E 2 635 harsha

QUESTION 1

  1. The relationship between IT and other areas of the organization is critical for many aspects of IT within organizations.  Discuss the role of IT governance and leadership in understanding how organizations see the value of IT. 
  2. What is IT governance?  Discuss different approaches to IT governance.
  3. How can different types of IT leadership impact the role of IT within an organization?
  4. Provide specific examples where applicable. Use the readings (and, if you wish, other relevant references) to support your answer.  Please provide citations.

QUESTION 2

  1. Develop an IT innovation strategy for your organization (or an organization you are familiar with). Describe the organization’s situation and how a specific innovation approach (disruptive, architectural, routine, radical) would be most appropriate for it.

QUESTION 3

  1. Choose one of the following:1) internet of things 2) blockchain 3) big data/analytics
     Describe two real-world applications of your chosen technology. How does this technology enhance business competitiveness/profitability in the two applications?

Please Note the Following:

1- Make sure to cite the references (both required readings and external sources, if any) you use. Proper citing (using, for example, APA style) of an article includes necessary information such as author name(s), journal title, year of publication, etc. Just referring to “Readings from Week 3” or “Harvard Business Review” is not proper citation. 

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2- As always, quality outweighs quantity. While your answer needs enough length to conduct a thorough analysis, it is very important to offer a coherent and readable answer that is well organized and that has a smooth and logical flow. The answer must reflect a reasonable mastery of the required readings. Answers that are too generic and that can be provided by a layman with superficial knowledge of the material is not acceptable.

3- Academic honesty is extremely important and any suspected plagiarism (including copying material without citing it) will not be tolerated.

BETTER
DECISION RIGHTS

F
or better or worse, the IT
spending boom has ground
to a halt, replaced by a
more sober era where IT
decisions are made with far
greater scrutiny. Once bit-
ten, twice shy is the name
of the game, as CEOs take

more control of IT initiatives and
tighten the purse strings by demanding
greater justification for new initiatives.
This cautious, less trusting environment
has resulted in a credibility gap between
management and IT, with IT staff in the
vulnerable position of feeling expend-

able as long as the outsourcing bug is in
the air. And IT staff frustration is often
compounded as staff members are
blamed for IT decisions made by top
management!
The irony of this scenario is that there

has never been a more important role for
IT in the e-business environment of
today. Integration of IT in internal
processes and external markets is grow-
ing at a furious pace. The stakes for good
communication are high. On one hand
there is an adversarial relationship due to
the credibility gap and the starkly differ-
ent language spoken at the business and

“The perils of screwing up (with technology) are greater every
year, making the stakes for effective communication even higher.”

—STAN LEPEAK, VP OF TECHNOLOGY
RESEARCH SERVICES AT METAGROUP.

FIX IT-BUSINESS
RELATIONSHIPS
THROUGH

80 December 2007/Vol. 50, No. 12 COMMUNICATIONS OF THE ACM

By Varun Grover, Raymond M. Henry,
and Jason B. Thatcher

IT ends. On the other, there is the need
for executive management and the top
IT brass to come together to synchronize
organizational IT with business needs
[1]. A sour relationship between these
groups is not good in an environment
where the downside risks of IT failure
are catastrophic and the upside potential
is often dictated by competitors.
Just how bad is it? We surveyed senior

IT managers in a variety of industries and
focused on some very simple questions:

• Who makes major IT decisions? Who
is held accountable for them?

• Does this affect the relationship of your
group with top management?

In this article, we discuss the concepts of
decision rights and accountability, and the
gap that might sour the relationship
between IT management and top man-
agement.

DECISION RIGHTS AND ACCOUNTABILITY
IT decisions in organizations are made in
a wide variety of areas. Major decision
areas range from those involving IT strat-
egy, or the role of technology in trans-
forming business, to more technical
decisions concerning IT infrastructure.
An appropriate decision-making frame-
work is critical for organizations that want
to effectively manage IT and information
assets. These include not only the hard-
ware and software assets, but the increas-
ingly important data on customers,
suppliers, and business processes. Without
an effective framework that allocates deci-
sion rights to the appropriate people, deci-
sions regarding IT assets will be
conducted in a piecemeal, incomplete, or
sub-optimal manner. Such non-integrated
thinking does not bode well, considering
that IT assets are a collective resource that
leverages the business.
Any decision-making framework must

COMMUNICATIONS OF THE ACM December 2007/Vol. 50, No. 12 81

82 December 2007/Vol. 50, No. 12 COMMUNICATIONS OF THE ACM

also define accountability for IT decisions. Who is
held responsible for decision failure and who gets
credit for success? An IT governance system that cre-
ates a balance between decision rights and account-
ability can promote desirable decision making with
respect to IT assets [4, 12]. A mismatch between the
two can erode relationships and promote ineffective
or inefficient decision making.
The decision rights and accountability framework

for a firm is usually implemented through its struc-
ture, processes, committees, procedures, and incen-
tives. For instance, some firms may treat IS as a
centralized cost center with a fixed budget and
processes that allow IS to only react to user requests.
Such an environment does not promote “out of the
box” thinking for the IT
group. In this environ-
ment, if IT leadership is
held accountable for a lack
of strategic direction or
the inability to respond
nimbly to competitor
moves due to restrictive
legacy systems, there will
be dissonance in the IT
group. Ultimately this dis-
sonance will result in poor
relationships between the
IT group and top manage-
ment. On the other hand,
an aggressive IT group that is allowed to retain deci-
sion rights for major IT decisions and has control
processes in place to measure outcomes promotes
innovative solutions for the business. If the account-
ability systems become overly stifling, however, this
can again create a mismatch.
Figure 1 illustrates the decision rights and account-

ability gaps of IT executives. The top-left-hand cor-
ner is referred to as a technocentric gap, where IT
executives make major decisions but the accountabil-
ity systems are weak. Such environments often result
in overspending on IT that may not yield commen-
surate business benefits. In some cases this could
result in frustration for business groups, ultimately
resulting in a transformation of structures, processes,
or incentives to foster greater accountability [9]. In
other cases business groups are just not motivated to
think through IT decisions. As one CEO com-
mented, “Because the business people are uninter-
ested in information systems, the information systems
people have the power” [7].
The business gap (bottom-right corner of Figure 1)

occurs when major IT decisions are not made by IT
executivs, but business groups are not held account-

able for executive decisions. Business leaders might
ignore potentially valuable technology projects or
suddenly cancel them when they run into difficulties
[6]. Often cost considerations dominate decision
making, and the resulting IT assets are not aligned
with existing competencies. In the case of a large elec-
tronics manufacturer, an executive committee denied
IT’s request for a new scalable platform based upon
an external vendor’s aggressive proposal for cutting
costs through outsourcing. In such situations IT
groups may feel frustrated because they believe their
skills are underutilized and opportunities are being
lost. Frustration could also result from the lack of
control over their asset base, and in some cases their
future viability. Moreover, the blame often falls on IT

when projects run into
difficulties.
The off diagonal boxes

in Figure 1 reflect align-
ment between rights and
accountability. In cases
where both are low, IT
groups are usually not
strategic to the business
and are viewed as admin-
istrative units that service
the information needs of

the firm. The high-high box reflects a strategic norm,
where IT is given the power to make major decisions,
but it is kept in check through control systems that
monitor decision outcomes.

IT EXECUTIVE PERCEPTIONS OF THE GAP
Various organizational forms are used to implement
decision rights and accountability. Some of these are
tacit or cultural, such as the historical notoriety of
the IT group, while others are explicit, such as
incentives, procedures, or committees. However, in
many cases such forms do not keep up with enter-
prise changes and their original intent gets diluted.
Therefore, rather than examining these organiza-
tional forms, we argue that how these forms are
“perceived” by IT executives is what matters. Execu-
tives can best assess whether they feel they have a
balance (no gap), technocentric gap, or business gap
between rights and accountability. Our focus is to
empirically assess these perceptions, and their impli-
cations for the relationship of IT management with
top management.
We surveyed 89 senior IT executives (CIOs or VPs

of IS) across a diverse set of industries (see the side-
bar). After soliciting participation in an ongoing proj-
ect, we requested that they respond to a series of
questions on their perception of decision rights and

High

Low

Low High

Technocentric Gap
• Danger of overspending on IT
• IT assets may not be utilized
for business purposes
• Business group frustration
with IT group

Strategic Norm
Works where IT is viewed as
competent and strategic to
the business

Administrative Norm
Works for organizations
where IT is viewed as a
support function.

Business Gap
• Cost considerations
dominate IT decisions

• IT assets may not utilize
internal competencies
• IT group frustration with
business groups

Decision
Rights

Accountability

Figure 1. IS decision
rights-accountability gap

framework.

accountability as pertaining to major IT decisions in
their organization.

Major IT decisions. A number of typologies have
been proposed to categorize major IT decisions [11].
In this study we use six categories that represent major
IT decisions. These are:

• IT strategic vision. The
strategic role of IS in
the organization.

• IT architecture. How
technical capabilities are
organized for business
needs.

• IT investments. The
amount, type, and pri-
ority of IT investments.

• IT infrastructure. How
IT services are shared.

• Application develop-
ment. Management of
development and
implementation.

• Outsourcing. IT out-
sourcing policy and
management.

We requested that the
respondents assess the
decision rights and
accountability for these
decisions across five distinct groups. The “groups”
include IT management (the respondent’s group),
top management, business units, IT units, and ven-
dors. Decision rights were defined as the extent to
which groups make or have final “say so” over deci-
sions, while accountability for outcomes was defined as
the extent to which groups are held responsible for
the outcome of decisions. Responses were captured
for each group’s role in each decision (in percentage
terms). For instance, decision rights for decisions of
IT strategic vision could be distributed across the
five groups, with the total equaling 100. A respon-
dent could indicate that top management has 50%
of the rights, and IT management has 50% (that is,

decision rights are shared). A similar percentage
response was solicited for accountability of out-
comes.

Quality of relationship. Our particular interest was
in assessing the quality of the relationship between IT
management and top management. This was done
through a series of seven internally consistent ques-

tions that required
responses ranging from
strongly agree to strongly
disagree. Each question
describes an aspect of IT
management’s relationship
with top management
such as effectiveness, level
of cooperation, quality of
decisions, level of conflict,
feeling of partnership, and
satisfaction. After check-
ing statistically for the
internal consistency and
validity of the scale, these
items were aggregated to
form a “quality of relation-
ship” measure.

INTRIGUING PATTERNS
EMERGE FROM FINDINGS
The results on levels of
decision rights and
accountability are illus-
trated in Figures 2 and

3

respectively. The bars rep-

resent the average for the 89 executives surveyed. As
can be seen, major decision rights and accountabil-
ity for IT infrastructure and architecture, arguably
the more technical areas, reside primarily with IT
management or other IT units. Top management,
IT management, and business units tend to share
significant decision rights for IT investment and
strategic vision decisions. IT management and top
management are responsible for outsourcing deci-
sions, while application development is primarily
shared by IT management and the business units.
However, more interesting patterns emerge when

COMMUNICATIONS OF THE ACM December 2007/Vol. 50, No. 12 83

Strategic Vision

Architecture

IT Investment

Infrastructure

Application Development

Outsourcing

0% 20% 40% 60% 80% 100%

VendorsIT UnitsBusiness UnitsTop ManagementIT Management

VendorsIT UnitsBusiness UnitsTop ManagementIT Management
Strategic Vision
Architecture
IT Investment
Infrastructure
Application Development
Outsourcing
0% 20% 40% 60% 80% 100%

Figure 2. Decision rights.

Figure 3. Accountability.

There are a number of solutions to BRIDGE THE BUSINESS GAP,
but a precursor is to recognize that gaps exist.

one looks at the gaps between decision rights and
accountability. Table 1 illustrates these gaps (average
differences), with the negative numbers indicating
where accountability exceeds decision rights. As can
be seen in the column under IT management, all
numbers are negative
indicating that IT man-
agement perceives a busi-
ness gap, where
accountability for major
IT decisions exceeds deci-
sion rights. Table

2

describes this gap as per-
ceived by IT management
and its correlation with
the measure on relation-
ship

quality.

Significant

correlations indicate
where IT management is most sensitive to the per-
ceived gaps, and where these gaps affect the quality of
the relationship with top management. The last col-
umn of the table describes the correlation of top man-
agement’s perceived level of accountability with
relationship quality. Significant correlations here indi-
cate where relationship quality is stronger if top man-
agement takes on greater
accountability for decision out-
comes.
As can be seen from the tables,

some interesting patterns emerge
with respect to the various cate-
gories of major IT decisions.
Good IT governance promotes
desired behavior with respect to
IT deployment. By parceling out
decisions to the right people and
holding them accountable, gover-
nance can promote both empow-
erment and control [11]. However, in addition, we
find that for some decisions, poor governance can
adversely affect the instrumental relationship between
IT and top management. We make four observations
from these results.
First, the higher level strategic vision and IT invest-

ment decisions follow similar patterns. Strategic vision
decisions set the role of IT in the firm, while invest-
ment decisions establish resource commitment, prior-
itization, and the IT portfolio. In both types of
decisions there are large rights-accountability gaps
perceived by IT management, which adversely affect
relationship quality. For these decisions, top manage-
ment might be making unpalatable IT investment
decisions, while leaving IT management accountable
for the success or failure of these decisions. The results

suggest that governance mechanisms that can pro-
mote greater accountability on the part of top man-
agement are particularly useful here. It is not
sufficient to have executive committees with both top
and IT management representation if they are pro-

viding only decision
inputs. The assessment of
decisions should also be
brought within the charter
of such committees or
other governance struc-
tures. One company fol-
lowing an approach of
clearly specifying business-
oriented progress objec-

tives as a part of IT investment decisions was able to
enhance coordination, reduce cost, and improve
capacity [3].
Secondly, we find that more technical IT architec-

ture and infrastructure decisions follow slightly different
patterns. Architecture decisions concern issues of
mapping technical choices to business processes,
while infrastructure decisions involve explicit techni-
cal choices on shared network, Web, and data services
throughout the firm. While the gap is moderate for

both these decisions, its affect on relationship quality
is inconsequential for architecture decisions but
important for infrastructure decisions. Holding top
management more accountable does not help rela-
tionship quality in either case. This indicates that IT
feels that these decisions are outside top manage-
ment’s experience or expertise. IT management
would rather increase its own authority over technical
decisions that have enterprisewide implications.
Increased control over technical infrastructural deci-
sions, where IT management has an integral stake,
will facilitate better relationships with top manage-
ment. Of course, while architecture and infrastruc-
ture boards can be found in companies across a
variety of industries (including Dow Jones, Verizon,
and Hartford), it is critical that they not be comprised
of pure technologists, but have people grounded in
IT, but fluent in business [5].
Thirdly, we observe that IT infrastructure and out-

84 December 2007/Vol. 50, No. 12 COMMUNICATIONS OF THE ACM

Strategic Vision
Architecture
IT Investment
Infrastructure

Application
Development

Outsourcing

-23

-1

0

-2

1

-10

-12

-6

1
3
0
2
0

-1

IT
Management

13

2

19

1

7

7

Top
Management

8

5

4

3
8
2

Business
Units

1
0

-2

4

-3

-2

IT
Units Vendors

Strategic Vision
Architecture
IT Investment
Infrastructure
Application Development
Outsourcing

High (-23)

Medium (-10)

High (-21)

Medium (-10)

Medium (-12)

Low (-6)

Significant

Not Significant

Significant
Significant
Not Significant
Significant
Significant
Not Significant
Significant
Not Significant
Significant

Not Significant

Business Gap
Correlation of Gap with

Relationship Quality
Correlation of Top Management

Accountability with Relationship Quality

Table 1. Decision rights-
accountability gap.

Table 2. Correlations
with relationship

quality.

sourcing decisions follow similar patterns too. In general,
the results suggest lower business gaps, which would
suggest no major governance problem. However, the
gap perceived by IT management has a significant
influence on relationship quality. Situations where top
management makes outsourcing decisions for which
IT groups are held responsible will adversely affect
relationship quality. IT groups are certainly sensitive
concerning decisions regarding infrastructure man-
agement and outsourcing policies because of their
centrality in the provision of IT services. These deci-
sions directly reflect IT’s effectiveness, professional-
ism, and future viability. Rather than top
management taking on more accountability, IT man-

agement would prefer to be a central mediator of
these decisions and take on greater decision rights.
However, it is important that control systems are in
place to monitor IT-centric decisions. For instance, at
Xerox, outsourcing decisions are made by the top IT
manager, with the CEO and CFO providing an infor-
mal network for guidance, support, and counsel [10].
Finally, application development decisions are differ-

ent. These decisions involve development and imple-
mentation of applications. Usually, IT groups and
business units are involved in the development in con-
cert. IT management perceives moderate gaps in deci-
sion rights and accountability that surprisingly have
little adverse effect on the relationship with top man-
agement. However, governance that increases the
accountability of top management helps the relation-
ship. We suspect that development decisions require
coordinating authority in dealing with users of busi-
ness units. Without top management taking on
accountability, IT management is vulnerable to blame
for failures. More complex tripartite governance struc-
tures are necessary. For instance, a large financial ser-

vices firm uses steering committees involving IT man-
agement at the local and enterprise levels and business
unit managers to oversee IT development. Top man-
agement is involved in all major committee decisions.

GOVERNANCE APPROACHES
This study alerts firms to the importance of estab-
lishing a decision rights-accountability framework
for the firm. We focused on one such outcome, the
quality of the relationship between IT management
and top management. While these results focused on
the “biased” view of an IT executive in determining
gaps, we would argue that it is these perceptions that
are the ultimate manifestations of organizational

structures, processes, and incen-
tives. How these are perceived
will directly affect organizational
outcomes.
There are a number of solutions

to bridge the business gap, but a
precursor is to recognize that gaps
exist. After that there are structural,
process, and relationship capabili-
ties that can be implemented [8].
Structural capabilities including
formal positions, committees, and
task forces can be used to design
the appropriate governance frame-
work. Processes (like chargeback,
SLAs, and balanced scorecard) also
offer useful accountability mecha-
nisms. However, most important
are the relationship capabilities that
allow effective joint working rela-
tionships between IT and business
groups.

Some firms set up IT as a cost center, usually
reflecting a utility orientation toward IT. In these sit-
uations major IT decisions are made outside the IT
domain and IT “reacts” to business needs. At the
other extreme, the IT group can be set up as a profit
center with the ability to provide services to the inter-
nal firm or external firms. In the former case, the cou-
pling between the IT group and the firm is tight; in
the latter the relationship is loose, and served by mar-
ket mechanisms. The gap between decision rights and
accountability could be low in both cases as top man-
agement either retains or relinquishes most rights and
accountability for the IT budget.
Most firms, however, operate in some form of a

partnership mode, where various groups work
together through governance mechanisms like struc-
tures and processes. Top management and IT man-
agement can jointly determine the parameters of these

COMMUNICATIONS OF THE ACM December 2007/Vol. 50, No. 12 85

Decision
Types

Gap
Level

Relationship
Quality

For strategic
vision
decisions
and IT
investment
decisions

For IT
architecture
decisions

For IT
infrastructure
and IT
outsourcing
decisions

For
application
development
decisions

high

moderate

moderate
to low

moderate

adversely
affected
by the gap

not affected
by the gap

adversely
affected
by the gap
not affected
by the gap

Governance
Consideration

having top
management
take on greater
accountability

giving IT
management
greater
decision rights

giving IT
management
greater
decision rights
having top
management
take on greater
accountability

Governance
Examples

through executive
committees that
also assess the
decision outcomes

through
architecture
boards that have
technologists with
business acumen

with support and
counsel of top
management

through tripartite
structures that
involve top
management to
manage user and
business unit issues

and
governance
considerations
include

the
perceived
business
gap is

and the
relationship
between IT
and top
management
is

Table 3. Summary of
results and guidelines.

partnerships, but they need to pay attention to possi-
ble discrepancies between authority and accountabil-
ity [2]. The results here suggest that different
arrangements can be made for different types of IT
decisions. For strategic and major IT investment deci-
sions, the interaction and relationship between IT
and top management need to be carefully formulated
so that this important working relationship allows the
firm to be effective in deploying new IT initiatives
that are important to business performance. More
than half the firms identified as the CIO 100 used an
executive council, consisting of IT and business exec-
utives, to vet ideas for new projects [3]. For architec-
ture and infrastructural decisions, where IT
management has superior expertise, they can take the
greater role in terms of decision-making capacity and
accountability. Outsourcing decisions also seem to fall
here, since IT groups have a vested interest (and per-
haps expertise). Application development, however,
may require more complex tripartite governance
involving IT management, business units, and top
management. Table 3 summarizes the major results
and guidelines from the study.

CONCLUSION
With the greater scrutiny on IT decisions, it is criti-
cal that the sometimes-adversarial relationship
between IT managers and top management be made
more effective. This is an imperative in today’s envi-
ronment, where IT is ubiquitous, and is the source
of many innovative ideas that can help generate rev-
enue. If the feasibility set from IT is closed to busi-
ness due to poor relationship quality between the IT
and business sides, the business will flounder. Our
study strongly indicates that IT managers perceive a
gap between their decision rights and accountability
for major IT decisions. For most decisions the mag-
nitude of this gap affects their relationship with top
management. However, different IT decisions might
not require the same rights-accountability frame-
work. More technical decisions are better handled
by the IT groups, while others require shared

responsibility. Planning an effective governance
structure that recognizes these differences is essential
for business leaders to be better managers of the
technology they deploy.

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strategy: A McKinsey survey. McKinsey Quarterly (Spring 2007).

2. Cramm, S. Share power to gain control. CIO Magazine (Mar. 1, 2005).
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4. Gurbaxani, V. and Whang, S. The impact of information systems on
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5. Koch, C. A new blueprint for the enterprise. CIO Magazine (Mar. 1,
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6. Lohmeyer, D., Pogreb, S. and Robinson, S. Who’s accountable for IT?
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8. Peterson, R. Crafting information technology governance. Information
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Boston, MA, 2004.

Varun Grover (vgrover@clemson.edu) is the William S. Lee
Distinguished Professor of Information Systems in the Department of
Management at Clemson University in Clemson, South Carolina.
Raymond M. Henry (rhenry@clemson.edu) is an assistant profes-
sor in the Department of Management at Clemson University.
Jason B. Thatcher (jthatch@clemson.edu) is an assistant
professor in the Department of Management at Clemson University.

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86 December 2007/Vol. 50, No. 12 COMMUNICATIONS OF THE ACM

HHOOWW WWEE CCOOLLLLEECCTTEEDD TTHHEE DDAATTAA

We surveyed 89 executives listed in the Directory of Top Computer Executives were surveyed. These executives were
selected from U.S. companies with over 50 IT employees or over 1,000 PCs or listed on the Fortune 1000 or Forbes 500
lists. Respondents were given a choice of responding to a paper-based version or a Web version of the instrument.
Approximately half the executives are from manufacturing, service, or governmental organizations and approximately
one-third are from financial, retail, or health care sectors. The average number of employees per organization is approxi-
mately 31,000 and there is no bias toward any geographic area.

MISQuarterly Executive Vol. 10 No. 4 / Dec 2011 157© 2011 University of Minnesota

CIO and Business Executive Leadership Approaches to Establishing Company-Wide Information Orientation

CIO and BusIness exeCutIve LeadershIp
apprOaChes tO estaBLIshIng COmpany-wIde
InfOrmatIOn OrIentatIOn1,2

William J. Kettinger
University of Memphis
(U.S.)

Chen Zhang
University of Memphis
(U.S.)

Donald A. Marchand
IMD (Switzerland)

MISQUarterly
Executive

Executive Summary12

In the digital world, business executives have a heightened awareness of the strategic
importance of information and information management to their companies’ value
creation. This presents both leadership opportunities and challenges for CIOs. To
prevent the CIO position from being marginalized and to enhance CIOs’ contribution
to business value creation, they must move beyond being competent IT utility managers
and play an active role in helping their companies build a strong information usage
culture. The purpose of this article is to provide a better understanding of the leadership
approaches that CIOs and business executives can adopt to improve their companies’
information orientation. Based on our findings from four case studies, we have created
a four-quadrant leadership-positioning framework. This framework is constructed from
the CIO’s perspective and indicates that a CIO may act as a leader, a follower or a non-
player in developing the company’s information orientation to achieve its strategic focus.
The article concludes with guidelines that CIOs can use to help position their leadership
challenges in introducing or sustaining their companies’ information orientation
initiatives and recommends specific leadership approaches depending on CIOs’ particular
situations.

THE GROWING IMPORTANCE OF INFORMATION AS A
BUSINESS RESOURCE
In today’s digital world, enabled by social media, cloud computing, sensor networks,
online service offerings and big data applications, the volume, velocity and variety
of data are growing at unprecedented rates as individuals are constantly producing,
gathering and sharing information. Consumers, including the growing number
of digital “natives,” demand information competence in their network-based
communication. From a business perspective, IT and information are increasingly
embedded in products, services and business processes, leading companies to
collecting and managing ever greater amounts of data. Transforming the vast amount
of data both inside and outside companies into relevant information offering business
insights and helping companies improve efficiencies, seize opportunities and compete
is a critical challenge in the dynamic digital business environment.

Today’s leading CEOs, CFOs and COOs understand this. They recognize that
improving information management and leveraging the power of information and
digitization throughout all aspects of their business is critical to the execution of their
business strategies and their companies’ survival and prosperity. A growing number
of these business leaders have turned their attention to building a strong information
culture within the top management team and throughout their companies. For
example, an information-oriented COO of a U.S. bank stated:

1 Elena Karahanna, Omar El Sawy and Varun Grover are the accepting senior editors for this article.
2 An earlier draft of this article was presented at the 2010 SIM Academic Workshop on New IS Leadership
Roles for a Digital World in St. Louis, MO. The authors would like to acknowledge the valuable feedback from
workshop participants. We are appreciative of the excellent guidance provided by Elena Karahanna and the other
special issue editors and the anonymous reviewers.

MISQE is
Sponsored by

158 MIS Quarterly Executive Vol. 10 No. 4 / Dec 2011 © 2011 University of Minnesota

Kettinger et al. / CIO and Business Executive Leadership Approaches to Establishing Company-Wide Information Orientation

“The information that you provide drives
the conversation that you have every day
with both your customers and your fellow
employees. And the conversation you have
drives the culture of your organization. If there
is a common language that is created in the
company, it helps to not just achieve financial
objectives or customer service objectives, but
it also helps you establish a consistent culture
in your organization.”

Some CIOs are in the forefront of leading efforts to
transform the IT function from being more than just
a reliable IT utility. They recognize the importance of
exploiting the company’s information resource and of
emphasizing the “I” in IT. These CIOs act as partners
on the senior management team by formulating and
executing information-enabled business strategies.
In a recent Wall Street Journal article, Thomas
Davenport writes: “CIOs are called ‘information
officers’ for a reason: They’re supposed to provide
information that informs corporate decisions and
actions.”3 Unfortunately, some CIOs have not yet
recognized the importance of exploiting information
or are not in the leadership position to effect the
needed movement toward improving their companies’
information capabilities to the level necessary in
today’s digital world.

The fact that an increasing number of business
executives have started emphasizing information
management and usage to improve strategy execution
presents CIOs with both leadership opportunities
and challenges. To prevent the CIO position from
being marginalized and to enhance their contribution
to business value creation, CIOs must identify the
leadership approach they can take in driving their
companies’ efforts to better leverage information
for superior business performance.4 The purpose
of this article is to provide better understanding of
the leadership approaches that CIOs and business
executives may use to improve their firms’
information orientation (IO) in support of its business
strategy. Our findings are derived from four case
studies of companies in service and manufacturing
industries (CEMEX, European Specialty Chemical
Company, Citigroup CEEMEA [Central and Eastern
Europe, Middle East and Africa] Sales and Trading

3 “Making Sense of It All: Getting Knowledge From Information,”
Wall Street Journal, April 25, 2011. http://online.wsj.com/
a r t i c l e / S B 1 0 0 0 1 4 2 4 0 5 2 7 4 8 7 0 4 6 6 2 6 0 4 5 7 6 2 5 7 3 8 0 3 0 8 6 8 5 6 4 2 .
html#articleTabs%3Darticle
4 Leadership scholars such as Warren Bennis consider leadership as a
function of being aware of yourself and your situation (sensemaking),
having a vision that is well communicated (charting the map), building
trust and influence among colleagues and subordinates, and taking
effective action toward your vision (mobilizing).

Unit, and European Retail Bank). We examined the
IO leadership approach used (or not used) by these
firms’ CIOs, as well as their interactions with business
executives. We observed that IO is important to each
company and that the CIO may act as a leader, a
follower or a non-player in the company’s information
capability development to strengthen the company’s
strategic focus. Based on the findings, we present a
leadership-positioning framework from the CIO’s
perspective. We conclude by providing managerial
insights and guidelines that will help CIOs identify
an appropriate leadership course of action in their
companies’ informating efforts.

DIMENSIONS OF INFORMATION
ORIENTATION
Information orientation is a managerial perspective
that recognizes how effective use and management
of information adds value to a firm’s strategic
orientation and how investments of information
technology practices, information management
practices and information behaviors and values
facilitate the development of the firm’s information
capabilities. The extent to which an organization
leads in developing and nurturing these three core
information-oriented practices will largely determine
its capabilities to use information effectively.5 The
details of these three core dimensions of IO are
presented in Table 1.

In today’s information-intensive organizations, these
three core information-oriented practices are often
adopted to support business strategies. Executing
business strategies that focus on resource control,
opportunity leveraging and knowledge creation has
been a major preoccupation of CEOs and other non-
IS senior executives. While the competitive context
determines which of these three strategic foci is
dominant in a specific company or industry, all three
demand highly informated business practices. This
is the reason that developing a strong information
orientation has captured the attention of senior
business executives.

5 Marchand, D. A., Kettinger, W. J. and Rollins, J.

Information
Orientation

: The Link to Business Performance, Oxford University
Press, 2001.

© 2011 University of Minnesota MIS Quarterly Executive Vol. 10 No. 4 / Dec 2011 159

CIO and Business Executive Leadership Approaches to Establishing Company-Wide Information Orientation

INFORMATION ORIENTATION
AS A CRITICAL ENABLER OF
BUSINESS STRATEGY6
The popular press has already highlighted that 95%
of senior executives believe strong information
management is critical for business strategy and value
creation.7 In our conversations with senior executives
from a variety of industries, they confirmed they
had recognized the importance of information and
information management to their businesses and
business strategies:

“We adopt management by numbers or
evidence-based management. Information
forms the starting point for dialogs among
people. It is a shared language to communicate
with managers and front line specialists.”
(EVP, U.S. Claim Management Service
Company)

6 Marchand, D. A., Kettinger, W. J. and Rollins, J. “Information
Orientation: People, Technology and the Bottom Line,” Sloan
Management Review (42:3), 2000, pp. 69-80.
7 “Managing Information in the Enterprise: Perspectives for Business
Leaders,” Forbes Insights, 2010, p.2. http://images.forbes.com/
forbesinsights/StudyPDFs/SAP_InformationManagement_04_2010.
pdf; also see: Wall Street Journal, op. cit., April 25, 2011. This article
recommends five books that executives need to read if they want to be
leaders to “… harness technology to make the most of information.”
Thomas Davenport states that one of the books (Making the Invisible
Visible: How Companies Win with the Right Information, People
and IT) takes the “I” perspective and “… describes the concept of
‘information orientation’ and how it produces better organizational
performance … Based on a substantial research study … the formula
they advocate is right on, and any CIO would benefit from trying it.”

“… to go from the fact that a customer wants
something to the fact that I give him something
and I get my money for it, and all the steps in-
between takes information from one point to
another point. Today, product and information
waits in queue a lot of the time … If I could start
measuring the time in-between and eliminate
it as a waste, then I believe it’s money to be
made.” (COO, U.S. Equipment Manufacturer)

Control-oriented business strategies, such as that
followed by CEMEX, emphasize exploiting the
company’s existing capabilities and resources and
using the most efficient approach to optimize the
business and maximize value created. When control-
oriented executives are also information oriented, they
can strengthen their control strategies by using timely
and accurate information to measure and monitor both
operational processes and management processes in
a panoptic fashion,8 and institute continuous process
improvements. Information transparency allows
them to drill down and monitor the performance of
divisions, teams and individuals. As a result, they can
thrust responsibilities and decision rights down the
organizational hierarchy and trust people will carry
them out properly.

Opportunity-oriented business strategies, such as that
followed by European Specialty Chemical Company,
emphasize sensing market opportunities through
alertness and taking advantage of these opportunities

8 See: Grover, V. and Markus, M. L., eds. Business Process
Transformation: Advances in Management Information Systems, M. E.
Sharpe, 2008.

Table 1. Dimensions of Information Orientation
Dimensions of
Information
Orientation6

Definition

Information
Technology Practices

A company’s ability to manage information technology (i.e., hardware, software,
application programs, networks and technical expertise) effectively for operational
support, business process support, innovation support and management support.

Information
Management
Practices

A company’s ability to manage the use of information in support of coordination
and control, tactical problem solving and strategic decision making. Information
management practices involve sensing, collecting, organizing, processing and
maintaining information to enhance decision making. These information management
practices move beyond organizational-level databases to include personal, social
media and customer information management.

Information
Behaviors and Values

A company’s ability to instill in its people information-centric behaviors and values
as information integrity, information transparency, information sharing, proactiveness
in information sensemaking, understanding of others’ job goals and their information
needs, and a willingness to use formal systems—all important for building and
sustaining a strong information culture.

160 MIS Quarterly Executive Vol. 10 No. 4 / Dec 2011 © 2011 University of Minnesota

Kettinger et al. / CIO and Business Executive Leadership Approaches to Establishing Company-Wide Information Orientation

through agile responses to the needs of customers,
partners and suppliers.9 When opportunity-oriented
senior executives are also information oriented, they
are able to assess market conditions and anticipate
changes in the marketplace more accurately, track
competitor and stakeholder responses to their strategic
actions, evaluate the effectiveness of countermoves
and make necessary adjustments.

People-oriented business strategies, such as
that followed by Citigroup CEEMEA Sales and
Trading Unit, focus on maximizing the knowledge
contributions of employees and incorporating
them into business processes and capabilities.
When people-oriented executives have a strong
information orientation, they often adopt information-
based measurement tools to evaluate people’s
knowledge-creating and -contributing behavior.
They also create an open environment with a high
degree of information transparency, strengthen
the communication links among people so that
information about knowledge holders can be easily
located,10 and help individuals take ownership of and
responsibility for their knowledge.

LEADERSHIP APPROACHES TO
DEVELOPING AN INFORMATED
BUSINESS STRATEGY
Establishing information orientation in support of a
business strategy is a shared responsibility among
senior executives. However, due to the variety of
mindsets, motivations, experiences and strategic views
among senior executives, business executives and
CIOs may play different roles in leading this process.

Senior business executives’ increasing recognition of
the role of information orientation in improving the
company’s performance demands that CIOs must pay
at least equal attention to developing IO. This means
the CIO must be able to identify the approach he/she
will adopt in leading the firm’s efforts to improve its
information capabilities to support its strategic focus
on control, opportunity or people. We conducted four
case studies in which we examined the leadership

9 Zaheer, A. and Zaheer, S. “Catching the Wave: Alertness,
Responsiveness and Market Influence in Global Electronic Networks,”
Management Science (43:11), 1997, pp. 1493-1509.
10 See: Dennis, A. and Vessey, I. “Three Knowledge Management
Strategies: Knowledge Hierarchies, Knowledge Markets, and
Knowledge Communities,” MIS Quarterly Executive (4:4), 2005, pp.
25-45.

approaches played by the CIOs in establishing IO and
their interactions with business executives.11

Ideally, the CIO and business executives would both
recognize the value of establishing IO (including
all three dimensions: IT practices, information
management practices, and information behaviors
and values) and act in partnership to co-lead the
IO initiatives to achieve their strategic goals in a
Participatory manner (as happened in CEMEX).

However, in companies where the CIO sees the
IO potential but business executives are slower
to make this connection, the CIO must act as a
Transformational Leader to introduce and nurture IO
initiatives until a senior executive coalition also sees
the value of IO and further diffuses the IO concept
throughout the company (this approach was used in
European Specialty Chemical Company).

If the CIO does not immediately recognize the
value of IO (possibly because of focusing only on
IT practices and running an IT utility) or cannot
immediately take the lead in IO initiatives (because
of a lack of influence), business executives will drive
the IO initiatives. In this situation the CIO must act
as a follower and play a Servant Leader role if he/she
wants to eventually earn a place of strategic influence
on the senior management team (the Citigroup
CEEMEA Sales and Trading case illustrates this
approach).

When neither business executives nor the CIO
recognizes the value of IO or takes the IO leadership
reins, the firm may flounder and lose competitiveness.
The situation may become so bad that the firm’s
stakeholders responsible for corporate oversight may
have to step in and replace the senior executives,
including the CIO, with a new management team that
can deliver value (as happened at European Retail
Bank).

Based on these observations from the four case
companies we have constructed the strategic
leadership-positioning framework shown in Figure
1. Each of the four quadrants of the framework is
described below and illustrated through the relevant
case study.

11 A CIO’s IO leadership approach is the manner in which a CIO
provides direction, implements plans and influences other senior
executives and subordinates to improve the information orientation
of the entire organization, including the IT practices, information
management practices and information behaviors and values.

© 2011 University of Minnesota MIS Quarterly Executive Vol. 10 No. 4 / Dec 2011 161

CIO and Business Executive Leadership Approaches to Establishing Company-Wide Information Orientation

IO Initiative Led by a CIO/Business
Executive Partnership
In the upper right quadrant of Figure 1, the CIO forms
a partnership with business executives to lead IO
efforts. With this IO leadership approach, the CIO
must be a Participative Leader12 and ensure that he/
she continues to provide strategic insights to develop
informated business strategies. The CIO is a strong
equal-value partner with information-savvy business
executives who influences the business strategy
while supporting the business with reliable and
cost-effective IT resources and services.13 The CIO
favors decision-making based on consultation with
other senior managers.14 The CIO’s performance is
evaluated not only on delivery of IT practices but also
on the other two dimensions of IO, helping to create a
strong information culture of effective information use
driving strategy execution.

In CEMEX, both the CEO and the two consecutive
CIOs recognized the value of information and
information practices in continuously improving
business processes and they acted as strategic partners
12 See: Lewin, K. and Lippitt, R. “An Experimental Approach to the
Study of Autocracy and Democracy: A Preliminary Note,” Sociometry
(1), 1938, pp. 292-300.
13 Marchand, D. A. “The Chief Information Officer—Achieving
Credibility, Relevance & Business Impact,” in Leading in the Top
Team: The CXO Challenges, ed. Preston, B., Cambridge University
Press, 2008, pp. 204-222.
14 See: Yukl, G. A. Leadership in Organizations, 2nd ed., Prentice-
Hall, 1989.

in enhancing the company’s IO. The CIOs not only
led the IT organization in delivering reliable and
cost-effective IT services to support the company’s
domestic growth and international expansion, but
also used their business insights to act as key leaders
in improving the information culture in support of
business process improvements and post-merger
integration. Through advocacy and dialogue with
the business executive team, both CIOs pushed for
process standardization and information-driven
personal responsibility and control to effect their
business strategies and were recognized as partners for
doing so. The CEMEX case is described in the panel
below.

IO Initiative Led by the CIO
This IO leadership approach is the lower right
quadrant of Figure 1. It applies where the CIO
recognizes the value of IO but business executives
do not, which requires the CIO to garner support for
IO initiatives by communicating a vision for how IO
can contribute to business strategies and outlining an
evolutionary path to developing IO. The CIO acts as a
Transformational Leader who:

● Has a strong information mindset
● Raises business managers’ level of

consciousness about the importance of
developing IO

Figure 1: Leadership Positions in Driving Information Orientation in Case Companies

Leadership of CIO in Driving
Information Orientation

Leadership
of Business
Executives
in Driving

Information
Orientation

162 MIS Quarterly Executive Vol. 10 No. 4 / Dec 2011 © 2011 University of Minnesota

Kettinger et al. / CIO and Business Executive Leadership Approaches to Establishing Company-Wide Information Orientation

CEMEX: Business Executive and CIO Partnership Leading the IO Initiative
Headquartered in Monterrey, Mexico, CEMEX is a leading global building-materials company that produces,
distributes and sells cement, ready-mix concrete, aggregates and other construction materials. Its business
strategies and information orientation have been strongly influenced by CEO Lorenzo Zambrano in partnership
with two consecutive CIOs and his senior business executive team.

CEMEX can best be categorized as following a control strategic focus, which is manifested by senior managers’
continuous efforts to increase efficiency and standardization to produce growth from the company’s existing
portfolio of products and through mergers and acquisitions. Reflective of the control orientation is senior
managers’ intense focus on process. Zambrano remarked:

“…CEMEX is committed to a continuous improvement process that produces a constant increase in
productivity and efficiency … CEMEX has implemented capital allocation and capital budgeting processes that
are designed to assure the most efficient allocation of our investment dollars.”

15

From the beginning of his tenure as CEO, Zambrano recognized the value of information to his business, first as
a necessity in competing domestically in Mexico and then as the key differentiator in competing internationally.
He said:

“Information is your ally: you use it to detect quicker and get better faster, or [to] determine who is better
and then you go and find out why. As we grow, we clearly need more information. I must admit that I want the
information for myself. We want to keep innovating … but we want to have that under control.”

Former CIO Gelacio Iniguez also recognized the importance of people’s beliefs about information and
information-use behavior. Instead of overly focusing on IT practices, he emphasized the need to change
people’s mindset about information:

“I personally don’t like to talk about technical issues … I spent three years studying different philosophies of
human behavior and have worked very hard to incorporate these philosophies into the CEMEX culture … My
role is to constantly challenge people in the businesses, to change their mindset, to help them think about things
differently.”

Prior to 2000, the partnership between Zambrano and Iniguez focused on developing infrastructure in support
of CEMEX’s control-oriented strategy. Based on a shared vision for strong information-usage behaviors and
values, they improved the information practices adopted by the company’s employees and managers. With the
infrastructure in place and the information culture established, Iniguez turned over the CIO reins to José Luis
Luna. Both Luna and Zambrano continued emphasizing the need to further improve CEMEX’s information
practices and information culture:

“We were a group of people within CEMEX driven by a vision of changing the culture and organization of the
company.” José Luis Luna, CIO, CEMEX

The business executive team and Luna continued advancing their informated strategic focus through
business process standardization and improving employees’ information-usage effectiveness, symbolically
communicated as the “CEMEX Way.” Luna acted as a strategic partner who not only delivered reliable IT
services but also used his business knowledge and strategic insight to actively promote the standardization
of information systems and business processes in post-merger integrations. For example, in 2004, CEMEX
announced its intention to acquire RMC group, the world’s largest ready-mix concrete producer with sites
spread across many countries. In parallel with the organizational post-merger integration process, Luna and the
rest of the IT organization played a key role in the CEMEX Way integration. Luna recalled a meeting he had
with Zambrano and the Executive Committee in November 2004:

15

15 Zambrano, L., Transcript from the Annual Analyst and Investor
Meeting, July 1, 2004, p. 8.

© 2011 University of Minnesota MIS Quarterly Executive Vol. 10 No. 4 / Dec 2011 163

CIO and Business Executive Leadership Approaches to Establishing Company-Wide Information Orientation

● Has a clear vision about informated business
strategies that inspires business managers

● Engages in information-related conversations
that intellectually stimulate business managers

● Empowers business managers to accomplish
more than what is usually expected of them.16

As a Transformational Leader in building IO in the
organization, the CIO is aware of the risks involved,
and not only clearly conveys that his/her vision for IO
grows out of the needs of the company but also strives
to establish an emotional commitment to achieving IO
among business managers.17

The Group CIO at European Specialty Chemical
Company recognized that the firm’s opportunity-
oriented strategy that focused on fulfilling customer
needs for innovative products used a “pull” approach
and identified the critical role of IO in achieving this
strategic focus. Because business executives initially
did not recognize the value of IO, he acted as a
Transformational Leader in improving the company’s
IO in support of its business strategy. In order to
communicate his vision about IO and garner support
for it, he invited external consultants to provide
training workshops to senior managers and business
unit (BU) managers to build information awareness

16 See: Bass, B. M. Leadership and Performance Beyond
Expectations, Free Press, 1985.
17 See: Bennis, W. G. and Nanus, B. Leaders: The Strategies for
Taking Charge, Harper & Row, 1985.

and outline the evolutionary path to improve the
company’s information capabilities.

Stimulated by the workshop discussions and inspired
by the Group CIO’s vision, the management team of
one BU stepped up and took the lead in formulating
and implementing the IO initiatives in support of the
BU’s customer-centric innovation strategy. The Group
CIO, hoping to achieve transformational change in the
company’s IO mindset, willingly gave up ownership
of the project so he could secure this BU’s total
commitment.

By demonstrating the business value of IO in this
“pioneer” BU to the Corporate Group Level senior
executives, the Group CIO emerged as a stronger
business partner in the eyes of his corporate senior
executive colleagues. The success of the pioneer
BU’s informating initiatives provided a best practice
example for the other BUs to learn from and emulate,
gradually diffusing the IO concept throughout the
group. Moreover, the pioneer BU was cited as
a significant factor in the friendly acquisition of
European Specialty Chemical Company. The full case
study is described in the panel below.

IO Initiative Led by Business Executives
The upper left quadrant of Figure 1 is the case where
business executives recognize the value of IO but the
CIO does not. This can occur in one of two ways.
Either business executives initiate efforts to build

CEMEX: Business Executive and CIO Partnership Leading the IO Initiative CEMEX (cont.)
“I proposed to the Executive Committee that we take some countries in the European RMC operations and start
our learning, because we needed to understand how to implement the CEMEX Way on this new platform.”

Luna and a core group of CEMEX Way experts undertook a multi-country campaign and had conversations
with RMC business managers and employees to incorporate their European operational best practices into
the CEMEX Way while also selling their information culture and business model to often apprehensive RMC
employees. With the business insights generated from this post-merger integration campaign, Luna and his
team advocated a new business process governance model for all of CEMEX that would speed up corporate-
wide innovation, gain further enterprise-wide control through standards and common information culture, and
enhance mergers and acquisitions best practice. This further moved Luna’s reputation beyond that of a CIO to
that of a business leader effecting a control strategy.

Driven by a strong information orientation, CEMEX business executives and the successive CIOs developed
a global technology infrastructure, and a culture of information sharing, transparency and self-control.
Improved information capabilities enabled senior executives to not only continue pursuing business process
standardization using best practices but also explore business opportunities through selective and deliberate
international acquisitions. Today, CEMEX is one of the world’s largest building supplies companies, with
annual sales of approximately $14 billion and employing more than 40,000 people in about 50 countries.
CEMEX continues to mount IT-embedding initiatives to get the most out of its employees, increase information
transparency and focus on global business process best practices.

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Kettinger et al. / CIO and Business Executive Leadership Approaches to Establishing Company-Wide Information Orientation

European Specialty Chemical Company: CIO Leading the IO Initiative
Through more than 30 acquisitions and divestitures in the previous 10 years, European Specialty Chemical
Company (ESCC) had transformed itself from a commodity bulk chemical company into a specialty chemical
company targeting innovative products for customers. The corporation had 20 business units (BUs) of varying
sizes, innovation levels and profitability. The company prides itself on its ability to sense customers’ needs and
co-create innovative products that met specialized demands across the 20 BUs:

“We are on a journey, but we are like 20 different ships [20 BUs] going at different speeds to our destination.
Yes, we have made progress to acquire a portfolio of innovative product based companies, but we are quite
diverse and decentralized. We have “speed boats” growing and innovating with customers for value-based
pricing, and we have “tankers” still pushing more traditional products based on volume and price to business
customers with low understanding and expectations of what we can do for them to make them more innovative
and profitable in the use of our products.” ESCC Group Board Member

The Corporate Group Level CIO had corporate-wide responsibility for IT and information capability leadership
but had to work within a decentralized structure where individual BUs’ CIOs and business executives had
influence and autonomy. The Corporate Group Level CIO recognized that deployment of IT without an equal
focus on how people use information in business transactions and decision making would not lead his company
to optimize business performance. He believed that linking senior managers’ opportunity-seeking business
strategy with an appropriate focus on improving the firm’s IO was critical to achieving performance impacts.
Specifically, he believed that the company should move beyond merely IT infrastructure standardization to
improved information usage for product and service innovation, as well as to accurate and timely information
flows in value chain operations from R&D through to sales. The problem he faced was that few executives
shared his vision. Although the Corporate Group Level executive team recognized the need for possible
standardization and IT cost efficiencies, there was little initial recognition for the need to build a strong
information orientation in support of the company’s strategy.

As an initial move to gain the confidence of the Corporate Group Level executive team and to achieve greater
group synergies in a decentralized environment, the Corporate Group Level CIO convinced the group board
that the company needed to first focus on IT standardization, reducing total costs of the IT infrastructure and
investing in more customer-centric IT. The latter included, for example, CRM systems to gain better market
intelligence in the chemical compound and scientific research communities. To support these aims, the CIO
focused on ensuring that BUs ran the necessary IT with high levels of reliability while freeing capital resources
for them to engage in deploying competitive IT applications in line with their transition to a more customer-
centric innovation strategy. These initial efforts realized cost savings across the entire company and led to better
conformance by the fleet of different BUs.

Next, the CIO determined he needed BU involvement in and eventually ownership of IO initiatives because the
BUs possessed the customer relationships and had the unique insight on how information could best add value
to each BU’s unique customer niches. He needed to get buy-in from BU managers and to reduce the potential
perceptions of “a zero sum game” among the 20 BUs concerning corporate-wide IO development. To achieve
this, he launched an educational program with the help of a European executive development institute. This
program involved all senior BU managers (business and IT) and focused on how IO with a strong information
culture can enhance BUs’ business strategies. This program also enabled the CIO to identify one particularly
high performing BU—the Automotive Chemicals (AC) BU—whose management team stepped up and wanted
to better implement a customer-centric business strategy through the deployment of IT and use of information.

While inspiring, nurturing and supporting this “pioneer” BU in developing its IO, the Corporate Group Level
CIO decided that a more successful leadership strategy might be to let the BU management team take the lead
in formulating and implementing the initiatives and take complete ownership for IO in their BU.

The AC BU had invested in CRM tools and databases to enhance sharing of customer and product knowledge
between the sales, marketing, development and research functions. However, the BU’s president realized that
the deployment of CRM, ERP and business intelligence tools alone would not make people share and use
information effectively. As he put it:

© 2011 University of Minnesota MIS Quarterly Executive Vol. 10 No. 4 / Dec 2011 165

CIO and Business Executive Leadership Approaches to Establishing Company-Wide Information Orientation

IO in support of the business strategy on their own
without the counsel of the CIO, or business executives
initially offer the CIO the opportunity to participate
as a strategic partner but the CIO cannot break out
of his/her comfort zone and sits back in the hope of
continuing to run IT as a utility, leaving information
usage and culture to the general business managers.
In either case, a CIO who wants to catch up with
IO-enlightened senior executives will likely adopt a
Servant Leadership approach where he/she faithfully
delivers on the strategic requests in an incremental
fashion over time to win legitimacy from the business
leaders. Such a CIO must emerge as a leader by
becoming a servant, eschewing all credit for his/
her efforts for the good of the cause—the focus is
on leadership by meeting the needs of others first.18
Essentially, the CIO needs to build a reputation as a
valued manager of IT resources and operations, who
executes flawlessly and makes small but important
contributions toward building IO in support of
the business strategy. Over time as the CIO builds
credibility and relevance, he/she may be invited more
often to participate as a business leader in driving IO
initiatives.

18 See: Greenleaf, R. K. Servant Leadership: A Journey into the
Nature of Legitimate Power and Greatness, Paulist Press, 1977.

This IO leadership approach is illustrated by the
Citigroup CEEMEA Sales and Trading Unit case.
Senior business executives, led by the managing
director, acted as the spearheads leading the
improvement of IO throughout the unit. The head
of the unit’s IT group was late to the game, so he
adopted a servant’s posture, always demonstrating a
good corporate citizenship style and fully supporting
the strategic requests from the business executive
team to improve IO. With the IT group successfully
implementing key IT applications over time, the
leadership team helped establish assessment tools to
monitor and reward employees for their knowledge
contributions as well as encouraged the recruitment
and hiring of information-centric and team-oriented
individuals. The unit’s IT group CIO hoped that by
demonstrating strong servant leadership through high
quality IT delivery, he might be invited more often
to the “top table” and make contributions that would
support IO development and ultimately support the
unit’s business strategy. The full Citigroup CEEMEA
Sales and Trading Unit case is described in the panel
below.

IO Leadership Void

The lower left quadrant of Figure 1 describes
the situation where neither the CIO nor business

European Specialty Chemical Company (cont.)
“We have an information-usage gap not only within functions likes sales and marketing, but also across
functions as well.”

The AC BU CIO developed an action plan for enhancing the use of the information in the CRM database and
making it more useable for primary business users in sales, marketing and product development. Another
team focused on improving information behaviors and information management practices in the BU. This
team developed a new code of conduct for information use, a “CRM Cockpit” to enhance use and training
in handling customer information, and an IO scorecard that would measure information-related performance
and link IO efforts to specific business practices supporting the opportunity-seeking strategy. In the process of
implementing all IO initiatives, the BU president and BU Management Board held themselves accountable for
progress and made sure that the IO improvements were linked to business practices that improved customer
focus, innovation and delivery of new products.

In 2007, ESCC was the target of a friendly acquisition by a natural resources company based in ESCC’s home
country. ESCC’s senior executives recognized the IO success of the AC “pioneer” BU. To make ESCC a
more attractive target for the acquisition, they therefore gave the Corporate Group Level CIO the go ahead to
implement a group-wide IT strategy to standardize infrastructure and major applications. He was also asked
to prepare group managers for improving information management practices through an IO initiative in all 19
remaining BUs.

In response to the AC IO improvement initiatives and the superior performance results, several other BUs
quickly moved ahead with their own IO improvement programs. In 2008, the AC BU was cited by the acquiring
firm as the most successful, growth-oriented and innovative unit among the 20 BUs and as a significant factor
in the acquisition.

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Citigroup CEEMEA Sales and Trading Unit: Business Executives Leading IO Initiatives
The CEEMEA [Central and Eastern Europe, Middle East and Africa] Sales and Trading Unit at Citigroup
generates revenue from two sources: (1) trading financial instruments and (2) spread revenue, providing
customers with hedges for their exposures. The CEEMEA region covers 31 countries that are diverse in size,
geographies, languages, religions, culture, risk, financial market development, regulatory regime and corporate
governance.

On his appointment, the CEEMEA Sales and Trading Unit Manager Director, Suneel Bakhshi, found that
country organizations were managed in a decentralized way and were only loosely linked to the central trading
hub in London. Bakhshi identified the need to pursue a people-oriented business strategy and develop a new
business model with much stronger relationships between the London hub and the country organizations so
that customer and risk information could be shared throughout the region. Bakhshi understood that people and
information were crucial for the unit’s success as the unit depended on the knowledge of individual traders,
who used their financial expertise to develop creative financial products tailored to the local risk environment.
The unit’s products and services are information based; traders need to have smart trading ideas and real-time
information about changes in the market environments. As Bakhshi put it,

“Infocentricity [IO] cannot be compromised. I can negotiate on other things. But not this one!”

Bakhshi took the leadership role in forming a new, information-centric business executive team, successfully
diffusing the concept of IO throughout the unit, and undertaking a strategic intervention that focused on
improving the unit’s IO (Bakhshi used the term Infocentricity). Driven by the recognition that he needed to
extract the tacit knowledge of his star traders, he instituted an IO improvement initiative driven initially by
business executives, without the strategic involvement of IT or a CIO. His business management team initially
relied on the unit’s functional/systems skills and outsourcing, and Citigroup’s corporate IT back office to
develop the necessary IT platform support. To encourage information behavioral changes, Bakhshi used his
business management team to develop a unit-wide IO scorecard with specific measures of how information was
being sensed, shared and used at the individual, team and organization levels. Incentives and bonuses were put
in place to reward traders for information entered into the system that resulted in sales by other traders.

Once these IO initiatives were well under way, Bakhshi appointed Umesh Jagtiani as regional head of the
eCommerce unit because of his business background, a similar Infocentricity mindset and his outsourcing
skills, which were needed to further improve and institutionalize the IT practices in support of the IO
initiatives. Jagtiani recognized that he had been late coming into the game and was not empowered with high
level leadership authority for the IO initiative. He was appointed to ensure that he successfully facilitated the
implementation of several IT applications and their roll-outs. His attitude was that if the business executive
team wanted to roll out the applications incrementally in the various countries in the CEEMEA region, he
would do exactly what the executive team asked him to do. He did not try to pretend that he knew better than
the business executives how to implement IT.

In addition to rolling out Treasury products to clients, Jagtiani and his IT team helped build a robust intranet
platform for reporting, risk and credit management, trading information flow management and a fully
functional client relationship management application. The change management strategy Jagtiani followed
comprised improving IO in terms of operating culture and behaviors, the scorecards and other IO initiatives
that were identified by the business executive team. Over time, he built a reputation for providing successful
and reliable IT services to the unit and for fulfilling the business needs and strategic requests. As he delivered
IT applications and services with great care, he gradually began to convey messages about good information
behavior to signal to the entire organization that he possessed a similar IO mindset as the remainder of the
executive team and regional business managers. For example, he stated:

“In the past, traders saw information as proprietary … Today, this information is no longer ‘personally’ owned.
A culture of transparency has transformed the way business is managed. Both good and bad results are shared
within the team, and overall, the impact on business has been extremely positive.”

© 2011 University of Minnesota MIS Quarterly Executive Vol. 10 No. 4 / Dec 2011 167

CIO and Business Executive Leadership Approaches to Establishing Company-Wide Information Orientation

executives recognize the value of IO. Because neither
is willing to take a leadership position in driving the
development of IO, the company will probably fail,
given the criticality of information in today’s digital
world. Hopefully, in this situation and before the
firm faces serious financial distress, the oversight
stakeholders will step in and replace both the business
and IT executives with a management team that
shares a mindset about the role of IO in support of the
business strategy and is capable of delivering value.
This requires decisive leadership at a stakeholder
level.

The European Retail Bank case (see panel below)
demonstrates the consequence of an IO leadership
void. After acquiring one of its largest competitors
without conducting sufficient IT or informational due
diligence, ERB’s senior management team focused
on cutting operational costs instead of growing the
business. This cost cutting disregarded the importance
of integrated information for effective operations
and customer service. Due to a bureaucratic cultural
mentality, business executives and the CIO were
both occupied with several initiatives and did not
recognize the value of improving the merged firm’s
IO to support the business strategy. After the merger,
ERB continued to shift between growth strategies
and cost-efficiency control strategies; there was
an “information void” in the mindsets of business
managers and the CIO. The lack of recognition of the
value of IO and the lack of leadership in developing
IO from both the IT and business sides led to poor
business performance, which eventually caused the
group board of the holding company to step in and
replace the entire senior management team, including
the CIO.

CIO GUIDELINES FOR CHOOSING
AN IO LEADERSHIP APPROACH
In many companies, because of the different views,
experiences and mindsets among senior management

team members, CIOs can adopt different IO leadership
approaches depending on the specific situations they
are in relative to business executives. To help CIOs
position themselves in relation to business executives
and identify which approach to adopt to improve the
company’s IO, we offer the following guidelines,
grouped under sensemaking and mapping a course,
and mobilizing.

Guidelines for Sensemaking and
Mapping a Course
1. Assess Where the Company Currently is in Terms
of IO

Before a CIO can position himself/herself in the IO
improvement efforts and decide what to do next, he/
she needs to make sense of “where are we now,”19
focusing especially on the company’s IO capabilities
and their relationship to its business strategies.
Specifically, the CIO needs to:

● Identify how information is embedded in the
way business is done

● Understand the information content and needs
of the various business practices

● Assess how information is being used and
managed by evaluating a representative cohort
of managers and professionals

● Recognize how improving the company’s IO
can enhance the business strategy.

Furthermore, it is necessary for the CIO to assess the
extent to which business executives recognize the
value of information and information management.
For example, in the ESCC case, the Group Level
CIO saw the potential for using information to drive
innovation and co-created customer responses, but the
Group Level business executives initially viewed IT

19 See: Weick, K., Sutcliffe, K. and Obstfeld, D. “Organizing and
the Process of Sensemaking,” Organization Science (16:4), 2005, pp.
409-421.

Citigroup CEEMEA Sales and Trading Unit (cont.)
Reflective of his continued deferential Servant Leadership approach, Jagtiani credited Bakhshi:

“The reason why the idea of improving information management and use didn’t go away is because Bakhshi
continuously drove it with a passion.”

Within three years, the IO initiatives to support the unit’s people-oriented business strategy boosted the unit’s
business performance in several ways. Earnings before interest and taxes doubled, revenue increased by 57%
and profit increased by 106%. The unit won several Euro-Money awards, including best emerging market
currencies and best at risk management.

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European Retail Bank: IO Leadership Void Leads to Failure
European Retail Bank (ERB) was an established national bank operating in a Western European country within
a mature banking market. The bank had over 1,300 branches and operated nearly 700 ATMs. In terms of assets,
the bank was second in the country and comprised 14% of the overall banking group’s assets. ERB’s senior
business executives decided to expand its capital assets, customer base and volume of transactions by acquiring
another large retail bank in the same country and becoming the largest retail bank in the country.

To achieve the integration of the two merged banks, ERB’s senior business executives decided to first focus on
restructuring, capturing cost synergies and streamlining operations between the two merged banks. However,
neither IT nor a CIO was actively involved in the pre-merger due-diligence process or consulted in advance on
comprehensive post-merger integration planning. As a result, there was post-merger bureaucratic wrangling
between IT and business people from the two relatively equal merged entities. After two years, the integration
had not progressed, and ERB launched another initiative called VIVA, which had two phases.

In the first phase, the bank focused on further cost-cutting and achieving efficiencies by improving risk and
credit management and hoped to turn the branch and ATM networks of the combined bank into a more efficient
and unified product distribution system. Despite these front-office changes, back-office integration issues
continued to keep ERB from moving into more lucrative customer-centric niches and cross-selling.

A main reason for the unsuccessful back office integration was the lack of information focus throughout ERB
by both the business and the IT sides. Prior to the merger, ERB had been managed with a traditional and strictly
hierarchical information structure and style. The IT organization operated as an IT utility provider. The strong
bureaucratic culture mandated transaction verification and authorization by top management of just about all
business decisions. Such a bureaucratic culture led to a complicated and slow decision-making process in the
management ranks. Employees had a “let’s wait and see” attitude toward customers. Information sharing that
occurred only through traditional reporting was supported by an outdated legacy computer network running
as a cost-based operational utility. The people culture was one of low trust because the authorization process,
coupled with legacy transaction systems and large amounts of internal paperwork, created a climate of
suspicion and doubt about communications up and down the hierarchy.

Due to the lack of an IO mindset, sales activities were product-focused and reactive to customer needs.
Customer segmentation was very simple, almost simplistic. An unfocused customer strategy had resulted in
a complex product line with too many offerings. When a customer visited a branch, the branch representative
could not identify the customer’s profile because the IT system did not provide accurate information on
customer behavior or product portfolios. Customer transaction reports, new customer profiles and asset targets
for relationship managers were only available on a quarterly basis. A centralized customer account system only
recorded sales volumes and customer/sales ratios—useful for senior managers, but not for customer relationship
managers.

The CIO also failed to recognize the importance of developing IO. IT operations focused primarily on
technically unifying the two IT platforms and data centers instead of improving the use and management of
information throughout the now merged branch structure and ATM service network. The acquisition created
considerable challenges for the IT systems in the combined bank. To deal with the merger, the IT organization
attempted to unify two banking systems by cloning ERB’s IBM platform and copying the system of the
acquired bank onto this clone. However, due to the two banks’ different operations and products, the copied
system could not be easily merged. The CIO noted: “Instead of ending up with one merged system, we ended
up with two separate platforms and data centers.” As a result, branch employees had to switch from one system
to the other, depending on which bank the customer had originally opened the account with. When ERB
implemented Internet banking, information sharing was not possible between the Internet banking operations,
with the older ERB IT systems being used while the entire back office was being redesigned for merged
operations. Existing ERB customers could not easily perform Internet banking transactions with their branch
banking. This channel conflict resulted in poor customer service and customer defection.

© 2011 University of Minnesota MIS Quarterly Executive Vol. 10 No. 4 / Dec 2011 169

CIO and Business Executive Leadership Approaches to Establishing Company-Wide Information Orientation

as a utility whose costs needed to be better controlled.
And in the CEMEX case, the former CIO and the
CEO both recognized their company’s weaknesses
and identified a need to use information to establish
a greater reach and range of control by making
information transparent and useful throughout the
company. In both cases, the CIOs made sense of their
unique situation by gaining greater understanding of
how effective management and use of information
could facilitate the business practices and support the
business strategies. It is also important for the CIO
to determine the extent to which business executives
have already initiated IO improvement efforts and
have assumed a leading role.

2. Decide Whether You Want to Be a Leader

The CIO must realize that improving the company’s
IO and leaving a positive information legacy requires
careful planning and execution as well as changing
people’s mindset and behavior throughout the
company. Even though business executives may
recognize that information management capability
plays a key role in their company, it is possible that
improving IO may not rise to the top of their priorities
given other pressing business demands. In such a
situation, a CIO who recognizes the criticality of IO
will need to make a conscious decision on whether
to rise to the occasion and take over the reins of IO
leadership. Taking on the IO leadership role is not fail-
safe and risk-free. The CIO may find it challenging to
break out of his/her technical comfort zone, engage
with general managers on changing the company’s
information culture, and take on responsibilities for
people’s information behaviors and values in business
activities. A lack of perceived control and confidence
in the CIO’s ability to become actively involved in the

business domain often creates inertia that prevents the
CIO from making the move toward leading IO efforts.

Questions that have to be answered include:

● Is the CIO willing to take risks, experiment,
learn from both successes and mistakes and—
more importantly—encourage others to do the
same on an IO improvement journey?

● Is the CIO confident that he/she is capable of
defining an inspiring vision for IO and sharing
it with business executives as well as the rest
of the company?

● Does the CIO believe he/she can build
relationships with and gain commitment from
people throughout the company, especially
from business leaders, and work with them
continuously to overcome the challenges on
the IO journey?

If the answer is yes to these questions, then the CIO
must select an appropriate leadership approach.

3. Select a Leadership Approach

Based on the outcome of the sensemaking activity
(Guideline 1), the CIO can then map his/her
leadership position in our framework (Figure 1).
If the CIO and business executives both recognize
the importance of IO, and are willing to lead their
company on an IO journey but have not initiated
IO efforts, the CIO can adopt the Participative
Leadership approach and become a key player in the
IO initiatives (upper right quadrant of the framework).

If business executives have already recognized the
importance of IO and initiated efforts to improve IO,
but the CIO has not been involved as a key player,

European Retail Bank (cont.)
Three years later, ERB continued to be unprofitable. At this point, senior managers initiated the second phase
of the VIVA program, which focused on enhancing sales effectiveness, developing more targeted product
offers and cross-selling financial products. However, the CIO continued to implement the nitty-gritty changes
in the bank’s workflows and IT systems, creating an “information void” in ERB that would dilute the new
sales, service and customer relations efforts of the business managers and employees. This information void
continued to negatively affect ERB in the next few years. When reflecting on the problems that ERB had
experienced in the VIVA program, ERB’s chief controller summed up:

“Our … system still lacks information about our channels, products and customers—information that is
essential to improving the profitability and effectiveness of our business.”

Five years into the VIVA program, the Group Board of ERB’s holding company had had enough and belatedly
replaced the senior management team, including the CIO, citing a lack of progress in bringing value to the
bank’s shareholders.

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the CIO can adopt the Servant Leadership approach
(upper left quadrant of the framework). The lack of
involvement by the CIO may be due either to he/she
being appointed after the IO initiatives are under way
or because he/she cannot break out of the conventional
IT comfort zone to take responsibilities for business
people’s information usage and culture.

If business executives have not recognized the value
of IO and the CIO has the vision to lead the company
along an evolutionary path to develop IO, the CIO
can adopt the Transformational Leadership approach
(lower right quadrant of the framework).

If the IO concept has not gained traction among
business executives and the CIO is content with
only managing IT resources and operations as a
utility, he/she should be forewarned that this could
result in Stakeholder Leadership intervention (lower
left quadrant of the framework). When the current
management team, including the CIO, fails to
recognize the value of IO, this can lead to ineffective
business strategies and unsatisfactory business
performance. In this situation, the entire team is in
danger of being replaced by a new management team
that is willing to develop information capabilities and
an information culture that will support the company’s
business strategy.

Guidelines for Mobilizing Resources for
IO Improvement
Based on the CIO’s leadership positioning relative
to business executives (Guideline 3), the CIO needs
to identify how to effectively mobilize people and
resources toward IO improvement.

4. Mobilizing with the Participative Leadership
Approach

The CIO adopting the Participative Leadership
approach partners with like-minded business
executives, acts as both an IT leader and, more
importantly, as an information-savvy business
leader. As such, the CIO shares the IO leadership
responsibilities, pursues the same strategic direction,
maximizes business and technical synergies, and
improves company/BU performance over time.
The shared information mindset also promotes a
shared commitment to mutual risk taking among the
business executives and the CIO. The CIO needs to
continuously improve the information capabilities
that can enhance business practices by focusing on
all three IO dimensions (IT practices, information

management practices, and people’s information
values and behaviors).

The participative leader also needs to improve
the IT unit’s IO, help IT people develop business
acumen and knowledge, and push for IT personnel
performance evaluations based on the success of both
IO efforts and business execution efforts. In CEMEX,
for example, the CEO and the two successive CIOs
were “on the same page” concerning the value of
information and information practices and the need
to continuously improve business processes. As
information orientation know-how was accumulated
over time, it was institutionalized in waves of
symbolically represented management initiatives
such as the “CEMEX Way” to maintain people’s
enthusiasm for effective information use.

5. Mobilizing with the Servant Leadership Approach

A CIO who adopts the Servant Leadership approach
because he/she was appointed after business
executives have initiated the efforts to improve IO
first needs to demonstrate his/her value to the business
executives as a reliable technology provider. With this
approach, the CIO gains credibility by managing IT
resources and delivering IT services effectively and
efficiently, meeting and exceeding the expectation of
business executives. As the CIO builds a reputation
as a valued IT provider who faithfully delivers on the
strategic requests from business executives, he/she
then builds business credibility by becoming more
knowledgeable about IT-enabled business processes
and the information requirements of business
processes.

A CIO who adopts the Servant Leadership approach
because he/she was initially content with running an
IT utility and could not break out of his/her comfort
zone needs to incrementally develop an information
mindset and gain business knowledge through close
interactions with information-oriented business
people. With this approach, a CIO can over time
demonstrate to business executives his/her acquired
information perspective and strategic business
acumen, gradually developing a shared language and
goals.20

With sufficient credibility and relevance, the CIO
following the Servant Leadership approach will be
invited to the “top table” more often and asked to
deliver innovative business solutions enabled by IO
and eventually be recognized as a genuine player on

20 Preston, D. and Karahanna, E. “How to Develop a Shared Vision:
The Key to IS Strategic Alignment,” MIS Quarterly Executive (8:1),
2009, pp. 1-8.

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CIO and Business Executive Leadership Approaches to Establishing Company-Wide Information Orientation

the IO leadership team. For example, in Citigroup’s
CEEMEA Sales and Trading Unit, the regional head
of the eCommerce unit recognized that he had been
late coming to IO activities and did not have sufficient
leadership authority to design the IO initiative. Rather,
he had been appointed to ensure the successful
implementation of IT applications supporting the IO
initiative. However, by conveying that he possessed
a similar belief in the Infocentricity [IO] philosophy
of the CEO and by his deference to the business
executive team taking ownership of his flawlessly
executed information solutions, he hoped to earn a
place on the senior executive team.

6. Mobilizing with the Transformational Leadership
Approach

A CIO who adopts the Transformational Leadership
approach to help business executives develop a shared
information mindset and gain their commitment
in the hope that he/she will establish a partnership
needs to demonstrate the value of IO to the business
executives. The CIO needs to proceed deliberately
at first to prevent or reduce potential resistance from
business executives. He/she may need to communicate
the vision for IO to business managers and help them
identify opportunities for improving both information
capabilities and business performance. One technique
to further this aim is to build a common IO mindset
by launching a company-wide educational program as
well as local evangelizing. Consultants might also be
brought in to conduct benchmarking to shock and/or
cajole business executives to move from their current
position toward an IO mindset.

Next, the CIO needs to identify a subset of the
company (such as a business unit or functional
area) where a strong IO can yield high payoffs. This
pioneer unit is often one of the top-performing units
of the company with a highly motivated management
team eager to achieve even greater success. The
Transformational Leader can build a positive legacy
by delivering high IO value in the pioneer unit. In
the ESCC case, for example, the Group Level CIO
identified such a business unit through his interactions
with BU managers in the IO awareness-building
training programs. This pioneer unit was performing
reasonably well but the unit’s management team
saw the need for richer customer information to be
gained at all touch points so it could co-create unique
specialty chemical products tailored to automotive
customer needs. Subsequently, the Group Level
CIO let the unit’s leadership team take the IO lead
and ownership. Gradually, the success of this unit in
developing IO provided a best practice example, and

the IO concept gained buy-in from more business
executives, eventually spreading throughout the
company.

Summary of IO Leadership Approaches
and Guidelines
Table 2 summarizes the three CIO IO leadership
approaches and the guidelines that CIOs may adopt in
driving information orientation in their companies.

CONCLUDING COMMENTS
To safeguard, expand, or even transform the CIO’s
role in the IT-embedded and information-driven
company, the CIO needs to focus more on the “I” of
“IT” and break out of the comfort zone of running
an IT utility. Our four-quadrant framework helps
CIOs identify their leadership approach to IO efforts
and informs our recommendations for IO leadership
actions. While CIOs need to continue acting as
valued managers of IT resources and operations, they
must also be perceived as in-house experts on how
information is used across their companies’ business
processes.

To lead as the corporate information steward is a
lofty goal and requires a close working relationship
with business managers and employees to learn how
information is embedded in business practices. CIOs
will have to take more responsibility for leading
the information cultural change necessary among
general managers if companies are to achieve
more acute information sensing and widespread
sharing of valuable information. A company’s CIO
must work closely with HR to devise performance
evaluation metrics including IO scorecards that
reward people for effective use and management of
information. A strong information focus and extensive
business knowledge will enable the CIO to identify
opportunities where information management and use
can help improve the company’s strategic focus and
will help the CIO to become a strategic leader.

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Kettinger et al. / CIO and Business Executive Leadership Approaches to Establishing Company-Wide Information Orientation

Table 2. Summary of CIOs’ Leadership Approaches in Driving Information Orientation
CIO’s Leadership
Approach in
Driving IO

Focus Recommendations

Partner with
Business
Executives as
a Participative
Leader

• Understand business executives’
perspectives, strategic focus and the
business practices associated with
the strategic focus through close
collaboration with business executives.

• Clearly understand the information
requirements (e.g., product
information, customer information,
market information) of these business
practices.

• Continuously improve the information
capabilities that can enable business
practices by focusing on all three IO
dimensions (technology, information
management and people’s values and
behaviors).

• Enhance the IO within the IT unit by
educating IT people on the IO concept;
help IT people develop business
acumen and knowledge.

• Push for performance evaluation at all
levels of the company that is based on
both the success of IO efforts and the
success of strategic business efforts.

The CIO should pay particular attention to
people’s information-usage behavior since
putting the technology in place does not
guarantee people will effectively use the
information delivered by the technology. In
collaborations with business managers, the
CIO may focus on:

1. Providing training to business users to
enhance their handling of information

2. Providing activity-based and result-
based coaching and feedback sessions
for people at various levels of the
company

3. Building a strong information culture by
not only making information available
but also holding people accountable for
their information behavior

4. Adopting a scorecard that measures
individual and group information
behavior and performance

5. Building information-usage behavior
into business processes and creating a
standard template for information-usage
behavior.

Lead as a
Transformational
Leader

• Promote the IO concept to business
executives through training programs.

• Help business executives identify
opportunities for improving both
business performance and information
management; prevent or reduce the
perception of improving IO as a zero-
sum game.

• Create and communicate a vision for
IO that emerges from the company’s
needs.

• Identify a subset of the company with
good performance and willing to be
the IO pioneer unit; reach a common
understanding with that unit’s business
leaders.

• Continue to be an IO inspirer and
supporter but hand over the ownership
and leadership of IO efforts to the
pioneer unit’s management team.

The CIO needs to first raise business
executives’ level of IO recognition in a
natural way (e.g., with help from external
parties such as a consulting firm or an
educational institute). Doing this will mean
that business executives perceive the CIO as
trying to help them achieve better business
performance instead of trying to shift power
away from them and toward the CIO.

Once a pioneer unit for the IO initiative has
been identified, the CIO needs to empower
that unit by handing over IO ownership
with little demand for credit. But at the
same time, the CIO has to be aware of the
IO progress in the unit and be willing to
help and support whenever needed.

Throughout the whole process, the CIO
needs to possess self-awareness of his/her
transformational approach and the risks
involved.

© 2011 University of Minnesota MIS Quarterly Executive Vol. 10 No. 4 / Dec 2011 173

CIO and Business Executive Leadership Approaches to Establishing Company-Wide Information Orientation

APPENDIX: RESEARCH
METHODOLOGY
We selected four companies that operate in different
industries. Two (European Specialty Chemical
Company and Citigroup CEEMEA Sales and Trading
Unit) operate in more knowledge-intensive industries
and have a stronger emphasis on people’s knowledge
creation than the other two (CEMEX and European
Retail Bank). All four would benefit from being more
competent in their use of information at all levels of
the company and across processes. In essence, all
the companies could benefit from not only better IT
practices but also better information management
practices and an improved information culture. For
example, in CEMEX (a cement commodity company),
truck drivers, who are not knowledge workers, have
to interact with customers at delivery sites, capturing
their satisfaction information and entering it into an IT
system. This information is in turn used to customize
the next truck driver’s interaction with that customer
to further improve overall customer satisfaction with
the company.

Our research data was collected primarily from in-
depth face-to-face interviews, diagnostic surveys,

action learning and interventions that members of
our research team conducted with over 200 senior
business managers and IT managers from the
four case companies. These managers were asked
about their IO leadership approaches and about the
development of IO that supported their companies’
business strategies. The interviews were conducted
as part of preparing written cases studies for use
as teaching tools and as ad hoc conversations with
executives during and after professional training
workshops and executive education sessions at IMD.
Two members of our research team recorded and
further discussed the key points of these interviews
as they prepared cases and collaborated on research
projects.

ABOUT THE AUTHORS
William J. Kettinger
Bill Kettinger (bill.kettinger@memphis.edu) is
Professor and the FedEx Endowed Chair in MIS at the
Fogelman College of Business and Economics at the
University of Memphis. Kettinger’s focus is practical,
rigorous research appearing in leading journals. He
has received such honors as a Society of Information

Table 2. Summary of CIOs’ Leadership Approaches in Driving Information Orientation (cont.)
CIO’s Leadership
Approach in
Driving IO

Focus Recommendations

Lead as a
Transformational
Leader (cont.)

• Continuously share the IO success
in the pilot unit with the rest of
the company, especially the senior
management team.

• Gain buy-in from more business
executives and gradually initiate IO
efforts in the rest of the company.

Follow as a
Servant Leader

• Manage IT resources and deliver IT
services effectively and efficiently.

• Build reputation as a valued technology
leader.

• Gain knowledge about business
processes and needs.

• Understand the information
requirements of business processes and
decision making.

• Identify opportunities to improve
information capabilities to meet
business needs in support of the
company’s strategy.

The CIO can increase his/her business
acumen and understanding of information
requirements of the business through:

1. Closer interactions with business
managers in IT implementation and
deployment

2. Communicating with business managers
using information terms

3. Attending business seminars and
other training opportunities with an
information focus.

174 MIS Quarterly Executive Vol. 10 No. 4 / Dec 2011 © 2011 University of Minnesota

Kettinger et al. / CIO and Business Executive Leadership Approaches to Establishing Company-Wide Information Orientation

Management’s Best Paper Award, and directed a SIM
APC study of the business drivers of IT value. He
serves on the editorial boards of Information Systems
Research, Journal of the Association of Information
Systems and MIS Quarterly Executive. He consults
with global companies such as enterpriseIQ®, AT&T
and IBM.

Chen Zhang
Chen Zhang (czhang12@memphis.edu) is an assistant
professor of management information systems at
the Fogelman College of Business and Economics at
the University of Memphis. She received her Ph.D.
from Purdue University. Her research focuses on
information management, online information search
behavior, open source software development and open
innovation. Her work has been published in journals
such as Information Systems Research and IEEE
Software.

Donald A. Marchand
Donald Marchand (marchand@imd.ch) is Professor
of Strategy Execution and Information Management
at IMD, Lausanne, Switzerland. He is author or
co-author of eight books, over 140 articles, book
chapters, cases and reports, and advises leading
global companies. Marchand is also Chairman of
enterpriseIQ®, which offers proven metrics of how
effective companies manage and use knowledge,
information and technology. He is former Dean of the
School of Information Studies at Syracuse University.
He earned his Ph.D. and M.A. at UCLA, and B.A. at
UC Berkeley.

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MISQuarterly Executive Vol. 7 No. 2 / Jun 2008 57© 2008 University of Minnesota

CIO Leadership Profiles: Implications of Matching CIO Authority and Leadership Capability on IT Impact

CIO LeadershIp prOfILes: ImpLICatIOns Of
matChIng CIO authOrIty and LeadershIp
CapabILIty On It ImpaCt1

David S. Preston
Texas Christian
University

Dorothy E. Leidner
Baylor University

Daniel Chen
Texas Christian
University

MISQUarterly
Executive

Executive Summary

Ultimately, organizations invest in information technology (IT) initiatives to improve
their level of performance. However, there have been mixed results from the payoff of IT
investments. This article presents evidence that the variation in benefits derived from IT
is in part due to the organization’s CIO leadership profile. This profile is determined by
whether the CIO’s level of strategic decision-making authority is high or low, and whether
his or her strategic leadership capability is high or low. We label the resulting four
CIO leadership profiles: (1) IT Orchestrator, (2) IT Laggard, (3) IT Advisor and (4) IT
Mechanic, and have identified the typical characteristics of CIOs that match each of these
profiles.

Based on empirical data collected from a field study,2 we show that the level of IT
contribution to a firm’s performance varies according to the leadership profile of its
CIO. We show how organizations can assess their current CIO leadership profile and
provide recommendations for CIOs who need to change their CIO profile to best fit their
organization’s goals. Over time, there will be a shift to IT Orchestrators, and CIOs lacking
the necessary characteristics should plan to acquire them.

THE IMPORTANCE OF CIO LEADERSHIP TO THE
MODERN ORGANIZATION
Over the past several decades, information technology (IT) has become essential
for organizations to increase operational efficiency and to obtain strategic success.3
However, many organizations have experienced the “productivity paradox”—
they have not been able to observe business value that is directly linked with their
investments in IT. Savvy organizations have realized that they cannot derive business
value by simply pouring vast sums of money into IT; rather, the strategic leadership of
IT is the key to maximizing its potential benefits.

The chief information officer (CIO) plays a critical role in the ability of an
organization to derive business value from IT. Organizations that view the CIO as a
strategic asset are more likely to create business value through IT and thereby achieve
superior business performance.4

However, not all firms need to include IT as an integral part of their business strategy.
We argue that the impact of IT within an organization depends on the fit between the
CIO and the strategic context of the organization. This article describes four distinct
profiles of CIO leadership. We examine the influence of these four profiles on IT’s

1 Jeanne Ross is the accepting Senior Editor for this article.
2 The authors acknowledge the support of the TCU Office of Research and Sponsored Projects, which provided
a grant for the survey data collection.
3 For more on the critical role of IT in obtaining both efficiencies and strategic success, see Sambamurthy, V.,
Bharadwaj, A., and Grover, V. “Shaping agility through digital options: Reconceptualizing the role of information
technology in contemporary firms,” MIS Quarterly (27:2), 2003, pp. 237-263.
4 For a comprehensive analysis of the organizational views of CIOs and IT performance, see Chatterjee, D.,
Richardson, V. J., and Zmud, R. W. “Examining the shareholder wealth effects of announcements of newly
created CIO positions,” MIS Quarterly (25:1), 2001, pp. 43-70.

MISQE is
Sponsored by

58 MIS Quarterly Executive Vol. 7 No. 2 / Jun 2008 © 2008 University of Minnesota

CIO Leadership Profiles: Implications of Matching CIO Authority and Leadership Capability on IT Impact

contribution to a firm’s performance and then assess
the characteristics of each CIO leadership profile
within organizations. The primary focus of our
research is to enable organizations to understand how
the fit between the CIO and the organizational context
determines the benefits derived from IT. Given the
potential importance of the CIO within the modern
organization, as well as recent attention given to this
topic, our findings provide criteria that enable an
organization to examine its current CIO leadership
profile and balance its return on IT investments.

CLASSIFyING CIO LEADERSHIP
PROFILES
We have classified CIO leadership on two dimensions:

The CIO’s strategic decision-making authority •
within the organization.
The CIO’s strategic leadership capability. •

The Decision-Making Authority
Dimension
CIO strategic decision-making authority is the degree
to which the CIO has the authority to engage in
strategic decision making within the organization.
Strategic decision making is distinguished from
tactical or operational decision making in that it
concerns decisions that will have a significant and
lasting impact on organizational performance.

Given the pervasiveness of IT across functional
groups and the intertwined nature of business and
technology in modern organizations, the CIO should
have the decision-making authority to lead strategic
IT initiatives if IT is to contribute to the success
of the organization. However, despite the strategic
importance of IT, some CIOs are still not granted the
same strategic decision-making authority as other
business executives, and there are large differences in
the strategic decision-making authority of CIOs across
organizations. For instance, Kaarst-Brown5 noted
that “… many IT executives are still not at the table
because they are not viewed equal to their business
peers.” Other researchers have observed that, in
many organizations, the CIO plays a critical role not

5 Insights into the variations in authority given to CIOs across
organizations can be found in Kaarst-Brown, M. L. “Understanding an
organization’s view of the CIO: The role of assumptions about IT,” MIS
Quarterly Executive (4:2), 2005, p. 287.

only in IT strategic planning, but in business strategic
planning as well.6

These disparities in the roles of CIOs across
organizations are supported by the following statement
from a CIO of a major Midwestern university, who
was interviewed as part of our study. He said: “In my
years networking with various executives, I still find
that many firms have completely different views on
the strategic role of the CIO. In some organizations
the purpose of the CIO is purely operational—he is
there to essentially fix the pipes like a plumber. In
other organizations, the CIO is considered to be a true
strategic leader. In many organizations, the CIO may
be stuck somewhere in the middle of this range.”

The Leadership Capability Dimension
CIOs who have the authority to pursue strategic IT
initiatives need to be capable leaders to successfully
execute strategic projects; otherwise, the consequences
for the organization could be problematic. Many
CIOs are generally considered to be competent at
managing the technical aspects of IT, such as keeping
key systems operational; however, many CIOs fail as
strategic leaders.7

This issue is of concern to organizations since
it is through strategic leadership that CIOs can
most significantly influence the impact of IT on
organizational performance. CIOs who are effective
strategic visionaries are well suited to select and
champion strategic initiatives that are designed to
increase organizational performance. On the other
hand, CIOs who are not capable strategic leaders are
likely to have a lower level of influence, or possibly
even a detrimental influence, on the contribution that
IT makes to organizational performance.

The CIO of a large private hospital in our study
supported the importance of a capable IT leader to
the organization. He said, “To truly make an impact,
the CIO must have the ability to personally make
strategic decisions. However, if the CIO does not have

6 Leidner and Mackay found that some CIOs were not only leading
IT strategy, but were also initiating organizational strategy. See Leidner,
D. E., and Mackay, J. M. “How Incoming CIOs Transition into Their
New Jobs,” MIS Quarterly Executive (6:1), 2007, pp. 17-28.
7 To obtain a valid and unbiased assessment of CIOs, it is necessary
to get the viewpoint of business executives, rather than CIOs
themselves. One of the few studies to have done this is Smaltz, D.
H., Sambamurthy, V., and Agarwal, R. “The antecedents of CIO role
effectiveness in organizations: An empirical study in the healthcare
sector,” IEEE Transactions on Engineering Management (53:2), 2006,
pp. 207-222. For an in-depth look at CIOs and why they succeed, or
fail, see Broadbent, M., and Kitzis, E. S. The New CIO Leader, Harvard
Business School Press, 2006.

© 2008 University of Minnesota MIS Quarterly Executive Vol. 7 No. 2 / Jun 2008 59

CIO Leadership Profiles: Implications of Matching CIO Authority and Leadership Capability on IT Impact

the background and experience to support the right
decisions, the results can definitely be harmful.”

The Four CIO Leadership Profiles
Using the two dimensions described above, we
have constructed a 2×2 matrix that identifies four IT
leadership profiles (see Figure 1):

IT Orchestrator (high leadership capability, •
high decision-making authority).
IT Mechanic (low leadership capability, low •
decision-making authority).
IT Advisor (high leadership capability, low •
decision-making authority).
IT Laggard (low leadership capability, high •
decision-making authority).

OvERvIEw OF RESEARCH
METHODOLOGy AND FINDINGS
Our research findings are derived from six semi-
structured interviews with industry CIOs and pairs of
survey responses (one from the CIO and at least one
from a senior business executive) from 174 diverse
organizations from a range of industries. (Fuller details
of the research methodology and respondents are in
the Appendix.8)

8 For further information about this study, please contact David
Preston (d.preston@tcu.edu).

We assigned each of the 174 CIOs to one of the four
CIO leadership profiles.9 The breakdown was as
follows:

IT Orchestrators: 55 (32%)•
IT Laggards: 32 (18%)•
IT Advisors: 31 (18%)•
IT Mechanics: 56 (32%)•

Impact of CIO Leadership Profile on IT
Contribution
For each of the profiles, we assessed the level of IT
contribution to organizational performance by using
various statistical techniques10 to analyze the responses
of the organizations’ CEOs or other top business
executives. We asked these business executives to
assess the extent to which IT had contributed to the
following seven areas of organizational performance:
return on investment, sales revenue increase, market
share increase, cost savings, operating efficiency,
process improvement, and customer satisfaction. For
each area, they rated the IT contribution level on a
scale from 1 (IT contribution is minimal) to 5 (IT has
contributed to a very great extent). Based on these
responses, we averaged the seven components of IT

9 We assigned the 174 CIOs to the four leadership profiles based
on high and low levels (with respect to the average value of the
total sample) of decision-making authority and strategic leadership
capability. We measured CIO decision-making authority as the degree to
which the CIO has the authority to make strategic decisions to meet the
organization’s business needs, taking account of the following issues:
strategic options, strategic actions, courses of action, IT initiatives, and
IT investments. CIO strategic leadership capability was measured as
the degree to which business executives rated the CIO as an effective
strategic leader, a strategic business planner, and a visionary.
10 Statistical analyses included both hierarchical regression and one-
way analysis of variance (ANOVA).

Figure 1: CIO Leadership Profiles

IT OrchestratorIT Advisor

IT Mechanic IT Laggard

CIO Decision-making Authority

CIO
Leadership
Capability

High

Low High

60 MIS Quarterly Executive Vol. 7 No. 2 / Jun 2008 © 2008 University of Minnesota

CIO Leadership Profiles: Implications of Matching CIO Authority and Leadership Capability on IT Impact

contribution for each CIO leadership profile. The
results are shown in Figure 2.

The data in Figure 2 clearly illustrates how the CIO
leadership profile impacts the level of contribution IT
makes to organizational performance. We observed
that the IT contribution level is higher than the overall
average in firms where the CIO is classified as an
IT Orchestrator or IT Advisor and lower than the
average where the CIO is classified as an IT Laggard
or IT Mechanic.11 Firms with IT Orchestrators had
the highest IT contribution level, while those with
IT Mechanics had the lowest IT contribution level.
Our analysis shows that the CIO’s strategic decision-
making authority and leadership capability collectively
have a highly statistically significant impact on the
contribution of IT to an organization’s performance.

Other Factors Differentiating the Four
CIO Leadership Profiles
Previous research has identified several factors that
may help to further explain the differences between
the IT contribution levels associated with each of the
CIO leadership profiles. However, our study found that
a CIO’s age, gender, education level, business and IT
experience, and length of service with the organization
or as its CIO did not vary significantly across the
four leadership profiles. But we did find significant
differences in three factors—CIO attributes, CIO
integration with top management, and organizational

11 The results of our statistical analysis indicate that the IT
contribution levels of each of the four CIO profiles are statistically
different from the average. The IT contribution levels of Orchestrators
and Mechanics were found, respectively, to be significantly higher
and lower than the average (0.01 level of significance via a two-tailed
t-test). Advisors were found to be significantly higher than average
(0.10 level of significance via a one-tailed t-test). Laggards were found
to be significantly lower than average (0.10 level of significance via a
two-tailed t-test).

commitment to IT. The components of each of these
factors are shown in Figure 3. Our study collected
data on these six components so we could identify
the distinguishing characteristics of CIOs in each
leadership profile.

We describe the characteristics of each of the four CIO
leadership profiles below in terms of “low,” “average,”
or “high” ratings for each of these six components.12
CIO knowledge (strategic knowledge and
interpersonal skills) were rated by business executives
on a scale of 1 (low) to 5 (high). CIOs used the same
1 to 5 scale to rate the level of IT resources. Business
executives rated the organization’s strategic IT vision
(the degree to which IT is designed to transform the
organization) on a scale of 1 to 3, where 1 equates to
an “automative” vision, 2 equates to an “informative”
vision, and 3 equates to a “transformative” vision.13

We found that four of these six components (the CIO’s
strategic knowledge, the CIO’s interpersonal skills, the
CIO’s membership of the top management team, and
the organization’s strategic IT vision) directly influence
the level of IT contribution within the organization.

12 We tested the value of each component for each profile versus the
average values across all CIOs via an ANOVA test. In our statistical
analysis, profiles that had a component value significantly below
or above the overall average were designated as “low” and “high,”
respectively. Profiles with characteristics that were not significantly
different from the overall average were designated as “average.”
13 At one extreme, some organizations espouse an automative
vision where the role of IT focuses on replacing human labor and
reducing operational costs. At the other extreme, some organizations
espouse a transformative vision where the role of IT is to transform
the organization through new products or business strategies. And
some firms may have an informative vision, which can be considered
as an intermediate level of transformation, where the role of IT is to
provide information to key decision makers and employees. For more
information, see Schein, E. H. “The role of the CEO in the management
of change: The case of information technology” in Kochan, T. A., and
Useem, M. (eds.) Transforming Organizations, Oxford University
Press, 1992.

Figure 2: CIO Leadership Profiles and IT Contribution

CIO Leadership Profile
IT Contribution Level
(1 = Low; 5 = High)

IT Orchestrator 3.54

IT Advisor 3.26

IT Laggard 2.81

IT Mechanic 2.49

Overall Average 3.05

© 2008 University of Minnesota MIS Quarterly Executive Vol. 7 No. 2 / Jun 2008 61

CIO Leadership Profiles: Implications of Matching CIO Authority and Leadership Capability on IT Impact

Because of this, we pay particular attention to these
four components in the following descriptions of
each of the four CIO leadership profiles. For each
profile, we also provide an illustrative example of a
CIO we encountered in our research who fits into that
classification.

PROFILE OF THE IT
ORCHESTRATOR
In our study, 32 per cent of CIOs were classified as IT
Orchestrators. This type of CIO is an effective strategic
leader who is granted a great deal of freedom in
making strategic decisions. Such a CIO is empowered
to influence organizational outcomes. We summarize
the defining characteristics of IT Orchestrator CIOs in
Figure 4.

The knowledge level and interpersonal attributes of IT
Orchestrators are considerably higher than the overall
average in our sample. Also, more of these CIOs report
directly to the CEO and are formal members of the
top management team. IT Orchestrators benefit from

organizational support in the form of higher-than-
average investments in IT. We posit that CIOs who are
IT Orchestrators have the leadership skills that enable
them to secure investments for IT. Alternatively an
organization that invests highly in IT might actively
seek a capable IT leader to handle such strategic
responsibilities. Both explanations are plausible,
and, in fact, some combination of the two may likely
explain the higher-than-average investments in IT in
these firms.

The CIO of a major electronics manufacturer provided
insight into this phenomenon: “I am not exactly sure
of all the aspects that are required to make sure that IT
delivers to the bottom line at the end of day. However,
one thing I do know is that I cannot perform—and as a
result IT cannot deliver—if we [the IT department] are
not provided with the proper funding and staff to get
the job done.”

We also found that not only do firms with IT
Orchestrator CIOs make large investments in IT, they
also generally espouse a vision that IT can strategically
transform the organization. A transformative vision

Figure 3: Factors Differentiating CIO Leadership Profiles

Factor Components
CIO Attributes Strategic IT and business knowledge•

Interpersonal skills (political savvy and •
communication ability)

CIO Integration with Top Management CIO reporting level•
CIO is a member of the top management team •

Organizational Commitment to IT Dedication of resources to IT•
Strategic IT vision•

Figure 4: IT Orchestrator—Summary of Characteristics

CIO Attributes
CIO Integration with

Top Management
IT Commitment

Strategic
Knowledge

(1-5)

Interpersonal
Skills
(1-5)

Percentage
reporting to

the CEO

Percentage
a member

of top
management

team

IT
Resources

(1-5)

Strategic IT
Vision
(1-3)

IT
Orchestrator

High
(4.10)

High
(4.40)

High
(60%)

High
(89%)

High
(3.90)

High (2.12)

Overall
Average

3.53 3.87 47% 77% 3.54 1.93

62 MIS Quarterly Executive Vol. 7 No. 2 / Jun 2008 © 2008 University of Minnesota

CIO Leadership Profiles: Implications of Matching CIO Authority and Leadership Capability on IT Impact

is consistent with high IT investment levels, and
such firms may be ill-served without a CIO with
the requisite strategic knowledge and interpersonal
skills. However, it has been noted that CIOs with
these attributes are in short supply. To maximize
the impact on IT performance, such firms should
employ a strategically capable CIO who is a formal
member of the top management team and promote
a transformative IT vision within the organization.
Collectively, these practices can be taxing for the
firm—but there are considerable benefits in terms of
improved organizational performance. As our research
has shown, organizations with an IT Orchestrator CIO
obtain the greatest contribution from IT.

PROFILE OF THE IT MECHANIC
At the other end of the spectrum and in stark contrast
to IT Orchestrators, IT Mechanic CIOs have a low
level of both strategic effectiveness and strategic
decision-making authority. We summarize the defining
characteristics of IT Mechanic CIOs in Figure 5.

In our research, 32 percent of CIOs were classified
as IT Mechanics. These CIOs generally had the

lowest levels of strategic knowledge and weaker
interpersonal skills. In addition, a lower percentage of
these CIOs reported to the CEO than any of the other
types of CIO. The CIO of a non-profit organization
who was interviewed as part of this study noted: “I
can tell you first hand that the reporting level of the
CIO is the indicator that you should look at if you
want to examine if the organization considers IT to be
strategically important. When I was a CIO in industry,
I reported directly to the CEO, which enabled me to
play a key role in the corporate strategy. In my current
position, I report to an underling of the CEO, and I
don’t have the same influence to see that IT helps fuel
the business.”

Also, firms with an IT Mechanic CIO tend to have
an IT vision that is more automation-oriented than
transformative. Based on these collective findings, it
is not surprising that the lowest contribution of IT to
organizational performance was found in firms with IT
Mechanic CIOs. The average IT contribution rating of
2.49 (on a scale of 1 to 5) in these firms indicates that
IT does not contribute appreciably to the performance
of the organization. However, it is important to note
that this low level of IT impact may be consistent with

Illustrative Example of an IT Orchestrator CIO

“Midwestern General Hospital” (MGH) is a large general medical and surgical hospital with approximately
3,000 employees located in an urban center in the Midwestern United States. The contribution of IT to MGH’s
organizational performance was rated very high (4.43), well above the IT Orchestrator average of 3.54. MGH’s
CIO is considered a highly capable strategic leader (4.67) and is granted a high level of decision-making
authority (4.60). All of these ratings are higher than the average ratings for IT Orchestrators, so MGH can be
considered as a highly pronounced example of an organization with an IT Orchestrator CIO.

MGH’s CIO is well suited for this leadership profile. He has a very high level of strategic knowledge and has
developed complementary interpersonal skills. He is highly integrated within the business—he reports directly
to the CEO and is a formal member of the top management team, which enables him to communicate ideas for
strategic planning directly to other senior executives. He indicated that he has forged strong relationships with
other members of the top management team. Such relationships are expected because a strategically capable
and socially adept CIO with formal access to the top management team has the forum and ability to develop a
partnership with the upper echelon of the organization.

We observed that MGH has a strong commitment toward IT since it dedicates a large amount of resources to IT
and promotes a vision that the purpose of IT is to transform its current business processes. We therefore infer
that MGH includes IT as a central part of its strategic mission and expects to yield commensurate benefits from
its investments and organizational efforts to capitalize on IT.

The current CIO appears to be a good fit for MGH’s organizational mission. This capable executive has
been with MGH for 23 years and served as CIO for 18 years. However, MGH should consider grooming a
replacement for this CIO since he is now in his mid-60s and may soon retire. MGH should ensure that the
potential replacement is a strong leader who can meet the expectations for success set by MGH. However, IT
leaders of this caliber are often in short supply.

© 2008 University of Minnesota MIS Quarterly Executive Vol. 7 No. 2 / Jun 2008 63

CIO Leadership Profiles: Implications of Matching CIO Authority and Leadership Capability on IT Impact

the organizational goals of a firm. If a firm constrains
its CIO’s strategic decision-making authority and
employs a CIO with only limited strategic leadership
capability, it is a signal that IT is not viewed as a
strategic enabler within the organization.

In fact, the high percentage of our sample that was
classified as IT Mechanic CIOs may reflect an
intentional decision on the part of top management
teams to limit or neutralize the risk of investing in

IT resources and in developing a strategic CIO. As
expected, the contribution of IT to the performance
of these organizations is not huge. At the same time,
the risk of over-investing in IT with disappointing
benefits is very low. We therefore consider employing
an IT Mechanic CIO to be a risk-averse strategy aimed
at minimizing potential IT investment risks while
maintaining a functioning operational environment.

Figure 5: IT Mechanic—Summary of Characteristics

CIO Attributes
CIO Integration with
Top Management
IT Commitment
Strategic
Knowledge
(1-5)
Interpersonal
Skills
(1-5)

Percentage
reporting

to the CEO

Percentage
a member
of top
management
team
IT
Resources
(1-5)
Strategic IT
Vision
(1-3)

IT
Mechanic

Low
(2.94)

Low
(3.35)

Low
(36%)

Average
(73%)

Average
(3.46)

Low
(1.78)

Overall
Average

3.53 3.87 47% 77% 3.54 1.93

Illustrative Example of an IT Mechanic CIO

“Eastern General Hospital” (EGH) is a large general medical and surgical hospital with approximately
1,900 employees in a suburban setting in the eastern United States. The contribution of IT to organizational
performance was rated as very low (1.81), well below the average of 2.49 for firms with IT Mechanic CIOs.
EGH’s CIO is not considered a capable strategic leader (2.33) and has a low level of decision-making authority
(2.00).

EGH (unlike MGH—another general hospital) emphasizes neither the importance of the CIO position nor a
strategic focus on IT. We observed that the CIO appears to be more characteristic of an operational manager
than a true executive since he is not a formal member of the top management team and reports to the chief
medical officer rather than to the CEO. EGH does not appear to have a strong strategic commitment to IT. Its
vision is for IT to merely automate current operational processes and reduce costs. Therefore IT does not play
a strategic role within EGH. However, it dedicates significant resources to IT, though they are geared toward
operational rather than strategic goals.

The current CIO appears to be an appropriate fit for this managerial role (rather than an executive role) since
he does not have strong strategic knowledge or interpersonal skills. Although he may have strong technical and
managerial skills, he does not have the attributes needed by a transformational leader. However, the EGH’s top
executives appear to be satisfied with their CIO’s current level of productivity and the status quo; the current
CIO has been with EGH for 24 years and has served as CIO for 12 years despite his lack of leadership ability.
His length of tenure in this position indicates that he may also be satisfied within his IT Mechanic role.

The EGH and MGH cases illustrate that organizations in the same business can successfully have CIOs with
different leadership profiles. The important thing is to ensure a good level of fit between the CIO and the
organizational context.

64 MIS Quarterly Executive Vol. 7 No. 2 / Jun 2008 © 2008 University of Minnesota

CIO Leadership Profiles: Implications of Matching CIO Authority and Leadership Capability on IT Impact

PROFILE OF THE IT ADvISOR
Organizations with an IT Advisor CIO (18 per cent
in our study) are of particular interest since they
obtain a moderately high IT contribution but require
fewer resources and less strategic commitment to
IT than firms with an IT Orchestrator CIO. We use
the label “IT Advisor” since this type of CIO has
limited decision-making authority but is a highly
capable leader with vast strategic knowledge who
may be well suited to serve as a strategic advisor to
the top management team on IT issues. Although the
impact of IT in firms with IT Advisor CIOs is lower
than in those with IT Orchestrator CIOs, it is higher
than the overall average and higher than firms with
IT Laggard or IT Mechanic CIOs. Thus even when
the CIO’s strategic decision-making authority is
relatively low, as it is for firms with an IT Advisor
CIO, having a capable leader in the CIO position helps
IT contribute to organizational performance. This
observation underscores the importance of strategic
leadership skills for CIOs. We summarize the defining
characteristics of this type of CIO in Figure 6.

Like IT Orchestrators, business executives consider
IT Advisors to have strategic knowledge and strong
interpersonal skills. However, there are several key
factors that distinguish these two types of CIO. We
observed that IT Advisor CIOs’ integration with top
management and their firms’ IT visions are near the
overall average. In addition, we observed that, even
though firms with IT Advisor CIOs provide the lowest
level of resources to the IT department, they still
obtain a relatively high level of IT impact. Despite
minimizing their IT investment and commitment,
these firms are able to derive organizational benefits
from IT by employing a capable CIO. In essence, their
approach is a “low cost alternative” compared to firms

with IT Orchestrator CIOs, which require substantial
IT investments and dedication to a transformative IT
vision.

PROFILE OF THE IT LAGGARD
Firms with an IT Laggard CIO have a level of IT
contribution that is lower than average but higher than
that of firms with IT Mechanic CIOs. IT Laggards are
the inverse of IT Advisors since they are provided with
a relatively high level of decision-making authority,
but they do not have the requisite leadership skills
to capitalize on the strategic authority provided to
them. We summarize the defining characteristics of IT
Laggard CIOs in Figure 7.

The strategic decision-making authority given to IT
Laggard CIOs suggests that top management has high
expectations for them to derive potential benefits from
IT. However, it is possible that IT Laggards’ leadership
capability is hampered by a fairly conservative IT
vision. Without a more aggressive IT vision, IT
Laggards may be unable to capitalize on their decision-
making authority and are consequently labeled as
incapable leaders. We note that despite firms with IT
laggard CIOs making higher-than-average investments
in IT resources, they do not obtain the same level of
impact as firms with more capable but underfunded IT
Advisor CIOs.

Our analysis showed that the IT contribution in firms
with IT Laggard CIOs was slightly higher than in
those with IT Mechanic CIOs. This finding could
indicate that IT Laggards are able to use some of
their decision-making authority to lead initiatives
that potentially have a moderate strategic impact and
are within the scope of their abilities. It could also

Figure 6: IT Advisor – Summary of Characteristics

CIO Attributes
CIO Integration with
Top Management
IT Commitment
Strategic
Knowledge
(1-5)
Interpersonal
Skills
(1-5)
Percentage
reporting to
the CEO
Percentage
a member
of top
management
team
IT
Resources
(1-5)
Strategic IT
Vision
(1-3)

IT Advisor
High
(4.04)

High
(4.35)

Average
(42%)

Average
(77%)

Low
(3.11)

Average
(1.87)

Overall
Average
3.53 3.87 47% 77% 3.54 1.93

© 2008 University of Minnesota MIS Quarterly Executive Vol. 7 No. 2 / Jun 2008 65

CIO Leadership Profiles: Implications of Matching CIO Authority and Leadership Capability on IT Impact

indicate that Laggards eschew potentially more risky
initiatives that would have greater strategic impact but
are outside of their “strategic comfort zone.” Firms
with IT Laggard CIOs might still target strategic IT
initiatives but more likely under the guidance of the
top management team than the CIO.

THREE KEy LESSONS ON IT
LEADERSHIP
Given that the strategic management of IT continues to
be a key issue for organizations, we summarize three
key lessons based on our findings. We believe that
these lessons provide insights for both IT executives

Illustrative Example of an IT Advisor CIO

“Wholesaler Inc.” is a small to mid-sized wholesaler of recreational goods in the southeast of the United
States, with approximately 200 employees. The contribution of IT to organizational performance was rated as
moderately high (3.3), which is on par with the typical firm with an IT Advisor CIO. Wholesaler Inc.’s CIO
is considered by business executives to be a capable strategic leader (4.33) but is not granted a high level of
decision-making authority (2.60). Both of these ratings are close to the average for IT Advisor CIOs. This CIO
is thus a quintessential IT Advisor—a CIO who is a strong strategic leader but does not have the authority to
make strategic decisions independently.

The CIO’s integration with the top ranks of Wholesaler Inc.’s management is typical of IT Advisors—he
reports directly to the CEO but is not a formal member of the top management team. Wholesaler Inc.’s strategic
IT vision is also typical of firms with IT Advisor CIOs. The most salient characteristic of Wholesaler Inc. is
that it provides a low amount of resources to IT (2.33). This indicates that the firm wishes to minimize its direct
IT investments even though it has a CIO who is a capable strategic leader. The combination of a minimalist
approach from the business side and a strategic CIO means that Wholesaler Inc. is able to obtain a reasonably
high level of IT contribution and a good “bang for the buck” from its IT investments and commitment to IT.
We note that IT investments do not directly influence the contribution of IT on organizational performance;
however, investments in initiatives that are in accordance with organizational objectives may indirectly
influence organizational success.

The CIO indicated that he has formed a very strong partnership with the top management team. This
partnership may enable this knowledgeable and adept CIO to navigate the decision-making environment
dominated by the top management team and act as an advisor for decisions on strategic IT initiatives.

Wholesaler Inc.’s CIO has been in this executive position for only three years. Therefore it is unclear whether
he is content with an advisory role and will stay with the firm in the long run if he is not provided with the
appropriate resources or decision-making authority to enable him to exploit his strategic leadership capabilities.

Figure 7: IT Laggard—Summary of Characteristics

CIO Attributes
CIO Integration with
Top Management
IT Commitment
Strategic
Knowledge
(1-5)
Interpersonal
Skills
(1-5)
Percentage
reporting to
the CEO
Percentage
a member
of top
management
team
IT
Resources
(1-5)
Strategic IT
Vision
(1-3)

IT Laggard
Low
(3.11)

Low
(3.36)

Average
(47%)

Average
(71%)

Average
(3.47)

Average
(1.97)

Overall
Average
3.53 3.87 47% 77% 3.54 1.93

66 MIS Quarterly Executive Vol. 7 No. 2 / Jun 2008 © 2008 University of Minnesota

CIO Leadership Profiles: Implications of Matching CIO Authority and Leadership Capability on IT Impact

and business executives about the role of IT leadership
within the organization.

Lesson 1: Know Thyself
CIOs will benefit from understanding their own
leadership profile. Our findings clearly demonstrate
that IT’s contribution to organizational performance
varies significantly across the four CIO leadership
profiles. CIOs who want to increase the level of IT
contribution to their organizations’ performance
can gain an understanding of how to achieve this by
assessing their current profile.

Although organizations may not officially decree
their CIOs’ level of strategic decision-making
authority, CIOs should assess their level of authority
by evaluating their prior and current experiences
in leading initiatives within their organizations.14
However, CIOs must keep in mind that not all
organizations expect a high level of contribution
from IT. It is therefore also imperative for a CIO to

14 Our survey results found that CIOs and top management team
members have a high degree of agreement on the CIO’s perceived level
of strategic decision-making authority. Therefore CIOs can generally
accurately assess their level of decision-making authority in the
organization.

understand the top management team’s vision for IT. If
that vision is transformative, the organization needs an
IT Orchestrator CIO. If the vision is automative, a CIO
that matches the IT Mechanic profile is appropriate. In
firms where the vision is informative (i.e., the role of
IT is to provide information to key decision-makers)
an IT Advisor CIO will likely be needed.

By understanding his or her current profile, as well
as the profile needed to support the top management
team’s vision for IT, the CIO can make adjustments
to better serve the organization. Note, though,
that the CIO’s leadership ability is based on the
top management team’s perception. The CIO
characteristics most readily changeable and within the
CIO’s control are strategic IT and business knowledge,
and interpersonal skills (i.e., the CIO attributes listed
in Figure 3). CIOs who want—or need—to adjust their
own profile will need to begin with these attributes.

The other CIO characteristics (integration with top
management and organizational commitment to
IT) are generally not under the direct control of the
CIO. However, the CIO can work to influence these
characteristics by forging close relationships with the
top management team, by ensuring that the IT function
is a top performer on service-management metrics, by

Illustrative Example of an IT Laggard CIO

“Parts Manufacturer Inc.” (PMI) is a mid–sized U.S. parts manufacturer for several industry sectors, with
approximately 600 employees. The contribution of IT to organizational performance is moderately low (2.71),
which is on par with the IT Laggard average. Senior executives do not consider the CIO to be a capable
strategic leader (2.67); however, this CIO is granted a high level of strategic decision-making authority (4.30).

This firm has a moderate level of IT commitment since its IT resources and strategic IT vision are on par with
the average of firms with IT Laggard CIOs and with the overall average. In addition, the CIO’s integration with
top management is average since he is not a formal top management team member but does report directly to
the CEO. We observed that PMI’s CIO is in charge of a wide range of strategic decisions for IT; however, he
does not have the strategic knowledge or interpersonal skills necessary for a strategic leader in this position.
This accounts for PMI having a moderately low level of IT contribution, probably due to the relatively
unprepared IT leader acting as the key decision maker within a firm that appears to seek only marginal gains
from IT.

PMI’s CIO indicated that he has a strong partnership with the top management team. Although he has the
authority to make strategic decisions, he may choose to collaborate with top executives who can compensate
for any deficits in his strategic knowledge base. However, the CIO’s weak interpersonal skills may cast doubt
on his assertion that he can foster such a relationship.

PMI provides its CIO with authority that, at present, he may not be equipped to handle. However, we note that
he has been the firm’s CIO for just two years. Perhaps he will acquire greater knowledge and interpersonal
skills should he remain in this role for a longer period. To some degree, strategic knowledge, or the application
of strategic knowledge, is company specific. The CIO’s interpersonal skills may also further develop after he is
able to understand the behavior and goals of PMI’s top management.

© 2008 University of Minnesota MIS Quarterly Executive Vol. 7 No. 2 / Jun 2008 67

CIO Leadership Profiles: Implications of Matching CIO Authority and Leadership Capability on IT Impact

tracking the value of IT projects, and by identifying
projects that have delivered on their business cases.

Lesson 2: The Global Digital Economy
Will Need More IT Orchestrators
Two of the four CIO leadership profiles (IT
Orchestrator and IT Mechanic) have a good match
between the CIO’s strategic decision-making authority
and leadership capability, and two (IT Advisor and
IT Laggard) have a mismatch. IT Orchestrator CIOs
are well suited for organizations that want to be
at the forefront of IT innovation. However, not all
organizations currently believe that an IT Orchestrator
is necessary; an IT Mechanic may be ideal for an
organization that has only limited needs from IT and
wishes to minimize IT costs. On the other hand, there
is untapped potential from IT in organizations with IT
Advisor or IT Laggard CIOs.

Although not all organizations see the need for an IT
Orchestrator, the global digital environment in which
many firms now operate increasingly demands that
IT is used to help them achieve greater innovation
and efficiency. Organizations operating in this
environment will need IT to support their business
strategies and will be best served by IT Orchestrator
CIOs. IT Mechanics, IT Laggards, and IT Advisors
may therefore have to evolve into IT Orchestrators.

Moreover, current IT Orchestrator CIOs who wish
to continue maximizing the potential impact of
IT will need to maintain a high level of decision-
making authority and strategic leadership capability
as the organizational structure and business priorities
change with time. These CIOs need to ensure that
they keep their strategic knowledge base current
and their interpersonal skills polished. Since the top
management team could be continually changing,
the CIO must also consistently work to build and
maintain strong partnerships with these top executives
and develop a uniform agreement that IT is key to the
firm’s business strategy. Therefore IT Orchestrator
CIOs must continually monitor their attributes and
strive to improve them.

All CIOs, regardless of their current leadership
profile, need to be aware that future trends will favor
the appointment of IT Orchestrators. CIOs without
the necessary attributes for the IT Orchestrator
profile should be prepared to adapt (see Lesson 3);
if they don’t, they may find themselves out of a job.
IT Advisors, IT Laggards, and IT Mechanics should
therefore prepare to methodically reshape themselves
as IT Orchestrators.

Lesson 3: IT Advisors, IT Laggards, and
IT Mechanics Can Transition across
Profiles
Actions for IT Advisors. Our research has shown that
an IT Advisor CIO can derive moderately high benefits
from IT with minimal commitment of resources
within an organization that generally has a moderate
strategic IT vision. To transition to the IT Orchestrator
profile, an IT Advisor needs to focus on obtaining
additional funding and strive to instill a vision among
top business executives that transformation through
IT is fundamental to the firm’s corporate strategy. To
gain greater IT commitment from the organization,
an IT Advisor CIO should demonstrate a track record
for IT to the top management team by providing
clear examples of how IT has delivered value to the
business. An IT Advisor with strong interpersonal
skills has the political savvy and communication skills
to formulate and present business cases that show
IT is critical to current and future operations and the
business strategy. Such business cases will increase
the firm’s level of IT commitment and consequently
increase the CIO’s strategic decision-making authority.

Actions for IT Laggards. We found that IT Laggards’
leadership capabilities generally fall short of what’s
needed to achieve the firm’s strategic IT goals. IT
Laggard CIOs should immediately address their
shortcomings and should lobby the top management
team to attend programs that will accelerate their
personal development. These programs might be
advanced business classes (e.g., graduate-level
classes in strategy, finance, etc.) designed to improve
their strategic knowledge, or executive development
programs designed to enhance and refine IT Laggards’
“soft” skills.

Actions for IT Mechanics. IT Mechanics who want to
develop into IT Orchestrators must both improve their
executive attributes and transform their organizations’
view of IT. We recommend that IT Mechanic CIOs
first focus on developing their leadership capabilities
and then subsequently work to extend their decision-
making authority. In essence, we are recommending
that IT Mechanic CIOs first work to transition
themselves into IT Advisors and subsequently work to
transform themselves into IT Orchestrators.

MAKING uSE OF THE CIO
LEADERSHIP PROFILES
The lessons learned from our study provide a lens
through which CIOs and their senior business

68 MIS Quarterly Executive Vol. 7 No. 2 / Jun 2008 © 2008 University of Minnesota

CIO Leadership Profiles: Implications of Matching CIO Authority and Leadership Capability on IT Impact

colleagues can understand their current CIO leadership
profiles. An organization and its CIO can evaluate
the current CIO leadership profile by focusing on
the CIO’s attributes, CIO integration within the
firm, and the organization’s IT commitment. The top
management team can then assess if the profile meets
the firm’s plans to derive benefits from IT. The CIO
can identify shortcomings in his or her own profile
and take steps to remedy them so he or she can better
serve the organization as the need for IT Orchestrators
comes to the fore.

We believe that the profiles developed for this study
and the quantified findings from our research will
enable executives to directly influence the CIO
leadership profile and the contribution made by IT
within their organizations. We also believe that this
study will provide a foundation for future research on
the impact of CIOs on organizational practices and the
bottom line of their firms.

APPENDIx: RESEARCH
METHODOLOGy
To conduct this empirical study, we collected data
in 2006/2007 from CIOs and their corresponding
top business executives via a survey. The CIO is
defined as the highest-ranking IT executive within the
organization. Top business executives included the
organization’s CEO or business executives who are
either formal members of the top management team
or reported directly to the CEO. Business executives
responded to questions on the quality of the CIO’s
leadership capabilities, attributes, the organization’s
strategic IT vision, and IT’s contribution to
organizational performance. CIOs responded to
questions on their integration with top management
and the resources provided to IT. Both the CIO
and matched CEO or other top business executives
responded to questions on the CIO’s strategic decision-
making authority, and the mean responses were used,
after assessing the inter-rater reliability (the degree of
agreement among respondents).

Matched-pair surveys from 174 diverse U.S.-based
organizations within multiple industries were returned,
providing responses from both the CIO and at least
one corresponding top business executive. Among the
174 organizations, 78 (44.8%) were in the healthcare
industry, 18 (10.4%) were in the manufacturing
industry, 16 (9.2%) were in the finance industry, 15
(8.6%) were retailers or wholesalers, 15 (8.6%) were
consulting firms, 8 (4.6%) were in the construction/
real estate development industry, 8 (4.6%) were

educational institutions, and the remaining 16
(9.2%) were from miscellaneous industries. All
the organizations had annual revenue of more than
$650,000, and the average number of employees was
7,643. The average age of the CIOs was 49.6 years,
and average tenure as the firm’s CIO was 8.8 years.
Of the 174 CIOs, 35 (20.1%) were women and 139
(79.9%) were men.

AbOuT THE AuTHORS
David S. Preston
David Preston (d.preston@tcu.edu) is an assistant
professor of information systems at Texas Christian
University, Fort Worth, Texas. He received his Ph.D. in
MIS from the University of Georgia and also holds an
M.B.A. from the University of Georgia and a B.S. and
an M.S. in Engineering from the University of Florida.
His research interests include the role and impact of
the CIO in the organization, IS strategic alignment,
and the impact of IS on organizational performance.
His work has been published or is forthcoming in
Information Systems Research, IEEE Transactions on
Engineering Management, ICIS Proceedings, Journal
of Logistics Information Management, Business
Intelligence Journal, and IS Control Journal.

Dorothy E. Leidner
Dorothy Leidner (dorothy_leidner@baylor.edu) is
the Randall W. and Sandra Ferguson Professor of
Information Systems at Baylor University, Waco,
Texas. She has broad international experience, having
previously served as associate professor at INSEAD,
and as visiting professor at Monterrey Tech University
(ITESM) in Mexico and at the University of Caen,
France. She is also a regular visiting professor
at the University of Mannheim in Germany. She
received her Ph.D. in Information Systems from the
University of Texas at Austin. Her research has been
published in a variety of journals, including MIS
Quarterly, Information Systems Research, Journal of
Management Information Systems, Decision Sciences,
and Organization Science. Leidner received best
paper awards in 1993 from the Hawaii International
Conference on System Sciences, in 1995 from
MIS Quarterly, and in 1999 from the Academy of
Management OCIS division. She is currently serving
as Senior Editor for MIS Quarterly and is on the
editorial board of MIS Quarterly Executive.

Daniel Chen
Daniel Chen (d.chen@tcu.edu) is an assistant professor
of information systems at Texas Christian University,
Fort Worth, Texas. He received his Ph.D. in MIS from

© 2008 University of Minnesota MIS Quarterly Executive Vol. 7 No. 2 / Jun 2008 69

CIO Leadership Profiles: Implications of Matching CIO Authority and Leadership Capability on IT Impact

the University of Georgia and also holds an M.B.A.
degree from Washington University in St. Louis.
Chen’s research interests lie at the interface between
information technology and strategic management. His
primary areas of research are organizational impact of
IT infrastructures, the role and value of IS leadership,
and business value of IT.

December 2018 (17:4) | MIS Quarterly Executive 281

Digital Workers and the Gig Economy1, 2, 3

The gig economy is rapidly transforming labor markets in the U.S. and other countries
worldwide by creating demand for short-term contracts or freelance work, and reducing
the availability of full-time permanent jobs. In the U.S., 20% of the workforce participates in
freelance contract work, and experts expect that proportion to rise to 50% within the next
10 years.4 Our focus is this article is on what this changing labor market means for IT leaders.
Are they prepared for the gig economy? Can they take advantage of it to find talent in an
increasingly difficult hiring market for digital professionals?5 What challenges will they face as
they tap into this growing freelance workforce to meet their staffing needs? What can they do
to overcome these challenges and ready themselves to benefit from this new labor market?

This article provides answers to these questions from the perspective of a group that
is sometimes overlooked: workers. We focus on one group of gig economy workers: digital
workers6 who use crowdsourcing platforms to obtain and deliver work and to receive
remuneration for the work they do. The term we have coined for this segment of the gig
economy is information technology crowdsourcing (ITCS).7 By sharing what we have learned
about this particular group, we can provide guidance to IT leaders on the actions they can take
to benefit from the gig economy.

1 10.17705/2msqe.00002
2 Michelle Kaarst-Brown, Tim Weitzel, Jeria Quesenberry and Fred Niederman are the accepting senior editors for this article.
3 A previous version of this article was presented at the MIS Quarterly Executive Academic Workshops held at the Hawaii Interna-
tional Conference on System Sciences on January 3, 2018. The valuable feedback received during the workshop has been incorpo-
rated into the manuscript.
4 National Public Radio recently broadcast a series of articles examining the growth and implications of contractors in the U.S,
economy, an example of which can be found in Noguchi, Y. “Rise of the contract workers: Work is different now,” January 22, 2018.
5 Difficulties in staffing digital roles is a commonly cited concern of IT executives. See, for example, Kappelman, L., McLean, E.,
Johnson, V. and Torres, R. “The 2015 SIM IT Issues and Trends Study,” MIS Quarterly Executive (15:1), March 2016, pp. 55-83.
6 Our focus in this study was on digital workers who participate in technology-related tasks—e.g. programming, project manage-
ment, requirements gathering, security assessment, etc.
7 In this article, we use the term “crowdsourcing” to describe a form of micro-sourcing (small contract engagements) that are
facilitated by online transaction environments. This approach is based on that presented in Oshri, I., Kotlarsky, J. and Willcocks, L. P.
The Handbook of Global Outsourcing and Offshoring, Palgrave Macmillan, 2011.

How IT Leaders Can Benefit from the
Digital Crowdsourcing Workforce1

A growing segment of the gig economy is what we IT term IT crowdsourcing (ITCS),
where clients post IT development projects (typically of about two weeks duration) on
an ITCS platform for digital crowdworkers to bid on. We describe how these platforms
work and the profiles of some typical digital crowdworkers. We also provide guide-
lines for IT leaders who want to benefit from this “hidden” source of skilled digital
workers.2, 3

Joseph Taylor
California State University, Sacramento (U.S.)

K. D. Joshi
Washington State University (U.S.)

282 MIS Quarterly Executive | December 2018 (17:4) misqe.org | © 2018 University of Minnesota

How IT Leaders Can Benefit from the Digital Crowdsourcing Workforce

The growth of the gig economy raises many
ethical and regulatory questions,8 and it is still
unclear how this new form of working9 affects
workers and the organizations that employ
them. Broadly, it creates both challenges and
opportunities for employers. The challenge for
IT leaders is that as digital workers leave the
traditional workforce to become freelancers, the
problems of recruiting and keeping top digital
talent are magnified. However, IT organizations
that successfully adapt to the gig economy can
better manage their staffing and training costs
and have greater access to digital talent.

A common misconception is that working in
the gig economy is just for millennials10 or for
workers who have limited employment options.11
However, emerging research has shown that
workers of all ages and skillsets are joining the
gig economy, and doing so in record numbers,12
including digital workers engaged in ITCS. In our
research for this article, we examined how digital
workers are engaging with the gig economy (the
research methods are described in Appendixes 1
and 2).

Based on our findings, we show how corporate
IT leaders can leverage the “invisible” stream of
IT talent in the ITCS segment of the gig economy.
C-level IT executives can benefit from our insights
into ITCS working in four ways:

1. Understanding how ITCS is being used by
other organizations

8 The potential regulatory challenges of crowdsourcing are
explored in Williard, R. P. “Crowdsourcing: Libertarian Panacea or
Regulatory Nightmare?,” Journal of Online Higher Education (1:1),
January 2017. Further exploration of some of the ethical challenges
of crowdsourcing are explored in Deng, Xuefei, K. D. Joshi, and
Robert D. Galliers. “The duality of empowerment and marginaliza-
tion in microtask crowdsourcing: Giving voice to the less powerful
through value sensitive design.” Mis Quarterly 40.2 (2016): 279-302.
9 Noguchi, Y., op. cit., January 22, 2018. This National Public
Radio broadcast examined the growth of the gig economy and its
implications.
10 Millennials are often cited as driving the trend away from tradi-
tional work schedules. See, for example, Taylor, K. “Why Millennials
Are Ending The 9 to 5,” Forbes.com, August 23, 2013, available at
https://www.forbes.com/sites/katetaylor/2013/08/23/why-millennials-
are-ending-the-9-to-5/#6271cbe2715d.
11 Some studies have shown that the unemployed and under-em-
ployed are attracted to working in the gig economy, which potentially
can reduce the overall entrepreneurial activity of the gig economy.
For more information, see Burtch, G., Carnahan, S. and Green-
wood, B. N. “Can You Gig It? An Empirical Examination of the Gig
Economy and Entrepreneurial Activity,” Management Science, 2018.
12 Early anxieties about the growth and implications of the gig
economy are highlighted in Scheiber, N. “Growth in the ‘Gig Econo-
my’ fuels Work Force Anxieties,” New York Times, July 12, 2015.

2. Exploring potential impacts of ITCS on
digital workers, the firms that employ
them and society in general

3. Learning about challenges and
opportunities of using ITCS to obtain
benefits in recruiting and retention

4. Applying our guidelines for successfully
using ITCS in IT service delivery.

Understanding How ITCS
Platforms Work

ITCS has several important distinctions
from historical freelance contracting.13 Online
platforms can dramatically reduce the transaction
costs associated with identifying, scheduling
and compensating for work. Be it Uber, Airbnb
or Instacart, online platforms have become
significant factors in facilitating the gig economy.
For workers whose primary activities are in the
digital domain, online platforms can provide a
forum both for job acquisition and for content
delivery. For technology-related freelancing, like
ITCS, online platforms create a virtual global
marketplace and can support integrated work
environments to complete digital tasks.

One aspect of the gig economy is the growth of
IT service delivery through online ITCS platforms,
such as Upwork and Freelancer, to support
small-scale IT development contracts.14 Workers
who contract through these platforms are an
on-demand digital workforce that completes
specified small tasks for predetermined rates
of remuneration. The platforms facilitate the
financial transactions between worker and client
and protect the stakeholders from potential abuse
or fraudulent behavior.

In our research for this article, we evaluated
three of the largest ITCS platforms (by project
revenue). With each of these platforms, individual
crowdworkers bid for specific jobs that are
posted on the platform. The bidding, billing, task
management and communication processes are
embedded within the platform to minimize direct

13 An in-depth discussion of the literature regarding outsourc-
ing, including the characteristics of freelance work, can be found at
Lacity, M. C., Khan, S. A. and Willcocks, L. P. “A Review of the IT
Outsourcing Literature: Insights for Practice,” Journal of Strategic
Information Systems (18:3), September 2009, pp. 130-146.
14 For a discussion of the concept of “microsourcing” through
small contracts as one type of sourcing vendor, see Oshri, I. et al., op.
cit., 2011.

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How IT Leaders Can Benefit from the Digital Crowdsourcing Workforce

outside interaction between the client and the
crowdsourced worker. The platforms support a
limited number of project structures (e.g., time
and materials, fixed bid) and collect escrow funds
from clients to provide payment protection for
workers.

In reviewing the design of ITCS platforms, we
used standard process modelling approaches.15
A high-level breakdown of the basic workflow
process for projects that are successfully
completed via these ITCS platforms is depicted
in Figure 1. While we recognize that IT
development efforts may be cancelled prior to
project completion, to simplify our review of
ITCS platform design we did not consider the
processes associated with project cancellation.

Before posting an IT project on an ITCS
platform for crowdworkers to bid on, a client
must define the project requirements and
complete an initial project design. Unlike
traditional outsourcing services, there are
minimal resources available on ITCS platforms to
assist with tasks such as requirements gathering
or designing the application architecture. The
small scale of the work typically posted on ITCS
platforms can make it challenging to develop the

15 We followed standard process modelling techniques, as outlined
by Curtis, B., Kellner, M. I. and Over, J. “Process Modeling,” Com-
munications of the ACM (35:9), September 1992, pp. 75-90.

requirements. A recent study examining one ITCS
platform found job durations generally to be less
than two weeks.16 If the project is expected to
require more than one crowdworker or more
than two weeks to complete, the client should
break the project up into multiple smaller jobs
that can be posted on the ITCS platform.

Crowdworkers can view jobs that are available
on ITCS platforms and prepare bids describing
the intended delivery approach and proposed
cost to the client. The client must evaluate the
individual bids to determine which crowdworker,
if any, will be awarded the contract.

Once a crowdworker’s bid is accepted, the ITCS
platform provides a mechanism for putting the
agreed payment price into escrow, which protects
the crowdworker against the cancelation of the
project once the work is completed. Contracts
and escrow are unique to the individual worker.
Once the escrow payment has been collected by
the ITCS platform, the crowdworker begins the
job. ITCS platforms often include governance
structures that provide clients with mechanisms

16 ITCS jobs are typically quite short (about two weeks); longer
jobs are associated with lower levels of satisfaction for both workers
and clients. See Kathuria, A., Saldanha, T., Khuntia, J. and Andrade
Rojas, M. G. “Strategic Intent, Contract Duration, and Performance:
Evidence from Micro-Outsourcing,” Proceedings of Thirty–Sixth
International Conference on Information Systems, Fort Worth, Texas,
2015.

Figure 1: ITCS Workflow Process

2. Client
decomposes work
to individual level

jobs

1. Client identifies
technology

development

needs

3. Client posts
jobs on ITCS

platform

4. Crowdworkers
identify jobs of
interest on ITCS

platform

5. Crowdworkers
prepare bids for

jobs

6. Client selects
winning bid for job

delivery

7. ITCS platform
puts job costs into

escrow

8. Crowdworker
with winning bid

completes job

9. Client manages
job delivery

10. Crowdworker
completes and
delivers job

11. Client accepts
deliverable and

releases payment

12. ITCS platform
remits escrow

payment to
crowdworker

13. Client
aggregates job
into technology

needs

14. Client
implements

technology needs

15. Client and
ITCS worker

provide ratings on
experiences

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How IT Leaders Can Benefit from the Digital Crowdsourcing Workforce

for monitoring project completion and facilitate
remote monitoring of crowdworkers’ activities.
These governance structures are controls that
focus on oversight and productivity management
rather than effective technical collaboration for
larger, more complex technology projects. When
the job has been completed, and the client has
had the opportunity to validate the work, the ITCS
platform remits the payment to the crowdworker,
minus the fee payable to the platform.

If the size and complexity of the overall project
requires multiple ITCS workers to participate, the
client is responsible for hiring each individual
ITCS worker, validating and approving each
individual job and integrating each completed
job into the overall project. Clients are also
responsible for integrating and implementing
the completed jobs into their technology
environments.

ITCS platforms collect extensive data for each
job on both the client and the crowdworker.
Clients and workers are given the opportunity to
rate each other. Each ITCS platform aggregates
ratings of crowdworkers and makes them
available to future clients. The aggregate ratings
of clients are made available to crowdworkers
who are considering bidding on future jobs
posted on the platform. The ratings and data
collection system of each ITCS platform is unique,
and data relating to a client or a crowdworker is
only available via the platform on which the work
was completed.

Benefits of ITCS for Workers,
Firms and Society

ITCS provides benefits for workers, firms
and society in general. ITCS workers are
individuals who complete tasks posted on
crowdsourcing platforms for predetermined
rates of remuneration.17 For these individuals,
participation in crowdsourcing represents
a type of employment. In ITCS, firms are the
organizations that use, or could use, ITCS as
a means of obtaining IT services and hiring
additional temporary employees. As labor
shortages in the digital workforce continue to

17 An extensive exploration of the types of roles included in the IT
workforce is presented in Kaarst-Brown, M. L. and Guzman, I. “Who
Is the IT Workforce?: Challenges Facing Policy Makers, Manage-
ment, and Research,” Proceedings of ACM SIGMIS CPR [Computer
Personnel Research], Atlanta, Georgia, April 14-16, 2005.

grow, firms will face increasing challenges in
meeting their staffing needs. ITCS provides IT
leaders with a new source of digital workforce
talent. As changes to workforce dynamics, such as
those brought about by ITCS, continue to develop,
there are both benefits and challenges to workers
and firms, and to wider society—i.e., the shared
community that includes individuals, families and
communities where we all live and work. Figure 2

shows how ITCS can provide value-added benefits
through the interplay between these three groups.

We identified five work dimensions that
determine the ways in which workers, firms and
society benefit from ITCS: 1) access to otherwise
inaccessible talent, 2) a cost-effective workforce,
3) access to fractional18 resources, 4) an on-
demand workforce and 5) a willingness to take on
difficult-to-fill positions.

Each of these five dimensions has implications
for workers, firms and society. By understanding
these potential influencing factors, firms and
policy makers can be better prepared for the
shifts in labor market dynamics toward greater
use of contractors. Table 1 summarizes the
benefits for workers, firms and society in each of
the five dimensions.

18 Part-time workers who also work part-time for other employers.

Figure 2: Value-added Benefits of ITCS

Workers Firms

Society

Support

Hire

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How IT Leaders Can Benefit from the Digital Crowdsourcing Workforce

Profiles of ITCS Crowdworkers
Digital workers have a variety of reasons

and motivations for participating in ITCS. For
some, their personal situation (e.g., health or
childcare demands) makes traditional, inflexible
IT employment unattractive.19 Others perceive
the repetitive nature of corporate work as boring
or unfulfilling. Some simply like the challenge of
solving new types of problems, while others like
the flexibility of contract work. Some participate
in ITCS in addition to traditional employment,
while others work exclusively through online ITCS
platforms.

We found that a broad spectrum of digital
talent is attracted by the flexibility of ITCS
contract work, and that the rich diversity of ITCS
crowdworkers illustrated several ways in which
the firms that employ them can benefit. Our
study included 25 workers participating in ITCS.
Although these workers were a diverse group,
there were several common themes and benefits
that workers gained from participating in ITCS.
To highlight these benefits, we present below
profiles of five of the workers who participated
in our study. (The demographics of all those

19 A deeper look at the motivations of crowdworkers can be found
at Deng, X.N. and Joshi, K.D., 2016. “Why individuals participate in
micro-task crowdsourcing work environment: Revealing crowdwork-
ers’ perceptions,” Journal of the Association for Information Systems,
17(10), p.648.

included in our study is provided in Appendix
2.) The experience of these five individuals is
representative of others who participated in our
research, and each illustrates how ITCS work
differs from other outsourcing or freelancing
work structures.

Profile 1: Stay-at-home Dad
“Stay-at-home Dad” is a 27-year-old single

male with more than two children and a
bachelor’s degree. Participating in ITCS allows
him to earn an income while balancing the needs
of his young family. Previous studies have found
that women with childcare responsibilities can
find it challenging to participate in the digital
workforce. We found that for some men with
primary childcare responsibilities, crowdsourcing
provides the flexibility that enables them to
balance work and family responsibilities.

“[ITCS] allows me to have time for my kids,
take them to school, pick them up, spend time with
them, yet still financially provide for them.”

Flexibility for “Stay-at-home Dad” is more than
just being able to work around his children’s daily
schedules; it also includes the volume, complexity
and timing of the ITCS work he does. He can take
on simple repetitive work when financial needs
demand it, but can also invest time in more
complicated tasks to expand his skillset when
financial needs are less pressing. This approach

Table 1: ITCS Provides Benefits for Workers, Firms and Society

Workers Firms Society

Access to Otherwise
Inaccessible Talent

Provides a means to stay
in the workforce outside
traditional employment

Expands technology
workforce

Provide individuals with
the dignity of employment

Cost-effective Workforce
Can live in low-cost

locations
Access to workers at

competitive rates

Enables individuals in
small communities to

earn technology worker
salaries

Access to Fractional
Resources

Maximize earning
potential

Can find highly specialized
skills

Maximize worker
contributions

On-demand Workforce
Flexibility in work volume

and timing
Can hire workers as

needed
Enables workforce size to

adjust to demand

Willingness to Take on
Difficult-to-fill Positions

Personal ownership of skill
development; incentive to

take on variety of tasks

Can fill temporary or
repetitive work

Incentivizes workers to
develop in-demand skills

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How IT Leaders Can Benefit from the Digital Crowdsourcing Workforce

allows “Stay-at-home Dad” to be proactive in his
skill development.

“I get to pick and choose the jobs I work on.
I can pick really easy jobs for fast cash or pick
complicated jobs that I haven’t worked on before
where I have the chance to learn new things and
challenge myself.”

The transparency of the online ITCS
marketplace allows “Stay-at-home Dad” to
identify which skills would provide the most
value. ITCS platforms present a wide range
of available tasks, allowing workers to better
understand what skills are in demand. “Stay-at-
home Dad” uses this information to expand his
skills so he can meet this demand. Moreover, the
ITCS task selection process provides a means of
gaining practical experience in emerging skills.

“[ITCS] has allowed me to learn many things
and get a better understanding of what kind of
programming languages are mostly being used.
… [It] has caused me to learn new languages like
RoR and keeps me brushed up on skills like server
administration … [and] keeps me programming
every day.”

In addition to supporting technical skill
development, ITCS platforms can reduce the
time required for administrative and business
development activities. For ITCS workers like
“Stay-at-home Dad,” the capabilities provided by
platforms allow them to focus on doing technical
work rather than searching for prospective
clients.

“[Without access to ITCS platforms] I would
be out going door to door to local companies
trying to get freelance IT work. … I like using [ITCS
platforms] because it brings those looking to have
work done to me.”

For “Stay-at-home Dad,” completing the work
is only part of the challenge of being a contract
worker: “You still need to make sure you get paid.”
The structure of ITCS platforms simplifies this
type of administrative task by providing tools
that “Stay-at-home Dad” appreciates, such as
job notifications and payment protection. These
capabilities let him focus on actually doing the
digital work.

“[I like ITCS platforms because they provide]
payment protection, and what I really like is the
amount of daily jobs posted. I also like their RSS
feeds, which I can customize and put on my own
site so I don’t have to log onto [an ITCS platform]

to look at new jobs being posted in the areas that
interest me.”

“Stay-at-home Dad’s” experience
demonstrates that ITCS workers have visibility
to the types of skills that employers are looking
to hire and are able to select jobs that develop
skills they need to compete for future work. For
employers, providing workers with training on
new skills can be challenging and expensive.
However, the financial dynamics of ITCS align
the skill development interests of employers and
workers. Employers can leverage this dynamic by
posting jobs that require new and emerging skills.
ITCS workers like “Stay-at-home Dad” are willing
to learn new skills in their own time so they can
bid for work that requires these skills. When
employers post new work on ITCS platforms,
they provide opportunities for ITCS workers to
develop new skills while gaining access to talent
for difficult-to-fill roles.

Profile 2: Former Teacher
“Former Teacher” is a 27-year-old married

female with no children and a bachelor’s degree.
She is a former high school math teacher who has
turned her passion for technology into a source
of income as a front-end developer. Since leaving
teaching, she has worked full time in traditional
technology employment and also as a freelance
contractor through traditional temporary service
agencies. An advantage of ITCS working for
“Former Teacher” is that, compared to traditional
freelancing, ITCS platforms provide support for
and simplify administrative tasks such as bidding,
billing and payment, and client coordination.

“Outside of [ITCS platforms], I have had trouble
with getting paid for my work and hearing
back from clients in a timely fashion, and I have
experienced business-side struggles of freelancing.
On [ITCS platforms], I can relax and focus on doing
quality work and spend less time running [my
freelance] business.”

ITCS platforms provide workers with a wide
variety of projects on which to bid. This variety
can allow ITCS workers to align their personal
and professional interests with their technical
skills.

“I … try to stick with jobs that allow me to use
my background in education—I love to teach!
… I have a dual background in both software
development and education. I love keeping one

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How IT Leaders Can Benefit from the Digital Crowdsourcing Workforce

foot in both worlds, and [ITCS] has some of the best
opportunities to do both. … Overall, [ITCS provides]
me with opportunities that fit both of my major
skillsets.”

Because ITCS allows “Former Teacher” to work
on tasks related to her education-based technical
experience, she delivers on client expectations in
unanticipated ways. When clients describe the
context of the challenges that they are trying to
solve, she can add her personal experience to her
projects.

“Many of my clients are pleased at my
communication style and enjoy learning to
maintain their own software projects. I … am
currently rebuilding a large site full of interactive
math lessons for grades K to 8 [ages 5 or 6 up to
14].”

As with most ITCS workers, “Former Teacher”
appreciates the flexibility that ITCS can provide.
Her schedule flexibility enables her to participate
in her hobbies and to take part in the community
service programs that she values during
traditional working hours:

“Freelancing lets me work on my own terms and
to my own schedule. With such a flexible schedule,
and no commute to work, I have the time and
energy to volunteer with my local animal shelter,
perform errands during non-rush hours in my city
and do so much more in my personal life.”

“Former Teacher” needs an income from
working to meet her financial needs. However,
being an ITCS worker enables her to earn money
on her terms. Although workers in the gig
economy give up the security and stability of a
full-time job, they can still earn good money and
have more time for personal interests. “Former
Teacher” told us “I make about as much as my
last full-time job. (But with just 30-35 hours per
week—yay!)”

While “Former Teacher” recognizes there
are many benefits from ITCS working, there
are challenges on how interaction is managed
between individual ITCS workers and the firms
that employ them. Firms using ITCS need to
recognize that the platforms provide limited
integration tools and must be prepared to
help facilitate interaction between workers. As
“Former Teacher” put it:

“It would be nice to have a better way to
communicate with larger teams, especially when
multiple contractors have been hired for the same

project. So far, I’ve been making do as a ‘guest’
in workrooms of other contractors on the same
projects. I think it would also be fantastic to have
a source control system (like GitHub) integrated
directly into the workroom file system.”

“Former Teacher’s” use of ITCS demonstrates
the benefits of non-IT professional experience
(i.e., her teaching experience) that ITCS workers
can bring to projects. One of the benefits of virtual
work environments is the global scope of workers
who can participate. Employers are not limited
by geography in finding digital talent to work
on projects. This means that employers can look
for ITCS workers who have both technical skills
and knowledge of the business context related
to the tasks they post. Firms looking to use gig
economy workers often focus on making tasks
simple. But “Former Teacher” illustrates the value
of describing the business problems, so that ITCS
workers with specialized expertise can bid for
projects that are of interest to them. This provides
better problem solving for clients and greater
satisfaction for ITCS workers.

Profile 3: Workforce Survivor
The “Workforce Survivor” is a 30-year-old

single female with no children and a bachelor’s
degree. She was trained as a web designer and
worked in traditional employment roles for many
years. Unfortunately, health issues compromised
her ability to work in a full-time role. For some
ITCS workers, reasons such as age or health
concerns have forced them out of traditional
employment. As “Workforce Survivor” put it:

“I became a freelance worker because I [suffer
from] with Crohn’s Disease and [had] a blood clot,
and no one would hire me [even though] I was
perfectly capable.”

Free from the confines of traditional work,
“Workforce Survivor” now feels more fulfilled. As
she put it:

“In ways, I have more freedoms than a standard
job. … I feel more creative and happy.”

While “Stay-at-home Dad” likes to challenge
himself with new types of tasks on ITCS
platforms, some workers are more concerned
with selecting tasks that they know they will be
able to complete successfully. When seeking ITCS
work, “Workforce Survivor” focuses on skills
that she already has. By restricting the types of

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How IT Leaders Can Benefit from the Digital Crowdsourcing Workforce

projects that she works on, she can reduce her
risk of failure. She explains:

“I like the fact I can … find jobs that suit my
skillset without being afraid of doing something
wrong.”

ITCS provides “Workforce Survivor” with
a mechanism for finding work and generating
income. By offering the opportunity to earn
an income, ITCS provides participating digital
workers with the dignity of working.

“I am closer and closer to my dream of holding
my own in the world.”

“Workforce Survivor” demonstrates that, for
some workers, ITCS provides an environment
where they can work around their perceived
limitations. Whether those limitations are
related to health or lack of skills, the variety of
tasks available on ITCS platforms allows these
individuals to find tasks they feel they can do,
thereby providing an opportunity to earn an
income.

Profile 4: Five-star Mom
“Five-star Mom” is a 43-year-old married

mother with a graduate degree, and busy at home
with five children. For her, it is important to earn
a good income to support her large family, but it
is just as important to be available when her kids
need her. She had a traditional position in the
digital sector but was not satisfied. Eventually, she
lost her job but she does not regret leaving the
formal workforce.

“To be honest, I wanted to get laid off. I hated
the people I worked with—emotionally immature,
gossiping, time wasting, babies, and I was expected
to hold their hands. I had kids at home, I didn’t
want to work with kids at work.”

ITCS allows “Five-star Mom” to have a better
work-life balance. Working in this way allows
her to have a flexible schedule both in the type of
projects that she takes on, as well as the times of
day she works. As “Five-star Mom” observed:

“[I] love being able to stay home in the
mornings, send my kids off to school, then log in
and work as much or as little as I want. Then when
my kids start coming home at 2:15, I can stop
working if I want or work a little more. I love the
flexibility of being able to work my own hours (in
my pajamas).”

The ad hoc nature of ITCS projects allows
individuals to fit in work between other

commitments. For many, ITCS working is the
primary means of supporting their households,
but the scalable nature of the work allows ITCS
working to provide supplemental income as well.

“My husband was laid off and went back to
school, which plunged our family below the poverty
level. He is now starting a new job, and we are just
able to make ends meet, with my income from [the
ITCS platform] bridging the gap between what he
makes and what we need to spend to support our
five kids.”

ITCS provides “Five-star Mom” with the
opportunity to earn a good income, but she is
able to reduce the number of hours she works to
match her hectic family schedule. As she puts it:

“I do not want to work full time (I am not sure
why 40 hours per week is the magical number for
full time). I think working about 20-25 hours per
week is ideal.”

Previous research has found that for
individuals with childcare responsibilities, the
structure of digital work can be an obstacle to
workforce participation.20 “Five-star Mom” feels
that, without the flexibility of ITCS, her hectic
schedule would prevent her from participating in
the digital workforce. Despite her high levels of
digital skills, she expressed the following about
what she would be doing if ITCS working was not
available to her:

“[I would] eat snacks in my kitchen, get fat,
watch a lot of TV; maybe occasionally clean my
house; get depressed. I would probably not look for
work outside of the home.”

ITCS allows “Five-star Mom” to remain in
the digital workforce and earn an income to
help support her family and feel fulfilled in
her professional contributions. ITCS platforms
therefore provide IT leaders struggling to find
digital talent with an additional source of talented
workers.

As well as allowing workers to manage
their schedules and workload, ITCS can also be
liberating for those who feel stifled by traditional
office environments. Working outside of a formal
organization helps “Five-star Mom” feel a sense

20 A comprehensive analysis of the challenges of balancing work
and family responsibilities is presented in Quesenberry, J. L., Trauth,
E. M. and Morgan, A. J. “Understanding the ‘Mommy Tracks’: A
Framework for Analyzing Work-Family Balance in the IT Work-
force,” Information Resources Management Journal (19:2), April,
2006, p. 37-53.

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How IT Leaders Can Benefit from the Digital Crowdsourcing Workforce

of freedom. The entrepreneurial nature of ITCS
work is motivating for career development.

“The career pathway that is most attractive to
me is to be able to do whatever I want. I want to be
self-guided, with no manager or mentor. I want to
work when I want, on projects that I want, and to
turn down projects that I don’t like. I am very, very
spoiled, but also very smart and ambitious, and
somehow things are working out well for me.”

The flexibility of ITCS not only allows workers
to better balance work and life responsibilities,
but can also benefit employers because workers
devote their most productive time to digital tasks,
as emphasized by “Five-star Mom:”

“The client is not paying me for time when I am
not at my very best. I would not be able to do that
with a regular 9-to-5 job. There are times in the
day when my brain gets full, and I step away from
the computer, but with a regular job, I have to sit
there and plow through a task that I did not want
to do. It would not receive my best efforts, and I
would grow resentful at not being able to step
away and take a break. Working from home gives
me the freedom to be flexible with my tasks, only
working when I feel productive and focused.”

The transparency of the data about workers
provided by ITCS platforms facilitates new
types of worker evaluation and recognition.
For workers, there is value in building a profile
on an ITCS platform that highlights their skills.
The desire for high ratings on the platform
encourages workers to perform well in the
contracts that they are awarded, as illustrated by
“Five-star Mom:”

“After a while, and this is the best part, I became
a five-star worker, so when an employer posts a
job that has keywords that match my profile, [the
ITCS platform] recommends the top 10 employees
in that category. My name shows up, so employers
often will contact me directly and tell me about
their jobs. [This means] I do not apply for jobs.
There are enough clients who come to me, and I get
to turn down jobs that I don’t want and keep the
ones I do want. That is my dream job.”

For “Five-star Mom” there is real financial
value in earning and maintaining a five-star rating
from her customers. As she explains:

“I charged only $15 an hour when I first started.
I attracted some clients, did a good job, got five-
star feedback, then slowly raised my rates over

time. I am still a five-star worker, and I now charge
$60 an hour.”

“Five-star Mom” demonstrates the value of
ITCS worker data for clients when selecting
workers for projects. She has worked hard to
cultivate and maintain her five-star rating, which
significantly influences the work that is available
to her. She goes above and beyond in the service
she provides to her clients to maintain her
rating. The personal ownership that “Five-star
Mom” takes of her rating is different from the
firm-level customer satisfaction that traditional
outsourcing companies provide. With ITCS,
the employer understands not only what work
they are requesting, but who will be doing that
work. Employers provide direct feedback that
affects the ITCS worker’s ability to find future
employment.

Some platforms also allow ITCS workers to
rate employers. The alignment of performance
metrics with employer satisfaction facilitates an
environment of accountability.

“Five-star Mom” illustrates that, for workers
who want to participate in the digital workforce
but do not want to dedicate the time necessary to
commit to a full-time job, ITCS can be a valuable
employment option.

Profile 5: Prison Trained
“Prison Trained” is a 52-year-old male

who spent nearly 20 years in prison. He is
married with one adult daughter and has some
college education but no degree. During his
incarceration, “Prison Trained” was able to learn
and develop technical digital skills, and to use
those skills to add value to the prison. When he
was released, he reintegrated himself into family
life, including taking greater responsibility for the
care of his disabled adult daughter.

“I spent 19+ years in prison. For the last 12
years, I worked as an assistant to the MIS Officer
doing setup and maintenance of computers, light
networking tasks, etc. During the down time, I
learned Visual Basic Programming using MS Office
and Visual Studio.net. Thus, when I was released
a few months ago, I began looking for work in the
computer field because it’s something I am good at
and like doing.”

ITCS platforms can provide great value for
workers like “Prison Trained,” who has limited
formal education and acquired his technical

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How IT Leaders Can Benefit from the Digital Crowdsourcing Workforce

skills in a non-traditional way. Worker ratings are
important in ITCS, and these ratings come from
feedback on the worker’s projects, which reduces
the emphasis on formal qualifications such as
degrees or certifications.

“[ITCS] gives me the opportunity to do my
thing without having to show any certifications
or degrees (which I do not have) … [the projects I
work on allow me to] demonstrate my skills and
abilities.”

“Prison Trained” has family responsibilities
that require time and attention, and ITCS working
provides him with flexibility in both schedule and
location.

“I have a disabled daughter who is confined to
a wheelchair and requires extensive care. [ITCS]
allows me a flexible schedule, where I can attend to
family matters when needed without having to call
in sick or take a day off. … I work whatever hours
are necessary to get the job done, even if it means
working from a laptop in the waiting room of the
doctor’s office.”

“Prison Trained” demonstrates the potential
social value that can be provided by using
ITCS platforms. Many employers aspire to
achieve social responsibility goals, and social

responsibility can be an especially high priority
among technology workers. The experience of
“Prison Trained” shows that ITCS can bring talent
into the digital workforce that might otherwise
be overlooked. By using these non-traditional
sources of workers to meet critical digital needs,
firms can demonstrate their social responsibility
credentials to their traditional workforce.

Managerial Implications of
ITCS for IT Leaders

Our descriptions of the representative profiles
of ITCS workers show that ITCS can provide many
potential benefits because it addresses many
of the challenges common to traditional digital
employment or freelancing. These challenges
and the way that ITCS can help to overcome them
are summarized in Table 2. By understanding
the potential benefits, IT leaders can better
understand the actions required to take full
advantage of ITCS.

However, IT managers face many challenges
to successfully using ITCS. Based on our review
of ITCS platforms, and the feedback provided by

Table 2: How ITCS Overcomes the Challenges of Traditional Digital Employment or
Freelancing

Challenges Actions by Firms ITCS Outcomes

Skill Development
Workers need to know
what skills are required

Signal demand for new
skills through posting
tasks on ITCS platforms

Proactive ITCS workers
develop new skills for
emerging technologies

Business Context
Applying non-technical
work experience to digital
tasks

Task postings describe
business problems that
need to be addressed

ITCS workers with relevant
professional experience
attracted to the postings

Worker Confidence
Workers may be unsure of
ability to complete tasks

Separate complex tasks
from repetitive work

ITCS workers without
specialized skills can
complete repetitive work
at lower rates

Shared Accountability
Impact of performance
ratings on professional
opportunities

Ensure commitments
are honored and provide
prompt feedback to
workers

Shared accountability
for task delivery success
aligns worker/firm
incentives

Worker Inclusion
Virtual work communities
and worker inclusion

Avoid detailing
unnecessary professional
requirements

Access to digital talent
with unusual career paths

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How IT Leaders Can Benefit from the Digital Crowdsourcing Workforce

the ITCS workers who participated in our study,
several recurring themes were evident.

Contract Administration Challenges
Contract administration (e.g., bid acceptance,

service level agreements) for multiple
disaggregated tasks adds an overhead cost to IT
services obtained via ITCS platforms. Moreover,
the roles and artifacts needed for procurement
administration in an ITCS environment
require skills that may differ from traditional
outsourcing. Strong administrative functions,
such as centralized IT procurement, provide
effective governance and oversight of large
contracts; however, the levels of documentation
and oversight required for vendor management
in large contracts are much too burdensome
for smaller ITCS contracts, which often are
worth less than $5,000. Organizations need to
develop streamlined procurement processes for
the governance of smaller contracts that carry
less risk. They should also consider developing
the role of “ITCS Coordinator” to manage
the definition and administration of its ITCS
contracts.

Task Definition Challenges
With traditional outsourcing, the client usually

has a contract for a large, complex development
project with one service provider. However, in an
ITCS environment, firms must be able to divide
a project into compartmentalized subunits of
work, often less than 100 hours each.21 The
required level of decomposition can be achieved
in various ways, such as through application
architecture design or Agile sprint-based task
definition.22 Each subunit will require a separate
contract with the chosen ITCS worker, and the
need for multiple contracts introduces risks in
successfully delivering the overall project. Using
ITCS platforms may therefore require clients to
21 Examples of ITCS project requests and common project
sizes and durations can be viewed on platforms such as Freelancer
(https://www.freelancer.com/?gclid=EAIaIQobChMI4O-EiNGI-
3gIVi7TtCh3QkAFnEAAYASAAEgImjfD_BwE&ft_prog=ANU&ft_
prog_id=223658061731) or Upwork https://www.upwork.com/?gcli
d=EAIaIQobChMIuce1o9GI3gIVpbXtCh2edgvOEAAYASAAEgLv
EvD_BwE).
22 A summary of the practices for developing decomposed tasks for
ITCS is provided in Taylor, J. “Crowdsourcing IT Work: A Three-
Fold Perspective from the Workers, Buyers, and Platform Providers,”
Proceedings of the 2015 ACM SIGMIS Conference on Computers
and People Research, Newport Beach, California, June 4-6, 2015, pp.
1-2.

assume broad responsibilities in IT project design
and delivery that are not required when using
traditional outsourcing providers.

As labor markets for digital workers continue
to tighten, firms that successfully learn to use
ITCS as a means of procuring technology services
could gain significant benefits. Although the
small structure of ITCS contracts may not be
suitable for all types of service contracts,23 the
highly flexible nature of work delivery can be
appropriate for certain types of projects, such as
pilots or repetitive work.

Task Complexity Mix Challenges
Firms also need to carefully consider the

structure of the tasks they post on ITCS platforms.
By structuring tasks at varying degrees of
complexity, they create opportunities for a variety
of ITCS workers to participate. Posting tasks
with lower levels of complexity attracts workers
with lower billing rates. High-complexity tasks
provide ITCS workers with opportunities for skill
development. Posting tasks with varying levels of
complexity increases the benefits of ITCS for both
workers and the firm.

Actions for IT Leaders
Considering Adopting ITCS
To effectively use ITCS, firms need to

evaluate project activities in a different way
from traditional outsourcing. Moreover, as the
adoption of ITCS working gathers pace, they will
also need to think differently about the nature of
their IT vendor relationships. In an increasingly
fragmented world of workers and sourcing
companies, firms will need to take actions to 1)
include ITCS in the sourcing portfolios, 2) change
the role of contracts, 3) enable collaboration,
4) retain access to digital talent and 5) focus on
outcomes-based management. These actions
are summarized in Table 3 and described in full
below.

23 An excellent summary of best practices for managing ITCS
projects is provided in Nevo, D. and Kotlarsky, J. “Primary Vendor
Capabilities in a Mediated Outsourcing Model: Can IT Service Pro-
viders Leverage Crowdsourcing?,” Decision Support Systems (65:C),
September 2014, pp. 17-27.

292 MIS Quarterly Executive | December 2018 (17:4) misqe.org | © 2018 University of Minnesota

How IT Leaders Can Benefit from the Digital Crowdsourcing Workforce

1. Include ITCS in Your Sourcing
Portfolio

ITCS platforms provide firms with another
option for IT service delivery. Firms should
consider developing a task-specific basis for
organizing and managing sourcing portfolios.
ITCS can be a useful source of talent for small,
one-off activities that are common in pilot or
DevOps24 projects. By including ITCS in your
sourcing portfolio, you can widen your access

24 DevOps is a software development methodology that combines
software development with information technology operations. The
goal of DevOps is to shorten the systems development life cycle
while also delivering features, fixes and updates frequently in close
alignment with business objectives.

to talent. As several of our ITCS worker profiles
demonstrated, ITCS platforms streamline
workers, administrative tasks. Organizations
that make effective use of ITCS will also find
ways to use platform tools to streamline the
administrative tasks of integrating individual
contractors into their sourcing pool.

2. Change the Role of Contracts
Using ITCS will require an organization to

think differently about contracts. To evaluate how
ITCS relationships differ from current practices,
an organization should start small, focusing
initially on short, low-risk activities. With ITCS,
projects are small, and the financial risks to both
parties are minimal, which means traditional IT
outsourcing contracts for large, complex projects
will likely not be appropriate. ITCS platforms
provide high levels of data transparency for
past evaluations, of both workers and the firms
that hire them, in the form of star ratings and
written assessments. As demonstrated by “Five
Star Mom’s” commitment to her rating, the
data transparency provided by ITCS platforms
provides a better tool for managing accountability
than traditional contracts.

3. Enable Collaboration
The structure of most ITCS platforms

limits direct collaboration between individual
workers. This can create challenges for projects
that require more than one ITCS worker. An
organization that uses ITCS for projects that
require several workers needs to find ways for
them to collaborate. By providing ITCS workers
with access to tools such as shared online code
repositories or shared communication platforms,
IT managers can encourage collaboration
between ITCS workers, as well as with the
organization’s traditional IT staff. “Former
Teacher” highlights the challenge that many
ITCS workers face in delivering usable code
to their clients. It takes ITCS workers time to
come up to speed on their clients’ development
environments. To facilitate coordination, in
addition to providing technical tools, the hiring
organization may need to appoint an internal
employee as “ITCS coordinator,” tasked with
monitoring the administrative tasks associated
with ITCS usage.

Table 3: Actions Needed to Successfully
Use ITCS
Include ITCS in Your Sourcing Portfolio:

● Develop a portfolio of suppliers to address
different types of IT tasks

● Match fit of supplier to task characteristics

Change the Role of Contracts:

● Modify contract management practices to
better match risk profiles

● Fast–track low-risk contracts with limited
legal enforceability

Enable Collaboration:

● Develop expertise in coordinating activities
of ITCS workers

● Provide means to facilitate collaboration
between internal and ITCS workers

Retain Access to Digital Talent:

● Maintain access to talent leaving the
traditional workforce

● Provide mechanisms by which digital
employees can customize work involvement
as individual needs change

Focus on Outcome-based Management:

● Develop performance-management
indicators based on outcomes, rather than
activities

● Adjust evaluation practices to emphasize due
dates and quality expectations

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How IT Leaders Can Benefit from the Digital Crowdsourcing Workforce

4. Retain Access to Digital Talent
A firm should have an HR strategy for retaining

the services of IT workers who choose to leave
the organization to become ITCS workers, like
“Five-star Mom,” who has all of the technical
skills needed but does not want a full-time job.
Some of the ITCS workers who participated in
our study currently also hold full-time jobs, and
75% of these said they would leave traditional
employment if they were able to generate enough
work through crowdsourcing.25 As the market for
IT contractors grows, more workers will elect to
pursue contract-based ITCS opportunities.26 Some
full-time employees may already be considering
doing this. By engaging with the ITCS workforce,
firms may be able to maintain access to former
employees who have left traditional employment
for the autonomy of contract labor.

5. Focus on Outcome-based
Organizations often rely on factors such

as hours in the office or attendance policies
to evaluate worker productivity. Productivity
metrics are often time based, meaning that
managers focus on how long it will take to
complete a task. When transitioning to an ITCS
environment, due dates will still be important,
but in managing task outputs, greater emphasis
will be placed on how much the task costs. As
“Stay-at-home Dad” and “Workforce Survivor”
demonstrate, ITCS workers will take on different
types of tasks at different times based on their
individual needs. If organizations focus on what
and when work needs to be done, rather than
how many hours it takes someone to do it, they
will be able to access the broader and more
diverse talent pool available via ITCS.

Concluding Comments
The rise of crowdsourcing is bringing

substantial and unexpected changes to the
structure and composition of the workforce. To
prepare IT leaders for these changes, we have
provided insights into how they can leverage the

25 Further exploration of the attitudes of current digital workers
towards leaving traditional digital employment in favor of full-time
crowdsourding can be found in Taylor, J. and Joshi, K.D., “Joining
the crowd: The career anchors of information technology workers
participating in crowdsourcing,” Information Systems Journal.
26 Many experts expect contract workers to constitute 50% of the
workforce by 2028. See, for example, Noguchi, Y., op. cit., January
22, 2018.

gig economy in the tightening IT talent market.
The profiles of gig workers participating in ITCS
reveal the benefits of flexible work structures for
workers, firms and society. IT leaders will find
that, in addition to tapping a new and talented
source of workers, ITCS also helps them retain
access to talented former employees who might
otherwise leave the IT workforce. But for ITCS
to be a viable sourcing strategy, IT managers
have to be proactive in creating innovative work
structures that address the administrative
challenges associated with managing small tasks.

While regulators and scholars continue to
evaluate the appropriate worker protections and
regulatory oversight required for these emerging
work structures,27 we urge IT leaders to fully
embrace the opportunities provided by ITCS.
By developing work structures that broaden
the participation of individuals in digital work,
IT leaders will not only mitigate some of the
challenges associated with the pending shortage
of digital talent, but also provide the dignity of
work to individuals who would otherwise be in
the shadows and unable to lead meaningful lives.

Appendix 1: ITCS Platform
Review Method

In carrying out our assessment of existing
ITCS platforms, we used a design-based process
to develop our recommendations. Our objective
in using this approach was to identify ways in
which the design of the procurement process,
which is embedded in a digital platform, could be
improved to better support ITCS. The approach28
is based on earlier work by Takeda29 and
comprises five phases:

1. Identification of the research problem
(Awareness)

2. Suggestion of the key concepts needed to
solve the research problem

(Suggestion)

3. Implementation of a solution to the
problem (Development)

27 The potential regulatory challenges of crowdsourcing are ex-
plored in Williard, R. P., op. cit., January 2017.
28 Curtis, B., Kellner, M. I. and Over, J., op. cit., September 1992.
29 An in-depth description of the process for conducting this type
of design can be found in Takeda, H., Veerkamp, P. and Yoshikawa,
H. “Modeling Design Process,” AI magazine (11:4), Winter 1990, pp.
37-48.

294 MIS Quarterly Executive | December 2018 (17:4) misqe.org | © 2018 University of Minnesota

How IT Leaders Can Benefit from the Digital Crowdsourcing Workforce

4. Evaluation of the solution artifact

(Evaluation)

5. Decision on whether to adopt the artifact
or to start a new design cycle (Conclusion)

A general flow of this design process is
depicted in the figure below.

Appendix 2: ITCS Worker
Feedback Review Method

In developing this article, we collected open-
ended survey data from 25 crowdworkers who
use three different ITCS platforms. The purpose
of the survey was to capture these ITCS worker’s
attitudes to, interest in and experiences of
working on crowdsourced technology projects.
Respondents were compensated for their time
to complete the survey, which took an average
of approximately one hour. The survey included
39 questions aimed at understanding the why,
how, what, challenge and opportunities as
perceived by the respondents. Workers were
randomly selected for participation in the survey
to avoid any bias resulting from only surveying
workers recommended by the platforms. Initially
we struggled to gain responses from workers
because we did not have an “employer rating”
on the respective ITCS platforms. However, once
we had successfully paid our first respondent
and received a five-star employer rating, we
had a response rate of well over 90% for invited
workers. A breakdown of the respondents’
demographics is shown below.

We analyzed the survey responses to identify
common motivations and outcomes. The
approach used to analyze the text examined the
cause-and-effect descriptions of work activities.
We have include selected quotes from the
respondents within the main body of the article
to illustrate representative feedback from the
ITCS workers who participated in our study. Our
analysis of the respondents’ perceptions focused
on revealing advice for IT leaders who want to
engage with ITCS.

About the Authors
Joseph Taylor

Joseph Taylor (joseph.taylor@csus.edu)
is an Assistant Professor at California State
University, Sacramento. He received his Ph.D.
from Washington State University and a Master
of Business Administration in International
Management from Thunderbird. Before
completing his Ph.D., he worked for 17 years for
Walmart Stores, Inc., eventually becoming the
director of IT strategy, innovation and governance
in the Information Systems Division. His academic
research interests focus on crowdsourcing and
the use of technology to create business value.

K. D. Joshi
K. D. Joshi (joshi@wsu.edu) is the Philip L.

Kays Distinguished Professor of Information
Systems at Washington State University. Her
research interests focus on IT workforce issues,
knowledge management, crowdsourcing, IT-

Design Science Analysis Process

Implementation of
a solution to the

problem
(Development)

Decision on whether
to adopt the artifact

or to start a new
design cycle
(Conclusion)

Identification of
research problem

(Awareness)

Suggestion of key
concepts to resolve

the research
problem

(Suggestion)

Evaluation of the
solution artifact

(Evaluation)

December 2018 (17:4) | MIS Quarterly Executive 295

How IT Leaders Can Benefit from the Digital Crowdsourcing Workforce

enabled innovation, value sensitive designs
and healthcare IT. Her research has appeared
in journals such as MIS Quarterly, Information
Systems Research and Decision Support Systems.

Demographics of Survey Respondents
Number of Respondents 25
Gender
Men 14
Women 11
Age Average (standard deviation) 36.16 (12.55)
Range 18-60
Frequency 18-24 16%
Frequency 25-30 24%
Frequency 31-40 28%
Frequency 41-50 16%
Frequency 50+ 16%
Household Income
< $25,000 per year 28% $25,000-$49,999 16% $50,000-$74,999 20% $75,000-$99,999 4% $100,00 or more 32% ITCS Experience < 3 months 8% >3 months < 6 months 12% > 6 months < 1 year 8% > 1 year < 3 years 48% > 3 years < 5 years 4% >5 years 20%
Education Level
Some high school 4%
High school graduate 4%
Some college but no degree 16%
Associate’s degree 4%
Bachelor’s degree 48%
Graduate degree 24%

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MIS Quarterly Executive Vol. 5 No. 4 / Dec 2006 181© 2006 University of Minnesota

Sustainable IT Outsourcing

Executive Summary

This article explores the relationship between IT outsourcing and enterprise architecture. An
earlier article described four stages of architecture maturity (business silos, standardized
technology, rationalized process, and business modularity).2 In this article, we conclude that
three different outsourcing arrangements support transitions from one stage to another, as
follows:

Firms transitioning from Stage 1 (business silos) to Stage 2 (standardized technology)
can use a strategic partnership form of outsourcing to support the transition. The
vendor can take the lead in defining, implementing, operating, and updating a
standardized technology environment so that the client need not invest in developing
these world-class skills. We describe how a partnership between Campbell Soup and
IBM helped Campbell transition to Stage

2.

Companies transitioning from a Stage 2 enterprise architecture (standardized
technology) to Stage 3 (rationalized process) can benefit from a co-sourcing alliance
form of outsourcing in making this transition. The vendor, who is in a close working
relationship with the client, can help implement the technology changes to support the
new business processes while the client can focus on the change management aspects
of the transition. An alliance between The Dow Chemical Company and Accenture
serves as an example.

Companies transitioning from a Stage 3 enterprise architecture (rationalized process)
to Stage 4 (business modularity) can benefit from the transaction exchange form of
outsourcing. Our example is eFunds, a transaction exchange vendor, that helps its
clients implement, process by process, their vision to become sleek, high-performing
firms that use plug-and-play, industry-standard components.

1.

2.

3.

SuStainable it OutSOurcing
SucceSS: let enterpriSe
architecture be YOur guide1

Jeanne W. Ross
MIT Sloan Center
for Information
Systems Research

Cynthia M. Beath
University of Texas

MISQUarterly
Executive

The InTerplay of enTerprIse
archITecTure and
ouTsourcIng�,�

In the early 1990s, management gurus envisioned
future organizations as sleek, high-performing entities
engaged in a small set of core competencies.� This

1 Jack Rockart was the accepting Senior Editor for this article.
� Ross, J.W. “Creating a Strategic IT Architecture Competency:
Learning in Stages,” MIS Quarterly Executive (�:1), March �00�, pp.
�1-4

�.

� Many authors have written on this topic. Among them are: Hamel,
G., and Prahalad, C.K. Competing for the Future, Harvard Business
School Press, Boston, MA, 1996; Quinn, J.B. “Strategic Outsourcing:
Leveraging Knowledge Capabilities,” Sloan Management Review
(40:4), 1999, pp. 9-��; Quinn, J.B., and Hilmer, F.G. “Strategic
Outsourcing,” Sloan Management Review (�5:4), Summer 1994, pp.
4�-55; Malone, T.W., Yates, J., and Benjamin, R. I. “Electronic Markets
and Electronic Hierarchies,” Communications of the ACM (�0:6), June
1987, pp. 484-497.

model assumed a competitive environment in which
firms were compelled to employ best practices at all
levels. Thus, they would strategically choose to keep
the work they could do better than everyone else inside
their enterprise, while outsourcing to specialist firms
all other processes.

In practice, outsourcing—and, specifically, IT
outsourcing—has instead targeted cost savings and
variable staffing objectives.4 This focus on cost savings
is appropriate. To enhance business performance using
IT, a firm must first learn to manage its IT costs and

4 By IT outsourcing, we mean a vendor providing to a client IT
services that were formerly provided in-house by the client or that
conceivably could have been provided in-house. If the services were
formerly provided in-house, outsourcing may involve some transfer of
resources or staff from the client to the vendor. But outsourcing does
not have to involve such transfers.

182 MIS Quarterly Executive Vol. 5 No. 4 / Dec 2006 © 2006 University of Minnesota

Ross and Beath / Sustainable IT Outsourcing

ensure reliable operations. Then, the firm can progress
to more strategic IT investments.5

To progress from managing costs to making strategic
IT investments, firms are designing and implementing
an enterprise architecture. Enterprise architecture is
the organizing logic for a firm’s IT infrastructure and
business process capabilities to address the firm’s need
for business process integration and standardization.
IT outsourcing can help firms implement enterprise
architecture and, thus. improve business processes.
Doing so moves them closer to the vision of the high-
performing organization of the future.

enTerprIse archITecTure
MaTurITy
Traditionally, most firms have built systems to address
narrowly defined, current business needs. As the
business changes, firms often require coordination
among systems that were not anticipated in the original
design. Thus, IT professionals spend a fair amount of
time pulling some systems apart, while patching other
systems together. Over time, firms have found that all
this pulling and patching leads to system outages, loss
of data integrity, high IT maintenance costs, and slow
response to new systems requirements.

Firms design enterprise architecture to address the
problems caused by legacy systems. Its intent is
to identify the key technology, data, and system
components that must be shared across multiple parts
of the firm. Once designed, most firms then gradually
build out their enterprise architecture by isolating (and
usually standardizing) the components that will be
used by multiple stakeholders.

Prior research has found that firms progress through
four maturity stages in building out their enterprise
architectures. Each stage incrementally increases the
strategic value of IT to the enterprise and enhances
enterprise effectiveness.6 The four stages, as shown in
Figure 1, are:

5 See, for example, Westerman, G., Weill, P., and McDonald, M.Westerman, G., Weill, P., and McDonald, M.
“Business Agility and IT Capabilities,” MIT CISR Research Briefing
(VI:1), March �006. IT units cannot provide business value if they haveIT units cannot provide business value if they have
not mastered the basics of efficient service delivery. But basic service
delivery will not enhance business effectiveness. To have a positive
business impact, a firm must master IT governance, effective project
management, and strong business-IT relationships.
6 Ross, op. cit., �00�. Ross introduced this four-stage framework
based on case studies at 40 companies. Subsequently, a survey of
100 firms supported these stages. See also Ross, J.W., Weill, P., and
Robertson, D.C. Enterprise Architecture as Strategy: Creating a
Foundation for Business Execution, Harvard Business School Press,
�006.

Business silos, where a firm applies IT to
specific business needs and, thus, delivers
locally optimal business solutions;

Standardized technology, where a firm builds a
standardized central technology infrastructure
to reduce the cost and time of delivering and
supporting business solutions;

Rationalized processes, where a firm builds
a base of IT-enabled processes that represent
its core operations and that usually depend on
shared and standardized business processes or
data or both;

Business modularity, where a firm builds
on these core processes with plug-and-play
processes, built internally or externally.

Figure 1 shows the progression of the enterprise
architecture maturity stages. Moving up a stage
requires organizational change and discipline. In the
first stage, firms develop the discipline to implement
IT-enabled processes within a local function, product
line, or region. In the second stage, firms discipline
themselves to share standardized infrastructure
services across individual IT-enabled processes. In
stage three, firms adopt disciplined business processes,
often by implementing large packaged systems, firm-
wide portals, or other tools enabling enterprise-wide
sharing of data and processes. Finally, in the fourth
stage, firms become concerned with standardized
interfaces so that they can readily adopt customized or
industry-standard components.

The enterprise architecture maturity stages model
offers a powerful lens for understanding how
companies use IT strategically. CEMEX, the Mexican
cement company, for example, built an ability to
acquire new cement companies and rip and replace
their systems and processes, by moving first to
standardized technologies and then introducing a
set of core business processes supported by an ERP.7
Similarly, 7-Eleven Japan, the retail chain store,
created operating efficiencies by using standardized
technology platforms and then extending its business
model using a set of standard business processes.8

7 For more detail on how CEMEX moved through the architecture
stages, see Chung, R., Marchand, D., and Kettinger, W. “The CEMEX
Way: The Right Balance Between Local Business Flexibility and
Global Standardization,” Case IMD-�-1�41 (Lausanne, Switzerland:
IMD, �005), and Chung, R., Paddack, K., and Marchand, D. “CEMEX:
Global Growth Through Superior Information Capabilities,” Case IMD-
�-095� (Lausanne, Switzerland: IMD, �00�).
� For more detail on 7-Eleven Japan’s architecture journey, see
Nagayama, K. and Weill, P. “7-Eleven Japan Co., Ltd.: Reinventing
the Retail Business Model,” working paper ��8, MIT Sloan Center for
Information Systems Research, January �00

4.

1.
2.
3.
4.

© 2006 University of Minnesota MIS Quarterly Executive Vol. 5 No. 4 / Dec 2006 183

Sustainable IT Outsourcing

While firms can generate business value from IT in
all four stages, the strategic impact of IT increases as
a firm moves up through the stages. It’s important to
note two things about the architecture stages:

Firms cannot skip a stage because each stage
involves both technology and organizational
changes that prepare a firm for the next stage.

Large firms in our research required, on average,
five years per stage.9

The organizational changes at each stage include new
business processes, new management practices, new
governance approaches, and new attitudes about the
role of IT. We have observed a number of attempts to
skip stages but none that were successful.

Firms also cannot outsource the responsibility for
enterprise architecture (or its challenges). However,

9 We have been studying enterprise architecture for only 11 years,
so we have not observed any firm’s entire journey. However, we have
seen firms, like Schindler Elevator and MetLife, move from Stage 1 to
Stage �. See Ross, J. et al., op. cit., �006, for further discussion of these
examples. Also, see Martin Curley’s description of the transformation
of shared services at Intel in this issue of MIS Quarterly Executive. It
describes the challenge of the second stage in large, diverse companies.

1.
�.

companies like Campbell Soup and Dow Chemical
Company do leverage the expertise of vendors in their
architecture transformation efforts. We describe their
approaches to enterprise architecture maturity later.

Three susTaInable
ouTsourcIng arrangeMenTs
Clients10 outsource IT and IT-enabled business
processes for a number of reasons, including lower
costs, variable capacity, risk mitigation, process
reengineering, and the opportunity to focus on
core capabilities. Our survey research showed that
executives most often target efficiency objectives, such
as variable capacity (almost 90%) and cost savings
(over 70%) (see Figure �). Even those citing strategic
objectives rarely focus on such enterprise architecture
concerns as reengineering business processes or
achieving business process discipline.11

10 We use the term client to denote the buyer of outsourced services,
and the term vendor to denote the organization providing the outsourced
services.
11 This finding is consistent with other research. See, for
example, reports on outsourcing outcomes at www.forrester.com and
www.gartner.com.

Figure 1: Four Stages of Architecture Maturity

Business
Silos

Business
Modularity

Rationalized
Processes

Standardized
Technology

Standardized
enterprise
processes/data

Standard
interfaces
and business
components

Enterprise-wide
technology
standards

Locally optimal
business solutions

Strategic
Business
Value

12% 48% 34% 6%
% of
Firms

© 2006 MIT Sloan Center for Information Systems Research (CISR). Used with permission.

184 MIS Quarterly Executive Vol. 5 No. 4 / Dec 2006 © 2006 University of Minnesota

Ross and Beath / Sustainable IT Outsourcing

A few executives, however, enthusiastically describe
the contribution of outsourcing to enterprise
architecture maturity. They have taken a variety
of approaches to outsourcing. In our research, we
identified three potentially sustainable forms of
outsourcing arrangements.1� Each can play a different
role with respect to enterprise architecture:

A strategic partnership exists when a vendor
takes on near-total responsibility for an
integrated set of client operations. Such a
partnership is useful in helping clients transition
from Stage 1 of architecture maturity (business
silos) to Stage � (standardized technology)
because the vendor can take the lead in defining,
implementing, operating, and updating a
standard technology environment. The client
need not invest in developing these skills and
can, instead, focus on IT strategy and policies.

A co-sourcing alliance exists when client
and vendor meld resources and accept joint
responsibility for project or operational
outcomes. Such an alliance is useful in helping
clients transition from Stage � of architecture
maturity (standardized technology) to Stage �
(rationalized processes) because the vendor,
who is in a close working relationship with the
client, can help implement new technologies to
support the new business processes, while the

12 These findings were first reported in Ross, J.W. and Beath, C.M.
“Sustainable Value from Outsourcing: Finding the Sweet Spot,” MIT
CISR Research Briefing, (V:1A), March �005.

1.
�.

client can focus on the change management
aspects of the transition.

A transaction exchange exists when a vendor
executes a well-defined, repeatable IT process
or IT-enabled business process on behalf of a
client. Such an exchange is useful in helping
clients transition from Stage � of architecture
maturity (rationalized processes) to Stage 4
(business modularity) because transaction
exchanges are a low-hassle means to get access
to plug-and-play, industry-standard components.

Besides helping firms transition to different stages of
architecture maturity, the converse is also true: firms
with higher architecture maturity can take greater
advantage of each of these forms of outsourcing. Key
characteristics of each outsourcing arrangement are
described in Figure �.

Strategic Partnerships
High-profile IT outsourcing deals often are intended to
be strategic partnerships.1� In a strategic partnership,
a vendor provides an integrated set of operational
services. For example, a single strategic partnership

1� Some well-known examples of these deals include Kodak,
General Dynamics, and British Petroleum, described in Applegate,
L., and Montealegre, R. “Eastman Kodak Organization: Managing
Information Systems Through Strategic Alliances,” Harvard Business
School Case 9-19�-0�0, Boston, MA; McFarlan, F.W., and Seger, K.
“General Dynamics and Computer Sciences Corporation: Outsourcing
the IS Function (A),” Harvard Business School Case 9-19�-144; and
Cross, J. “IT Outsourcing: British Petroleum’s Competitive Approach,”
Harvard Business Review (7�:�), May-June 1995, pp. 94-104.

�.

Figure 2: IT Outsourcing Objectives

Cost reduction

Variable capacity/expertise on demand

Architectural Improvement Objectives

Strategic Adaptation Objectives

Reengineer internal business processes

Increase business process discipline

Management focus on competencies

Strategic agility

Leverage new IT

Mitigate technology risks

Technology/expertise transfer

10% 20% 30% 40% 50% 60% 70% 80% 90%

*Percentage of 80 outsourcing contracts citing the objective as important (4) or very important (5) on a scale of 1–5.

Percentage of Contracts Pursuing Objective

© 2005 MIT Sloan Center for Information Systems Research (CISR) and Dr. Cynthia M. Beath. Used with permission.

Efficiency Objectives

© 2006 University of Minnesota MIS Quarterly Executive Vol. 5 No. 4 / Dec 2006 185

Sustainable IT Outsourcing

deal might encompass mainframe operations, WAN
and LAN management, telephony, web hosting, and
help-desk services. By integrating service offerings,
the vendor intends to add value beyond the sum of the
individual services.

As with most outsourcing arrangements, client
firms often target cost savings as the key benefit
of their strategic partnerships. However, strategic
partnerships have other potential benefits, including
higher quality services, more disciplined IT processes,
the opportunity to monetize intangible assets, and
the ability to refocus managerial attention off of IT
operations and on to the firm’s core competencies.14
Vendors profit from strategic partnerships if they can
develop and leverage economies of scale and scope
and further deepen their unique expertise and best
practices.15 Despite the potential for mutual benefit,
though, these deals are risky. In our survey, only 50%
of strategic partnerships were viewed as successful
by the client companies. And clients consistently
acknowledged that unsuccessful deals did not benefit
vendors either.

14 While there is much debate about what constitutes a core
competency, the belief that core competencies should not be outsourced
has gained considerable traction. See, for example, Quinn, J.B.
“Strategic Outsourcing: Leveraging Knowledge Capabilities,” Sloan
Management Review (40:4), 1999, pp. 9-�1.
15 For a detailed discussion of how vendors build capabilities and
drive down their costs. see Levina, N., and Ross, J.W. “From the
Vendor’s Perspective: Exploring the Value Proposition in Information
Technology Outsourcing,” MIS Quarterly (�7:�), �00�, pp. 1-�4.

Metrics are part of the problem. While vendors expect
to earn a margin on the integrated set of services,
clients often assess their partners based on the price
and performance of each individual service level
agreement. If the client’s IT management practices
were sloppy, the vendor can introduce efficiencies, and
both parties can realize value. But most efficiencies
are realized only when clients forego entrenched
behaviors. In IT strategic partnerships, many
companies struggle with behavior changes that require
adhering to new technology standards or limiting
the number of discretionary changes to systems and
processing schedules. Without behavioral changes in
the client organization (and this includes the behaviors
of non-IT managers), there may not be enough real
savings for both client and vendor to achieve their
bottom line objectives.

A strategic IT partnership can be particularly valuable
in moving a client firm toward greater technology
standardization. In an effective partnership, the vendor
takes the lead in defining, implementing, operating,
and updating a standardized technology environment
so that the client can take the lead in developing
firm-wide IT governance and IT strategy. Campbell
Soup Company provides an example of how such
partnerships can support the transition from stage 1 to
stage �.

Figure 3: Three Outsourcing Arrangements

Strategic Partnership Co-sourcing Alliance Transaction Exchange

What is outsourced Broad responsibility
for operational activities

Project management and
implementation

Narrowly defined, repeatable
process

Key metrics Bottom-line impact Project success Quality and/or cost per
transaction

Client-Vendor
Relationship

Negotiated
accountability

Joint project
management

Arms length

Client expectations1 Cost savings;
Variable capacity;
Management focus on
core competencies

Cost savings;
Access to expertise on
demand

World class processes;
Variable capacity;
Management focus on core
competencies

Vendor offerings2

Capability to deliver
broad range of
specialized services;
Integration expertise;
Disciplined practices;
Economies of scale

Labor arbitrage;
Project management
expertise;
Expertise on specialized
technologies

Standard best practice
process components;
Economies of scale;
Distinctive platforms or
assets

Client success 3
Vendor success

50%
50%

63%
75%

90%
90%

1 Client expectations based on 80 surveys of outsourcing success; there was a statistically significant relationship between the outsourcing
model and the listed client expectations.

2 Derived from eight case studies of company outsourcing experience.
3 Client views based on 80 surveys of outsourcing success. Questions asked: “Within the firm we view this outsourcing agreement as a

success” and “The vendor is profiting from the outsourcing arrangement.” Percentage is based on number of respondents who rated the
statement as a 4 or 5 on a scale of 1 to 5.

Decreasing risk

© 2005 MIT Sloan Center for Information Systems Research (CISR) and Dr. Cynthia M. Beath. Used with permission.

186 MIS Quarterly Executive Vol. 5 No. 4 / Dec 2006 © 2006 University of Minnesota

Ross and Beath / Sustainable IT Outsourcing

The Campbell Soup Company: A
Strategic Partnership
Campbell is a $7 billion food company whose brands
include Campbell’s and Godiva (global), Pepperidge
Farm and Prego (U.S.), Gardennay (Canada), Blå Band
(Sweden, Finland, and Norway), Liebig (Belgium and
France), and Arnott’s (Asia). In FY 2005, Campbell
had approximately �4,000 employees in �� countries
and earned $755 million. Profits from continuing
operations increased 11% over FY �004. 16

In �000, Campbell, like other companies in the
consumer packaged food industry, faced competitive
pressures from many sides. Consumers were both
price and health conscious. Industry consolidation had
left Campbell, a medium sized firm, in the shadow of
giants, such as Kraft, Unilever, and Nestle. Moreover,
Campbell’s upstream agribusiness partners and
downstream retail partners were consolidating and,
as a result, had become increasingly powerful in their
dealings with Campbell and its peers. Meanwhile, the
downstream retailers were increasing their offerings in
private label foods.

To address these challenges, Campbell’s management
team focused on distinguishing between core and non-
core business activities. The team intended to manage
core activities—especially retail execution, trade
management, and product lifecycle management—
for differentiation and growth. In contrast, non-
core activities would be managed for low cost. This
approach to managing the business represented a
radical shift from a set of independent businesses to a
more centralized, standardized enterprise. This planned
transformation had huge implications for IT, and the
CEO brought in Doreen Wright as senior vice president
and the company’s first corporate CIO, to address the
IT challenges. According to Wright:

“Looking at the IT function is like having the
company look at itself in the mirror: whatever’s
wrong with the company will show up in the
IT function. Clearly, Campbell had been run
as a portfolio of independent businesses—too
independent. Similarly, the various IT groups
were independent. … We were a hodgepodge
of disparate computing platforms and network
protocols without an enterprise [architecture].
We had every conceivable technology running
somewhere. [We were] a confederation of
global IT groups, with little or no governance

16 Details about Campbell Soup are drawn from Chapter 7 in Ross,
op. cit., �006, pp. 148-15�.

and an inflexible IT infrastructure that was
very costly to support.”

Wright set out to move Campbell IT from Stage
1 architecture maturity (business silos) to Stage �
(standardized technology). She chose to outsource
many traditional IT services (e.g., application
development, maintenance, and computer operations)
to IBM. In the process, the IT unit centralized
governance, strategy (including architecture),
and shared infrastructure. The combination of
centralization and outsourcing helped Campbell
achieve global commonality in networks, e-mail,
operating systems, platforms, and middleware (with
targeted exceptions at some international facilities).

From �00� through �004, IT banked nearly $5 million
in one-time savings and an additional $8 million in
savings annually. CIO Wright credited more than half
the annual savings to various adjustments Campbell
and IBM made in their sourcing arrangements,
including raising service levels at no additional cost
and implementing various cost-saving upgrades,
migrations, and replacements.

Campbell management was delighted with the cost
savings from more efficient IT processes. CIO Wright,
however, emphasized that the greater value of the
strategic partnership was its impact on the company’s
strategic goals:

“Because we are trying to transform ourselves,
not just from a technology perspective but, much
more importantly, from a business perspective,
the thing that I need more than anything else is
management capacity. I need the capacity of my
staff to introduce the new, to understand it, and
keep up. I’ve got business people clamoring
to do data synchronization and collaborative
planning with our customers, introducing
new R&D capabilities and trade promotion
capabilities, and all that kind of stuff. The last
thing I want to soak up my leaders’ heads with
is running the computers themselves. I need
everybody’s mind on introducing the new. So,
I completely outsource the infrastructure. The
running stuff is all done by IBM. Maintaining
the legacy applications is probably 75 percent
outsourced. In almost all cases, I hire a third
party as my integrator. That doesn’t mean we
don’t have a high level of involvement, but I
have the expertise of a partner who knows how
to integrate.”

© 2006 University of Minnesota MIS Quarterly Executive Vol. 5 No. 4 / Dec 2006 187

Sustainable IT Outsourcing

IBM helped lower Campbell’s IT costs because
Campbell management led the charge toward IT
centralization and standardization.

Campbell adheres to a first-choice provider principle,
meaning that IBM is favored when new activities are
to be outsourced—although not always chosen. This
principle reduces search costs for Campbell and sales
costs for IBM—and it encourages both partners to
focus on strategic value, not just lower costs, in the
outsourcing arrangement. (We have found that all
strategic partnerships require persistent efforts by both
client and vendor to define commodity services that
the vendor partner can readily provide and the client
can readily convert into business improvements.)

Because IT is so intertwined with business
operations—with many systems continuing to support
the way Campbell operated in the past rather than the
way it intends to operate in the future—recognizing
which services should be outsourced and which should
be retained in-house is an ongoing negotiation. Wright
notes that the arrangement will never be perfect:

“You know, if I were providing my own data
center services, I would blow it sometimes. I
would make bad decisions. It is not different
when you have an outsourcer. What is important
is that the two sides are each deriving benefits,
that they trust each other, and that each gives
and takes. A good number of our IBM people,
including the manager, sit right with us in
Camden [New Jersey]. The manager reports
to the Campbell CTO and is at every [CTO]
staff meeting. [IBM has] obviously signed
confidentiality agreements. They have access
to our business and IT strategic plans, and the
senior IBM partner has strong relationships
with many of our business leaders, in addition
to me. [IBM has] a huge vested interest in this
company. They want us to win like we want us
to win, and there is a very, very high level of
trust.”

Technology standardization helps firms address the
cost and complexity of silos by reducing the number
of technology platforms the IT unit supports—and the
business depends on. In this stage, the firm is learning
how to (1) fund shared infrastructure, (�) establish
technology standards, (�) implement and update
standards, (4) grant exceptions to the standards, and
(5) manage shared services. These new requirements
are a big adjustment from the business silos stage.
They usually require a great deal of trial and error.

Co-sourcing Alliances
In contrast to a strategic partnership, a co-sourcing
alliance does not attempt to define boundaries
distinguishing the responsibilities of each party.
Instead, clients and vendors share responsibilities
and accountability. A co-sourcing alliance is typically
structured as a set of standing teams or project teams
staffed jointly with client and vendor personnel. For
example, one large financial services company has
engaged an offshore company to handle much of its
application development. The vendor partner has
brought project management staff to the client’s site
so that project teams comprise client and vendor staff
on-site as well as vendor staff offshore. As is typical
of co-sourcing alliances, this relationship draws on
both the client’s deep business knowledge and the
vendor’s specialized skills in technology and project
management.17

An alternative form of a co-sourcing alliance is a
joint venture that delivers ongoing services. For
example, the city of Liverpool, England, created a
joint venture with BT, called Liverpool Direct Ltd, to
deliver IT and related services.18 The Liverpool City
Council pays the joint venture £�0 million a year to
cover the salaries of the �0 BT and 880 Liverpool city
employees responsible for delivering the services. This
relationship leverages BT’s process and management
expertise and the city’s regulatory and service
expertise. The relationship also makes it possible for
the City of Liverpool to retain jobs for its citizens.19

Client interest in co-sourcing arises from the desire
to access technical and management expertise on an
as-needed basis, often at a lower price point than the
client can achieve (see Figure �). Vendors meet client
expertise demands by building transferable project
management, industry, and process expertise through
engagements with diverse clients and then shifting that
expertise as needed among their clients. Vendors meet
client demands for cost savings by adding offshore
resources to their talent pools.

17 Kaiser, K.M. and Hawk, S. “Evolution of Offshore Software
Development: From Outsourcing to Cosourcing,” MIS Quarterly
Executive (�:�), June �004, pp. 69-81.
18 For more details, see Bourgeois, H., and Robertson, D. “Liverpool
City Council (A): The ICT Outsourcing Decision,” IMD case study
number IMD-�-1�89 (�004), and Bourgeois H., and Robertson, D.
“Liverpool City Council (B): Co-sourcing Public Services Through a
Joint Venture with BT,” IMD case study number IMD-�-1�90 (�004).
19 A related example, which encompasses the HR rather than the IT
function, is described in Lacity, M.C., Feeny, D., and Willcocks, L.P.
“Transforming a Back Office Function: Lessons from BAE Systems’
Experience with an Enterprise Partnership,” MIS Quarterly Executive
(�:�), September �00�, pp. 86-10�.

188 MIS Quarterly Executive Vol. 5 No. 4 / Dec 2006 © 2006 University of Minnesota

Ross and Beath / Sustainable IT Outsourcing

Co-sourcing alliances are not as risky as strategic
partnerships. In our study, 6�% of the clients felt
their alliance was successful and 75% felt the vendor
was making money on the relationship. Co-sourcing
alliances can be particularly valuable in helping a
client implement technologies to support the major
business process changes characteristic of transitioning
from Stage � (standardized technology) to Stage �
(rationalized processes). Dow Chemical Company
provides an example.

Dow Chemical Company: A Co-Sourcing
Alliance
Dow Chemical Company develops and sells
innovative chemical, plastic, and agricultural products
and services to customers in more than 175 countries.�0
In 2005, Dow’s 43,000 employees generated sales of
$46 billion and net income of $4.5 billion. During its
one hundred plus years of existence, Dow Chemical
has faced volatile business cycles and ever-increasing
cost of raw materials (i.e., feedstocks). Thus, Dow
has long focused on cutting unnecessary costs. It has
operated in a standardized technology environment
since at least the early 1990s. More recently, it focused
on cutting business operating costs by regularly
reengineering business processes. Since 1996, Dow
has relied on Accenture for project management and
technical expertise to support these business process
reengineering efforts.

Under the terms of the co-sourcing alliance with
Accenture, Dow personnel are accountable for overall
program management and the functional and business
content of the applications, while Accenture is
accountable for development process leadership, team
leadership, and many traditional developer roles (e.g.,
configuration, database design, and programming).
The work of developing, maintaining, testing, and
implementing information systems is jointly managed
and executed by integrated Dow-Accenture teams
working on-site. In a team of 1�, for example, three
might be Dow people.

The Dow-Accenture alliance has produced a number of
important benefits. First, it has given Dow repeatable
software and delivery processes. An independent
project assessment organization benchmarked Dow’s
costs and delivery schedule as the best in their

�0 This case study is adapted from Ross, J.W., and Beath, C.M. “The
Federated Broker Model at The Dow Chemical Company: Blending
World Class Internal and External Capabilities,” working paper �55,
MIT Sloan Center for Information Systems Research, Cambridge, July
�005.

database. The alliance has also achieved CMM�1 level
� at all Dow development locations. Finally, from
1996 to the end of �004, the company documented
productivity improvements of 45%. Doug Snoddy, the
senior Dow IT executive responsible for the alliance,
noted that the outcomes were a joint accomplishment
of Dow and Accenture:

“Keep in mind that we’re not measuring
Accenture’s productivity. It’s the alliance’s pro-
ductivity. Dow is bringing a component to the
table, and Accenture is bringing their process
leadership and expertise to the table, and
we’re measuring the output of our combined
productivity. That’s a key point.”

Dow’s persistent reengineering efforts have, with
Accenture’s help, moved Dow from Stage 2 to
Stage � of architecture maturity—from standardized
technology to rationalized processes. Ironically,
the close working relationship with Accenture has
nurtured project management expertise within Dow.
Dow can increasingly rely on its own employees
to lead projects, when appropriate. This means that
Dow could shift the services it buys from Accenture
to mostly commodity services, like software support,
rather than the higher-margin (and professionally
satisfying) strategic services. Knowledge transfer is
an expected outcome of a co-sourcing alliance. Thus,
co-sourcing may provide a viable business model for
vendors only if each experience helps them learn how
to drive out costs (so they can offer co-sourcing at ever
lower price points) or hones their capability to deliver
new services.

As firms move from standardized technology to
rationalized processes, they wire their core operations
to provide critical business process integration and
standardization. In doing so, a firm learns how to (1)
establish enterprise data and process standards, (�)
manage and update those standards, often by assigning
high-level process owners, (�) establish IT priorities
in light of enterprise strategies, and (4) build systems
incrementally to benefit sooner from large business
process reengineering efforts.

A co-sourcing relationship, like the Dow-Accenture
one, leverages the technical and project management
expertise of a vendor who has accumulated experience
in similar organizational transformation efforts.

21 For general information on the Software Engineering Institute’s
Capability Maturity Model (CMM), please see www.sei.cmu.edu/cmm/.
For an article describing the challenges of changing software processes,
see Adler, P.S., McGarry, F.E., Irion-Talbot, W.B., and Binney, D.J.,
“Enabling Process Discipline: Lessons from the Journey to CMM Level
5,” MIS Quarterly Executive (4:1), March �005, pp. �15-��7.

© 2006 University of Minnesota MIS Quarterly Executive Vol. 5 No. 4 / Dec 2006 189

Sustainable IT Outsourcing

The vendor usually brings both technology and
business process knowledge. And the alliance can
adapt or dissolve as the client learns to take on more
responsibility for business transformation. As with
the Stage 1 to Stage � transition, the client will need
to drive organizational change to benefit from the
vendor’s experience.

Transaction Exchanges
Transaction exchanges—sometimes called “out-
tasking”—involve outsourcing specific end-to-end
services, such as desktop provisioning, help desk,
mainframe processing, and backup/disaster recovery.
Many IT-enabled business processes—payroll,
accounts payable processing, and travel services—
are outsourced using transaction exchanges. Like
strategic partnerships, transaction exchanges assign
clear responsibility to the vendor for executing an
outsourced process. But they are much more narrowly
defined than strategic partnerships, and they are arms-
length exchanges, not partnerships (see Figure �). In
transaction exchanges, the vendor owns the means of
production and controls how the service is delivered.
Transaction exchanges are appropriate for activities
that have clear outcomes and are commonly desired
by many organizations.

Clients of successful transaction exchanges incur low
management overhead because these exchanges do
not involve costly customization, protracted contract
negotiations, or client interference in how the vendor
performs the process. One sure way for a client to
destroy the value of a transaction exchange is to
try to manage it as if it were a strategic partnership
or co-sourcing alliance. In a transaction exchange
arrangement, the client simply buys a deliverable that
the vendor is selling. How the deliverable is created,
whether the inputs are people, computers, or software,
or how the production process is designed, is totally
up to the vendor.

Transaction exchanges enjoy greater satisfaction
than either of the other two types of outsourcing
arrangements. Respondents in our survey considered
their transaction exchanges to be successful for both
client and vendor in 90% of the cases. Clients have
three key objectives in their transaction exchanges:
access to best practices, availability of variable
capacity, and the ability to re-direct management
attention to core capabilities. Vendors fulfill those
needs by developing best practices, implementing
and supporting standard IT platforms, and driving out
costs by taking advantage of their scale, by automating
work, or by building distinctive assets or expertise that

allow them to beat their competition on either service
or cost.

Transaction exchanges are central to the vision of
sleek, high-performing firms that use plug-and-play,
industry-standard components. While any firm can
outsource isolated processes, such as payroll, desktop
provisioning, and fringe benefits processing, most
firms will find transaction exchanges particularly
valuable in transitioning from Stage � of architecture
maturity (rationalized processes) to Stage 4 (business
modularity). The efforts of eFunds, a vendor of IT
services for financial services firms, highlight the
value of a client’s architecture maturity in driving
benefits from a transaction exchange.

eFunds: A Transaction Exchange
Provider
eFunds, the third largest business process outsourcing
(BPO) provider in India, generates benefits for a
variety of financial services clients by selling services
that its clients either cannot or will not provide for
themselves.�� eFunds offers a variety of contractual
arrangements to its clients, including custom services
as well as standard services. The standard services—
eFunds’ transaction exchanges— use eFunds’ shared
platform of technology, software, data, and people.
These exchanges offer cost savings to clients because
of the economies of scale that flow from doing the
same activity for multiple clients. The deals are
generally priced by transaction, with a guaranteed
minimum number of transactions specified in the
contract.

To enhance the value of its standard services to its
clients, eFunds has developed some distinctive assets:
expertise in financial risk management, a proprietary
global electronic funds transfer processing platform,
a four-billion record, proprietary consumer credit
database, and a world-class analytics team that
can mine the credit database to help clients detect
transaction fraud, assess the risk of opening a new
account, or decide whether or not to accept a check.
Another unique eFunds’ asset is its patented screening
methodology, called the Process Readiness IndexTM
(PRI), which is used to ensure that all its deals benefit
both eFunds and its clients.

Typically, a client engages eFunds to assess a group of
processes that are candidates for outsourcing. eFunds

�� This case study is adapted from Beath, C.M., and Ross, J.W.
“Delivering on the Vendor’s Value Proposition: Business Process
Outsourcing at eFunds,” working paper �54, MIT Sloan Center for
Information Systems Research, Cambridge, May �005.

190 MIS Quarterly Executive Vol. 5 No. 4 / Dec 2006 © 2006 University of Minnesota

Ross and Beath / Sustainable IT Outsourcing

analysts collect and analyze data using the PRI to rank
the clients’ processes on their outsourcing “readiness.”
The analysis indicates which processes might be ready
for outsourcing immediately, which processes might
never be suitable for outsourcing, and which might be
outsourced after some “readiness inhibitors” have been
addressed.�� Kathleen Flanagan, senior vice president
of global outsourcing at eFunds explains:

“Some companies are totally on top of their
processes, and they know how efficient or
inefficient their process is. But others don’t
have a clue. We get to be a bigger surprise to
the one who doesn’t have a clue. But the truth
is, the better customer is the one who really
understands their business. For one thing,
the handoff will be smoother. For another,
their business with us is more likely to keep
growing and growing. What we like to do is
build gain-sharing into these relationships.
We’ll say, ‘As we get to understand you and
stabilize your process and work with you, we’ll
find ways to improve it. When we find them,
we’ll come to you, we’ll tell you how we intend
to improve it, and, then, we’ll split the gain
on the improvements, so that our interests are
aligned.’”

eFunds seeks to generate benefits for its clients
by improving their business processes. But those
improved processes inevitably require eFunds to assert
greater control over the process. For a client firm to
disentangle its processes cleanly and turn some over
to eFunds, it needs to be positioned for Stage 4 of
architecture maturity (business modularity). The
more internal reengineering the client did in Stage �
(rationalized processes), the faster that client can “let
go” of a process and benefit from eFunds’ services.
The vice president of service delivery at an eFunds
client notes:

“The big problem was in breaking up our
processes here, trying to send them the
simple part, and leaving what we thought was
complex here. Actually, it turned out that this
division was not very efficient for either side.
You have to really send clean processes, clean,
full processes to offshore partners. What we
learned over time was that our vendors were
more able and more successful if we gave them
the full process, end-to-end, because they were
able to understand it better and, therefore,

�� These improvements might be made by the company on its own or
with eFunds’ assistance. If eFunds is involved, it would ideally be as a
separate deal, involving a co-sourcing alliance, because the capabilities
of both organizations are needed.

implement it better. There are still some
processes that we don’t outsource because they
are so tightly integrated with our back office
here.”

Because many financial services firms have not
reached Stage � (rationalized processes), many
potential eFunds clients are reluctant to give up
control of their processes to eFunds. They want
eFunds to execute their legacy processes—at a lower
cost. In such cases, the only lever eFunds has is wage
arbitrage, a lever that all its offshore competitors have
in equal measure. In contrast, when a critical mass
of clients settles on an industry-standard process that
allows eFunds to deliver a service that leverages its
distinctive assets, its clients are delighted with the
result, as the vice president of service delivery at an
eFunds client attests:

“We absolutely are getting an incredible cost
savings. If you just look at the unit cost per
transaction, in the areas that we have offshored,
we’re seeing significant positive variance on
unit cost, which drops to the bottom line. And
we’ve been reinvesting those dollars in new
product design, new product development, and
technology improvements.”

As firms clean up their processes in the rationalized
processes stage, they position themselves to take
advantage of standard business process components
available in the BPO marketplace of transaction
exchanges. Broader demand for common process
components will spur vendors to enter these markets,
and competition among vendors should make such
services more affordable.

While Stage 4 of architecture maturity focuses on
business modularity rather than IT modularity, we
expect it will also lead to more transaction exchanges
for IT services. Having learned how to standardize
technology in Stage 2, firms are positioned to
outsource individual IT service components as
transaction exchanges in Stage 4. Moving into Stage
4, firms will learn (1) whether the IT services their
business needs are unique or industry-standard, (2)
what service levels are required, and (3) what metrics
should guide their arms-length agreements.

reapIng The benefITs of
ouTsourcIng
Figure 4 summarizes the relationship we see between
IT outsourcing and enterprise architecture maturity.
For clients trying to maximize the value of any

© 2006 University of Minnesota MIS Quarterly Executive Vol. 5 No. 4 / Dec 2006 191

Sustainable IT Outsourcing

outsourcing arrangement, it is useful to recognize the
stage of their current enterprise architecture and how
outsourcing can help address the demands of that
stage. Applying the resources and expertise of a vendor
can ease the learning requirements of each stage and
focus management attention on implementing critical
organizational changes.

Using Outsourcing with a Stage 1 or Stage 2
Enterprise Architecture. Except for a few stand-alone
business processes (e.g. fringe benefits processing,
desktop provisioning), firms in Stage 1 (business
silos) and Stage 2 (standardized technology) find it
very difficult to neatly extract coherent processes
and replace them with transaction exchanges. Their
systems, and the business processes they support,
are bandaged together. Even a co-sourcing alliance,
if focused on project delivery, will tend to reinforce,
rather than alleviate, silos.

Thus, firms looking to move from Stage 1 to Stage
2 will likely gain the most benefit from a strategic
partnership. Strategic partnerships can fail, particularly
if the client underestimates the magnitude of the
organizational changes required, while expecting
the vendor to reduce costs. But a firm dedicated to
adopting a standardized technology environment can
move to higher architectural maturity using a strategic
partnership.

Using Outsourcing with a Stage 3 Enterprise
Architecture. Firms can continue to reap benefits
from a strategic partnership as they move to a Stage
� architecture (rationalized processes). In addition,
they may find co-sourcing alliances useful in helping
them implement the new technologies required to
support standard business processes and data across
the enterprise.

In Stage 3, firms introduce enterprise resource
planning systems, customer relationship management
systems, supply chain management systems, or
integrated homegrown systems to wire their core
operations. Vendors can offer the technical expertise,
business process design skills, and project management
support for this stage, allowing the client to lead the
organizational component of the transformation.

Using Outsourcing with a Stage 4 Enterprise
Architecture. Few firms have achieved a Stage 4
architecture (business modularity), but the role of IT
in a modular business environment is already taking
shape. Many firms have extracted and outsourced
select processes –the early movement toward this stage
of architecture maturity. As firms rationalize their
business processes in Stage 3, they will find processes
that are not only common across their firm, but also
common across their industry or many industries. As
they do, vendors will find it attractive to offer those

Figure 4: Enterprise Architecture as a Guide to Outsourcing

Maturity Stage Business Silos Standardized
Technology

Rationalized
Processes

Business
Modularity

IT Deliverable Build solutions to
immediate
business needs

Build standardized
platforms to
support business
solutions

Wire core
operations with
standardized
processes and
data, as
appropriate

Plug and play IT-
enabled business
process
components

Required
Organizational
Change

Adapt to
automation of
specific business
processes

Share
infrastructure;
subordinate
subunit goals to
enterprise goals

Clarify
accountability for
business
processes and
data

Adopt industry
standard
processes as
appropriate

Recommended
outsourcing
arrangement

Limited
transaction
exchanges

Strategic
partnership

Co-sourcing
alliance

Transaction
exchanges

Vendor
contribution

Apply best practice
to specialized
processes

Introduce
technology
standards and
disciplined IT
processes

Provide expertise
on integration and
standardization
technologies

Develop industry
standard best
practice and
efficient delivery
methods

© 2007 MIT Sloan Center for Information Systems Research (CISR) and Dr. Cynthia Beath. Used with permission.

192 MIS Quarterly Executive Vol. 5 No. 4 / Dec 2006 © 2006 University of Minnesota

Ross and Beath / Sustainable IT Outsourcing

services via transaction exchanges, thus supporting
client firms’ transition to Stage 4 architecture maturity.

Transaction exchange vendors can offer a better value
proposition when they can offer a standard process
to many clients. So they do not offer single-client
products. Firms can outsource firm-unique processes
through strategic partnerships and, perhaps, co-
sourcing alliances. However, when they do so, the
potential benefits to both client and vendor are limited.
The client incurs the extra costs for the vendor to
customize a standard service offering and the vendor
has few options for driving costs out of the delivery
process. In valuable outsourcing arrangements, the
vendor is constantly pushing the client to adopt
industry standards, while the client is weighing the
benefits of unique processes against their higher costs.

Maturing an enterprise architecture is a learning
process. Outsourcing can be a valuable learning tool.
To capitalize on the potential architectural benefits
of outsourcing, though, management should do the
following:

Recognize your architecture maturity stage. It
highlights your firm’s ability to use IT to achieve
strategic business objectives. Find a vendor—
and shape an outsourcing arrangement—that can
help take you to the next stage of architecture
maturity.

Implement a portfolio of outsourcing
arrangements. Don’t try to do all outsourcing the
same way. A strategic partnership can support a
complex environment where the two partners
accommodate evolving demands. A co-sourcing
alliance creates opportunities for knowledge
transfer when implementing large projects or
new technologies. Transaction exchanges permit
a firm to purchase industry best practices.

Use outsourcing primarily to introduce
appropriate industry best practice into your firm,
and to help you identify the commodity parts of
complex business processes. Vendors can offer
sustained benefits when they can leverage best
practices across companies. Unique processes
are not good candidates for outsourcing because
they do not offer a viable value proposition to
vendors.

As IT organizations develop broader portfolios of IT
systems and mature their architecture, they should
note that they can gain sustainable benefits from
outsourcing through mutual learning. As the client
learns to drive valuable standardization, vendors


learn where industry standards can benefit a critical
mass of firms. Their mutual learning leads to mutual,
sustainable benefits.

abouT The auThors
Jeanne W. Ross
Jeanne Ross (jross@sloan.mit.edu) is Principal
Research Scientist at the MIT Sloan Center for
Information Systems Research, where she lectures,
conducts research, and directs executive education
courses on IT management practices. Her work has
appeared in major practitioner and academic journals,
including Sloan Management Review, Harvard
Business Review, MIS Quarterly Executive, and CIO
Magazine. She has co-authored two books published
by Harvard Business School Press: IT Governance:
How Top Performers Manage IT Decision Rights
for Superior Results and Enterprise Architecture
as Strategy: Creating a Foundation for Business
Execution. Ross is a founding senior editor of MIS
Quarterly Executive.

Cynthia M. Beath
Cynthia M. Beath (cbeath@mail.utexas.edu) is
Professor Emerita at the McCombs School of
Business, University of Texas at Austin. She received
her M.B.A and Ph.D. degrees from UCLA. Before
embarking on her academic career, she worked
in private industry in several information systems
development and consulting positions. Her research,
which focuses on the joint management of information
technology assets by IT, its vendors, and its clients,
has been published in leading information systems
research journals. Her work has been supported by
grants from the National Science Foundation, SIM
International, IBM, and others. She is a senior editor
of MIS Quarterly Executive.

March 2014 (13:1) | MIS Quarterly Executive 15

MISQUarterly
Executive

Many IT Projects Still Suffer From Poor Estimation1,2
Despite a great deal of attention in the trade and academic press, IT projects continue to fail

at an alarmingly high rate. One of the most-cited reasons for these failures is poor estimation
practices.

“Unrealistic expectations based on inaccurate estimates are the single largest cause of [IT
project] failure.”3

Estimation is defined as an informed assessment of an uncertain event. For IT project
managers, accurate estimates are the foundation for effective project planning and execution
and, ultimately, project success. Unfortunately, most project managers do a very poor job
of estimating and, as a result, most IT projects are classified as failures—61% in the latest
Standish Group report.4 The Standish Group’s data shows some improvement in the overall
success rate since 2004 (which it partially attributes to the Agile development process and
improved project management expertise). However, its figures show a slight increase in both
time and cost overruns since 2010—signaling that there is still much room for improvement.
According to Standish, 74% of challenged projects experience time overruns and 59%

1 Leslie Willcocks is the accepting senior editor for this article.
2 The authors would like to thank Steve McConnell and Arin Sime for their input throughout this research project. We would
also like to acknowledge the McIntire School of Commerce for providing financial support for this research project, thank research
assistant Meg Raymond and thank the Project Management Institute for posting a link to our survey.
3 Futrell, R. T., Shafer, D. F. and Shafer, L. I. Quality Software Project Management, Prentice Hall, 2002.
4 The Standish Group: Chaos Manifesto 2013, available at http://versionone.com/assets/img/files/ChaosManifesto2013 .

IT Project Estimation: Contemporary
Practices and Management Guidelines
Many IT projects continue to suffer from poor estimation. Indeed, the accuracy of
estimation has hardly changed from that reported in a seminal study carried out over
20 years ago. Based on findings from two recent survey-based studies, which replicated
and then extended the original study, we provide guidelines for improving IT project
estimation, taking account of the greater use today of Agile, rather than traditional
Waterfall, development methods.1,2

R. Ryan Nelson
University of Virginia (U. S.)

Michael G. Morris

16 MIS Quarterly Executive | March 2014 (13:1) misqe.org | © 2014 University of Minnesota

IT Project Estimation

experience cost overruns. Further evidence can
be found in a review of 180 IT projects completed
between 1999-2013,5 64% of which suffered from
poor estimation.

In this article, we examine the practice of IT
project estimation, report the findings from two
studies and provide recommendations to help
project managers improve project estimation.

“An estimate is the most optimistic
prediction that has a non-zero probability
of coming true … Accepting this definition
leads irrevocably toward a method
called what’s-the-earliest-date-by-which-
you-can’t-prove-you-won’t-be-finished
estimating.”6

Why Estimates Matter
Accurate estimation is very important to IT

project managers for a wide variety of reasons:
● Avoiding the vicious cycle: poor estimation

results in more schedule pressure, which
in turn creates more stress, producing
more mistakes, and ultimately more
schedule slips, creating even more
schedule pressure, and so on.7

● Avoiding the ripple effect: slippage in one
project’s completion date can have a ripple
effect on other projects and stakeholders
throughout the organization. Effective
organizations require a portfolio of well-
coordinated projects to succeed, and better
estimation leads to better coordination
with other tasks and projects throughout
the portfolio.8

● Avoiding late-in-the-project discovery that
the project has been underestimated,

5 See Nelson, R. R. “Project Retrospectives: Evaluating Project
Success, Failure, and Everything in Between,” MIS Quarterly
Executive (4:3), 2005, pp. 361-372; Nelson, R. R. “IT Project
Management: Infamous Failures, Classic Mistakes, and Best
Practices,” MIS Quarterly Executive (6:2), 2007, pp. 67-78; and
Nelson, R. R. and Jansen, K. J. “Mapping and Managing Momentum
in IT Projects,” MIS Quarterly Executive (8:3), 2009, pp. 141-148.
6 DeMarco, T. Controlling Software Projects: Management,
Measurement and Estimation, Yourdon Press, 1982.
7 McConnell, S. Software Estimation: Demystifying the Black Art,
Microsoft Press, 2006.
8 Boehm, B. Software Engineering Economics, Prentice-Hall, 1981.
This book contains a thorough discussion of software estimation and
scheduling, which is presented in terms of Boehm’s COCOMO cost-
estimation model.

which is difficult, if not impossible to
correct.9

● Facilitating better budgeting: accurate
budgets depend on accurate estimates of
size, effort and time.10

● Evaluating project personnel:
compensation is often tied to project
performance.

● Generating more credibility for the project
team: being part of a team that brings a
project in on budget and schedule can do
wonders for an individual’s career, not to
mention job satisfaction.11

In practice, estimation is both an art and a
science. While the art of estimation is closely tied
to personal experience, heuristics and common
sense, the science of estimation can be based on
complex statistical analysis, algorithms, historical
data and computer-based tools.

To gain a better understanding of exactly how
these various methods are used in practice, we
conducted two research studies, focusing on
contemporary estimation practices and their
linkage to project success. The first study focused
on an organizational-level analysis of project
estimation. Results from 60 IT professionals
suggested that, consistent with responses
from a similar study carried out 20 years ago,
there is still much room for improvement in
how estimates are generated and used within
organizations. Moving down a level of analysis,
the second study focused on project-level data
from 115 IT professionals. It also compared
traditional Waterfall and Agile development
methods with respect to estimation practices and
project success. (The survey methodologies used
for each of these studies are described in more
detail in the Appendix.)

Research Study 1:
Organization-Level Analysis of

Project Estimation
In 1992, Lederer and Prasad published the

results of a survey of 115 IT professionals on their

9 Brooks, F. The Mythical Man-Month, Addison-Wesley, 1975.
10 Jones, C. Estimating Software Costs, McGraw-Hill, 1998.
11 DeMarco, T. and Lister, T. Peopleware: Productive Projects and
Teams (3rd Edition), Addison-Wesley, 2013.

March 2014 (13:1) | MIS Quarterly Executive 17

IT Project Estimation: Contemporary Practices and Management Guidelines

organizations’ cost estimation practices,12 which
we have used as a baseline for our research.
That study provided an in-depth understanding
of the estimation process in the early 1990s—
an era of organizational computing marked by
the rapid diffusion of the personal computer, the
rise of network computing (before the takeoff of
the Internet) and the beginning of the business
process reengineering movement. Lederer and
Prasad’s research exposed a stark contrast
between the perceived importance of accurate
project estimation and the state of practice, and
they prescribed a set of management guidelines
aimed at improving estimation practices.

The primary objective of our first study was
to discover how project estimation perceptions
and practices have changed over the more than
20 years since Lederer and Prasad’s original
study. We modified the survey used by Lederer
and Prasad and distributed it to a similar target
population.13 The results of our study are
compared and contrasted with the Lederer and
Prasad findings below.

There is Still a Significant Need for
Estimation Improvement

After 20 years, there is still a profound need
for improvement in IT project estimation—as
highlighted in Table 1. Although the vast majority
of our respondents believe that estimation is
important (88% described it as “very important”

12 Lederer, A. L. and Prasad, J. “Nine Management Guidelines for
Better Cost Estimating,” Communications of the ACM (35:2), 1992,
pp. 51-59. This was one of Lederer and Prasad’s original studies on
cost estimation, with other informative articles being published over
a 10-year period.
13 While the general profile of respondents and companies in
our study is similar to the Lederer and Prasad sample, there was a
significant difference in industries represented—with their largest
percentage of respondents coming from manufacturing (32%),
compared with service industries (31%) in our sample.

or “moderately important,” the highest two
possible ratings on the five-point scale), the
data also suggests that only 31% of projects are
completed reasonably close to their estimated
time or cost. The good news, however, is that our
study shows that both estimation awareness and
performance have improved somewhat since the
early 1990s.

How Estimates Are Used
As stated above, estimates can be important

for a variety of reasons. Table 2 shows that
estimation seems to be used more for project
planning and control (rows 1 to 5) than for
evaluating estimators, developers and others
involved in a project (rows 6 to 8). These findings
are consistent with Lederer and Prasad’s findings,
with the top five remaining the same, albeit in a
different rank order.

Our respondents were then asked about
their organizations’ most common estimation
practices, and the top five responses are listed
in Table 3. Interestingly, although 75% of
projects use formal estimates, only 54% involved
developers in the estimation process—suggesting
that 21% of projects do not have any estimation
input from the developers even though they use
formal estimates. This finding is contrary to the
first of Lederer and Prasad’s “Nine Management
Guidelines for Better Cost Estimating:” “Assign
the initial estimating task to the final developer.” A
second Lederer and Prasad guideline is “Monitor
the course of a project from the preparation of
the estimate through project completion.” This
practice was reported for 71% of projects in our
study, which is virtually identical to the 70%
reported by Lederer and Prasad in 1992.

Table 1: Importance and Accuracy of IT Project Estimation
Lederer &

Prasad
Study 1

The accurate estimation of IT projects is moderately/very important. 84% 88%

What percentage of all IT projects significantly overrun their estimates? 63% 56%

What percentage of all IT projects significantly underrun their estimates? 14% 13%

What percentage of all IT projects are completed at cost close to estimate. 23% 31%

18 MIS Quarterly Executive | March 2014 (13:1) misqe.org | © 2014 University of Minnesota

IT Project Estimation

The Estimation Process and Causes of
Inaccuracies

Respondents were asked about the basis they
used for their estimations. As seen in Table 4,
they rely most heavily on comparisons to similar,
past projects when arriving at their estimates—
whether these comparisons are based on
personal memory or on documented facts. It is
interesting to note that the rank ordering of the
bases by our respondents is virtually identical to
what Lederer and Prasad found in their research
20 years ago (only items 4 and 5 were reversed in
order).

Our survey included a question on peer or
team-reviewed estimates, which was not included
in the original Lederer and Prasad survey,
because this practice is promoted by the use of
Agile development. Our respondents reported
that this practice was the third-most extensively
used basis for estimation.

The final part of our study replicating the
Lederer and Prasad study was to ask respondents
to identify the factors most responsible for
inaccurate estimates—giving them a total of 26
causes to choose from (the top five are listed in
Table 5). Again, these findings are remarkably
consistent with Lederer & Prasad’s (the notable
exception being that “Insufficient user-analyst
communication and understanding” dropped
from fourth position in their study to ninth in
ours).

The clear message continues to be that initial
estimates will be inaccurate because of frequent
changes by users, lack of users’ understanding
of requirements, inadequate task/problem
identification and insufficient analysis at the
estimation stage. As a result, estimators are
encouraged to revise estimates during the
course of the project (reported by 63% of
our respondent organizations) and to delay
committing to a target for as long as possible.

Table 2: How Estimates are Used

Use of Estimate
Importance of Use

(1 = Very unimportant;
5 = Very important)

1. To select proposed projects for implementation 4.40

2. To staff projects 4.20

3. To schedule projects 4.17

4. To quote the charges to users for projects 4.04

5. To control or monitor project implementation 3.93

6. To evaluate project estimators 3.26

7. To audit project success 3.33

8. To evaluate project developers 3.13

Table 3: Project Estimation Practices

Top 5 Responses
Percentage of IT

Projects

1. Formal estimates are prepared 75%

2. Formal monitoring of project progress 71%

3. Estimate revised because requirements change 63%

4. Cost-benefit analysis used to justify project 61%

5. Developers participate in estimation 54%

March 2014 (13:1) | MIS Quarterly Executive 19

IT Project Estimation: Contemporary Practices and Management Guidelines

Research Study 2: Project-Level
Analysis of Project Estimation

Study 1 enabled us to gain an overall view
of organizational project estimation practices.
We wanted to supplement these findings
with a more detailed second study of project
estimation practices that focused on project-level
data. In Study 2, we therefore surveyed 115 IT
professionals and asked them to respond with
data about their most recently completed IT
projects.

Another factor we wanted to explore in Study
2 (based on what we learned in Study 1 as well
as input from two software estimation experts
consulted throughout the research project) is the

changes in the IT development landscape since
Lederer and Prasad’s 1992 study. Specifically, the
growth of Agile development has fundamentally
altered the way in which projects are conceived
and managed. Collecting data at the project level
allowed us to learn more about the usefulness
and accuracy of project-estimation practices in
the context of specific development environments
(e.g., Agile vs. traditional Waterfall development),
which obviously carries important implications
for IT managers today.

As shown in Table 6, we found that traditional
Waterfall methodologies (or variants) were
still the most widely used. However, Agile
methodologies made up a significant proportion

Table 4: Bases of the Estimating Process

Basis
Extensiveness of Use

(1 = Not used at all;
5 = Extremely extensive)

1. Comparison to similar, past projects based on personal memory 3.48

2. Comparison to similar, past projects based on documented facts 3.45

3. Peer or team-reviewed estimates 3.08

4. A simple arithmetic formula (such as summing task durations) 2.96

5. Intuition 2.94

6. Guessing 2.76

7. Established standards (such as averages, standard deviations,
etc.)

2.71

8. An estimation tool (e.g., software package) 1.63

9. A complex statistical formula (such as multiple regression,
differential equations, etc.)

1.57

Table 5: Causes of Inaccurate Estimates

Causes (Top 5 Out of 26)
Extent of Responsibility

(1 = Not resp. at all;
5 = Extremely responsible)

1. Frequent user requests for changes 3.70

2. Users’ lack of understanding of their own requirements 3.54

3. Overlooked tasks 3.35

4. Poor or imprecise problem definition 3.26

5. Insufficient analysis when developing estimate 3.11

20 MIS Quarterly Executive | March 2014 (13:1) misqe.org | © 2014 University of Minnesota

IT Project Estimation

(nearly a third) of all projects in our Study 2
sample. 14

Consistent with the findings of Study 1, the
94 projects in Study 2 for which estimated vs.
actual costs were reported tended to come in over
budget, although there was also a healthy number
of projects on or even under budget in the sample
(see Table 7).

Clearly, the 40% of projects reported as
over budget indicates that estimation and/
or execution problems persist in IT projects.
However, the 60% of projects that are on or
under budget is a hopeful sign that the project
management discipline is progressing. Moreover,
Agile projects seem to be performing better than
Waterfall projects in terms of cost performance
against budget. Of the 38 (out of 94) projects
that were over budget, the average percentage
over the original estimate was nearly 73%, with a
range between 1% and 900%. For the 29 projects
under budget, the range was much smaller, from
2% to 93%, with an average of 17%.

14 Schwaber, K. and Beedle, M. Agile software development with
Scrum, Prentice Hall, 2002.

In terms of schedule compared to the original
estimate, on average, projects started 25 days
late (with none starting early), and finished an
average of 56 days late (with a maximum of 3.1
years). Once again, Agile projects tended to start
and finish closer to their estimated times. Table 8
summarizes the results for project timelines.

In terms of functionality compared to
the original estimate, regardless of start or
finish time, 90% of the originally specified
requirements were completed.

A Detailed Look at Project-Level
Estimation Methods and Practices

Based on the responses in Study 1 and input
from our two experts, we constructed a list of
commonly accepted estimation best practices
and asked respondents in Study 2 to say which
of them were followed during their most recently
completed IT projects (see Table 9). The good
news is that several of these practices are used
on projects in the organizations we sampled. Our
survey showed that Waterfall and Agile projects
employ similar estimation practices, with the
exception of preparing formal estimates, which,

Table 6: Development Methodologies
Methodology Count Percentage

Waterfall (or variant) 45 47.9%

Agile—Scrum14 11 11.7%

Agile—other 19 20.2%

Other (e.g., ad hoc and hybrid) 19 20.2%

Table 7: Cost Performance
Estimates vs. Actuals Total Waterfall Agile

Over budget 40% 47% 33%

Under budget 31% 33% 33%

On budget 29% 20% 33%

Table 8: Schedule Performance
Start Time Finish Time

Total WF Agile Total WF Agile

Late 36% 31% 30% 61% 67% 53%

Early 0% 0% 0% 17% 13% 13%

On Time 64% 69% 70% 22% 20% 33%

March 2014 (13:1) | MIS Quarterly Executive 21

IT Project Estimation: Contemporary Practices and Management Guidelines

not surprisingly, is more prevalent in Waterfall
projects.

Table 10 lists the 11 most commonly used
methods for estimating the costs of respondents’
most recent IT projects.

The rankings in Table 10 compare favorably
with the organizational-level data from Study
1 (see Table 4). (Note, however, that due to the
specific project focus of Study 2 the question was
asked differently.) The top three cost-estimation
methods were identical in both studies. Other
common—and surprising—findings are the
apparently wide use of “guessing” as a common
basis of cost estimation (particularly in Agile
projects) and the relatively low use of estimation
tools to support the process (although the use
of tools has increased slightly from the 17%

reported by Lederer and Prasad in 1992).
Cost-estimation tools most commonly cited by
respondents were Excel, internally developed
proprietary tools and Construx Estimate (a
freeware tool), although none of these was widely
used.

Table 10 indicates some differences in the
cost-estimation methods used for Waterfall
and Agile projects. Whereas Waterfall projects
tend to compare with past projects, use
individually prepared and reviewed estimates,
and use established organizational standards,
Agile projects are more likely to rely on expert
judgment, formulas and group-based estimates.

To provide additional detail about the
estimation process and bases for estimation,
respondents also identified the most common

Table 9: Estimation Best Practices In Use
Best Practice Total WF Agile

A formal estimate was prepared 86% 93% 73%

Progress against the estimate was formally monitored throughout the
project 80% 82% 80%

The same people who eventually executed the project plan (e.g.,
developers) also participated in the preparation of the initial estimate 67% 69% 63%

The estimate was revised to accompany changes in user requirements
during the project 61% 64% 57%

Project scope was reduced to meet a target completion date 38% 38% 40%

Table 10: Method for Estimating Project Cost
Most- to Least-used Method Total WF Agile

Comparison to similar, past projects based on documented facts 59% 67% 43%

Comparison to similar, past projects based on personal memory 58% 58% 57%

Estimates created by individuals and reviewed in a group setting 56% 58% 57%

Expert judgment without use of documented facts 54% 51% 67%

A simple arithmetic formula (such as summing task durations) 52% 47% 57%

Estimates created in a group setting 49% 38% 70%

Estimates created by individuals and reviewed by individuals 45% 51% 37%

Guessing 39% 31% 47%

Established organizational standards (such as averages, standard
deviations, etc.) 34% 51% 20%

An estimation tool (e.g., software package) 21% 27% 13%

A complex statistical formula (such as multiple regression) 9% 4% 20%

22 MIS Quarterly Executive | March 2014 (13:1) misqe.org | © 2014 University of Minnesota

IT Project Estimation

methods used to estimate project size and
complexity. Table 11 lists the five most common
methods used across the large sample of Study 2
projects.

Work breakdown structure is by far the
most commonly used method for estimating
project size and complexity, which suggests
a formality and structure that has developed
over time in project management. However, the
most surprising finding is the low level of use of
lines of code for estimating size and complexity,
despite prior studies and popular literature on
software estimation reporting a heavy reliance
on this method.15 There are two reasons why
this method is now less popular than in the past.
First, is the type of project typical in today’s
IT environments. Increasingly, contemporary
projects include a large number of integration or
COTS (commercial off-the-shelf ) projects, which
often make the use of lines of code challenging or
impossible. The other contextual change includes
the growth of Agile development methodologies,
which often promote the use of relative size

15 See for example McConnell, S., op. cit., 2009 p. 198.

estimates (e.g., story points in Table 11). Our
survey results suggest it may be necessary to
reconsider and refine techniques promoted in
the popular IT development literature concerned
with the use (and even relevance of ) lines of code
to estimate many of today’s IT projects.

Estimate Creation and Presentation
In addition to the methods and practices used

to create IT project estimates, we also wanted
to examine who was responsible for creating an
estimate, when and how it was created and the
form in which it was presented. Table 12 lists the
person(s) most responsible for estimate creation.

These findings were as expected and similar
for both Waterfall and Agile projects, with the
exception that Agile projects were more likely
to have the people doing the work (but not the
technical lead) responsible for creating the
estimates. Estimation experts recommend this as
a best practice.

The only surprising result in Table 12 is
the relatively large percentage of respondents
reporting that someone outside of the project
team (i.e., not directly involved with the

Table 11: Methods Used to Estimate Size and Complexity of IT Projects
Most- to Least-used Method Total WF Agile

Work breakdown structure 71% 73% 53%

Work drivers (number of interface changes, number of new modules,
etc.)

46% 58% 33%

Story points (relative estimate of the size and complexity of work in an
Agile project)

32% 16% 67%

Function points (formal count of number of user inputs, outputs,
inquiries, files and external interfaces based on IFPUG standards or
other industry standard approach)

27% 36% 20%

Lines of code 8% 7% 7%

Table 12: Responsibility for Estimate Creation
Person(s) Responsible (Multiple Responses Allowed) Total WF Agile

Technical lead 74% 73% 70%

Person(s) doing the work (not technical lead) 72% 64% 83%

Manager 53% 58% 43%

Independent estimator 14% 16% 13%

Someone else outside of the project team 20% 22% 17%

March 2014 (13:1) | MIS Quarterly Executive 23

IT Project Estimation: Contemporary Practices and Management Guidelines

project), but not an independent estimator,
was responsible for creating the estimate. The
open-ended comments provided with these
responses suggested that people with little
formal (or informal) estimation expertise,
or even familiarity with the technology, are
frequently driving project estimates. Amazingly,
one respondent reported that the sales manager
was responsible for creating the estimate for her
most recent project.

To get a sense for the timing of estimate
creation, we asked respondents when the project
estimate was created. As expected, by far the
most common response was that estimates were
created before any work on the project was done
(see Table 13). Note that a relatively high number
of Agile projects (40%) were still creating
estimates through product-concept-completion.
Again, this is often viewed as a recommended
practice.

Additional qualitative data gathered from
respondents suggested that baseline estimates
are commonly prepared at the proposal stage
and updated as major milestones are achieved.
In fact, one respondent indicated that estimates
were refined at eight different points during his
last IT project. Revisiting estimates throughout a

project is often a recommended best practice, so
greater use of this practice could well improve
estimation accuracy.

Finally, respondents reported a variety of
techniques for presenting estimates to internal
management or external clients. Rather than
using a monolithic, single-point estimate, our
survey indicates wide variation in how estimates
are presented, including some differences
between Waterfall and Agile projects (see Table
14).

It is surprising (and somewhat encouraging)
that the use of a single-point estimate falls in the
middle of Table 14, with other more contextually
driven factors (ranges, feature lists or confidence
factors), exceeding or rivaling the popularity of
less flexible, single-point estimates.

To summarize, most of the 115 projects
reported on in Study 2 were either late and/or
over budget, with Agile projects faring somewhat
better in both areas. A possible explanation for
the better performance of Agile projects (in
terms of estimation) is that they tend to rely
more on expert judgment, formulas and group-
based estimates. In addition, estimates for the
Agile projects in the survey tended to be:

Table 13: Timing for Estimate Creation
When Estimate is Created (Multiple Responses Allowed) Total WF Agile

Before any work on the project was done 72% 67% 73%

Requirements complete 46% 42% 30%

Through product-concept-completion 32% 29% 40%

At a defined gate or milestone in a stage-gate process 29% 33% 23%

Table 14: Estimate Presentation
Most Common to Least Used (Multiple Responses Allowed) Total WF Agile

Cost or effort range 54% 56% 50%

Schedule range 49% 40% 53%

Feature list (e.g., definitely, probably or maybe) 49% 44% 60%

Single-point number 45% 47% 33%

Confidence factors (probability of delivering on-time and/or on-budget) 33% 36% 27%

Cases (e.g., best, most likely, worst) 29% 33% 17%

Plus-or-minus qualifiers (e.g., 6 months, +3 months, – 2 months) 26% 24% 23%

24 MIS Quarterly Executive | March 2014 (13:1) misqe.org | © 2014 University of Minnesota

IT Project Estimation

● Prepared by people who would also be
doing the work

● Baselined at the beginning of the project
and updated throughout the project

● Presented in (cost/effort/schedule)
ranges rather than as single-point
numbers.

Common Estimation Problems
In light of the cost, schedule and functionality

estimation challenges reported above, we also
asked respondents which estimation-related
problems they encountered during their last
IT projects. They cited the following (listed in
descending order of influence as reported in
prior studies):16

1. Insufficient analysis when developing the
estimate

2. Lack of adequate methodology/guidelines
for estimation

3. Lack of historical data on past estimates
and actual results

4. Pressure from managers or other
stakeholders to increase or reduce
estimates, and over-reliance on a single
person’s estimate

5. A lack of visibility or control over actual
data compared to estimates.

Although less directly linked to estimation per
se, other problems that are either antecedents
or consequences of poor estimation practice
identified by managers included:

● Frequent user requests for changes
● Users’ lack of understanding of their own

requirements
● Overlooked tasks
● Changing personnel
● Poor or imprecise problem definition.
Qualitative data provided by project

managers also suggested that drastic budget
cuts by government agencies was a factor in
causing projects to miss the original estimates.
A representative comment was “The program
was tracking in accordance with the estimate

16 The ranked order of 26 proposed causes of inaccurate estimates
from Study 1 and Lederer and Prasad (1992).

both in terms of time and budget. The Federal
agency simply slashed the budget.” Other
inputs from respondents implied difficulties in
managing offshore development teams (what
one person termed “misinterpretation and rogue
creativity” of team inputs), and undue pressure
from stakeholders, including variations of the
following comment: “Every project we estimate
gets significant pushback from [stakeholders] to
cut the estimate.”

Evaluation of Project Success
Finally, we asked Study 2 respondents to

evaluate seven project success criteria for their
most recent IT projects.17 As reported above,
most (61%) projects were late, and 40% were
over budget. While these numbers tell a similar
story of project failure to that reported by
the Standish Group, other criteria tell a quite
different story. As demonstrated in Figure 1
and Table 15, the vast majority of projects
in our survey met requirements, produced
products/services that were used by their
target constituencies, resulted in organizational
learning and provided value. Moreover, overall
stakeholder satisfaction was rated at 91%.

These findings suggest that roughly 9 out
of 10 projects can be classified as “successful
failures”—that is, projects that fail on one or
more process criteria (schedule and/or budget
in particular), but succeed on all of the important
outcome criteria. Representative comments from
the respondents included the following:

“We delivered 10% more scope with 10%
less budget three weeks late.”

“The project came in slightly over schedule
but exceeded expectations.”

“The board of directors had the project
audited this month by external auditors
and it is being showcased in our industry
groups, newspapers and to our shareholders
to demonstrate our capabilities.”

It is also interesting to compare our survey
results with the benchmark results of 180
project retrospectives conducted in 130 different
organizations between 1999 and 2013. Once

17 For a more detailed description of project success, see Nelson,
R. R., op. cit., 2005, pp. 361-372.

March 2014 (13:1) | MIS Quarterly Executive 25

IT Project Estimation: Contemporary Practices and Management Guidelines

again, these collective findings suggest that IT
projects tend to come in over schedule and/or
budget, yet eventually meet requirements and
add value to the organization. So, the bad news
is that most IT projects continue to fail in terms
of meeting estimates, but the good news is that
stakeholders seem to be satisfied as long as the
project results in a product/service that adds
value within their organization.18

As previously noted, the most common
determinant of project failure is poor estimation.
Data suggests that this “classic mistake” is the
most common of all, occurring in 64% of the 180
benchmark projects. In all of the studies reported
in this article, there are many possible causes

18 Updated data from Nelson, R. R., op. cit., 2005, on 180 project
retrospectives conducted in 130 different organizations between
1999 and 2013.

of poor estimation, including poor problem/
requirements definition, scope creep, lack of
requisite knowledge and skills, inadequate
estimation methodologies, lack of historical data,
lack of visibility or control, and pressure from
stakeholders. We now provide guidelines for
addressing each of these problem areas.

Guidelines for Improving IT
Project Estimation

Based on the findings of our research, we
provide 10 guidelines for project managers on
how to improve their estimation practices.

1. Admit You Have a Problem
One of the striking revelations from our two

studies is that some of the key findings are very

Figure 1: Project Success Criteria
OVERALL

STAKEHOLDER
SATISFACTION

(91%)

LEARNING
(87%)

USE
(94%)

OUTCOME VALUE
(89%)

COST
(60%)

TIME
(39%)

PRODUCT
(90%)

PROCESS

Table 15: Project Success Criteria
Yes Benchmark18

The project came in on schedule 39% 40%

The project came in on budget 60% 45%

The project produced a product of acceptable quality and met other
product-related specifications, including requirements, usability, ease
of use, modifiability and maintainability 90% 68%

The project’s resulting product/service is being used by its target
constituencies 94% 88%

The project increased stakeholder knowledge and helped prepare the
organization for future challenges 87% 82%

The project will directly result in improved efficiency and/or
effectiveness for the client organization(s) 89% 70%

Overall, stakeholders were satisfied with the project 91% NA

26 MIS Quarterly Executive | March 2014 (13:1) misqe.org | © 2014 University of Minnesota

IT Project Estimation

similar to those of Lederer and Prasad over 20
years ago. While there have been tremendous
advancements in the project management
discipline, technology, IT development processes
and the education level of IT professionals,
it is clear that developing accurate estimates
continues to be a huge problem. As one
respondent stated: “Our estimation process has
been ‘spotty’ at best. … we’ve certainly not found
the holy grail of estimating (yet).”

2. Revisit the Prescriptions Offered by
Lederer and Prasad

Although Lederer and Prasad’s work
was done over 20 years ago, many of their
prescriptions can be adapted for today’s IT
development environment, even though that
environment has changed (e.g., the increased use
of Agile methods). Based on our studies, several
of their specific recommendations are still valid:

● Assign the initial estimating task to the
final developers

● Delay finalizing the estimate until the end
of a thorough study of requirements

● Monitor project progress closely—
including actuals versus estimates

● Rely on documented facts, standards and
simple arithmetic formulas rather than
guessing, intuition, personal memory
or complex formulas to generate the
estimate.

3. Conduct Project Retrospectives.
Project teams should be encouraged to

perform status reviews throughout the life of a
project. Such reviews can happen, for example,
at the end of each day (daily standup), two-
week intervals, completion of a major milestone
and project completion. In addition to learning
lessons and making necessary adjustments,
actual data can be captured for use in estimating
the next sprint (the basic unit of development in
Scrum), phase or project.

4. Employ Estimation Tools
As shown in Tables 4 and 10 above, the use

of estimation tools (e.g., software packages)
was relatively low in both of our studies (only
21% of Study 2 respondents reported using an
estimation tool). Estimation tools can help to:

● Evaluate and sanity-check project plan
alternatives against industry data or an
organization’s historical data (if captured
via project retrospectives)

● Negotiate a reasonable schedule and
budget, using a tool’s reporting capability

● Improve visibility and control over actual
data compared to estimates

● Coordinate estimated and actual project
data within and across project teams.

In addition to Microsoft Project and Excel
(including templates and add-ons), dedicated
estimation tools include freeware19 and other
packages.20

5. Understand Agile Approaches
and Adapt Estimation Techniques
Accordingly

The findings from our studies underscore
the importance of Agile development methods
in modern software development. Therefore,
it is critically important that project managers
understand these methods and how traditional
estimation techniques can be adapted to fit the
context of Agile development.21 Key principles
behind the Agile Manifesto22 include:

● Our highest priority is to satisfy the
customer through early and continuous
delivery of valuable software

● Deliver working software frequently, from
a couple of weeks to a couple of months,
with a preference to the shorter timescale

● Working software is the primary measure
of progress.

Clearly, frequent estimation and delivery
cycles are central to the Agile approach—and an
effective way to improve estimation (one sprint
or deliverable at a time).

19 Freeware estimation tools include Construx Estimate (http://
www.construx.com/estimate) and COCOMO (http://sunset.usc.edu/
csse/research/COCOMOII).
20 Other estimation tools include QSM SLIM-Estimate (http://
www.qsm.com/tools/slim-estimate) and SEER (http://www.galorath.
com).
21 For a good primer that explains the philosophy, tools and
techniques associated with estimation for Agile development, see
Cohn, M. Agile Estimating and Planning, Prentice Hall, 2005. Agile
estimation methods include relative (a.k.a. story point) estimation
and planning poker.
22 http://agilemanifesto.org/principles.html.

March 2014 (13:1) | MIS Quarterly Executive 27

IT Project Estimation: Contemporary Practices and Management Guidelines

6. Avoid Cognitive Biases Toward
Estimation

People are subject to an almost limitless set
of biases when making subjective judgments or
decisions, and the process of estimation is no
exception. Perhaps the best way to avoid letting
biases creep into estimation judgments is to be
aware of them. Some specific biases that are
particularly dangerous for project managers in
estimating projects include the following.

Underestimation Bias. People have a strong
tendency to underestimate, particularly when
the focal object of estimation is unknown or
complex. This obviously includes software and/
or outsourced projects (and is worse when
requirements, technologies, etc. are new or
unknown). Indeed, in over 15 years of teaching
estimation to mid-career IT professionals
(average work experience more than 12 years),
we have found that perhaps the most common
tendency from in-class workshops is for them
to underestimate when asked to give a range
estimate for a series of questions.

The Planning Fallacy. Related to the
underestimation bias, the planning fallacy23 is
the tendency for people and organizations to
underestimate the time, costs and risks of future
actions and at the same time overestimate the
benefits of those actions. Thus, the planning
fallacy results not only in time overruns, but
also in cost overruns and benefit shortfalls.
Kahneman and Tversky’s original explanation for
the fallacy was that planners focus on the most
optimistic scenario for the task, rather than using
their full experience of how much time similar
tasks require. It is interesting to note that this
bias only affects predictions about one’s own
tasks; when uninvolved observers predict task
completion times, they show a pessimistic bias,
overestimating the time that will be taken.24 This
suggests the need to involve external auditors
and/or use peer- or team-reviewed estimates,

23 The term “planning fallacy” was first coined in 1979 in
Kahneman, D. and Tversky, A. “Intuitive prediction: Biases
and corrective procedures,” TIMS Studies in Management
Science, (12), 1979, pp. 313-327. Since then the effect has been
found for predictions of a wide variety of tasks, including tax
form completion, school work, furniture assembly, computer
programming and even origami.
24 Buehler, R., Griffin, D. and Ross, M. “Inside the Planning
Fallacy: The causes and Consequences of Optimistic Time
Predictions,” Gilovich, T., Griffin, D. and Kahneman, D. (Eds.)
Heuristics and Biases: The Psychology of Intuitive Judgment,
Cambridge University Press, 2002, pp. 250-270.

as our research shows that many firms are now
doing.

Wishful Thinking. As implied by the results
of our studies, project managers think tasks will
be finished quickly and easily because that is
what they want to happen. Unfortunately, there is
a bigger penalty for underestimating (non-linear
impact due to planning errors, shortchanged
requirements, high-risk practices, etc.) than for
overestimating (linear impact due to Parkinson’s
Law, where work tends to expand to fill the
estimate).

Self-Serving Bias. By taking credit for tasks
that went well but blaming delays on outside
influences, project managers or those centrally
involved with creating project estimates often
discount past evidence of how long a task should
take. Experiments have demonstrated that when
people made their predictions anonymously,
they do not show an “optimistic bias.”25 This
suggests that people sometimes make optimistic
estimates to create a favorable impression with
others.

Focalism Bias. The focalism bias refers to
the mental discounting of factors believed to
be outside the specifics of the project.26 These
factors include “overhead” tasks (e.g., meetings,
sickness and vacations) and “black swan events”
(low-probability, high-impact risks).

7. Understand the Estimate-
Convergence Graph

The estimate-convergence graph (a.k.a.
the “cone of uncertainty”) derives from
research that found that project estimates fall
within predictable ranges at various stages
of a project.27 One of our survey respondents
reported on his company’s practice of requiring
project managers to estimate in ranges. At
the beginning of the feasibility phase, project
managers are asked to come up with a 100%
cushion, at the beginning of the definition phase,
a 75% cushion, at the beginning of the design
phase, a 50% cushion and at the beginning of
the construction phase, a 25% cushion. Project

25 Pezzo, M., Litman, J. and Pezzo, S. “On the distinction between
yuppies and hippies: Individual differences in prediction biases
for planning future tasks,” Personality and Individual Differences
(41:7), 2006, pp. 1359-1371.
26 Wilson, T., Wheatley, T., Meyers, J., Gilbert, D. and Axsom,
D. “Focalism: A source of durability bias in affective forecasting,”
Journal of Personality and Social Psychology (78:5), 2000,
pp. 821-36.
27 Boehm, B., op. cit., 1981.

28 MIS Quarterly Executive | March 2014 (13:1) misqe.org | © 2014 University of Minnesota

IT Project Estimation

managers update their estimates at the end of
each phase, resulting in improved estimation
accuracy as a project progresses through its life
cycle.

8. Understand the Difference Between
a Target and an Estimate

Estimates are arrived at based on careful
analysis, whereas targets represent a desired
schedule or cost and can be set without any
analysis. Project managers should be encouraged
to carefully set targets within a reasonable
range of an estimate and delay making a firm
commitment for as long as possible.

“Estimation’s role is to determine whether
you have a realistic chance of meeting your
targets. If the target is within roughly 20%
of the estimated outcome, you can control
the project to meet the targets (make
minor adjustments to features, schedule and
resources). If the gap between the target
and the estimate is greater than about
20%, it is not possible to control the project
to meet the targets.”28

9. Manage Stakeholders
Given the role that stakeholders play in

defining project requirements, setting targets,
changing requirements (i.e., scope creep)
and exerting pressure on the project team
throughout a project, project teams need to find
more effective ways to involve stakeholders.
For example, another key principle of Agile
development is that “business people and
developers must work together daily throughout
the project.” This practice enhances transparency
and may help control stakeholder pressure.

10. Develop Estimation Competencies
of Project Managers and Team
Members

As emphasized by the first guideline, the
IT development community is simply not very
good at estimation. We urge project managers
to look for opportunities to develop and hone
their estimation competencies and those of
project team members. Such training might
involve everything from a multi-hour workshop,
to a multi-day short course, to broader courses
as part of an advanced degree. All of these

28 McConnell, S., op. cit., 2006.

approaches are appropriate and can make an
immediate difference. Once trained, project
managers and their teams can help infuse
the training and ideas into internal training
programs or professional development
initiatives. Ample opportunities for such training
exist and project managers who continue to
ignore them do so at their own peril.

Concluding Comments
Insanity can be defined as doing the same

thing over and over again and expecting a
different result. In effect, this is what the IT
development community has been doing with
respect to estimation for more than 20 years. The
findings from Study 1 are remarkably consistent
with similar findings first reported in the early
1990s, with “classic” estimation mistakes still
being made—over-reliance on personal memory,
use of intuition and guessing. Moreover, the
common causes of poor estimation practices
today have changed little over the same time
span—change requests from users, users’ lack
of understanding of requirements, poor problem
definition and insufficient analysis prior to an
estimate being made.

The results from our Study 2, which looked at
project-level data, are slightly more encouraging.
Our findings indicate that contemporary
practices, including Agile development methods,
seem to be making some headway toward
improving project success. Interestingly, most
projects met their stated requirements, produced
usable products and services, and improved
organizational value, leading to a high overall
stakeholder satisfaction rating. However,
somewhat paradoxically, most of the projects
were late and many (40%) were over budget,
reiterating the need for better time and cost
estimation. Thus, today’s “typical” project can be
characterized as a “successful failure.”

Many of the deficiencies in current projects
can be traced back to poor estimation, so there
is clearly room for improvement in estimation
practices. We have provided specific guidelines
for IT project managers to help them reverse the
trend so that the estimation problems identified
by our studies do not continue for another 20
years.

March 2014 (13:1) | MIS Quarterly Executive 29

IT Project Estimation: Contemporary Practices and Management Guidelines

Appendix: Survey Research
Methodologies

Research Study 1: Organization-Level
Analysis of Project Estimation

The survey questionnaire included 35 multi-
part questions requiring responses on five-point
Likert-type scales. Other questions required
respondents to report the proportion of projects
on which they carried out particular estimating
practices. After piloting the survey with 40 IT
professionals and revising it to improve clarity
and completeness, the questionnaire was
distributed in 2010 via an Internet-based survey
tool to several hundred IT professionals affiliated
with a major U.S. graduate school program on the
Management of IT (alumni and current students;
all working IT professionals).

The 60 respondents had a similar profile to
those in Lederer and Prasad’s 1992 survey: they
were responsible, educated and experienced IT
professionals familiar with their current firms.
While all respondents had a direct connection to
project estimation, most (72%) were responsible
for project/department management, with the
remainder involved with estimation, systems
analysis/design, programming and/or database
administration. All respondents had a four-year
college degree and at least some graduate-level
education. On average, respondents supervised
31 employees and had 15 years of experience in
IT with six years at their current companies.

The firms varied in size and industry. Their
annual sales ranged from $900,000 to $25 billion
with a mean of $4.5 billion. The average number
of employees was 9,423 with a range of six to
77,000. On average, there were 1,539 employees
in their IT departments, ranging from one to
18,000. IT department annual budgets ranged
from $900,000 to $15 billion, with a mean of $1.1
billion. The primary industries represented were
consulting/services (31%), banking/finance
(24%), government (13%), education (7%) and
healthcare (7%).

Study 2: Project-Level Analysis of
Project Estimation

Study 1 provided a useful snapshot of overall
organizational estimation practices and enabled
us to directly benchmark the results against

the Lederer and Prasad 1992 study. However,
we felt that a second study at a lower level of
analysis—i.e., at the project level rather than
the organizational level—would provide project
managers with additional detail, richness and
insights. Furthermore, by collecting data at the
project level, we were more able to directly tie
project estimation practices to project outcomes
(schedule, cost, functionality), which Study 1
suggested continue to be a challenge for project
managers.

In reviewing the results of Study 1 and talking
with project managers, we realized that it would
be much easier for them to talk about outcomes
on a specific project (rather than projects in
general). To add additional validity and reliability
to our insights from Study 1, we therefore
decided we needed to collect information on a
wide variety and scale of individual projects.
Armed with this project-level data, we felt we
would be able to generalize our results for the
broader population of contemporary IT projects.

In Study 2, we surveyed 115 IT professionals
during 2011 and asked each respondent to
provide data about his or her most recently
completed IT project. Virtually all of the
respondents indicated they were project/
program managers or directors, giving us
confidence that they were in a position of
responsibility over project timelines, costs and
outcomes. Not surprisingly given the turnover
in IT-related fields, most (86%) had worked for
their current employer for less than 10 years
and just over half (51%) had worked in the IT
field for more than 10 years. A wide variety of
industries were represented in the sample, with
consulting/services having by far the highest
number of respondents (see the table).

Additionally, the organizations in the Study 2
sample tended to be quite large. Annual revenue
averaged $9 billion, and the average number of
employees was 27,000.

As in Study 1, the projects reported on in
Study 2 covered a wide spectrum of size, scope
and functionality. This variance was expected
because we asked each respondent to provide
data on the last project that they worked on (not
any project or a typical project). Projects ranged
from a small web application development
project costing several thousand dollars to a
$350 million IT infrastructure project for a large
international airport. In between, there were

30 MIS Quarterly Executive | March 2014 (13:1) misqe.org | © 2014 University of Minnesota

IT Project Estimation

database and data center projects, business
intelligence/analytics, ERP, CRM, systems

integration and many web-development projects.
Project budgets averaged $11 million, with a
median budget of $440,000.

About the Authors

R. Ryan Nelson
R. Ryan Nelson (rnelson@virginia.edu) is
Professor, IT Area Coordinator and Director of
the Center for the Management of Information
Technology (CMIT) at the McIntire School of
Commerce of the University of Virginia. He
received his Ph.D. in business administration
from the University of Georgia in 1985 and spent
five years on the faculty of the University of
Houston before joining the University of Virginia.
He has published several articles on the topic of
project management in MIS Quarterly Executive
and currently serves on that publication’s
editorial board.

Michael G. Morris
Michael Morris received his Ph.D. in Management
Information Systems from Indiana University
in 1996. He has previously served as a senior
editor at MIS Quarterly and Information Systems
Research. His research has been published in MIS
Quarterly, Organizational Behavior and Human

Decision Processes, Personnel Psychology, IEEE
Transactions on Engineering and Management
and Decision Sciences, among others.

Survey 2 Primary Business Activity
Industry Percentage

Consulting/services 50.67%

Government 10.67%

Financial services 6.67%

Healthcare 5.33%

Communication 6.67%

Education 4.00%

Retail 5.33%

Utilities 4.00%

Insurance 2.67%

Legal 2.67%

Manufacturing 1.33%

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September 2019 (18:3) | MIS Quarterly Executive 191

IoT Field Data Can Be Leveraged throughout the Product
Lifecycle12

Across all industries, smart, connected products—such as connected cars, smart home
appliances, smart fitness trackers and connected drilling machines—are altering how
manufacturing companies interact with their customers and ultimately how they conduct
business. This new generation of offerings results from the merger of the physical and digital
worlds, often referred to as the Internet of Things (IoT). IoT solutions involve equipping
physical objects and devices with sensors, actuators, and connectivity, and applying data
analytics to the digital data streams (DDSs) flowing from the devices to offer complementary
digital services.3 The DDSs provide real-time data on usage and device behavior, as well as on
environmental parameters.4

Figure 1 shows there are four areas (domains) where IoT digital data streams can be used
for innovation. These four domains are determined by the DDS source (supply-chain data or
field data) and the focus of innovation (product/service or process). Manufacturing companies’
early initiatives to benefit from IoT field data focused mainly on offering new digital services

1 Gabriele Piccoli is the accepting senior editor for this article.
2 The authors thank the 46 practitioners who participated in this study for providing interesting insights. Thanks also to Gabriele
Piccoli, and two anonymous reviewers, and to Professor Stefan H. Thomke (Harvard Business School), Timo Gessmann (Bosch
Digital Solutions) and Dr. Jannis Beese (SAP) for their valuable input and constructive feedback. This research was supported by the
Bosch IoT Lab at the University of St. Gallen, and ETH Zurich.
3 For an introduction to the IoT, see Wortmann, F. and Flüchter, K. “Internet of Things – Technology and Value Added,” Business
& Information Systems Engineering (57:3), 2015, pp. 221-224.
4 For an overview of digital data streams, see: Piccoli, G. and Pigni, F. “Harvesting External Data: The Potential of Digital Data
Streams,” MIS Quarterly Executive (12:1), March 2013, pp. 53-64.

Driving Process Innovation with IoT Field
Data
The Internet of Things (IoT) promises to deliver tremendous business value and dis-
rupt various industries. However, many companies are taking much longer than
anticipated to realize these opportunities. To exploit the digital data streams flow-
ing from their smart, connected products (IoT field data), companies need to
identify new opportunities that go beyond well-known product and service in-
novations. We describe how manufacturing companies are leveraging IoT field
data to innovate in their internal processes at all stages of the product lifecycle.1,2

Dominik Bilgeri
ETH Zürich

(Switzerland)

Heiko Gebauer
University of St. Gallen (Switzerland)

Elgar Fleisch
ETH Zürich and University of St. Gallen

(Switzerland)

Felix Wortmann
University of St. Gallen (Switzerland)

DOI: 10.17705/2msqe.00016

192 MIS Quarterly Executive | September 2019 (18:3) misqe.org | © 2019 University of Minnesota

Driving Process Innovation with IoT Field Data

such as predictive maintenance5 (Domain 2)
and on using supply chain data to drive process
innovation such as asset tracking (Domain 3).
Now, though, manufacturing companies are
pursuing objectives that go beyond their initial
digital services (Domains 1 and 4). In particular,
they are aiming to leverage the potential of IoT
field data to innovate in internal processes—for
example, data-driven product specification. These
initiatives fall into Domain 4 and are the focus of
our research and this article. (The research we
conducted is described in Appendix 2.)

DDSs can provide unprecedented levels
of insight into products’ performance in use,
and this insight and visibility can be leveraged
throughout the four stages of the product lifecycle
to innovate in internal processes (see Figure
2). Stage 1 (Development) is followed by the
production and shipment stage (Production and
Logistics), marketing and sales stage (Marketing
and Sales), and finally by after-sales support
and service aimed at selling additional (digital)
service components (Support and Service).6

Four examples illustrate how major
manufacturers are using DDSs at each of the

5 For more information, see Ives, B., Palese, B. and Rodriguez,
J. “Enhancing Customer Service through the Internet of Things and
Digital Data Streams,” MIS Quarterly Executive (15:4), December
2016, pp. 279-297.
6 For an introduction to the concepts of product lifecycle, see
Saaksvuori, A. and Immonen, A. Product Lifecycle Management,
Springer-Verlag Berlin Heidelberg, 2008.

four lifecycle stages. At the Development stage,
Tesla uses the large amounts of data on drivers’
behavior gathered via its connected cars to
improve its development processes. Boeing uses
the connected sensors embedded in its aircraft
to drive the efficiency of factories and supply
chains (Production and Logistics stage). German
printing machinery manufacturer Heidelberger
Druckmaschinen AG (referred to as Heidelberger
Druck) gathers data on print jobs and machine
usage to conduct market research (Marketing and
Sales stage). GE’s connected wind turbines gather
real-time insights into each turbine’s condition,
which enables GE to improve its service efficiency
(Support and Service stage).

Regrettably, examples such as these are often
presented online and in blogs, frequently in
the context of promoting dedicated software
solutions, and do not provide any details or
critical reflection. Our study, however, carefully
investigated how manufacturing companies can
take advantage of the opportunities provided
by gathering and exploiting IoT field data. In
this article, we described eight use cases of
companies using DDSs for innovation at each of
the four stages of the product lifecycle. Table 1
summarizes the use cases and case companies. It
shows that we identified two areas of innovation
for each of the four lifecycle stages and we
illustrate each area with two use cases. The eight
use cases are described in Appendix 1.

Figure 1: Four Domains Leveraging IoT Digital Data Stream

Innovation
Focus

Product/Service

Process

E.g. Certificate of Origin

Domain 1 Domain 2

E.g. Predictive Maintenance

Domain 3

E.g. Asset Tracking

Domain 3

Source of

Digital Data Streams

Supply-chain Data Field Data

Innovate in
Internal Processes

(Focus of this Article)

September 2019 (18:3) | MIS Quarterly Executive 193

Driving Process Innovation with IoT Field Data

DDS-Driven Innovation at the
Development Stage of the

Product Lifecycle
During the Development stage of the product

lifecycle, manufacturers design, develop
and validate IoT solutions before scaling
up production. Specifically, they formulate
innovative ideas, define the specifications and the
requirements of solutions, build prototypes, and
test and validate them.

Historically, manufacturing companies
have adopted IT solutions such as CAD
(computer-aided design) when developing new
products, and have benefited from digitization
and simulation efforts, though not always
successfully.7 In addition, many manufacturers
have implemented new innovation approaches
such as Design Thinking and Lean Startup. For
instance, many now use iterative cycles to benefit
from early information, to verify assumptions
quickly, and to reduce time to market. More
recently, DDSs have provided completely new
means of feedback and a valuable source of
early information, fueling iterative innovation
processes. We have identified two major areas
where IoT field data can be exploited at the
Development stage of the product lifecycle—
data2spec and accelerated validation.

7 See, for example, Thomke, S. “High-Tech Tools Won’t Automati-
cally Improve Your Operations,” Harvard Business Review, June
10, 2015, available at https://hbr.org/2015/06/new-technology-wont-
automatically-improve-your-operations.

Data2spec—Defining Product
Specifications Based on IoT Field Data

Data2spec refers to how manufacturers
use IoT field data to optimize product
specifications. German automotive supplier
Bosch uses operational IoT field data, such as
device state, usage, and failure information, to
define (technical) product specifications for
its connected brake systems. Initially, the data
was collected manually by Bosch employees
plugging in a diagnostic tool, from vehicle fleet
data, or data from customers’ irregular visits to
repair shops. Now, however, improvements in
connectivity allow Bosch to shift from infrequent
manual data collection to highly frequent,
automated field data collection (e.g., once per
day) with an unprecedented level of detail. This
enables Bosch to gain knowledge about drivers’
usage behavior as well as the stresses and strains
on brakes in the field. The DDS from brakes
allows Bosch to better understand whether the
assumptions it makes on brake requirements are
correct and thus helps to avoid costly under- and
overspecification of its brake systems.

Another example is provided by Heidelberger
Druck, which continuously collects data on the
number and frequency of errors in its printing
machines and on customers’ usage behavior. This
data enables Heidelberger Druck to innovate in
its product development processes. Many other
manufacturing companies have created solutions
that leverage IoT field data to prioritize features
in their development pipelines.

Figure 2: Leveraging DDSs throughout the Product Lifecycle

Development

Production

and Logistics

Marketing
and Sales

Support

and Service

Digital Data Streams

IoT-enabled Products in the Field

Product with Manufacturing Company Product in Use

194 MIS Quarterly Executive | September 2019 (18:3) misqe.org | © 2019 University of Minnesota

Driving Process Innovation with IoT Field Data

Accelerated Validation—Using IoT Field
Data to Accelerate Validation Processes

With accelerated validation, manufacturers
leverage IoT field data to speed up development
time by automating their product validation
efforts. The data from IoT solutions is used to
verify and advance the virtual testing models
that manufacturing companies use in their
development processes. For example, Finnish
industrial crane manufacturer Konecranes
uses IoT field data in combination with remote
updating of software and configurations in
prototypes and field devices to accelerate and
enhance product validation. In collaboration
with Siemens AG, Konecranes built a cloud-based

digital twin of its industrial cranes and lifting
equipment and used IoT field data to evaluate the
models’ assumptions.

DDS-Driven Innovation at the
Production and Logistics Stage

of the Product Lifecycle
The second product lifecycle stage covers

manufacturing companies’ production processes,
including activities performed to transform raw
materials or to assemble acquired components
into higher-value outputs. Logistics processes are
part of this product lifecycle stage.

Table 1: Summary of Innovation Areas and Use Cases
Lifecycle

Stage
Innovation

Area
Description Use Case

Development

Data to
specification
(data2spec)

Operational IoT field data such as device
state and usage or failure information
is used to define (technical) product

specifications.

Bosch Chassis Control:
Specification of connected brakes

Accelerated
validation

IoT field data and remote software
updates in prototypes and field devices

are used to accelerate and enhance
product validation.

Konecranes: Virtual validation of
smart cranes

Production
and Logistics

IoT root cause
identification

DDSs from IoT field devices are leveraged
to identify fundamental challenges in the

production process of products.

Toyota Motors Inc.: Car field data
used to optimize production

Customize and
calibrate

IoT field data enables the optimization or
customization of production processes

and of products.

Bosch Heating Systems:
Customized production processes

Marketing
and Sales

IoT data-driven
market research

IoT field data enables manufacturers
to conduct their own complementary

market research and to learn more about
customers’ preferences.

Heidelberger Druck: Sales lead
generation

Digital targeting

Identification of customer segments,
which use solutions for different

purposes and have varying expectations
and preferences.

Procter & Gamble: Using IoT field
data for market segmentation

Support and
Service

Digitized
warranty
business

IoT field data enables manufacturers
to reduce inefficiencies related to the

analyses and physical shipment of
warranty cases.

Bosch Heating Systems:
Improving the warranty claims

process

Data-driven
service

efficiency

IoT DDSs enable the improvement
of service efficiency—e.g., increase
communication quality or minimize

overall downtime.

Heidelberger Druck: Predictive
monitoring to identify future

equipment faults

September 2019 (18:3) | MIS Quarterly Executive 195

Driving Process Innovation with IoT Field Data

Hitherto, manufacturers have put tremendous
efforts into digitizing and automating their
production and logistics systems. However, few
of the related use cases have used field data as an
input for innovation in production and logistics
processes. To demonstrate how IoT data can be
leveraged to improve production efficiency, we
have identified two major areas where DDSs can
be exploited—IoT root cause identification and
customize and calibrate.

IoT Root Cause Identification—
Optimizing Production Processes with
IoT DDSs

Once the frequency of certain error
messages, collected by sensors in connected
products, reaches a predetermined threshold,
manufacturers can react quickly and identify
underlying root causes of the errors. Toyota,
for example, is leveraging DDSs from IoT field
devices to identify fundamental challenges in its
production processes. The IoT field data is used
not only to improve Toyota’s internal production
processes but can also be extended to suppliers
and the components they provide. In cases of
severe quality issues, poorly performing suppliers
can be identified more efficiently, and immediate
measures can be taken to mitigate existing
problems.

Customize and Calibrate—Optimizing
Last Production Steps with IoT Field
Data

Customize and calibrate refers to the final
adjustments of production processes as well as
adjustments made to products before they leave
the production line and are shipped to customers.
These adjustments might include a final quality
assessment procedure or setting specific
product default parameters to meet particular
environmental conditions at customer sites. IoT
field data on usage behavior and failure rates
enables manufacturing companies to improve
these final production steps. For instance, Bosch
Heating Systems uses IoT field data to optimize,
or even customize, the quality-control and
product-configuration procedures within its
production processes. Specifically, the company
aims to implement an automated feedback loop
that provides error notifications from connected
products, and to use this feedback to adapt its

final quality assessment process. Usually, such
initiatives start with irregular reports from
downstream supply chain partners and are
automated only at a later point in time. Bosch’s
long-term goal is to use the automated feedback
to continuously adjust its calibration activities.

DDS-Driven Innovation at the
Marketing and Sales Stage of

the Product Lifecycle
Manufacturing companies perform a variety of

processes in the Marketing and Sales stage of the
product lifecycle. These processes position their
products in attractive markets, segment those
markets according to different customer types,
communicate the added value of a product, and
manage the distribution channels and sales force
needed to sell their products. Another major
task during this stage is planning and executing
pricing strategies across market segments and
sales channels.

For decades, manufacturers have relied on
information from market research companies
(such as Gartner, GfK, and Nielsen) to assess
(potential) markets. They have also relied on
historic data or market surveys (either in-
house or conducted by research firms) to better
understand their markets. The DDSs now flowing
from IoT devices offer manufacturing companies
a new means to segment their markets, target
individual customers, and generate sales leads.
We have identified two major areas of DDS use
in the Marketing and Sales stage of the product
lifecycle—IoT data-driven market research and
digital targeting.

IoT Data-Driven Market Research—
Data-Driven Market Intelligence and
Consulting

IoT data-driven market research provides
manufacturers with the ability to complement
existing market research offerings with their
own industry- and company-specific insights.
For example, Heidelberger Druck leverages IoT
data to identify promising customers for add-on
solutions. This initiative enables the company
to improve its sales efficiency and increase the
quality of communication with customers. Such
an approach allows manufacturing companies to
increase the efficiency of customer acquisition

196 MIS Quarterly Executive | September 2019 (18:3) misqe.org | © 2019 University of Minnesota

Driving Process Innovation with IoT Field Data

processes and to optimize investments in their
technology and product pipeline. The insights
gained will enable companies to improve their
sales employees’ ability to address customers’
real concerns and needs and increase the
prospects-to-sales conversion rate.

Digital Targeting—Leveraging IoT Field
Data to Segment the Market

With digital targeting, manufacturing
companies can segment the market based
on actual usage behavior observed via IoT
devices rather than on assumptions, surveys,
or field studies. This approach ensures a far
more accurate differentiation of customers that
enables two fundamental value propositions.
First, DDSs are expected to provide a better
overall understanding of what kind of market
segments exist in reality. Second, the data allows
for a more accurate allocation of a particular
customer to an identified segment. For example,
U.S. consumer goods company Procter & Gamble
(P&G) intends to use IoT field data from its
Oral-B smart toothbrushes to identify and
individually target customer needs and to market
complementary products. Initially, P&G has used
the DDS generated by its smart toothbrushes to
learn more about customers’ brushing behavior
and to offer value by providing customers with
feedback. Next, the company aims to derive
higher resolution market data with the ambition
of building on the IoT data to sell additional
products.

DDS-Driven Innovation at the
Support and Service Stage of

the Product Lifecycle
In the final Support and Service stage of the

product lifecycle, manufacturing companies
perform a variety of processes after they have
sold their products. They usually offer customers
maintenance and spare parts services (e.g., via
repair shops), run help centers to provide support
for customers across sales channels, and try
to sell additional add-ons and complementary
services and solutions. Examples of the latter
include insurance, maintenance, financing
options, and warranties. The two major uses
of DDSs we identified in this final stage of the

product lifecycle are digitized warranty business
and data-driven service efficiency.

Digitized Warranty Business—Reducing
Inefficiencies of Support Processes

DDSs can be exploited by manufacturers to
digitize their warranty business, which is one
of their support processes. Warranty processes,
either required by regulators or compelled by
market forces, are usually cumbersome and low-
value manual activities. In the past, for example,
if customers experienced a problem with a Bosch
Heating Systems product, they would contact
local service engineers who would then analyze
their heating systems. Repairs often meant
changing a specific component. Now, IoT field
data allows Bosch to gather a variety of data,
including product, environmental, and behavioral
data, and thus to reduce inefficiencies resulting
from a lack of direct customer contact.

The IoT field data also allows Bosch Heating
Systems to gain a much deeper understanding
of the circumstances of specific, malfunctioning
components. Previously, it was very difficult to
identify patterns in the occurrence of certain
errors. Once IoT data on the wear and tear of
heating systems in the field is broadly available,
including the average heating temperature and
heating behavior, this data might be used to
support error-detection patterns and to gain a
better understanding of the conditions under
which certain warranty-relevant problems arise.

Data-Driven Service Efficiency—
Improving Internal Service Efficiency

Data-driven service efficiency is another major
area where IoT field data can be used in the
Support and Service stage of the product lifecycle.
Service processes are typically characterized
by a high level of costly and labor-intensive
activities. The main potential for exploiting
DDSs in service processes lies in the automation
of communication, remote monitoring, error
detection, and remote maintenance, as well as
in empowering customers to perform part of
the value creation. For example, Heidelberger
Druck uses DDSs to improve service efficiency,
increase the quality of customer communications,
and extend its products’ lifespans, while
minimizing overall machine downtime. Hence,
this manufacturer of printing machinery benefits

September 2019 (18:3) | MIS Quarterly Executive 197

Driving Process Innovation with IoT Field Data

from offering new services to its customers, as
well as from the ability to streamline its internal
processes.

Evolution Paths for Exploiting
DDSs

To realize the full power of IoT field data
for internal process innovation, it is crucial to
understand the evolutionary paths that the use
of DDSs follow within each of the four product
lifecycle stages (see Figure 3). The consecutive
steps within the evolutionary paths enable
manufacturing companies to incrementally gain
new capabilities and to advance their leverage of
DDSs for internal process innovations over time.8

Evolution during the Development
Stage

Both use cases that illustrate the use of
DDSs at the Development stage of the product
lifecycle followed similar evolutionary paths.
These manufacturers started by automating
data collection and are currently moving on
to integrating test or prototype field devices,

8 For a primer on the stepwise evolution of capabilities for harness-
ing DDSs, see Herterich, M. M., Uebernickel, F. and Brenner, W.
“Stepwise Evolution of Capabilities for Harnessing Digital Data
Streams in Data-Driven Industrial Services,” MIS Quarterly Execu-
tive (15:4), December 2016, pp. 297-318.

which will be followed by implementing over-
the-air two-way communication, and, ultimately,
by enabling the virtual (i.e., simulation-based)
development of their products.

Step 1: Automated Data Collection. The first
step in the Development stage is to automate the
collection of real-time data from smart, connected
prototype devices (i.e., the data flows from the
test device to the manufacturer’s development
team). Initially, Bosch’s Chassis Control business
unit collected data manually from the sensors in
its brake systems by Bosch employees plugging in
a diagnostic tool to extract the data. By providing
the IoT devices embedded in the brakes with
a wireless connection, Bosch has been able to
automate (at least partly) the data collection.
However, while providing test or prototype
devices with connectivity at this first stage of the
product lifecycle is a significant improvement on
only carrying out physical tests, the data collected
automatically is mainly from test devices or test
labs, and only occasionally from customers.

Step 2: From Test Labs to Field Devices.
In the second evolutionary step during the
Development stage, a manufacturing company
extends its data collection efforts from prototypes
in test labs to larger “fleets” of devices in the
field. However, limited and costly bandwidth can
make data transmission expensive, and some

Figure 3: DDS Evolutionary Paths for Each Product Lifecycle Stage

Step 1 Step 2 Step 3 Step 4

Stage 1:
Development

Stage 2:
Production

and Logistics

Stage 3:
Marketing
and Sales

Stage 4:
Support

and Service

Automated
data col l ecti on

From tes t l abs
to fi el d devi ces

Over-the-ai r
updates

Devel opi ng
products di gi tal ly

Product-focus ed
producti on i ns i ghts

Fi el d-aware
producti on

Cus tomer-s peci fi c
producti on i ns i ghts

Cus tomer-aware
producti on

Trend and market
i ns i ghts

Hi gher res ol uti on
market i ns i ghts

Cus tomi zed
marketi ng

Data-dri ven
s al es

Integrated s upport
and s ervi ces

Increas e degree of
proces s automati on

From reacti ve to
proacti ve

Cus tomer
empowerment

198 MIS Quarterly Executive | September 2019 (18:3) misqe.org | © 2019 University of Minnesota

Driving Process Innovation with IoT Field Data

manufacturers have implemented mechanisms to
address this constraint. For instance, a German
car manufacturer developed an online tool that
different units within the company can use to
request data collection from the field. By using
an easy-to-configure dashboard, the units “order”
data and internally pay for it. This data helps
them to improve their development processes—
e.g., for designing the navigation structure of the
infotainment system installed in the company’s
cars.

Step 3: Over-the-Air Updates. The first two
evolutionary steps during the Development stage
focus on the data flow from devices to developers.
In the next step, the manufacturer implements
two-way data communication, from developer
to device to developer. Two-way communication
allows the manufacturer to update test fleets
and devices in the field, which decreases time-
to-market by shortening development learning
cycles. As illustrated by Konecranes, two-way
data communication might initially be limited
to specific parameters. In this use case, current
customers’ and supply chain partners’ safety
concerns militate against a more extensive data
exchange.

Step 4: Virtual Development. Once
manufacturing companies have gathered
sufficient amounts of data from the first three
evolutionary steps during the Development
stage, new development approaches become
feasible, including using smaller test fleets,
computer-simulated development procedures,
or more data validation. Konecranes’ ambition
to accelerate its crane development process is a
good example of how IoT field data can enable a
virtual development process. With a growing base
of operational data, Konecranes envisions partly
substituting physical engineering (hardware-
centric) with digital (simulation-based)
engineering, resulting in increased quality and
reduced costs.

Evolution during the Production and
Logistics Stage

Both use cases that illustrate the use of DDSs
to innovate at the Production and Logistics
stage of the product lifecycle followed a similar
four-step evolutionary path, which shifted the
focus from product-specific to customer-specific
insights.

Step 1: Product-Focused Production
Insights. In this first step, the IoT field data
is usually product-focused. Ad hoc insights
generated from specific problems detected
by connected sensors are used to improve
manufacturing and logistic processes on a
case-by-case basis. For instance, Toyota aims
to leverage IoT data on potential field issues
to identify root causes in its manufacturing
processes and to check manufacturing
parameters on an ad hoc basis.

Step 2: Field-Aware Production. In the
second evolutionary step during the Production
and Logistics stage, the case-specific, ad hoc data-
base improvements made during the first step are
systematically transformed into product-focused
insights that are incorporated into production
processes. Take, for example, Bosch Heating
Systems’ ambitions to adopt quality controls.
While still product-focused, newly (re)designed
processes will allow the company to improve
efficiency and also enable it to adjust product
specifications for all customers.

Step 3: Customer-Specific Production
Insights. The more detailed the data that can be
collected is, and the more that production can be
customized, the more manufacturers will be able
to benefit from customer-specific, production
optimizations based on usage behavior. One
example of this is the calibration of devices—i.e.,
the ability to change configuration settings of
devices for individual customers. In this third
evolutionary step during the Production and
Logistics stage, however, these adjustments are,
again, initially implemented on an ad hoc basis.

Step 4: Customer-Aware Production. The
final evolutionary step during the Production
and Logistics stage enables the automation
of customer- or customer-segment-specific
production processes to take account of IoT
field data. A good example of customer-aware
production and delivery is the ability to deliver
products to customers before they place an order,
based on their previous consumption. Amazon,
which is a leader in this area, calls this ability
“anticipatory shipping.”9

9 For a summary of Amazon’s anticipatory shipping initiative,
see Kopalle, P. “Why Amazon’s Anticipatory Shipping Is Pure
Genius,” Forbes, available at https://www.forbes.com/sites/onmar-
keting/2014/01/28/why-amazons-anticipatory-shipping-is-pure-
genius/#864ba884605e.

September 2019 (18:3) | MIS Quarterly Executive 199

Driving Process Innovation with IoT Field Data

Evolution during the Marketing and
Sales Stage

The two use cases that illustrate the use of
DDSs to innovate at the Marketing and Sales stage
of the product lifecycle both extended the scope
of activities from generic market research to
improving individual customer interactions.

Step 1: Trend and Market Insights. Initially,
IoT field data enables manufacturers to learn
more about current and potential markets. These
insights allow them to make informed investment
decisions and frees them from depending on
large research companies such as Gartner,
Nielsen, and GfK. Heidelberger Druck’s IoT-based
market research showed that many customers
run shorter print jobs with set-up times of the
printing machinery being more important than
machine throughput. As a consequence, the
company decided to invest in optimizing set-up
times.

Step 2: Higher Resolution Market
Insights. The second evolutionary step during
the Marketing and Sales stage increases the
resolution of the market data that manufacturers
gather and thus enables them to identify market
segments and generate individual sales leads.
Using IoT field data for this purpose is more cost-
efficient and more motivating for sales employees
than traditional approaches to identifying market
segments. IoT field data enables manufacturers
to learn about the particular needs of individual
customers.10 Procter & Gamble aims to leverage
IoT field data to target existing customers for
future purchases.

Step 3: Customized Marketing. Once market
segments have been identified, IoT field data
can be used to align sales channels, marketing
campaigns, and promotion activities. Customizing
marketing and sales activities informed by DDSs
enables manufacturers to significantly increase
conversion rates of prospects, as indicated in
one of the Heidelberger Druck use cases. This
company uses IoT field data to identify potential
new sales to existing customers based on their
current print order situation and to customize the
sales pitches accordingly.

Step 4: Data-Driven Sales. In the final
evolutionary step during the Marketing and
10 See, for example, Gilliland, N. “How the beauty industry is
embracing the Internet of Things,” Econsultancy, January 9, 2017,
available at https://econsultancy.com/how-the-beauty-industry-is-
embracing-the-internet-of-things/.

Sales stage, IoT field data allows manufacturers
to conduct industry-wide benchmarking and
economic feasibility studies. In the earlier steps, it
was possible to benchmark only between internal
plants and production lines. The new insights
gained during this step enable manufacturers to
educate different ecosystem stakeholders and
their own salespeople on how best to approach
individual market segments.

Evolution during the Support and
Service Stage

The two use cases that illustrate the use of
DDSs to innovate during the Support and Service
stage of the product lifecycle both started by
using IoT field data to provide integrated support
and services, moved on to increase the degree
of support-process automation, shifting from
reactive to proactive, and ultimately aim to
empower their customers.

Step 1: Integrated Support and Services.
Various stakeholders are involved in providing
support and services after the actual sale of
a product, and many of these players collect
their own IoT field data. Thus, manufacturing
companies can benefit from integrated support
and services that take into account the DDSs
from all the different players, including OEMs,
customers, suppliers, and service providers.
Bosch Heating Systems not only produces
connected heating systems, but also allows
customers to register their products online
so it can process valid warranty claims more
efficiently.

Step 2: Increase the Degree of Support-
Process Automation. Traditional service
and support processes usually involve a lot of
direct communication with customers and are
therefore very labor-intensive and expensive.
Once manufacturers have established sufficient
DDSs, they can increase the degree of automation
of these processes, which helps them reduce
process throughput times and increase the overall
quality of communication and customer service.
Heidelberger Druck provides an additional
fee-based service called “e-call” that allows
customers to transfer a digital error message
directly from a printing machine, leading to a
significant reduction of communication time and
hence cost.

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Driving Process Innovation with IoT Field Data

Step 3: From Reactive to Proactive Support
and Services. In this third evolutionary
step during the Support and Services stage,
manufacturers use new technologies such as
artificial intelligence and machine or deep
learning to analyze the unstructured IoT field
data to cluster problem sets, predict the most
common errors, or more generally gain a deep
understanding of the data. The insights from
these analyses enable them to create fast, reliable,
and cost-efficient service processes that are
proactive rather than reactive. For instance,
by combining machine data with maintenance
records Heidelberger Druck was able to create
smart maintenance schedules, which had
a positive impact on the trade-off between
proactive repair work and machine downtime.

Step 4: Customer Empowerment. In this
final evolutionary step, real-time feedback
provided by IoT field data and new technologies
such as augmented reality enable manufacturers
to transfer part of their value creation to their
customers. This means that customers are
empowered to resolve issues themselves without
having to rely on the expertise and presence of
the manufacturer’s employees. Empowering
customers to solve problems themselves reduces
costs for both players and also ensures minimum
downtime.

Recommended Actions for
Driving Process Innovation

with IoT Field Data
To leverage IoT field data for process

innovation, manufacturing companies first
need to implement the technical, legal, and
organizational infrastructures to provide their
products with the IoT sensors and devices that
will generate the DDSs.11 As with any complex
information systems (IS) initiative, standard
IS management practices are needed to realize
the initiatives described in this article. Our
research, however, has identified four specific
recommendations relevant to leveraging
IoT field data for process innovation. The
recommendations should not be misinterpreted

11 For an overview on how to leverage DDSs, see Pigni, F., Pic-
coli, G. and Watson, R. “Digital Data Streams: Creating Value from
the Real-Time Flow of Big Data,” California Management Review
(58:3), May 2016, pp. 5-25.

as being part of a sequential process or
hierarchical model, but rather constitute a set of
principles that need to be properly addressed to
successfully leverage IoT field data to innovate in
internal processes.

1. Don’t Focus Just on “Blockbuster”
IoT Initiatives

IT and business executives need to understand
the entire spectrum of new possibilities for
process innovation offered by IoT field data.
Too often, the term IoT is perceived as being
synonymous with a small number of popular and
widely reported “blockbuster” initiatives such
as predictive maintenance. This narrow view
of IoT is problematic for two reasons. First, the
focus on blockbuster initiatives often prevents
companies from identifying and exploring ways
of leveraging IoT field data to innovate in their
internal processes. Second, the widely reported
IoT initiatives are often advanced and complex,
and companies with limited IoT experience that
try to implement similar systems will fail and end
up frustrated.

To address the first issue, IT and business
executives should focus on the entire product
lifecycle and use the IoT innovation areas we
have identified at each product lifecycle stage
as a source of inspiration. However, the DDS
initiatives we have described are only the tip of
the iceberg, and are by no means exhaustive;
there are many more opportunities for driving
process innovation with IoT field data. In fact,
manufacturing companies can gain even greater
benefits by combining different DDSs. To address
the second issue—the tendency to focus on overly
ambitious and advanced IoT applications—it is
crucial that executives are aware of the need to
think big and start small.

2. Address the Digital Paradox by
Thinking Big, Starting Small

Previous research has found that most
IoT initiatives are not meeting management
expectations and fail to cover the initial expenses
invested. This phenomenon is referred to as
“the digital paradox”12 and highlights that even
with good intentions and favorable conditions,
12 For more on the digital paradox, see Gebauer, H., Fleisch, E.,
Lamprecht, C. and Wortmann, F. “Overcoming the Digitalization
Paradox: Growth Paths for Digitalization,” Business Horizon, 2020
(forthcoming).

September 2019 (18:3) | MIS Quarterly Executive 201

Driving Process Innovation with IoT Field Data

IoT initiatives may well fail. To address the
digital paradox, IT and business executives
should not scale back their IoT ambitions, but
should be aware it will not be easy to implement
IoT initiatives. Successfully leveraging IoT
field data for process innovation requires
considerable resources and expertise. Even
large manufacturers such as GE have struggled
with their IoT initiatives.13 The challenge for
top management is to think big—i.e., to develop
and communicate a clear vision of how the
company aims to leverage DDSs—but start small.
Implementing process innovations incrementally,
step by step, along the evolutionary paths
identified in this article will allow manufacturing
companies to sustainably build up the required
capabilities and structures over time.

3. Provide Sufficient Value to Earn Your
Customers’ Trust and to Increase their
Willingness to Share Data

To increase their customers’ willingness to
share data, manufacturers need to implement
state-of-the-art data security and privacy
mechanisms to make their IoT-based offerings
trustworthy.14 In addition, our findings show
that to incentivize the exchange of data,
manufacturers have to demonstrate that they
provide sufficient value to their customers. A
clear and effective communications strategy
is key for demonstrating the value provided.
Customers want to know how they will benefit
from process innovations driven by IoT field
data. Potential benefits might include lower
prices resulting from efficiency gains, greater
convenience, extended warranty periods enabled
by higher quality, or new service offerings.

Moreover, privacy and security concerns are
not restricted to individuals. The Konecranes
use case is one of several examples that indicate
these concerns are important for business-to-
business (B2B) customers. Awareness of these
issues among B2B customers is being raised by
the current political debates on privacy breaches

13 See Davenport, T. H. and Westerman, G. “Why So Many High-
Profile Digital Transformations Fail,” Harvard Business Review,
March 9, 2018, available at https://hbr.org/2018/03/why-so-many-
high-profile-digital-transformations-fail.
14 For an overview on IoT privacy and security challenges, see
Lowry, P. B., Dinev, T. and Willison, R. “Why Security and Privacy
Research Lies at the Centre of the Information Systems (IS) Artefact:
Proposing A Bold Research Agenda,” European Journal of Informa-
tion Systems (26:6), November 2017, pp. 546-563.

at large social media networks and by the
introduction of new data protection regulations,
such as the General Data Protection Regulation
(GDPR) in Europe. Manufacturing companies
should proactively address the potential legal
and emotional obstacles that might hinder the
collection of IoT field data from the ever-growing
population of smart, connected devices.

4. Recognize that the IT Function Won’t
Have the Capabilities to Implement IoT
Initiatives

IT practitioners have espoused the concept
of bimodal IT (also known as two-speed IT),15
which distinguishes between two main types of
IT required for a digital transformation. With the
first type, traditional IT focuses on the operation
of the core business, ensuring integrated, efficient
and reliable business processes. The second type
empathizes with end users and provides easy-to-
use and hassle-free digital solutions that address
customers’ needs. However, IoT initiatives are
more complex and require new capabilities that
go beyond the scope of established bimodal IT
practices. Specifically, IoT initiatives require
the integration of a third type of IT capability—
embedded IT (i.e., embedding computing devices
in physical objects to make them smart and
providing them with connectivity).

Companies will also need to establish data
analytics capabilities so they can turn large
volumes of often time-series-based usage
and device data into actionable insights. Most
manufacturing companies have little experience
in analyzing large amounts of time-series-based
(device) data, and they will need to build up
resources from scratch. There are two common
approaches to acquiring the required capabilities.

The first approach is to establish a new IoT
unit that integrates core IoT resources in an
early phase of the digital transformation in order
to concentrate IoT activities and gain initial
momentum. Bosch’s Chassis Control business
unit collaborated closely with Bosch Software
Innovations to implement its connected brakes
initiative. This software innovations unit is
dedicated to supporting IoT DDS initiatives
for various business units across Bosch. This

15 For an explanation of bimodal IT, see Haffke, I., Kalgovas, B.
and Benlian, A. “Options for Transforming the IT Function Using Bi-
modal IT,” MIS Quarterly Executive (16:2), June 2017, pp. 101-120.

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Driving Process Innovation with IoT Field Data

software innovations unit is dedicated to
supporting IoT DDS initiatives for various
business units across Bosch.

The second approach is to introduce
governance mechanisms for managing company-
wide IoT activities. For example, the newly
founded Heidelberg Digital Unit at Heidelberger
Druck coordinates the company’s activities to
leverage IoT field data for both the development
of new services and internal process innovation.

Concluding Comments16

The digital data streams that flow from smart,
connected products allow manufacturers to
generate unprecedented business insights. In
this article, we presented our findings derived
from analyzing how manufacturing companies
are leveraging IoT field data to innovate in their
internal processes at all four stages of the product
lifecycle. We also described how the use of IoT
field data evolves incrementally during each
of the lifecycle stages. Based on our findings,
we provide recommended actions for how
manufacturing companies can leverage IoT field
data to innovate in their internal processes as
part of their digital transformation efforts.

However, there are some limitations to
our findings. The use cases are a convenience
sample—the selection of participating companies
and their representatives was opportunistic
and small. Although the selection restricted our
ability to generalize, our close relationships with
the companies concerned allowed us to obtain
rich stories and in-depth data on IoT field data
initiatives. The IoT applications and use cases
described in this article represent recent and
still ongoing flagship initiatives by major global

16 Source: Bosch Software Innovations Webinar, 2018.

manufacturing companies, including Bosch,
Heidelberger Druck, Procter & Gamble, Toyota,
and Konecranes. A second limitation is that the
innovation areas we identified and described are
by no means exhaustive, and further research
is required on how IoT field data can be used to
drive process innovation. In fact, we hope that
our research will provide a fruitful foundation for
further studies.

Appendix 1: Case Descriptions

The eight use cases described below (and
referenced throughout the article) illustrate
how manufacturers are leveraging IoT field
data at different stages of the product lifecycle.
Three of these use cases come from two
divisions of one company (Bosch) and two come
from Heidelberger Druck, a German printing
machinery manufacturer. Two of the use cases
relate to the Development stage of the product
lifecycle, two to the Production and Logistics
stage, two to the Sales and Marketing stage and
two to the Support and Service stage.

Use Cases at the Development Stage of
the Product Lifecycle

1. Bosch—Using IoT Field Data to
Determine Requirements for Connected
Brakes. A decade ago, German automotive
supplier Bosch started to collect digital data
streams derived from its brakes, which Bosch
had equipped with various electronic sensors.
Bosch’s aim was to improve the efficiency of its
development processes.

First, Bosch equipped its smart brakes with
connectivity, which enabled it to automatically

Figure 4: Illustrative Example of Data Analysis at Bosch16

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Driving Process Innovation with IoT Field Data

gather and analyze data from its brake products
(see figure above). The data was collected either
via the back-end infrastructure of individual car
manufacturing companies (OEMs) or directly by
Bosch. However, at this stage, the automated data
flow was unidirectional, flowing from the brakes
to Bosch product development personnel.

Bosch is now implementing a bi-directional
data flow, which will allow it to remotely update
the firmware of test vehicles. This ability shortens
development cycles. Previously, if developers
testing a new configuration of parameters
realized they needed to adjust a specific test
metric, they would have had to adjust the
parameters manually.

Bosch now constantly adjusts its
requirements’ definition process to make the
best use of new insights gained from analyzing
IoT field data. For instance, quantifying the
reduced hydraulic load in a particular car model
allowed Bosch to use an “as is” existing brake
system, rather than modifying the system as
recommended by existing validation models,
which were based on assumed loads.

2. Konecranes—Using IoT Field Data to
Improve the Efficiency of the Crane Validation
Process. Before the implementation of cloud-
based systems and IoT connectivity, the different
systems involved in Finish industrial crane
manufacturer Konecranes’ validation activities
were not connected, and data collection was
partly manual.

First, the company built “digital twins” (data-
based models) of its physical cranes to improve
its validation processes in test labs. These digital
twins were based on data collected from multiple
sensors attached to physical, smart cranes.
According to Konecranes’ Chief Digital Officer,
“With an integrated digital twin platform, we
see major potential in speeding up the product
development process, reducing prototypes,
increasing traceability, and thus improving quality
and reducing development cost.”17

Konecranes is now extending its digital data
stream source from test lab prototypes to live
products in the field. In the near future, it aims

17 From “Konecranes Adopts Internet of Things Technology to
Bridge virtual and Real Worlds Using Siemens’ Digital Innova-
tion Platform,” Cision News, January 10, 2019, available at https://
news.cision.com/inmema-pr/r/konecranes-adopts-internet-of-
things-technology-to-bridge-virtual-and-real-worlds-using-siemens-
-dig,c2714067.

to be able to remotely update cranes in the field.
However, such two-way communication will
only be implemented on a small scale and for
specific parameters, in light of customers’ and
supply chain partners’ concerns about safety and
external security threats.

Konecranes’ engineers aim to leverage IoT
field data further to improve the company’s
development processes. They emphasize the
power of digital twins to complement physical
prototypes and to improve the efficiency of the
crane validation process.

Use Cases at the Production and
Logistics Stage of the Product Lifecycle

3. Toyota—Leveraging IoT Field Data for
Efficient Root Cause Identification. Toyota
uses a data communication module (DCM) in
its vehicles to gather field data for the Toyota
Smart Center, which uses the collected big data to
improve internal processes. In addition, Toyota’s
Mobility Service Platform processes the collected
data for new services models, including ride- and
car-sharing operators, insurance companies, and
governmental services.18 An example of process
improvement, relating to the optimization of
quality controls in manufacturing was provided
by Jeff Makarewicz, Toyota’s Group Vice President
for Quality and Safety Engineering:

“So, for example, in the future, if we do
have a particular field issue, which of course
we hope to prevent, we can trace that part
back to its manufacturing conditions and
try to understand if there is something in the
manufacturing process that was out of control or
out of specification. And so by doing that we can
improve our processes and make them even more
robust using Kaizen [continuous improvement].”19

4. Bosch Heating Systems—Leveraging
IoT Field Data to Evaluate Quality Controls
in the Final Production Stage. Bosch Heating
Systems manufactures systems consisting of heat
cells and burners. Each system is tested before
it leaves the production line. When cleared for
shipment, the heating systems are sold to end
18 From Toyota Annual Report, available at https://www.toyota-
global.com/pages/contents/investors/ir_library/annual/pdf/2017/
ar17_2_en .
19 From Brown, L. “How IoT and Big Data Improved Toyota’s
Manufacturing Process,” TechRebulic, September 27, 2017, available
at https://www.techrepublic.com/article/how-iot-and-big-data-im-
proved-toyotas-manufacturing-process/.

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Driving Process Innovation with IoT Field Data

customers and installed via third-party sales
channels. Specialized assembly mechanics install
and maintain the heating systems on customers’
premises, and, in the past, these mechanics were
the main point of contact with customers. Bosch
gathered feedback from the assembly mechanics,
leveraging the information to improve quality
controls. In a recent initiative, Bosch Heating
Systems is currently developing a new solution
that connects its systems in the field, which will
eventually allow the company to automatically
collect and analyze data on error rates. A manager
highlighted the benefits of this new solution:

“We currently rely on the goodwill of
the mechanics, who inform us irregularly
about common error patterns they observe.
Connecting our heating systems will allow us to
systematically understand what’s going on in
the field. Hence, we gain useful insights on how
effective our quality controls really are.” Team
Leader, Bosch Heating Systems

Bosch Heating Systems now aims to leverage
the data flowing from this new digital data stream
to reevaluate its quality control procedures and
to adjust the default settings of parameters in
its products. This will enable Bosch to better
calibrate its heating systems to the needs of its
customers and to the conditions at customers’
premises.

Use Cases at the Marketing and Sales
Stage of the Product Lifecycle

5. Heidelberger Druck—Using IoT Field
Data for Market Intelligence and Data-
Driven Consulting. Heidelberger Druck is
a world-leading manufacturer of sheet-fed
printing machines, with the price for a single

machine easily ranging in the million euros. It
was convinced that the field data collected from
its smart, connected machinery would allow
it to make the right investment decisions and
to identify customers likely to make additional
purchases, with the highest benefit coming from
purchases of certain add-on solutions.

When analyzing the print market, two key
issues are the overall market growth and overall
equipment effectiveness (OEE). Maximizing OEE
is mission-critical for Heidelberg’s customers.
Two main factors influence this performance
indicator: the printing speed and the make-ready
time. Realizing that many customers run shorter
print jobs when the make-ready time has more
impact than a faster top speed, Heidelberger
Druck decided to invest in optimizing make-ready
times. Ultimately, customers also benefit from this
data-driven investment decision.

In addition, Heidelberger Druck used IoT field
data to assess if complementary add-on solutions
would be valuable to individual customers. It uses
the field data to identify those customers, who—
based on their print order situation—would
benefit most from an add-on solution. By focusing
on this subgroup of customers and customizing
the sales pitch to an individual customer’s needs,
the company has increased the prospects-to-sales
conversion rate. Hence, Heidelberger Druck has
realized significant cost savings and increased its
sales force’s motivation.

Finally, Heidelberger Druck is using the
DDS to increase the efficiency of its consulting
business. IoT field data supports the companies’
consultants by creating benchmark reports and
enabling the analyses of various industry-relevant
KPIs, including the OEE across its customer base
(see the figure above).

Figure 5: Illustrative Example of Data Analysis at Heidelberger Druck

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Driving Process Innovation with IoT Field Data

6. Procter & Gamble—Leveraging IoT Field
Data to Target Individual Customers. U.S.
consumer goods corporation Procter & Gamble’s
(P&G) Oral-B toothbrush range includes a smart
toothbrush. This product facilitates the tracking
of brushing behavior, making recommendations
on how to improve the cleanness of customers’
teeth and enabling customers to share data with
their dentists.

P&G has plans to introduce a new AI-powered
Oral-B toothbrush, which will leverage IoT data to
analyze a customer’s brushing behavior, provide
a feedback score, and offer recommendations for
improvements. The AI-based product will also
allow P&G to “recommend other P&G products
such [as] toothpaste, mouthwash, and dental floss
that it thinks would benefit the user, and which
they can then go on to buy within the [Oral-B]
app.”20 P&G is therefore planning to target existing
customers for future purchases. A P&G manager
highlighted that in the future the Oral-B brand
might move beyond just oral care:

“We want to build a brand that doesn’t only
stand for the best oral care but goes one step
further. We know that [oral health] is the door
to the rest of your body. How can we tell you,
based on that, how you are doing with the rest
of your health? This is our future vision.” Giulia
Antoniazzi, Global Associate Brand Manager,
P&G21

Use Cases at the Support and Service
Stage of the Product Lifecycle

7. Bosch Heating Systems—Leveraging IoT
Field Data to Improve the Warranty Claims
Process. As part of its warranty business,
Bosch Heating Systems needs to check whether
warranty claims are justified. If so, it has to
interface with its sales partners to receive the
customers’ data so it can process a claim. In some
geographical markets, Bosch is unaware of where
its products are eventually installed and located.
Hence, even though Bosch cannot inform its
customers about potential issues, it is responsible
for managing valid warranty claims.

20 Hammett, E. “How Oral B is using AI, Data and Smart Mirrors
to Take the Brand Beyond Oral Health,” MarketingWeek, February
26, 2019, available at https://www.marketingweek.com/2019/02/26/
oral-b-smart-mirror/.
21 Ibid.

Bosch equips its heating systems with
connectivity and allows customers to register
their products online (providing incentives
such as extending the warranty period). The
connectivity and online registration provide the
company with data sources it can leverage.

In a next step, Bosch aims to consider
production data, such as information about
the plant and production line that produced a
particular part, and might include production
parameters, such as the torsional moments or
the applied pressure used to assemble the part.
It believes that this type of production data could
allow it to change the production of the parts
in real time if it detects a problem caused by a
specific machine in the production line.

Finally, Bosch Heating Systems intends
to implement systematic remote analysis of
products in the field, which will generate a
deep understanding of how errors relate to
malfunctioning components. Once Bosch can
perform these diagnostics, it can guide local
mechanics even more precisely on how to repair
systems by offering very specific instructions.

8. Heidelberger Druck—Leveraging IoT
Field Data to Move from Reactive Service to
Predictive Monitoring. Heidelberger Druck’s
printing machines are complex and intensively
used, which means that service activities are
inevitable and mission-critical. Since 2004, the
company has been able to provide its service
engineers with information about faults before
their first site visit. As a consequence, the first-
time fix rate has increased, and the time to fix has
decreased.

In a subsequent development, Heidelberger
Druck offered an additional fee-based service
called “e-call” that allows a customer’s machine
to transfer a digital error message directly to
the company. This service reduced the time for
communicating an error from 30 minutes to 1
minute and resulted in a further cost reduction.
Heidelberger Druck is now frequently able to
either solve a problem remotely or send an
engineer with the required repair parts to the
customer.

While this solution improved internal process
efficiency significantly, it was still reactive in
nature. Heidelberger Druck wanted to be able
to detect potential errors in advance, allowing
it to schedule maintenance before machines

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Driving Process Innovation with IoT Field Data

experienced unplanned downtimes. However,
there is a trade-off between maximum efficient
changes and machine downtimes, so the company
now incorporates preemptive changes to prevent
an error from occurring in existing maintenance
schedules. The preemptive maintenance is
driven by analyzing IoT field data to evaluate
the lifespan of individual parts. At present, the
thresholds used to decide whether to replace a
part are based on the engineers’ experience, but
the company is experimenting with AI-based
solutions to identify potential future errors.

Research Conducted for this
Article

We followed a three-step procedure to
produce the results presented in this article
First, over a period of five months (January
to May 2018), we conducted a pilot study,
exploring potentially interesting companies that
were leveraging IoT field data to drive process
improvements and possible study participants.
The interviews conducted during this step
allowed us to gain a deep understanding of the
current state of manufacturing industry IoT
initiatives and to identify particularly important
themes to be discussed. Second, we hosted a
two-day workshop with 13 participants from
various units of a large manufacturing company
to discuss how IoT field data was being leveraged.
In the third step (over a period of eight months
from July 2018 to February 2019), we conducted
another round of 30 expert interviews and a
second workshop with three participants to
collect data for our use cases. Individual study
participants were contacted again to validate our
results and confirm the case descriptions and
quotes.

We talked to representatives of various
manufacturers to validate and complement
our findings. All of our interviewees were
experienced experts representing different
company functions and were capable of providing
deep insights into their organizations’ current IoT
field data initiatives. The interviews were held
face-to-face or via phone, and were conducted
in English or German, with the authors taking
field notes. For six out of the eight use cases, we
triangulated the data by interviewing at least
two representatives of the manufacturer and by

analyzing additional secondary sources, including
company documents, online reports, and meeting
minutes.

About the Authors
Dominik Bilgeri

Dominik Bilgeri (dominik.bilgeri@cemsmail.
org) is a Ph.D. candidate at the Bosch IoT
Lab at ETH Zurich where he investigates the
phenomenon of IoT digital business models. He is
particularly interested in data-driven innovation,
IoT revenue models, and IoT organizational
structures. Dominik was a visiting fellow at
Harvard University in the fall of 2018 and holds
an M.Sc. from Erasmus University Rotterdam.

Heiko Gebauer
Heiko Gebauer (Heiko.Gebauer@unisg.ch)

heads the “Data Mining and Value Creation”
project at the Fraunhofer IMW and works at the
Bosch IoT-Lab of the University of St. Gallen. He
is also a professor of international and strategic
management at Linkoping University. A main
focus of his work is investigating three empirical
phenomena—service, scaling, and digitization
paradoxes—and he has published various
articles on these phenomena in academic and
management journals. He also actively works as
an academic adviser to a variety of companies.

Elgar Fleisch
Elgar Fleisch (efleisch@ethz.ch) is a professor

of information and technology management
at ETH Zurich and University of St. Gallen. He
and his team aim to understand and design the
ongoing merger between the physical and digital
worlds. His work focuses on applications, social
and economic impacts, and infrastructures of
mobile and ubiquitous computing. His research
has appeared in several international journals
such as Management Science and Nature Energy.
Professor Fleisch is a co-founder of several
university spin-offs and serves on multiple
academic steering committees and management
boards.

Felix Wortmann
Felix Wortmann (Felix.Wortmann@unisg.

ch) is an assistant professor of technology
management at the University of St. Gallen and
the scientific director of the Bosch IoT Lab. His

September 2019 (18:3) | MIS Quarterly Executive 207

Driving Process Innovation with IoT Field Data

research interests include the Internet of Things,
blockchain, big data, and digital innovations in
mobility, energy, and health. His work has been
published in international journals including
Journal of the Association for Information Systems,
Decision Support Systems, Business & Information
Systems Engineering, Transportation Research
Part A, and Transportation Research Part D. Dr.
Wortmann also has several years of industry
experience in a German-based multinational
software corporation.

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articles for individual use.

Kudos to Robert Kaplan and Michael Porter
for their illustration of careful process
analysis and cost accounting in health care.
Their idea is terrific—but it is hardly novel.
Geisinger Health System in Pennsylvania
and Intermountain Healthcare in Utah have
long employed process analysis, and in
my 1997 book, Market-Driven Health Care,
I advocated activity-based costing of medi-
cal care bundles, which I called “health
care focused factories.”

Kaplan and Porter barely mention, how-
ever, that people are not fungible, so their
costs cannot be measured like the costs of

widgets in manufacturing. Some patients
are much sicker than others. A process fre-
quently called risk adjustment accounts for
these differences. The impact of risk ad-
justments on costs can be enormous. In a
risk-adjustment and activity-based costing
analysis that my students and I performed
for a total-knee-replacement procedure,
we found that while the average payment
was $35,000, the top decile averaged
$615,000. Useful risk adjustment requires
complex statistical analysis. If it were done
as the authors suggest, by simply adding
comorbidities, the analysis could create

thousands of different products, each
requiring separate analysis.

Furthermore, the implementation of
activity-based costing can “solve the
U.S. health care cost crisis” only if, as the
authors suggest, payers switch to reim-
bursing providers for value and bundles of
care. But those adopting the Kaplan-Porter
methods could repeat the mistakes of the
California health care providers that used
process analysis to price their offerings to
insurers in the 1990s: Many suffered sub-
stantial financial losses, in part because
their prices lacked risk adjustments and
reinsurance to protect them against ad-
verse selection by very sick patients.
Regina E. Herzlinger, Nancy R. McPherson
Professor of Business Administration,
Harvard Business School

HBR article by Robert S. Kaplan and Michael E. Porter, September 2011

“U.S. health care costs currently exceed 17% of GDP
and continue to rise,” say Harvard Business School
professors Kaplan and Porter. They trace spending to
its source: health care providers. Doctors, nurses, and
specialists do not understand the value of medical care
to the consumer; they overspend because they can’t
accurately measure health outcomes. The authors take
a look at providers that are measuring costs the right
way, and then prescribe a cost-measurement system
based on individual patient conditions.

How to Solve the Cost
Crisis in Health Care

Why Your IT Project May Be
Riskier Than You Think
HBR article by Bent Flyvbjerg and Alexander
Budzier, September 2011
The authors’ research found that one in
six IT projects finishes wildly over budget,
with an average cost overrun of 200%.

The article avoids the root cause of IT
failures: the lack of a framework for
effective collaboration. Far too many
organizations can’t do joined-up think-

ing across the enterprise. I see only
one universal language that can fa-
cilitate this essential communication:
the language of end-to-end business

process management. Combine that with
the ubiquitous need for compliance, and
it’s clear why effective process manage-
ment is emerging as a core capability for
Enterprise 2.0.
Michael Gammage, VP product marketing,
Nimbus Partners

Outlining how the project will potentially
affect both internal and external people
(for example, partners and customers) is
essential to understanding the project’s

22  Harvard Business Review November 2011

Interaction

The authors respond: We are pleased
that Professor Herzlinger endorses our
approach of building cost models based
on good process maps, but her letter con-
tains numerous errors. Like many in the
health care sector, she confuses charges
with costs (Myth #1 in our article) when
she describes her students’ analysis of
the variation in total-knee-replacement
payments. She errs in her assertion
that we introduce an adverse selection
problem. We explicitly solve the problem
by capturing costs at the individual pa-
tient level. Providers and payers can use
patient-specifi c information to explain
and predict the cost and outcome varia-
tions caused by some being “much sicker
than others.” Herz linger asserts that
we assume all patients are as alike as
widgets. Just the opposite! Our approach
captures how costs vary when providers
respond to the diff erent medical needs of
individual patients. And her concern that
costing thousands of diff erent patient
types would be complex is unfounded.
The scale of the model is driven by
a provider’s diff erent processes and
resources, not by the number
of diff erent types of patients
it serves.

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Interact with Us

risk factors. And incorporating them
into a risk-management plan helps
companies better navigate through
tricky project waters. Savvy IT and
project sponsors acknowledge that
human factors must be considered
when building the business case.
Alicia A. Lewis, manager,
PricewaterhouseCoopers

HBR.ORG

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1377 Nov11 Interaction Layout [S];25.indd 231377 Nov11 Interaction Layout [S];25.indd 23 9/27/11 2:13 PM9/27/11 2:13 PM

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