o b l e m s a n d I S s t r a t e g y ( C = n o c o e f f i c i e n t s , d u e to m u l t i c o l l i n e a r i t y ) C o n t r i b u t i o n o f it in o r d e r to s o l v e the p r o b l e m o f R2

Squeezed margins

Competition

I T S 1A

ITS2A

Geographic deregulation ITS3A

Bank

1

2

3

1

2

3

1

2

3

1

2

3

S t r a t e g y I S A 1A

0.58

0.29

0.46

C

°

°

C

°

0.24

°

°

- (I.23

0.25

0.35

0.15

C

°

°

C

°

°

0.33

°

°

Systems ISA3A

0.28

0.40

0.41

C

-0.22

°

C

°

°

°

0.16

(O.O4) Staff ISA4A

0.55

0.27

0.36

C

o

o

C

0.30

.

0.50

0.31

0.17

C

o

°

C

°

0.33

0.18

0.13

0.40

C

°

0.33

C

.

0.30

0.48

0.82

C

-0.71!

0.56!

C

o

(0.28) Structure I S A 2 A (0.07)

.

.

0.21

.

(0.11) Style ISA5A

1.1!

°

°

(0.09) Skills I S A 6 A

.

.

.

.

(0.05) Superordinate

-0.39!

°

0.32

goals ISA7A (0.13) C o n t r i b u t i o n o f it in o r d e r to s o l v e the p r o b l e m o f Dilution of identity

HR qualities

Rules and regulations

Technological evolution

ITS4A

ITS5A

ITS6A

ITS7A

Bank

1

2

3

1

2

3

1

2

3

1

2

3

Strategy ISAIA

°

o

0.29

0.39

°

°

0.54t

°

0.28

°

0.35

-0.21

(0.28) Structure ISA2A

-0.22

-0.46!

°

-0.25 °

o

-0.190.48!

°

°

°

°

-0.21

o

-0.19 .

°

-0.21

°

-0.26 °

0.29

-0.43!

-0.51

°

-0.57?

°

-0.25

°

o

-0.32

°

0.18

°

o

(0.07) Systems ISA3A

.

.

.

.

.

.

(0.04) Staff ISA4A

-0.22

°

°

-0.39

°

°

-0.380.6

°

°

°

o

o

-0.46

°

o

0.51

o

c

-0.34

-0.15

.

(0.11) Style ISA5A (0.09) Skills I S A 6 A

o

(0.05) Superordinate goals ISA7A (0.131

.

.

.

- 0.29

162

W.R.J. Baets / lnfbrmation & Management 30 (1996) 155-177

marketing are much less. We also considered a number of (macro) economic variables, recognised as important for the success of a bank. The spread in the responses is a little lower here. However, it is important for most of the economic variables. There is thus a lack of convergence of ideas on the value of the economic environment to managers in banks. Finally, we tested the relationship between belief in the value of IT in solving some banking problems with respect to the attitude on IS strategy and planning (Appendix C, Table 1). Two observations can be made. First, there is no strong and explicit belief that IT can solve some specific banking problems, though the I S / I T issues are perceived important. This could suggest that the awareness of I S / I T is of a theoretical nature, and that managers have difficulties in translating the idea into the banking environment. Second, if managers see ways to solve banking problems via IT, they have a more positive attitude versus IS strategy and planning. IS strategy and planning has been materialised by using a Stages of Growth model [19]. 2. Awareness of banking issues improves the understanding of the IS planning and strategy process. Regressions were made between the managers' perceptions of those issues identified as important by top managers relative to IS planning and strategy. These regressions try to show a (positive) relationship between awareness of importance of banking problems (exogenous) and IS strategy and planning awareness (endogenous). Table 2 in Appendix C gives the results. The values, considering the numerical quality of the data (a limited number of possible outcomes) are mostly reasonable for separate banks. An important number of coefficients have significant t-values. Without making claims on any particular variable, this suggests reasonable evidence that awareness of the importance of banking problems has a significant influence on the understanding of the IS strategy and planning process. Whether this influence is positive or negative depends on the different variables. However, on this level, significance is much lower. 3. Most IS issues are known by managers, even those issues related to organisational matters and IS process. Do bank managers feel the I S / I T issues identified in the literature are also important in the banking industry? Only a limited number of issues were tested: Issues

Mean

Deviation

Engaging top management in the IS process Building an information base of customers Managing IT as a change process Search for new opportunities using IT Using IT to support initiatives

5.3 4.8 4.6 4.2 4.7

0.87 1.0 1.0 1.2 1.0

The means for these observations are quite high, and the standard deviations are not exceptionally high. This allows us to conclude that the general IS issues are recognised to be important by bank managers and perceived as important for their industry. The same results appear true for most IT issues, explicitly those related to organisational matters. Issues

Importance of organisational structure and co-ordination in order to support IT Importance of motivation and training in order to support IT Importance of group building in order to support IT Importance of industrial relations in order to support IT

Mean

Deviation

5.2

0.9

5.1

0.8

4.0

0.8

3.4

1.1

WR..L Baets / Information & Management 30 (1996) 155-177

163

Table 2 Banking problems and IS strategy R2

Squeezed margins IN 1A

Competition IN2A

Bank

1

2

3

I

2

3

1

2

Strategy ISA I A (0.21) Structure ISA2A

0.47

0.30

0.40

°

°

°

0.45

.

0.45

0.36

0.34

°

°

°

°

0.50

0.29

0.40

- 0.23

°

°

°

0.26

0.66

0.47

0.37

0.37

- 0.37

.

0.46

0.46

0.31

0.78

0.41

0.39

0.3

0.35

-0.5

0.27

0.58

0.23

°

0.44

Geographic deregulation IN3A 3

1

.

.

.

2

3

.

-0.26

°

°

-0.51

0.23

°

°

°

-044

(0.13) Systems 1SA3A (0.17) Staff ISA4A (0.19) Style ISA5A (0.O9) Skills ISA6A (0.30) Superordinate goals ISA7A

° 1.08 !

.

.

.

.

.

.

0.49

°

°

°

0.43

-0.4

-0.59

°

°

°

0.32

°

0.51

- 041

.

- 0.52

0.32

.

.

.

(0.07) Dilution of identity 1N4A

HR qualities IN5A

Bank

1

2

3

1

Strategy ISAIA (o.21) Structure ISA2A (o.13) Systems ISA3A (0.17) StaffiSA4A (0.19) Style ISA5A (0.o9) Skills ISA6A

o

o

o

0.94

0.33

°

°

°

-0.57

-0.55

o

o

o

-0.54!

-0.45

-0.33

o

-0.91! °

°

°

°

-0.47

°

°

°

2

Rules and regulations IN6A

Technological evolution IN7A

3

1

1

-0.71!

.

3 .

2

.

°

0.29

°

°

°

0.31

0.52

-0.43

0.67

0.41!

°

°

°

0.4

°

0.75

.

-0.49

0.63!

°

0.37

0.37

.

-0.31

.

°

°

. .

-0.27

. .

.

0.32

0.3

.

.

.

3 0.38

.

°

.

2 .

°

° °

0.55

(0.30) Superordinate goals ISA7A

1.01

°

- 0.42

- 0.34

°

°

o

(0.07)

A t l e a s t the first t h r e e i s s u e s are t h u s p e r c e i v e d i m p o r t a n t . F u r t h e r m o r e , t h e i r s p r e a d o b s e r v e d in q u i t e l o w . M a n a g e r s g e n e r a l l y a g r e e to the d e g r e e o f i m p o r t a n c e a m o n g s t t h e m s e l v e s . 4. A w a r e n e s s

o f I T r e l a t e d b a n k i n g p r o b l e m s i m p r o v e s the u n d e r s t a n d i n g o f t h e I S p l a n n i n g a n d s t r a t e g y

process. U p to t h i s p o i n t , w e d i d n o t f i n d s t r o n g e v i d e n c e t h a t I T c a n h e l p in s o l v i n g s o m e o f t h e s e p r o b l e m s . W e t h e r e f o r t e s t e d the a w a r e n e s s o f s p e c i f i c I T r e l a t e d b a n k i n g p r o b l e m s in p r o v i d i n g an i m p r o v e d u n d e r s t a n d i n g o f the I S s t r a t e g y a n d p l a n n i n g p r o c e s s . T a b l e 3 in A p p e n d i x C g i v e s d e t a i l s o f this. W e d o n o t f i n d m u c h e v i d e n c e to v a l i d a t e t h e h y p o t h e s i s , b u t w e c a n s a y t h a t t h e n e g a t i v e h y p o t h e s i s c a n be rejected.

Levels

of significance are rather l o w and apparently

influenced by improved awareness of IT problems.

improved

IS s t r a t e g y a n d p l a n n i n g is n o t

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W.R.J. Baets / Information & Management 30 (1996) 155-177

Table 3 IT related banking problems and IS strategy R2

Engaging top management ITS8A

Bank

1

2

3

1

Strategy I S A I A

0.28

0.35

0.32

°

0.11

0.49

0.48

°

°

0.08

0.19

0.48

.

.

0.52

0.50

0.16

°

-0.18

0.25

0.39

0.11

.

.

0.34

0.24

0.27

°

°

0.07

0.31

0.20

°

Building information base of customers ITS9A

Managing IT as a change process ITS 10A

3

1

3

1

2

°

°

0.26

°

°

°

°

- 0.42

°

°

0.9!

- 0.29

°

°

0.37

°

0.32

0.23

°

- 0.43

°

°

0.56

°

°

°

°

°

0.81

°

°

0.55

2 0.29

2

3 0.65 !

(0.15) Structure ISA2A (0.o9) Systems ISA3A (0.07) Staff ISA4A (0.o9) Style ISA5A (0.18) Skills ISA6A (0.13) Superordinate goals ISA7A

0.37 .

.

.

°

.

°

. - 0.37

0.28

.

0.59

.

.

.

-0.37 0.22

(0.02) R2

Searching for new opportunities using IT

Using IT to support initiatives

ITSI IA

ITSI2A

Bank

1

2

3

1

2

Strategy 1SA1A (0.15) Structure ISA2A (0.09) Systems ISA3A (0.07) Staff ISA4A (0.09) Style ISA5A (o.18) Skills ISA6A (0.13) Superordinate goals ISA7A

0.28

0.35

0.32

.

.

.

3 .

.

1

2

-0.34

0.11

0.49

0.48

.

.

.

.

.

- 0.31

0.08

0.19

0.48

°

- 0.24

°

°

°

0.3 I

0.52

0.50

0.16

0.35

- 0.33

- 0.17

°

°

0.29

0.25

0.39

0.11

°

0.38

.

.

.

.

0.34

0.24

0.27

°

- 0.33

.

.

.

.

0.07

0.31

0.20

°

0.32

°

°

3

- 0.46

°

(0.02)

5, Different

organisational

An attempt for improved

was made IS strategy

structures to measure

have a different the perceived

and planning.

Based

impact

importance

on Mintzberg's

on the IS planning

and strategy process.

of a limited number concept

of organisational

[28,29] of "modes",

structures

the following

are

considered: Entrepreneurial; Adaptive

(adhocracy);

Planning

(machine

Existence success

bureaucracy).

of a relationship

of the IS strategy

between

and planning

the perceived process

importance

of the three

was tested. In the research

organisational

questions,

forms

and

the

the three organisational

W.R.J. Baets / Information & Management 30 (1996) 155-177

165

Table 4 Organisational structure and IS strategy R2

Entrepreneurialstructure Ad hoc committees BO I A BO2A

Bureaucracy BO3A

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structures are termed: a bureaucracy, an entrepreneurial structure, and the existence of (or management by) ad hoc committees. Table 4 in Appendix C gives the analytic results. The overall statistics are poor: the significant coefficients of the entrepreneurial structure and bureaucracy (with one exception) all have positive signs. It could be interpreted that both organisational forms help to improve the use of IS strategy and planning. Most of the significant coefficients for an ad hoc committee structure are negative. 6. Managerial mind sets are relevant for the understanding of and attitude towards the IS planning and strategy process. In order to try to measure the individuals' mind set, we choose a specific typology, in this case K o l b ' s mind sets [23,32]. We described these mind sets to the respondents as: Green: appreciation and feeling. Red: criticism and thinking. Specifically, we inquired how important both mind sets ( " f e e l i n g " and " t h i n k i n g " ) were perceived as important to the managers in providing leadership, problem solving, innovative management, and co-ordination. The latter issues served as a description of some of the important managerial tasks. Table 5 in Appendix C gives the results of the regressions. Contrary to most others, it is striking how many coefficients are significant. Some of the R 2 per bank are also extremely high. 15 out of 21 R 2's are higher than 0.5, the highest being 0.88. Obviously, since these variables are rather soft, the use of regression would be expected to be less accurate. This allows us to draw the conclusion that there is a significant relation between the managers mind set(s) and an understanding or attitude they have towards IS planning and strategy. Managers who claim the importance of " f e e l i n g " in leadership have a clear and positive attitude towards IS planning. Those claiming the importance o f " t h i n k i n g " , have a negative attitude towards it. For problem analysis, the importance of " f e e l i n g " scores as a positive influence on the attitude towards IS planning. " T h i n k i n g " in " m a n a g e m e n t d u t y " scores primarily negative. Managers convinced o f the importance of " f e e l i n g " in innovative management, seem to have a rather negative attitude towards IS planning. However, when asked whether " t h i n k i n g " is important for innovative management, the respondent does not give clearly a positive

166

WR.J. Baets / lr~[ormation & Management 30 {1996) 1 5 5 - 1 7 7

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167

Table 6 IS planning in relation to IS Strategy A l i g n m e n t R2

Bank

1

Strategy ISA IA 2

3

I

Structure ISA2A 2

3

System ISA3A

1

Impacl o f IT opportunities on corporate strategic plan CSIA 0.61 0.48 0.37 0.71! 0,70 ° ° (0.21) O r g a n i s a t i o n of strategic plan into business processes CSZA 0.61 0.49 0.58 0.55? 0.27 0.57 0.40 (0.23) Alignment o f business organisation on IS architecture and 1S organisation CS3A 0.56 0.22 0.37 0.45 . . . .

2

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(0.04) O p p o r t u n i t y o f IS architecture and IS organisation for technological opportunities CS4A 0.60 0.05 0.52 0.53? ° ° 0.89? ° (0.08) Business organisations and processes for justifying IT BOI9A 0.81 0.45 0.21 0.46? ° ° -0.72? 0.39 (0.21) IS architecture and organisation for j u s t i f y i n g IT investment ISAIgA 0.58 0.10 0.55 0.34 ° 0.35 -0.92? ° (0.26) Technological opportunities for j u s t i f y i n g IT investment ITS13A 0.44 0.31 0.18 0.32 . . . . . . (0.08) Corporate strategic plan for justifying IT investment BS31A 0.83 0.29 0.73 0.96? o 0.85? ° ° (0.39) Staff ISA4A Bank

1

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3

1

-0.45

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0.66

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Superordinate goals ISA7A

Impact o f IT opportunities on corporate strategic plan CSIA ° ° ° 0.37 ° ° ° (0.21) O r g a n i s a t i o n of strategic plan into business processes -0.49 CS2A 0.29 ° 0.48 ° 0.42 ° ° (0.23) A l i g n m e n t o f business organisation on IS architecture and IS organisation ° CS3A ° ° 0.66 0.70? ° ° ° (0.04) O p p o r t u n i t y o f IS architecture and IS organisation for technological opportunities CS4A ° ° 0.46 ° ° 0.71 ! 0.41 (0.08) Business organisations and processes for j u s t i f y i n g IT ° BOI9A . . . . 0.82? 0.27 ° (0.2l) IS architecture and organisation for j u s t i f y i n g IT investment ISA 19A o o o 0.33 ° 0.63 ? ° (0.26) Technological opportunities for j u s t i f y i n g IT investment ITSI3A ° - 1.08 ° ° -0.58 (0.08) Corporate strategic plan for j u s t i f y i n g IT investment BS31A 0.25 ° 0.32 0.26 ° (0.39)

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168

W.R.J. Baets / InI'ormation & Management 30 (1996) 155-177

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W R.J. Baets / Information & Management 30 (1996) 155-177

169

answer either. Possibly, managers giving importance to "thinking" in the process of innovation tend to have a positive attitude towards the IS planning process. In the managers' role of co-ordinator, importance to "thinking" seems to generate a positive attitude towards the IS planning process. However, "feeling" doesn't score negatives. 7. High awareness of IS planning and strategy processes improves the understanding and awareness of the issues of IS Strategy Alignment. A test was performed to determine whether awareness of the IS planning processes improves understanding of and attitude towards the IS Strategy Alignment process. We wanted to determine whether IS planning is a precursor to IS Strategy Alignment. Table 6 of Appendix C shows these results. Three aspects of IS planning seem to give a significant explanation for most of the issue and process variables of the IS Strategy Alignment: strategy, systems, and style. The existing "structure" seems to explain IS Strategy Alignment to be negative for most aspects. The regressions give reasonable evidence to support the claim. Prior to launching an IS Strategy Alignment process in a company, it should be familiar with IS planning and strategy, and have one. 8. High understanding of the stages involved in IS Strategy Alignment, improves the understanding of the dynamics of the process. We already found out that experience with and knowledge of the IS planning and strategy process is a condition that improves understanding and attitude towards IS Strategy Alignment. Here, we tried to test the hypotheses that knowledge on the "issues" of the IS Strategy Alignment gives better understanding of the "process" variables. Table 7 in Appendix C summarises the results. The important number of significant coefficients stresses the significance of the variables. Apparently, a better understanding and knowledge of the "issue" variables involved in IS Strategy Alignment improves understanding of the "process" variables involved in IS Strategy Alignment. Managers seem to be aware of the importance of corporate strategy and perform impact studies of IT opportunities on corporate strategy. To a lesser extent, corporate strategy is considered important in explaining the "organisation of the strategic plan into business processes". These allow us to conclude that corporate strategic planning is perceived important by managers for improved IS Strategy Alignment, and hence IS strategic planning. A positive relation also exists between "technological opportunities for justifying IT investment" as exogenous variable and "opportunity of IS architecture and IS organisation for technological opportunities". This relation clearly links stages with process, all the same as the previous observations. In general, the "issue" variables related to corporate strategic planning and technological opportunities are highly significant for the understanding of the IS Strategy Alignment process.

7. Some conclusions

Some general conclusions can be drawn from our work. The expected agreement amongst the managers on client behaviour and product elasticities was not proven in any of the product groups, in none of the variables, and for neither market. This suggests that a lack of awareness on banking matters (markets, buyers and elasticities) could well be a reason why people are less able to cope with IS strategy. Technology issues are known in theory, but they cannot easily be connected to the day-to-day business. Theoretical awareness of the importance of IT in solving banking problems is not really a condition for

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awareness of and positive attitude towards IS strategy and planning. The IS planning and strategy process in a bank cannot be successful if awareness of the banking activity issues is low and the interaction of the different aspects within the corporate strategy is not well known among managers. The results observed clearly indicate the importance to work on the managers mind set.

8. Some observations and suggestions on the use of analytical tools A comparable research project [40] also deals with the impact of organisational context factors (such as strategy and environment) on the emphasis placed by firms on strategic information support. The project evaluated the degree of emphasis and managerial perceptions and concluded that the "Likert" five point scale best fits this type of study. In order to measure strategy, the set of strategic elements is analysed and then reduced, using techniques of factor analysis, The impact maybe measured (estimated) using the technique of Ordinary Least Square (OLS) estimation. The quality of the statistics (diagnostics) used with OLS on a Likert 1 to 5 scale, seems to be poor. The limited number of possible observations (1 to 5), grouped in five discontinuous groups, provokes problems of multicollinearity (columns of the data matrix) or outliers (rows of the data matrix). Rows or columns can easily resemble each other and this evokes problems in matrix inversion which is used in estimation techniques. This causes deficiencies in the statistics which are used in the evaluations of estimations [7]. The data discontinuity does not simplify the interpretation of statistics and diagnostics, even though there is no problem from a numerical aspect. The fact that perceptions are captured in numbers implies a need for care in the selection of estimation techniques. Experience with this kind of data within the psychological and biomedical sciences, or behavioural sciences is well documented [41].

9. Directions for future research

9.1. Strategic use of IT in banking and business process re-engineering A discrepancy seems to exist between theoretical knowledge on IS issues, and the capacity to translate these into a real world case. On the product sensitivities and the buyer behaviour identified, managers disagree amongst themselves. This indicates problems with knowledge generation in the banking industry. Contrary to the existence of knowledge on IS issues, there does not seem to be a uniform level of knowledge on markets and products. The macro-economic variables are also characterised by an important spread. In general, issues are well known, but processes are not. Taking into account the environment of the research, IT issues are relatively better known than banking issues. However, links between banking issues, IS issues, and issues of corporate strategy are poorly known and need attention. These observations therefore illuminate the weak active knowledge of business processes. If banks become interested in Business Process Re-Engineering (BPR), this situation could cause problems. One could therefor argue that BPR needs the creation of organisational awareness of a business process.

Acknowledgements I would like to thank Prof. Bob Galliers, Prof. Edgar Sibley and two anonymous referees of this journal for their helpful comments on an earlier version of this paper.

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Appendix A The variables related to the information need analysis, business strategy, IT strategy, business organisation, IS infrastructure and process and corporate strategy and IS map (see Fig. 1), all got different prefixes. They were grouped into the four parts of Fig. 1, the external information needed and the IS Strategy Alignment process itself. The prefixes chosen are:. IN for "Information need analysis", BS for "Business strategy", BO for "Business organisation", ITS for " I T strategy", ISA for "IS infrastructure and process", CS for "Corporate strategy and IS map". For each variable, this prefix is followed by a number, attributed according to the list which follows. The variables are grouped in the six groups mentioned above. In the title, between brackets, reference is made to the terminology used in the questionnaire. A. 1. Business strategy (customer behaviour)

BSI Productsensitivity on the local market of interestrate products for price. BS2 Productsensitivity on the local market of interestrate products for marketing. BS3 Productsensitivity on the local market of interestrate products for IS/IT. BS4 Productsensitivity on the local market of interestrate products for R&D. BS5 Productsensitivity on the local market of interestrate products for HR management. BS6 Productsensitivity on the local market of fee based products for price. BS7 Productsensitivity on the local market of fee based products for marketing. BS8 Productsensitivit on the local market of fee based products for IS/IT. BS9 Productsensitivit on the local market of fee based products for R&D. BS10 Productsensitivity o n the local market of fee based products for HR management. B S l l Productsensitivity o n the local market of IT based products for price. BS12 Productsensitivity o n the local market of IT based products for marketing. BS13 Productsensitivity o n the local market of IT based products for IS/IT. BS14 Productsensitivity o n the local market of IT based products for R&D. BS15 Productsensitivity o n the local market of IT based products for HR management. BS16 Productsensitivity o n the international market of interestrate products for price. BS17 Productsensitivity o n the international market of interestrate products for marketing. BS18 Productsensitivity o n the international market of interestrate products for IS/IT. BS19 Productsensitivity o n the international market of interestrate products for R&D. BS20 Productsensitivity o n the international market of interestrate products for HR management. BS21 Productsensitivity o n the lnternatlt real market of fee based products for price. BS22 Productsensitivity o n the international market of fee based products for marketing. BS23 Productsensitivity o n the international market of fee based products for IS/IT, BS24 Productsensitivity o n the international market of fee based products for R&D. BS25 Productsensitivity o n the international market of fee based products for HR management. BS26 Productsensitivity o n the international market of IT based products for price. BS27 Productsensitivity o n the international market of IT based products for marketing. BS28 Productsensitivity o n the international market of IT based products for IS/IT. BS29 Productsensitivity o n the international market of IT based products for R&D. BS30 Productsensitivity on the international market of IT based products for HR management. BS31 Importance for justifying IT investment of corporate strategic plan.

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A.2. Corporate strategy and IS map (information economics) CS1 Importance within the strategy alignment process of impact of IT opportunities on the corporate strategic plan. CS2 Importance within the strategy alignment process of the organisation of the strategic plan into business processes. CS3 Importance within the strategy alignment process of the alignment of the business organisation on IS architecture and IS organisation. CS4 Importance within the strategy alignment process of the opportunity of IS architecture and IS organisation for technological opportunities.

A.3. Information need (banking problems, observed economic variables) I N I Importance of squeezed margins for the success of a bank. IN2 Importance of competition for the success of a bank. IN3 Importance of geographic deregulation for the success of a bank. IN4 Importance of dilution of identity for the success of a bank. IN5 Importance of HR qualities for the success of a bank. IN6 Importance of rules and regulations for the success of a bank. IN7 Importance of technological evolution for the success of a bank. IN8 Importance of interest rates short term for the success of a bank. IN9 Importance of interest rates long term for the success of a bank. IN10 Importance of inflation for the success of a bank. I N l l Importance of public deficit for the success of a bank. IN12 Importance of private investment for the success of a bank. IN13 Importance of business investment for the success of a bank.

A.4. IT strategy (banking and IT problems) ITS1 Contribution of IT to solve squeezed margins issue. ITS2 Contribution of IT to solve competition issue. ITS3 Contribution of IT to solve geographic deregulation issue. ITS4 Contribution of IT to solve dilution of identity issue. ITS5 Contribution of IT to solve HR qualities issue. ITS6 Contribution of IT to solve rules and regulations issue. ITS7 Contribution of IT to solve technological evolution issue. ITS8 Importance for financial success of a bank of engaging top management. ITS9 Importance for financial success of a bank of building an information base of customers. ITS10 Importance for financial success of a bank of managing IT as a change process. I T S l l Importance for financial success of a bank of searching for new opportunities using IT. ITS12 Importance for financial success of a bank of using IT to support initiatives. I T S l 3 Importance for justifying IT investment of technological opportunities.

A.5. IS infrastructure and process (Stages of Growth) ISA1 Importance of strategy in order to implement a successful IS strategy. ISA2 Importance of structure in order to implement a successful IS strategy. ISA3 Importance of systems in order to implement a successful IS strategy.

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ISA4 Importance of staff in order to implement a successful IS strategy. ISA5 Importance of style in order to implement a successful IS strategy. ISA6 Importance of skills in order to implement a successful IS strategy. ISA7 Importance of superordinate goals in order to implement a successful IS strategy. ISA8 In which stage is your bank, considering strategy within an IS strategy. ISA9 In which stage is your bank, considering structure within an IS strategy. ISA10 In which stage is your bank, considering systems within an IS strategy. I S A l l In which stage is your bank, considering staff within an IS strategy. ISA12 In which stage is your bank, considering style within an IS strategy. ISA13 In which stage is your bank, considering skills within an IS strategy. ISA14 In which stage is your bank, considering superordinate goals within an IS strategy. ISA15 Importance of organisational structure and co-ordination in order to support information technology. ISA16 Importance of motivation and training in order to support information technology. ISA17 Importance of group building in order to support information technology. ISA18 Importance of industrial relations in order to support information technology. ISA19 Importance for justifying IT investment of Information Systems architecture and organisation. A.6. Business organisation (organisational structure, managerial mind set, business processes)

BO1 Successrate of entrepreneurial structure in banking. BO2 Successrate of ad hoc committees in banking. BO3 Successrate of bureaucracy in banking. BO4 Rate of use of entrepreneurial structure in your bank. BO5 Rate of use of ad hoc committees in your bank. BO6 Rate of use of bureaucracy in your bank. BO7 Value added of "feeling" in leadership. BO8 Value added of "feeling" in problem analysis (detective). BO9 Value added of "feeling" in innovative management. BO10 Value added of "feeling" in co-ordination. B O l l Value added of "formal analysis" in leadership. BO12 Value added of "formal analysis" in problem analysis (detective). BO13 Value added of "formal analysis" in innovative management. BO14 Value added of "formal analysis" in co-ordination. BO15 Are you a leader. BO16 Are you a problem analyser. BO17 Are you an inventor, BO18 Are you a co-ordinator. BO19 Importance for justifying IT investment of business organisation and processes.

Appendix B. Market behaviour B. 1. lnterestrate products for the local market

The following tables summarise the scores for the overall sample. The results differ per issue and per bank considerably.

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Variable Price Marketing IS/IT R&D Human resources management

Mean 4.84 3.96 3,33 3,87 3,73

Deviation 1.06 1.22 1.02 1.22 1.04

Mean 4.04 4.23 3.73 4.48 4.68

Deviation 1.19 1.17 1.02 1.26 0.95

Mean 3.84 4.83 4.99 3.53 3.84

Deviation 1.30 0.95 1.12 1.36 1.21

B.2. Fee based products in the local market Variable Price Marketing IS/IT R&D Human resources management

B.3. IT products in the local market Variable Price Marketing IS/IT R&D Human resources management

B.4. Interest rate products in the international market

Fewer people responded to the elasticity issues in the international market compared to the local market. The spread becomes also more important. Variable Price Marketing IS/IT R&D Human resources management

Mean 4.63 3.42 3.37 4.11 3.56

Deviation 1,21 1,24 1.16 1.23 1.32

Mean 4.18 3.70 3.77 4.39 4.34

Deviation 1.12 1.12 1.07 1.34 1.31

B.5. Fee based products in the international market Variable Price Marketing IS/IT R&D Human resources management

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B.6. IT products in the international market Variable Price Marketing IS/IT R&D Human resources management

Mean 3.58 3.89 4.49 3.58 3.67

Deviation ! .29 1.27 1.33 1.38 1.37

B. 7. Economic variables Variable Interest rate short term Interest rate long term Inflation Public deficit Private investment Business investment

Mean 4.61 4.77 3.58 3.49 4.93 5.04

Deviation 1.24 1.19 1.05 1.13 0.80 0.82

Appendix C. Regression results All tables are the results of a number of regressions, using OLS methods. In each table, the rows of the table indicate the number of equations estimated and, hence, also give the endogenous variables. Where the endogenous variables are the ones indicating IS strategy and planning variables, they are the ones defined in Galliers and Sutherland's Stages of Growth model (1991), though it is arguable whether other IS planning models are more accurate. This model has already been tested extensively in different industries. It pictures the IS strategy and planning according to seven key-concepts: (corporate) strategy; structure; systems; staff; style; skills; superordinate goals. We accept this approach as a valid dynamic description of the IS planning process. The columns are the exogenous variables, which have been identified as the important ones (see main paper). The codes for the variables refer to Appendix A. Each table in this appendix summarises the results of the regressions made. On the rows, under each issue, the value of the R 2 for the overall sample is given. Each of the columns is divided in 3, related to the three banks of the sample (the fourth, only 3 observations, is not considered). In the first column, the R 2 per bank are given for the equations described above. The following columns are the issues identified each time as the exogenous variables. In the table itself, only those coefficients with a t-student test value of at least 1 are given. If the t-student value was at least 2, an ! is added. If the t-student test was less than 1, no value is indicated.

References [1] Baets, W., 1991, "Coincidence: A Business Simulation", Users Guide and Technical Notes, Lovanium International Management Center, La Hulpe. [2] Baets, W., 1992, "Aligning Information Systems with Corporate Strategy", Journal of Strategic Information Systems, Vol. I, No. 4.

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[38] PA Technology, 1990, Banking on Survival, The situation in The Netherlands, July. [39] Powell, Ph., 1993, "Causality in the Alignment of Information Technology and Business Strategy", Journal of Strategic Information Systems, Vol. 2, No. 4, December. [40] Ramaswami, S., Nilakanta, S., and P'lynn, J., 1992, "Supporting Strategic Information Needs: An Empirical Assessment of Some Organisational Factors", Journal of Strategic It~formation Systems, No. 2. [41] Rumelhart, D. and McClelland, J., 1989, Parallel Distributed Processing: Exploration in the Microstructure of Cognition, Vol. I and 2, MIT Press, Cambridge, MA. [42] Scott, Morton M., 1991, The Corporation of the 1990s: Information Technology and Organizational Transformation, Oxford University Press. [43] Seidman, W., Chairman Federal Deposit Insurance Corporation, Washington DC, in Harvard Business Review, 1991, "What ls the Future of Banking: Rescuing Banks May Mean Reinventing the Banking System", July-August. [44] Singh, S.K., 1993, "Using Information Technology Effectively", Information & Management, 24(1993). [45] Vitale, M., 1986, "The Growing Risk of Information Systems Success", MIS Quarterly, December. Walter R.J. Baets is co-dean of the Euro-Arab Management School in Granada, Spain and Associate Professor at the Vlerick School for Management in Gent, Belgium. He graduated in econometrics at the University of Antwerp (Belgium) and he holds a Ph.D. in Industrial and Business Studies from the University of Warwick (UK). He published in journals like the Journal of Strategic Information Systems, the European Journal of Operations Research, Business Change and Re-Engineering, Marketing Intelligence and Planning, the Journal of Systems Management and the Learning Organization. He is member of the International Editorial Board of the Journal of Strategic Information Systems and Information & Management.