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:

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.
 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 probabaly now be perceived to have several
shortcomings and to be old-fashioned or out-of-date.

2. 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.
4. 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 naïve
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.