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Business Cases and Zara

Today's Schedule. 8/1:00

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Business Cases and Zara

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    1. Business Cases and Zara

    2. Today's Schedule 8/1:00 – Introductory Remarks 8/1:10 – Debrief from Goldratt 8/1:50 - Quiz & Break 9/2:10 - Justifying IT Investments 10/3:30- Break 10/3:40 - Zara 11/4:40- Self Reflection

    3. Beyond the Goal Goldratt on how IT delivers value...

    4. The search for the new rules: 1. What is the main power of the technology? 2. What limitation does it diminish? 3. What rules helped us to accommodate the limitation? 4. What rules should we use now?

    5. Beyond the Goal I think that Dr. Goldratt and Hammer and Champy have slightly different ways of looking at some of the same problems. Goldratt is very focused on finding the limitations and the rules that support them rather than Hammer and Champy's view that you should look past the current understanding/limitations of new technology. I had a reaction similar to Kristen's when I read the chapters, but think that they are both relevant. Goldratt is helping you find the limitations in the process and H&C are looking at perceived limitations in technology. It may be that you can solve a limitation in process by using an existing technology in a new way. -DM Any examples of this at Vasa? Fabritek? Zara?

    6. Beyond the Goal Goldratt on the long tail of project mgmt...

    7. The prevailing rule of project management: The way to ensure that the project will finish on time is to try to make every task finish on time.

    10. On my last job, we as team budget our task accordingly, we do not take into account the murphy's law. If something unexpected did come up, we moved the unfinished task into the next milestone. The management team understood this and we were never penalized for missing a few task deadlines because there were times when we managed to finish our task ahead of schedule. I guess this is the kind of protection that is set at the project level and I think it works much better than protection that is set at task level. Another point that Dr. Goldratt made was that people want to be seen as responsible and trustworthy. Ironically, this has an unfortunate consequence on project management. People who finish their project early get penalized and being labeled untrustworthy. Hence, instead of rewarding hard working and diligent workers, the management usually see them as being overly exaggerating in their project estimate. Thus, the company can't reap the full benefit of these workers because they chose to do useless and unproductive task in order to make the project completion date nearer to the estimated time. RP

    11. Beyond the Goal Goldratt on holistic process change...

    12. Why a holistic approach? 1. Improving only one link may cause problems in another.

    13. I do not disagree that holistic change can be a silver bullet for an organization. However, this type of change can be too massive for many organizations. The holistic approach hopes to change the way a company operates. For this kind of change to occur from the ground up, the organization must be ready and willing to undergo restructuring. I do not believe the changes at Cadillac is an example of BPR. I do not think the changes were intensive enough. -MY How about the Vasa? Fabritek? Zara?

    14. Quiz

    15. Justifying IT Investments Common Experiences with IT Justification

    16. What’s the Problem? How many systems do you interface with as a student at PU? Which of them do you find useful in performing your job as a student?

    17. What’s a Business Case? The economic and organizational logic and rhetoric that justifies an IS investment. A good business case is… addressed to a known business problem in sync with strategy capable of standing on its own able to convince an objective audience of the value of the investment. The economic and organizational logic and rhetoric that communicates a vision for an IS investment. It must be capable of standing on its own an convince an objective audience of the value of the investment.The economic and organizational logic and rhetoric that communicates a vision for an IS investment. It must be capable of standing on its own an convince an objective audience of the value of the investment.

    18. Common considerations… TECHNICAL: assess capability and stability of hardware, software, and technical resources ECONOMIC: will benefits outweigh costs? OPERATIONAL: is solution desirable relative to prevailing process requirements? Does it improve our current process? ORGANIZATIONAL: is the organization capable of absorbing the proposed solution? Will it be used As an example, review the online course-evaluation process we discussed last week. That system-as developed-was appropriate technology, economically, and operationally. However, the ORGANIZATION was not capable of absorbing the proposed solution because of a lack of training and preparation. Or, if we haven’t covered that yet, discuss the Vasa case..in principle it was an operational improvement and we were able to absorb it organizationally, and economically. However, we didn’t have the technical capability for it. Or, Fabritek-economically and technically we were okay, but process & organizational weaknesses led to problems.TECHNICAL: assess capability and stability of hardware, software, and technical resources ECONOMIC: will benefits outweigh costs? OPERATIONAL: is solution desirable relative to prevailing process requirements? Does it improve our current process? ORGANIZATIONAL: is the organization capable of absorbing the proposed solution? Will it be used As an example, review the online course-evaluation process we discussed last week. That system-as developed-was appropriate technology, economically, and operationally. However, the ORGANIZATION was not capable of absorbing the proposed solution because of a lack of training and preparation. Or, if we haven’t covered that yet, discuss the Vasa case..in principle it was an operational improvement and we were able to absorb it organizationally, and economically. However, we didn’t have the technical capability for it. Or, Fabritek-economically and technically we were okay, but process & organizational weaknesses led to problems.

    19. Common Causes Ask them to fill in examples of each of these types of systems. Mandated - state or federal regulations (SOX, PUC)? Maintenance - support of current applications (ERP, )? Discretionary- (AMI, IDM)? Identify investment issues of each alternative Identify risk factors Identify objectives increase revenue reduce costs Improve level of service all of the above Ask them to fill in examples of each of these types of systems. Mandated - state or federal regulations (SOX, PUC)? Maintenance - support of current applications (ERP, )? Discretionary- (AMI, IDM)? Identify investment issues of each alternative Identify risk factors Identify objectives increase revenue reduce costs Improve level of service all of the above

    20. What are the most commonly used drivers at SCE? The point here is that firms have different business drivers depending on their strategy and the way they use IS.What are the most commonly used drivers at SCE? The point here is that firms have different business drivers depending on their strategy and the way they use IS.

    21. Looking at Business Cases What was your team’s assessment of the CPI business case? Consumer Products International (CPI) HR Intranet & Virtual University CPI’s Human Resources (HR) systems are in disarray. Christopher Martin and James Cameron, the project’s sponsors, describe the problem as a lack of integration among disparate HR systems that leads to extensive duplication and waste of effort. They propose an HR Intranet for $350,000 to “speed up the process of skill absorption” and to create “one-stop shopping for all HR systems and executive tools.” Their business case is largely grounded in arguments of faith regarding the organizational impact of the new system. Their analysis reports on both quantifiable and non-quantifiable benefits, includes a risk analysis, two alternatives, and an action plan. They calculate a net present value for the five years of the project at $1,601. We open the class session by asking for an assessment of the Consumer Products International HR Intranet case. The students are usually quick to surface the problems with the case and some will recognize some of its merits. These can be boarded under categories of strengths and weaknesses. I then ask for a show of hands regarding who would fund this proposal and ask them to defend why. This provides an opportunity for a substantive dialogue among the students regarding the merits of the business case. Consumer Products International (CPI) HR Intranet & Virtual University CPI’s Human Resources (HR) systems are in disarray. Christopher Martin and James Cameron, the project’s sponsors, describe the problem as a lack of integration among disparate HR systems that leads to extensive duplication and waste of effort. They propose an HR Intranet for $350,000 to “speed up the process of skill absorption” and to create “one-stop shopping for all HR systems and executive tools.” Their business case is largely grounded in arguments of faith regarding the organizational impact of the new system. Their analysis reports on both quantifiable and non-quantifiable benefits, includes a risk analysis, two alternatives, and an action plan. They calculate a net present value for the five years of the project at $1,601. We open the class session by asking for an assessment of the Consumer Products International HR Intranet case. The students are usually quick to surface the problems with the case and some will recognize some of its merits. These can be boarded under categories of strengths and weaknesses. I then ask for a show of hands regarding who would fund this proposal and ask them to defend why. This provides an opportunity for a substantive dialogue among the students regarding the merits of the business case.

    22. Arguments of Fact “The system will eliminate the need for hiring two positions for an annual savings of $100K.” Justify using hard data, quantitative, structured feasibility assessment Arguments of Faith “IS is infrastructure. We need it to support our growth and stability.” Justify by vision. Investment X will lead to benefit Y. Arguments of Fear “If we don’t do this we may be eaten alive by our competition.” Justify by perception of events. Arguments of Follow “We are the last firm in our industry to adopt technology x…” Often caused by a uncertainty about the core problem, so imitate a respected peer.Arguments of Fact “The system will eliminate the need for hiring two positions for an annual savings of $100K.” Justify using hard data, quantitative, structured feasibility assessment

    23. Justification Strategies and Understanding Low/low= Faith Low process/high IT=Fear High process/Low IT = Follow High/High = FactsLow/low= Faith Low process/high IT=Fear High process/Low IT = Follow High/High = Facts

    24. Mapping the F’s In your teams, take a few minutes to analyze the CPI Business Case looking for examples of each of the four F’s. Write examples of each on the boards.

    26. Let’s take a 10-minute stretch break, then come back for about 15 minutes of instructions for the case.Let’s take a 10-minute stretch break, then come back for about 15 minutes of instructions for the case.

    28. Zara On the Spot Map their Order/Inventory Process be sure to identify bottle necks and capacity limiters. What current or potential weaknesses (if any) do you see in Zara’s IT infrastructure and IT strategy? What benefits does Inditex / Zara get from its IT infrastructure? How difficult would it be for a competitor to acquire these same benefits? How would you advise Salgado to proceed on the issue of upgrading the POS terminals? Should he upgrade to a modern operating system?

    31. Or, from the other perspective…

    33. The big concern is that our supplier of POS systems will not guarantee continued production. To remedy this we could contract for a large lot of machines in case of problem. The recommendation MUST address this issue…It’s the problem!The big concern is that our supplier of POS systems will not guarantee continued production. To remedy this we could contract for a large lot of machines in case of problem. The recommendation MUST address this issue…It’s the problem!

    34. Our strategy is short-life cycle, rapid response fashion. Improving our SCM to have better access to parallel stock is inconsistent with our strategy.Our strategy is short-life cycle, rapid response fashion. Improving our SCM to have better access to parallel stock is inconsistent with our strategy.

    35. What are the 4 F’s for this case? Most of the recommendations I read are almost exclusively FOLLOW & FAITH. The FACTS of expenses are easy enough to calculate, but what about returns?Most of the recommendations I read are almost exclusively FOLLOW & FAITH. The FACTS of expenses are easy enough to calculate, but what about returns?

    36. Conclusion

    38. Final Project Review the Rubric and Length Reqs. Level of Analysis Issues Focus on a FIRM, not an INDUSTRY Eg. A firm focus examines a process change/technology at a firm and how they implemented/changed their processes. An industry view examines an overall trend and how technology affects a process in theory.

    40. The End

    41. Final Project Take a few minutes to review your project with your team. I would like to meet with each team for a few minutes to review your current plan and offer any advice for you to succeed.

    42. Unused Slides

    43. Evaluating and Valuing IT Investments The benefits and costs are often unpredictable. The interaction of the systems can often create unintended consequences. IT systems provide benefits that are less tangible than those produced by other business assets.

    44. Zara Background Summary In 2003, Zara’s CIO needed to decide whether to upgrade the retailer’s IT infrastructure and capabilities. At that time, the company relied on an out-of-date operating system for its store terminals and had no full-time network in place across stores. Despite these limitations, Zara’s parent company (Inditex) built an extraordinarily well-performing and responsive value chain.

    45. Zara’s IT Infrastructure No Chief Information Officer. No process for setting an IT budget. No process for deciding on specific IT investments. Preference for writing IT applications themselves. Stores had multiple PDAs and POS systems. Unchanged environment for 10+ years.

    46. Team Discussion Questions Team 1: How would you advise Salgado to proceed on the issue of upgrading the POS terminals? Should he upgrade to a modern operating system? Team 2,5: Should the POS applications be re-written to include any additional functionality? If so, what functionality? Team 3: In your opinion, what are the most important aspects of Zara’s approach to information technology? Team 4: Are these approaches applicable and appropriate anywhere? If not, where would they NOT work well?

    47. What benefits does Inditex / Zara get from its IT infrastructure? How difficult would it be for a competitor to acquire these same benefits? What current or potential weaknesses (if any) do you see in Zara’s IT infrastructure and IT strategy? Should they consider small changes first (Dashboards – ERP -- CRM), then approach larger implementations? OR, should they implement it all at once (Transformation)? Class Discussion Questions

    48. Creating a business case: Business drivers – what is the problem and what is it worth to solve? Alignment – What are the strategic objectives? Product – What technical and operational deliverables? Sponsors and stakeholders - Who is asking for this project? Who is willing to own its risks AND reward? Justification – What do we think it will cost? Evaluating and Valuing IT Investments Each of these issues should be addressed in your final project.Each of these issues should be addressed in your final project.

    49. IT Valuation Methodologies: Rapid Economic Justification Understand the business. Understand the solutions Understand the cost-benefit equation Understand the risks Understand the financial metrics. Portfolio Management Take inventory – What are we doing? Analyze – Do these projects make sense together? Prioritize - Using agreed methods, prioritize each project Manage – Keep tabs on current issues and concerns. Evaluating and Valuing IT Investments

    50. Post-investment Value Analysis Quantitative approaches Qualitative methods (Balanced Scorecards)?

    51. How should you prepare yourself? Incorporate the development of the business case for every new project you take on. Familiarize yourself with quantitative and qualitative disciplines. Practice on a current project or in a friendly environment. Promote your ability to advise clients on IT investment metrics. Think about entering into gain-sharing or risk reward project relationships.

    52. Prioritizing IT Investments In your teams, write a 1-2 page response to that question in the context of the systems RCCL is considering. Be sure to include: Pre-project review/justification Post-project review/management Strategic role/alignment

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