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Managing InformationSystems For

Strategic Advantage (Part 2)

BUS3500 - Abdou Illia, Fall 2006

(Week 12, Monday 11/7/2006)

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LEARNING GOALS Describe the methods organizations use

to choose strategic IS projects Balanced scorecard Total cost of ownership (TCO) IS portfolio analysis

Explain the concept of knowledge management and describe the technologies that comprise knowledge management systems.

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Choosing Strategic IS IS face productivity paradox

It is difficult to attribute cost savings directly to a specific information system

It is difficult to prove that a specific IS led to certain financial outcomes

Chief Information Officer help choose strategic IS By developing long-term IS strategy By determining how to allocate IS budget By aligning IS portfolio with company’s strategies

Tools used by CIO Balanced scorecard Total cost of ownership (TCO) IS portfolio analysis

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Questions1) Which of the following is true about the productivity

paradox associated with investing in information systems?

a) We can determine the cost associated with investing in information systems

b) We can easily attribute observed cost savings directly to specific information systems

c) We can easily prove that a specific information system led to specific profits

d) All of the above

2) Which of the following is NOT among the kind of activities usually performed by a CIO?

a) Design and develop strategic ISb) Manage IS portfolioc) Align a company’s IS portfolio with its strategies in different areasd) Determine a company’s long-term IS strategye) None of the above

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The Balanced Scorecard Allows a company to address non-financial

objectives that support its financial goals Allows to investigate strategies in key areas and

develop goals and measures for each

Financial

Goals Measures Initiatives

Improve cash flow

Reduce expenses

……

Internal Primary Business Processes

Goals Measures Initiatives

Decrease production time

Units/sec

Improve quality Defect rate

…..

Customers

Goals Measures Initiatives

Improve customer satisfaction

Decrease defects

…….

Learning and Growth

Goals Measures Initiatives

Dev. Successful new products

……

Vision&

Strategy

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The Balanced Scorecard Could help align investments in strategic IS with

overall corporate strategyFinancial

Goals Measures Initiatives

Improve cash flow

Reduce expenses

……

Internal Primary Business Processes

Goals Measures Initiatives

Decrease production time

Units/sec

Improve quality Defect rate

…..

Customers

Goals Measures Initiatives

Improve customer satisfaction

Decrease defects

…….

Learning and Growth

Goals Measures Initiatives

Dev. Successful new products

……

Vision&

Strategy

Q1: What kind of Strategic IS is needed if the Balanced Scorecard shows that Improving customer relationships is a major goal?Q2: What kind of Strategic IS is needed if the Balanced Scorecard shows that Developing successful new products is a major goal?

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Total Cost of Ownership (TCO) Estimating IS costs and benefits is a SWAG*

Costs include – Benefits include Hardware • Tangible benefits Software • Intangible benefits Labor

Total cost of ownership (TCO) Method to quantify long-term direct and indirect costs

Indirect costs

Training

System downtime

* Scientific Wild Guess

Benefits

Tangible

Intangible

- Improved customer service - life savings for a medical IS

Direct costs

Capital expenses

- Hardware costs - Software costs - Future upgrades

- Future replacements

Labor costs

- Custom develpt of software - Support and Maintenance

Overhead fees

- Telecomm services - Maintenance contracts w/ vendors

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TCO Analysis for PDA Purchase

Initial cost: 100 PDAs @ $300 each, i.e. $30000Replacement cost: 10% of PDAs replaced per year, i.e. $3000/yearSupport cost: $7000/year

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The IS Portfolio Analysis Treats investments in IS assets like a portfolio of

investment assets to find redundancies and achieve balance in IS projects

Five steps1) Create an IS projects database

Content: Project name, Description, Cost, Time line, staff assigned,… Objectives: Identify conflicting projects, lack of staff, etc.

2) Prioritize the IS projects Based on costs, benefits, chance of success

3) Categorize IS projects Infrastructure: Keep the basic company’s info. Systems running Upgrades: Bring certain systems up to date Strategic initiatives: Have potential to give a strategic advantage

4) Automate the entire process Enter new IS projects in database, Re-prioritize, Re-categorize

5) Perform a Modern Portfolio Theory analysis

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Sample IS Portfolio

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Questions1) Which of the following tools or techniques could be useful in

identifying conflicting IS projects assignments like two big projects assigned to the same manager during the same time?

a) Balanced Scorecardb) IS portfolio analysisc) Knowledge Work Systemd) Project Analysis

2) Using the Balanced Scorecard, the CIO has determined that improving customer relationship must be one of the major goals for the company during the next five years. What kind of strategic IS the company should consider investing in?

a) Transaction Processing Systemb) EDIc) Knowledge Work Systemd) SCMe) None of the above

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Knowledge Management (KM) Knowledge assets is key for long-term

competitive advantage Knowledge assets include

Tacit knowledge within the minds of employees Explicit knowledge in a tangible form such as

databases, documents, and reports Knowledge management (KM)

Process by which organizations extract value from their knowledge assets to implement Knowledge Management Systems (KMS)

Chief Knowledge Officer Designs and implements KMS

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KM Systems Information systems that enable the

exchange of knowledge among employees and the storage of knowledge in repositories

KMS components: Expert directories Knowledge repositories Knowledge sharing technologies Knowledge representation technologies

KMS usually available through company’s intranet and extranet

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KM Systems Expert directory

Electronic Phonebook that includes employees’ contact information and domain of expertise

Knowledge repository Includes a company’s explicit knowledge retrieved from reports,

documents, etc. and put in a database management system Provides tools for searching the database

Knowledge sharing technologies Communications and collaboration tools for knowledge sharing Emails, Instant Messaging, and discussion boards widely used

Knowledge representation technologies Contain tacit knowledge retrieved from employees or experts mind Include tools for processing that knowledge Are mainly Expert Systems that help non-expert employees to

make decisions in a specific domain of expertise

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Questions1) What KMS component contains tacit knowledge

retrieved from employees or experts’ mind as well as tools for processing that tacit knowledge?

a) Expert directoryb) Knowledge repositoryc) Knowledge sharing technology

d) Knowledge representation technology

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Summary Questions

See Exercise 1, Exercise 2, and Exercise 3 at:

http://www.eiu.edu/~a_illia/BUS3500/Chapter10(2)-ReviewExercises.htm

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Expert System Knowledge base: database of the expertise, often in IF THEN rules. Inference engine: derives recommendations from knowledge base and

problem-specific data User interface: controls the dialog between the user and the system Explanation system: Explain the how and why of recommendations

Knowledgebase

Domain Expert

Knowledge Engineer

Expertise

ExplanationSystem

InferenceEngine

UserInterface

User

System Engineer

Encoded expertise

IFfamily is albatross ANDcolor is whiteTHENbird is laysan albatross.

IFfamily is albatross ANDcolor is darkTHENbird is black footed albatross

Example of rules

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KMS

Database 10Database 10

Database 10Database 10

Database 10Database 10

Database

Document ZDocument Z

Document ZDocument Z

Document ZDocument Z

Document ZDocument Z

Document

ReportReport

ReportReport

ReportReport

ReportReport

ReportReport

Input Process Output

Knowledge Management System

Tacit knowledge