The status of information systems department: the effects of downsizing.

In today's volatile economy, organizations are constantly exploring avenues to remain competitive. Information systems (IS) downsizing is one of the strategies used by many organizations in continued efforts for survival. There are considerable risks and rewards to the various units within the firm including the IS department associated with downsizing strategy. Empirical studies that evaluate the impact of the process on the IS department is needed to help organizations better manage their information technologies and systems. This study investigates the real impacts of IS downsizing on the IS department as perceived by IS managers of those companies whose IS had been downsized. With a pre-tested survey instrument, the study compares 12 critical characteristics of 98 IS departments before and after the downsizing process. The gains and drawbacks of IS downsizing are also analyzed based on key indicators that are emphasized in the literature. The results indicate that IS downsizing has definite benefits and drawbacks. The findings also show that the net gains on some of the key indicators are not as significant as the IS downsizing proponents may claim.

Introduction

Corporations continually restructure some or all aspects of their business units hoping to operate efficiently in today's increasingly competitive business environment. Corporate restructuring, or downsizing, is a common trend these days because of the volatile global competition. Efforts to increase productivity and resource utilization often require that organizations introduce new policies and procedures that would make its business units most cost effective. The process often starts with those units with large budgets because the largest marginal improvement would naturally come from such units. Information systems (IS) departments have become the most popular target for the downsizing process because the end-users generally perceive its annual budget to be significantly larger than its services. In the recent past, IS departments were treated as a no-go area for downsizing because they were seen as the heart and soul of the organizations, but as the economics of downsizing become known to top management, the concept has become one of the hottest in the mainstream of technology management (Booker, 1989; Buchanan and Linowes, 1980a; Doll and Doll, 1990, 1992).

IS downsizing, a new buzzword, means a number of things to several people: the process of replacing mainframes and centralized microcomputer systems with networks of microcomputers and workstations; the process of contracting the computing services to vendors' companies (outsourcing); reducing the size and responsibilities of IS department; and the process of transferring computing services to the end-user departments. In this paper, the term "downsize" is used to include any or all of these processes with the goal of reducing total corporate costs and/or improving effectiveness of information technology (Chivvis, 1991; Douglas, 1990; Gerber, 1992; Horwitt, 1990a).

The process of IS downsizing entails an effective management of a firm's entire application portfolio structure (Kiely, 1992; McFarlan, 1981), which includes decomposition of that portfolio into loosely coupled clusters of applications. The decomposed applications can then be run on less expensive mini and microcomputers that are more familiar and friendly to the end users (Melymuka, 1989; Scherr, 1987). This process gives birth to distributed and decentralized computing environments (Ahituv, 1989; Buchanan and Linowes, 1980b; King, 1983).

The presumed benefits and drawbacks of IS downsizing originate from the benefits and pitfalls of distributed computing. The potential benefits of downsizing can and have made many firms jump into the process of downsizing without much analysis of the real cost of downsizing and the suitability of their situation to the process (Isabella, 1989). Several companies approach downsizing without adequate analysis of the consequences. For instance, First American Bank's Chairman Smith announced that his bank would save $40 million and 150 positions over ten years by farming out major computing operations to an IBM subsidiary without stating how much such an action will cost the bank or how well the bank will be served (Cusack, 1991). Also Metropolitan Life Insurance Company decided to halt its IS downsizing after realizing, half way through the process, that it involved much more than technology issues and that the company needed to give it more careful consideration before proceeding with the process (Cusack, 1991). In effect, IS downsizing often requires more major adjustments in the organizational structure than the firms anticipate or prepare for (Huff, 1989; Ives and Learmonth, 1984; King, 1983). One important ingredient to a successful downsizing is a thorough analysis of the total impact of the process before taking any action (Isabella, 1989; Neilson, 1990). Some firms may simply transfer costs from one location or unit to another without any real cost savings. Since some firms do not systematically cost-justify and evaluate the process of downsizing, it is not clear whether firms actually experience the potential advantages of downsizing. Case studies found in the literature are mixed concerning the experiences of IS downsized (Doll and Doll, 1992; Horwitt, 1990b; Waurzyniak, 1989). Some have reported substantial savings while others show inconsequential or no gains.

It is apparent that not every company that downsizes its ZS department benefits from the process. Some of the reported benefits might have come on an exploded scale; that is, the benefits might not have been as large as reported, if a proper cost-benefit analysis was done. None of the reports known to the authors has any empirical substance. Cameron (1994) rightly points out that "downsizing may be the most common, albeit under-researched, practice in the current world of business." She adds "empirical examinations of the different causes, results, and dynamics of downsizing remain at a low level." Since IS downsizing has such a great potential to impact the IS department and the whole organization, empirical studies should be conducted to determine what these impacts are.

The purpose of this study was to investigate the real impacts of IS downsizing on the IS department as perceived by the IS managers of those companies whose information systems division had been downsized. The aim of this study was realized through a survey of 98 large companies that had implemented IS downsizing. The specific issues examined were:

* the assessment of the real (experienced) benefits of IS downsizing;

* the assessment of the real (experienced) drawbacks of IS downsizing;

* the comparison of the critical characteristics of IS departments before and after the successful implementation of IS downsizing; and

* the identification of areas in which IS downsizing has the most potential.

Background

Advancement in information technologies and increased working knowledge of users have jointly created a conducive atmosphere for the recent rising trend of the downsizing process. Competitive pressure and economic sluggishness have also brought pressure to bear on companies to downsize. Reduction in IS costs and its effectiveness have become major goals for firms wishing to successfully compete in the information age.

There are three dimensions to IS downsizing: the hardware, the software, and the IS functions (Davis and Hamilton, 1993). The hardware and software dimensions involve migration of the IS applications and the hardware/software from centralized mainframes to networks of smaller decentralized computers. In general, applications can be migrated from:

* a mainframe to minicomputers;

* a mainframe to microcomputers;

* a mainframe to a local area network of microcomputers; and

* a minicomputer to a local area network.

The functions dimension of IS downsizing involves moving some or all IS responsibilities into the functional units. Owing to their portability, lower costs, greater flexibility, convenience, and increasing power, mini and microcomputers are becoming increasingly popular in the multi-users environments. The new series of Pentium microcomputers have large memories and storage capacities and, therefore, are fast enough to perform any computing activities that were traditionally mainframe oriented. In addition to dramatically advanced microcomputer hardware, the accompanying operating systems are phenomenal. Microsoft Windows 95/97 and NT provide nearly seamless interfacing with practically all packages. The IBM's operating system/2 (OS/2), for instance, which …