Dr. Amit MehraAssistant Professor of Information SystemsIndian School of BusinessHyderabad, INDIAEmail: amit_mehra@isb.eduPh: 91-40-23187152

Being a technology consultant to the CEO

What are the functions of the IT organization today?

What are the functions of the IT organization What are the functions of the IT organization today?today?

PART I: Getting

PART 1

Driving innovation through better information using IT

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Getting better information using ITGetting better information using IT

Our focus

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From the Cathedral to the BazaarFrom the Cathedral to the Bazaar

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Learning ObjectivesLearning Objectives

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IntroductionIntroduction

http://www.youtube.com/watch?v=9_MXvopRqps&NR=1

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Examples of Prediction MarketsExamples of Prediction Markets

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Examples of Prediction MarketsExamples of Prediction Markets

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How can prediction markets be used in business?

http://www.youtube.com/watch?v=3BJqAHGjtsI&feature=related

An example (Bestbuy):

http://www.youtube.com/watch?v=keVL0PkCpaQ&NR=1

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Why do they work?Why do they work?Estimating a stateEstimating a state

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DESIGN ISSUES AND BEST DESIGN ISSUES AND BEST PRACTICESPRACTICES

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Design of prediction markets?Design of prediction markets?

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Issues with Corporate Prediction MarketsIssues with Corporate Prediction Markets

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Known Issues with Corporate Known Issues with Corporate Prediction MarketsPrediction Markets

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Summary -- Prediction MarketsSummary -- Prediction Markets

PART 2Using innovation to create value from

IT: How to get there?

The path to IT value

New thinking

Show value for money

New Business Value

New thinking

IT is cost of doing business

New thinking

IT is cost of doing business

Best avoided, positions IT as a pure utility!

New thinking

Purpose of the IT function is to deliver great technology to the enterprise

New thinking

Purpose of the IT function is to delivery great technology to the enterprise

How would you measure the value of an exercise machine?

New thinking Nothing is perfect, especially something as

complex as IT

New thinking Nothing is perfect, especially something as

complex as IT

They fail too often, we can’t trust them!

New thinking

Rules must be enforced rigidly

New thinking

Rules must be enforced rigidly

Have you communicated why?

New thinking

The business is IT’s customer and the customer is always right

New thinking

The business is IT’s customer and the customer is always right

• Shapes the thinking that IT is not part of business• Complex and brittle legacy environments• Demand exceeds supply• Does not mean enforcing rules without cause being clear

Show value for money

The IT organization is providing the- Right services- At right level of quality- At competitive price

The rest of the business knows this

How to show value for money?

Measure and communicate IT performance in a way that the rest of the business understands

Benchmark IT performance against peers Provide data that will help the enterprise

manage consumption of IT services

Measure and communicate IT value

Unit cost and service quality of every service

Measure and communicate IT value

Unit cost and service quality of every service

e.g. E-mail: cost per mailbox availability message delivery time spam percentage

Measure and communicate IT value

Unit cost and service quality of every service

e.g. Infrastructure services: cost per second availability of contract sales application

time per transaction

Benchmark: never, ever discuss cost apart from quality

Help the enterprise use IT well

Smart consumption

e.g. chargeback reports show unit costs and usage of service, Each service is marked with an index that captures how muchcan the user control costs (e.g. printing)Be very proactive in showing IT effort to cut costs for servicesthat users do not control directly

Positioning IT as an investment in business performance

Needs identification

Which business outcomes matter the most?

Needs Identification

Clarify the firm’s current strategy Analyze business processes What are key operational metrics?

How?

How IT improves business performance?IT provides information that employees can use to perform better e.g. capital one

IT provides information to customers and suppliers to get tighter relationshipse.g. Progressive Insurance

Processes internal to the company are optimized better

Change how customers/ partners interact with firme.g. integrating a global supply chain

Scope of change

Internal External

Improvedecision making

Improveprocess

Selecting IT investments

Figure out costs, benefits and risks for different investment types:- Run the business- Grow the business- Transform the business

• Risk is increasing from top to bottom• Benefits may be measured in financial or operational terms• May have to use operational metrics more from top to bottom

Have a predefined model to select investmentse.g. Intel’s BVIT

IT efficiency = An index for enhancement of IT infrastructureBusiness Value = An index for the project’s impact on Intel’s strategy and prioritiesFinancial Value = Index for investment cost- benefit (bubble size)

Getting the best value from IT investments

Business Process Redesign, Application development and organizational change management

If you don’t measure value, someone else will take credit for it!

Should you measure value created, or is it too difficult and risky?

Does an IT budget at 4% of revenue look good, when the industry benchmark is 2%?

Should you measure value created, or is it too difficult and risky?

How to measure value?

Best time is when project is approved and before it is provisioned

Clearly decide which financial and operational metrics are in focus

Baseline these numbers Set up a machinery for post-implementation review

process

To summarize…

http://www.youtube.com/watch?v=bBB9lRnx1v0

Finding IT gets new opportunities: Prediction Markets IT provides

information that employees can use to perform better e.g. capital one

IT provides information to customers and suppliers to get tighter relationshipse.g. Progressive Insurance

Processes internal to the company are optimized better

Change how customers/ partners interact with firme.g. integrating a global supply chain

Scope of change

Internal External

Improvedecision making

Improveprocess

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APPENDIXAPPENDIXADDITIONAL RATIONALE, DESIGN ADDITIONAL RATIONALE, DESIGN THEORY ETC.THEORY ETC.

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What are Prediction Markets?What are Prediction Markets?

Means of - Aggregating and Disseminating Information

Prediction markets can be used when the following exist/ can be put in place:- Incentives to seek distributed information

• And not personal opinion=> Do you like this movie? vs. Do you think this movie will be liked

by majority moviegoers?- Incentives for truthful information revelation

• Why should people make an effort to give you any information?- An algorithm for aggregating diverse opinions

• How to aggregate the information collected from people?

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Why do Prediction Markets work?Why do Prediction Markets work? Diverse crowd of independent thinking people are

better than predicting the future than the brightest experts- Diversity of information- Diversity of analysis in processing information- Interdependency between participants

• Through prices and bid-ask spreads• If don’t believe in consensus view, can invest and move the

market– Put your money where your mouth is

- Works well when individuals have a personal financial stake in getting it right

• The credibility of the equilibrium is due to self-interest of participants

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Why do Prediction Markets Work?Why do Prediction Markets Work?

What other tools might one use to collect a group’s judgments?- Can one get similar forecasts by suitably designing

these tools like polls?

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Polls and Prediction MarketsPolls and Prediction Markets

New Poll Design- Each respondent has 100 points that can be spread

across different yes/no questions• Each point to a correct response yields $1

- A correct response yields a monetary outcome• Incentive to allocate points as per rational beliefs and not opinions

Will this now work like a prediction market?

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Are Prediction Markets Any Different from Are Prediction Markets Any Different from

Polls?Polls? In prediction markets

- Interdependence of participants• Communicate through prices and bid-ask spreads

– People may actively seek/ process information– So opinions evolve

• Improves overall market accuracy

- Reflect strength of beliefs of participants• Unlike in a poll where there is no downside

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Are Prediction Markets Different from Are Prediction Markets Different from Polls?Polls? New Poll design

- Respondents will allocate maximum points to the “surest” bet

• Can’t resolve ambiguity

Prediction Markets- Price quickly stabilize in “sure” things- Gains of trade remain only in ambiguous things

• Hence participants are forced to focus on these questions

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Problems with Corporate Prediction Problems with Corporate Prediction MarketsMarkets Do you really want to know what it would

reveal?- Even if it is bad news

• Sometimes predictions are made just to keep motivation and employee morale up

• PMs are transparent and results cannot be fudged, unlike a consultant’s report

- Would the insights need to be shared with investors?

• Google doesn’t use prediction markets to forecast revenue!

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Diversity – meaning?Diversity – meaning?

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Issues in designing questions…Issues in designing questions… Seek knowledge and not behavioral

opinions Is the earth getting warmer? Or, Are there

weapons of mass destruction in Iraq?- Unambiguously verifiable at end of a

given time period• Mutually exclusive• Collectively Exhaustive

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Corporate Prediction MarketsCorporate Prediction Markets