Decision-making in LMS Procurement and involvement of stakeholders - How different stakeholder groups’ goals influence the requirement from the procurement managers’
point of view?
Master’s Thesis, Service Management Joona Kapanen (264873)
Ville Tolonen (268507) 6 August 2017
Tiivistelmä
ITÄ-SUOMEN YLIOPISTO
Tiedekunta
Yhteiskuntatieteiden ja kauppatieteiden tiedekunta
Yksikkö
Kauppatieteiden laitos
Tekijä
Joona Kapanen & Ville Tolonen
Ohjaaja
Tommi Laukkanen
Työn nimi (suomeksi ja englanniksi)
Sidosryhmien osallistuminen päätöksentekoon oppimisympäristön hankinnassa. - Kuinka eri sidosryhmien tavoitteet vaikuttavat vaatimuksiin hankinnasta vastaavan projektipäällikön näkökulmasta?
Pääaine
Palvelujohtaminen
Työn laji
Pro Gradu -tutkielma
Aika
02.08.2017
Sivuja
124 + 1
Tiivistelmä
Tutkielman tavoitteena on selvittää miten eri sidosryhmien tavoitteet vaikuttavat vaatimusten asetantaan oppimisympäristön hankinnassa projektipäällikön näkökulmasta. Aiemmat tutkimukset ovat osoittaneet päätöksenteon monimuotoisuuden sekä sen, että eri sidosryhmillä on omat tavoitteensa, jotka tuovat haasteita päätöksentekoon. Suurissa koko organisaatiota koskevissa IT-järjestelmiin liittyvissä päätöksissä on mukana useita henkilöitä. Tutkielman tulosten avulla on helpompi ymmärtää, miten suuren IT-järjestelmän hankinta voidaan toteuttaa organisaation ja toimittajan välillä paremmin.
Tutkimus toteutetaan kvalitatiivisena tutkimuksena. Aineisto on kerätty puolistrukturoituina teemahaastatteluina yhden yrityksen asiakkailta. Asiakkaat ovat investoineet samaan oppimisympäristöön. Tutkimuksessa on käytetty ekstensiivistä tapaustutkimusta, jolla on etsitty yhteisiä ominaisuuksia sekä malleja erilaisten organisaatioiden oppimisympäristöjen hankintaprojekteista. Yhteensä toteutetaan kuusi haastattelua, jotka sisältävät henkilöitä kolmesta eri yrityksestä. Haastateltaviksi on valittu kolme oppimisympäristön hankinnasta vastaavaa henkilöä sekä hankinnan parissa työskentelviä henkilöitä. Teoriasidonnaisuus ja teemoihin perustuva sisällönanalyysi ohjaavat aineiston analyysiä. Teoriaa käytetään aineiston tulkinnassa ja teemat rakennetaan teoreettisen viitekehyksen pohjalta.
Tutkimuksen tulokset osoittavat, että hankintapäälliköt eivät koe eri sidosryhmien osallistumista oppimisympäristön hankinnassa ongelmallisena. Eri sidosryhmien tavoitteet eivät vaikeuta päätöksentekoa tai vaatimusten asetantaa. Tämä on ristiriidassa aikaisempien tutkimustulosten kanssa. IT-järjestelmien hankintaa koskevissa tutkimuksissa on korostettu loppukäyttäjien merkitystä yhtenä sidosryhmänä hankinnassa. Tutkimuksemme tulokset osoittavat, että loppukäyttäjiä ei ole osallistettu päätöksentekoon ja se on vaikuttanut negatiivisesti koko hankinnan onnistumiseen.
Avainsanat
päätösenteko, IT-investointi, oppimisympäristö, hankinta, valintavaihe, vaihtoehtojen arviointi, sidosryhmät, vaatimukset
Abstract
UNIVERSITY OF EASTERN FINLAND
Faculty
Faculty of Social Sciences and Business Studies
Department
Business School
Author
Joona Kapanen & Ville Tolonen
Supervisor
Tommi Laukkanen
Title
Decision-making in LMS Procurement and involvement of stakeholders - How different stakeholder groups’ goals influence the requirement from the procurement managers’
point of view?
Main subject
Service Management
Level
Master’s Degree
Date
02.08.2017
Number of pages
125 + 1
Abstract
The goal of our study is to find how different stakeholder groups’ goals influence the requirement from the procurement managers’ point of view when procuring a learning management system (LMS). The previous studies have shown the multi-faceted nature of decision-making and also that different stakeholder groups have their own goals, which can bring challenges to the decision-making. Big IT-solution procurements that cover the whole organization have a large number of people doing the procurement. With the help of our study and its results it will be easier to understand how to better handle the procurement of an IT- solution between the buyer and the vendor.
The study uses qualitative research approach. The data is collected from the customers of one specific company and the customers have invested in the same LMS. The data is collected using semi-structured interviews. The data is analyzed using extensive case-study method and in this method we will search for common attributes and patterns in different organizations LMS procurements. Altogether six interviews will be conducted consisting of employees from three different organizations. As interviewees we have chosen three people in charge of procuring the LMS but also other people working closely with the procurement. The data is analyzed using theory-bound and theme-based content analysis. In this method, theory is used in interpreting the data and the themes are constructed based on the theoretical framework.
The results of the study show that the procurement managers don’t feel the participation of different stakeholder groups as problematic. Furthermore, the different goals of the stakeholder groups don’t complicate the decision-making or the requirement planning. These findings are contradictory to those of the previous studies. Studies regarding IT-solution procurement have also highlighted the meaning of end-users as one of the stakeholder groups in the procurement.
Our findings show that the end-users haven’t been part of the procurement process in the cases that we have studied, which has had a negative impact on the success of the procurement.
Key words
decision-making, IT-investment, learning management system, procurement process, selection phase, evaluating alternatives, stakeholder groups, requirements
CONTENTS
FOREWORD 6
1. INTRODUCTION 8
1.1 Background 8
1.2 Research Gap and Research Problem 10
1.3 Research Objectives and Questions 11
1.4 Methodology 12
1.5 Research Structure 12
1.6 Terminology 13
2. THEORETICAL BACKGROUND 15
2.1 Decision-making process 15
2.1.1 Mintzberg’s Decision model 18
2.1.2 Characteristic of Strategic Decision-making 22
2.1.3 Intuition in Decision-making 23
2.1.4 Transaction cost theory in decision-making 23
2.2 ICT-Investment decisions 25
2.2.1 The nature of IS investment decisions 27
2.2.2 Factors that differentiate IS decision 29
2.2.3 IS strategic planning 30
2.2.4 Outsourcing 32
2.2.5 Procurement Process 32
2.3 Packaged software 38
2.3.1 Systems Requirements 40
2.3.3 Vendor Selection 43
2.3.4 Criteria and attributes 45
2.3.5 Importance of trust 47
2.4 Stakeholders involvement in decision-making 49
2.4.1 Different roles in decision-making 52
2.4.2 Top management team effect on the Decision-making 56
2.4.3 Owners and managers as a decision maker 59
3. RESEARCH METHODOLOGY AND DATA 61
3.1 Research design 61
3.2 Data collection 66
3.3 Content analyses of collected data 72
4. RESULTS 73
Background of the cases: stimulus for the procurement 73
4.1 How do different stakeholder group’s goals influence the requirements from the
procurement manager’s point of view? 75
Stakeholder groups that participated in the project? 78
4.2 What factors made the determining of requirements complex? 80
4.2.1 Schedule pressure 80
4.2.2 Leadership 82
4.2.3 Limited budget and the salesmanship 84
4.2.4 Participants ability to work with the project only part-time 87
4.2.5 Gathering and changes of the requirements 88
4.2.6 Involvement of the stakeholders and finding the right people 91
4.2.8 The lack of vendors supports 93
4.3 How the procurement was managed? 94
4.4 How stakeholders’ interests and goals varied and how they were prioritized? 96 Were there different and conflicting views among stakeholder groups? 97 4.5 What were the criteria for the vendor in the selection phase of the procurement? 98
5. DISCUSSION 103
5.1 The best-case scenario 103
Conclusion 109
5.2 Research limitation and criticism 110
5.3 Future development and research needs 112
5.4 Reliability and validity 113
APPENDIX 1 – QUESTIONNAIRE APPENDIX 1 (1/1) 125
FOREWORD
We think that the best way to show our motives for this research is to give a description of the results of Howcroft & Light (2002) study that we found in early stages of this work:
Despite of detailed discussions, first of the two vendors did not succeed with presentation they gave due to the fact that the salesperson focused mainly on standard product and did not pay attention to the potential client’s special requirements. The second vendor succeeded best because their salesperson brought up specific features for the organization that were based on previous discussions and on the salespersons' own research. The price from the second vendor was significantly higher than from the first vendor, but in the eyes of the senior management the second vendor was the best alternative. The estimate price of this project doubled but that was not an issue anymore.
The study by Howcroft and Light (2002) shows the importance of the power of salesmanship.
In their study, the best salesman with the same product won the case even as there were significant differences in price. The skills of the best salesman resulted into a situation where the managers were willing to invest more for a new software than previously planned. In their case study the other vendor offered the same software in a way that could fit the client’s budget, but because the other vendor had better salesmen, they were willing to exceed the budget.
The selection process of a package software in the IS literature is seen as a rational approach, where management team is trying to identify end-users’ requirements. Here social, political and economic conditions affect the selection where different stakeholders are involved in the project. (Howcroft & Light 2002).
“Ultimately, skilled salesmanship enabled mobilization of bias so that a solution was selected which may be completely inappropriate for both the organization and the end-users.” - (Howcroft & Light 2002).
We believe that everyone who works in sales struggles with the complexity of the organizations decision-making. The decisions are made by several people but the salesperson has only met few of them. Everyone who participates in those decisions has different responsibilities and views of things. Sales and marketing people would like to know how they could target their messages and information in a way that it would help different stakeholders to make good and justified decisions that are based on knowledge as well as possible.
Different things have different meanings to different people so information should be targeted to relate to the recipients’ expectations, role, and challenges so it helps to understand more comprehensively how the issue to be decided effects.
This research was done as an assignment for a Finnish IT company that has developed a Learning Management Solution (LMS). We used only their clients for this study, so they could understand how the project went and what happened on “the other side of the table.”
The results of this work also give them important knowledge on how they could help their future clients better and what kind of things they should focus on with sales and marketing.
We felt that this was a great opportunity to get knowledge about decision-making and different stakeholders. Furthermore, selling is a passion for both of us so we believe that this work develops us professionally.
As a part of this research, we were lucky to be able to do our internship for the company. As a matter of fact, we moved to the United States of America to learn how sales and marketing are done there.
We hope that the results of our work will provide an understanding of the importance of stakeholders in decision-making.
1. INTRODUCTION
1.1 Background
According to Saarinen & Vepsäläinen (1994), the importance of understanding decision- making cannot be ignored. Managers in organizations make many different decisions focusing on directing the company’s operations. Those decisions have a huge impact on the organization’s survival chances. Therefore, understanding how and why managers make decisions is significantly important. (Azar, 2014). Especially information system managers have responsibilities for developing new applications and enhancing the existing ones.
Despite a large number of duties, they struggle with limited budgets and resources. It is important to understand how IS managers can satisfy the increasing demands of business strategies and users. (Saarinen & Vepsäläinen, 1994.)
Organizations try to improve their innovative capabilities, efficiency, and effectiveness by investing billions of dollars in information technologies. The importance of those decisions in IT, accent the significance to understand how such decisions are made. (Boonstra, 2003).
Information systems and technology are extremely important for organizations’ operations (Selkälä 2016; Morgan, Colebourne & Thomas 2005; Schiavone 2011). Organizations can develop information systems in-house, with a vendor or purchasing software (Heiskanen, Newman & Similä, 2000). The key to success is not the technology itself, but it’s the technology’s ability to support the benefits and goals of the business. With the right information technology, organizations can differentiate and achieve competitive advantage by increasing productivity. (Selkälä 2016, 13, 18.)
Decision-making is a process, not just an occurrence. The process can last weeks, months or even years. Decision-making process consists of awareness of the problem, making the decision, adoption and implementation. Every decision is a process so both good leaders and organizations can plan and execute those processes. Poor leaders make poor decisions when they think that decisions are occurrences, which they can handle themselves. Company’s executive team or other group consisting of key individuals from different backgrounds normally makes strategic decisions. After they have a common purpose they need to have guidelines for working successfully. They need to have procedurals due to fact that each
member of the group is a different person. Decision-making process consists of specific actions aimed to a decision and decision consists of consecutive stages. (Pekkanen 2003.) Organizations that have developed their decision-making capability well, can involve different stakeholders in the decision-making process. Competitive markets push a firm’s ability to identify important factors in decision-making such as operational best practices, competitive interactions, critical resources, customer needs, and availability of new market opportunities. A manager's challenge is to be able to collect and incorporate reliable and accurate information into the decision-making process. Normally, the goal of a strategic leader is to gain and develop competitive advantage. However, developing competitive advantage can be difficult in a complex environment where several stakeholders try to influence decisions. (Collins & Hitt 2007.)
Procurement departments in organizations are more commonly used. Their objectives are optimizing organizations processes and help IT to reduce costs, increase quality and sustainability of products and services that are received. IT procurements are important and they can be described as the key to organizational performance in the long run. (Versendaal, Akker, Xing & Bevere 2013.)
Cost is not the most important requirement for innovative and technologically oriented solutions. When organizations make effective vendor selection, they gain cost efficiency and can improve their quality. With well-implemented supplier selection, information sharing and understanding of available resources, organizations can achieve greater, high-quality, synergy with their suppliers. (Hong et al. 2012.)
The implementation of packaged software is not risk-free. Keil and Tiwana (2006) mentioned about a study where 51% of managers granted that their ERP implementations were unsuccessful. As a consequence, managers need to have better understanding of the requirements for new software, so they can construct better evaluation criteria. Normally in the selection phase, manager’s focus on criteria like cost, schedule, and functionality but when selecting a new software, the focus moves more towards factors that influence implementation, customization and integration. Without a software procurement process, organizations are not capable of making effective software purchasing decisions. At the same
time, it is important for software companies to understand the customer and their buying behavior as a whole so that they can sell their products and services successfully. There is no systematic research focused on the attributes that the manager looks for when they are recommending a purchase of enterprise software. Understanding those attributes is important due to the facts that: (1) there is a risk of inappropriate acquisition; and (2) developers of packaged software do not understand what attributes are important for the market. (Keil &
Tiwana 2006.)
With the right IT investment, organizations can gain competitive advantage and with the right advanced technology, an organization can improve their customer service. Those improvements also allow the organization to quickly seize new business opportunities.
Stakeholders can also be partners (instead of just being the owners of the business) who seek a partner relationship where trusted partners can help the firm in their business functions.
These improvements can be done when communication and the ability to move data is improved, while simultaneously improving efficiency and productivity. (Schniederjans et al.
2010, 13.)
1.2 Research Gap and Research Problem
Decision-making is a field, which is widely studied in many academic disciplines. Also, from the ICT-investment point of view decision-making has received attention among researchers. Our aim is to study decision-making when organizations are choosing the Learning Management System vendor. From this particular view, we did not find any specific academic literature. We used current existing theories on decision-making in an organization, ICT-investment and packaged software context. We then combined those decision-making theories to the procurement process where vendors are evaluated and when vendors are chosen.
According to Moe (2014, 13), there are major gaps in earlier research on the procurement of IS, and the gaps can be found both in the content and in the methodology. In the content, there are questions about the whole procurement process that need to be answered. In
methodology, there is a need for more longitudinal studies that use a process approach. (Moe 2014, 13.)
Moe (2014, 14) has identified several content-related topics that need further study, and several of those questions relate to different stakeholders that can be, for example, procuring entity and vendor in contracting. He finds dilemmas between different interests of those stakeholders that can be, for instance, policy goals and procurement regulations. He identifies that further research is needed on how different stakeholders play out their interests when studying the process as a whole, and how these interests could or should be managed. Still, the management of these different interests may prove to be conflicting. (Moe, 2014, 14.) Moe (2014, 14) suggests a research question for future research: “How different stakeholders’
goals influence the requirements?” After considering this, we chose that to be our research question because it would bring new knowledge to the field and also serve the company well.
1.3 Research Objectives and Questions
The purpose of this study is to get a broader understanding on decision-making, when procuring learning management systems, once different stakeholders have been involved in the project. We believe that this study benefits LMS vendors; it helps them understand how potential buyers are making decisions, and how they value different criteria in the evaluation phase. As academic literature shows, strategic decisions need to be done with stakeholders.
Our study helps to understand how different stakeholder groups influence the project. There is no previous academic literature that focuses on the procurement process of an LMS.
Learning management systems are an interesting topic to complement academic studies.
Our research question is: How different stakeholder goals influence the requirements from the procurement manager’s point of view.
Sub-questions that support the main question are:
- What factors made the determining of the requirements complex?
- How was the procurement managed?
- How were the stakeholders involved?
- How did the interests and goals of the stakeholders vary, and how were they
prioritized?
- What were the criteria’s for the vendors in the selection phase of the procurement?
1.4 Methodology
The empirical data was collected by interviewing the specific LMS vendor’s customers, to whom this research has been done as an assignment, including different people from different stakeholder groups that have participated in the decision-making. With the interviews, we tried to get a deeper understanding of how different organizations have chosen the LMS vendor and how the project was managed. We then compared our data and findings to the relevant academic literature.
1.5 Research Structure
The introductory chapter gives an overall picture of this research. It includes our motives and background with focusing on understanding how organizations make decisions in selection phase of procurement. The research method and problem are defined with the guidance of a theoretical framework and empirical research.
The Theoretical background chapter provides perspectives of how organizations make decisions on a general level. Chapter 2.1 focuses more on the decision-making process.
Chapter 2.2 focuses on ICT-investment decisions and the nature of those decisions compared to “normal” decision-making. Chapter 2.3 focuses on procurement and on what factors influence the selection of the vendor. Stakeholders’ involvement and different roles in decision-making are discussed in chapter 2.4.
Chapter 3 is about the chosen methodology. In chapter 3.1 we focus on describing our research method and design. Chapter 3.2 focuses on the description of the collected data and in chapter 3.3 we discuss about content analyses of collected data. In chapter 4 we present our results according to our research questions. In the final chapter, Discussions, there are collected thoughts about this work. In chapter 5.1 we discuss how the procurement of learning management systems should be executed and in chapter 5.2 we discuss research
limitations and criticism. The last chapter focuses on future development and research needs.
The final chapter 5.4 is about reliability and validity of this study.
1.6 Terminology
MIS = Management information system IS = Information system
LMS or learning management system can also be known as course management system (CMS) or virtual learning environment (VLE). It is a web-based software where schools or organizations can deliver, track and manage their training material and exercises or education. The main features of an LMS are that the training material or courses can be distributed over the internet and the students or employees can have online collaboration while attending different courses or doing different exercises. LMS solutions can be categorized into two into two different types, which are open source and proprietary LMS.
There are hundreds of different LMS solutions in the market, a few examples of these are:
Moodle, Canvas and Sakai. There is also a big list of proprietary LMS solutions like Blackboard, Absorb and Desire2Learn. (Islam, 2012.)
The difference between open source and proprietary solutions is as follows: the proprietary solution is distributed under commercial license agreements and in many cases; the buyer has to pay a fee to be able to use it. Also, the buyer does not receive the right to copy, modify or redistribute the solution. In proprietary solutions, a company holds the exclusive copyrights to that specific solution and this way makes sure that others cannot access the source code of the solution. Open source, on the other hand, means that the solution’s source code is published and made available to the public. Also, anyone can copy, modify and redistribute the source code and there are no royalties to be paid or license agreements to limit this. The whole purpose of open source is that it evolves through cooperation of active communities composing of individual developers, users and large companies. (Pankaja, 2013.)
LMS can be used to support both distance learning and traditional learning, or the combination of those two, which is called blended learning, with the wide variety of features
that it has. With the use of LMS, organizations and schools can track the progress of the learners individually and the learners, on the other hand can, for example, find the learning material and grades in the LMS, but also interact with other learners online. An LMS offers the possibility to make learning independent of time and place. (Islam, 2012.)
2. THEORETICAL BACKGROUND
2.1 Decision-making process
Business managers have an important role in the making of strategic decisions. Their task is to steer the organization in the desired direction. (Azar 2014). Mintzberg, Raisinghani &
Theoret (1976) show in their study that it is in the top-level management in the organization where better decision-making processes are most needed. They define the decision-making process as a set of actions and dynamic factors. The process begins by the identification of a stimulus for action and ends up with the specific commitment to action. They also speak of an unstructured strategic decision process where the unstructured term refers to a decision process or processes that have not been encountered the same way before and there are no responses ready in the organization. The strategic part describes the importance in terms of the actions taken, the resources committed or the precedents set. (Mintzberg, Raisinghani &
Theoret 1976, 246.)
Strategic planning is included in rational models of decision-making. Future trends in industry, technology, IS applications that are available and used, organizational objectives and business strategy are also included in rational IS decision-making. Organizations’
stakeholders have a shared understanding of the organization’s means and ends when rational decision models are implemented. (Boonstra 2003.) Rational decisions are a series of analytical processes to evaluate strategic alternatives (Hough & White 2003). When decision- making processes have been studied, two different approaches have been largely used in academic literature: phase phased and attribute phased approach (Sabherwal & King 1995).
However, according to Boonstra (2003), approaches used in psychology and sociology are not often used in the IS field, because rational models dominate the IS decision-making process. Schwartz & Zozaya-Corostiza (2003) propose more financial and non-financial approaches to the IS decision-making process, where extensive analysis and formal planning methodologies are regular parts of the decision-making process. Boonstra (2003) describes other smaller approaches to the decision-making process such as bounded rationality, the garbage can model, incrementalism, groupthink and irrationalities.
Due to the diversity of approaches, we want to study how IS investments are actually made in the selection phase of a procurement. Although there are differences, Mintzberg et al. (1976)
Decision
problem Problem identification
Sharing information
Alternative generation
Alternative
evaluation Consensus reaching
Decision results suggest that the general patterns can be found in decision-making even when the processes are not planned beforehand.
The decision process in literature focuses mainly on individual situations but one single individual cannot select the best action plan. The consensus of individual opinions and interests is the base of group decision-making. Previous literature on decision-making and models such as Mintzberg (1976) do not take group decision into account. Group decision- making processes are different due to its characteristics and tasks. More decisions are done simultaneously and information is shared more comprehensively among individuals. One specific feature of group decision-making is its increased communication. (Lei & Youmin, 1995.)
Figure 1. Stages of Group Decision Process (Lei & Youmin 1995).
When a group is making a decision Condorcet’s paradox may occur as all the participants share the same number of alternatives but might not share the same set of evaluation criteria (Lei & Youmin 1995).
Leaders need to be able to control the decision-making process. The whole process can be divided into three main stages, which are:
1. The reasons why decisions need to be done; what are the needs 2. Possible alternative solutions
3. Making the choice from the options
Each of these stages consists of several different actions, gathering information, determining the problem, searching alternative options, development and evaluation (Pekkanen 2003, 12,13.)
Writer: Set objectives
Problem recognition
Problem definition
Information gathering
Develop alternatives
Evaluate alternatives
Choice Implement Monitor (follow- up)
Simon x x x
Janis x x x x
Schrenk x x x
Witte x x x x
Mintzberg x x x x x x x
Gordon and Pressman
x x x x x
Gilligan x x x x x
Harrison x x x x x
Bridge x x x x
Hill x x x x
Table 1. Different stages of a decision-making process by researchers (Pekkanen 2003, 14).
Generally, it can be said that the number of stages in a decision-making process has increased lately (Pekkanen 2003, 14). Harrison’s (1996) model of decision-making process is relevantly new and it’s also comprehensive. The process consists of six stages.
Picture 1. Harrison’s decision-making process (Harrison 1996).
2.1.1 Mintzberg’s Decision model
Mintzberg’s model (1976) represents phase approach in decision-making literature (Boonstra 2003). Decision-making processes are always different and it is almost impossible to compare decisions. Harrison’s model (1996) is too simple for more complex decisions.
(Pekkanen 2003, 18). The most detailed model is Mintzberg’s (1976). It takes into account different approaches that certain decisions might require. In his model Mintzberg observes that every decision needs to have a different process. Sometimes settlement options are not known or they do not exist at the time, but they need to be designed. In the study by Mintzberg et al. (1976) the decisions were situated into three different categories, and for this study, important factors were the stimuli that evoked them, the solutions and the processes used to arrive at those decisions. The stimuli decisions can be divided into two extremes, the other end being opportunity and the other end crisis decisions. The opportunity decisions are initiated on a voluntary basis to improve an already secure situation to, for example, secure the stable market shares by launching a new product. The crisis decisions, on the other hand,
Renew search Revise
objectives
Comparing and evaluating
alternatives
Take corrective action as necessary
Searching for alternatives
The act of choice Implementing
decisions Follow-up
and control Setting managerial
objectives
Revise or update objectives
can happen when severe situations demand immediate action and organizations have to respond to the intense pressures. Opportunity and crisis decisions can be seen as two ends of the continuum of the stimuli factor. Problem decisions fall in between these two. During the solution development, the decision process can also change from a problem decision to a crisis decision because of a delay or some managerial action. It can also happen the other way around and a crisis decision can change to a problem decision by seeking a temporary solution. (Mintzberg et al. 1976, 251.)
According to Mintzberg et al. (1976), decisions can be classified by solutions in four ways.
The first way is when the solution is given fully developed in the very beginning of the process. Secondly, the solutions can be found ready-made that is, fully developed, in the environment during the process, e.g. purchasing a jet aircraft. The third way is custom made solutions that are developed specifically for the decision, e.g. construction of a new building for the organization. The fourth way is the combination of ready-made and custom-made features, where ready-made solutions are molded to fit particular situations e.g. adapting equipment for a specific purpose application. (Mintzberg et al. 1976, 251.)
Picture 2. Strategic Decision-Making Process by Mintzberg (Pekkanen 2003, 20).
Mintzberg's (1976) model is based on empirical research that took five years. The model gives comprehensive understanding on how different decisions are made in real organizations.
According to Mintzberg (1976), decision-making processes are dynamic and open systems, that can be vulnerable to interruptions. A dynamic factor can speed up or slow up the process.
The dynamic factors are (Pekkanen 2003, 21):
● Internal interrupts: Normally, the decision-makers’ disagreements on the importance of a decision. These interruptions come from inside the organization. As a result of internal interruptions, decision-making process goes back to the defining the problem stage.
● External interrupts: Forces and disagreements that come from outside the organization, which they prevent the final decision. In these situations, it is normal to go back to the design alternative options stage and modify options to fit the current new situation better.
● Schedule delays: Usually due to the fact that leaders are busy and companies have limited resources.
● Failures: Sometimes solution options need to be rejected in the selection stage due to high costs. In these cases, the process has failed and the designing alternatives stage must be started again.
Identification phase
This phase can be divided into two sections (Pekkanen 2003, 22):
1. Recognition: the impulses (possibilities, problems and crises) are being identified and the importance of decision-making is known.
2. Diagnosis: decision makers try to understand the meaning of the impulses and defining the needs of decision-making situation.
The most important part of this phase is that usually impulses are required before the importance of the decision-making is even known. Decision-makers get external and internal impulses. Oftentimes, these impulses do not affect the decision-makers due to the fact that they are not powerful enough or they do not fit the company’s current situation. It can also be, that the receiver of those impulses does not have the power or the authority to start implementing the ideas that the impulses have given. (Pekkanen 2003, 22.)
In identification phase, problems, opportunities and crises are recognized easily separate from each other. Individuals have very important role in this phase. They are normally the force that can start the projects. A crisis requires immediate action but problems require more impulses so that they change into action. After the decision-making step has been taken, decision makers have new kinds of challenges because there is no predetermined design for the process. In the design phase, it is important to understand the impulses and gather information to define to problem properly. (Pekkanen 2003, 23.)
Development of Alternatives
According to Mintzberg (1976), this phase is the heart of decision-making process. Most of the time vast majority of resources are normally used to this phase. The goal is to recognize one or more options as a solution to solve the problem or crisis. Rarely companies have direct settlement options to this phase. The development phase can be divided into two sections:
search and design. (Mintzberg 1976.)
In this phase, it is possible to try to search for alternatives that are ready for the decision- making process, which is often impossible. (Pekkanen 2003 24, 25);
● Using memory: Are there similar decisions in the past that could be used as examples?
● Passive search: Wait for suitable alternatives.
● The use of a trap: Searching the alternatives with the use of “searching generators”, for example, giving information of needs to suppliers.
● Active search: Actively searching for alternatives.
According to Mintzberg et al. (1976) due to the fact that design phase consumes most of the time, there can be only one planned and completely ready settlement option (Mintzberg et al.
1976, 256).
The Selection Phase
The selection phase is the last phase of the process. It includes several decisions that must be done and many of those are solid parts of the development of the alternatives phase. The selection can be divided into three sections: heavy screening (what options are in no means possible), reviewing the options that are left and finally getting acceptance of alternative
options from the organization. This phase can be linked to Thompson’s model of selection methods: analyze, counsel and consideration. (Pekkanen 2003, 25.)
According to Pekkanen (2003), literature over-rate the selection phase and Pekkanen’s opinion is that, although decisions are made in this phase, designing and planning phases are more important due to the fact that they affect directly to the success of the selection phase (Pekkanen 2003).
2.1.2 Characteristic of Strategic Decision-making
The strategic decision-making process can be characterized with words such as novelty, complexity and open-endedness. These characterizations come from the fact that when organizations usually begin the decision situation, they have a very little understanding of it or they do not know the way to the solution and what the solution might even be. Also, the way how the solution will be evaluated when it is developed can be difficult in the beginning.
The strategic decision-making process involves many difficult steps and forces companies to go through the recursive, discontinuous process of a considerable period of time before the final choice is made. The decisions can be made under ambiguity, where nothing is easily determined. (Mintzberg et al. 1976, 250.)
Mintzberg et al. (1976) say that although there are many techniques found in different literature about strategic decision-making (e.g. strategy planning, cost-benefit analysis), it has been found in many studies that their use has made little real difference in the decisional behavior of organizations. The reason why these techniques have been ineffective is that they are unable to cope with the complexity of the process found at the strategy level. (Mintzberg et al. 1976, 246.)
Shepherd & Rudd (2014) say in their study that it can be a hindrance to examine decisions if the goal is to understand organizational processes. According to them, this is because individual decisions can be troublesome to identify. Even, if the formal decision has not been made, actions can occur and due to a response to external environment, organizations can take a course of action without it being a result of a systematic decision process. (Shepherd &
Rudd 2014, 341.)
2.1.3 Intuition in Decision-making
Intuition based decision-making is an important subject due to the fact that the development of a new product or service includes uncertainty and inexperience with either given role or environment when decisions are made (Organ et al. 2016). Klein et al. (2010) describe that all the following subjects include to the naturalistic decision-making environment: ill-defined goals and badly structured tasks, uncertainty, missing data, ambiguity, shifting and competing goals, dynamic and continually changing conditions, action-feedback loops, time stress, high stakes and multiple players. Furthermore, the decision-making prior experience of actions and reactions affect directly to decision-making. (Klein et al. 2010.)
Intuition in decision-making according to Pretz, Brookings, Carlson, Humbert, Roy, Jones, &
Memmert, (2014):
- Affective-intuitive decisions: emotional reactions to decision situations.
- Inferential-intuitive decisions: automated inferences in decision-making processes that were once analytical but have become intuitive with practice.
- Holistic-intuitive decisions: non-analytical “bottom-up”, data-driven processes that cue into situational judgment.
2.1.4 Transaction cost theory in decision-making
The transaction cost theory analyses the transaction as the basic unit and in other words the transaction cost theory (TCT) is aimed at identifying the governance structures of different types of exchanges between parties in order to maximize the economies for a given organization (Alaghehbanda, Rivarda, Wub & Goyette, 2011, 126-127; Roser, Müller &
Bauer, 2011). The completion of a transaction includes series of actions like searching for suppliers, negotiation of contracts, evaluating performance, and adjusting a contract by re- arranging transaction items. The two behavioral premises, bounded rationality and the opportunism of human agents, act as the base of TCT. The opportunity of human agents describes that people mean to be rational but their capacity to create and solve complex problems and to process information in a rational way is limited. The opportunism part means when people act cunningly with their own self-interest and advantage in mind by providing false or incomplete information. (Alaghehbanda et al 2011, 126-127.)
The TCT describes both what choices organizations make and what has been observed but also what choices organizations should make given a set of transaction characteristics, which are: “When transaction costs are of a normative kind, what governance structure should be chosen”. This means that the organization has to have transactions aligned with governance structure if it wants to support a high-performance result. TCT has three key dimensions on which transactions differ. The first is asset specificity and it is seen as the most important dimension, but the other two, uncertainty and frequency, have significant roles also.
Alaghehbanda et al. (2011) mention in their study that the effect of these aforementioned dimensions on the cost of conducting a given transaction has to be assessed in light of bounded rationality and opportunism. Decision makers in an organization need to align transactions that differ in their set of attributes with governance structures that include the cost and competencies of which differ, in a discriminating and mainly transaction cost economizing way. (Alaghehbanda et al. 2011, 127.)
Alaghehbanda et al. (2011) define asset specificity as for how the assets that are used to conduct an activity can be used again in alternative uses and by different users without sacrificing the production value. An asset that can be easily used in other types of activity is called a non-specific asset. There are three major categories of assets that the term specificity is used on. The first one is site specificity and it means the geographic location of an investment. Second, the physical asset specificity, which means specialized equipment and tools and third, human asset specificity, which means employees’ knowledge, expertise and learning by doing. A supplier can gain cost advantage over other potential suppliers (opportunism) when investing in highly specific assets such as unique location, proprietary technical and managerial procedures or specific labor skills. (Alaghehbanda et al. 2011, 127.)
There are two types of uncertainty, behavioral and environmental where behavioral uncertainty is the most important. The behavioral uncertainty is caused by opportunism and it is defined as the distortion of information. Environments, on the other hand, are uncertain when you take into consideration technology, demand, local factor supply conditions and inflation for example. The uncertainty can come from random acts of nature or unpredictable changes in consumers’ preferences. Due to these factors, it is not feasible to try to create strategies for all possibilities in advance. (Alaghehbanda et al. 2011, 127.)
Frequency tells the buyers activity in the market and also the number of recurrence activities the organization needs before transaction happens. Those different transaction types can be one-time, occasional or recurrent. There is not a distinct difference between one-time and occasional transactions because one-time transactions seldom have a completely isolated character. (Alaghehbanda et al. 2011, 127.)
2.2 ICT-Investment decisions
The development of the technology forces organizations from every industry to replace old products with new ones. Firms have to react effectively and promptly to technical changes to succeed (Schiavone 2011). Competition in the markets and competitor’s innovation forces companies to continuously seek for development (Roser, Müller & Bauer 2011). That kinds of decisions have important implications for organizations. Rapidly growing technological competition complicates managers’ ability to make decisions, because technological decisions require more complex understanding and knowledge of strategic issues (Schiavone 2011). Information and communication technology have accelerated organization's ability to store, reuse and share valuable information. Companies have continuously built their technical infrastructure to help knowledge sharing. There can be recognized two main strategic capabilities in using updated technical infrastructure: data sharing and possibility to act globally (Hedelin & Allwood 2002). When organizations are making software purchase decisions, they need to avoid making one of the following common mistakes. Like always, there is a risk of paying too much for the right system. There is a risk that organizations will not get well-designed and well-planned systems. And thirdly organizations need to understand that they need to buy from the vendor and realize that the vendor must also make a profit for itself in order to be able to deliver good quality and continue serving in the future.
(Heiskanen et al. 2000.)
IT investment decisions are not approached differently for most parts in many organizations.
Most organizations use the same process for IT decisions when compared to other major funding decisions. In most cases, the IT decision-making process has three different elements, which are a business case, decision criteria and an advisory committee. The study from Norris & Olson (2003) shows that most organizations tend to use at least one of these elements. (Norris & Olson 2003, 63-64.)
Business case
The business case is the most common of the elements as found in the study from Norris &
Olson (2003) and over 90 percent of the surveyed organizations prepared a business case to support IT investment requests. The business case components differed but many organizations named an implementation budget and listed a summary of benefits that the project would bring. Also, as the study shows, most of the organization's calculated the investment's lifecycle costs and the potential cost savings. Interestingly, few organizations calculated the new potential revenue opportunities that the investment might have due to IT investments second- or third-order impacts that might be difficult to estimate. (Norris &
Olson 2003, 64.)
As Norris & Olson (2003) found in their study, most of the organizations had a good experience with their business cases. The cases were assessed with four questions answered by the organizations taking part in the study. The questions were:
- Did the business case project the benefits accurately?
- Did the business case include a strategy to capture projected benefits?
- Were one-time costs projected accurately in the business case?
- Were the recurring costs projected accurately in the business case?
The organizations that were surveyed thought that their business cases performed pretty well within all of those aspects. As later was found, the organizations saw the business cases did in fact accurately predict the costs and benefits of an IT project. There was not any statistical difference in the results when taking into consideration the organization size, budget or budget philosophy. (Norris & Olson 2003, 64-67.)
Decision Criteria
As Norris & Olson (2003) found in their study, the preparation of a business case in the organizations taking part in the study, was very common but the decision criteria were not.
Many of the organizations noted that they do not have any standard criteria, but the most frequently used were cost, fit with institutions strategy and also the potential to improve productivity. The study showed that the potential to improve compliance and risk as a criterion was used fairly seldom. The lack of using risk as a criterion may refer to organizations having difficulty in assessing the risk of doing a project, the opportunity cost or
the risk of not doing the project at all. (Norris & Olson 2003, 67-68.) According to Hedelin &
Allwood (2002), the determining of decision criteria can be difficult because in IT investment decisions the specification of required information causes problems (Hedelin & Allwood 2002).
Role of Advisory Committees
The advisory committee is the final element in many organizations decision-making process and their function is to advise the IT leader. The committee is often divided into groups with different responsibilities and particular technology area. Many organizations reported of having an IT advisory committee but very few organizations report that the committee has decision-making power on their own and the final decision is most often made by one or more members of the executive leadership. Also, the number of decision makers increase hand in hand with the size of the project. (Norris & Olson 2003, 68-69.)
2.2.1 The nature of IS investment decisions
Boonstra (2003) shows that organizations are making IS investment decisions on a regular basis. Those decisions can vary from identifying problem, screening options and making the final decision quickly to long-lasting processes where screening, searching, negotiating activities can take years. (Boonstra 2003.) Rantapuska & Ihalainen (2008) show findings that organizations have problems preparing for ICT-investments and many organization have failed in ICT-investments. The problems for the unsuccessful decisions are the ability to make carefully executed evaluating and selecting. In the literature, there are decision-making models that take ICT-implementations like any other organizational investment, although ICT-decisions links directly to strategy and goals of the company. The ICT-investment process is seen more as a technical process and its social nature is ignored. (Rantapuska &
Ihalainen 2008.)
Morgan, Colebourne & Thomas (2006) show that the ICT-investment can be seen as a learning process where knowledge is shared and created by decision makers. To the decision- making process participate workers, suppliers and outside experts (Morgan et al. 2006).
Rantapuska et al. (2008) have found that the personal management style can affect the decision makers’ use of knowledge. Experience, attitudes, values and tacit knowledge such as
intuition are the bases of most decisions. The decision makers have also external sources to support decisions. User events, benchmarking and face-to-face interaction with suppliers are examples of external sources and those are not used as often to affect the decisions. This can highlight the supplier role too much and due to this fact, the supplier may have too big a role in decision-making. (Rantapuska et al. 2008.)
According to Boonstra (2003), IS decision-making can be studied by focusing on key attributes of the decision-making process (Boonstra 2003). Sabherwal & King (1995) found in their study that there are three schools of thoughts representing decision-making processes:
rational, political and incremental (Sabherwal & King 1995). In rational approaches, which are rooted in economics, classical models of strategic planning are included (e.q Mintzberg 1976). Information is collected with different analysis and decisions are aligned with company’s strategy and objectives. Analysis like the existing IS application portfolio, and prediction of future industry and technology trends are tools in rational decision-making. The second school of thought incremental approach is linked to psychology. Decisions are frequently interrupted and therefore decision-making takes time. Political approach is rooted in political science and sociology and it takes more attention towards groups diverse interests and unequal power. Decisions are outcomes of social and political processes. (Sabherwal &
King 1995.)
From a political science and sociology point of view, political and social processes among people influence the outcome of decisions (Delquié 2003). According to Boonstra (2003) the following facts influence an organization's decision-making process (political and sociology point of view):
- Amount of people to process information - Possible disagreements among stakeholders - Change, uncertainty and unclear objectives
- The group's and individuals' psychological barriers to act in rational way and adapt information
- The tendency towards incrementalism and arbitrariness in decision-making (Boonstra 2003.)
Delquié (2003) and Azar (2014) both suggest that when choice alternatives in decision- making present advantages and disadvantages for different stakeholders, conflicts can arise.
Decision-making under risk can be tough due to the possibility that one alternative can lead either much worse or better outcome than the other. Several studies have found that people tend to avoid conflicts by postponing the choice and selecting a default option. (Delquié 2003; Azar 2014.) Delquié (2003) says that resolving conflicts is the heart of decision- making when several individuals participate in the decision-making process. Conflicts can be seen also as the source of valuable info such as revealing meaningful information about a person's preferences. (Delquié 2003.)
2.2.2 Factors that differentiate IS decision
Boonstra (2003) has identified five factors that result in major differences in IS decision- making process. Those factors are: (1) is there potential to design a solution; (2) whether clear alternatives must be searched for; (3) decision-maker’s understanding of urgency and necessity; (4) possibility to divide problem into parts to follow process path and (5) the number and power of stakeholders involved in the process. According to Boonstra managers should be aware of those five factors in order to design specific process to match the needs.
(Boonstra 2003.)
Picture 3. IS decision-making process, before the actual decision to invest is made (Boonstra 2003).
Boonstra (2003) found in his study that IS decision-making process can take a long time, from less than one year to over 4 years, and they can be managed as planned or incrementally and management's task is to manage the process (Boonstra 2003).
IS-related problem IS decision-making process IS decision
2.2.3 IS strategic planning
According to Götze, Northcott & Schuster (2008), investment planning can be seen as the process shown in Picture 4. In the first stage at the goal setting, it is important to be aware of the problem and the possible solution. After determining goals, uncertainty and risk must be considered. At the problem identification and analysis stage, the aim is to evaluate the current situation and to forecast the future. Search for alternatives identifies the possible investment alternatives that might fit to the future needs and solve the current problems. At the final phase of the planning process is forecasting and assessment and decision-making where information needs to be gathered to make right and suitable analyses for selecting the best investment option. (Götze et all. 2008, 8.)
Picture 4. Phases of the management process in companies (Götze et al. 2008, 7).
Organizations should do capital investment decisions that links into the existing and planned investment program. That program should be a part of a company’s long-term strategy.
Strategy determines what kind of products, markets and technologies the organization wants to invest in. (Götze et al. 2008, 9.)
According to Götze et al. (2008) those project options may have different costs and benefits even though they might solve the same problem. Decision process raises even higher success factor so that options are considered and right decision can be made. In the decision-making process investment projects can be classified at first and some investment can be done easily when for example divisional manager is authorized to make 100 000€ investment by themselves. Larger investment decisions usually require systematic process where C-level managers, CEO or board of directors reviews options. The process can differ a lot depending on the amount of required capital. (Götze 2008, 13.)
Picture 5. Tactical MIS planning process for IT projects (Schniederjans et al. 2010, 30).
There is no same set of steps that firms use in their IT project planning. Every time when component or change in MIS system is suggested, it requires comprehensive analysis for possible impacts. “Ripple effect” is the change, which occurs when an IT component of a system is changed and it causes problems in other components. It is important to decide what technology is used and how changes effects to existing one and also how integrations can be done when adding new components to the system. (Schniederjans et al. 2010, 31.)
STRATEGIC PLANNING STEPS
Configuration and functionality analysis Process and systems engineering
It system evaluation and justification
TACTICAL PLANNING STEPS
OPERATIONAL PLANNING STEPS
2.2.4 Outsourcing
The findings of Roser et al. (2011) state that companies have global networks that can be used in outsourcing. If business activities can be performed more effectively with lower costs, firms outsource tasks (Roser et al. 2011.) Schniederjans et al. (2010) have found that in some situations, organizations want to outsource MIS tasks. The organizations do not want to tie some of their capital to new IT projects because very often MIS tasks include more than just staff members and due to that they need temporary help from outside. That is very common MIS management planning decision. There is a survey of 150 IT executives and 93 percent of those reported that they had outsourced IT and business process functions.
Outsourcing in IT has increased 20 percent yearly through the 1990s. (Schniederjans et al.
2010, 42.) As Pekkanen (2010) shows sometimes there is a need for consulting because organizations are aware of the problem but do not know how to manage it. Mostly they want to hire an expert from outside the organization to evaluate what kind of options the company has for achieving required objectives and goals. (Pekkanen 2010, 9.)
According to Schniederjans et al. (2010), most commonly used outsourcing areas are user support, disaster recovery, software development, software maintenance, support services, Internet services, and business processes (Schniederjans et al. 2010). Lackow (2001) revealed in his research the main reasons for outsourcing: cost savings, improved service and access to outside expertise (Lackow 2001).
Hong et al. (2012) state that organizations seek the best price and as efficient ways as possible from outside resources. Globalization has increased the ability to have access to low- cost resources from overseas. However, global sourcing carries risks regarding: hidden costs, transportation, logistics costs, delivery performance, service quality, production capacity and other macro factors like infrastructure, politics, culture and geographical locations. (Hong et al. 2012.)
2.2.5 Procurement Process
According to Thai (2001), there is evidence of public procurement found in Syria between 2400 and 2800 B.C. when the procurement was to order 50 jars of fragrant smooth oil for 600 small weight in grain. The silk trade between China and Greek colony in 800 B.C and its
development is also one example of procurement. Although the procurement has a long history and procurement practitioners have worked to improve public procurement practices, it has been neglected area of academic research before the year 2000 when Public Procurement Research Center was created. (Thai 2001.)
Lian & Laing (2004) research shows that there are important differences between public and private sector procurement. Public policy restrictions affect directly to organizations in public procurement. In private procurement organizations have utilized a large range of approaches and those can be classified unlike in public sector. Previous research has shown that public procurement relies on transactional-based approach. (Lian & Laing 2004.)
Saarinen & Vepsäläinen (1994) describes: “Procurement means the choice among suppliers and contracting forms for acquiring an asset.” (Saarinen & Vepsäläinen 1994). Procurement process according to Johansson & Lahtinen (2012) is an important business process where the ability to specify the requirements is a major benefit for both the procurer and the potential supplier (Johansson & Lahtinen 2012). Pollock & Williams, 2007 describe that procurement is seen as a process of selection between different products in economics and management (Pollock & Williams 2007).
Tadelis (2012) says that organizations from both public and private sector procure for similar products and services. However, the procurement process in those sectors differs dramatically especially how goods and services are produced. He explains: “Throughout the late 1980's and 1990's, formal economic analysis described procurement as a mechanism design, or agency problem with the following characteristics. The supplier has information about production costs that the buyer does not have. The buyer must design a mechanism (or contract) to infer the supplier's costs, such as offering the supplier several potential projects to choose from, each with an associated price. The supplier then selects the one that will be produced, thus revealing his costs.” (Tadelis 2012.)
From the economical point of view, there should be sufficient information in the markets to make rational decisions. However, procurement is characterized by high level of organizational tension and uncertainty of what solutions are available and what they offer.
Procuring packaged software includes uncertainties that may appear as a solution that was not what was offered because it could only partially build. More specifically examined packaged
software can only be tested when the actual purchase is made and when the software is installed. Preference cases may help the buyer to get helpful information but there are problems of how similar the demonstrator organization is to the potential adopter. (Pollock &
Williams 2007.)
Previous academic literature does not comprehensively cover studies of software package procurement although the importance is recognized (Howcroft & Light, 2006; Tingling &
Parent, 2004). Perhaps the reason for this lack of attention is the difficulties in capturing procurement. The procurement process where a potential customer engages with technologies, selects the most suitable between them and chooses the vendor or supplier can last a long time. Organizations have conducted information system procurement processes infrequently. Other challenges are that by the time a technology selection process is identified, many of the key decisions are already made. (Pollock & Williams 2007.) Also, Johansson & Lahtinen (2012) support the perception that procurement of IT has less interest in academic literature. Although procurements have been studied for decades by economists (Tadelis 2012).
Hong et al. (2012) explain the importance of procurement for value chain processes by increasing quality and innovation: the right suppliers are key factors because they need to understand their customer’s business processes and needs. The procurement of technologies is seen as, a result of a formal process where information about the features of objects is evaluated against a set of pre-specified decision criteria. That is the point of view of economics, management and engineering accounts, but critical interpretations informed by constructivist and cultural sociology sees the process more like a social process where the focus is more in the micro-politics of the organization rather than a substance of the selection procedure. (Hong et al. 2012.) Pollock & Williams (2007) argue that understanding the technology selection cannot be fully understood unless the role of assessment criteria is not comprehensively considered (Pollock & Williams 2007).
The procurement of software packages from the acquisition of the requirements for purchasing is an incremental process. The customer starts to make initial perceptions of requirements and the priorities of them are commonly based on the person’s area of expertise, existing manual systems and other systems that are used. Advertising, software descriptions (provided by the supplier), demonstrations and references help customers check if the initial
