The Plan

1. The Plan Exam prep session today with Kim Glesser at 5:15. Final Exam – Saint Patrick’s Day – March 17 – 12-3 Today—finish IS Organization and Personnel and start IS Value and Financial Strategies 1. Thursday—finish IS Value and start IS Planning 2. Tuesday—Finish IS Planning and TQM & IS 3. Thursday—Bob Sanguedolce, CIO at eBay 4. Tuesday—Student Presentations 5. Thursday—Final Chapter

2. What do you think? Diversification or Worsification!? The truth about Intel lies ahead.

3. PC Component Industry

4. Business Strategy Model - Motorcycle Manufacturing Industry Product Strategy Type/Purpose/Size Heavyweight Off-Road Dual Purpose Road Racing Café Racer Price Strategy Entry Level Moderate Premium Market Strategy Law Enforcement Military Recreational Professional Young Adult North American Europe Japan/Asia Latin America Manufacturing Strategy Vertically Integrated Vendor Emphasis Outsource Sales/Distribution Strategy Distributors Independent Dealers Franchised Dealers Company Structure Independent Alliances Joint Ventures/Subsidiaries Information Systems Engineering Product Design Manufacturing Sales/Distribution Business

5. Business Strategy Model for the Newspaper Industry Product Strategy Special Interest General Interest Local News National News International News Financial Sports Entertainment Advertiser Target Audience General Business Specialized Advertisers Retail Industry Classified Market Focus Local Regional Multi-Regional International National Information Sources Foreign Correspondents Local Editorial Staff Regional or National Correspondents Wire Service Newspaper Alliances

6. Publishing Strategy Outsource the printing process Internal Publishing System Sub-contract Delivery Strategy Home and Business Delivery Internet Online Mail Delivery Retail Sales Company Structure Strategy Joint Ventures and/or Subsidiaries Independent Alliances Information Systems Strategy Self Develop Self Sufficient Application Package Self Sufficient Consultants & Systems Integrators Outsource Editorial System Publishing System Business Systems

8. ATP A common mistake regarding substitutes is to miss “outsourcing.” Remembering that a substitute is an alternative to doing business with the SBU or its rivals, to outsource the management of a company’s PC operations can fundamentally change the relationship with Dell, Microsoft, Oracle or even Sun. The Internet has added two additional business resources in the form of extranets and intranets. Business papers are not written in first person!

9. Chapter 12 Summary Using Information Systems to Compete: A Success Factor Profile

10. Use of The Success Factor Profile 1. As a basis for an initial planning process to focus information systems on competitive issues. 2. As an assessment of the progress of new systems and how they are meeting competitive objectives. 3. As an audit device for mature systems to make sure the company has not missed a shift in the dynamics of the organization.

11. Success Factor Profile

12. The Success Factors In evaluating the factors in the profile as they relate to a specific organization. 1. How important are each of these factors as they relate to gaining a competitive advantage? 2. Who should play a key role? 3. Where are the current strengths and what areas must be improved?

13. The Success Factors • Business Vision is the photograph for the future of the business. • Culture is the senior management value systems and needs to become “the way we do things around here.” • Risk Management addresses where the organization is willing to take risks. • Planning Implementation suggests that the strategic, operational and financial plans should drive the priorities of the information systems organization.

14. The Success Factors • Information Systems Integral to the Business emphasizes that Information Systems have become an integral part of a major business process. • Information Systems Justification Process addresses the economic justification and financial strategies important to any information systems effort. • Executive and Information Systems Management Partnership • Executive Information Systems Experience states that IS experience among executives is important and plays an important role.

15. The Success Factors • Operational Automation indicates that a major business process has been automated through the use of computer-based systems. i.e. manufacturing. • Linkage to Suppliers and/or Other Business Partners the use of an extranet. • Linkage to Customers through the use of an extranet. • Linkage to Customer Service is the repair and customer service part of the value chain. • Pervasive Computing Literacy states that broad scope computer capabilities are important to the organization’s ability to utilize and leverage the use of information systems.

16. The Success Factors • Information Systems Architecture is the blueprint on how an organization designs, builds and implements new information systems. • Information Systems Marketing indicates that the IS organization does a good job of selling the potential for new information systems within the organization. • Information Systems and User Relations deals with the importance of the relationship between the IS organization and users.

17. Federal Express Vision Culture Executive and Information Systems Management Partnership Information Systems Integral to Business Linkage to Customers Company Success Factor Profiles

18. Company Success Factor Profiles British Airways • Vision • Culture • Information Systems Integral to the Business • Executive and Information Systems Management Partnership • Information Systems Architecture

19. Possible Exam Questions • Explain the three modes in which the Success Factor Profile can be used? • If a friend told you about a company that had • achieved a significant competitive advantage • through the use of information systems, what • questions would you ask to determine the major • reasons for this success?

20. Chapter 14 Introduction Information Systems Value and Financial Strategy

21. Quick Overview We will examine the issues involved in determining the business value of IS and some possible financial strategies that can be implemented to better manage the increasing amounts of money being spent on Information Systems.

22. High IS Costs Gets Senior Managements Attention • There is a growing dependence on information systems to run the organization. • Information systems expenses and capital funding have frequently become quite large. • For these reasons senior management has become more active in managing the role and significance of Information Systems.

23. Primary Inhibitors of the Growth of IS • Inability to articulate the value derived from the use of Information Systems. • Implementation of new applications – takes too long and costs too much. • Major connectivity problems among installed systems provided by vendors, both within and outside the enterprise. • Lack of ease of use of installed systems – a slow learning curve.

24. The Heart of the Matter The heart of the matter is not how to quantify the contribution of information systems, but how to satisfy management that this support resource makes economic sense based on its role within the organization.

25. Average Information Systems Spending for an Industry Many executives want to know this! Not very meaningful! Industry averages can be misleading!

26. Compare With Whom? • Compare to your own company! • How has IS use and spending evolved over the years? • Is the role and effectiveness of IS what it should be? • What should be done to improve or correct the situation?

27. Evolution of Financial Strategy

28. Productivity driven Focus on measuring efficiency High customer value priority Focus on customer value Answer to the Value Question Look for the answer within the context of the business management and contribution to the success of the business.

29. Conclusions • The issue of IS value is becoming increasingly • more important. • 2. The answer will not come from new and better techniques and methodologies, but through processes set in motion by management.

30. Chapter 14 Information Systems Value and Financial Strategy

31. Information Systems Value • Logical to Address • Necessary to Articulate • Controversial Because “It Can’t Be • Measured.” • A Management Process--Not Techniques • or Methodologies. • The Reason for Significant Management • Consulting.

32. “The Question” What are we getting for that?

33. Senior Management Questions What have I received for past information technology investments? How can we maximize the positive impact of information technology on the business? What is the right amount of investment for the future? How can I track the returns on continuing investments in IT? Needed: A process for measuring and tracking benefits realized from Information Technology.

34. Information Systems Value and Financial Strategy "You have got to get me a lot more comfortable with the fact that you are spending $400 million a year on information systems. Meanwhile, you are not getting any more." CEO to Information Systems Vice President

35. The IT Value Issue 1. The applications development process costs too much and takes too long. 2. Integrated systems connectivity and compatibility have major cost implications. 3. A lack of ease of use negatively impacts user productivity. 4. All of the above impact the ability to articulate IT value.

36. The IS Value Issue? • A Big Deal - Something needs to be done. • A Medium Deal - Being talked about but taking • a back seat to other business issues. • No Deal - Not a current issue and there is no need to • make it a priority within the I/S organization.

37. IT Value Can Become A Major Issue If: • The business is experiencing major cost reduction pressures. • IT expenditures are viewed as a significant cost of running the business. (now or in the future) • There is a growing sentiment that a better job could be done in managing IT expenditures.

38. IS Value and Financial Strategy The heart of the matter is not how to quantify the contribution of information systems, but how to satisfy management that this support resource is contributing to the success of the business.

40. Is the Value Issue Unique to Information Systems? What about? Advertising? Research and Development? Public Relations Programs?

41. IS Value and Financial Strategy Less than favorable publications: 1. “The Elusive IT Payback.” 2. “The Dreaded ROI Question.” 3. “IT Spending: Is It Out of Control? Service Sector’s Huge IT Infrastructure Weakens Competitiveness” 4. “Office Automation: Making It Pay Off.” 5. “New Metrics for MIS.” 6. “Banks Reassess IT Spending.” 7. “ROI in Real Time.”

42. We can find no indication of any positive impact on national productivity despite enormous investments in information technology. Lester Thurow, Dean Sloan School of Management MIT

43. IS Value and Financial Strategy The U.S. service sector has spent $862 billion on IT over the past decade--a figure that is equal to the GNP of France--without any meaningful improvement in productivity.

44. IS Value and Financial Strategy We have seen a very serious problem for the past fifteen years not because of any inherent deficiencies in the machines or the software, but because of management ineptitude in applying technology to productive endeavors. Stephen Roach Economist Morgan Stanley & Co.

45. Information Systems Value Chains System Individual Department Organization Enterprise Technology Tasks Activities Programs Goals

46. As You Progress Up the IS Value Chain • Financial benefits would be greater but more difficult to measure. • The time horizon to implement a new application would be longer. • The organizational level for approval of a new project would be higher. • The management direction and coordination would be greater. • The amount of risk in implementing the application would be greater. • The correlation of benefits with information systems would be less.

47. Dissatisfaction with IS! Prompts a rifle-shot focus on specific elements of Information Systems: • Costs • Measurable return on investment • Inflexibility • Complexity • Project status and time schedules • Lack of business control and understanding • Technical orientation

48. Information Systems Do Not Produce Value Directly Information Systems Value to the Business Business Change

49. Who Should Answer the IT Value Question? • Chief Financial Officer (CFO) • Information Systems Executive 3. User Management (Those benefiting from the IS support)

50. Industry IT Spending Everyone wants to know how they compare with others within their industry. Unfortunately, industry averages can be very misleading.