Informatiebeleid [Information Systems · Ch. 10: Information and Knowledge as a ... DSS EIS. 14/01/14 P. Ribbers - ch.1 Ward Peppard 14 Information Systems ... future Business Strategy

14-01-14P.Ribbers and E. Beulen - Information Management 1

Informatiebeleid[Information Systems Strategy]2013 - 2014

Prof. dr. Piet RibbersProf. dr. Erik Beulen


Key Issues Senior Management’s concerns about

Information Systems - some questions: How to assess the (business) effects

of information systems? Planning for Information Systems Business Case: How to (economically)

justify Information Systems? Managing the Supply of Information

Systems Services


Literature

John Ward and John Peppard: “Strategic Planning for

Information Systems” Wiley 2002”


Course OrganizationPlan: Lectures on book chapters Guest lectures Group paper

Weekly schedule: see blackboard


Exam

Written exam based on book and paper Paper assessment based on bachelor thesis

conventions Exam 80%; paper 20%


Two parts: Demand & Supply Chapter 1: overall strategic context Demand: Chapters 2 – 5:

Ch. 2: business strategy approaches and techniques and how they apply to IS

Ch. 3: establishing an IS/IT strategic process

Chs. 4 – 5: application of tools and techniques in an IS/IT strategic process

Ch. 6: How does it fit together?


Two parts: Demand & Supply Supply: chapters 7 – 11:

Ch. 7: evaluation of applications in terms of business contribution

Ch. 8: how to organize and manage IS resources and activities

Ch. 9: management investements in IS/IT Ch. 10: Information and Knowledge as a

strategic assets Ch. 11: Managing the infrastructure

(Outsourcing) Chapter 12: emerging issues.

Paper requirements Group paper (3-4 students) ~5000 words Related to subject in a chapter of the book Select 3 journal articles published after 2002


Paper Groups Formation of groups before September 24. Inform Department Secretary Mrs Alice

Kloosterhuis ("A.M. Kloosterhuis" <[email protected]>



For all Information (including sheets):

Blackboard

14/01/14 P. Ribbers - ch.1 Ward Peppard 1

The Evolving Role of IS and IT

Information Management

Prof. dr. Piet Ribbers


Program

IntroductionInformation Systems and ITEarly Views of IS/ITThe Three-Eras ModelManagement Implications: Portfolio ManagementWhy IS/IT Strategy?Conclusion


Introduction


Environment

Business

Organization

Information

ICT InformationInformation

Demand

Supply


(New) Management of IS/IT

• The Business environment– Competition - Focus on the customer

– Changing business models

• The IT environment– Fusion of I and C Technology (ICT)

– ICT an integral part of business strategy and structure


Information Systems


IS and IT

IS: The means by which people and organizations, utilizing technology, gather, process, store, use and disseminate information;

IT: technology; essentially hardware, software, databases and telecom networks

IS is concerned with the purposeful utilization of IT ISs composed of:

Organization: structures, processes and proceduresTechnology: hardware, software, storage, networksPeople


E-business/ E-commerce

Using internet technologies to :– conduct business electronically (e-comm.)

– Automate internal business processes

Basically refer to system-to-system and system-to-person connections


Early Views:Systems and Planning

Hierarchical Application Portfolio

Stratification of management activity:

•Strategic Planning

•Management Control

•Operational Control

Classification of applications:

•Planning systems

•Control systems

•Operational Systems



Early views: The Bureaucratic structureEarly views: The Bureaucratic structure

SALES & MANUFACTURING FINANCE ACCOUNTING HUMAN SALES & MANUFACTURING FINANCE ACCOUNTING HUMAN

STRATEGIC LEVEL SENIOR MANAGERSSTRATEGIC LEVEL SENIOR MANAGERS

TACTICAL LEVEL MIDDLE MANAGERSTACTICAL LEVEL MIDDLE MANAGERS

OPERATTIONAL PRODUCTION / SERVICE PROCESS LEVELOPERATTIONAL PRODUCTION / SERVICE PROCESS LEVEL

OPERATIONAL LEVELOPERATIONAL LEVELOPERATIONALOPERATIONAL

MANAGERSMANAGERS

RESOURCESRESOURCESMARKETINGMARKETING2.3


Information Systems Architecture

• Transaction Processing Systems• Management Reporting Systems• Decision Support Systems• Executive Information Systems• Support systems for the information professional• Integration: Enterprise Resource Planning

Systems


The Bureaucratic structureThe Bureaucratic structure





OPERATIONAL OPERATIONAL

Management levelManagement level OPERATIONALOPERATIONAL

MANAGERSMANAGERS


Transaction Processing Systems

Management

Reporting Systems

DSS

EIS


Information Systems

• And….…– Communication systems – Internet, Intranet, Value

Added Networks:

• System to system

• Person to System to Person


Inititiation Contagion Control

$

Time

Nolan’s Stages (1972)

Integration

IS planning: assimilation and learning



$

Nolan’s Stages

Version 2: Relational Databases (1978)

Integra-tion Time

Data-

Management

Maturity



Management Consequences

• Organizational Learning– Budget Figures as a measure of “organizational

learning”

• Control versus Slack type of Management– A loose budget policy is followed by a strict budget

policy (as a necessary condition to facilitate learning)



$

Nolan’s Stages

Version 2: Relational Databases (1978)

Integra-tion Time

Data-

Management

Maturity

Slack

Slack

control

control



Management Consequences

• Different (learning) cycles per department or business unit

• New technologies trigger new learning cycles

• …requiring stages of slack and control management


However: Wiseman’s Critique

• Three Layered management model

• + Nolan’s Model

– Pure Internal Orientation

– So: what about Strategic Implications of Systems??


Three Eras


Different Approaches in Three Eras

Technologicaldiscontinuity

Technologicaldiscontinuity

DP - era MIS-Era SIS- era


Three Eras

• Data Processing: To improve operational Efficiency

• Management Information Systems: Management’s Information Requirements

• Strategic Information Systems: improve competitiveness


DP-era• Transaction processing

• Cost Reduction / Efficiency

• Technology Infrastructure: Monolithic mainframe, terminals

• Decision Making by IT department


MIS-era• Information provision

• Effective management processes

• Distributed (Client Server), PCs

• Decision Making by Steering Committees


SIS-era

• Competitive positioning

• Contribution to Business Strategy

• Networks - Interoperability/Connectivity

• Decision making: Demand (IS) and Supply (IT) Management


Examples of Strategic IS/IT applications

• Linking to customers and suppliers

• Improved integration of internal processes

• Information – based products and services

• Executive Information Systems


SIS Success Factors

• External, not internal

• Adding value, not cost reduction

• Sharing benefits with other organizations

• Understanding the customer

• Business driven innovation, not technology driven

• Incremental development (not a grand vision)

• Focus on information (not technology)


Management Implications

Changing FocusChanging Focus

Internal view

•DP: effective application of systems and technology to operations

•MIS: management involvement to consider information and how they use it.


Changing FocusChanging Focus

External view

•SIS: IS/IT may have a strategic impact – Competitive impact analysis

– Business /IT strategic alignment



Demand and Supply

• IS-strategy: organization’s demand for information and systems– Investment in application portfolio– Benefits expected– Necessary changes to deliver benefits

• IT-strategy: how demand will be supported by Technology– Resources (HW, SW, Telecom)– Services (Operations, development, user support)


Information systems strategy•Division/ SBU/ function based•Demand orientation•Application focused

Information technology strategy•Activity based•Supply oriented•Technology focused

Demand

Applications

Delivery

What?

How?

Supply

BUSINESS STRATEGY

Direction• Objectives/ Competitive Position..Where?


…a Contingency Model for Applications..

…a Contingency Model for Applications..


Existing contribution to the Business

Fut

ure

con t

ribut

i on

to

the

Bu s

ines

s

Low

High

High Low

Strategic High Potential

Key Operational Support

Critical to sustain future Business Strategy

On which organization currently depends

Valuable but not Critical

May be important for future succes

Classifying the applications


• Important point of this book:

– Contingency approach: management practice differs per type of application!


The SIS-era: The Need for Alignment

The SIS-era: The Need for Alignment


BUSINESS STRATEGY IT STRATEGY

ORGANIZATIONAL INFRASTRUCTUREAND PROCESSES

IS INFRASTRUCTURE AND PROCESSES

Functional integration

Strategic fit

Ext

ern a

lIn

tern

al

Information technologyBusiness

Strategic Alignment ModelStrategic Alignment Model



Alignment Assessment..

• Http://www.strategic-alignment.com


IT and Competitive Advantage?

An organizational IS capability


What makes the difference?

• IT and first mover advantage?

• Standard applications?

• Wrong choices!

• Recent research: IS management skills make the difference!


Conclusions

• There are patterns in the use of IS/IT• DP and MIS well established• In SIS business becomes critically dependent• IS/IT becomes an integral component of new organization models and their strategies• Challenge for management: ‘How to Bridge the gap’

01/14/14 P. Ribbers - ch. 2 Ward Peppard

1

An Overview of Strategy Concepts and the IS/IT

Implications

Prof. dr. P.M.A. Ribbers


2

Program

• Introduction• The Strategic Framework• Strategy Implementation• Strategy Tools and Techniques• A resource based view on strategy• Conclusions


3

Introduction


4

Phases in Strategic Planning

I. Focus on cash flow and annual financial planning…meeting the budget.

II. Predicting what is likely to happen (plans are financial and internal, gap analysis).

III. Externally oriented planning (P/M thinking, competitive assessment).

IV. Innovation drives the organization (thinking in terms of competencies and knowledge).

The approach in IS/IT is often behind business strategy formulation: Phase I and II vs III or IV


5

A Strategy Is the Result Of…

• Strategic thinking:….Is about discovering..• Strategic planning: …is about programming..• Opportunistic decisions:…reactions to

unanticipated events.‘Strategy is an integratedSet of actions aimed at increasingThe long-term well being and strength Of the enterprise relative to Competitors’.


6

The Strategic Framework


7

The Framework

• The external environment• Pressure groups and stakeholders• Internal strategizing and planning


8

Environment: Contextual and Transactional

Economy

Politics

Employees

suppliers

Organisation

Law

Values andstandards

Energy

TechnologyEnvironment International

relations

Life style

Safety

Worldorderdemography

Banks

Suppliers

Labourunions

shareholdersDistributionchannels Investors

Competitors

Factorscontextual environment

(PEST Analysis)

Actors (Pressure Groups andStakeholders)

transactional environment


9

External Environment (PEST)..Today’s Examples of Is Implications

• Political: compliance, Sarbenes Oxley, data protection acts

• Economic: the rise of India and china as IT services suppliers

• Social: sustainability, ecology and (e.g.) Transportation planning

• Technological: impact of RFID?


10

Stakeholders and Pressure Groups

• Effectiveness is meeting objectives…however which ones?

• Stakeholders: Contributions and Objectives• Pressure groups: Demands• Dependency, power, conflicts

Example: Dutch Railways’ plans to close all ticketing offices and automate ticket distribution – similar situation with banks closing local offices and imposing e-banking solutions


11

Internal Strategizing and Planning

Strategic Choice

Strategic Imple-

mentation

Strategic Analysis


12

Internal Strategizing and Planning

Strategic Choice

Strategic Imple-

mentation

Strategic Analysis


13

Strategy Implementation


14

Strategy Implementation controversy

• Top down versus Bottom up

• Many strategic successes resulted from bottom up experiments instead from top down planning

• Ciborra: From thinking to tinkering


15

Strategy Implementation

Intendedstrategy

Realisedstrategy

Planned implementation

Unrealisedstrategy

Spontaneousstrategy

Failure or Unexpected development


16

Strategy Tools and Techniques

Portfolio and Planning Matrices

Competitive Forces and Competitive Strategies


17

The BCG Matrix

• Earliest examples• Based on product life cycle and

relationship between market share and profitability


18

Product Life Cycles

mature declininggrowth

emerging

Time

Dem

and

D? D>S D<S D<<S


19

Star Question Mark

Cash Cow Dog

Market Share

MarketGrowth

High Low

High

Low

The BCG’s model:An Enterprise wide view: Portfolio Management


20

Star Question Mark

Cash Cow Dog

Market Share

MarketGrowth

High Low

High

Low

The BCG’s model

Funds


21

Key Issues Resulting From BCG

• Manage products according to market opportunities

• Reinvest cashflows into future products• The need to have a complete and

balanced portfolio for long term success


22

Implications for IS/IT Strategy

• Question Mark: Success likely to occur through innovation: IT focuses on product and process development.

• Star: IT has to allow growth (bigger order volumes), and focus on the customer.

• Cash Cows: Control of business relationships and activities.

• Dogs: strongly justified investments to reduce costs (little innovation).


23

Competitive Forces and Strategies

Competitive Strategy: The search for a profitable and sustainable competitive position in an industry.


24

Competitive Forces Model

THE FIRMTRADITIONAL COMPETITION

NEW MARKET ENTRANTS

SUPPLIERS CUSTOMERS

SUBSTITUTE PRODUCTS & SERVICES

2.24


25

The Effects Of…

• (Relative) Concentration• Switching Costs• Lock in • Information asymmetry


26

How can IT affect the Competitive Forces?

• Can IT build barriers to entry?

• Can IT build switching costs?

• Can IT strengthen consumer relationship?

• Can IT change the balance of power in supplier relations?

• Can IT change intra-industry competitive balance?

• Can IT change the basis of competition?

• Can IT change the industry?


27

Examples..

• Customers: lock in with services: Amazon.Com.

• New entrants: east African flowers, IT services industry and financial services.

• Suppliers: EDI standards discussion.• Substitute products: the publishing

industry and e-journals, the internet..• Competition: the effects of the internet.


28

Generic Strategies

Cost Leader Differentiation

Differentiationfocus

Cost Focus

mar

ketr

eac h

niche

Broad

Low cost quality


29

Competitive Market and Business Performance

MarketMarket

Informationsystems

Informationsystems Business

Processes

BusinessProcesses

Competition


30

Market Position

Market position is related to superior business performance

IT value lies in improved business performance

Management intent to improve

Management intent to improve

Financial performance

Financial performance

Strategic andOrganizationalEffectiveness


31

A Resource Based View of Strategy


32

Strategy Definition

Strategy is direction and Scope of an organisation.

Organization Environment

Strategic fit

BUSINESS STRATEGY


33

The Resource Based View

• Resources: bundle of resources owned by the firm which makes it unique.– Intangible resources as a source of competitive advantage.

• Capabilities: Capacity to take some action; complex pattern of coordination between people (organizational routines).


34

Resources Capabilities Comp. Adv.

•Durable

•Difficult to Identify and Understand

•Imperfectly Transferable

•Not easily replicable

•Ownership and control

The Resource Based View


35

What Are IS Capabilities?

• IS planning sophistication• System development capability• IS Support capability• IS Operation capability


36

Capabilities and Competitive Advantage

• Operational Excellence– IS is critical in simplifying business and processes

• Customer Intimacy– IS focuses on collecting customer information

• Product Leadership– IS focuses on product innovation and market knowledge


37

Conclusions

• Business Strategy and IS/IT strategies are interlinked.

• IS/IT not only in support of existing strategies but also an input for business strategies.

• The same is true for competitors: so IT is an opportunity and a threat.

P. Ribbers - ch. 3 Ward Peppard 1

Developing an IS/IT Strategy: Establishing Effective Processes



Program

• Introduction

• IS/IT strategy development

• Scope of IS/IT strategy

• An IS/IT strategy and planning framework

• Conclusions


Introduction

Business and IT Integration


A DefinitionThe IS/IT Strategy Process

‘The process of identifying a portfolio of computer-based applications to be implemented, which is highly aligned with corporate strategy and has the ability to create an advantage over competitors’


Aims for Adopting an IS/IT Process

• Alignment of IS/IT with the business– Prioritizing investments

• Gaining competitive advantage created by using IS/IT

• Building a cost effective and flexible technology infrastructure for the future

• Developing appropriate resources and competencies to deploy IT across the organization


Process for developing IS/IT strategies

• Closely integrated with business strategy

– For optimal allocation of resources!• A continuous process

• Concrete deliverables


Taxonomies of BP – ISP Planning(Teo & King, JMIS and Decision

Sciences 1997)

BP

ISP

------>

BP

ISP

BP ISP

IntegratedPlanning

AdministrativeIntegration

SequentialIntegration

ReciprocalIntegration

Full Integration


Benchmark Variables(600 M and L Firms – 27% Response

Rate)• Administrative early ’70s

• Sequential Integration mid ’80s

• Reciprocal Integration early ’90s

• Acceleration: time spent in stage

– 4 : 2: 1.5

– Due to recognition of IT’s role and learning


Is There Stage Model?

• In general: yes

– Adm sequential

– Sequent reciprocal

– Reciprocal integrated

Few bypasses (16% of sample)

70% of Sample

Evolution of the IS Strategy Process

Evolution of the IS Strategy Process

1. IT planning by IT department (DP-planning)

2. Top down review by top management (BSP)

3. Detailed IS/IT planning (the best way of implementing)

4. Users come to the front - rebellion (beginning of strategic thinking)

5. Closer to business strategy



In many organizations an Evolutionary Path…

• Stage 1: no coherent strategy – only supply planning – deliver technology.

• Stage 2: top down review (because of crises or failures) - method driven planning (e.g. BSP).

• Stage 3: detailed planning, integration, budget controls; focus on key operational systems.

• Stage 4: users pursue localized opportunities – frustrated by prior stages (‘user rebellion’)

• Stage 5: integration with business planning: assessing competitive impact.


Approaches to IS/IT Strategy Development


Approaches to IS Strategy Formulation

• Business led: by IT specialists, based on current business strategy.

• Method driven: normative literature on top down approach; Vendor support; Commercial tools.

• Technology led: information engineering techniques applied to planning (modeling exercise)

• The administrative approach: bureaucratic models of planning and budget control

• Organization led: key business themes drive investments


Business Led

• Assumption: Current Business drives IS plans

• Emphasis: Top-level input and Business Plans lead IS

• Major Influence of outcomes: IS Planners (Little involvement of users and line managers)

• Advantage: IS are seen as strategic resource and so the IS function

• Thrust: Business drives IS


Method Driven

• Conditions: long term plan and stable business activities• Assumption: IS strategies will be enhanced by the use of a

formal method• Emphasis: selection of the best method• Major influence on outcomes: practitioners of the method• Thrust: strategy needs the method


Technology led• Assumption:

– IS strategy is an exercise in business and information modelling

– Incremental adoption of technology• Emphasis: production of models and blueprints

• Major influence on outcomes: Modelling method employed

• Thrust: IS blueprints


The Administrative Approach

• Main objective is budgetary control

• Assumption: IS strategies follow formal procedures for resource planning

• Emphasis: identification and allocation of IS resources (attached to normal capital budgeting routine)

• Major influence of outcomes: resource planning and steering committees (outcome is a one-year or multi-year list portfolio)

• Thrust: follow the rules


Organization Led

• Assumption: IS decisions are the result of continuous integration between IS function and the business functions

• Emphasis: based on methods and and process (involvement); Organizational learning

• Major influence of outcomes: permanent and ad hoc teams• Thrust: themes with teams


Empirical support (Doherty et al)

• Sample of 267 companies• Organizational, Business-led, Administrative approaches

clearly identified.• Order of most successful approach: Organizational,

Business, Admnistrative.• No distinction between method led and technology led.


An Evolutionary Path…

• Stage 1: no coherent strategy – only supply planning – deliver technology.

• Stage 2: top down review - method driven planning.• Stage 3: detailed planning - budget controls.• Stage 4: users pursue localized opportunities – frustrated

by prior stages.• Stage 5: assessing competitive impact.


An Evolutionary Path…

• Stage 1: technology led

• Stage 2: method driven

• Stage 3: administrative

• Stage 4: business led

• Stage 5: organization led


Tech led

MethDriv

Adm. Bus.led

Org.led

St. 1 X

St. 2 X

St. 3 X

St. 4 X

St. 5 X

Degree of Bus/IT integration and approaches to IS strategy formulation


Problems and Barriers: Management (Many Research Results)

• Top management awareness and support• Credibility gap between IT industry and business• Top management does not see information as

critical• Top management’s demand for strict financial

justification• Top management’s short term focus• Bad management of the process (e.g. not the right

people)


The environment of the IS/IT Strategy


The context and challenges for IS/IT planning

• Consolidated approach and flexibility to change if necessary (see figure 3.2, next slide).

• Incremental business improvements often not enough (business transformation).

• Need for robust business processes.

• (Ward and Peppard) Need for integrated planning framework (see fig. 3.3).

• However, there is no standard approach!


The context and challenges for IS/IT planning

• Consolidated approach and flexibility to change if necessary (see figure 3.2, next slide).

• Incremental business improvements often not enough (business transformation).

• Need for robust business processes.• (Ward and Peppard) Need for integrated planning

framework (see fig. 3.3). Program Management

• However, there is no standard approach!


Intendedstrategy

Intended outcomes

Planned implementation

Unrealisedstrategy

Spontaneousstrategy

actual implementation

Realisedstrategy


Determine

Business

Strategy

Business as

Usual

Incremental

Change

Breakthrough

ChangeIntegrated Framework


Establishing the Process

• A continuously evolving process• A learning process of IS specialists and Business

people• Initiating the cycle: specific conditions (Terms of

reference (box 3.1))• When successful? Measures?

– Resources efficiency– Process enrichment– Process effectiveness


Establishing the Process

• A continuously evolving process• A learning process of IS specialists and Business

people• Initiating the cycle: specific conditions (Terms of

reference (box 3.1))• When successful? Measures?

– Resources efficiency: Input oriented– Process enrichment: Process oriented– Process effectiveness: Output oriented


Context and Drivers of the IS/IT Strategy Process


Drivers IS/IT strategy development

Business Technology

External Threats and opportunities

Internal Changes in organization structure

Necessary replacement of legacy

Factors driving business strategies


Assessment Current Organization

• Current (availability of) strategies, structure, processes..

• Current effectiveness of IS

• Views of business managers

• Success (or lack of) of IS/IT strategies in the past

• Computer literacy of employees


Scope of IS/IT Strategy


Strategic Business Unit (SBU)

• How to build / maintain a competitive position?

• How to acquire a competitive advantage?

• What are competitive necessities?


Decentralization

C e n t r a a l I n f o b e l e i d

I n f o b e l e i d

D i v i s i e A

I n f o . b e l e i d

D i v i s i e B

I n f o b e l e i d

D i v i s i e C

A l g e m e e nM a n a g e m e n t


Implications of Decentralization

• A total corporate IS/IT strategy is almost impossible.

• Developing IS/IT strategies at group level is attempting to develop common systems is unlikely to be successful.

• In conglomerates (mergers & acquisitions) alignment per business unit.


IS for the Corporate SBU

• Treat the corporate level as a ‘business unit’

• IS needs based on the way it chooses to manage the business units:

– Very few own requirements (financial reporting)

– Common policies across the organization

– Long term planning needs


Corporation

Business Units

IT supply

e.g. Corporate goals;Long term planning

e.g. Applications;

ITs

Products/markets;

Line of Business-Strategy


Consolidation Across SBUs

• Sharing applications.

• Sharing software development.

• Allowing effective communication by using consistent definitions.


An IS/IT Strategy and Planning Framework


Inputs: Information Strategy Environment

Environments Techn. Env. Org. Env.

Extern. Env.IT opport’sIT chall’es

Position inIndustry

Internal Env. IT resourcesNature of The org.


Outputs: Strategies

• IS/IT management strategy: the common elements throughout the organization (infrastructure)

• Business IS strategies: how each unit or function deploys ‘own’ IS

• IT strategy: management of technology and resources


IS/IT Management Strategy

• Depends on the degree of centralization of the organization

• However common issues:

– Organization of the IS function

– Investment and prioritization policies

– Vendor policies

– Accounting policies


Business IS Strategies

• How the business unit will use IT/IS to achieve its objectives.

• Clear link with the business unit strategy.

(See box 3.4!).


IT Strategy: Management of Supply

• Purpose: define how resources and technologies will be acquired, managed, and developed to satisfy business IS strategies


Ext Bus

Env

Int. Bus

Env

Ext IT

Env.

Int IT

Env.

Process

Bus. IS Strat

IS/IT Mngt Strat

IT strat.

Future

App.portf

The Model

CurrentApplication

Portfolio


Mngt Sponsor

Steering Committee

Team Leader

Business executives IS Executives

How to Manage the Process??


Conclusions

• Partnership between business and IT

• Most effective strategies at SBU-level

• Appropriate consolidation across the whole organization

• Number of critical success factors (management oriented)

01/14/14 P.Ribbers - ch. 4 Ward Peppard

1

IS/IT Strategic Analysis:Assessing and Understanding the

Current Situation



2

Program

• Assessment approach

• Determine IS demand

• Examine current IS/IT supply

• Evaluate costs

• Conclusions


3

Questions….?

• How much do we spend on IT?

• Has the IT strategy the right focus to support the business strategy?

• How does our IT situation compare to our competitors?

• Where can we improve the effectiveness of our IT?

• Where can we improve the efficiency of our IT?

• How can we strengthen the strategic impact of our IT?


4

Assessment Approach


5

Alignment Impact


6

Alignment Impact

Chapter 4 Chapter 5


7

Alignment Impact

Chapter 4 Chapter 5

Inside-Out approach:

• Do technology, applications fit with task, work, organization structure?

•Does application portfolio support requirements?


8

Alignment Impact

Chapter 4 Chapter 5

Inside-Out approach:

• Do technology, applications fit with task, work, organization structure?

•Does application portfolio support requirements?

Outside-In approach

• How do IOS and business processes integrate across organizational lines?

•How do IOS and business processes integrate across partners?


9

Alignment

I. Demand II. Supply

III. CostsIII. Costs


10

I. Demand

1. Strategy

2. Organization

3. Business process analysis

4. Application portfolio

5. Users


11

• Current technology and people

• IT organization and practices

II. Supply


12

I. Determine IS Demand


13

1. Strategy

Business strategy drives MIS needs • Identify current general and functional strategies (like

marketing, supply chain)• Compile the consequent IS requirements; e.g.:

– Defining and assessing current initiatives– CSFs may lead to types of IS/IT requirements:

to enable success and to monitor progress.


14

Information requirements to meet current business objectives

• Balanced scorecard

• Critical success factors


15

VisionMissionStrategy

VisionMissionStrategy

FinancialPerspective Financial

Perspective

Development and GrowthPerspective

Development and GrowthPerspective

CustomerPerspectiveCustomer

Perspective

Internal Organization

&Processes

Perspective

Internal Organization

&Processes

Perspective

The Balanced Scorecard1. Objectives2. Measures3. Targets

4. Inititiatives


16

The Balanced Scorecard

• A performance measurement tool (control)

• A strategic management system


17

CRITICAL SUCCESS FACTORS

Small number, easily identifiable operational goals

Shaped by industry, manager, environment

Believed to assure firm’s success.

Used to determine organization’s information requirements


18

EXAMPLEEXAMPLE GOALSGOALS CRITICAL SUCCESS FACTORCRITICAL SUCCESS FACTOR

PROFIT CONCERN EARNINGS/SHARE

RETURN ON INVESTMENT

MARKET SHARE

NEW PRODUCT

NONPROFIT EXCELLENT HEALTH CARE

AUTOMOBILE INDUSTRY

STYLING

QUALITY DEALER SYSTEM

COST CONTROL

ENERGY STANDARDS

MEETING GOVERNMENT REGULATIONS

FUTURE HEALTH NEEDS

REGIONAL INTEGRATION OF HOSPITALS

EFFICIENT USE OF RESOURCESIMPROVED MONITORING OF REGULATIONS

Source: Rockart “Chief Executives Define Their Own Data Needs” (1979)Source: Rockart “Chief Executives Define Their Own Data Needs” (1979)

CRITICAL SUCCESS FACTORS CRITICAL SUCCESS FACTORS (CSFs) (CSFs) & GOALS& GOALS


20

CSF and BSC combined

Objectives

Measures CSFs

Info and Systems

e.g. customer perspective:


21

• Contingency Theory(Lawrence & Lorsch, 1967; Minzberg, 1979)

• There is no one best way

• No structural form is effective under all circumstances

2. Organization


22

Stable Dynamic

Complex

Simple

Professionalbureaucracy[Stand. of Skills]

Adhocracy[mutual adjustment]

Machine Bureacracy[stand. Of workProcesses]

Entrepreneurial structure[direct Supervision]

Concept of fit [Mintzberg]

Divisions: each division may have a different structure


23

Machine BureaucracyMachine Bureaucracy





OPERATIONAL LEVELOPERATIONAL LEVELOPERATIONALOPERATIONAL

MANAGERSMANAGERS



24

The Bureaucratic The Bureaucratic StructureStructure

• Functional structure

• Hierarchical referral and

Procedures

• Little / no delegation

• Unity of command

• Only vertical communication

•Predictable•Controllable

•Efficient


25

AdhocracyAdhocracy

• Product-, market-, cross functional structure

• Mutual adjustment• Delegation, empowerment• Unity of command• Bilateral vertical and Horizontal communication

•Responsive•Flexible


26

3. Business Process Analysis• The focus on the final customer as opposed to the focus

on vertical functional activities has lead in the 90’s to an increased interest for processes and their management.

• A (business) process view implies an horizontal view on a business organization and looks at processes as sets of interdependent activities designed and structured to produce a specific output for a customer or a market.

• A process is an ordering of activities with a beginning and an end; It has inputs (in terms of resources, materials and information) and a specified output. Processes can be measured, and different performance measures apply, like cost, quality, time and customer satisfaction.


27

New Product Development

Research &

Development

Marketing Manufacturing

The Process view de-emphasizes the functional structure

Most companies can be broken down into fewer than 20 processes [Davenport]


28

Typical Processes in a Manufacturing Firm [Davenport]

• Product development

• Customer acquisition

• Manufacturing

• Order management

• After-sales service

• Human resource management


29

Work-

flow

WF

Mngtm

: Decision point

: Inventory or Queue

: Processing step

: Coordination of decision points

: Transfer of activity

: transfer of workflow decision

Environment

Business Process

Cu

sto

mer

ord

er


30

Degree of Collaboration

Low HighD

egre

e of

Med

iati

on

Low

High

CC

C

AA

BBAA

AA AA

BB

BB BB

CC CC

CC

A B

: The final step in the process

: participating functions

: Collaborative activities

:input/output relationship


31

steps

ApplicationApplication

Individual activity

ApplicationApplicationApplicationApplication

Process/activitymanagement

Distributionfunction

BUSINESSPROCESS

User Interface &local desktopapplications

steps

ApplicationApplication

Individual activity

ApplicationApplicationApplicationApplication





BUSINESSPROCESS

User Interface &local desktopapplications

Workflow Management applications

Redefining Business Processes and Workflows


32

It’s Impact on Business Processes

CAPABILITYCAPABILITY ORGANIZATIONAL IMPACT / BENEFITORGANIZATIONAL IMPACT / BENEFIT

TRANSACTIONAL UNSTRUCTURED PROCESS INTO ROUTINIZED TRANSACTIONS

GEOGRAPHICAL ELECTRONIC TRANSFER MAKES PROCESSES INDEPENDENT OF GEOGRAPHY

AUTOMATIONAL REPLACES/REDUCES HUMAN LABOR

ANALYTICAL USES COMPLEX ANALYTICAL METHODS

INFORMATIONAL BRINGS GREAT AMOUNTS OF DETAILED INFORMATION INTO PROCESS

SEQUENTIAL ENABLES CHANGES IN SEQUENCE OF TASKS; POSSIBLE TO RUN SIMULTANEOUSLY

KNOWLEDGE CAN CAPTURE, DISSEMINATE KNOWLEDGE, EXPERTISE MANAGEMENT TO IMPROVE PROCESS

TRACKING ALLOWS DETAILED TRACKING OF TASK STATUS, INPUTS, OUTPUTS

DISINTERMEDIATION CAN CONNECT PARTIES DIRECTLY, NO LONGER REQUIRING INTERMEDIARY

Source: Davenport & Short “The New Industrial Engineering”(1990)Source: Davenport & Short “The New Industrial Engineering”(1990)


33

Spectrum Of Organizational Change

• AUTOMATION: using technology to perform tasks efficiently / effectively

• RATIONALIZATION of procedures: streamline; eliminate bottlenecks

• BUSINESS REENGINEERING: radical redesign of processes to improve cost, quality, service; maximize benefits of technology.


34

Business Reengineering Steps:1. Develop process objectives

2. Identify process to be redesigned

3. Understand, measure performance of existing processes

4. Identify opportunities for applying information technology

5. Build PROTOTYPE of new process


35

Assessment of: Quality and Importance of Business Processes

Qua

lity

Import.


36

Assessment of: Quality and Importance of Business Processes

Qua

lit y

Import.

Concentrate here?

Maintain

performance?

Not important?

Possible overkill


37

Obstacles To Business Reengineering Success

RESISTANCE TO CHANGE

LIMITATIONS TO EXISTING SYSTEMS

LACK OF EXECUTIVE CONSENSUS

LACK OF SENIOR EXECUTIVE CHAMPION

UNREALISTIC EXPECTATIONS

LACK OF CROSS-FUNCTIONAL TEAM

INADEQUATE TEAM SKILLS

I.S. STAFF INVOLVED TOO LATE

PROJECT CHARTER TOO NARROW

0 20 30 40

% OF RESPONDENTSAdapted from Caldwell, 1994

01/14/14 P.Ribbers - ch. 4 Ward Peppard (after H. T.M. van der Zee)

38

Automatable

Business modelAssessment in Workshops

Presentation oflevel of coverage

Opportunities

Attempted

Effective

NotAutomatable

100%

Current ITcoverage

NoAutomatable

Opportunities

4. Application Portfolio

Assessment current business coverage by IT


39

5. The user awareness assessment helps to understand the extend to which IT can effectively be introduced

and used within the user community

Application ?

SystemsDevelopmentMethod ??

Database???

Programming??Costs??

Interface??Operator??

Chargeback?

Budget??

Priority??


40

II. Examine Current IS/IT Supply


41

Skills and Experience IT personnel

For example:

• Management

• Systems development

• Systems maintenance

• Support

• Data center (operations)

• Applications management


42

Evaluation Management Controls

For example

• Strategy formulation and planning

• Administrative management

• Application management

• Communication systems management

• Data resource management

• Management end-user computing

01/14/14 H.T.M. van der Zee 43

Application Portfolio quality (measured in

two dimensions: functional and technical quality)

10090807060504030201000

10

20

30

40

50

60

70

80

90

100FunctionalQuality

(as perceived byusers)

Technical Quality (as perceived by IT Experts)

III Technical Adjustments

II FunctionalAdjustmentsI Renovation

IV Healthy

1.

2.

3.

4.

5.

6.

7.

1 Personnel system2 Sales system3 Material

management4 General Ledger5 Cost Allocation6 Procurement system7 Office Automation


44

Assessment of: Quality and Importance of information systems

Qua

lit y

Import.

Concentrate here?

Maintain

performance?

Not important?

Possible overkill


45

III Evaluate Costs


46

IT Costs

Resources.• Personnel.• Technology.• External.• Other..

Activities• Development• Maintenance• Production• User support• Other

Total spending - per employee – industry benchmarks


47

Conclusions

• There is a process of fact finding, analysis and interpretation

• The process of fact finding has to be followed to gather the relevant information

14/01/14 P. Ribbers - ch. 5 Ward Peppard 1

IS/IT Strategic AnalyisDetermining the Future Potential

Prof. dr. P. Ribbers


Program.

• Introduction.

• Aligning IS/IT investment to the business.

• Value Chain Analysis.

• The Internal Value Chain.

• Conclusions.


Introduction


IS/IT Strategic Analysis

• Appraisal of systems and how they support current operational performance (including coordination between functions)

• Directing resources to support future, known business objectives (1 – 2 years).

• Potential opportunities and threats of IT and its ability to change the business.– Tools and Techniques of Strategic Thinking and

Analysis


- Outside-in approach


-Outside-in approach- This is about ‘Impact’.

- How can IT change my position in the industry?

- Beyond the boundaries of the existing firm.

- ‘Open Systems’ approach


Steps in Strategic IS Planning

• Assessment of current systems and how well they support operational performance…..[IT audit]• Directing resources towards future business objectives and strategies• Potential of IS/IT to change industry dynamics

• Supporting Techniques: e.g. CSF, Balanced Scorecard, Scenario planning…• Creative thinking required • ….A Fool with a Tool is still a Fool!


Dependence of current Business Performance

Impa

c t o

n F

u tur

e B

usi

n ess

Goa

ls

Low

High

High Low
















Competitive pressuresMarket opportunitiesBPR/BPIIndustry changes

Focus


Aligning IS/IT investment to the business.


Aligning IS/IT investment strategy to the Business

• Emphasis on Line of Business Level!!

– Competitive forces, competitive strategy, dimensions of competency....

• Business product/market strategies drive prioritizing IS/IT investments (not functional aspects)


Theoretical foundations

• The Resource Based View

– The chosen value discipline (Treacy and Wiersma)

• Competitive strategy (Porter)

RBV & VRIN applied to IT

• Does your organization possess IT systems that offer competitive advantage?– V: is IT valuable? Does it translate into substantial

value to customers or suppliers, thus increasing revenue and/or decreasing costs.

– R: is IT rare? Do my competitors possess similar reseources or capabilities.

– I: can IT be imitated? Can competitors acquire the same products or services?

– N: can IT be substituted? If it cannot be imitated, then tcan they be substituted by another system?


A Core Competence View

• Combination of capabilities, technologies and specific properties

– contribution to perceived value by the customer

– unique

– enables future developments of products and services


Competencies and Competitive Advantage

• Operational Excellence

– IS is critical in simplifying business and processes

• Customer Intimacy

– IS focuses on collecting customer information

• Product Leadership

– IS focuses on product innovation and market knowledge

How can IS help improve performance in an under-performing area???


survival

succes

prosperity

Operational

excellence

Customer intimacy

Product leadership


survival

succes

prosperity

Operational

excellence

Customer intimacy

Product leadership

Example: potential successful organization

Level of competition


survival

succes

prosperity

Operational

excellence

Customer intimacy

Product leadership

Example: potential unsuccessful organization

Level of competition


RBV and application selection

• Strategic applications should relate to the dimensions in which the organization seeks to excel.

• Key operational improvements are necessary in case of performance problems

• High potential are prototypes relating to strategic developments.



Impa

c t o

n F

u tur

e B

usi

n ess

Goa

ls

Low

High

High Low



Where (competence) does the organization want to excell

Crucial where systems cause performance problems


Prototypes relevant to other competence dimensions

The portfolio and strategic themes


Value Chain Analysis


The Business Unit Value Chain

• …is part of a larger system: ..the industry value chain….needs to be analyzed first

• ..business unit value chain treated as a black box

Supporting Activities

Operational Activities


Basic raw

materialAssembly Whole

sale

RetailConsumerManufact

uring

The Industry Value Chain


Basic raw


sale


uring

• Supply chain performance



Basic raw


sale


uring

•Supply chain performance •Depends on matching (sharing) information about supply and demand



Basic raw


sale


uring

•Supply chain performance

•Depends on matching (sharing) information about supply and demand

•How could information exchange be improved and what would be the business consequence/Short and Longer term



Basic raw


sale


uring




•Assessing value added roles



Basic raw


sale


uring




•Assessing value added roles

•Bull whip effect


29

Basic raw


sale


uring

Value Chain Performance?

30

Their

SuppliersUs Our

Distributors

Their

RetailersConsumerOur

Suppliers

Our

Competition

Demand Info

Supply Info

Complementary

Services/products

Complementary

Services/products

31

Basic raw


sale


uring


• what information is available about end-consumers?

• need for information exchange with immediate customers

32

Basic raw


sale


uring




• how can key information flows be improved?

33

Basic raw


sale


uring





• is there mutual benefit, willingness and trust to share information?

34

Basic raw


sale


uring





• is there mutual benefit, willingness and trust to share information?

•What is added value of each firm and process?


Basic raw


sale


uring

Value added to the next customer in the value chain?

Value added to the supplier?


Basic raw


sale


uring

Four types of info flows:•Transaction: orders, bills…• Informing Customers; preferences• Supplier information• Knowledge flows

For example: demand

Supply


Stages of Integration

A firm will not be able to determine its IS policy on its own:• Improved performance by integrating internal systems and

processes• Integrating supplier and customer interactions (ERP, CRM)• Integration of sets of value chains in an entire industry?

(Porter)


Benefits of info sharing throughout the value chain

ISs are used to enable better information exchanges in the industry:

• Industry generates a profit (shared among organizations)• If the overall profit can be increased we can take our share • If we share the benefits with customers and suppliers they

will support the changes


Benefits of info sharing throughout the value chain

How to increase industry net profit:

• Create more demand.

• Satisfy more of the available demand by a joint strategy.

• Reduce the cost of satisfying the demand (see also table 5.1 for cost reduction opportunities!)


However:

• Willingness to share…information hoarding

• Incompatible systems

• Legacy

• Different standards

• Not integrated business processes

• Trust and power


New challenges for IS strategy

• Inter-organizational alignment.

• One organization’s self-interested investments in partner integration.

• Models for sharing benefits and costs.

• Control over data.

• Collaborative advantage instead of competitive advantage.


Techniques..for IS Opportunities….

• Customer resource life cycle analysis:– Requirements determination – Acquisition (e.g. ordering and payment)– Stewardship (e.g. monitor inventory)– Retirement or disposal

• Each of the stages require different information exchange (see table 5.2)

• Most of the steps can be improved by direct electronic links


Think of…

• Supplier relationship management?

• And supplier life cycle analysis


Techniques..for IS Opportunities…

• Strategic Option Generator

– IS/IT impact in relation to:• Suppliers

• Customers

• Competitors

– Strategic thrusts:• Differentiation, cost, innovation, growth, alliance


The Internal Value Chain


The internal Value Chain

• Much of the former applies to the internal value chain

– Contribution of the individual activities to creation of value

– Relationships between value adding activities• IS fit functional or departmental structure; much less the

process flow to the customer


The Value Chain

Inbound logistics

Opera-tions

Outbound logistics

Marke-ting & Sales

Service

Procurement

Administration and Infrastructure

Human Resource Management

Product / Technology DevelopmentProfit margin

support

primary


The (internal) value chain

• Distinction between what we do and how• From function to processes• Traditional value chain: manufacturing

– Problematic for services, insurance, banking etc.

• Alternative models suggested• Major objective:

– identify critical processes, information exchange with suppliers and customers

– Effectiveness of information flows through processes


The Value Chain

Inbound logistics

Opera-tions

Outbound logistics

Marke-ting & Sales

Service

Procurement

Administration and Infrastructure

Human Resource Management

Product / Technology DevelopmentProfit margin

Competitive requirements


The (internal) value chain

IT has the potential to:

- To improve efficiency and effectiveness

- To fundamentally change the activity

- To alter the relationship between activities

Supporting Activities

Operational Activities


Flexibility through networks

Unbundling the value chain

Customer

The networked organization(specialists in cooperation)

..concentration on core competences enabled by lower coordination costs

Outsourcing non core activities


Alternative VC models

• Traditional VC for ‘physical goods’• Two alternative models : • Value shops: ‘problem solving’ and ‘executing solution’

(e.g consulting) • Value networks: services/mediation between buyers and

sellers (e.g. Post Office)

– Infrastructure development and maintenance


acquisitionspecificationknowledge

marketing

resources solution execution

Support activities

Value chain: service businesses (value shop) [example]


Conclusions

Historically Emphasis on:

• Internal operations and control

• Individual key processes in the organization

• Internal critical success factors

• The firm not the industry


Conclusions

• IT was used to improve individual components of business activities

• Cost reduction

• Focus on internal operations

• The value chain analysis suggests that the firm’s IS should be considered in the context of the industry value chain.

01/14/14 P. Ribbers - ch. 6 Ward and Peppard

1

Determining the Business Information Systems Strategy

Prof. dr. P. Ribbers


2

Framework for tools and techniques.

• Approach developed in Chs. 2, 3, 4, 5.

• However no standard ‘methodology.’

• But a way to bring analytical techniques together to form a consistent approach.

• Result is what information and systems the business must, should and might have to achieve maximum benefit.


3

I. How could IS/IT impact the strategy?

1. Impact IT on industry, products, markets• Strategic analysis (ch. 2)

• Main outcome: understanding the business units and their environments, their relationships, similarities and differences


4

1. How could IS/IT impact the strategy?

2. Interpreting (SBU) business objectives and strategy.– Balanced scorecard and CSFs to describe the current

situation.

– Should be done in relationship to 1.

3. Analyzing industry value chain and information flows.- understanding the information flows and their effects.


5

1. How could IS/IT impact the strategy?

4. Determine CSFs in conjunction with BSC

5. Determine the strategic potential– Analysis how key business processes and systems

relate

– Refinements with RLC and SOG analysis to extend to the external VC


6

II. Establishing IS/IT investments priorities.

1. Analyzing internal VC and organizational relationships.

• Identify the key primary activities and the information requirements.

• Examine the organization structure

(to analyze the control and

management activities).


7

II. Establishing IS/IT investments priorities.

2. Identify critical business processes and activities

3. Assessment of new options for investments- based on 1, 2 it is possible to assess value of various

IS/IT investments

4. Determine the future application portfolio:- Creative analysis:high potential and strategic

- Current situation analysis: operational and support.


8

Large organizations, Multiple SBUs, Consolidation.

• Is there benefit from looking across business units?

• Depends on similarity in– markets, products– Competitive positions– Distribution channels– Sizes and scale of operation

• So compare, share ideas, but do not combine blindly!


Conclusion

• A consistent approach to IS strategy formulation.

• Consists of analytical processes and creative thinking.

• Planning is a continuing process and so implications of change have to be revisited.

14/01/14 P.Ribbers - ch. 7 Ward and Peppard 1

Managing the Applications Portfolio

14/01/14 P.Ribbers - Managing the Applications Portfolio

2

How to classify?Principle: Based on the Business

Contribution


3

Managing the Applications Portfolio

• How to link the management of IS/IT to the business management processes?

• “2 by 2 matrix” approches

• Typology: categories with similar characteristics

• Needed: agreement on and operationalization of scales


4

Star Question Mark

Cash Cow Dog

Market Share

MarketGrowth

High Low

High

Low

The BCG’s model


5

Strategic impact of applicationsunder development

Str

ate g

ic im

pact

of

exis

ting

app

licat

i ons

Low

High

Low High

FACTORY

SUPPORT

STRATEGIC

TURNAROUND

Basis of the application Portfolio:The Strategic Grid


6


Impa

c t o

n F

u tur

e B

usi

n ess

Goa

ls

Low

High

High Low







Classifying the applications: main purpose to adequately manage the applications.


7


Impa

c t o

n F

u tur

e B

usi

n ess

Goa

ls

Low

High

High Low








Control

Uncertainty IT impact


8


Key Operational (Explore)

Support (Safe)

Some key ideas coming from various matrix approaches:

Controlexisting

Impact of new


9



Support (Safe)

Backbone / Bus Perf Traditional

Efficiency/utilitySupply Mngt; Problem solving;

Centralised



10

Strategic (Attack) High Potential

(Beware)


Support (Safe)

Competition

Backbone/Bus Perf Traditional

Efficiency/utility

Innovation/

Experimentation

DemandMgt; CSFs;

Supply Mngt; Problem solving;

Decentralised

Centralised



11

High Potential

(Beware)


Backbone/ Bus Perf

Innovation

DemandMgt; CSFs;


Decentralised

Centralised

IT-opportunity

driven

Business IssueDriven


12

Strategic (Attack) High Potential

(Beware)


Support (Safe)

Competition

Backbone / Bus. Performance

Traditional

Efficiency/utility

Innovation

DemandMgt; CSFs;


Decentralised

Centralised

IT-opportunity

driven

Business-Opportunity

Driven

Business IssueDriven

IT IssueDriven


13


• Classifying: process and result (see Tables 7.1 and 7.2):

– SWOT analysis per application

– Process (of classifying) and result are important

• Once portfolio is understood: how to manage the applications?


14


Impa

c t o

n F

u tur

e B

usi

n ess

Goa

ls

Low

High

High Low



Direct Marketing; Sales Forecasting CRM

Inventory Management Order Processing Purchasing Materials

Payroll and Personnel systems; General ledger; Office Systems

E- Procurement; on-line customer specification system

Example for a Manufacturing Company


15


Impa

c t o

n F

u tur

e B

usi

n ess

Goa

ls

Low

High

High Low



WHY

What

HowWHY

What

How

WHY

What

How

WHY

What

How

Example for a Manufacturing Company


16

General Application Management Strategies


17

Generic Strategies to match ‘Supply’ and ‘Demand’

• Centrally Planned

• Leading Edge

• Free Market

• Monopoly

• Scarce Resource

Parsons: How to link the management of IS/IT to the business management processes?

Different roles for:

• Executive Management

• Line Management

• IS/IT specialists


18



Centrally Planned


19

Centrally Planned

• Requirement: Mngt is fully aware of Impact• Rationale: Central control by top mngt improves

effectiveness• Org. requirements: Integrated IS/Business

planning - dedicated team• IT role: match business demands• Line Mngt: identify potential of IS to meet

business needs


20



Centrally Planned Leading Edge


21

Leading Edge

• Required: technology is ‘brand-new’: willingness to fund experimentation

• Rationale: senior mngt believes technology push creates advantages

• Organizational Requirements: funds and resources, innovation, IT skills

• IT role: Push technology• Line Managers: use the technology and explore

advantages


22



Centrally Planned

Free Market

Leading Edge

Free Market


23

Free Market

• Rationale: Line mngrs are responsible (accountable) for business results

• Org. req.: Loose IT budget control; willingness to duplicate effort.

• IT role: competitive and profit center• Line managers: identify, source and control IS

developments• Downside: incompatible systems


24



Centrally Planned

Monopoly Free Market

Leading Edge

Free Market


25

Monopoly

• Opposite of free market

• Rationale: Information is a corporate good integrated resource; standardization; compromise

• Org. req.: user acceptance of policy

• IT role: to satisfy user’s requirements and standardize.

• Line managers role: Understand needs and present them to central utility to obtain resources


26



Centrally Planned

Monopoly Free Market

Scarce Resource

Leading Edge

Free Market


27

Scarce Resource

• Rationale: a financial strategy: IS development must be clearly justified

• Org. req: tight budget control

• IT role: make best use of a limited resource

• Line mngr role: passive; identify and cost-justify projects.


28

How to use generic stategies in developing IT strategies

• Diagnostic: assessing the current strategies being used.

• Formulative: how to approach a portfolio of applications.


29

How to Plan IS investments?Correlations between generic strategies and

planning approaches


30


• Business led

• Technology led

• Method Driven

• The administrative approach

• Organization led


31


• Business led: availability of formal business strategies, clearly communicated??

• Method Driven: normative literature on top down approach; vendor support; commercial tools;

• The administrative approach: bureaucratic models of planning and control (rarely fosters innovation)

• Technology led: apply computer science thinking to planning (information engineering techniques)

• Organization led: behavioral studies of business strategy making – strategies evolve from incremental processes


32

Business led

• Assumption: Current Business drives IS plans• Emphasis: Top-level input and Business Plans lead

IS• Major Influence of outcomes: IS Planners (Little

involvement of users and line managers)• Advantage: IS are seen as strategic resource and so

the IS function• Thrust: Business drives IS free market strategy Local benefits


33

Technology led• Assumption:

– IS strategy is an exercise in business and information modelling

– Incremental adoption of technology

• Emphasis: Production of models and blueprints

• Major influence on outcomes: Modelling method employed

• Thrust: IS blueprints

Leading edge


34

Method Driven

• Conditions: long term plan and stable business activities

• Assumption: IS strategies will be enhanced by the use of a formal method

• Emphasis: Selection of the best method• Major influence on outcomes: Practitioners of the

method• Thrust: Strategy needs the method Monopoly


35

The administrative approach

• Main objective is budgetary control• Assumption: IS strategies follow formal

procedures for resource planning• Emphasis: Identification and Allocation of IS

resources (Attached to normal capital budgeting routine)

• Major influence of outcomes: resource planning and steering committees (Outcome is a one-year or multi-year list portfolio)

• Thrust: follow the rules Scarce resource; Monopoly


36

Organization led

• Assumption: IS decisions are the result of continuous integration between IS function and the Business functions

• Emphasis: Based on methods and and process (involvement); organizational learning

• Major influence of outcomes: permanent and ad hoc teams

• Thrust: Themes with teams

Centrally Planned


37

An evolutionary path…

• Stage 1: No coherent strategy – only supply planning• Stage 2: monopoly related to method driven planning• Stage 3: combination of Monopoly and scarce

resource: budget controls• Stage 4: users pursue localized opportunities – free

market• Stage 5: centrally planned strategy for strategic

applications.


38

Portfolio Management Principles and the Application Management

Portfolio


39

Strategic (Stars) High Potential

(Question Marks)

Key Operational (Cash Cow)

Support (Dogs)

Continuous Innovation Integration with Business

Defensive Innovation; High Quality and Effective resource utilization

Rationalize/Efficiency Quality/failure costs

Process Research Minimal Integration Budget control

BCG’s Product Portfolio Mngt and the Application portfolio

• Applications and products have life cycles and move around• Applications and products require investment funding• Applications and products need to be managed in accordance with business importance


40

Enterprise wide management of Application Portfolios

Are there mutual benefits across the organization?


41

Corporate

Business Unit 1

Business Unit 2


Key operational Support

Capitalize and Share

Share Ideas

Control; Common Systems

Constrain; standardize

Enterprise Wide Application Management


42

Conclusion

Dependent on the business criticality:

• Different approaches and processes

• Different degrees and types of involvement

• Different types IS investment justification methods


1

Strategic Management of IS/IT: Organizing and Resourcing

Prof. Dr. P. Ribbers


2

Program

• The strategic management requirement

• Organizing strategies for IS/IT management

• Management of IS/IT relations

• Conclusions


3

Key strategy areas for IS/IT

• Investments

• Data, Information and Knowledge

• Acquisition, deployment and utilization of ITs

• Governance and administration of IS/IT

This chapter


4

The strategic management requirement


5

Information systems strategy•Division/ SBU/ function based•Demand orientation•Business focused

Information technology strategy•Activity based•Supply oriented•Technology focused

Applications

Delivery

What?

How?

Information management strategy•Organisation based•Relationships oriented•Management focused

ManagementOf IT

Wherefore?

Levels of strategy in IT (Earl)


6

IM strategy

• Planning: How?

• Organization: Where in the organization?

• Control: How to control?

• Organization of IT needs structure and processes

• Importance of adequate coordination


7

Strategy needs organization

Lack of adequate structures and processes:

• Systems developed do not meet business needs

• Resources are misused

• Lack of alignment

• Over-centralization and over-decentralization


8

Organizing strategies for IS/IT management


9

Organizing strategies

• Centralization and Decentralization

• Balancing IS demand and IT Supply

• Imperatives for the management of IS/IT

• Coordinating mechanisms for the management of IS/IT


10

Centralization and Decentralization

1960 until mid 80’s• Mainframe based applications • IS costs as justification• Integral information systems (Total

Systems Approach)• Big is beautiful• Top down and centralised

governance


11


Mid 80s until mid 90s• Revenue as basis for justification• Client server architectures• Diversity of information technologies (data

warehousing, office automation, EDI, …)• “Alignment and Impact” thinking - IT and

competitive position • Decentralized, line of business governance


12


Mid 90’s until today• Organizational networks: delayering

and more agile organisations• IT-networks: merger of automation

and telecommunication• Distinction between “infrastructural

IT” and “local IT”• Centralized governance of

infrastructural IT, decentralized governance of local IT


13

Current Situation in Many Companies

Business domain : autonomy of SBUs (product market combination).

Advantage:Clear strategy - clear responsibilities -

responsive, customer oriented organisation.

Disadvantage:Synergy?


14

Current Situation in Many Companies

IT domain : Autonomy of SBUs

Advantage: Clear business priority - flexibility - alignment with SBU.

Disadvantage: diversity in IT - reinventing the wheel - no synergy


15

The ‘middle’ground

• The ‘federal’ structure: combining centralization and decentralization (fig. 8.4)

• Centralization: is information a shared business resource?

• Coordination of technologies: relationships among applications and economies of supply (buying power)

• How closely are applications and data linked to the BU’s strategy?


16

Organizing IS/IT: basic structures

• How to organize demand (IS)

• How to organize supply (IT)

• How to combine?


17

Imperatives for IS/IT management (Rockart)

• Two-way alignment between business and IS/IT strategy

• Develop effective relationships with line management

• Deliver and implement new systems• Build and manage the IT infrastructure• Reskill the IS function with new

competencies and knowledge• Manage vendor partnerships• Redesign and manage the federal IS

organization


18

Ways to organize IS demand

• Centralized model: the corporate board decides.

• Decentralized model: the SBUs and functional managers decide.

• Hybrid model: decision rights for the corporate board and for the SBU boards and functional managers.


19

Ways to organize IS demand

• Integral responsibility of line management

Or

• Separate function: CIO, IT director

• Often: both

– Integral responsibility of the board; CIO reports to the board.

(see table 8.6)


20

Who should manage IS/IT

Part of other business mngt responsibility vs a single responsibility for IS/IT

• Overall authority for IS/IT– CIO– Finance/controller (CFO)

Or:– SBU board– Corporate board


21

Hybrid demand management

C e n t r a a l I n f o b e l e i d

I n f o b e l e i d

D i v i s i e A

I n f o . b e l e i d

D i v i s i e B

I n f o b e l e i d

D i v i s i e C

A l g e m e e nM a n a g e m e n t


22

Supply:What IT activities need to be

managed?• Strategy and planning

• Application development

• Application and technical services

• Technology delivery and maintenance

And

• System operation and user support

© Copyright 1997 by Nolan, Norton & Co. All rights reserved.

Three ways to organize IT supply1. The centralized model

- 23 -

• Central unit, often the IT supply department:- develops and maintains overall (corporate) IT-plan and IT-plans for BU’s- develops, maintains and monitors architectures - initiates innovation- manages corporate IT-projects- delivers IT supply services

• Business units:- manage BU IT-projects

• IT supply department:- delivers IT supply services

• Example:- Dutch IRS (Belastingdienst)

BU BU BU

Executive board

IT GovernanceIT supply organization


Three ways to organize IT supply 2. The hybrid model

- 24 -

• Central unit, often the IT steering committee, chaired by the CIO:- develops and maintains overall (corporate)

IT-plan - develops, maintains and monitors corporate architectures, standards and guidelines- coördinates innovation- manages corporate projects

• Business units:- develop and maintain BU IT-plan - manage BU IT-projects- initiates innovation

• IT supply department:- delivers IT supply services

• Example:- Fortis Group

BU BU BU

Executive board

IT Mngt.

IT Mngt.

IT Mngt.

IT Governance

N.B.: CIO-platform often has a small team to prepare and coordinate activities on behalf of the steering committee, the BU’s and the IT supply organization

IT supplorg.


Three ways to organize IT supply 3. The decentralized model

- 25 -

• Central unit:- does not exist

• Business units:- develop and maintain BU IT-plan - develops, maintains and monitors architectures - manage BU IT-projects- initiate innovation

• BU and / or corporate IT supply department:- delivers IT supply services

• Example:- ING Group; financial holdings

BU BU BU

Executive board

IT Mngt.

IT Mngt.

IT Mngt.


Advantages and drawbacks

- 26 -

Hybrid

Advantages• Responsive to BU’s need• Control of standards

Disadvantages• Limited economies of scale

& knowledge• High control effort

Application• 35% of companies

Advantages• Economies of scale & knowledge• Control of standards

Disadvantages• Not responsive to BU’s need

Application• 55% of the companies

IT

ITIT

Centralized Decentralized

Advantages• Responsive to BU’s need

Disadvantages• No economies of scale &

knowledge• No company wide standards

• Application• 10% of companies

BU BU BU

Executive board

IT GovernanceIT Management

BU BU BU

Executive board

IT Mngt.

IT Mngt.

IT Mngt.

BU BU BU

Executive board

IT Mngt.

IT Mngt.

IT Mngt.

IT Governance

* Source: NNI-research, 1998


27

Approach dependent on perspective on IT resources

(venkatraman)

• Cost center: operational efficiency and minimization of risks.

• Service center: support of current strategy

• Investment center: develop new IT-based business capabilities

• Profit center: deliver IT services to the market place


28

CentralizedDe-Centralized Hybrid

Centralized(ssc)

ok okCoordination!

okCoordination!

De-centralized

? ok ?

Hybrid ? ? ok

Dem

Supply

How to combine demand and supply??


29

In- or Outsourcing

Outsourcing: ‘the delegation, through a contractual arrangement, of

• all or part of

• the technical and human resources

• and the management responsibilities

with providing IT services to an external vendor.’


30

Outsourcing why?

• Financial and economic reasons– Costs (savings and variable costs)– Core competence– Financial markets

• Technical reasons– Necessary technical expertise– Access to new technologies

• Business reasons– Ineffective IS function– Mergers & acquisitions


31

Coordinating mechanisms

Steering committees and integrating roles

Business functions IT function


32

Coordination requirements

• Between Business and IT

– On strategy, tactical and operational level• Between SBUs (demand)

• Between SBUs (supply)


33

Committees (Table 8.9)

• Executive steering group

• Business IS strategy groups

• IT strategy groups

• Application management groups

• Service management groups

• Technology management groups


34

Integrating Roles

• CIO vs CTO?

• Business analysts (Demand and Supply side)

• Contract manager (Demand side)

• Account manager (supply side)


- 35 -

BU BU BU

BU- IT support

Business Analysis

IT Coordinator

IT Coordinator

IT Coordinator

ManagingBoard

Hybrid: IT-planning at the same level as business planning

… but some overall coordination is necessary


- 36 -

BU BU BU

Responsibility for systems strategy, applications planning, prioritisation, project control, cost-benefit realisation

CIO-platform

ManagingBoard

IT Coordinator

IT Coordinator

IT Coordinator

BU plans are coordinated through a steering committee or CIO-platform


37

Managing IS/IT Relations


38

Managing relationships

Relations are key for the success of the management of IS/IT

• With outside suppliers

• With business managers and systems users

• With IT specialists in other companies


39

The culture gap: Frames of reference (mental models) determine what we

see!The world is green The world

is black

The world is wet

The world is sunny

The world is sandy


40

Conclusions

• Strategy needs organization.

• Structures and processes to match and integrate the IS function to and within the business organization.

• Managing relations is key.

14/01/14 ch. 9 Managing investments in IS/IT 1

Managing Investments in Information Systems and

Technology


Program

• Introduction: Evaluating IS/IT investments

• Investment and Priority setting policies

• Evaluating IS/IT investments

• Setting priorities

• Benefits management

• Conclusions


Introduction

Evaluating IS/IT investments

Main Issues of IS/IT Investment decision making

• Justifying investments in IS/IT

• Determine priorities

• How to make sure that intended benefits are achieved

• Risk assessment


Information Systems Are Investments:

….Capital Budgeting Process of analyzing, selecting capital

expenditures– Payback method– Accounting rate of return on investment– Cost-benefit ratio– Net present value– Profitability index– Internal rate of return


Cash Flow

• Cash proceeds: all revenues caused by the investment; e.g. increased sales, lower production costs

• Cash outlays: all expenses caused by the investments; e.g. production expenses (not depreciation!), Personnel etc

• Worth of the investment: proceeds - outlays


Proceeds and Outlays

• Tangible (quantifiable outlays and revenues):

– E.G. Clear cost reduction; Revenue generation

• Intangible (hard to quantify in monetary terms):

– Flexibility, learning, strategic…


IS Expenses & Proceeds

Expenses:

• Hardware

• Software

• Maintenance

• Services

• Personnel

• Training


The Business and IT Value ConnectionThe Business and IT Value Connection➤Often Diffuse, Hard to TrackOften Diffuse, Hard to Track

What Types of Business Value Does IT Deliver?

How Do Enterprises Achieve Business Value?How Do Enterprises Achieve Business Value?➤ Lower CostsLower Costs ➤➤ Increased ThroughputIncreased Throughput➤ Better Customer ServiceBetter Customer Service ➤➤ Retained CustomersRetained Customers➤ Reduced Cycle TimeReduced Cycle Time ➤➤ Reduced Time to MarketReduced Time to Market➤ Increased SalesIncreased Sales ➤➤ Increased MarginsIncreased Margins➤ Better ProductsBetter Products ➤➤ Differentiated ProductsDifferentiated Products➤ New Lines of Business New Lines of Business ➤➤ Improved QualityImproved Quality➤ Better InformationBetter Information ➤➤ Quicker Decision-MakingQuicker Decision-Making➤ Optimum Supply ChainOptimum Supply Chain ➤➤ New Business Processes New Business Processes


Measuring the Value: How to Justify Investments in IT and Business Change

Initiatives 2.What is the appropriate

discount factor Ishould use

1.How do I correctly

estimate futurecash flows

3.What about

‘managementflexibility’?


Investment and Priority Setting Policies

Two types of decisions

• Go - No Go for individual applications

• Deciding about priorities across applications competing for resources

– Potentially all investments, not only IS


IS/IT investments

• ..to be treated as any other capital investment

• However quantifying the benefits may be very difficult.


Parker/Benson(Information Economics)

Three main types of applications

• Substitutive: replacing people with technology

• Complementary: improving ways work is performed

• Innovative: achieving a strategic advantage


Parker/Benson(Information Economics)

Three main types of applications

• Substitutive: replacing people with technology

• Complementary: improving ways work is performed

• Innovative: achieving a strategic advantage

Techniques to evaluate benefits

• Traditional cost-benefit analysis: efficiency driven

• Value linking: estimates improvement in business performance.

• Value acceleration: benefits in other parts of the organization

• Value restructuring: productivity improvement from organizational change

• Innovation




Impa

c t o

n F

u tur

e B

usi

n ess

Goa

ls

Low

High

High Low










Impa

c t o

n F

u tur

e B

usi

n ess

Goa

ls

Low

High

High Low



Business Innovation and change

BPR

Business effectiveness, rationalization and integration

Business efficiency; Process elimination and cost reduction

R&D projects


Benefit Types and the Application Portfolio

Substitutive(Efficiency)

Complementary(Effectiveness)

Innovative(Competitive)

Cost/benefit V V V

Value linking V V V

Value acceleration V V V

Value restructuring V V

Innovation evaluation

V

Support High Potential

Key Operational Key Operational

Strategic Strategic



Quantified Financial Justification



Critical Success Factors

Performance improvement and financial justification

Net cost reduction

Risk Money


The portfolio approach suggests..

• Quantified, financial justification is easier for key operational and support type of systems

• Singular type of evaluation will exclude particular applications

• The way applications are managed will affect the way in which they are justified.



Setting Priorities

A procedure: Multi Criteria Decision Making

• Importance of a consistent way of working across all projects.

• Three factors need to be included:

– What is important to do (business objectives)

– What is capable of being done (available resources)

– What is likely to succeed (risks of failure)


The Application Portfolio

• Support: …greatest economic benefit…

• Strategic:….highest contribution to business objectives

• Key Operational:….complex because of different arguments…(economic, objectives, risks, infrastructure)

• High potential:….difficult to prioritize


..priorities across segments of the portfolio

• ..not easy..

• …Use ranking based scoring models with multiple criteria..

• ..example…



How Scoring Models Work

1. Determine management values/do wells/decision making criteria

2. Determine and assess risks

3. Determine relative weight for each criterium

4. Evaluate and score all projects

5. Execute the mathematics


Assessing and Managing Investment Risks

Lyytinen and Hirschheim:

• Technical failure.

• Data failure.

• User failure.

• Organizational failure.

• Failure in the business environment.

Add: project failure: due to overly complex projects.


Business Domain Technology domain

Weight ROI +3

SM +3

CA +3

CR +2

MI +1

OR -3

SA +3

DU -1

TU -1

IR -3

Totalscore

Project A

Project B

Project C

Project X

Three

Four

Five

How scoring models work

ROI = Return on InvestmentSM = Strategic matchCA = Competitive advantage

CR = Competitive ResponseMI = Management

informationOR = Organisational risk

SA = Stategic IS structureDU = Definitional uncertaintyTU = Technical uncertaintyIR = Infrastructure risk

Parker M.M., Benson R.J. and Trainor H.E. (1988) Information Economics. EnnglewoodCliffs, New Jersey: Prentice Hall

OneTwo


The Decision Making Process Includes Various “Do Wells”to Rank Each

Business Case Business Domain

Technology domain

Weight

ROI +3

SM +3

CA +1

CR +2

MI +1

OR -3

SA +3

DU -1

TU -1

IR - 3

Totalscore

Project A 3 9 3 4 0 -15 15 -1 -3 -15 0

Project B 15 12 5 8 2 -6 15 -2 -1 -9 37

Project C 12 9 1 8 2 -9 12 -2 -1 -6 36

Project X 3 9 0 0 2 -3 15 -1 -3 -3 19

ROI = Return on InvestmentSM = Strategic matchCA = Competitive advantage

CR = Competitive ResponseMI = Management

informationOR = Organisational risk

SA = Stategic IS structureDU = Definitional uncertaintyTU = Technical uncertaintyIR = Infrastructure risk

Parker M.M., Benson R.J. and Trainor H.E. (1988) Information Economics. EnnglewoodCliffs, New Jersey: Prentice Hall


Benefits Management

BM:The process of organizing and managing such that potential

benefits arising from the use of IT are actually realized.



The IT Management Cycle

Justification

Identification

RealizationExploitation

Evaluation

33

The IT Management Cycle

Justification

Identification

RealizationExploitation

Evaluation

BenefitsManagement

BM: “The process of organizing and managing such that potential benefits arising from the use of IT are actually realized”


Benefits Management

Analysis:

• Why is the investment being made?

• What types of benefits is the organization expecting from the investment overall?

• How will other activities affect the particular investment either to facilitate or inhibit its progress and outcome?


Conclusions

• IS investments are investments: compete for scarce resources

• IS make different contributions to a business:– Appraisal in different ways– Type of appraisal determine decision

• The need for post implementation reviews to learn from experience.

Strategies for Information Management:

Towards Knowledge Management

Prof.dr. Piet Ribbers

Davenport: ‘Effective information management must

begin by thinking how people use information – not how people use machines’.



Data

Quality

For exampleRelevanceAvailability

CorrectComplete

Timely....


Management/controlModel

objectivesPlanningDecisions

MaterialsData

productsServices

Operational Processes

Environment


Mngt/controlModel

objectivesPlanningDecisions

Materialsdata

Productsservices

Operationel processes

organization Data

data

data

data

Management-attention

information

Relevance

Reliability

timeliness

Represen-tation

Environment

Organization

Processes

CustomersComp.Trends

OrganizationObjectives

Succes Factors;Content

Computerized Information systems

Other Information Systems

Poor quality of Information

• Many managers unaware of poor information

• Poor information leads to low business performance

• Poor information and JIT?? (e.g wrong inventory data)

• Poor information and strategy?

Obstacles to information management

• Information resides in multiple libraries, databases etc.

• Some well structured, some not in dispersed PCs.

• Created for different purposes• Complex information exchanges

(documents, paper-based, pictures, verbal etc..)

Value of information to current strategy

Val

ue o

f in

f orm

atio

n to

fu

ture

str

ateg

y

Low

High

High Low



Critical to Business and of greatest potential value

Essential for core processes and value enhanced by horizontal integration

Needed for supporting business but little strategic value

Potential value may be high, but not confirmed

Value of Information to Business

Information sharing

Information Systems in OrganizationsInformation Systems in Organizations


STRATEGIC MANAGEMENT SENIOR MANAGERSSTRATEGIC MANAGEMENT SENIOR MANAGERS

TACTICAL MANAGEMENT MIDDLE MANAGERSTACTICAL MANAGEMENT MIDDLE MANAGERS

OPERATTIONELEOPERATTIONELE

PRODUCTIEPRODUCTIE


MANAGEMENTMANAGEMENT

OPERATIONALOPERATIONAL

MANAGERSMANAGERS







PRODUCTIEPRODUCTIE




MANAGERSMANAGERS







PRODUCTIEPRODUCTIE




MANAGERSMANAGERS







PRODUCTIEPRODUCTIE




MANAGERSMANAGERS


2.3

Patch work: no interoperability, no integration, no shareability of information etc…

Data

Pr.

EenProces

Een verzameling Informatiesystemen:

Data

Pr.

Data

Pr.

EenProces

Single Vendor Solutions

Data

Progr. Progr.

Processen

Drawbacks

• No single vendor solution will meet all requirements Best of Breed strategy (multiple vendors)

• Replacing multiple applications is often not doable

• Not a good fit for all SBUs

• Risk of single vendor lock in

Application Integration: Point-to-point Application Integration: Point-to-point integrationintegration



Point-to-Point Integration •Evolutionary approach

•Interfaces (N x (N-1))

Data

Data

Data

Data

TDB

TDB

TDB

TDB

DW

Query

Datamining

Report

Data Access a Datawarehouse provides a centralized environment for data access for the users regardless their location or the information source.

Middleware

Ward & Peppard ch. 11 1

Managing the Supply of IT Services, Applications and

Infrastructure

Prof. Dr. Piet Ribbers

• IT Service Strategy:• Types of IT Services

– Application Delivery

– IT-infrastructure

• Service Models

• Service Quality and Gaps

• Application Delivery:• ASP

• Application Portfolio

• ERP

• Managing Infrastructure

• Multi-Business Unit

• Outsourcing



Strategy

Exploitation Supply

Define the IS Contribution

Define the IS Capability

Deliver

Solutions

Fig. 8.10

Focus: Management issues of


IT - Services

• Supply Side is a number of IT services

• Services instead of Production: interaction with user (Customer)

• Many businesses deliver to customers via IS/IT

• Outsourcing: defining service levels is integral part of IS management


Characteristics of (IT) Services

• User involved in delivery process

• Services produced and consumed simultaneously (no inventory; scheduling..)

• Service experience and service interaction

• Make user understand complexity: Managing expectations

• User vs Management


ServiceFactory

Job Shop

Mass Service Professional Services

Degree of Customization

Deg

ree

of U

ser

Con

tact

Low High

Low

High

Generic Service Models

A Service Process-based Classification


ServiceFactory

Job Shop



Deg

ree

of U

ser

Con

tact

Low High

Low

High

Generic Service ModelsProgramming

Data Base Design

Desktop

Sec/Access

backoffice

Consultancy

SA & D

Training

Project Mngt


Service Factory Job Shop



Deg

ree

of U

ser

Con

tact

Low High

Low

High

Generic Service Models: key mngt. issues

SLAs ResourceScheduling Demand-Forecasting /Capacity development

Flexibility

Prioritization

Performance Mngt

SLAs; Service skills, Attitudes; Matching resources to demand cycles

Staff Development; Knowledge mngt; resource planning.

Service Quality – 5 gaps (fig 11.5, p.533)

1. User expectation – intended service

2. Specification – intended service

3. What the user receives – specification

4. What the user receives – what the IS function promised

5. What the user expects – what user receives

---- Different causes…



Application Development and Provisioning Strategies

• Many applications bought rather than built

• Custom-built applications developed by third-parties

• Challenge: Faster – cheaper – better – more customer focused, flexible and easy to use


ERP : Integration of Data and Functions

(standardized customization)

Data

Progr. Progr.

Processes


Special Case of Enterprise Systems

• ERP, CRM, SCM, EPR...

• Integrated, broad scope, complex,...

• Changing business models,organization structure

• Centralization / decentralization discussion

• Business changes are leading, not the software


Managing the Infrastructure

• Major Issue:

• ..the degree to which the organization should function as an integrated whole or separate entities..

• Two dimensions: reach and range


Reach To whom can we connect?

Range

What Services can we Share?

Infrastructure Choices


Reach To whom can we connect?

Range

What Services can we Share?


Managing Technology in a Multi-Business-unit Organization

• Lowest level of centralized control: Technology Economics

• Moderate level of centralized control: Application benefits (common systems)

• Highest level of control: Information Asset Management (shared data)


(Out-) Sourcing


Strategic Sourcing

Deals with the way an organization obtains products and services in exchange for returns,

……while considering the long-term impact on the context, intensity and scope of internal and external relationships

(H. van der Zee et al, Nolan Norton institute, 1999)


Definition of IT outsourcing

• Handover the responsibility for the execution of (parts of) the IT services to one or more external IT suppliers based on a long term contract;

• with or without transfer of staff and assets


Outsourcing is not..

• Procurement of hardware, standard software

• Contracting external personnel


Sourcing strategies

Number of suppliers

1Parts of IT services

All of IT services

> 1

Scope of Outsourcing Relationship

selective singleoutsourcing

total singleoutsourcing

total multipleoutsourcing

selective multipleoutsourcing


Sourcing strategies

Multiple sourcing (best of breed approach): research evidence to be the smart choice of the future:

• Minimize risks and dependencies• However additional time and resources to

manage multiple vendors• Key is vendor coordination and management.


Types of Outsourcing (IDC)

• Information Systems Outsourcing: traditional IT services (infrastructure, desktop,..)

• Processing Outsourcing: includes parts of business processes

• Business Processing Outsourcing: IT and Non IT services as total service offering


Motives for outsourcing

• Core-business and unique core competence

• Agile organization

• Acess to knowledge and recent technology

• Costs:

– Cost reduction by economies of scale

– Variable vs fixed costs

– Cost control


Motives for Outsourcing

• Financials: freeing capital (e.g KPN)

• Financial markets: Market- to Book Value

• New start-ups


10 most dominant risks

1. Management control: IS strategy, sourcing strategy

2. Demand management: finding the right people

3. No priority (too small for large supplier)

4. Confidentiality

5. Wrong questions, wrong definition of information needs

6. Supplier’s industry knowledge

7. Business dynamics: business changes and contracts in concrete

8. Lack of innovation

9. Vendor lock in

10. Cost control (benchmarks)


Contract

• Very important in outsourcing relationships• Service agreements and service levels• Market conformity and fair deal• Completeness is an illusion and flexibility is

critical:– Agreement on how to deal with changes– Multiple suppliers avoid lock in

• Culture and contracts: USA – Europe - Asia


3-Level Contract structure

• Framework agreement– Liabilities, rate structure, term of payments, meeting structure

etc.

• Service agreements – The outsourced services (based on service portfolio description

of service provider), management reporting structure

• Service level agreements– Requirements and variation of standard services.

Transfer agreements as a separate contract


Factors affecting the Outsourcing Decision


Guidelines for outsourcing decisions

Business Factors

• Differentiator/commodity

• Critical/useful

• Internal IT evaluation

Economic Factors

• Is there a market - (vendor monopoly?)

• Transaction costs – (efficiency of vendor management)


Business FactorsOperations /Differentiator

Critical Useful

Differentiator

Insource (NA)

Commodity Best source;Risk assessment

Outsource


Business Factors:Internal Evaluation

• At what cost can you perform yourself?

• Quality of existing internal IT processes.

• Objective comparisons with vendor bids.


Economic Factors: External Evaluation

• In case of monopoly: “vendor lock in”• Cost efficiency of vendors: economies of scale +

transaction costs• Transaction costs may compensate economies

of scale:– Existence of efficient management practices is

key. – Use of IT pushes down transaction costs


Asset Specificity

Uncertainty

Technical Skills

Customer Intimacy

Outsourcing Level

-

-

+

-

Transaction Costs Economics and Outsourcing


TCE and Outsourcing

• Asset specificity: ‘commodities’ outsourced

• Uncertainty: ‘known specifications’ outsourced

• Technical skills: ‘advanced technical skills’ outsourced

• Customer intimacy: ‘the more’ the less outsourced (especially offshore)


Firm

Network of Competencies

The Resource Based View: Outsourcing and (Core-) Competencies


Looking Ahead• The outsourcing phenomenon is being pushed by the

strive for new business models: core competences and collaborative relations

• Outsourcing of activities that are considered non core is heavily supported by commoditisation.

• Strengthening by the open source movement.• Outsourcing of entire business processes considered

as non-core: Business Process Outsourcing.

Documents

Informatiebeleid [Information Systems · Ch. 10: Information and Knowledge as a ... DSS EIS. 14/01/14 P. Ribbers - ch.1 Ward Peppard 14 Information Systems ... future Business Strategy