The Impact of Information Technology Infrastructure Flexibility on Strategic Alignment and Applications Implementation

The Impact of Information Technology Infrastructure Flexibility on Strategic Alignment and Applications Implementation Sock H. Chung Department of Computer Information Systems College of Business Eastern Michigan University Ypsilanti, MI 48197 sock. [email  protected] emich. edu R. Kelly Rainer, Jr. ** Department of Management College of Business Auburn University Auburn, Alabama 36849 (334) 844-6527 [email  protected] auburn. edu Bruce R. Lewis Calloway School of Business Wake Forest University Winston-Salem, NC 27109 (336) 758-7195 [email  protected] edu ** Corresponding Author: Kelly Rainer The Impact of Information Technology Infrastructure Flexibility on Strategic Alignment and Applications Implementation Abstract IT infrastructure flexibility is now being viewed as an organizational core competency that is necessary for organizations to survive and prosper in rapidly-changing, competitive, business environments. Utilizing data from 200 U. S. and Canadian companies, this study examines the impact of the four components of IT infrastructure flexibility (compatibility, connectivity, modularity, and IT personnel) on strategic IT-business alignment and the extent of applications implementation within an organization. The findings from analysis of a structural model provide evidence that connectivity, modularity, and IT personnel have significant, positive impacts on strategic alignment and that all four components have significant, positive impacts on the extent of applications implementation. The study reinforces the importance of IT infrastructure flexibility to organizations as one source for sustainable competitive advantage. Key Words: IT infrastructure flexibility, strategic IT-business alignment I. INTRODUCTION In the early 1990s, Johnson & Johnson faced new business pressures when large customers, such as Wal-Mart and K-mart, made new demands on the company, such as cost savings and just-in-time stock replenishment. Johnson & Johnson’s business and IT managers acted in partnership to develop a new set of information technology (IT) infrastructure capabilities which enabled the company to provide the necessary services for its large customers while at the same time reducing costs at Johnson & Johnson [Weill & Broadbent, 1998]. In the late 1990s, Charles Schwab focused on delivering customized information to its investors in a timely manner. Using the company's IT infrastructure and applications aligned with its business focus, Schwab became a full service brokerage firm. The firm was able to provide information and process transactions in meeting its business objectives. Customers could retrieve stock quotes and place orders via Schwab's Web site. As a result, the corporation continues to be an industry leader. These two examples demonstrate that an organization’s IT infrastructure can provide tangible benefits and a continuity of business practices [Kettinger, Grover, Subanish, & Segars, 1994]. A particularly important characteristic of IT infrastructure is flexibility [Byrd & Turner, 2000]. Researchers have stated that IT infrastructure flexibility should be viewed as an organizational core competency and that IT infrastructure flexibility is necessary to handle increased customer demands without increased costs [Davenport & Linder, 1994; Weill, 1993]. As we discuss next in developing the theoretical framework for our study, two important aspects of IT infrastructure flexibility emerge from previous research: the core business applications of an organization and the strategic IT-business alignment. That is, an organization’s IT infrastructure flexibility should be reflected in its implementation of core business applications and the extent of its strategic IT-business alignment. Therefore, the purpose of this study is to empirically examine the relationship between IT infrastructure flexibility and the extent of applications implementation in the organization and the relationship between IT infrastructure flexibility and strategic IT-business alignment. II. THEORETICAL FRAMEWORK We develop our theoretical framework by first reviewing definitions of IT infrastructure and its components. We then define the concept of IT infrastructure flexibility and its relationship to strategic IT-business alignment and to applications implementation in the organization. Information Technology Infrastructure The topic of IT infrastructure has been a key issue for both researchers and practicing managers for some time [see e. g. , Brancheau, Janz, & Wetherbe, 1996]. The organization’s IT infrastructure basically integrates technology components to support business needs but the IT infrastructure concept is more complicated. The definition of IT infrastructure encompasses a variety of components. Based on previous studies, Duncan [1995] stated that IT infrastructure includes a group of shared, tangible IT resources that provide a foundation to enable present and future business applications [Broadbent & Weill, 1997; Davenport & Linder, 1994; Earl, 1989; Keen, 1991; McKay & Brockway, 1989; Niederman, Brancheau, & Wetherbe, 1991; Weill, 1993]. These resources include: (1) computer hardware and software (e. g. , operating systems); (2) network and telecommunications technologies; (3) key data; (4) core data-processing applications; 5) shared IT services. Duncan [1995] also stated that IT infrastructure includes the alignment of IT plans to business objectives, the IT architecture, and the skills of IT personnel. Broadbent and Weill [1997] noted that IT infrastructure capabilities enable the various types of IT applications required to support current and future business objectives, and enable the competitive positioning of business initiatives. McKay and Brockway [1989] describe d IT infrastructure as the enabling foundation of shared IT capabilities upon which the entire business depends. This foundation is standardized and shared by business functions within the organization, and typically used by different organizational applications. Byrd and Turner [2000, p. 172] provided a thorough definition of IT infrastructure as: â€Å"†¦ the shared IT resources consisting of a technical physical base of hardware, software, communications technologies, data, and core applications and a human component of skills, expertise, competencies, commitments, values, norms, and knowledge that combine to create IT services that are typically unique to an organization. These IT services provide a foundation for communications interchange across the entire organization and for the development and implementation of present and future business applications. † As can be seen from these definitions, the IT infrastructure is composed of two components: a technical IT infrastructure and a human IT infrastructure. The technical infrastructure consists of the applications, data, and technology [Broadbent & Weill, 1997; Broadbent, Weill, O'Brien & Neo, 1996; Henderson & Venkatraman, 1993]. The human IT infrastructure consists of the knowledge and capabilities required to manage organizational IT resources [Broadbent & Weill, 1997; Lee, Trauth & Farwell, 1995]. Davenport and Linder [1994] suggested that a robust IT infrastructure enables employees to be able to perform their respective jobs, both from having the available technology and the necessary technological skills. Information Technology Infrastructure Flexibility Early work on IT infrastructure flexibility described the concept without actually defining it. Weill [1993] asserted that an IT infrastructure should be flexible to be able to handle increased customer demands without increased costs. Davenport and Linder [1994] stated that IT infrastructure flexibility should be viewed as a core competency of the organization and suggested that an effective IT infrastructure is flexible and robust. Duncan [1995] observed that one organization’s IT infrastructure may enable strategic innovations in business processes, while another’s IT infrastructure may limit such innovations. She referred to this characteristic as IT infrastructure flexibility and suggested that both business and IT application development capabilities reflect the flexibility of infrastructure components. She suggested that infrastructure flexibility improves systems developers' ability to design and build systems to meet organizational business objectives. She described IT infrastructure flexibility through the characteristics of connectivity, compatibility, and modularity. She maintained that an organization with high modularity, compatibility, and connectivity would have high technical IT infrastructure flexibility. Compatibility is the ability to share any type of information across any technology component throughout the organization [Duncan, 1995; Keen, 1991]. Tapscott and Caston [1993] noted that IT compatibility helps span organizational boundaries, empower employees, and make data, information, and knowledge readily available in the organization. Connectivity is the ability of any technology component to communicate with any of the other components inside and outside of the organizational environment [Duncan, 1995]. Tapscott and Caston [1993] emphasized that IT connectivity enables seamless and transparent organizations that are independent of time and space. Connectivity facilitates the sharability of IT resources at the platform level. Modularity is the ability to easily reconfigure (add, modify, or remove) technology components [Duncan, 1995]. She also stated that modularity is the standardization of business processes for sharability and reusability (e. g. , structured programming and component-based software architectures). Schilling [2000] suggested that modularity is a continuum describing the degree to which a system's components can be separated and recombined. Byrd and Turner [2000, p. 172] defined IT infrastructure flexibility as â€Å"†¦the ability to easily and readily diffuse or support a wide variety of hardware, software, communications technologies, data, core applications, skills and competencies, commitments, and values within the technical physical base and the human component of the existing IT infrastructure. Historically, the flexibility of the IT infrastructure has been viewed as necessary to accommodate a rapidly changing business environment [Byrd & Turner, 2001]. This flexibility enables businesses to effectively use IT to prosper in dynamic environments. The literature review points out that strategic IT-business alignment and core business applications are embedded in the definitions of IT infrastructure and IT infrastructure flexibility. However, the actual relationships between IT infrastructure flexibility and strategic IT-business alignment and between IT infrastructure flexibility and business applications have not been empirically tested. We test these relationships through our conceptual model. III. CONCEPTUAL MODEL IT Infrastructure Flexibility and Strategic IT-Business Alignment Strategic IT-business alignment refers to the extent to which the IT mission, objectives, and plans support, and are supported by, the organization’s mission, objectives, and plans [Hirscheim & Sabherwal, 2000]. This alignment creates an integrated organization in which every function, unit, and person are focused on the organization's competitiveness. Sambamurthy and Zmud [1992] suggested that IT management is a problem of aligning the relationship between the business and the IT infrastructure to take advantage of IT opportunities and capabilities. Duncan [1995] first included the alignment of IT plans to business objectives in her description of IT infrastructure. She continued by noting that an organization’s IT infrastructure could be considered flexible if it enabled strategic innovations in business processes. Broadbent and Weill [1997] stated that IT infrastructure capabilities provide the foundation for â€Å"†¦competitive positioning of business initiatives. † From this discussion, we propose the following hypothesis: Hypothesis 1: Each component of an organization's IT infrastructure flexibility will positively affect the organization's strategic IT-business alignment. IT Infrastructure Flexibility and Applications Implementation Today, IT applications not only process data and provide management information reports. Corporations now use IT applications to gain competitive advantage [Earl, 1989; Porter & Millar, 1985; Powell, 1992; Saunders & Jones, 1992; Smith & McKeen, 1993]; to create new business opportunities [Earl, 1989; Rockart & Scott-Morton, 1984; Smith & McKeen ,1993]; to improve customer service; to enhance product and service quality; and to integrate supplier and customer operations [Luftman, Lewis, & Oldach, 1993]. Several studies have included business applications as part of IT infrastructure [see e. . , Broadbent & Weill, 1997; Byrd & Turner, 2000; Duncan, 1995]. Duncan [1995] addressed business applications when she asserted that IT infrastructure flexibility enabled organizations to build applications that more closely satisfy business objectives. Broadbent and Weill [1997] stated that IT infrastructure capabilities are the â€Å"base for computer applications. † Byrd and Turner [2000] noted that IT infrastructure flexibility enabled organizations to â€Å"†¦easily diffuse and support†¦core applications. For this study, we use the extent to which organizations have implemented a variety of business applications to examine the concept of â€Å"applications implementation. † These eleven business applications in our study include transaction processing systems, management information systems, executive information systems, decision support systems, expert systems, data warehousing, data mining, interorganizational information systems (e. g. , electronic data interchange), knowledge management, network management, and disaster recovery. From this discussion, we propose the following hypothesis: Hypothesis 2: Each component of an organization's IT infrastructure flexibility will positively affect the organization's extent of applications implementation. Conceptual Model This study utilizes four previously identified measures of IT infrastructure flexibility: the technical components of modularity, compatibility, connectivity, and IT personnel skills [see Duncan, 1995; Byrd & Turner, 2000]. The conceptual model representing the relationships addressed in this study is presented in Figure 1. [pic]* p