The Business Value of Information Technology

Yuliani Dwi Lestari dan Togar M. Simatupang

Sekolah Bisnis dan Manajemen

Institut Teknologi Bandung

Dipresentasikan pada Seminar Information Technology (IT) Value Engineering diselenggarakan olehKK Teknologi Informasi Sekolah Teknik Elektro dan Informatika (STEI) ITB

Kampus ITB Jatinangor - Kamis, 4 Desember 2014

Outline

• Basic Definitions

• Examples of the value of IT in Business

• Present Models of the Value of IT Investments

• The Practice of Business Value

• Concluding remarks

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Objective

• Provides a brief introduction to the business value of Information Technology, a brief survey of the benefits of IT in Business as reported by major industry studies, and an overview of popular value methods.

• Provides a suite of basic metrics useful for quantifying the business value of Information Technology.

• Discusses the practice of the business value of Information Technology.

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Basic Definitions

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Objectives of a Business

• Create value for its shareholders while maintaining a sound financial position.

• Other important objectives include:

– Employee satisfaction

– Social responsibility

– Ethical consideration

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Business as a money engine

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Business Value

• An approach for estimating the tangible and intangible worth of organizational assets.

• An appraisal of intellectual assets such as knowledge, experience, and skills.

• A technique for determining the complete worth of an investment to an enterprise.

• A method of determining the health and well-being of a firm in the long run.

• A set of measures including employee, customer, supplier, alliance, management, and societal value.

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Sources of Business Value

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New Business Platform

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Information Technology is mainly an enabler, and a facilitator of various business functions

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The recursive relationship between It Capabilities and Business Process Redesign

Business Process

Redesign

IT Capabilities

How can IT support business processes?

How can business processes be transformed using IT?

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Business Value and the Role of ICT

Information and Communications TechnologiesActing as an Enabler and as a Differentiator

ManagementTeam

Innovation

CommercialAdvantage

FinancialPerformance

CustomerValue

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Business transformation through ICTThe four components…

BusinessTransformation

Through ICT

Technology Adoption

Internet connectivity

Broadband

Email

Website

LAN/WAN

Wireless

Application integration

Strategy and Motivation

Importance of ICT

Demands of Customers

Demands of Suppliers

IT skills within organisation

Influences

Support

Business Processes

Ordering online

Paying online

Selling online

Online collaboration

Sharing knowledge online

Managing supplier relationships

Managing customer relationships

Attitudes and Impact

Benefits gained to-date

Return on investment

Business growth profile

Attitude to future adoption

Source: Gordon Lee (2005), Increasing the Value of Business: The Role of ICT.13

IT Investment Business Value

Source: Business relevance of IT investments at http://www.itdec.eu/14

Examples of the value of IT in Business

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The Value of Business Intelligence

Source: A Business Intelligence solution helps you discover the added value of an ERP at http://www.seniorerp.ro/en/a-business-intelligence-solution-helps-you-discover-the-added-value-of-an-erp/

The results of the investment:• Improving the decision-making process• Significant decrease of the dependency on the IT Department• Increased visibility over the entire business• Optimize the business for future changes

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IT Value in Healthcare

Source: http://strategyatheinz.blogspot.com/2013/06/trends-and-strategic-direction-for-life.html 21

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The Existing Value Models

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Theories, approaches and methodologies investigating the business value generating potential of IT

Source: Márta Aranyossy (2007), Business Value of IT Investment: The Case of a Low Cost Airline’s Website

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Phases and steps in the AIAC framework for measuring IT Payoff (Adapted from Devaraj and Kohli, 2002)

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IT and Shareholder Return

Source: http://www.isaca.org/Journal/Past-Issues/2007/Volume-4/Pages/IT-and-Shareholder-Return-Creating-Value-in-the-Insurance-Industry1.aspx 26

Gartner Model

Source: http://www.managedecisions.com/blog/?p=146 27

Intel’s Business Value Chart

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Intel’s process for measuring IT business value

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The business value index (BVI) evaluates IT investment benefits

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Total Economic Impact (TEI)

Source: Forrester Research, Inc.

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Val IT™ Framework

Establish informed andcommitted leadership.

Align and integrate valuemanagement with enterprise financial

planning.

Define andimplement processes.

Establish effectivegovernance monitoring.

Define portfolio characteristics.

Continuously improve value management

practices.

Establish strategic direction

and target investment mix.

Evaluate and selectprogrammes to fund.

Determine the availability and sources of funds.

Monitor and reporton investment

portfolio performance.

Manage the availabilityof human resources.

Optimise investmentportfolio performance.

Understand the candidateprogramme and

implementation options.

Develop the detailed candidate

programme business case.

Develop the programme plan.

Launch and managethe programme.

Develop full life cycle costsand benefits.

Update operationalIT portfolios.

Develop and evaluate the initial programme concept

business case.

Update the business case.Monitor and report on

the programme.Retire the programme.

Value Governance(VG)

Portfolio Management

(PM)

Investment Management

(IM)

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The i* framework

Source: http://www.ariscommunity.com/users/jcabot/2010-10-04-modeling-social-aspects-software-processes 33

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Benefits Management

Source: http://www.dfpni.gov.uk/benefits-management-mainsection1-335

Source: http://www.reedintegration.com/services/ppm/program_project_management.html36

Business Value in Practice

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The problem: CIOs lack a framework for describing business contribution

Source: Innovation Value Institute 38

The Principle

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Effective strategies answer three key questions

How will we Create value?

How will weCapture value?

How will weDeliver value?

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Answer seven critical questions:

• How will we create value?

– How will the technology evolve?

– How will the market change?

• How will we capture value?

– How should we design the business model?

– Where should we compete in the value chain?

– How should we compete if standards are important?

• How will we deliver value?

– How do we manage the core business and growth simultaneously?

– How do we use our strategy to drive real resource allocation?

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Put Into Practice

Realization of

Business Value

Leadership Imperatives

Operating Capabilities

Resource Network

Tools Enablement

• Best practice delivery system (consulting, coaching, implementation)• Operating accreditation• Quality control• Continuous learning

• Leverage (scalability, expertise)• Strategic partners (credibility, value added)• Collegial culture

• Vision and values• Advantaged business model• Client centric approach• Innovation agenda• Individual empowerment• Future proofing

• Business Analysis• IT Strategy • Value engineering• Benefits Management

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Tools of Business Value

Business Analysis

IT Strategy

Value Engineering

Benefits Management

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Business Analysis

Source: http://www.volere.co.uk/mba.htm 44

IT Strategy

Source: https://emetrixconsulting.wordpress.com/2009/12/30/beyond-the-it-strategy/ 45

Value Engineering

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Benefits Management

Source: http://www.turnerdesign.org/Consulting/Project%20Management.htm48

Concluding Remarks

• IT leaders should create a business case for any new technology before deciding to adopt it.

• There is a need to assign a small team of engineers and technology architects to explore enabling technologies opportunities.

• After feasibility study the team should test the water projects to understand how IT supports the run of business or the grow of the business.

• The team should explore how the IT adoption can provide breakthroughs to the business practices.

• There is a combination of long terms strategic benefits and short term tactical goals.

• The management should apply the integrated tool to deliver the value of IT.

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Thank You

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