Summary of Chapter 14 Information System Value and Financial Strategy

Summary of Chapter 14Summary of Chapter 14

Information System Value and Information System Value and Financial StrategyFinancial Strategy

The IS Value IssueThe IS Value Issue

Some companies have a difficult time

articulating the value of an increasingly large

amount of money being spent on Information

Systems.

Is This Really an Issue?Is This Really an Issue?

1. It is a big deal and the IS organization is being challenged to answer the value question while being denied additional funding.

2. It is a medium issue but there are other business issues that are considered more important so the IS organization has not yet been impacted financially.

3. It is not a current issue within the organization.

The ChallengeThe Challenge

To convince senior management that IT is

contributing to the success of the business and

needs to continue to be funded appropriately!

Evolution of Financial Strategy

Application Support

Motivation

Financial Justification

DP Planning

Organization

Initiation Expansion Control Maturity

I II III IV

Single Area Proliferation ContainmentOrganizational

Strategy

People Displacement

Cost Avoidance DP Efficiency

Competitive Advantage

Little Reactive Directed Proactive

BudgetBusiness Case

Installation AuditCharge-Out

SystemManagement

Process

Finance Dept. Multiple Dept. CentralizedCentralized

Decentralized Distributed

Based on material from Gibson and Nolan, Harvard Business Review, January-February 1974, pp. 76-88.

The Evolution of Information The Evolution of Information Systems JustificationSystems Justification

Justification of ISJustification of IS

Stage I: Most organization address funding for information

systems as part of the budget.

The challenge is to accomplish as much as possible with the

existing IS resource without exceeding the budget.

A possible problem with this approach is that a limited budget

can curtail the possible and logical use of information systems

within the organization.

Justification of ISJustification of IS

Stage II: The rapid growth of IS and increasing use and cost of IS prompts establishing a business case proposal process followed by a post-installation audit.

This attempts to establish appropriate priorities for new IS projects. The post install audit objective is to validate that what was proposed was actually accomplished.

A problem with this approach is that the business case is a snap-shot in time.

IS JustificationIS Justification

Stage III: Objective: To put the burden of financial responsibility on the people (departments or business functions) who are using the IS.

The logic of this approach is that if people are willing to pay for the use of information systems then it must be justified.

The problem with this approach is that senior management can conclude that it is simply shifting money from the IS organization to user departments.

IS JustificationIS Justification

Stage IV: A management process is an attempt to provide a

better way to articulate the value of information systems

geared to factors that are important to the success of the

business.

This could be efficiency, effectiveness or competitive advantage.

While viewed as a possible necessary step, this approach will entail time and money to create the process.

Information Systems Do Not Information Systems Do Not Produce Value DirectlyProduce Value Directly

Information Systems

Value to the Business

Business Change

ConclusionsConclusions

An important consideration as to whether this will become an important issue is whether senior management is likely to hit a pain threshold regarding the amount spent on Information Systems..

Meanwhile, should the IS organization try to anticipate the need to establish a process that does a better job of answering questions regarding the value of information systems to the organization.

Possible Exam QuestionsPossible Exam Questions

1.1. What is the IS value issue?What is the IS value issue?

2.2. Name three ways a company derives value from Information Name three ways a company derives value from Information

Systems?Systems?

3.3. Is there a process that monitors the effectiveness of Information Is there a process that monitors the effectiveness of Information

Systems?Systems?

Chapter 15 SummaryChapter 15 Summary

Integrating IS Integrating IS

into the Business Plan into the Business Plan

1. Understanding importance of integrating I/S

planning into business planning process.

2. Realizing that the success of a planning approach depends on making it a priority within a company while implementing a necessary process to make it happen.

Chapter ObjectivesChapter Objectives

Drivers Influence PlanningDrivers Influence Planning

OrganizationalResponse to

Business Drivers

Organization• Decentralization• Downsizing• Outsourcing• Business Partnering• Corp. Alliances

Process• Reengineering

• Redefining• TQM

Time, Flexibilityand

Responsivenessas Competitive

FactorsProduct Customization• Value-added Services• Markets• Customers• Global Standards

New Markets,Opportunities

and Competitors

Employees• Skills• Empowerment• Quality Circles• Teams

Figure 15-1

Major Planning Challenges Major Planning Challenges

• What to do

Important to know where the company

is going.

• Making it happen

Can be difficult because it frequently

involves changes.

Traditional Approach in IS PlanningTraditional Approach in IS Planning

Traditional I/S Role

Tactics

Strategy

Figure 15-2

Vision

Strategic Planning ModelStrategic Planning Model

BusinessPlan

TacticalPlan

StrategicPlan

Environment(External)

Opportunities

Threats

Strengths

Weaknesses

Enterprise(Internal)

Goals

Objectives

Strategic Positioning

Culture(Explicit/Implicit)

Business Unit

Functional Programs

MajorProjects

DetailedProjects

Resources:Headcount,Capital andExpenseBudgets

Figure 15-3

MissionVision

Barriers to Aligning IS with Business ObjectivesBarriers to Aligning IS with Business Objectives

I/S Track Recordand Credibility?

Senior ManagementPerception of I/S?

Communication ofBusiness Plan?

Executive Skillsof I/S Executive?

Business Plan?

Clear I/S Role?

Effective I/S Management?

I/S Organization?

A Problem withI/S Capacity?

I/S Policies?

Does the I/SOrganization Have a

User/Business Focus?

Managing I/S toBusiness Objectives?

Is keeping I/S alignedwith the businessobjectives someones high priority objective?

Figure 15-5

I/S Skills andCapabilities?

Business - IS PlanningBusiness - IS Planning

Technology Environment

Opportunities

I/S Strategy

Determines

InformationTechnology

Benefits

BusinessStrategy

Dictates

CorporateStrategy

1) Strategic Capability

2) Technology Driven Business Change

Figure 15-7

Business Domain Information Technology Domain

Information Technology Opportunities

Strategic Plan

Information SystemsArchitecture and

Organization

Business Processesand Organization

Alignment

Impact

Org

aniz

atio

n

Opp

ortu

nity

Enterprise-Wide Information Systems Strategic Planning Process

Parker/Trainor/Benson, INFORMATION STRATEGY AND ECONOMICS, (c)1989, p.5. Adapted by permission of Prentice Hall, Upper Saddle River, New Jersey

Figure 15-8


1. Planning is a tool. There is an organizational learning curve regarding methodologies.

2. A good plan with no execution borders on a waste of the entire effort.

3. A relatively weak plan with a few strong thoughts followed by tenacious implementation can provide major business benefits.

Possible Exam QuestionsPossible Exam Questions

1. Discuss the importance of business and information systems planning in today’s dynamic business environment?

2. Identify and explain reasons why Information Systems planning often fails within an organization.

Chapter 16 IntroductionChapter 16 Introduction

Total Quality ManagementTotal Quality Management

AndAnd

The Role of Information SystemsThe Role of Information Systems

Chapter OverviewChapter Overview

Total Quality ManagementTotal Quality Management Case Study: Xerox and TQMCase Study: Xerox and TQM Fundamentals of TQMFundamentals of TQM TQM and ReengineeringTQM and Reengineering Role of IS in TQM programRole of IS in TQM program TQM implementation challengesTQM implementation challenges

Total Quality Management (TQM)Total Quality Management (TQM)

A specific emphasis program, comparable A specific emphasis program, comparable to process reengineering, focused on to process reengineering, focused on providing quality to the customer.providing quality to the customer.

Case Study: XeroxCase Study: Xerox

Successful in 1960’s.Successful in 1960’s. In danger of going out of business in 1982.In danger of going out of business in 1982. Japanese competitionJapanese competition 1989 award for outstanding quality1989 award for outstanding quality TQM – “Leadership Through Quality”TQM – “Leadership Through Quality”

Fundamentals of TQMFundamentals of TQM

Meeting customer expectationsMeeting customer expectations Quality is a management process to run the Quality is a management process to run the

business.business. Fine tuning will not change anything of any Fine tuning will not change anything of any

significance in most cases. significance in most cases. A new management process, attitude and culture A new management process, attitude and culture

are often required.are often required. The core problem is managing a massive change The core problem is managing a massive change

in organizational behavior.in organizational behavior.

Considerations for a TQM ProgramConsiderations for a TQM Program

PeoplePeople– Enablers of qualityEnablers of quality

Business processesBusiness processes– Focal point of a TQM programFocal point of a TQM program

Efficiency, effectiveness, competitive Efficiency, effectiveness, competitive advantageadvantage– Results of a successful TQM programResults of a successful TQM program

TQM and ReengineeringTQM and Reengineering

Difference:Difference:

TQM program frequently improves what is TQM program frequently improves what is

already in place, while a reengineering effort already in place, while a reengineering effort

advocates an entirely new approach, a new advocates an entirely new approach, a new

beginning, and a rejection of the traditional way beginning, and a rejection of the traditional way

of doing things.of doing things.

Role of IS in a TQM ProgramRole of IS in a TQM Program

Pursuit of quality and operational Pursuit of quality and operational performance goals need to be based on performance goals need to be based on reliable information, data and analysis.reliable information, data and analysis.

Use of data and analysis involves the Use of data and analysis involves the creation and use of performance indicators.creation and use of performance indicators.

Effective measurement strategy.Effective measurement strategy.

Challenges in Implementing a Challenges in Implementing a TQM ProgramTQM Program

Importance of leadership and direction.Importance of leadership and direction. Changing the company culture.Changing the company culture. Addressing employee attitude problems.Addressing employee attitude problems. Choosing the best people.Choosing the best people. Understanding the business problems.Understanding the business problems. Developing a compensation system.Developing a compensation system.


1.1. A company’s fortunes can rest on its ability to A company’s fortunes can rest on its ability to provide superior quality products.provide superior quality products.

2.2. TQM does not guarantee immediate, ultimate or TQM does not guarantee immediate, ultimate or sustainable business success.sustainable business success.

3.3. TQM can be implemented within an TQM can be implemented within an organization without information systems being organization without information systems being a major role, but it can make a positive a major role, but it can make a positive contribution and produce performance contribution and produce performance measurements.measurements.

Chapter 16Chapter 16

Total Quality Management Total Quality Management

and and

The Role of Information SystemsThe Role of Information Systems

A Definition of QualityA Definition of Quality

“Quality” is conformance to customer

wants, needs and expectations, at a price

he or she will pay.

Total Quality Management

Of the three letters in TQM, the T is most important. Total says that you maintain a balanced focus on major business factors and business results while guarding against becoming process myopic.

Leadership Through Quality at Xeroxor

Finding a Way to Save the Company thatHad Once Owned an Industry and Was

the Darling of the Stock Market

A Case AnalysisA Case Analysis

Xerox 914Xerox 914

Introduced in 1959, the 914 copier was a money machine nonpareil.

It was also arguably the finest product ever produced by any company since it combined four technologies: chemical, optical, mechanical and electronics.

By the time it was retired in 1973, it was the biggest-selling industrial product of all time, and Xerox was in the dictionary as a synonym for photocopy.

Success spoiled Xerox. To sustain its rapid growth, it needed to move beyond copiers, but what could ever measure up to the 70% gross profit margins of the 914?

Xerox History

1959 1972 1979 1980 1983 1989 1990s

914

Cop

ier I

ntro

duce

d

Com

petit

ion

Incr

ease

s

Ben

chm

arki

ng S

tarte

d

Qua

lity

Circ

les

Beg

an

Fuji

Xer

ox W

on D

emin

g A

war

d

Lead

ersh

ip T

hrou

gh Q

ualit

y

Initi

ated

Won

Bal

drid

ge A

war

d

ContinuousImprovement

Figure 16.1Source: Xerox Corp.

Indirect/Direct Ratio 2X

Production Suppliers 9X

Assembly Line Rejections 10X

Product Lead Time 2X

Defects Per 100 Machines 7X

Off the BenchmarkOff the Benchmark

Quality Through LeadershipQuality Through LeadershipProgram at XeroxProgram at Xerox

The strategy was for a cultural change that The strategy was for a cultural change that enabled and empowered people with quality enabled and empowered people with quality tools and processes to:tools and processes to:

1. Meet customer requirements.1. Meet customer requirements.2. Achieve business priorities.2. Achieve business priorities.3. Continuously improve.3. Continuously improve.

The Plan for Leadership The Plan for Leadership Through QualityThrough Quality

1983--the year of start-up activities 1984--the year of awareness and

understanding 1985--the year of transition and transformation 1986--the year when results would achieved 1987--the year of approaching maturity

Xerox Xerox PolicyPolicy Statement Statement

Xerox is a quality company. Quality is the basic business principle for

Xerox. Quality means providing our external and

internal customers with innovative products

and services that fully satisfy their requirements. Quality is the job of every Xerox employee.

Xerox’s OutcomeXerox’s Outcome

Initially: – Failed to focus adequately on core work processes

and statistics.– Plan was not integrated with business processes.– Not tuned to the company culture and the need to

change it.– Did not pick the right quality czar at the start.– Did not push the operating units hard enough.

Xerox’s OutcomeXerox’s Outcome

Finally:– Found the right cure to the ills of the company.– Quality was the right solution at the right time.– Had a committed senior management– IS was used effectively to complement changes.– Employee compensation was tied to quality.– The pursuit of the Baldridge Award was an

energizing effort within the company.

Important Supporting Elements

Recognitionand

Reward

Toolsand

Processes

TransitionTeam

Training Communi-cation

SeniorManagement

Behavior

Xerox is aTotal Quality

Company

Figure 16-3Source: Xerox Corp.

Information Systems SupportInformation Systems Support

Xerox had over 375 major information systems supporting the total business.

Over 175 of these systems related specifically to the management, evaluation and planning of quality.

The validity, accuracy and timeliness of information systems are assured by the use of a Data Systems Quality Assurance process during the design, construction and major upgrade of each information system.

What Xerox Did RightWhat Xerox Did Right1. It made an appropriate diagnosis of how to cure the ills of

the company.

2. Quality was the right process for the right solution at the right time.

3. The necessary commitment was made by senior management.

4. A constituency was built starting at the top in a very calculated and deliberate way.

5. Information systems use was effectively aligned with its business objectives and processes to achieve them.

6. Executive compensation was tied to quality.

7. Innovations and successes of the TQM program were well publicized.

8. The pursuit of the Baldridge Award was an energizing effort within the company.

9. It achieved measured results.

Product and Operations Quality Results

Defects Per100 Machines

ProductionSuppliers

Production Line Defective Parts

Reduced Reduced Reduced

10X 10X 15X

Figure 16-2Source: Xerox Corp., Reprinted with permission

Xerox PerspectiveXerox Perspective

1. It took Xerox nine years to really buy into quality as a corporate way of life.

2. It took five years to complete the TQM training for all of its employees.

3. The salary of every employee is tied to quality improvements and profits.

4. It was concluded that all of this was worth doing.


• Management by fact is evidence of a quality operation and makes basic sense in many business situations.

• Computer-based systems are frequently needed to provide the facts.

• Quality can provide a competitive advantage but is probably a necessary factor to compete on a global basis.


How do you say to a long time, loyal,

hard working employee that quality

isn’t good enough?


1. We are good, but we must continue to

improve.

2. Individually and/or departmentally we may

be very good but we must be as good in the

total efforts of the entire organization.

What You’d Get From 99.9% SuppliersWhat You’d Get From 99.9% Suppliers

• At Least 20,000 Wrong Drug Prescriptions Each Year.

• More than 15,000 Newborn Babies Dropped by Doctors

or Nurses Each Year.

• Unsafe Drinking Water at Least One Hour Each Month.

• No Telephone Service or Television Transmission for Nearly

Ten Minutes Each Week.

• Two Short or Long Landings at O’Hare Airport Each Day.

• Nearly 500 Incorrect Surgical Procedures Each Week.

• 2,000 Lost Articles of Mail Per Hour.

What You’d Get From Six Sigma SuppliersWhat You’d Get From Six Sigma Suppliers

• One Wrong Prescription in 25 Years.

• Three Newborn Babies Dropped by Doctors or Nurses in

100 Years.

• Unsafe Drinking Water One Second Every Sixteen Years.

• No Telephone Service or Television Transmission for Nearly

Six Seconds in 100 Years.

• One Short or Long Landing in Ten Years in all the Airports

in the U.S.• One Incorrect Surgical Procedure in Twenty Years.

• Thirty-five Lost Articles of Mail Per Year.

To Make TQM WorkTo Make TQM Work

• The business leader must be visibly behind the program.

• Avoid tunnel vision by asking what change does for customers.

• Focus on a few critical goals.• Link changes to a clear financial payback and expect

results.• Recognize that an off-the-shelf TQM program

doesn’t work since every company has its uniqueness.

A WIN - WIN PROPOSITIONA WIN - WIN PROPOSITION

DELIGHTED CUSTOMERS

SATISFIED

STOCKHOLDERS PROUD

EMPLOYEES

ENHANCED COMMUNITY

SUCCESSFUL PARTNERS

Figure 16-5

Course ScheduleCourse Schedule

We are now up to date relative to the course We are now up to date relative to the course

syllabus.syllabus.

Documents

Summary of Chapter 14 Information System Value and Financial Strategy