Micro-Lecture 5a Managing the Relationship Between IS and the Functional Units of the Organization

The Responsibilities for the CIO
• The emphasis of the top job has changed over the years
– 86 = Infrastructure – 89 = helping formulate corporate policy – 92 = IT as a catalyst for revamping the way enterprises worked – 98 = revamp business operations using IT continued with the Internet (customers +) – 02 = the ‘technical member’ of top management – 04 = a cost and risk based approach vs. “let’s get into ecommerce fast…”

© 2013 Flores MBA Program

Today’s CIO Responsibilities
• Focus on cost
– Outsourcing continues to grow – CIOs are expected to do much more with not much more $$

• Also = under pressure:
– To implement protective measures – New financial reporting e.g. Sarbanes Oxley – Keep the IT innovations coming!!

© 2013 Flores MBA Program

A History of the Responsibilities of the CIO

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CIO Responsibilities by Era
• The Mainframe Era
– Predominated 1960s – early ’80s – Role of DP / IS Manager = operational manager of a specialist function

• Distributed Era
– End of ’70s as PCs became commonplace – LANS and WANS linking computers – Took on 4 more roles:
• • • • Organizational Designer Technology Advisor Technology Architect Informed Buyer

© 2013 Flores MBA Program

CIO Responsibilities by Era • The Web Era – Started in the mid-1990s – Arose from the emergence of the Internet. and esp. the Web as a business tool – Era is still in its ‘infancy’ but add to the CIO’s ‘job’ the role of business visionary • Relationship between CEO and CIO vary along a wide spectrum © 2013 Flores MBA Program .

What it’s Like to be a CIO Important Personal Skills How you spend your time • 71%Interacting with your • Ability to communicate company’s CXOs and business effectively • Strategic thinking and planning executives • 58%Strategic planning • Understanding business • 54%Interacting with IT processes and operations vendors/outsourcers/service providers This involves two important actions: Governing and Leading Source: CIO Magazine © 2013 Flores MBA Program .

Corporate and IT Governance • The method by which a corporation is directed. administered or controlled – The mechanism via which individuals are motivated to align their actual behaviors with the overall corporate good • IT creates a governance that aligns with the organization governance © 2013 Flores MBA Program .

The Importance of IT Governance • The IT Governance Global Status Report (2004) – 80% of CEO’s recognized that “IT governance or some thereof is required” to resolve “IT issues” – 57% of CEOs looked to IT governance to align IT strategy (and 53% to manage IT risks) – The report concluded that “solutions in this domain are not yet available” • Gartner – Firms with superior IT governance have at least 20% higher profits (ROA) than firms with poor governance given the same strategic objectives • Blind consulting report – 87% of executives believe that IT is critical to their companies’ strategic success – 33% of leaders reported that IT is very involved – 30% reported business executive responsible for strategy works closely with IT division © 2013 Flores MBA Program .

improving flexibility. fewer changes year to year • Well functioning formal exception processes • Formal communication methods © 2013 Flores MBA Program . product innovation. or operational excellence • Clearer business objectives for IT investment – Greater differentiation between supporting new ways of doing business.Characteristics of High IT Governance Performers • More focused strategies – Greater differentiation between customer intimacy. or facilitating customer communication • High level executive participation in IT governance – Greater involvement. Business Heads. COO. Business Unit CIOs and CFO – Who could accurately describe IT governance arrangements • Stable IT governance. impact of CEO.

administrative. single function organizations tend to be single-owner with no clear functional differentiation of strategic.Governance and Strategy • If strategy is where we are headed. multi-plant. and operating decisions • Single product. multi-function organizations tend to have a multi-divisional structure © 2013 Flores MBA Program . multi-function organizations tend to have a functional structure • Multi product. governance defines how we make the decisions that we need to execute our strategy • Research has suggested that structure follows strategy (Chandler) – Strategy dictates what the organization needs • Single product. multi-plant. single plant.

structure also restricts strategy – Organization can restrict the ability of the organization to quickly react to changing market conditions • Thus. at a higher level. it is crucial that strategy and structure align with one another © 2013 Flores MBA Program . there is a mutually enhancing relationship between strategy and structure – However.Governance and Strategy (2) • However.

Micro-Lecture 5b Managing the Relationship Between IS and the Functional Units of the Organization .

IT Governance Defined • The assignment of decision rights and the accountability framework to encourage desirable behavior in the use of IT • Governance is really composed of three things – What decisions are to be made – Who will make each of those decisions – What process will be used to make and communicate those decisions © 2013 Flores MBA Program .

Decision Categories • IT Principles – High-level statements about how IT will be used to create business value • IT infrastructure strategies – The technical choices that will meet business needs • IT architecture – State the approach for building shared and standard IT services across the enterprise • Business application needs – Where the business defines its’ application needs • IT investment and prioritization – Defines the process for moving IT-based investments through justification. approval. and accountability © 2013 Flores MBA Program .

Decision Makers • Governance defines two types of rights – Decision rights = who has the right and responsibility to make a decision about how IT is used – Input right = who has the right to provide input to a decision. but not make a decision? © 2013 Flores MBA Program .

Decision Process
Style Definition Mechanism

Business Monarchy
IT Monarchy

C-level executives hold the right to make decisions
IT executives hold the right to make decisions Business unit leaders have decision or input rights

Executive committee or IT council with executive committee members
IT leadership council that includes corporate and business unit CIOs Business-only committee



Rights are shared by C-level executives and one other tier of the business hierarchy
One IT group and one business group share a right Individual end users hold a right

Committees that draw from several organizational levels
IT-business unit committee None

Duopoly Anarchy

Selecting the IT Organization Structure • Key factors influencing the structure:
– Business characteristics (number/size of products or market divisions and their locations) – Level within the organization of the most senior IS officer – How the rest of the enterprise is organized – Types of technologies managed by IS – The role of IS in the organization – Organization philosophy on the responsibility of business managers for IT

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Governance Tension
• There is a question within every governance arrangement
– Who has the decision and input rights?
• IT dominates or • User dominates

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Drivers towards User Dominance
• • • • • User demand Need for flexibility Easy to buy pre-packaged software Users desire to control their own destiny Need for global firm, but local sensitivities

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Drivers towards IT Dominance
• IT has skills that business unit does not • Need for standardization and ensuring system stability • Business leaders not adept at envisioning possibilities with IT, nor at determining feasibility • Need for corporate-wide data management
– Eliminate stovepipes

• IT better at cost estimation and analysis
© 2013 Flores MBA Program

style deals with rights – Certain structures mix better with style • e.g. Classic IS tends to go better IT monarchy • There is no one “best” governance arrangement – Tends to be…. • Those seeking synergies among business units enforce-top down decisions • Those with autonomous business units emphasize local decision making • Those with both synergy and autonomy try to encourage faster decision making © 2013 Flores MBA Program .Combining Structure and Style • Structure deals with roles.

Governance Framework Business Monarchy IT Principles IT Monarchy Feudal Federal IT Duopoly Anarchy IT Infrastructure IT Architecture Applications IT Investment © 2013 Flores MBA Program .

This framework is adapted from Weill & Woodham's work originally published and copyrighted by the MIT Sloan CISR as Working Paper No. 326." April 2002. "Don't Just Lead. Govern: Implementing Effective IT Governance. © 2013 Flores MBA Program . and is used by Gartner with permission.Input and decision style patterns in IT governance of a range of organizations Domain Style IT principles Input Decision IT infrastructure strategies Input Decision IT architecture Input Decision Business application needs Input Decision IT investment and prioritization Input Decision Business Monarchy IT Monarchy Feudal Federal Duopoly Anarchy Don’t Know 0 1 0 27 27 18 3 14 0 10 1 7 0 20 0 6 1 0 1 12 8 18 1 0 0 30 10 3 59 2 6 23 73 0 4 15 83 15 59 30 46 34 0 0 81 17 30 93 6 27 30 1 0 36 0 2 27 3 2 0 1 0 0 1 2 1 1 0 0 0 0 Numbers are percentages of the 256 Gartner for-profit and not-for-profit enterprises studied in 23 countries in 2002 Common input styles Common decision rights styles © 2002 MIT Sloan Center for Information Systems Research (CISR).

2002.Business and IT executive collaboration mark high IT governance performers Domain IT principles Style IT infrastructure strategies IT architecture Business application needs IT investment and prioritization Business Monarchy IT Monarchy Feudal Federal Duopoly Anarchy 1 2 3 Top three performers as measured by governance performance © 2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner. . Inc. drawing on the framework of Weill and Woodham.

intranets for IT Chargeback arrangements Not © 2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner. Inc.Top IT governance mechanisms focus on business and IT relationships IT Governance mechanism effectiveness Business/IT relationship managers IT leadership committee IT council of business and IT executives Executive committee Process teams with IT members % respondents using 85 87 71 89 86 96 89 56 67 62 79 62 1 2 3 4 5 Tracking of IT projects and resources Service level agreements Capital approval committee Architecture committee Formally tracking IT’s business value Web-based portals. Effective Very © 2013 Flores MBA Program .

© 2013 Flores MBA Program . CIO’s office and biz unit CIOs Cap appr comm Biz pro own Biz/IT rel mgs Input rights Decision rights Exec comm subgroup.Example of an effective IT governance arrangements matrix Domain Style IT principles Input Decision IT infrastructure strategies Input Decision IT architecture Input Decision Business application needs Input Decision IT investment and prioritization Input Decision Cap appr comm Business Monarchy IT Monarchy Feudal Federal Duopoly Exec comm Biz leaders Exec comm IT leadership Exec comm Biz leaders Biz leaders Biz pro own Biz leaders Biz pro own Biz/IT rel mgs Biz leaders Biz pro own Exec comm Biz leaders CIO IT leadership CIO IT leadership Governance mechanisms Exec comm Biz leaders IT leadership Executive committee ‘C’ levels) Business unit heads/presidents CIO. Inc. drawing on the framework of Weill and Woodham. 2002. includes CIO Business process owners Business/IT relationship managers © 2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner.

Micro-Lecture 5c Managing the Relationship Between IS and the Functional Units of the Organization .

What is your Business Orientation? • Autonomy – Highly localized pressures – Business processes distinct • Synergy – High standardization pressures – Business processes integrated • Agility – High speed. flexibility pressures – Business processes adaptable © 2013 Flores MBA Program .

Business & IT Orientation • Autonomy – Emphasize BU decisions. negotiation. peer socialization • Synergy – Emphasize enterprise-wide styles and mechanisms • Agility – Emphasize IT’s role in agility. the use of principles. education © 2013 Flores MBA Program .

Implement key IT governance styles and mechanisms for your business orientation Synergistic enterprises Decisionmaking styles •Tight corporate coupling between business and IT executives •Top down mandated technology decision making •Well developed business and decision processes •Executive-level committees •High level centrally reporting business-IT relationship managers Agility-focused enterprises •Business and IT leaders combine for specific purposes •Enterprise-wide arrangements emphasize coordination & learning • Extensive use of IT principles • Business ownership of IT projects • Planned IT-business education experiences • Transparency and Communication Autonomy-focused enterprises •IT works with individual business units and process owners • Emphasis on local business decision making Focus of key mechanisms •CIOs work through 1/1 negotiation •Standards achieved through socialization and peer pressure • Business-IT service arrangements are in place © 2013 Flores MBA Program .

© 2013 Flores MBA Program .Top Performing Enterprises • Top-performing enterprises govern IT differently from each other and from average enterprises • Firms leading on growth decentralize more of their IT decision rights and place IT capabilities in the business units • Firms leading on profit centralize more decision rights. senior business leaders make the major IT decisions • Top performers design their IT governance to reinforce their performance goals and link IT governance to the governance of their other key enterprise assets and desired behaviors.

federal. or dispersed allocation of decision rights – Focus on demand side and supply side governance – Management of risk. and outsourcing will become significant • We do not know how to do this yet • Emerging models for governance – Emergence/proliferation of new organizational roles • CIOs will have to balance their roles between – Managing the “IT business of the business” – Seeding. and driving IT-enabled business innovation © 2013 Flores MBA Program . stimulating. finance.Emerging Trends • Organizational governance is less likely to be centralized or decentralized – Hybrid. influencing.

– Head of Enterprise Architecture – Head of IT Strategy – Business Strategy Analyst – Finance Representative Office of Architecture & Standards – Head of Enterprise Architecture – Business Architects – Technical Architects – CIO – CTO Office of the CIO – Chief Information Officer (CIO) – Chief Technology Officer (CTO) – Head of IT Security – Head of IT Risk – Head of IT Finance – Head of IT Strategy – Head of IT HR – Head of Vendor Management – Head of IT Application Areas – Head of Portfolio & Program Mgt. – Divisional CIO.Proliferation of IT Roles IT Investment Board – Head of IT Finance (e. Divisional CTO – Enterprise Functional Leads – IT Directors – Corporate Project Approval Committee Head of Portfolio & Program Mgt. CFO of IT) – CIO – CFO – Selected Business SVPs Business Technology Council – Head of IT Strategy – CIO – Selected Business SVPs – Head of IT Applications – Functional Area Leads – Client Relationship Managers – Divisional Project Approval Committee Divisional Functional Heads – Divisional CFO – Divisional PMO and Finance rep.g. – Head of Enterprise Architecture – Head of IT Communications Functional Groups – IT Director – IT Strategists – Business Analysts Project Teams – Project Managers – Developers – Business Analysts – Trainers – Technical Analysts © 2013 Flores MBA Program .

structure is the roles people play to execute strategy and style is how decisions are made during execution – Governance must allow the organization to effectively execute strategy • Key step in being a strategic partner • At a practical level.Importance of Structure and Style • If strategy is where the organization is headed. governance tells how IT gets work done © 2013 Flores MBA Program .

are making decisions about technology and business – Who is advising who? © 2013 Flores MBA Program .Governance and the Social Make-up of the Firm • Inside the governance arrangements are people – Roles dictate how people interact • Always a tension between IT and the business units – Who knows best? • As IT and the end users interact.

and our CIO feels like he just took a Titleist to the head What does this story mean? © 2013 Flores MBA Program . a beer or two and a fine cigar. His CEO. The CEO makes a new friend. meanwhile. Over 18 holes. Let's say it's for supply chain management software. the new friend gets a new contract. accepts an invitation to play a round of golf with the CEO of a supply chain software provider. a CIO selects a solution from his primary vendor. the CIO's CEO decides that his golfing partner's supply chain offering would be a much better fit. due diligence and testing.A True Story After months of RFPs. who just happens to be a competitor of our CIO's primary vendor.

and measuring stakeholder expectations for IT – Clarifying what technology can and can not do • Do IT executives know… – What keeps top management up at night? – Key political challenges? – New business unit opportunities? • Do business unit leaders know… – – – – The complexity of IT? Which systems are strategic? What IT is doing to enable new initiatives? How to make informed IT decisions? © 2013 Flores MBA Program .Expectation Management • The process of gathering. incorporating.

Expectation Management • IT must interact within the roles and styles and give business unit leaders: – – – – – – Knowledge Skill sets Incentives Metrics Relationships That were not possible without IT © 2013 Flores MBA Program .

The failure rate for CRM is 50 to 70%. off-the-shelf contact management system would be simple. that he could improve the efficiency of his field sales employees if they had more tools to communicate with each other and with corporate headquarters. He wanted IT's help in looking for a solution that would integrate with the rest of the company's business systems. He told Ralph See.Another True Story Kevin Jordan. This is a business individual trying to drive development. Jordan was obviously under the impression that finding and implementing a comprehensive. an IT project manager with whom Jordan had a working relationship. vice president of corporate accounts for Allsteel went to the IT department with a proposal. How should Ralph respond? © 2013 Flores MBA Program .

are too complicated and difficult for field salespeople to use. Fields needed to show Jordan the reasons behind CRM's high failure rate: The scope of these projects easily and frequently explodes. Within a few days. with their bells and whistles.We Proceed…. Now the CIO is involved. the products. How should the CIO respond to this situation? © 2013 Flores MBA Program . and the logistics of getting software installed and synchronized on every field sales employees' laptop is too complex. He knew he needed to make Jordan understand what it takes to successfully pull off a CRM project. the CIO (Fields) heard about their meeting and decided he better get involved. First.

these projects are very difficult and they typically fail. Every time the software salesmen began crowing about their products' special features. He also asked each vendor point-blank what its success rate was. 'Kevin. "I went to every meeting until I saw in Kevin Jordan's eyes how damn hard this was going to be. All the vendors fessed up to a 50 percent to 70 percent failure rate. This way. They also attended meetings that Jordan set up with vendors.' I basically asked each vendor what their success rate was." says Fields. Fields gently reminded the vendors how difficult these projects are. he didn't have to worry about insulting Jordan's intelligence or appearing negative or confrontational. Fields says. which likely would have unrealistically raised Jordan's expectations for the products' functionality." says Fields.What Happened…. "Instead of me saying. Fields and See began by giving Jordan copies of articles about CRM projects so that he could read for himself the difficulties companies face when implementing such systems. © 2013 Flores MBA Program .

he was ready to can the CRM software project altogether. Fields and his project manager quickly set out to help Jordan establish parameters for the project and the software's functionality. Knowing the software was something the business needed. and cautioned him against getting caught up in all the "fluff" vendors showed off during demonstrations. pointed questions because he had read the articles provided by Fields.The Rest of the Story… Jordan was able to ask informed. © 2013 Flores MBA Program . In fact. however. says Fields. In one-on-one conversations. Jordan soon realized what he was getting into. With vendors' sobering pronouncements about their success rates. advised him on the importance of limiting a project's scope. See asked Jordan what functionality he really needed.

Relating the Story to Governance • As individuals enact the structure and style. expectation management is key – You as future executives must be able to define how a structure should look and what the style should be • But. you also need to understand expectation management – Golden rule! © 2013 Flores MBA Program .

Governing and Leading • A recent survey found… – 69% of CIO’s believe IT should proactively envision business opportunities. 44% should IT should support and enable defines business opportunities © 2013 Flores MBA Program . 31% should IT should support and enable defines business opportunities – 56% of CEO’s believe IT should proactively envision business opportunities.

." – Bill Gates © 2013 Flores MBA Program .“ – Stephen R. Covey • “As we look ahead into the next century. and the boss drives. .“ – Theodore Roosevelt • "Management is efficiency in climbing the ladder of success. The leader leads.Leading • “The only definition of a leader is someone who has followers” – Peter Drucker • “The process of influencing the behavior of other people toward group goals in a way that fully respects their freedom” – Leadership Development Process of the Diocese of Rochester • “People ask the difference between a leader and a boss. leadership determines whether the ladder is leaning against the right wall. leaders will be those who empower others. and the boss in covert. . The leader works in the open.

Many technically sound systems have turned into implementation failures because the people side of the system was not handled correctly • IT is all about managing change – New systems require changing how work is done – Focusing on the technical aspects is only ‘half’ the job.Fostering Change • ‘Techies’ presume a technically elegant system is a successful one – Not so. The other job is change management © 2013 Flores MBA Program .

customers and suppliers – Chief Technology Officer • Heads IT planning.The Office of the CIO? • Some believe the office of the CIO is so broad it should be handled by a team • Four ‘positions’: – Chief Information Officer • Heads IS and works with top management. which involves architecture and exploration of new technologies – Chief Operations Officer • Heads day-to-day IS operations – Chief Project Officer • Oversees all projects and project managers • IT is so critical to enterprise success and the know-how needed to run it so deep and wide that management needs to become a team effort © 2013 Flores MBA Program .

Whither CIOs? • Different periods of recent history have seen executives with different backgrounds “running the show” – Manufacturing = in the early 1900s – Sales and Marketing – 30s to 50s – Finance – 70s to 90s • Problems and scandals – Future – perhaps now CIOs have the most appropriate backgrounds to run companies © 2013 Flores MBA Program .

we did it for them” • IS moved to taking a service orientation – “Now. submitting job requests. – “Next. we do it with them” • Reflects “partnering” – “We are moving toward teaching them how to do it themselves” © 2013 Flores MBA Program . while the management of the IT infrastructure is retained by the IS group • It is reflected in the following saying: – “We used to do it to them” • IS required end users to obey strict rules for getting changes made to systems.Thoughts on Governance • IT decision making must be ‘shared’ – Responsibility for managing the use of IT needs to pass to the line. etc.

internal and external customers. think strategically. with that knowledge. and suppliers – Means you must have the ability to communicate effectively. CIOs must play a leadership role in their enterprise and develop partnerships with senior management.Thoughts on Governance (2) • To achieve this transformation. how does IT create systems that reach across the enterprise to enact true change? – We will explore this next © 2013 Flores MBA Program . and understand business processes and operations – Then. learn how to govern and lead the IT organization • With that leadership in mind.

Micro-Lecture 5d Managing the Relationship Between IS and the Functional Units of the Organization .

Systems Development/ Analysis • Systems analysis: The analysis of the business problem that the organization will try to solve with an information system – Plan – Analysis • Systems development: The activities that go into producing an information systems solution to an organizational problem or opportunity – – – – – Design Develop Test Implement Maintain © 2013 Flores MBA Program .

Step 1: Plan Step 2: Analysis Step 3: Design Systems Design and Analysis Steps – the Waterfall Method Step 4: Develop Step 5: Test Step 6: Implement Step 7: Maintain © 2013 Flores MBA Program .

Step 1: Plan Activities • Goal – to create a plan for develop the system • Three activities: – Define the system to be developed – Set the project scope – Develop the project plan • Tasks • Resources • Timeframes © 2013 Flores MBA Program .

Step 1: Plan Deliverables • System definition activity – Definition of the required system – Definition of the Critical Success Factors • Elements that are critical to the system being successful • Set the project scope – High level system requirements of the project • Develop the project plan © 2013 Flores MBA Program .

and document the business requirements for the proposed system • Three activities – Gather the business requirements – Conduct a feasibility study – Determine the answer to the need © 2013 Flores MBA Program . understand.Step 2: Analysis Activities and Deliverables • Goal – End users and IT work together to gather.

features. given the organization’s resources/constraints • • • • Technical resources (Hardware. technical) Economic resources (Will benefits outweigh costs?) Operational resources ( Is solution desirable within existing conditions?) Strategic resources (Does this system fit within our SISP?) • Determine the answer to the need – From the feasibility study. and impacts is most desirable © 2013 Flores MBA Program . determine the list of possible alternatives and decide upon which mix of costs. software. benefits.Step 2: Analysis Activities and Deliverables • Gather the business requirements – Detailed set of requests that the system must need • More specific than CSF’s – Deliverable – requirements definition document • Conduct a feasibility study – Determine whether a solution is possible.

Step 3: Design Activities • Goal – to build a technical blueprint of how the proposed system will work • Two activities: – Design the technical architecture required to support the system – Design system models © 2013 Flores MBA Program .

reports. software. and databases © 2013 Flores MBA Program .Step 3: Design Deliverables • Design the technical architecture required to support the system – A technical architecture plan is developed – Architecture must be compatible with infrastructure unless organization builds one for this project • Design system models – A graphical representation of the system is built – Includes screens.

Step 4: Develop Activities and Deliverables • Goal – Transform design documents from the design phase into an actual system • Activities: – – – – Writing and coding the software Creating the databases Deploying the telecommunications equipment Installing hardware and software • Deliverable – finished system © 2013 Flores MBA Program .

pre-coded application software programs commercially available for sale or lease • Customization: Modification of software package to meet organization’s unique requirements without destroying the software’s integrity • Write from scratch: Writing and coding software using standard programming tools and databases © 2013 Flores MBA Program .Development Options • Application software packages: Set of prewritten.

Effects of Customization © 2013 Flores MBA Program .

go to step 6 © 2013 Flores MBA Program .Step 5: Test Activities • Goal – verify that the system works and meets all of the business requirements defined in the analysis phase • Activities: – Develop a test plan – what needs to work – Implement the test plan – If the testing is successful.

Step 5: Test Options • There are two broad options for testing: – Unit testing: test each module in the program individually – System testing: test the whole program • Test programs can list thousands of conditions – Every condition must be tested prior to step 6 © 2013 Flores MBA Program .

Step 6: Implement Activities • Goal – to place the proposed system in the organization • Activities: – Define the distribution approach – Carry out the conversion – Train the users • Can happen during conversion – Provide users with documentation • Highlights how to use the system • Deliverable – the system is being used by every user © 2013 Flores MBA Program .

one system replaces the other on a given day • Pilot testing: system is brought into individual BU’s and operates until system is successful • Phased: system is brought in one functional unit at a time © 2013 Flores MBA Program .Distribution Options • Parallel strategy: safe and conservative. both systems are used for a time • Direct cutover: risky.

Step 7: Maintain Activities • Goal – monitor and support the new system to ensure that it continues to meet business goals • Activities: – Debugging/solve problems (20%) • Help desk – Upgrades/changes (20%) – Adding new functionality (60%) © 2013 Flores MBA Program .

and developers cannot continue on to the next phase until the first phase is complete © 2013 Flores MBA Program .Alternatives to the Waterfall: Extreme Programming Extreme programming (XP) methodology – breaks a project into tiny phases.

aims for customer satisfaction through early and continuous delivery of useful software components – Agile is similar to XP but with less focus on team coding and more on limiting project scope – An agile project sets a minimum number of requirements and turns them into a deliverable product © 2013 Flores MBA Program .Agile Methodology • Agile methodology – a form of XP.

Micro-Lecture 5e Managing the Relationship Between IS and the Functional Units of the Organization .

Ensuring User Acceptance: Process Initiatives • Users must be involved in all phases of the analysis and design – Involved and participating—not just in action • Users must drive systems effort – This must be driven by functional business unit needs – This must be integrated with business and IT strategic plans © 2013 Flores MBA Program .

Involving End Users: A Step-by-Step Process • Plan – End users should define CSF’s and be included in the project plan • Analysis – End users should review business requirements and highlight unclear or inaccurate requirements • Design – End users should be provided prototypes – Use of RAD or JAD © 2013 Flores MBA Program .

Involving End Users: A Step-by-Step Process • Development – End users should be kept up-to-date on progress and be provided with modules as they are created • Test – End users should perform User Acceptance Testing (UAT) to ensure that it is easy to use • Implement – End users should be encouraged to attend training • Maintain – End users should be urged to offer suggestions on how the system should work better © 2013 Flores MBA Program .

Thoughts About Acceptance • IT can not fall into the few “pitfalls” of implementation – – – – User behavior is not deterministic The social nature of the organization is crucial Power and politics play a role in implementation Users want the innovation to liberate them and set them free from the constraints of their job – Upper management support is crucial © 2013 Flores MBA Program .

Factors in IS Success or Failure © 2013 Flores MBA Program .

business owners. and IT • Technological challenges – Integration with architecture and pre-existing software • Cost issues – Who is paying for the project? And what happens when it is over budget? • More knowledge – Must interface with all functional areas in the organization and speak their language © 2013 Flores MBA Program .Why IT Project Management is Unique • More stakeholders – End users.

Why Projects Fail • • • • • • • Ignorance Bad management Poor control Not relying upon proper planning Failure to communicate Not understanding sociotechnical view Mythical man-month – Man month: the amount of work a person can be expected to complete in a month – More people  Less time © 2013 Flores MBA Program .

KMPG © 2013 Flores MBA Program .Consequences of Poorly Executed Project • • • • • Cost overrun Time slippage Technical problems Benefits not achieved Perception of IT altered • 2/3 of all enterprises have had a poorly executed project in the past year .

not as a rule • Be well informed and optimistic – Pessimism is not the mark of a leader • Understand the strategic importance and convey this to your team • Communicate.To Increase the Likelihood of Success… • Handle projects with appropriate tools. not technology value!) • Understand the sociotechnical view of the firm • If possible. modularize your project and speed up the delivery of the product • Use tools as a guide. and practices • Get team and customer buy-in (business value. and communicate – Realize that bad news spreads quicker than good news © 2013 Flores MBA Program . methodologies. communicate.

UHISRC © 2013 Flores MBA Program . manages expectations. and upper management) • Has integrity (people must believe you). self-awareness (know when to seek help). focuses on people (playing both coach and mentor) and knows when to delegate • Can handle failure and how to learn from past mistakes (you will make them) • An effective communicator .Characteristics of a Good Project Manager • Disciplined individual who will follow the techniques and practices of the organization • Has a strong knowledge of the organization and its politics • A leader who clearly defines roles. articulate the vision of the project throughout the organization.can deliver bad news as well as good. and a strong belief in themselves and others Source: Gregersen. and can say “no” • Knows how to negotiate (with vendors. users.

Understanding Project Management at a Deeper Level • “Strategic” IT Project Management is a deeper level understanding – A project is not just a project – Projects are about change and risk © 2013 Flores MBA Program .

Change Management • IS often assume a technically elegant system is a successful system. (No!) • Many technically sound systems have turned into implementation failures because the people-side of the system was not handled correctly – System is only a success if it meets the users’ requirements and they are happy with it and with using it • Information technology is all about managing change – New systems require changing how work is done • Focusing only on the technical aspects is only half the job – the other job is change management © 2013 Flores MBA Program .

and tasks © 2013 Flores MBA Program .Change Management & Socio-Technical Systems Theory ORGANIZATION STRUCTURE TASKS PEOPLE TECHNOLOGY Remember: Changing technology has corresponding changes in people. structure.

especially technological change.Change Management • Change management: the process of assisting people to make an alteration in their working environment • People resist change. when they view it as a crisis • ‘Resistance’ includes: – Deny the change – Distort information they hear about the change – Convince themselves and others the new system will not change status quo © 2013 Flores MBA Program .

Change Management: People Involved • Sponsor – The person or group that legitimizes the change • Change agent – The person or group who causes the change to happen • Target – The person or group who is being expected to change and at whom the change is aimed © 2013 Flores MBA Program .

g. they are not adept at rallying support – Which groups are receptive to the change and which are resistant © 2013 Flores MBA Program .Change Management Methodology • Conduct surveys with all three groups to determine: – Whether the scope of the project is do-able. or whether they are sitting back expecting the organization to change on its own – Whether the change agents have the skills to implement the change. or whether e. or whether the organization is trying to change too much at one time – Whether the sponsors are committed enough to push the change through.

Micro-Lecture 5f Managing the Relationship Between IS and the Functional Units of the Organization .

CRM – 30 to 70% fail – Why? = Do not overcome their risks • Technical • Business • • • Technical risks – Sub-performance. especially the really large ones e. scope creep making it too complex – Can’t always be predicted but they can be contained Business risks – Business does not change properly to use the new systems – Are not as easily righted Need to: – Assess the risk – Mitigate the risk – Adjust the project management approach © 2013 Flores MBA Program .g. ERP.Risk Management • Not all IT-based projects succeed – Many fail.

assess whether it is positive or negative © 2013 Flores MBA Program .Risk Management Methodology Step 1: Assess the Risks • Three risk factors – Leadership of the business change – Employees’ perspective of the change – Scope and urgency of the change • For each risk factor.

Risk Management Decision Tree Project manager matters Project champion matters © 2013 Flores MBA Program .

need to determine how to lead • The method determines the management style and project budget and deadlines Management Style Authoritative Project Budget and Deadlines Fixed Big Bang Participative Guided Evolution Adjustable Top-down Coordination Improvisation © 2013 Flores MBA Program .Risk Management Step 2: Mitigate the Risks • Now that you have determined the appropriate project style.

Risk Management Step 3: Adjust Project Management Approach • As project changes. risks change – Employees’ perspective of the changes – Scope and urgency of the changes • Need to re-assess the approach with the decision tree – Then need to alter management style and project budget/deadlines © 2013 Flores MBA Program .

Concluding Thoughts: Why do Systems Fail? • Unclear requirements • Phases are skipped – Pressure from multiple fronts to get the system done • Failure to manage project scope – Project scope – the size of the project – Project creep – developers adding features not on the requirements – increases scope © 2013 Flores MBA Program .

but project is long – Modularize big systems to ensure success • End users do not “accept” the new technology – IT must develop systems with a methodology to encourage users to accept the system – User involvement can help to decrease the risk © 2013 Flores MBA Program .Concluding Thoughts: Why do Systems Fail? • Failure to maintain the project plan • Technology changes quickly.

Micro-Lecture 6a Managing the Information Systems Function .

Introduction • In this lecture. we will investigate how IT relates to the remainder of the organization at the strategic level – The role of IT today should be as a strategic partner to increase the competitiveness of organizations • The formation of strategy is the topic of this lecture © 2013 Flores MBA Program .

Formulating IT Strategy Input Current technology portfolio Internal IT environment External IT environment External business environment Internal business environment Process Strategic IT Planning Process Output IT Management Strategy Business IT Strategy Overall IT Strategy © 2013 Flores MBA Program .

identify: – Stated strategy of the organization – Strategy type • Miles & Snow Taxonomy • Porter’s Competitive Strategies – Future expansion plans © 2013 Flores MBA Program .Internal Business Environment • Examine what is going on within the organization – Conduct an enterprise analysis • As part of the enterprise analysis.

Weaknesses. Threats © 2013 Flores MBA Program .What is Strategy? • Strategy: an elaborate and systematic plan of action – High level statement of what the organization intends to do • Typically set by CEO and other top executives • Tool – SWOT Analysis – Strengths. Opportunities.

Miles & Snow: Corporate Strategy Taxonomy • Four types of corporate strategies: – – – – Defender Prospector Analyzer Reactor • Each strategy has characteristics © 2013 Flores MBA Program .

Characteristics of Defender Organizations • Locates and maintains a secure niche in a relatively stable product or service area • Offers limited range of products or services • Protects domain by offering higher quality. superior service and lower prices • Not usually at the forefront of developments in the industry – Tends to ignore industry changes that have no direct influence on current areas of operations – Concentrates on doing the best job possible in a limited area © 2013 Flores MBA Program .

Characteristics of Prospector Organizations • Operates within a broad product-market domain that undergoes periodic redefinition • Values “first in” in new-product and market areas – Even if efforts are not highly profitable • Organization responds rapidly to early signals concerning areas of productivity – Responses often leads to a new round of competitive actions • Organization may not maintain market strength in all areas it enters © 2013 Flores MBA Program .

Characteristics of Analyzer Organizations • Attempts to maintain a stable. limited line of products or services – Moves out quickly to more promising new developments in the industry • Seldom a major competitor in areas compatible with its stable product-market base • Is frequently “second in” with a more costefficient product or service © 2013 Flores MBA Program .

Characteristics of Reactor Organizations • Does not appear to have a consistent productmarket orientation • Not as aggressive in maintaining established products and markets as some of its competitors • Not willing to take as many risks as other competitors • Responds in those areas where it is forced to by environmental pressures © 2013 Flores MBA Program .

Cheaper Market is… Broad Narrow Cost Leadership Cost Focus Unique Differentiation Differentiation Focus © 2013 Flores MBA Program .Porter’s Competitive Strategies Products are….

acquisition • Diversification breadth – Related v. Partnerships © 2013 Flores MBA Program . unrelated markets • Exploitation strategy – Consolidation v.Expansion Options • Diversification mode – Internal growth v.

look at the other business units – Identify the critical success factors (CSF) for each business unit – Allocate resources based upon the position of the business unit in the value chain • The IT function must support corporate and business unit strategy © 2013 Flores MBA Program .Internal Business Environment • After examining the corporate strategy.

External Business Environment • Examine trends in the external business environment to determine their impact upon the organization and how IT can respond – How is the nature of work changing – How is the economy changing? • Immediate access – “now” economy • No physical boundaries – “global” economy • IT has changed commerce – the “e-conomy” • Information moves electronically – “digital” economy © 2013 Flores MBA Program .

Micro-Lecture 6b Managing the Information Systems Function .

infrastructure.Current Technology Portfolio • Examine all of the applications that are currently being used in the organization for business unit • Assess technology. and decision support software for each business unit • Identify strengths and weaknesses of current technology portfolio © 2013 Flores MBA Program . databases.

Internal IT Department • Assess current governance arrangement • Examine systems development approaches – are they successful? • Look at project management methodologies – over or under budget? • Identify role of IT department and stage © 2013 Flores MBA Program .

McFarland’s Strategic Grid: Identifying the Role of IT Department Current State Not Critical Future State Critical Strategic Factory Critical Not Critical Turnaround Support © 2013 Flores MBA Program .

lack of management interest.Nolan’s Six Stages of Growth Initiation: Initial introduction of computers to the organization. Batch processing to automate clerical operations to achieve cost reduction. and centralized development Stage 5: Data Administration Stage 6: Maturity Stage 4: Integration Stage 3: Control Stage 1: Initiation Stage 2: Contagion © 2013 Flores MBA Program . operational systems focus.

IT expenses increase rapidly.Nolan’s Six Stages of Growth Contagion (expansion): Centralized rapid growth as users demand more applications based on high expectations of benefits. Stage 5: Data Administration Stage 6: Maturity Stage 4: Integration Stage 3: Control Stage 1: Initiation Stage 2: Contagion © 2013 Flores MBA Program . trying to satisfy user demands. Little control if any. move to online systems.

systems projects are expected to show a return. plans are produced. and methodologies/standards enforced.Nolan’s Six Stages of Growth Control: In response to management concern about cost vs. Stage 5: Data Administration Stage 6: Maturity Stage 4: Integration Stage 3: Control Stage 1: Initiation Stage 2: Contagion © 2013 Flores MBA Program . benefits. Planning controls are introduced.

there is a transition to supporting knowledge workers and from data processing Stage 5: Data Administration Stage 6: Maturity Stage 4: Integration Stage 3: Control Stage 1: Initiation Stage 2: Contagion © 2013 Flores MBA Program . At this time. User accountability for systems established and IT provides a service to users.Nolan’s Six Stages of Growth Integration: Considerable expenditure on integrating (via telecommunications and databases) existing systems.

Nolan’s Six Stages of Growth Data administration: Information requirements rather than processing drive the applications portfolio and information is shared within the organization. Database capability is exploited as users understand the value of the information and are willing to share it Stage 5: Data Administration Stage 6: Maturity Stage 4: Integration Stage 3: Control Stage 1: Initiation Stage 2: Contagion © 2013 Flores MBA Program .

Stage 5: Data Administration Stage 6: Maturity Stage 4: Integration Stage 3: Control Stage 1: Initiation Stage 2: Contagion © 2013 Flores MBA Program . The IT department and the users share accountability regarding resources.Nolan’s Six Stages of Growth Maturity: The planning and development of IT in the organization is closely coordinated with the business development. Corporate wide systems are in place. IT is a strategic partner.

External IT Environment • Examine technology trends to determine how organization will be impacted • Assess Best Practices from other organizations • Look at external opportunities to leverage relationships © 2013 Flores MBA Program .

Inputs to IT Strategy • Trends in the external business environment – Impact upon organization – Impact upon IT • Internal business environment – – – – Overall organizational strategy/vision Corporate goals Information needs for each BU CSF for each BU © 2013 Flores MBA Program .

Inputs to IT Strategy • Technology Portfolio – Assessment of applications. infrastructure. and decision-making tools • Internal IT department – – – – Governance Systems Development Project Management Role and Stage • External IT environment – Emerging trends – Best practices – Strategic outsourcing © 2013 Flores MBA Program . software. hardware.

Strategic IT Planning • With all of the inputs in mind. etc) – Business IT strategy (necessary infrastructure management. goals. IT management determines their response • The result – Strategic Information Systems Plan (SISP) – Overall IT (vision. etc) – IT management strategy (Budgetary issues. and project management issues) © 2013 Flores MBA Program . use management. HR issues.

Types of Planning • Planning is usually defined in three forms. which correspond to the three planning ‘horizons’ – Strategic = 3-5 years – Tactical = 1-2 years – Operational 6 months – 1 year • Each differs by who is doing the planning and the issues involved © 2013 Flores MBA Program .

Planning Types Focus Strategic Horizon 3 – 5 years Issues • Vision • Architecture • Business goals • Resource allocation • Project selection Primary Responsibility • Senior management • CIO Tactical 1 – 2 years •Middle managers •IS line partners •Steering committees •IS professionals •Line managers •Partners Operational 6 months – 1 year • Project management • Meeting time • Budget targets © 2013 Flores MBA Program .

Traditional Strategy-Making • Steps in traditional strategy-making – Business executives created a strategic business plan • Where the business wanted to go – IS executives created an IS strategic plan • How IT would support the business plan – IT implementation plan created • Describe exactly how the IS strategic plan would be implemented • Assumptions: – – – – – The future can be predicted Time is available to do all three steps IS supports and follows the business Top management knows best (broadest view of firm) Company = like an ‘Army’ © 2013 Flores MBA Program .

Problems with Traditional Approach to IS Strategic Planning • The future cannot be predicted – Who predicted Internet. eBay etc.? • • • • Time is not available for the sequence IS does not JUST support the business anymore Top management may not know best An organization is not like an army – Industrial era metaphor no longer always applies © 2013 Flores MBA Program . Amazon.

Successful Planning • Two necessary ingredients to a good strategic planning effort: – IS plans must look towards the future • Future is not likely to be an extrapolation of the past • Successful planning needs to support “peering into the future” – most likely in a sense-and-respond fashion – IS planning must be intrinsic to business planning © 2013 Flores MBA Program .

Successful Planning (2) • IS plans typically use a combination of planning techniques presented – No single technique is best and no single one is the most widely used in business • Sense-and-respond is the new strategy-making mode – Creating an overall strategic envelope and conducting short experiments within that envelope. moving quickly to broaden an experiment that proves successful © 2013 Flores MBA Program .

etc. COO.Strategic Plans Succeed When… • IT partners with the business • Organizations have sophisticated business planning • Organizations have participation by the IS department in business planning • The top IS executive is at the same level as a CEO. CFO. • Top management initiates integration activities across the enterprise • IT examines all BU’s and not just one © 2013 Flores MBA Program .

Micro-Lecture 6c Managing the Information Systems Function .

cited most often by companies with $501 million to $1 billion in sales – Aligning IT and corporate goals has been third on the list of the most critical issues facing IT during the past three years in a row © 2013 Flores MBA Program . – Aligning IT and corporate goals placed third on the list of the most critical issues facing IT.A Successful IT Strategy • The ultimate goal for a successful IT department is ITbusiness alignment – Alignment is the tight linkage of IT strategies and business strategies • Alignment is one of the biggest problems in IT – 73% of IT executives claimed to have spent significant time during the past year working on aligning IT and corporate goals.

© 2013 Flores MBA Program .Business & IT Strategies – Survey Data • Recent survey results: – 87% of executives believe that IT is critical to their companies’ strategic success – 33% of leaders reported that IT is very involved – 30% reported business executive responsible for strategy works closely with IT division • Alignment improves revenue.

objectives. plans. objectives. plans. and business processes © 2013 Flores MBA Program .IT-Business Alignment Defined The degree to which the information technology mission. and technology support and are supported by the business mission.

Six Key Enablers to Alignment • • • • • • Senior executive support for IT IT involved in strategy development IT understands the business Business-IT partnership Well-prioritized IT projects IT demonstrated leadership © 2013 Flores MBA Program .

Six Inhibitors to Alignment • • • • • • IT/business lack close relationships IT does not prioritize well IT fails to meet commitments IT does not understand business Senior executives do not support IT IT management lacks leadership © 2013 Flores MBA Program .

Impact of IT-Business Alignment Firm Performance IT-Business Alignment IT Effectiveness © 2013 Flores MBA Program .

Impact of IT-Business Mis-Alignment Poor utilization of IT resources Sub-optimal firm performance IT-Business Mis-Alignment Higher IT spending Missed IT opportunities Little return for IT investments © 2013 Flores MBA Program .

objectives and plans © 2013 Flores MBA Program .Types of Alignment • Strategic alignment – Congruence of the firm’s IS strategy with the business strategy • Structural alignment – Congruence of the business and IS structures within the organization • Social alignment – The level of mutual understanding of and commitment to the business and IT mission.

and strategies – Interconnected business and IS planning processes. decisions. capabilities. and resulting plans • Goal – IS priorities. and actions to support those of the entire business © 2013 Flores MBA Program .Key Issues in Strategic Alignment • Key considerations – Linked business and IS missions. priorities.

Key Issues in Structural Alignment • Key considerations – – – – Location of IT decision-making rights Reporting relationships (De)centralization of IT services and infrastructure Deployment of IT personnel • Goal – IT and business structures to support organizational objectives © 2013 Flores MBA Program .

Key Issues in Social Alignment • Key considerations – Ensure line and IS executives are communicating – Obtain buy-in from line executive commitment to IS issues and initiatives • Goal – Ensure both business and IS executives have a similar view of the role of IT in the firm © 2013 Flores MBA Program .

Strategic Alignment Framework Business Strategy IT Strategy Org Infrastructure and Processes IT Infrastructure and Processes © 2013 Flores MBA Program .

Strategic Alignment Model External and Internal Domains • Four Domains • Two internal and two external domains • External domains also referred to as Strategy Domains (Business Strategy Domain and IT Strategy Domain) • Internal domains also known as Infrastructure Domains (Business Infrastructure and IT Infrastructure Domains) © 2013 Flores MBA Program .

Strategic Alignment Framework Strategy Domains Business Strategy IT Strategy Org Infrastructure and Processes IT Infrastructure and Processes Infrastructure Domains © 2013 Flores MBA Program .

Strategic Alignment Framework: Four Domains of Organizational Choice Business Strategy Yet. each of these domains are multifaceted Org Infrastructure and Processes IT Strategy Strategic Fit IT Infrastructure and Processes Functional Integration © 2013 Flores MBA Program .

groups of customers/clients. – Also included are how the company is affected by government regulations. research. products. and locations where an enterprise competes as well as the buyers. © 2013 Flores MBA Program . • Business Governance – How companies set the relationship between management stockholders and the board of directors. services. manufacturing and product development. cost and pricing structure. competitors. • Distinctive Competencies – Critical success factors and core competencies that provide a firm with a potential competitive edge – Includes brand. suppliers and potential competitors that affect the competitive business environment.Components of Business Strategy • Business Scope – Markets. and sales and distribution channels. and how the firm manages their relationships and alliances with strategic partners.

horizontal. motivate. train/educate.Components of Organizational Infrastructure • Administrative Structure – The way the firm organizes its businesses • Examples include central. decentral. © 2013 Flores MBA Program . and culture. • Skills – H/R considerations such as how to hire/fire. geographic. and functional. vertical. • Processes – How the firm’s business activities (the work performed by employees) operate or flow – Major issues include value added activities and process improvement. matrix.

Components of IT Strategy • Technology Scope – The important information applications and technologies • Systemic Competencies – Capabilities (e.. access to information that is important to the creation/achievement of a company’s strategies) that distinguishes the IT services. IT management and service providers – Project selection and prioritization issues are included here © 2013 Flores MBA Program . risk.g. • IT Governance – How the authority for resources. and responsibility for IT is shared between business partners.

software.Components of IT Infrastructure • Architecture – Technology priorities. networks. motivate. policies. and data management to be integrated into a cohesive platform • Processes – Practices and activities carried out to develop and maintain applications and manage IT infrastructure • Skills – IT human resource considerations (e. culture) © 2013 Flores MBA Program .g. hardware. hire/fire. and choices that allow applications. train/educate.

Business Business Strategy Business Scope Business Governance Systemic Competencies I/T I/T Strategy Technology Scope I/T Governance Distinctive Competencies Strategic Fit Administrative Structure I/T Architecture Processes Skills Processes Skills Organizational Infrastructure I/T Infrastructure Functional Integration © 2013 Flores MBA Program .

Alignment • Extent & degree to which firm’s business and information technology strategies and infrastructures linked • Interrelationships between the domains reflect the linkages between the four domains – Strategic Fit (vertical) – Functional Integration (horizontal) • Assess both linkages simultaneously – 12 alignment perspectives • Model provides “roadmap” for firm © 2013 Flores MBA Program .

How to use the Strategic Alignment Model • Identify your strongest and weakest domain – Need to develop communication with and increase understanding of weaker domains • Select the strongest domain as an anchor domain and the weakest as a pivot domain • Then. draw an arrow from the anchor to the pivot domain to another domain – the impacted domain © 2013 Flores MBA Program .

roles of IT management. and Strategic Planning Methods Organization Infrastructure I/T Infrastructure To assess your firm. Performance Criteria for IT.strategic-alignment. foci for IT.Examples of the Model in Use Business Strategy I/T Strategy Depending upon your analysis. go to: www.com © 2013 Flores MBA Program . there are different roles of top management.

Ensuring Alignment • Alignment matters and will continue to be a challenge for IT • Firms that embrace the challenge and have well defined strategy processes will succeed and see the impacts • The Strategic Alignment model provides a further example of the inter-relationship between structure. systems. and strategy © 2013 Flores MBA Program .

Micro-Lecture 6d Managing the Information Systems Function .

Linking Strategy and Systems • With the strategy determined. the IT department next needs to define the appropriate applications to develop • To complete this. organizations conduct a portfolio analysis • The portfolio analysis links strategy to systems © 2013 Flores MBA Program .

Single-Dimension Criterion for Prioritizing Applications • • • • • • Cost/benefit analysis Return on investment (ROI) Risk/reward Life cycle of application Economic value Strategic value © 2013 Flores MBA Program .

focusing upon the aggregation of resources – Translation – looking at projects at a top level • Uses a set of the criterion above © 2013 Flores MBA Program .the functions of project planning and procurement.Portfolio Management: The New Approach • More than 50% of Global 2000 firms use portfolio management • Definition .

assess four areas: – – – – Economic Value of project Strategic Value of project Project risk Project reward • Examine all projects and rank them in order of importance. based upon all areas © 2013 Flores MBA Program .Portfolio Management Methodology • For each project.

what is the return rate of an investment? © 2013 Flores MBA Program .Economic Value of Project • Quantifiable (tangible) impact or the value to business • Examples of metrics: – Payback Method: How long will it take to pay back the investment? – Return on Investment (ROI): Does return during useful life of an item exceed the cost to borrow money? – Cost-Benefit Ratio: Does the ratio of benefit versus cost exceed 1? – Profitability Index: What is the ratio of present value of cash inflow to initial investment? – Net Present Value: Accounting for cost. earnings & time value of money what is the investment worth? – Internal Rate of Return: Accounting for the time value of money.

Strategic Value of Project • Strategic (intangible) advantages that could result from a more effective deployment of the technology – – – – Changing the nature of competition Reduce switching costs Altering the power of Porter’s Forces Creating a competitive advantage for the organization © 2013 Flores MBA Program .

Project Risk/Reward • Each project has a risk – it may fail • Risk – the possibility of suffering lost • Reward – the possibility of receiving a positive affect • An aspect of risk/reward is assessing how much change will result © 2013 Flores MBA Program .

Degree of Organizational Change High Potential Risk Low Low Possible Return Automation: Use technology to speed up tasks Rationalization: Use technology to streamline operating procedures Reengineering: Use technology to radically redesign business processes Paradigm shift: Use technology to radically reconceptualize the nature of the business © 2013 Flores MBA Program High .

Portfolio Management • Each project is assessed on all of the areas • The result of this analysis indicate how critical that the project is to the organization – High versus low © 2013 Flores MBA Program .

– Business Engine Network • United Management Technologies – Stat Frame Software © 2013 Flores MBA Program .Portfolio Management Software • Artemis International Solution – Portfolio Director • Pacific Edge Software – The Edge for IT • Pro Sight – Pro Sight Portfolios • Business Engine Corp.

Micro-Lecture 6e Managing the Information Systems Function .

Sourcing the Development • With the project define. who in exchange provides and manages these assets and services for an agreed fee and over an agreed time period. © 2013 Flores MBA Program . the next step is to determine where to source the work – Internally or externally • IT outsourcing – Describes a process whereas an organization decides to contract-out or sell the firm’s IT assets. people and/or activities to a third party vendor.

This firm is sometimes called the sourcing firm or the outsourcee • Steensma and Corly. Information Resources Management Journal. 2002 © 2013 Flores MBA Program . Academy of Management Journal. 2002 • Vendor – The seller (vendor. Vendor • Client – The buyer (client. 2001 and Beaumont and Costa. This firm is sometimes called the source firm or the outsourcer • Steensma and Corly.Client vs. Information Resources Management Journal. 2001 and Beaumont and Costa. Academy of Management Journal. customer) is a firm that desires the technology. supplier) is a firm that has the technology.

All Outsourcing Not Created Equally © 2013 Flores MBA Program .

MIS Quarterly.Vendor Value Proposition Personnel development Methodology development Customer relationship management Complementarities + in core competencies = Productivity gains available to client Levina and Ross. 2003 © 2013 Flores MBA Program .

and Enron to EDS • 1989 – Kodak legitimizes outsourcing © 2013 Flores MBA Program . First City Bank.Important Dates in Outsourcing History • • • • 1966 – EDS formed 1969 – Blue Shield of PA first deal 1973 – GM outsources to EDS 1980’s – Continental.

• Market becoming more heterogeneous with new vendors and new forms of selective sourcing emerging © 2013 Flores MBA Program .Brief Background of Outsourcing • Since 1989.6% rate – Now: around $792 billion. over 100 ‘big’ (>$200m) outsourcing contracts have been signed and the number continues to grow – 70% of companies have outsourced IT to some extent • IT services market – 1999: $324 billion • Growing at 19.

Why Firms Outsource • • • • • • • Reduced IT costs Improved technology and services Business focus Downsizing and rightsizing Access to knowledge Reduced capital expenditure Vendor value proposition © 2013 Flores MBA Program .

Outsourcing Options • Total: Outsource all IT • Transitional: Outsource legacy systems while working on new systems • Selective: Outsource some aspect of IT © 2013 Flores MBA Program .

Total Outsourcing • Advantages – Consistency and stability with the same vendor for many activities – Lower transaction costs • Disadvantages – Vulnerable to vendor manipulation of pricing and maintenance costs – Vulnerable to loss of vendor support © 2013 Flores MBA Program .

Transitional Outsourcing • Advantages – Outsource legacy systems makes staff free to focus on new systems – Legacy systems are mature and customers and vendors understand – Requirements and can write a sound contract • Disadvantages – Vulnerable to vendor manipulation of pricing and maintenance costs – Vulnerable to loss of vendor support if new system is delayed © 2013 Flores MBA Program .

Selective Outsourcing • Advantages – – – – – Select best-of-breed for an activity Create a competitive environment Flexible. adapt to change Capitalize on organizational learning Less risky than total outsourcing • Disadvantages – Multiple vendors to manage – Higher transaction costs associated with multiple evaluations and contract negotiations © 2013 Flores MBA Program .

on a rental basis. which it hosts and manages for its customers. © 2013 Flores MBA Program .Selective Sourcing of Applications • Firms seeking to selectively sourcing applications (or application development) have three main choices: – Offshore vendor • Utilizing an organization external to a firm that performs some or all of the programming in a country other than the one where the product will be sold or consumed – Domestic vendor • Utilizing an organization external to a firm that performs some or all of the programming in a country where the product will be sold or consumed – Application Service Provider • Utilizing an organizational external to a firm that offers. IS application services.

Current Trends in Sourcing • IT is the first of the functions to lead outsourcing – Emerging trend: Business process outsourcing (BPO) • Outsourcing occurs across all sizes of companies and in all industries • New vendor types – Offshore and near-shore outsourcing – ASPs • Infrastructure nearly uniformly outsourced. application work next area to go © 2013 Flores MBA Program .

Sloan Management Review.Risks of Outsourcing • • • • • • • • • • • Possibility of weak management Inexperienced staff Business uncertainty Outdated technology skills Endemic uncertainty Hidden costs Lack of organizational learning Loss of innovative capacity Dangers of an external triangle Technological indivisibility Fuzzy focus • Source: Earl. 1996 © 2013 Flores MBA Program .

large switching costs are associated with IT sourcing decisions Source: Lacity and Willcocks. Global Information Technology Outsourcing. but comprises a wide variety of IT activities • IT capabilities continue to evolve at a dizzying pace.IT Distinctive IT Nature • IT is not a homogeneous function. 2001 © 2013 Flores MBA Program . thus. predicting IT needs past a three-year horizon is wrought with uncertainty • There is no simple basis for gauging the economics of IT activity • Economic efficiency has more to do with IT practices than inherent economies of scale • Most distinctively of all.

Achieving Outsourcing Success: It’s All About Relationships • The client-vendor relationship is solidified with… – Contract – Performance Measurement – Service Level Agreement • Taken together. these three account for 72% of the risks of outsourcing – The rest is mitigated by the quality of the partnership © 2013 Flores MBA Program .

resource share and goals between partners • Commitment: Degree of the pledge of relationship continuity between partners Source: Lee and Kim. 1999 © 2013 Flores MBA Program . Journal of MIS. goals. and policies between partners • Benefit/risk share: Degree of articulation and agreement on benefit and risk between partners • Conflict avoidance: Degree of compatibility of activities.Partnership Quality • Trust: Degree of confidence and willingness between partners • Business understanding: Degree of understanding of behaviors.

Partnership Quality Trust Business understanding Benefit and risk share Outsourcing Success Business Perspective: Achievement of benefits from outsourcing User Perspective: Quality of offered services by the service provider Conflict avoidance Commitment Lee and Kim. Journal of MIS. 1999 © 2013 Flores MBA Program .

although the real number is hard to come by (who wants to talk about their failures!) • Wall Street still rewards outsourcing © Rudy Hirschheim © 2013 Flores MBA Program .Success in Outsourcing … not all that easy to find • Gartner Group (including other studies) paint a sobering picture – 2/3 of outsourcing contracts fail – 24% of companies will terminate their contracts • Figure for outsourcing failure is often thought to be around 50%.

Source: PriceWaterhouseCoopers

© Rudy Hirschheim
© 2013 Flores MBA Program

Future Challenge of Outsourcing: Governance
• Outsourcing governance
– How to manage the increasingly complex set of relationships and vendors who provide IT products and services – domestic, near-shore and offshore vendors; rural sourcing; contractors (short and long term); consultants; research firms (Gartner, Forrester); interim management; SBU IT units; corporate IT units; and customer desires …. multisourcing… the long tail (e.g. Rent A Coder, eLance, MyNetResearch)

• New titles:
– Chief Sourcing Officer (CSO) – Head of Resourcing – Head of Transformation

© 2013 Flores MBA Program

Concluding Thoughts
• IT management, strategy, alignment, and outsourcing represent significant challenges to the IT function • The ability of a firm to manage the IS function will translate to higher levels of performance • These lectures are meant to provide you with insights into this challenge

© 2013 Flores MBA Program

Micro-Lecture 7a Leveraging Future and Emerging Information Technology for Competitive Advantage

Revolutions in IT
• • • • • • • • • The Learning Organization Processes Rather Than Functions Communities Rather Than Groups Virtual Rather Than Physical Self-Organizing Rather Than Designed Adaptable Rather Than Stable Distributed Rather Than Centralized Changing Nature of Users Increasing Executives’ Understanding of IT
© 2013 Flores MBA Program

Revolution #1: The Learning Organization • Most organizations live only 40yrs – 1/2 the life of a person. contrary to current belief • Team based organizations operate below the lowest IQ on the team = skilled incompetence © 2013 Flores MBA Program . because they have ‘learning disabilities’ • Organizational Learning Disabilities – Enterprises move forward by looking backward • Rely on learning from experience • Solve the same problem over & over – Organizations fix on events • Real threat comes from processes that move so slowly. no one notices them – Teamwork is not optimal.

an enterprise must create new learning & thinking behaviors on its people – Need to exhibit 5 learning principles © 2013 Flores MBA Program .Revolution #1: The Learning Organization • Organizations that can learn faster than their competitors will survive – It is the only sustainable advantage • To become a learning organization.

Five Learning Disciplines • Lifelong learning of employees – Forms the spiritual foundation for the learning organization • Surface mental models of employees and test for relevancy – Deeply ingrained assumptions. its calling – Provides the common identity by which its employees and others view it © 2013 Flores MBA Program . and images that influence how people see the world and what actions they take • Clearly defined shared vision – Organization’s view of its purpose. generalizations.

occur when people explore their own and others’ ideas. people need to understand the underlying patterns © 2013 Flores MBA Program . • Systems thinking – To understand systems.Five Learning Disciplines • Team “dialogue” – “Dialogue”: Where people essentially think together. most discuss. so they do not learn. in order to arrive at the best solution – “Discussions”: occur when people try to convince others of their point of view – Few teams dialog.

Revolution #2: Processes Rather Than Functions
• Changes to organizations need be made from a process centered rather than task centered view
– Tasks - about individuals – Processes – about groups

• The shift to processes ramifications include:
– – – – Need for new position, such as process owners In one process virtually all departments are involved One person needs to have end-to-end responsibility Process owners provide the knowledge of the process – not just manage people (still important!) – Sense of urgency & intensity as teams are more intense & allow less slack time

© 2013 Flores MBA Program

Revolution #2: Processes Rather Than Functions

• Process Centering:
– Turns people into professionals rather than workers
• If you define a professional as someone who is responsible for achieving results rather than performing a task • The professional is responsible to customers, solving their problems by producing results

• Implication for IT
– IT in charge of process centering and BPR – Puts IT in center of organization design

© 2013 Flores MBA Program

Revolution #3: Communities Rather Than Groups

• Communities form of their own volition, while groups – formed by design, their members are designated a priori • Communities:
– Perform the same job, or collaborate on a shared task/product – Have complementary talents & expertise – Held together by a common purpose & a need to know what the others know
© 2013 Flores MBA Program

Revolution #3: Communities Rather Than Groups

• Most people belong to several communities of practice, and most important work in companies is done through them • Communities are the critical building blocks of a knowledge-based document
– People, not processes, do the work – Learning is about work, work is about learning, and both are social – Organizations are webs of participation

• Implication for IT – community-based, rather than group-based technologies

© 2013 Flores MBA Program

Revolution #4: Virtual Rather Than Physical • Virtual organization doesn’t exist in one place or time
– Exists whenever & wherever the participants happen to be – Popular description of new organizational form

• Underlying principle = time & space are no longer the main organizing foundations • Implication for IT – how to extend time and space for employees

© 2013 Flores MBA Program

biology. it’s like imitating structures found in nature © 2013 Flores MBA Program . ecology.Revolution #5: Self-Organizing Rather Than Designed • Form of future organizations – chaos theory. and look at nature & how it organizes itself • The basic tenet is that nature provides a good model for future organizations that must deal with: – Complexity – Share information & knowledge – Cope with change • The message is about being to adapt.

patterns of behavior. and processes to accomplish their work • Implication for IT – flexible infrastructure to allow self-organization © 2013 Flores MBA Program .Revolution #5: Self-Organizing Rather Than Designed • The self-organization point-of-view – Requires taking the perspective of “organizing-as-aprocess” rather than “organization-as-an-object” – Self-organizing systems create their own structure.

Micro-Lecture 7b Leveraging Future and Emerging Information Technology for Competitive Advantage .

change is minimised • Change costs a lot • Firms built for stability are not adaptable © 2013 Flores MBA Program .Revolution #6: Adaptable Rather Than Stable • In the future. successful organizations will be structured to naturally support (perhaps even foster) volatility and continual surprises – Today’s organizations are structured to maintain stability.

Revolution #6: Adaptable Rather Than Stable • IT is causing the world to become more connected – Connectivity increases volatility – To keep pace companies will need to adapt more quickly – The only way to achieve adaptability = through distributed intelligence and action • Thus organizational models will be built around networks and will be designed to evolve © 2013 Flores MBA Program .

hence structures will change • Managerial capitalism will not really satisfy today’s consumers due to the huge gap between consumer desires and the good and services for sale • Will possibly lead to federations © 2013 Flores MBA Program .Revolution #7: Distributed Rather Than Centralized • Organizations of the future could become more distributed • Two views: – View #1: Distributed Capitalism • Commercial purpose of organizations is changing.

dynamic networked infrastructure to allow for networked organization © 2013 Flores MBA Program .Revolution #7: Distributed Rather Than Centralized • Two views: – View #2: Market-Based Organizations • Cost of communications has influenced the structure of organizations – High = centralize – Reducing (like now) = more decentralized • Organizations will structure more like democracies or markets • Job of management will move from command and control to coordination and cultivation • Implication for IT – flexible.

Revolution #8: Changing Nature of Users • Individuals have different levels of eagerness concerning any new technology – To help them use a new technology IS needs to understand user comfort levels • The eagerness is changing – users are more sophisticated than ever before – Challenging to the IS organization © 2013 Flores MBA Program .

5%) Early Adopters: The First Consumers (5%) Early Majority: The First Big wave (30-35%) Late Majority: The Technology Skeptics (40-50%) Technically Averse: “Not On My Time You Don’t” (10-15%) © 2013 Flores MBA Program .Revolution #8: Changing Nature of Users • Individuals have different levels of comfort with new technology – – – – – Eager Beavers: The Innovators and Pioneers (.

The Technology Camel © 2013 Flores MBA Program .

Eager Beavers: The Innovators and Pioneers • Everything about (technology) is wonderful – Most = in software and hardware companies where their enthusiasm (vision?) might be an asset – Some = part of ‘Advanced Technology Group’ • Approach = support them with some funding and learn from them – ‘Bleeding edge’ companies may need to support with big $$$$ © 2013 Flores MBA Program .

• They need IS’s help and encouragement but should not be allowed to overwhelm • Watch $$$ closely! – Make sure they invest their own money in the experiments © 2013 Flores MBA Program .Early Adopters: The First Consumers • ‘Disciples’. not too far behind the innovators • Often have a lot of discretionary income ($$$) and think the corporation does too! • Enterprises could miss a market by ignoring these people • Approach = Need to be managed.

Early Majority: The First Big Wave • Willing to use technology but need some help to make it happen • Not the self-sufficient pioneers or risk takers • Tend to be in relatively important positions • Make or break introduction of new technology • Approach = Need to understand how they view the company. say. the wireless Internet • IS management must become adept at creating options that can be tested for acceptance or rejection © 2013 Flores MBA Program . then help them choose a strategy to expand their familiarity with. customers and competition.

Late Majority: The Technology Skeptics • Not afraid of technology. but they do have serious concerns about risks and costs • Concerned about wasting time and $ • Approach = IS management needs to be prepared to address risks and costs as they are to address technology opportunities • Need to show an appreciation of ‘bottom-line’ ($) concerns and answer security questions at a level that late majority people can appreciate © 2013 Flores MBA Program .

• Approach = IS first needs to understand their concerns • They (may) have justifiable business fears that need to be identified and addressed before any thought of using a new technology for business purposes can be entertained © 2013 Flores MBA Program .Technically Averse: Not on My Time You Don’t • Resist technology • In many cases. their concerns about loss of privacy. control. and possible exposure to competition override any perceived benefits of the technology – Some = industry ‘trend’ / trait • Sunk costs etc. security.

“I’m IS and I’m the expert.Users and the IS Department • The message is clear for IS departments: – IS cannot work in the top-down broadcast mode. so here’s your solution customer” – More than ever. IS must get input from its customers to determine the services they want. when they want them and where they want them • Hearing directly from customers is both a goldmine and a massive challenge © 2013 Flores MBA Program .

it is a challenge for all business managers • CIOs need to ensure that the business managers: – Stay abreast of the changes and new uses of IT – Are comfortable with IT.Revolution #9: Increasing Executives’ Understanding of IT • Leadership of IT is no longer a technical challenge. and – Understand its impact and potential value to the business © 2013 Flores MBA Program .

Revolution #9: Increasing Executives’ Understanding of IT • dot-com boom and bust had a “damaging” effect on collective opinions about IT • Many now de-emphasize the importance of ecommerce at the very time when early promise is being realized in many industries and sectors – e-commerce boom taking place right now • CIOs need to be concerned with the potential gap between what their fellow business executives believe is important about IT versus what they really need to know to effectively guide the use of IT © 2013 Flores MBA Program .

Revolution #9: Increasing Executives’ Understanding of IT

• Role of IT to the business units:
– Setting the tone of the enterprise toward technology – Envisioning how IT can serve business strategy – Governing as well as leading – Using IT to promote business change, and – Assessing costs and benefits

© 2013 Flores MBA Program

Revolution #9: Increasing Executives’ Understanding of IT

• Areas in need of education
– – – – – – – The impact of new regulations Project management Measuring the value of IT Change management Organization and control of the IS organization Cross-organizational e-processes Web services

© 2013 Flores MBA Program

• Revolutions means IT becomes about business and needs to be the responsibility of the business folks, not just technology folks
– The foundations of past ways of working are changing

• Exciting exploration going on right now
– People grapple with creating the new work environment and the challenge it presents

• Part of this will be the evolution of firms from Enterprise 2.0 to 3.0

© 2013 Flores MBA Program

Micro-Lecture 7c Leveraging Future and Emerging Information Technology for Competitive Advantage

Peering into the Future through the Past

• Web 1.0: The web as information
– In a web 1.0 world, producers provided consumers with information – Producers controlled both the structure of the delivery as well as the content on top of the structure – There was no context surrounding the content, there was little interaction between the consumers – The focus was on who owned content

© 2013 Flores MBA Program

0: The web as platform – In a web 2.0 world. the focus was on the power of the community – Producers began to free up the structure of the delivery and began to open up the content to consumers – There was limited portability and interoperability – The focus was on the community © 2013 Flores MBA Program .Peering into the Future through the Past • Web 2.

0 is just a marketing term • Artificial intelligence and machine learning as Web 3.0 • Web 3.Differing Views of Web 3.0 • The semantic web (using machines to understand language) • The virtual (world) web • The convergent web © 2013 Flores MBA Program .

0 The Personal. Organized Web © 2013 Flores MBA Program .My View of Web 3. Portable.

Ubiquity • Trends pointing towards ubiquity – – – – Mobility of the population and technology Embeddedness of the web in devices Software “in the cloud” Apps not trapped in one location © 2013 Flores MBA Program .

and filtered for you by you and others like you © 2013 Flores MBA Program .0 content will be organized by the collective will of the “crowd” – But your crowd is different from my crowd • When we google the same term.Organized • Web 3.0. organized. the information will be collected. we get the same results – In a Web 3.

© 2013 Flores MBA Program . delivery of content.Predictive • Web 3.0 will use collective wisdom to predict your behavior with increasing accuracy – Requires a broader collective view of you and your behavior – Can we take the books you might like at Amazon and the movies you rent through Netflix to predict the clothes you will buy at Banana Republic? • This is more than marketing – this is also about search. recommendations. etc.

0 will leverage the Web as an operating system and will allow us to create separate ecosystems of apps that operate the way we want them to (Programmable Web) • Now we will control not only the content but also the underlying structure of the Web © 2013 Flores MBA Program .Mashed-Up • Web 3.

regardless of originator. or location • Convergence is technically possible now. format.Converged • Web 3.0 will converge content. but remains difficulty – The cloud and mobility will assist with convergence • Convergence requires breaking traditional business models © 2013 Flores MBA Program .

Behavioral Advertising • Behavioral advertising is a form of online advertising that traces behavior of an individual online in order to display more appropriate advertising to that individual – The marketing aspect of the predictive future • The technologies that will drive this aspect of Web 3.0 are termed “marketing communications” © 2013 Flores MBA Program .

0 occurs or the web morphs in an unpredictable manner. it is evident that e-commerce has and will continue to have a profound impact upon our lives • The challenge is yours – how will you respond to these shifts and changes in the societal and business environment? – Embracing these challenges is the management challenge of the 21st century! © 2013 Flores MBA Program .Wrap-up Reflections • Whether this vision for Web 3.

Micro-Lecture 7d Leveraging Future and Emerging Information Technology for Competitive Advantage .

What is a Competitive Advantage? • An advantage gained over competitors by offering consumers value – Either by lower price or greater benefits and service that justifies higher service • A company that has a competitive advantage is more profitable than its’ rivals © 2013 Flores MBA Program .

advantage must be: – Valuable (Important) – Rare (Uncommon) – Inimitable (Unable to be imitated) © 2013 Flores MBA Program .Temporal Nature of Competitive Advantage • A competitive advantage is either temporary (since someone else copies it) or is sustainable • To be sustainable.

Model of Competitive Advantage Firm-specific assets that few competitors can acquire easily Resources Distinctive Competencies Cost Or Differentiation Advantage Competing on cost or uniqueness Value Creation Ability to create value in a way different than competitors Capabilities Ability of the firm to leverage resources © 2013 Flores MBA Program .

Determining Sustainability No Is resource or capability valuable? Yes Resource is not valuable No Is resource uncommon? Yes Resource is common Resource can be easily copied No Is resource unable to be imitated? Yes Resource cannot be easily copied Competitive Disadvantage Competitive Parity Temporary Competitive Advantage Sustained Competitive Advantage © 2013 Flores MBA Program .

but not necessarily a competitive advantage • Two questions – Is the system critical to the organization or not? – How pervasive is the technology in other firms? Pervasiveness Commodity Contribution Critical Differentiator Critical Differentiators Eliminate/ Migrate Critical Commodities Useful Commodities Useful © 2013 Flores MBA Program .IT and Competitive Advantage • Technology alone does not lead to a competitive advantage • Systems can be a differentiator.

how does IT enable competitive advantage? – Allowing the firm to locate relevant resources by providing the necessary capabilities – By helping the firm find the “sweet spot” in the network © 2013 Flores MBA Program .IT and Competitive Advantage • So.

The “Sweet Spot” in a Network • The “sweet spot” in the network is where there is value – The place where your competitors have not leveraged • There is value in four places in networks – At the core and periphery – In common infrastructures – In modularization and orchestration © 2013 Flores MBA Program .

this means putting technologies that provide distinct capabilities for interacting with customers and for aggregating relevant information for strategy decisions © 2013 Flores MBA Program .Value #1: Core and Periphery Services • Value moves to the ends – Value is in the core (leadership and strategy handled by top management) and the periphery (customer-facing employees making decisions and taking actions) Leadership/ Strategy Tactical Management Customerfacing • For IT.

pay what you use (like chargeback systems) • Dynamic combinations of infrastructure when needed • Provides economies of scale through networking with other firms – Reduces cost to individual firms © 2013 Flores MBA Program .Value #2: In Common Infrastructures • Firms are increasingly sharing infrastructure by using common providers through outsourcing provides – Allows for infrastructure to be operated as a utility • As utility.

but what flows through the network © 2013 Flores MBA Program .IT for Competitive Advantage & Common Infrastructures • Common infrastructure leverage the power of the networked economy and allow the individual firm to focus on resources and capabilities – Infrastructure is non-core and non-strategic • Implication – the value of the network is not in the network itself.

IT for Competitive Advantage & Common Infrastructures • Connecting more devices to a network exponentially increases the value of the network for everyone involved as so many new connections are created – With unlimited connections & abundant information. the organization is peer-to-peer rather than hierarchical • Customer & company create together on a peer-to-peer basis. they both get smarter together & develop a closer relationship – Technology that enhances these relationships is called relationship technology • Company with the smartest customers wins – requires more trust from both company & customer – Simple examples – social networking (facebook) © 2013 Flores MBA Program .

Value #3: Modularization and Orchestration • Selective outsourcing and the network based economy showed is the modularization of the firm • The true value for organizations then is the ability to put these modules back together • IT leverages the inter-connection of the modules with providers to source services © 2013 Flores MBA Program .

Distinctive Competencies • By leveraging the power of the network. IT can bring together the resources and leverage capabilities to create distinctive competencies • With the competencies in place. these competencies are then combined to generate a cost or differentiation advantage © 2013 Flores MBA Program .

Cost Advantage Differentiation Advantage Cheaper Unique Market is… Broad Narrow Cost Leadership Cost Focus Differentiation Differentiation Focus © 2013 Flores MBA Program .Advantages and Strategy Products are….

must also mitigate the influence of the five forces © 2013 Flores MBA Program .Importance of Competitive Advantage • The importance of competitive advantage lies in its’ power – it creates value for the firm in the long run • Competitive advantage enables a firm to have long-term value – One caveat: to ensure long-term value.

Impact of Competitive Forces and IT Force Threat of new entrants Business Implications •Additional capacity •Reduced prices •New basis for competition IT Effects Provide entry barriers/reduce access by: •Exploiting existing economies of scale •Differentiate products/services •Control distribution channels •Segment markets •Differentiate products/services and improve price/performance •Increase switching costs of buyers •Facilitate buyer product selection •Supplier sourcing systems •Extended quality control into suppliers •Forward planning with supplier •Improve price/performance •Redefine products and services to increase value •Redefine market segments •Improve price/performance •Differentiate products and services in distribution channel and to consumer •Get closer to the end consumer – understand the requirements Buyer power high •Forces prices down •Demand higher quality •Require service flexibility •Encourage competition •Raises prices/costs •Reduced quality of supply •Reduced availability •Limits potential market and profit •Price ceilings Supplier power high Substitute products threatened Intense competition from rivals •Price competition •Product development •Distribution and service critical •Customer loyalty required Source: Ward and Griffiths. 1997 © 2013 Flores MBA Program .

a strategic inflection point exists when an organization must decide whether or not to implement a system or re-organize – Injects chaos in to the organization • At a high level.Competitive Advantage and the Strategic Inflection Point • At points in the organization. a strategic inflection point is a challenge © 2013 Flores MBA Program .

Being a Market Leader Market Leaders Focus on business outcomes of investing in IT Spent three times as much as non-market leaders on decision support and 50% more on customer self-service applications Focus on being agile in response to customer demand fluctuations Business units participate in determining the IT budget in 83% of market leader firms IT leadership devotes 60% of their time to new implementations 56% of outsourcing focused on new development Non Market Leaders Focus on how much they are spending relative to the market Struggle to find strategic imperative for investing in IT Do not gauge customer demand using IT Business units participate in determining the IT budget in 58% of non market leader firms IT leadership devotes 38% of their time to new implementations 32% of outsourcing focused on new development Market leading firms realize the strategic importance of IT and seek to make IT a strategic partner © 2013 Flores MBA Program .

Conclusions • The business world is clearly changing and IT is playing a critical role in this metamorphoses • Where will the business world turn next and how will this convergence enable new levels of growth? • I challenge you to take this mantle and build a sustainable organization for the 21st century © 2013 Flores MBA Program .