Nolans Stages of Growth Model: A Brief Overview of its Structural Framework

Nolan's Model Stages of Growth Model (SGM) A summary of the structure of Nolan's SGM (Stages of Growth Model), a general theoretical model which describes the IT growth stages that can occur in an organisation. Overview Richard L. Nolan developed the theoretical Stages of growth model (SGM) during the 1970s. This is a general model, which describes the role of information technology (IT), and how it grows within an organisation. A first draft of the model was made in 1973, consisting of only four stages.

Two stages were added in 1979 to make it a six-stage model.

There were two articles describing the stages, which were first published in the Harvard Business Review. The structure of the final, six-stage model is depicted in the diagram below: [pic] Figure 1: Diagram showing the SGM continuum for growth/maturity The diagram above shows six stages, and the model suggests that: • Stage 1: Evolution of IT in organisations begins in an initiation stage. • Stage 2: This is followed by expeditious spreading of IT in a contagion stage.

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• Stage 3: After that, a need for control arises. • Stage 4: Next, integration of diverse technological solutions evolves. Stage 5: Administration/management of data is necessitated, to allow development without chaotic and increasing IT expenditures. • Stage 6: Finally, in the maturity stage, constant growth will occur. | | Structure of the Model Stage 1 – Initiation In this stage, Information Technology is first introduced into the organisation. According to Nolan’s article in 1973, computers were introduced into companies for two reasons: (a) The first reason deals with the company reaching a size where the administrative processes cannot be accomplished without computers.

Also, the success of the business justifies large investment in specialized equipment. (b) The second reason deals with computational needs. Nolan defined the critical size of the company as the most prevalent reason for computer acquisition. Due to the unfamiliarity of personnel with the technology, users tend to take a "Hands Off" approach to new technology. This introductory technology is simple to use and cheap to implement, which provides substantial monetary savings to the company. During this stage, the IT department receives little attention from management, and works in a "carefree" atmosphere.

Stage 1 key points: • user awareness "Hands Off". • IT personnel are "specialized for technological learning". • IT planning and control is lax. • emphasis on functional applications to reduce costs. Stage 2 – Contagion Even though computer systems are recognised as process change enablers in Stage 1, Nolan acknowledged that many users become alienated by computing. Because of this, Stage 2 is characterised by a managerial need to explain the potential of computer applications to alienated users. This leads to the adoption of computers in a range of different areas. Stage 2 presents some difficulties: Project and budgetary controls are not developed, leading to unavoidable a saturation of existing computer capacity and more sophisticated computer systems being obtained. • System sophistication requires employing specialised professionals, and, due to the shortage of qualified individuals, employing these people results in higher salaries. • The budget for the computer organisation rises significantly, and causes management concern. • Although the price of Stage 2 is high, it becomes increasingly evident that planning and control for the growth of computer systems is necessary.

Stage 2 key points: • proliferation of applications. • users superficially enthusiastic about using data processing. • management control even more lax. • rapid growth of budgets. • management regard the computer as "just a machine". • rapid growth of computer use throughout the organisation's functional areas. • computer use is plagued by crisis after crisis. Stage 3 – Control Stage 3 is a reaction against excessive and uncontrolled expenditures of time and money spent on computer systems, and the major problem for management is the organization of tasks for control of computer operating costs.

In this stage, project management and management report systems are organised, which leads to development of programming, documentation, and operation standards. During Stage 3, a shift occurs from management of computers to management of data resources. This shift: • is an outcome of the analysis of how to increase management planning, control and  expenditure for data processing operations. • provides flexibility in data processing that is needed to meet management’s new controls. The major characteristic of Stage 3 is the reconstruction of data processing operations.

Stage 3 key points: • no reduction in computer use. • greater importance of the IT division to the organisation. • centralised controls put in place. • applications often incompatible or inadequate. • use of database and communications, often with negative general management reaction. • increasing end-user frustration with the IT services provided. Stage 4 – Integration Stage 4 features the adoption of new technology to integrate systems that were previously separate/disparate entities. This creates further data processing (IT) expenditure at rates similar to that of Stage 2.

In the latter half of Stage 4, exclusive reliance on computer controls leads to inefficiencies. The inefficiencies associated with rapid growth may simultaneously create another wave of problems. This is the last stage that Nolan acknowledged in his initial (1973) draft of the stages of growth. Stage 4 key points: • rise of control by the users. • large data processing budget growth. • demand for on-line database facilities. • data processing department operates like a computer utility. • formal planning and control within data processing. users more accountable for their applications. • use of steering committees, applications financial planning. • data processing has better management controls, standards, project management. Stage 5 – Data Administration Nolan determined that four stages were not enough to describe the proliferation of IT in an organization and so added Stage 5 in 1979. Stage 5 features a new emphasis on managing corporate data rather than IT. Like the proceeding Stage 4, it is marked by the development and maturity of the new concept of data administration. Stage 5 key points: data administration is introduced. • identification of data similarities, its usage, and its meanings within the whole organisation. • applications portfolios are integrated into the organisation. • data processing department serves more as an administrator of data resources than of machines. • use of term IT/IS rather than "data processing". Stage 6 – Maturity In Stage 6, the application portfolios - tasks like order entry, general ledger, and material requirements planning - are completed according to a structure that mirrors the organisation and its information flows.

During this stage, tracking sales growth becomes an important aspect. Typically: • 10% of the work relates to batch and remote job entry. • 60% of the work relates to dedicated database and data communications processing. • 5% of the work relates to personal computing. • 25% of the work relates to minicomputer processing. Management control systems are estimated as being 40% of Stage 6. There are three aspects of management control; manufacturing, marketing and financial: • Manufacturing control requires forecasting future needs. • Marketing control strictly deals with research. Financial control requires forecasting future cash flow requirements. Stage 6 exercises a high degree of control, by compiling all of the information from Stages 1 through to 5, inclusive. This allows the organisation to function at relatively high levels of efficiency and effectiveness. Stage 6 key points: • systems that reflect the real information needs of the organisation. • use of data resources to develop competitive and opportunistic applications. • data processing organisation viewed solely as a data resource function. • data processing emphasis on data resource strategic planning. ultimately, users and DP department jointly responsible for the use of data resources within the organization. • manager of IT system takes on the same importance in the organisational hierarchy as (say) the director of finance or director of HR. Discussion 1. Though Nolan’s Stages of Growth Model was ahead of its time when it was first published in the 1970s - providing the first such theoretical model to describe the growth of IT within an organisation - it would probably now be perceived to have several shortcomings and to be old-fashioned or out-of-date. . The model had as a main focus the change in IT budget, but critics questioned whether it was “reasonable to assume that a single variable serves as a suitable surrogate for so much. " Though it would seem reasonable that this single variable could be an indicator of other variables such as the organisational environment or the organisation's learning curve, it would not necessarily be the sole driving force for the entire model. Nolan showed little connection that would make that main focus a valid one. 3.

Nolan stated that the force behind the growth of computing through the stages is technological change. King and Kraemer found this to be far too general, “... there are additional factors that should be considered. Most important are the ‘demand-side’ factors that create a ripe environment for technological changes to be considered and adopted. " As proposed, technological change has a multitude of facets that determine its necessity. Change cannot be brought forth unless it is needed under certain circumstances. Unwarranted change would result in excess costs and potential failure of the process. . The Stages of Growth Model assumes straightforward organizational goals that are to be determined through the technological changes made. This could be viewed as very naive from the user perspective. King and Kraemer state, “... the question of whether organizational goals are uniform and consistent guides for the behavior of organizational actors, as opposed to dynamic and changing targets that result from competition and conflict among organizational actors, has received considerable attention in the literature on computing. Clearly, organizational goals are ever-changing and sometimes rigid indicators of direction. They cannot be “uniform” objectives that are not subject to change. 5. Thus, though as time has passed, Nolan’s Stages of Growth Model has revealed some potential weaknesses, this does not detract from his early and innovative theoretical analysis into the growth of IT within organisations.