class 10: valuing information systems investments

Class 10: Valuing Information Systems InvestmentsMIS 2101: Management Information Systems

Based on material from Information Systems Today: Managing in the Digital World, Leonard Jessup and Joseph Valacich, Pearson Prentice Hall, 2007

Also includes material by David Schuff, Paul Weinberg, and Cindy Joy Marselis.

http://www.sbm.temple.edu/

Learning Objectives Discuss how organizations can use

information systems to help create a strategic advantage

Describe how to create a business case for an information system

Explain how to evaluate an information system

Valuing Information Systems What are three ways an Information

System can add value to an organization?

Where do you think the most value is added?

Valuing Information Systems What do we mean

when we say we can create business value by automating, informing, and supporting strategy? Automating Informing Strategy Support

Valuing Information Systems

Automating – doing things FASTER


Informing – doing things BETTER

Informing: Example Tell me more

about the loan processing example from the book…

Learning Organization One that is skilled at creating, acquiring and

transferring knowledge and at modifying its behavior to reflect new knowledge and insights.

David Garvin, Harvard Business Review - 1993


Supporting Strategy– doing things SMARTER

Strategizing: Five Types of Organizational Strategies

What are “Organizational Strategies”?

Can technology be leveraged to create value supporting these strategies?

Overall Low Cost Leadership Strategy

What is an example of a company that adopts an overall low cost leadership strategy?

Focused Low-Cost Strategy

What is an example of a company that adopts a focused low cost strategy?

Broad Differentiation Strategy

What is an example of a company that adopts a broad differentiation strategy?

Focused Differentiation Strategy

What is an example of a company that adopts a focused differentiation strategy?

Best-Cost Provider Strategy

What is an example of a company that adopts a best-cost provider strategy?

Strategizing: Five Types of Organizational Strategies

Can technology be leveraged to create value supporting these strategies?

Sources of Competitive Advantage

Who has …1. Best-made product on the market2. Superior customer service3. Achieving lower costs than rivals4. Having proprietary manufacturing technology5. Having shorter lead times in research and development projects6. Having a well-known brand name and reputation7. Giving customers more value for their money

Can MIS professionals help you achieve this?

Competitive Advantage How do you identify opportunities to use

information systems for competitive advantage?

What are “Value Chains”? What is “Porter’s Five Forces Model”? Analysis tools or communication tools?

What is Value Chain Analysis?CoreValueActivities

SupportValueActivities

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IS and Value Chain Analysis

What are specific examples of how these IS functions add value and help create competitive advantages?

Why might it be important for systems supporting these activities to function at an enterprise level?

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The Five Forces Model – Evaluating Business Segments

Reduce pricesIncrease qualityValue added services

ERP reduce costsCRM CAD/CAM improve quality

Increased costsReduced quality

Electronic connections to more suppliers

Product returnsLower market shareLost customers

Decision support and business intelligenceCAD product redesign

Reduced pricesLost market share

Better web presenceLower costs through ERP, supply chain, etc.

Competition in price, distribution and service

ERP to reduce costs and react more quickly

Buyer Power What does it mean when “Buyer Power” is high?

How to loyalty programs influence buying power?

Can IT be the “enabler”?

Examples of situations where IT has increased buyer power?How can I become the preferred supplier?

Supplier Power What does it mean when “Supplier Power” is high? How do tightly integrated supply chains influence supplier

power?

Examples of situations where IT has increased supplier power?How can I increase my number of suppliers?

Threat of Substitute Products or Services When is the threat of substitute products high?

What are “switching costs” and how do they influence the threat of substitute products?


Examples of situations where IT has increased the threat of substitutes?Can I increase switching costs?

Threat of New Entrants Give an example of when the threat of new entrants is

high?

What is an “Entry Barrier” and how does this influence the threat of new entrants?


Examples of situations where IT has affected the threat of new entrants?Can I create barriers to entry?

Rivalry Among Competition Price, product, service and distribution?

How can you use IT?

Making the Business Case for an IS

Identification of benefits that the proposed information system will bring to the organizationAutomating benefitsInforming benefitsStrategic benefits

Productivity Gains Easy to identify costs with developing an IS How do you measure productivity gains? Why hasn’t productivity increased at the

rate of IS investments?

The Productivity Paradox Give an example

of how information systems may be used in unintended ways.

Measurement Problems Give an example of

how the wrong things can be measured

Time Lags When can the benefits of

an information system lag behind the realized benefits?

Redistribution If an information

systems simply redistributes the pieces of the pie rather than make the pie bigger, does it create any value?

Mismanagement

Can a good information system overcome a bad business model?

Making a Successful Business Case

On what can we base a successful business case?

Arguments Based on Faith

Do you need a cost benefits analysis for an argument based on faith?

Arguments Based on Fear

Do you need a cost benefits analysis for an argument based on fear?

Come on, how do you instill “fear” in an organization?

Scenario You are the CIO of a small to mid sized

company You are meeting with an independent

consultant who is trying to get you to hire him to develop a business continuity plan and a disaster recovery plan

Is a business case based on “Fear” effective?

Business Continuity andDisaster Recovery

Catastrophic loss of ability to deliver services from primary location

Must resume services from alternate location Disaster recovery plan driven by the business’

Recover time objective (RTO) Recovery point objective (RPO)

Business Continuity – How you continue to provide essential business services between time of the disaster and the execution of DR plan

Sobering Statistics

From the U.S. National Fire Protection Agency and the U.S. Bureau of Labor Nearly 75% of all U.S. businesses have experienced a

business interruption 20% of small to medium size businesses suffer a major

disaster every five years 43% of US companies never reopen after a disaster and

29% close within three years 93% of companies that suffer a significant data lose are

out of business within five years

It’s not always what you expect It’s in not always an earthquake or a hurricane

Arguments Based on Fear

Do you need a cost benefits analysis for an argument based on fear?

Arguments Based on Fact

Do you need a cost benefits analysis for an argument based on fact?

Cost-Benefit Analysis Identifying costs

What is “Total Cost of Ownership” (TCO)?What are “Recurring vs. Non-recurring costs”?What are “Tangible vs. Intangible costs”?

Why is evaluation important? Systems should address a business need Otherwise

You waste money on what you buyYou still will have an unresolved “business

problem”

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How do you evaluate systems?

Understand what you need Understand what the system does Match the two up

Businessneeds

Applicationfunctionality

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Understanding what you need We talked about this way back Talk to

People involved in the business process Technical staff who have to implement the system

…to determine key features

MIS Analyst

Understanding what the application does

Once you have the key features… Talk to

VendorsPeople who have bought or built similar products

Now you have a basis for comparing alternatives

System Evaluation Questions

Who are the customers? What are the business drivers (the business case)?

Who are the participants? Can the system create competitive advantage?

What does the system do? Are there risks with implementing the system?

What type(s) of information system is it?

What has to go “right” for the adopting company?

What are the processes it performs?Are they well-structured?Are they well-integrated?

What are the key evaluation measures for success?How do you know if the system is working?

An Evaluation Matrix for an E-Mail System

Weighted average of feature ratings Feature

Option

Creates mailing

lists(10%)

Overall cost

(30%)

Web access

(20%)

Reliability

(40%)

Total Score

Option A 7 1 8 5 4.6

Option B 3 9 4 5 5.8

Partial Matrix of Functional Requirements

Partial Matrix of Technical Requirements

Partial Matrix of General Requirements

Types of Systems

We’ve looked at different types of information systemsTransaction Processing Systems (TPS)Decision Support Systems (DSS)Management Information Systems (MIS)

Types of Applications… Different types of applications

1. Customer relationship management 2. Business intelligence 3. Enterprise resource planning4. Order entry/point-of-sale5. Accounting (Accounts Payable/Receivable)

In-Class Activity Working in a small team of 3-4 business

professionals on a project for the CEO of Fitter Snacker…

Each team will be assigned an application which is being considered for use at Fitter Snacker

Your team will evaluate the application and prepare to answer the following questions for the CEO…

Can your team answer…Who are the customers? What are the business drivers (the

business case)?Who are the participants? Can the system create competitive

advantage?What does the system do? Are there risks with implementing the

system?What type(s) of information system is it?

What has to go “right” for the adopting company?

What are the processes it performs?Are they well-structured?Are they well-integrated?

What are the key evaluation measures for success?How do you know if the system is working?

class 10: valuing information systems investments

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