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An information technology (IT) infrastructure is vitally important to companies, particularly those in industries going through dynamic change, those reengineering their business processes, and those with widely dispersed operations. Yet executives find decisions on infrastructure investments difficult because they often have to make them before forming specific business strategies.
In this paper, we explain how successful firms create business-driven IT infrastructures. Some firms do not invest in a firmwide infrastructure, while others invest up to 10 percent of their revenues in an IT infrastructure, such as communication networks, databases, and expertise that is shared across multiple business units. Both approaches may be correct, provided they match the firm’s specific needs.
Creating a business-driven IT infrastructure involves decisions based on a sound understanding of a firm’s strategic context. This understanding can be communicated by what we call business maxims, which capture the essence of a firm’s future direction. Business maxims lead to the identification of IT maxims that express how a firm should deploy IT resources and gain access to and use information. IT maxims provide a basis for a firm to make decisions on its IT infrastructure services.
Investments in IT Infrastructure
IT infrastructure investments are long-term commitments that account for more than 58 percent of the total IT budget of large firms and about 4 percent of revenues; they have increased at about 11 percent annually.1 IT infrastructure capabilities underpin the competitive positioning of business initiatives such as improving cycle time, implementing redesigned cross-functional processes, utilizing cross-selling opportunities, and capturing the channel to the customer. They are the base for computer applications to execute business processes.
A firm’s process for making decisions about these critical investments are among the most contentious and least understood. How do boards of directors judge the business cases for IT infrastructure investments? Where, for example, is the chain of evidence linking investments in an improved communication network to reduced cycle time, or linking shared databases and transaction processing to cross-selling? Too often, boards are asked to make decisions based on technical criteria rather than in the context of long-term business needs. At the same time, there are competing demands to show business benefits in short time frames.
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1. P. Weill, M. Broadbent, C. Butler, and C. Soh, “Exploring How Firms View IT Infrastructure” (Amsterdam, The Netherlands: Sixteenth International Conference on Information Systems, 14–17 December 1995).
2. A major grant from IBM Consulting Group funded the study, “The Role and Payoff of Investments in Information Technology Infrastructure.” The study involved seventeen researchers investigating twenty-seven firms in seven countries over five years and further case studies of firms with either leading-edge or no infrastructure investments. We prepared case vignettes for each firm, which were checked for accuracy of data and interpretation by the executives. Additional funding from the Melbourne Business School Foundation and Hewlett-Packard Australia supported another study, “The Implications of International Business Operations for Information Technology Strategy,” in twenty-three additional firms headquartered in six countries.
3. Hamel differentiates between strategizing and planning; we include both activities to cover the range of firm experiences. See:
G. Hamel, “Strategy as Revolution,” Harvard Business Review, volume 74, July–August 1996, pp. 69–82.
4. D.T. McKay and D.W. Brockaway, “Building IT Infrastructure for the 1990s,” Stage by Stage, volume 9, issue 3, 1989; and
P. Weill, “The Role and Value of Information Technology Infrastructure: Some Empirical Observations,” in R. Banker, R. Kauffman, and M.A. Mahmood, eds., Strategic Information Technology Management: Perspectives on Organizational Growth and Competitive Advantage(Middleton, Pennsylvania: Idea Group Publishing, 1993).
5. “A Conversation with Bob Shapiro,” Monsanto Magazine, number 2, 1995, pp. 4–9.
6. Monsanto, Annual Report to Shareowners, 1995, p. 10.
7. Late in 1996, Monsanto’s board of directors approved a plan to spin off the company’s chemical business and form two new separately traded, publicly held companies (http://www.monsanto.com), 23 December 1996. At that time, the company was in the process of deciding how IT services would best be handled for the two companies (personal communication, 23 December 1996).
8. Telstra was formerly known as Telecom and AOTC (after the merger of Telecom Australia and the Australian Overseas Telecommunications Corporation).
9. C. Butler and P. Weill, “Standardizing the Information Technology Environment at Telecom Australia” (Carlton, Victoria, Australia: University of Melbourne, Melbourne Business School, Case Study Services CL333, 1995).
10. G. Hamel and C.K. Prahalad, Competing for the Future (Boston: Harvard Business School Press, 1994).
11. J. Jost, “Amcor’s New Paperchase,” Australian Business Monthly, volume 14, February 1994, pp. 40–43.
12. C. Butler, M. Broadbent, and S. Niemann, “Management of Information Technology at Amcor Ltd.” (Carlton, Victoria, Australia: University of Melbourne, Melbourne Business School, Case Study Services CL334, 1995).
13. M. Broadbent and C. Butler, “Amcor Fibre Packaging Deployment of Information Technology: The Case of an International Business” (Carlton, Victoria, Australia: University of Melbourne, Melbourne Business School, Case Study Services CL331, 1995).
14. Honda, Annual Report, 1995.
15. G. Stalk, P. Evans, and L.E. Shulman, “Competing on Capabilities: The New Rules of Corporate Strategy,” Harvard Business Review, volume 70, March–April 1992, pp. 57–69.
16. M. Broadbent, “The Role of Information Technology in International Business Operations: The Case of Honda Motor Co., Ltd.” (Carlton, Victoria, Australia: University of Melbourne, Melbourne Business School, 1995).
17. We call these statements business maxims, drawing on Artistotle’s depiction of maxims as statements that indicate a practical course of conduct to be chosen. Mission or strategy statements provide the grounding and factual base referred to by Aristotle, from which maxims can be deduced. See:
Aristotle, “Rhetoric,” Book II, in J. Barnes, The Complete Works of Aristotle (Princeton, New Jersey: Princeton University Press, 1984), volume 2, chapters 20–22, pp. 2219–2224.
18. A.C. Hax and N.S. Majluf, The Strategy Concept and Process: A Pragmatic Approach, 2nd ed. (Englewood Cliffs, New Jersey: Prentice Hall, 1996);
H. Mintzberg, J.B. Quinn, and J. Voyer, The Strategy Process (Englewood Cliffs, New Jersey: Prentice Hall, 1995); and
P.J. Below, G.L. Morrisey, and B.L. Acomb, The Executive Guide to Strategic Planning (San Francisco: Jossey-Bass, 1987).
19. K. Dery and P. Weil, “Case Vignette of RACV: Information Technology Infrastructure Study” (Carlton, Victoria, Australia: University of Melbourne, Melbourne Business School, 1995).
20. S.H. Haeckel and R.L. Nolan, “Managing by Wire,” Harvard Business Review, volume 71, September–October 1993, pp. 123–132.
T.H. Davenport, M. Hammer, and T.J. Metsisto, “How Executives Can Shape Their Company’s Information Systems,” Harvard Business Review, volume 67, March–April 1989, pp. 130–134.
21. While elements of each view can often be found, one view predominates. See:
22. Butler and Weill (1995).
23. J.W. Ross, “Johnson & Johnson: Building an Infrastructure to Support Global Operations” (Cambridge, Massachusetts: MIT Sloan School of Management, Center for Information Systems Research, CISR WP No. 283, 1995); and
C. Lentz, J.W. Ross, and J. Henderson, “Case Vignette of Johnson & Johnson Company: Information Technology Infrastructure Study” (Carlton, Victoria, Australia: University of Melbourne, Melbourne Business School, Case Study Services, 1995).
24. The argument and outcomes here parallel those of Hamel. See: Hamel (1996).