Info 7 anot+®

Operations & Digital Business

Nicolas van ZeebroeckMaster in Business Engineering 2014-2015

[email protected]

Strategic management of IT

The CIO perspective

A. Sedik Now we have IT in place, but to manage it? In this session we will try to enter in the shoes of the CIO!

A. Sedik cour 7.2

ITManagement:therole oftheCIO

CIO:ThemostseniororganizationalofficerwhoisresponsibleforITfromageneralbusinessperspective DevelopITvision/architecture DeployITresourcesandfacilitatetheiruse

Maintaincontroloverinformationresources(includingdata)

DeveloppartnershipwithuserstoexploitIT

GESTS482 OperationsandDigitalBusiness N.vanZeebroeck 20142015 3

ITManagement:thescope

Responsibilities

Selection Which applicationdoes theorganisationneed? Which solutionis bestadapted tothese needs?

Adoption Deploying thesystem Adapting theorganisation Trainingtheusers

Exploitation Maintaining thesystems anddata Ensuring andpromoting its optimaluse

Resources

ITStaff&Skills Systemadministrators &helpdesk ITdevelopers &specialists Organisation&governance

ITInfrastructure Facilities Hardware Software Network Processes

ITContracts Vendors (hardware,software,equipment) Outsourcingcontracts (SLAs) Cloudcomputing providers

ITBudget


A. Sedik Should I buy SAP? or other?

A. Sedik So here we need to check what type of tech does the (c) need

A. Sedik Technology


The RESOURCES side

A. Sedik What are the challenges behind the ressources and responsibilities?

ITManagement:technologychallenges

Selfreferentialissues Dataexplosion? Interoperatibility? Obsolescenceandmaintenance?

Technologyselection Whichtechnology? Emergingtechnologies&trends?

BYOD,Cloud,Mobile,BigData,etc.

Businesspressure Growingbusinessexpectations? Morespeed,performance,reliability,availability?

Securityandbusinesscontinuity Downtime? Hacking,spamming,phising,viruses,etc.?


A. Sedik IT create problems that we would not have without it! Such asa data explosion!

A. Sedik Invest in the system and then having problem

A. Sedik represent new challenges, should the CIO care about it?

A. Sedik but the problem is that there is a pressure because they rely on us.. To do the accounting, we just need the data and the system..So we put presur on IT because without it we have nth!

ITManagement:IToutsourcing

ITOutsourcing: EliminationofpartoftheinternalIT

departmentbyhiringoutsidevendortoperformsomeITfunctions

Drivers: Costreduction(economiesofscale) Avoidinvestmentstohandlepeakloads Focusonwhatiscore Difficulttokeeppacewithtechnology

changesanddemandfornewITskillsets


A. Sedik Ex: P&G decided some years ago to outsource it! They said i make chips, shampoo,. but i dont want to do computers.. so they paid an entire IT department and just ordered service and charged it! We do it not because that is a problem internaly and we cant manage it but we do it because we think we can do better thing instead!

A. Sedik It reduces cost! Peak loads: moment where we need to change infrastructure, our ptovider will maintain it!

ITManagement:IToutsourcing

MustbeviewedasbotharemedyforservicefailuresorcostissuesANDasastrategicchoice

Mustbedoneselectively

DONOToutsourceelementsofITthathaveSTRATEGICvaluetothefirm


A. Sedik Never outsource any part of your IT department or function that is really the source of competitive advantage! Like bank, they cant not outsource it, it is too strategic!

ITManagement:financingIT

MustmeasureandmanageITcosts includingcomparisonwithotherfirms/industries

Mustmeasurebenefits,buttheproblemofintangiblebenefitsloomslarge

Usermanagers,notISmanagers,mustjustifyITinvestments ChargebacksystemssometimesusedtoholdISandlineorganizationsaccountablefortheimpactofsystemsontheorganization

Resourcesshouldbeallocatedtothedevelopment/trainingofbothISpersonnelandusers


A. Sedik Imagine we are a CIO and we clearly see thet our business needs a ERP system.. But we know that it will cost a fortune.. But how sell it internally? how to convience the business that we should go for it? We need to show the money: it will cost a billion but it will bring back 5billion! How fo we compte the NPV for a IT project?


ReturnonInvestment? Canweapplystandardvaluationmethods(ROI,IRR,NPV,Paybackperiod,etc.)

toITprojects?

C=Totalprojectcost T=LifetimeofITinvestment i =discountrate A(t)=Projectrevenuesgeneratedinperiodt

RequiresaccuratequantificationforC,t,andA(t)


A. Sedik How to asses the cost? full (o) transformation.. But the problem is that we dont know the scope of the project.. There is only one way to do it which is by accounting for the dimension of the IT project which is the original I (hardware &software), the (o) transformation required by the ERP system, cost of train the users and provide support, and maitain the system..


Costassessment? Howtodistributefixedcostssharedbetweendifferentprojects(servers,

helpdesk,licenses,etc.)? Costsdonotvanishwhenimplementationiscompleted

(maintenance,support) TotalCostofOwnership(TCO)

Investment(hardware+software)+Organisational change+Support+Maintenance =TCO(TotalCostofOwnership)


A. Sedik And how to asses the benefice? lets assume we have the total cost, how to measure the benefit for the (o)? in bombardier, we wanted more ingertation,. Here we call it the problem of the intangible benefit! Most of the IT benefits we dont see them! Problematic for CIO..

ITManagement:globalisation

Language,currency Culture Nationalinfrastructure AvailabilityofITstaff Transborderdataflows Regulation Tradeunions ITcostsandavailability


A. Sedik But firms today are going international, in term of IT it is very problematic.. language issue, currency issue.. equipment is not the same.. So there are only 3 ways to manage IT on a international level and (c) have to chose one of them..

A. Sedik 1. international model; we have one IT department where we centrelaze all the systems and ressources! and everyone will use this one with the same stuff,.2. ultinational: basicly replicate our IT in each country, each brnch has his own IT department.. All the opertaions are local..3. global: We need to stick to one of it


InternationalITstrategy:tightlycontrolsinternationaloperations,makingthemextensionsofheadquarters;ISmanagement(andplanning/funding)centralized,commonarchitectureforIT,hierarchicalISorganization

MultinationalITstrategy:Highlydecentralizedwithonlyfinancialtiesbetweensubsidiariesandheadquarters;ISmanagementandoperationsarelargelylocalized

GlobalITstrategy:bothhighdegreeofintegrationandhighdegreeoflocalcontrol;teamworkiskey;ISintegratesafewkeytechnologiesandresourcesaspartofthearchitecturebutrestislefttolocalcontrol


Jelassi (2003)


Factorsforcentralisation

Avoidduplicationofdevelopmentefforts&resources

Maintaincriticalmassofspecialists Provideorganizationwide,long

rangefocus Commontelecommunications Consistentplatforms Global/Standarddatadefinitions

Standardization Cementstrategicalliances(EDI,DB)

Factors fordecentralisation

Hardwareeconomics/Reducedcommunicationcosts

Responsivenesstolocalneeds Empowermentoflocalunits Corporatedecentralizationpolicy Maintainbottomlineperspective


Jelassi (2003)

A. Sedik processes and data, share easily,..

A. Sedik Texte

A. Sedik the bigger the smalest the cost.. We decrease the fixed cost

A. Sedik different regulation across countries,.. so we need different applications,;.

A. Sedik Possibility to build larger alliances (suppliers,)



What should always be centralized Ifyou decentralize

ITvision,strategicplanning& architecture Research&development Corporatedatacenters&backbones Corporatewideapplications

Towhere? Region,division,productline,location,

department,usersorganization?

Inwhatsense? Management,resourceallocation,etc.

A. Sedik to which level?

A. Sedik what are we decentralization?

ITManagement:globalisationatHSBC

TotalITBudget:+/ $6billion Halfofit is just thecost of runningtheshop

Onethird is dedicated toregional developments

Less than 20%forglobaldevelopments (groupsystems)


Year 1 - 2005 $4,413M

(Incl WHIRL, P2G)

52%34%

8%6%

Year 4 - 2009$5,800M

Group systems Gold

Group systems *Regional implementations

Group systems **Regional modifications

Regional development

IT operations

2%**

6%*10%

32%

50%

Weber(2009)

A. Sedik 7. 1;26

ITManagement:technologyrisks

Hardware Naturaldisasters Powercuts Theftandvandalism Breakdowns

Softwareanddata Theftofinformation Datacorruption/destruction Hacking Virus,worms

Websites (Distributed)DenialofServiceattacks Hijacking(remotecontrolovercomputer) Spoofing/phising (redirectionto

unintendedsites)GESTS482 OperationsandDigitalBusiness N.vanZeebroeck 20142015 17

A. Sedik One of the key issue is the security, (c) rely on the abilities of computers.. Bank realy depends on IT,.. but even less intensive IT industry, if we shut down the IT the flows will be stopped and we will get in trouble!

A. Sedik 9/11 for ex

ITManagement:businessrisks

September26,2010 VirginBluesreservationsystemgoesdownduetohardwarefailure

11daysofdowntime Crashaffectstheairline'sinternetbooking,reservations,checkinandboardingsystems

50,000passengersand400flightsaffected

Impactonprofits:$20million


A. Sedik Ex of when IT is not managed in a good way

A. Sedik all the reservation were bolcked and also the check in system was broken.. it took them 11 days to restore it

A. Sedik result? reimburse people that were in trouble > 20m of cost..

A. Sedik WHY? bad luck? bought the wronf system? it is redundancy.. we need more than one computer.. like in fly, we have to pilot, not one,..


August1st,2012 KnightCapitalisoneofthetwoleadingHighFrequencytradingfirms

Processes15%ofalloperationsontheNYSE:$20billion/day

Newupdatetothetradingsoftwarehasabug

Hundredsofordersautomaticallysent

CreatesacrashatWallStreet OnehourtoidentifytheoriginoftheproblemandterminatethealgorithmatKnightCapital


A. Sedik Knight: we trade really fast less tahn 1sec, by making a little plus values! In order to do that we need to be as close as possible to the market!Why does the market fail? securities trade in // between NY and Chicago.. If we see a decrease in Chicago, the people from NY, will use this info in order to trade on thos info and make gain! When kniht wanted to improve the algorithm, when they uploaded the system, they had a crash in NY;. It takes an hour to understand where it came from.. They lost a lot with this crash.. and finally they sold the business to the competitor


August1st,2012 Attheendoftheday,KnightCapitalhaslost$440million

Needscashurgentlytosurvive GoldmanSachspurchasesassetsfromKnightCapitalatcheapprices

6investors,includingGetco(KnightCapitalsmaincompetitor),inject$400milliontobuy70%ofKnightCapital


A. Sedik Who is responible of that crash?


The RESPONSIBILITIES side

Responsibilities:SELECTION

Howtoidentify thestrategic applicationsofIT?

GESTS482 Operations and Digital Business N. van Zeebroeck 2014-2015 22

Jelassi (2003)

A. Sedik first to chose the right solution, and before we need to see what kind of tech the (o) needs. (3types)

A. Sedik Look at the tech used by competitors,.. like a e-comm.. if dont do it, we need, because sometimes market force us to adopt some tech

A. Sedik It is centred on our value chain.. Where do we see the info flowing, there the tech can helo.. And also look at the feasibility; the amount of tech that the (o) can support/absorb.. Where is it possible to insert more tech?

A. Sedik Consist in monitoring what are the tech dvlpt that could be good for us? The own IT people that can do for us? look at the tech trends (cloud, big data,.. are those tech relevant for le? any interest for me to look in social media? those are kind of perspective we observe and see if they may be usefull for our tech..


TheStrategicThreat/Opportunity Matrix


Jelassi (2003)

A. Sedik Once we observd that, we have a 2 types 2 matrix, where we combine the internal perspective and external (to what extend it is able to generate comparative advantage?)

A. Sedik problem: our ressources are high but what could we do wih that? and the advantage can we do with it?

A. Sedik The prblem, urgnt to react, today a lot of (c) are here.. IT available but they dont use the IT ressources..

A. Sedik Once we are here, we may be aggressve and take as much as possible advantage from it!

A. Sedik We have no ressources but in our business there not really tech available


Amatter oftradeoffs

Make orBuy?

Proprietary oropensource?

Run yourself oroutsource?

Realorvirtual (=cloudcomputing)?


A. Sedik need a tool; buy it or makeN

A. Sedik maintaon physical infrastructure? or put everything on cloud?

Responsibilities:ADOPTION

Hardwareinstallation Softwareimplementation Development Customization Installation

Dataintegration &standardization

Organisational change Training Usersupport


A. Sedik once the selection is done, we need to adapt/implement it!

A. Sedik things to care when we made the selection..

Responsibilities:EXPLOITATION

Ensure thesystems operabilityandsecurity

Supporttheusers Ensure themaintenanceandcontinuous development tokeep upwith userneeds

Encourageusers tomaximizetheir useofthesystems Leverage IT


A. Sedik but the most important is to exploite it, it tooks me alot of time to selct,the adapt it,.. and now we need to make sure the systme is runing/.. We call it maintaince! But then we also need to maximise the use of IT! Make sure the users use it at 100%! > make a good leverage!

We need to parnerships with collegues, we need to explain them the benefit they can get from it and to do so, they need to explain it to their employee


Systemrobustness Datavalidation Backups Accesscontrolandsecurity Physicalandlogical networkprotection(firewalls,encryption,)

DataRedundancy Businessrecovery /continuityplanning


A. Sedik when problem,

A. Sedik disater recovery plan; how do we recover after disaster! The key is redundancy! HSBC decided to invest in big data center, it is like a huge warehouse with hardware.. They said we will have one warehouse in each continent.. But next to each center they they had a backups 100km further! SO if one fail, it is not a problem!


HSBC Onepairofdatacentreoneach continent

Automatic failover system Private networkensures dataavailability inmicrosecondsanywhere intheworld


Weber(2009)



Weber(2009)

A. Sedik CIO dont control what will happen with the tech!! What we observe is that when we invest in system and than after a while in stead of observing creation of value it does the reverse.. In order to generate value, we need people use it, but use it at maximum level!


Aftertheinvestmentphase,comesthetimeforexploitationandbenefits

CIOdoesnotcontrolsecondphasealone NeedtoworkwithBusinessUnitstoensureexploitation

ofITinfrastructureandnewITTools

ITProducesbenefitsonlywhenitcomeswithorganisationalchangeand/orbusinessinnovation



Key take-aways

A. Sedik Do the key take aways ourself!

IThasbecomefartooimportanttothegrowthandprosperityof

businessestoleaveinthehandsofthetechnologists

A. Sedik we learn IT because

Your assignments

Assignments onITManagement

Postyour(35)personalkeytakeaways onMoodle

Readings Weber HSBC2009(casestudy) HBRandChiefExecutive.net(short)articles

Togofurther(suggestedbutnotcompulsory) Carr ITdoesntmatter(andfollowondiscussion)


Documents

Info 7 anot+®