Information technology can be defined as the process of manipulating, distributing and processing information. Information technology is increasingly becoming a key component of most organizations. To remain relevant and competitive in an ever changing global environment, organizations are making use of information technology to stay ahead of the rest. The needs and behaviour of customers are changing and many businesses are making use of Information technologies to differentiate themselves and gain competitive advantage through efficiency and value. Organizations can develop competitive advantage by making use IT to make key decisions related to strategy, project management, outsourcing and corporate governance. This paper will analyze how Heritage Building Society, which is an Australian Organization is making use of IS/IT to drive its business strategy and how this has led to better service provision and increased returns. The paper also discusses the importance of integrating key issues like strategy with appropriate IT systems and ensuring that management is effectively developed to embrace them.
IS/IT at Heritage Building Society
Heritage Building Society (HBS) is authorized to take the public deposits licensed under the banking act in Australia. Building societies are owned by the members who are also shareholders. It has over 250,000 members and over $7 Billion in asset base. It has a network of 130 branches. It also has internet and telephone banking services. The company has used information technology to transform the way the company interacts with its customers or members.
In the 1990’s, the company’s face to face transactions was over 65% of the total transactions. Currently these face to face transactions are only at 7%. In 1999 the company introduced internet banking and most transactions are carried out through this technology. The company has committed itself every year to upgrade the internet banking platform due to their customer’s demands. The driving force of every company in implementing new technology should be the customers. Research carried out on the member’s preferences revealed that most members preferred technology-based transactions rather than face to face. The volume of the annual transactions has increased five times from over 10 million to over 50 million. It is good that companies embrace technology-based transactions since retail-based transactions are quite costly. If the company had not upgraded technology, their customers would have sought competitors to receive higher qualities of service.
Customer service standards affect a company’s IT decisions (Ray, et al, 2005). The huge cost savings a company gets on implementing technology makes the use of IT a strategic decision more than an operational one. There have been different levels of technology upgrades in the company. In the 1980’s the company computerized their payroll system.
In the 1990’s, the company set up a core banking system. With the system the back-office operations such as ledgers, recording of member details, deposits and loans were computerized and no longer manual. It was connected to a wide area network that supported the ATM’s for the members. The company achieved high process efficiencies and accuracy as transactions were now faster and cheaper. The company implemented a loan processing system in the 2000’s. This system assisted the bank in growth and diversifying their products reaching more people in the market. The latest stage in information technology implemented by the company involves alliances with specialist providers. It is a virtual organization that enables HBS to provide a wider range of products to its customers. The loan processing system implemented by the company led to its recognition and a strong rating by the Standard and Poor rating company (Standard & Poor, 2008). The system removed the urgent need to employ more staff and open more branches. It gave the company huge cost savings. By the company engaging brokers in other locations or regions, it was able to increase its loan book.
There were offices established in the Melbourne and Sidney states for the company staff to work with mortgage brokers to sell these product loans. The system removed the need for paperwork. All details are entered online. The customer’s details are input into the application interphase from the customer’s ERP. Prior to the system implementation there was knowledge gap in the members on the loan application and reimbursement process from end to end. The training the staff received in preparation for the system was very important and timely.
The company reviewed and revised their loan application and disbursement processes and then implemented the system based on the re-engineered process. According to Xue, et al (2008), when it comes to implementing any system, the main challenges are the business units resisting to take ownership, integrating technology and the company’s objectives, determining the level of user requirements satisfied and user acceptance.
The company dealt with the core causes for these challenges therefore they were not experienced at an alarming degree. The system enabled the company to know the exact costs of each task in the loan processing transaction and detailed time and cost models developed. The company has grown enormously through the system. Previously the system had no mortgage products yet now the lending volume of the company through broker accounts to 50% of the company’s total loan book. The company was able to increase the quality of customer service and market diversification. A loan can be processed in less than 24hours. The documentation required for loan processing is given back to the borrowers in less than 48hrs. In terms of loan portfolio, the company’s $US 600 Million increased to $ 5 billion in seven years. The top performing companies in any industry are the ones who manage IT decisions to achieve superior results (Weill & Rose, 2004).
In every industry, the environment is dynamic therefore a company has to embrace technology in order to have a competitive edge. The management of a company has to perceive IT as a strategic department (Child, 1997). In many organizations due to the low perception of IT in strategic decision causes the IT investments not to accomplish the set objectives the IT
Department had in mind (Weill & Ross, 2005). The company should carry out research consistently. RBS upgrades its system every year by researching the best system to have. Companies that adopt IT research just keep performing better and better (Chaisson & Davidson, 2005).
The customer preference is key (Gummesson, 2008) and HBS recognized this and has worked towards giving customers the medium of conducting transactions that they prefer.
Most financial companies tend to focus on increasing the shareholder’s wealth and not focusing on the customer’s wants and needs. The company has been recognized by S& P for the information technology capabilities of its loan processing system. It has developed world class strategic information technology system (Elliot & Williams, 2010). It is currently the most successful loan processing system in the country.
This company has the same opportunities as its competitors yet it has the most successful information system. Most companies in contrast struggle with implementing technology and aligning the system to their company’s objectives. For financial service companies they should transform themselves through applications of information technology to achieve sales and marketing objectives (Darlington, 1998)
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Corporate Governance, Outsourcing and Project Management
In information technology, it is sometimes necessary for a business to outsource part or the whole IT processes to a consultancy company. When a company chooses not to outsource the company consumes a lot of resources in terms of time, costs and personnel (Mierau, 2007). The market is dynamic and soon the company may become overwhelmed. Outsourcing has risks though and the company has to minimize third party risk to avoid criminal and civil suits due to leakage of information or reputation of the company may be damaged. Outsourcing IT is strategic in that a company gets what an internal IT department may not be able to give.
Entrusting a third party with such a critical function is a very important decision. IT can help an organization perform better or lead to its demise. There are companies that outsourced their IT functions but it turned out to be a complete failure. This is because there was no proper governance of the IT function. The most superior supplier is selected. Third party contract is drawn up with the expected service level agreements. The company needs to ensure that the outsourcing has the top management support. The stakeholder’s to the contract have to have their interests considered. The relationship between the third party and the company is critical and should be managed effectively. All risks such as strategic, operational, legal, compliance and financial should be identified and managed (Kendrick, 2009). Managers need to be trained on the role and objectives of outsourcing, risks involved and management of these risks (Lewis & Welterveden 2003). Governance refers to the regulation and control of processes (PMIS, 2005). In IT corporate governance, the board or the highest decision making body controls the IT function.
There has to be clearly defined role of the IT steering committee. Their role and vision should be clearly understood by the board members. Their objective is to take consideration of the interests of the shareholders and stakeholders and address issues of risk such as information security and compliance. Governance is an area that the government and other regulatory bodies are much interested in. Companies with weak corporate governance culture end up failing (Duggan, 2004). The statutory laws clearly lay out the roles and duties of directors. The management should be conversant with the statutory requirements on governance. There is an important aspect of corporate governance known as IT governance. This is the leadership, structure and processes of the IT department (Terje, 2006).
The IT department should support or contribute to the achievement of the organizational objectives. This will only be possible where there is accountability and transparency in the decision-making in the organization. There should be clear lines of responsibility so that everyone understands what he or she is accountable for. An organization should strive to achieve certification from regulatory bodies in addressing risk management, data security and data protection in their companies. There is BS ISO/IEC and Cobit to assist management measure the level of IT governance in their organizations. There is another aspect of governance that involves project management. This covers the development and implementation process. For a project there should be top-level management. The project committee needs to be set. The timing, resources, roles and responsibility should be clearly understood. The managers can be enlightened through training on these aspects of project management. Risks during the whole process should also be identified and managed by the top leadership. In a project it involves a lot of teamwork.
The IT department frequently has projects that management needs to allow time for and provide all the required resources. The governing structure consists of senior management that includes the board, strategic steering committee, executive committee, the project management team that looks at the details the SLA agreements, negotiations and supplier selection. There should be persons charged with commercial objectives, operational objectives and financial objectives. The project committee may require special experts in IT, HR, asset management and finance (Gray & Larson, 2003). There should also be an officer or staff from risk management department. This is very important and cannot be ignored. If the company decides to stop outsourcing then the company may need to have an exit committee to close or end contract with the third parties. The retained IT function takes care of the other functions. It is responsible for protecting the interests of the company so it needs to keep checking that the third party company commits to the SLA agreement. It needs to keep contact with the supplier so that they are always aware of the organization’s needs. It also ensures that disputes are resolved amicably.
It is also responsible for managing the end users or company staff ensuring that there are open channels of communication to listen to their dynamic or ever-changing system requirements. When the users keep thinking of what they want the system to do it gives room for innovation and competitive performance. With the IT governance concepts the IT department will also be supervised and monitored for accountability. Handling supplier relationships can be hard due to personnel changes and even business environmental changes (McFarland & Nolan 1995).There needs to be constant communication and transparency to ensure success.
The company choosing to outsource its services should let the board make the decision. Outsourcing and project management decisions and processes need to have the full support of the board for full success. There should be a project management team with all the necessary experts handling the project. Clear objectives of the project should be clearly understood by all the project leadership. All the necessary resources should be provided in terms of staff, money, time and any other resource. When the boards conduct such a project without governance it is catastrophic as the company is exposing itself to risks and vulnerabilities that will lead to project failure (Morris, 2004).
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