What’s Happening!?

1. What’s Happening!? HP posted what they felt were good financial results and got hammered by the stock market. Fortune released its “Most Admired Company” issue. Who was number 1?

2. Fortune’s Most Admired Wal-Mart Stores Southwest Airlines Berskhire Hathaway Dell Computer General Electric Johnson & Johnson Microsoft FedEx Starbucks Procter & Gamble

3. Wal-Mart Significance • $240 Billion in Sales Revenue • 1.4 Billion Associates • First time in the 21 year history of the Fortune most admired list that the largest company is listed number one.

4. Wal-Mart = Largest Customer Disney Procter & Gamble Kraft Foods Revlon Gillette Campbell Soups

5. Wal-Mart Significance It Buys the Most % of its total sales to Wal-Mart • Tandy Brands Accessories 39% • Clorox 23% • Revlon 20% • RJR Tobacco 20% • Procter & Gamble 17% It Sells the Most Product U.S. market share** Dog food 36% Disposable diapers 32% Photographic film 30% Toothpaste 26% Pain remedies 21% **Percent of all sales through food, drug, and mass-merchandisers.

6. It Sells the Most in the US • DVDs • Groceries • Toys • Guns • Diamonds • CDs • Apparel • Dog food 9 .Detergent 10. Jewelry 11. Sporting goods 12. Video games 13. Socks 14. Bedding 15. Toothpaste

7. It is the Largest • Film developer • Optician • Private truck fleet operator • Energy consumer • Real estate developer

8. Wal-Mart Significance • Wal-Mart's sales on one day last fall--$1.42 billion— • were larger than the GDPs of 36 countries. • • It is the biggest employer in 21 states, with more people • in uniform than the U.S. Army. • • It plans to grow this year by the equivalent of a Dow • Chemical, a PepsiCo, a Microsoft, or a Lockheed Martin. • • If the estimated $2 billion it loses through theft each year • were incorporated as a business, it would rank No. 694 • on the FORTUNE 1,000.

9. On a final note $50,000 salaried buyers with $1 billion budgets are fairly common. 200 vendors have located offices in Bentonville. “Every thing here is like Wal-Mart.” Sam’s culture seems to be alive and well. “How would Sam deal with this?” “What would Sam think?”

10. Chapter 14 Summary Information Systems Value and Financial Strategy

11. Chapter Objectives 1. Recognize the issues related to determining the business value of information systems. 2. Understand possible financial strategies that can be implemented to better manage the increasing amounts of money being spent on information systems.

12. What Triggers a Possible Problem? Senior management asks the question: What am I getting for that!

13. High Costs Get Senior Management’s Attention • As information systems have become a more accepted resource within many organizations, there are three trends: • 1. There is a growing dependence on information systems to run the organization. • Information systems expenses and capital funding have become quite large. • The growth trends regarding IS expenditures becomes a topic of concern.

14. The Answer to the Question The best answer lies within the context of business management and contribution to key factors that make a major contribution to the success of the business.

15. The Evolution of Information Systems Justification Evolution of Financial Strategy Initiation Expansion Control Maturity I II III IV Application Support Motivation Financial Justification DP Planning Organization Organizational Strategy Single Area Proliferation Containment People Displacement Cost Avoidance Competitive Advantage DP Efficiency Business Case Installation Audit Charge-Out System Management Process Budget Little Reactive Directed Proactive Centralized Decentralized Distributed Finance Dept. Multiple Dept. Centralized Based on material from Gibson and Nolan, Harvard Business Review, January-February 1974, pp. 76-88.

16. Stage I Stage I: In the Beginning There Are Budgets Organizations include funding for information systems as part of a departmental budget. Challenge: To do as much as possible while not exceeding the budget. Problem: Use of IS is limited to the amount of the budget.

17. Stage II • Stage II: With Growth Comes The Need for a Business Case • Challenge: To create business case proposals that do a good job of reflecting the value to the business whether it be cost avoidance or displacement, efficiency, effectiveness or competitive advantage. • Problem: While most business cases reflect the impact of the proposed system over multiple years it is still a snap shoot in time and does not reflect the dynamics of the environment or the changing needs for the new system.

18. Stage III Stage III: Departments Should Pay for the IS Support They Receive Challenge: To implement a charge-out approach that makes sense based on the intended role of information systems that is understood and accepted by user management. Problem: To gain a sense of responsibility and accountability for IS costs while not discouraging doing things with IT that make sense in better running the business.

19. Stage IV Stage IV: Time for a Management Process Challenge: To implement a new process based on factors that drive the success of the business that does a better job of articulating the value of information systems to senior management. Problem: Requires time and resources that can be criticized as “justifying the air conditioner in a car that one doesn’t logically need to do if you live in Arizona.”

20. Is There a Way to Manage Large IS Expenditures? • Four key elements that contribute to the overall success of the organization: • Commitment planning that identifies specific goals and accountable managers. • Effort to minimize user emotion while establishing expectations regarding IS support. • Emphasis on an entrepreneurial attitude and approach within the IS organization and the company as a whole. • Regular communication regarding IS performance.

21. Possible Exam Questions 1. What prompts senior management to questions the value of information systems? 2. Identify and explain the four stages of the evolution of financial strategy including what is right about each approach and what is potentially wrong with it.

22. Chapter 15 Integrating IS into the Business Plan

23. Objective of planning Planning should be used as a way to communicate the direction of the organization through the best strategies and tactics.

24. Major Planning Challenges • What to do • -Important to know where the company is going • Making it happen • -Can be difficult because it involves changes

25. Drivers Influence Planning

27. IS needs to be integrated into the business planning process

28. Barriers to Aligning IS with Business Objectives • Senior management perception of information systems • Executive skills of the IS executive

29. Business Management Issues • Executives are reluctant to become more closely involved with an information technology based strategy because they are not comfortable with it, or in some cases do not really understand it. • Senior management does not view IS as an important competitive weapon. • The long-range planning process does not force IS to be addressed at all or as an integral part of the development of new strategies.

30. IS Management Issues • IS managers might not really understand the issues and challenges of the business and are not in a position to make good recommendations regarding the role of IS. • IS is not being sold proactively within the organization. • Little or no previous computer-based systems within the organization could mean that using IS to make a major contribution to the business would be both costly and time consuming.

31. Conclusions • The objective of planning is not to control but to guide and direct. • Planning is a tool to be used by an organization to identify the right things to do, and to initiate action programs to accomplish the things identified. • It its crucial to have IS managers who can make tough decisions on resource allocations to pursue new opportunities and orchestrate structural change.

32. Chapter 15 Business and Information Systems Planning

33. The Topic of Planning Raises a Number of Questions • Importance of Planning? • Purpose (Objective)? • Who does what? • Impact on the organization? • How to keep the process dynamic? • Relationship with information systems? • Right planning methodology? • Planning success factors?

34. Importance of Planning? Nothing seems more logical, more reasonable or more appropriate than planning.

35. A Planning Job? How many of you would like a job where your primary responsibility deals with planning?

36. Planning Plans are nothing. Planning is everything! Dwight D. Eisenhower

37. Business and IS Planning • Is information systems a legitimate high priority consideration in the developing of business strategic plans? • Who needs to play a key role in integrating the role of information systems with the business strategy? • Why is this even an issue? • What are major barriers to linking information systems with the business strategies?

38. Business and I/S Planning 5. What would be an ideal role for an information systems executive to play relative to business strategies? 6. What planning methodologies really work? Why?

39. Integrating IS into the Business Plan It all starts with business planning, so answers are needed to the following questions: 1. Why plan? 2. What to plan? 3. How to plan? (Best methodology?)

40. Planning Doing things today to make us better tomorrow. Because the future belongs to those who make the hard decisions today.

41. Business Planning An effort that tells people within the organization where to put their emphasis, priorities and resources. The issue is not methodologies but one of priorities--where the people running the business spend their time.

42. Business and IS Planning • Doesn’t the unpredictability of the future preclude the planning and implementation of computer systems that will be appropriate and responsive to a company’s needs? • Can a company really innovate and computerize at the same time? • With so much happening with technology how can a company stay current?

43. Strategic Planning Strategic planning is the systematic examination of opportunities and threats in the business environment so that you are in the position to identify those opportunities that should be exploited and the threats that should be avoided. George Steiner To create opportunity that can be leveraged to create differential advantage in the marketplace. N. Les Clark

44. Organization • Decentralization • Downsizing • Outsourcing • Business Partnering • Corp. Alliances New Markets, Opportunities and Competitors • Process • Reengineering • Redefining • TQM Organizational Response to Business Drivers • Employees • Skills • Empowerment • Quality Circles • Teams Time, Flexibility and Responsiveness as Competitive Factors • Product Customization • Value-added Services • Markets • Customers • Global Standards Figure 15-1

45. The objective of business planning is not to control but to guide and direct. The same is true for IS planning but this needs to be directed by plans for the business.

46. Strategy Versus Planning Strategy is thinking through a company’s basis for competitive advantage. Planning is a means of establishing a strategy but italsofocuses on making the strategy work.

47. Planning Focus Performance Control Objectives Budgets Action Planning Strategies Tactics

48. Do people rely on data or market instincts to make judgments?

49. Criticism of Planning • Control • Politics • Conservatism • Conformity • Inflexibility • Non-responsive to Market Demands • Leads to Generic Change

50. Business planning becomes meaningful when accompanied by prompt execution. Worth Remembering!