Week 10: Valuing Information Systems Investments MIS 2101: Management Information Systems

Week 10: Valuing Information Systems Investments

MIS 2101: Management Information Systems

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Learning Objectives

Discuss how organizations can use information systems to help create a strategic advantage

Describe how to create a business case for an information system

Explain how to evaluate an information system

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What is Value?

Shareholder Value

Customer Value

Employee Value

Societal Value

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How does IT create value?

Information systems can be used in three ways to add value to an organization:

1. Automating

2. Informing

3. Strategizing

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Automating: Doing Things Faster

Loan processing comparison for 3 methods (from the moment the customer takes the application until the applicant is notified of decision) Manual loan process – 25 days Technology-supported process – 5 days Fully automated process – 1 hour

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Informing: Doing Things Better

Computer-based loan system identifies peak times during the year when specific loans are processed

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Strategizing: Five Types of Organizational Strategies

Organizational strategies define the way in which a company plans to gain/sustain competitive advantage

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Where is the greatest value add?

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Competitive Advantage

1. Best-made product on the market2. Superior customer service3. Achieving lower costs than rivals4. Having proprietary manufacturing technology5. Having shorter lead times in research and

development projects6. Having a well-known brand name and reputation7. Giving customers more value for their money

Can you think of other examples?Where does SouthWest Airlines fit?

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Competitive Advantage

How do you identify opportunities to use information systems for competitive advantage?

Porter’s Value Chain Porter’s Five Forces Model

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Value Chain Analysis

Tool used by managers to identify opportunities for gaining competitive advantage

CoreValueActivities

SupportValueActivities

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IS and Value Chain Analysis

What are specific examples of how these IS functions add value and help create competitive advantages?

Why might it be important for systems supportingthese activities to function at an enterprise level?

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The Five Forces Model – Evaluating Business Segments

Organizations use Porter’s Five Forces Model to determine the relative attractiveness of an industry

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Buyer Power

Buyer power – high when buyers have many choices of whom to buy from and low when their choices are few Loyalty programs – reward customers based on

the amount of business they do with a particular organization

Examples of situations where IT has increased buyer power?

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Supplier Power

Supplier power – high when buyers have few choices of whom to buy from and low when their choices are many Supply chain – consists of all parties involved,

directly or indirectly, in the procurement of a product or raw material

Examples of situations where IT has increased supplier power?

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Electronic Marketplaces

Two types of Business-to-Business (B2B) marketplaces Private exchange – a single buyer posts its needs and

then opens the bidding to any supplier who would care to bid

Reverse auction – An auction format in which increasingly lower bids are solicited from organizations willing to supply the desired product or service at an increasingly lower price

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Threat of Substitute Products or Services Threat of substitute products or services

– high when there are many alternatives to a product or service and low when there are few alternatives from which to choose Switching costs – costs that can make

customers reluctant to switch to another product or service

Examples of situations where IT has increased the threat of substitutes?

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Threat of New Entrants

Threat of new entrants – high when it is easy for new competitors to enter a market and low when there are significant entry barriers to entering a market Entry barrier – a product or service feature that

customers have come to expect from organizations in a particular industry and must be offered by an entering organization to compete and survive

Examples of situations where IT has affected the threat of new entrants?

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Learning Objectives

Discuss how organizations can use information systems to help create a strategic advantage

Describe how to create a business case for an information system

Explain how to evaluate an information system

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If you cant measure IT, you cannot manage IT Andy Grove, CEO Intel

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Making the Business Case for an IS

Identification of benefits that the proposed information system will bring to the organization Automating benefits Informing benefits Strategic benefits

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Productivity Gains

Easy to identify costs with developing an IS

Difficult to identify productivity gains

Why hasn’t productivity increased at the rate of IS investments?

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The Productivity Paradox

Information systems may be used in unintended ways Web surfing Junk mail Games

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Productivity Paradox

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Making a Successful Business Case

Based on Faith Fear Facts

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Arguments Based on Faith

Qualitative Arguments about: Organizational strategy Competitive advantage Industry forces Customer perceptions

No consideration for costs

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Arguments Based on Fear

Arguments based on the notion that if system is not implemented: Company loses to a

competitor Goes out of business

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Arguments Based on Fact

Arguments based on: Data Indisputable factors

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Arguments Based on Fact

Cost-benefit analysis Identify costs Identify benefits Contrast expected costs and benefits Consider the timing of costs and benefits

Why does timing matter?

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Cost-Benefit Analysis

Identifying costs Total cost of ownership (TCO)

Cost of acquisition Cost of use Cost of maintenance

Recurring vs. Non-recurring costs

Tangible vs. Intangible costs

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Cost-Benefit Analysis

Identifying Benefits Tangible benefits

5% increase in sales Reduction of order entry errors

Intangible benefits Improvement to customer service Improvement in overall perception of a firm

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Learning Objectives

Discuss how organizations can use information systems to help create a strategic advantage

Describe how to create a business case for an information system

Explain how to evaluate an information system

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Evaluating Information Systems Identify Stakeholders

Identify business drivers

Quantify benefits

Evaluate Risks Technical, Non-technical

Fit-Feature Comparison

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Fit – Feature Comparison

Understand what you need Understand what the system does Match the two up

Businessneeds

Applicationfunctionality

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Understanding what you need We talked about this way back

Talk to People involved in the business process Technical staff who have to implement the

system …to determine key features

MIS Analyst

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Understanding what the application does Once you have the key features…

Talk to Vendors People who have bought or built similar products

Now you have a basis for comparing alternatives

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Evaluating Innovations

How would you evaluate Blogger.com (http://www.blogger.com) Facebook.com (http://www.facebook.com)

What would you compare them to? No pre-exiting benchmarks

What is their business value?

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Key Learnings

What is value?

How does IT create value Automating Informating Strategizing

IT and Strategy Five Forces Model Value Chain Model

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Key Learnings

Productivity Paradox 4 reasons

Making a Business Case using Faith, Fact and Fact

Quantifying Business Value

Valuing Innovations

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Questions!