chapter 1 - the information systems strategy...

Ch t 1Chapter 1Th I f ti S tThe Information Systems

Strategy TriangleStrategy TriangleManaging and Using Information Systems: A

Strategic ApproachStrategic Approach

by Keri Pearlson & Carol Saunders

Introd ctionIntroduction• How knowledgeable must a general

manager be about IS?manager be about IS?• What are the ramifications of an

improperly implemented IS?C IS b i d i i l ti ? Wh• Can IS be examined in isolation? Why or why not?y

• What function does IS play in the business t t f i ti ?strategy of an organization?

Copyright 2006 John Wiley & Sons, Inc. 2

The Impact of ISThe Impact of IS• The Information Systems Strategy Triangle is a

simple framework for understanding the impact p g pof IS on organizations.Successful firms have an overriding business• Successful firms have an overriding business strategy.

• This business strategy drives both Organizational and Information strategy.Organizational and Information strategy.

• All decisions are driven by the firm’s business objectivesobjectives.


Figure 1.1 The Information Systems Strategy Triangle


IS Strategy TriangleIS Strategy Triangle

• Business Strategy drives all other strategies.Organizational and Information Strategy are• Organizational and Information Strategy are then dependent upon the Business Strategy.

• Changes in any strategy requires changes in the others to maintain balance.

• IS Strategy is affected by the other strategies a firm usesfirm uses.

• IS strategy always involves consequences.


BRIEF OVERVIEW OFBRIEF OVERVIEW OF BUSINESS STRATEGYBUSINESS STRATEGY

FRAMEWORKS

Think About ITThink About IT

• What is a business strategy?Whi h f t i fl b i• Which factors influences a business strategy?gy

• How does a business change its strategy without losing balance within itswithout losing balance within its organization and IS structure?

• Are there specific events that induce a business to change its strategies and whatbusiness to change its strategies and what are they?


Generic Strategies Frame orkGeneric Strategies Framework

• Michael Porter describes how businesses b ild t i bl titican build a sustainable competitive

advantage.g• He identified three primary strategies for

hi i titi d tachieving competitive advantage:• Cost leadership – lowest-cost producerCost leadership lowest cost producer.• Differentiation – product is unique.• Focus – limited scope.


Figure 1.2 Three strategies for achieving competitive advantage.


Porter’s Competiti e Ad antagePorter’s Competitive Advantage• Remember that a companies overall business

strategy will drive all other strategies. gy g• Porter defined these competitive advantages to

represent various business strategies found in p gthe marketplace.

• Cost leadership strategy firms include Walmart, p gy ,Suzuki, Overstock.com, etc.

• Differentiation strategy firms include Coca Cola, gy ,Progressive Insurance, Publix, etc.

• Focus strategy firms include the Ritz Carlton, gy ,Marriott, etc.


Differentiation Strateg VariantsDifferentiation Strategy Variants • Shareholder value model: create advantage

through the use of knowledge and timing g g g(Fruhan)

• Unlimited resources model: companies with a• Unlimited resources model: companies with a large resource can sustain losses more easily than ones with fewer resources (Chain Store vsthan ones with fewer resources (Chain Store vs Mom & Pop).The problem with Porter and these variants are• The problem with Porter and these variants are that the rate of change is no longer easily managed and sustainedmanaged and sustained.


IS Planning and StrategicIS Planning and Strategic Advantage ModelsAdvantage Models

• General Managers cannot afford to rely solely g y yon IS personnel to make IS decisions.

• Business strategy drives IS decision making.gy g• Changes in IS potential should trigger business

reassessments (i.e. the Internet).( )• Information Systems Strategy Triangle shows

the proper balance of strategies.p p g• The models are helpful in discussing the role of

IS in building and sustaining competitive g g padvantage.


F k K Id A li ti t I f ti S tFramework Key Idea Application to Information Systems

Porter’s i

Firms achieve competitive

Understanding which strategy is chosen by a firm is critical to choosing IS togeneric

strategies framework

competitive advantage through cost leadership, diff ti ti

a firm is critical to choosing IS to complement that strategy.

differentiation, or focus.

D’A i’ S d d Th 7 S i th tiD’Aveni’s hyper-competition

Speed and aggressive moves and countermoves

The 7 Ss give the manager suggestions on what moves and countermoves to make. IS are critical to achieve the speed needed competition

model by a firm create competitive advantage

for these moves.

g

Figure 1.3 Summary of key strategy frameworks.


BRIEF OVERVIEW OFBRIEF OVERVIEW OF ORGANIZATIONALORGANIZATIONAL

STRATEGIES


Organizational StrategyOrganizational Strategy• Organizational strategy includes the g gy

organization’s design as well as the choices it makes in its work processes.

• How will the company organize in order to achieve its goals and implement its business t t ?strategy?

• Business Diamond – simple framework for id tif i i l t fidentifying crucial components of an organization’s plan (Figure 1.4)M i l L th f k f• Managerial Levers – another framework for organizational design, states that successful execution of the firm’s organizational strategy isexecution of the firm s organizational strategy is the best combination of organizational, control, and cultural variables (Figure 1 5)


and cultural variables (Figure 1.5).Figure 1.4 The Business Diamond


Figure 1.5 Managerial Levers


Understanding Organization StrategyUnderstanding Organization Strategy

T d t d i ti l t t tTo understand organizational strategy we must answer the following questions:

1. What are the important structures and reporting relationships within the organization?p g2. What are the characteristics, experiences, and skill levels of the people within the organization?skill levels of the people within the organization?3. What are the key business processes?4 What control systems are in place?4. What control systems are in place?5. What is the culture of the organization?


Framework Key Idea Usefulness in IS Discussions

Business Di d

There are 4 key components of an

Using IS in an organization will affect each of these components Use thisDiamond components of an

organization: business processes, values and b li f t

each of these components. Use this framework to identify where these impacts are likely to occur

beliefs, management control systems, and tasks and structures.

Managerial levers

Organizational variables, control

i bl d lt l

This is a more detailed model than the Business diamond and gives

ifi h IS b dvariables, and cultural variables are the levers managers can use to

specific areas where IS can be used to manage the organization and to change it

affect change in their organizations

Figure 1.6 Summary of organizational strategy frameworks


BRIEF OVERVIEW OFBRIEF OVERVIEW OF INFORMATION SYSTEMSINFORMATION SYSTEMS

STRATEGYSTRATEGY

IS StrategIS Strategy

• The plan an organization uses in providing information servicesinformation services.

• IS allows business to implement its business strategy.

• IS helps determine the company’s capabilities• IS helps determine the company s capabilities.• Four key IS infrastructure components are key to

IS t t (Fi 1 7)IS strategy (Figure 1.7)• These key components are sufficient to allow the y p

general manager to assess critical IS issues.


What Who Where

Hardware List of physical components of the system

Individuals who use itIndividuals who manage it

Physical location

system manage it

Software List of programs, applications, and

Individuals who use itIndividuals who

What hardware it resides upon and

utilities manage it where that hardware is located

Networking Diagram of how Individuals who use Where the nodes areNetworking Diagram of how hardware and software components are

Individuals who use it/ Individuals who manage it/Company service

Where the nodes are located, where the wires and other transport media arecomponents are

connectedCompany service obtained from

transport media are located

Data Bits of information Individuals who use it Where the stored in the system Individuals who

manage itinformation resides

Figure 1.7 Information systems strategy matrix.


FOOD FOR THOUGHT:FOOD FOR THOUGHT: ECONOMICS OFECONOMICS OF

INFORMATION VS. ECONOMICS OF THINGS

Information s ThingsInformation vs Things

• Every business is in the information business (Evans and Wurster).(Evans and Wurster).

• All forms of industry rely heavily on IS.M d ti• Mercedes cars computing power.

• Marketing research, logistics, advertising, inventory management all rely on IS.

• Things wear out.g• Information never wears out.

Fi 1 8 thi ith i f ti• Figure 1.8 compares things with information.


Things Information

Wear out Doesn’t wear out, but can become obsolete or untrue

Are replicated at the expense of the manufacturer

Is replicated at almost zero cost without limit

Exist in a tangible form May exist in the ether

When sold, seller ceases to own When sold, seller may still possess and sell again

P i b d d ti t P i b d l tPrice based on production costs Price based on value to consumer

Figure 1.8 Comparison of the economics of things with the economics of information


SUMMARYSUMMARY


S mmarSummary

• Competitive advantage is gained through cost leadership differentiation or focusleadership, differentiation, or focus.

• The Information Systems Strategy Triangle shows that business strategy always drives organizational and information strategies.g g

• Hypercompetition defines competitive advantage as temporaryas temporary.

• Understanding the influence of IS in organizational strategy is paramount.


Chapter 2Chapter 2Strategic Use ofStrategic Use of

Information ResourcesInformation ResourcesManaging and Using Information Systems: A Strategic Approach


IntroductionIntroduction• How have successful businesses utilized IS• How have successful businesses utilized IS

strategically?• What resources are involved in crafting a

strategic IS policy? Which one is moststrategic IS policy? Which one is most important?Many of today’s most successful companies• Many of today’s most successful companies have created strategic alliances. How has this helped them to create strategic advantage?


Real World ExamplesReal World Examples• In 1994 Dell finally stopped selling PCs through• In 1994 Dell finally stopped selling PCs through

retail stores.• It moved completely to using an integrated IT

platform that allow the order of customized systems.• Strategic use of IS produced Cost savings from

reduced inventories passed on to customers.p• This innovation created a competitive advantage for

Dell which used its information resources to achieveDell, which used its information resources to achieve high volumes without the high costs of the industry’s traditional distribution channels (see www dell com)traditional distribution channels (see www.dell.com)


EVOLUTION OFEVOLUTION OF INFORMATIONINFORMATION RESOURCESRESOURCES


Information ResourcesInformation Resources• Over the past decades the use of information• Over the past decades the use of information

resources has changed.O i ti h d f “ ffi i• Organizations have moved from an “efficiency model” of the 1960’s to a “value creation model”

f th 2000’of the 2000’s.• Companies seek to utilize those technologies that g

give them competitive advantage.• Maximizing the effectiveness of the firm’sMaximizing the effectiveness of the firm s

business strategy requires the general manager to identify and use information resources.to identify and use information resources.

• Figure 2.1 shows this change.


Primary EfficiencyA

EffectivenessS l bl

StrategicI i di id l

StrategicT f

Value creationC

1960s 1970s 1980s 1990s 2000+

Role of IT Automate existing paper-based processes

Solve problems and create opportunities

Increase individual and group effectiveness

Transform industry/organization

Create collaborative partnerships

Justify IT expenditure

ROI Increasing productivity and decision making

Competitiveposition

Competitiveposition

AddingValue

Target of systems

Organization Individual manager/Group

Businessprocesses

Business processes ecosystem

Customer,supplier,ecosystemy

Information model

Applicationspecific

Data-driven User-driven Business-driven Knowledge-driven

D i t Mainframe Minicomputer Microcomputer Client Server InternetDominant technology

Mainframe-based

Minicomputer-based

Microcomputer “decentralized intelligence”

Client-Server “distribution intelligence”

Internet “ubiquitous intelligence”

Basis of Scarcity Scarcity Scarcity Plentitude PlentitudeBasis of Value

y y y

Underlying economics

Economic of information


Economic of information bundled


Economic of information economics bundled w/

economics of things

bundled w/ economics of things

w/ economics of things

separated f/ economics of things

separated f/ economics of things

Fi 2 1 E f i f ti i i tiCopyright 2006 John Wiley & Sons, Inc. 6

Figure 2.1 Eras of information usage in organizations

INFORMATION RESOURCES AS

STRATEGIC TOOLS


Information ResourcesInformation ResourcesI f ti i d fi d th il bl• Information resources is defined as the available data, technology, and processes available to

f b i d t kperform business processes and tasks.• Relationships between general managers and IS

managers.• Resources available include:Resources available include:

– IS Infrastructure– Information and knowledgeInformation and knowledge– Proprietary technology

Technical skills of IT staff– Technical skills of IT staff– End users of the IS and more.


Advantages or Information gResources

• General managers evaluating an information resource for competitive advantage needs toresource for competitive advantage needs to ask:

What makes the information reso rce al able?– What makes the information resource valuable?– Who appropriates the value created by the

information resource?information resource?– Is the information resource equally distributed across

firms?firms?– Is the information resource highly mobile?

How quickly does the information resource become– How quickly does the information resource become obsolete?


HOW CAN INFORMATION RESOURCES BE USED

STRATEGICALLY?


The Strategic LandscapeThe Strategic Landscape

• Managers confront elements that influence the competitive environmentcompetitive environment.

• Slim tolerance for error.• Managers must take multiple view of the

strategic landscape such as:strategic landscape, such as:– First view - Porter’s five competitive forces model.

S d i P t ’ l h i– Second view - Porter’s value chain.– Third view – focuses on the types of IS resources

needed (Resource Based View).


Using Information Resources to gInfluence Competitive Forces

• Porter’s five forces model show the major forces that shape the competitive environment p pof the firm.

1. Threat of New Entrants: new firms that may enter a companies marketcompanies market.

2. Bargaining Power of Buyers: the ability of buyers to use their market power to decrease a firm’s competitive position

3. Bargaining Power of Suppliers: the ability suppliers of the inputs of a product or service to lower a firm’s competitive position

4. Threat of Substitutes: providers of equivalent or superior alternative products

5. Industry Competitors: current competitors for the same5. Industry Competitors: current competitors for the same product.

• Figure 2.2 and 2.3 show this model in detail.


Figure 2.2 Five competitive forces with potential strategic use of information resources.


Competitive Force IT Influence on Competitive Force

Threat of New Entrants Can be lowered if there are barriers to entry. Sometimes IS can be used to create barriers to entry

Bargaining Power of Buyers Can be high if it’s easy to switch. Switching costs are increased by giving buyers things they value in

h h l t f l i f tiexchange such as lower costs or useful information

Bargaining Power of Suppliers Forces is strongest when there are few firms to choose from quality is inputs is crucial or the volumechoose from, quality is inputs is crucial or the volume of purchases is insignificant to the supplier

Threat of Substitute Products Depends on buyers’ willingness to substitute and the level of switching costs buyer’s face

Industrial Competitors Rivalry is high when it is expensive to leave and industry, the industry’s growth rate is declining, or products have lost differentiation

Figure 2.3 Application of five competitive forces model.


Porter’s Val e Chain ModelPorter’s Value Chain Model

• Value chain model addresses the activities that create deliver and support a company’screate, deliver, and support a company s product or service.

• Two broad categories:– Primary activities – relate directly to the value created Primary activities relate directly to the value created

in a product or service.– Support activities – make it possible for the primarySupport activities make it possible for the primary

activities to exist and remain coordinated.


Altering the Value ChainAltering the Value Chain• The Value Chain model suggest that competition• The Value Chain model suggest that competition

can come from two sources:Lowering the cost to perform an activity and– Lowering the cost to perform an activity and

– Adding value to a product or service so buyers will be willing to pay morebe willing to pay more.

• Lowering costs only achieves competitive d t if th fi i f tiadvantage if the firm possesses information on

the competitor’s costs• Adding value is a strategic advantage if a firm

possesses accurate information regarding its customer such as: which products are valued? Where can improvements be made?


Figure 2.4 Value chain of the firm.


The Val e Chain S stemThe Value Chain System• The value chain model can be extended by

linking many value chains into a value systemlinking many value chains into a value system.• Much of the advantage of supply chain

management comes from understanding howmanagement comes from understanding how information is used within each value chain of the systemthe system.

• This can lead to the formation of entirely new b i d i d t h th i f tibusinesses designed to change the information component of value-added activities. (Figure 2 5)2.5)


Figure 2.5 The value system: interconnecting relationships between organizations.


Activity Grocery Chain’s Value Chain Supplier’ Value Chain

Primary ActivitiesInbound Logistics Analysis of buying patterns suggest

items should be stocked at local stores including amounts and optimum

Analysis of buying patterns can aid grocery chains in better determining demand leading to better forecasting

Primary Activities

Operations

stores, including amounts and optimum delivery timesAutomated checkout can speed ckt. operations; may lead to reduced

demand, leading to better forecasting for both chain and supplierAnalysis of buying patterns can reduce ‘last-minute’ orders and

staffing of registers/ lower operating costs

improve suppliers processing of orders

Outbound logistics Sharing analysis of buying patterns by grocery chain can aid supplier in schedulingSuppliers may be able to offer

Marketing and Sales

Service

Analysis of b. patterns can aid development of promotional strategies/ highlight customer preference Automated checkout lanes shorten

Suppliers may be able to offer economies of scale in its purchases

Sharing analysis of b patterns allowsService Automated checkout lanes shorten customer waiting times

Sharing analysis of b. patterns allows better supplier service

Figure 2.6 Application of Value Chain Model


S d A ti iti

OrganizationShopping card can provide data to help grocery chain plan for trends and

Shopping card can provide data to help supplier plan for trends

Secondary Activities

Organization g y pdemographic changes in its target market.

p pp pand demographic changes in its target market.

Human Resources Staffing needs for cash registers may be reduces with automated checkout

Sh i d id d t fTechnology

Shopping card can provide data for market research

Grocery chain can provide information to help supplier’s marketing research

Purchasing Grocery chain may be able to capture more discounts for volume purchases

Supplier chain may be able to capture more discounts for volume purchasesvolume purchases

Figure 2.6 Application of Value Chain Model (continued)


CRM and the Val e ChainCRM and the Value Chain

• Customer Relationship Management (CRM) is a natural extension of applying the value chainnatural extension of applying the value chain model to customers.

• CRM includes management activities performed to obtain, enhance relationships with, and retain , p ,customers.

• CRM is a coordinated set of activities• CRM is a coordinated set of activities.• CRM can lead to better customer service, which

leads to competitive advantage for the business.


The Resource-Based ViewThe Resource Based View• The Resource-Based View (RBV) looks atThe Resource Based View (RBV) looks at

gaining competitive advantage through the use of information resourcesof information resources.

• Two subsets of information resources have been identified:identified:– Those that enable firms to attain competitive

advantage (rare and valuable resources that are notadvantage (rare and valuable resources that are not common place).Those that enable firms to sustain competitive– Those that enable firms to sustain competitive advantage (resources must be difficult to transfer or relatively immobile).y )


S G C C SSTRATEGIC ALLIANCES


The Value System and Strategic y gAlliances

• Many industries are experiencing the growth of strategic alliances that are directly linked to g ysharing information resources across existing value systems.

• E.g., Delta recently formed an alliance with e-Travel Inc to promote Delta’s inline reservation

tsystem.• This helps reduce Delta’s agency fees while

ff i T l t l doffering e-Travel new corporate leads.• Also, Supply Chain Management (SCM) is

th t f IT f ilit t d t t i llianother type of IT-facilitated strategic alliance.


Types of Strategic AlliancesTypes of Strategic Alliances• Supply Chain Management: improves the way a

company finds raw components that it needs to p y pmake a product or service.– Technology, especially Web-based, allows the supply chain of a gy p y pp y

company’s customers and suppliers to be linked through a single network that optimizes costs and opportunities for all companies in the supply chainin the supply chain

– Wal-Mart and Proctor & Gamble.

• Co-opetition: a new strategy wherebyCo opetition: a new strategy whereby companies cooperate and compete at the same time with companies in their value nettime with companies in their value net– Covisint and General Motors, Ford, and DaimlerChrysler.


RISKSRISKS


Potential Risksote t a s s• There are many potential risks that a firm faces when

tt ti t IT t t th i titiattempting to use IT to outpace their competition. • Executives should be aware of these risks before they

surfacesurface.• They are:

– Awakening a sleeping giant – a large competitor with deeper a e g a s eep g g a t a a ge co pet to t deepepockets may be nudged into implementing IS with even better features

– Demonstrating bad timing – sometimes customers are notDemonstrating bad timing sometimes customers are not ready to use the technology designed to gain strategic advantage

– Implementing IS poorly – information systems that fail because– Implementing IS poorly – information systems that fail because they are poorly implemented

– Failing to deliver what users what – systems that don’t meet the firm’s target market likely to failthe firm s target market likely to fail

– Running afoul of the law – Using IS strategically may promote litigation


FOOD FOR THOUGHT:FOOD FOR THOUGHT: TIME-BASEDTIME BASED

COMPETITIVECOMPETITIVE ADVANTAGE


Time-based CompetitiveTime based Competitive Advantageg

• The 21st Century will see organizations increasingly seeking to use technology to neutralize the competitionseeking to use technology to neutralize the competition as quickly as possible.

• Reaching individual customers and meeting their needsReaching individual customers and meeting their needs as close to instantaneously as possible will leave no room for competitive actions to change the customer’s mindmind

• Typical planning cycles are thrown out the window because the organization needs to respond quickly tobecause the organization needs to respond quickly to customer, competitor and environmental changes.

• Some firms, like Dell, have embraced this opportunity.


SUMMARYSUMMARY


S mmarSummary• Using IS for strategic advantage requires more

than just knowing the technologythan just knowing the technology.• Remember that not just the local competition is a

f t i b t th 5 titi ffactor in success but the 5 competitive forces model reminds us of other issues.

• Value chain analysis show us how IS add value to the primary activity of a businessto the primary activity of a business.

• Know the risks associated with using IS to gain strategic advantage.


Chapter 3Organizational Impacts of Information System UseManaging and Using Information Systems: A

Strategic Approach


Introd ctionIntroduction• How does the use of information technology

impact the organization?p g• What type of organizational structure tends to be

most willing to embrace technological change g g gand sophistication? Why?

• What are the advantages and disadvantages of g gthe networked organizational structure?

• How has IT changed the way managers monitor g y gand evaluate?

• Are virtual organizations just a passing fad? g j p g• What challenges are faced by virtual team?


INFORMATION AGEINFORMATION AGE ORGANIZATIONS

Key CharacteristicsKey Characteristics• 1988 three professors at Harvard Business1988 three professors at Harvard Business

School predicted what would be key characteristics of information age organizationscharacteristics of information age organizations.

• Their predictions were close to what happened.Th di ti b l t d t th• These predictions can be related to three categories (Figure 3.2):– Organizational structure.– Human resources.– Management processes.

• Information age organizations use a differentInformation age organizations use a different organization structures.


Variable DescriptionOrganizational variablesg

Decision rights Authority to initiate, approve, implement, and control various types of decisions necessary to plan and run the business.

Business processes The set of ordered tasks needed to complete key objectives of the business.p p y j

Formal reporting relationships

The structure set up to ensure coordination among all units within the organization.

Informal networks Mechanism such as ad hoc groups which work to coordinate and transferInformal networks Mechanism, such as ad hoc groups, which work to coordinate and transfer information outside the formal reporting relationships.

Control variables

Data The information collected, stored, and used by the organization.

Planning The processes by which future direction is established, communicated, and implemented.

Performance measurement and evaluation

The set of measures that are used to assess success in the execution of plans and the processes by which such measures are used to improve the quality of work.

I ti Th t d t d i d t ti t b h i ithiIncentives The monetary and non-monetary devices used to motivate behavior within an organization.

Cultural variablesValues The set of implicit and explicit beliefs that underlie decisions made and actions

taken.

Figure 3 1 Organizational design variablesCopyright 2006 John Wiley & Sons, Inc. 5

Figure 3.1 Organizational design variables.

Dimension CharacteristicsOrganizational Structure Companies have benefits of small and large scale

simultaneously.Lg. organizations adopt flexible/dynamic structureg g p yCentralized/decentralized control blurFocus on projects/process vs. tasks/procedures

Human Resources Workers better trained, autonomous, transientWork environment exciting, engagingManagement shared, rotated, even part-timeg , , pJob descriptions tied to defined tasks non-existentCompensation tied directly to contribution

Management Processes Decision-making is well understoodControl separated from reporting relationshipsComputers support creativity at all levelsp pp yIS retain corp. history, experience, expertise

Fi 3 2 K h t i ti f th I f ti A i tiFigure 3.2 Key characteristics for the Information Age organization


INFORMATION TECHNOLOGYINFORMATION TECHNOLOGY AND ORGANIZATIONALAND ORGANIZATIONAL

DESIGN


IT & Organizational StructuresIT & Organizational Structures• Traditional organizations are hierarchical, flat or matrix in

design (Fig. 3.3). I hi hi l iddl t ll b di t• In hierarchical orgs. middle managers tell subordinates what to do and tell superiors the outcomes. IS supports this hierarchythis hierarchy.

• In flat structured orgs. work is more flexible and employee do whatever is needed IS allows offloadingemployee do whatever is needed. IS allows offloading extra work and supports intra-firm communications.

• In matrix organizations work is organized into small workIn matrix organizations, work is organized into small work groups and integrated regionally and nationally/globally.– IS reduces operating complexes and expenses by allowing p g p p y g

information to be easily shared among different managerial functions.


Figure 3.3 Hierarchical, flat, and matrix organization structures.


Hierarchical Organizational StructureHierarchical Organizational Structure

B d th t f di i i f l b• Based on the concepts of division of labor, specialization, and unity of command

• Key decisions are made at the top and filter down through the organizationdown through the organization

• Middle managers do the primary information processing and communication function

• IS is typically used to store and communicateIS is typically used to store and communicate information along the lines of the hierarchy and to support the info management functionand to support the info management function of the managers


Flat Organizational StructureFlat Organizational Structure

• Decision making is centralized• Decision-making is centralized• As everyone does whatever needs to be

d th d i kl t d idone, they can respond quickly to dynamic, uncertain environments

• However, this organizational structure often becomes less flexible as the org. growsg g

• Routine IS work is often off-loaded but, as a hierarchy develops, becomes the ‘glue’ tyinghierarchy develops, becomes the glue tying parts of the organization that would not otherwise communicateotherwise communicate


Matrix Organizational StructureMatrix Organizational Structure

Thi t i ll i k ith t• This typically assigns workers with two or more supervisors in an effort to make sure

lti l di i f th b imultiple dimensions of the business are integrated, with each supervisor directing a diff t t f th l ’ kdifferent aspect of the employee’s work.

• Matrix organizations often fail to enable managers to achieve their business strategies because of the inability to cope with increased information processing demands


Networked Organizational StructureNetworked Organizational Structure• “Rigid hierarchies are replaced by formal and• Rigid hierarchies are replaced by formal and

informal communication networks that connect all parts of the company ”all parts of the company.”

• Defined by their ability to promote creativity and y y p yflexibility while maintaining operational process control, which is achieved by substitutingcontrol, which is achieved by substituting hierarchical controls with controls based on ISE t i f i ti t h l i• Extensive use of communication technologies and networks also makes it easier to coordinate across functional boundaries


Hierarchical Flat Matrix NetworkedDescription Bureaucratic w/ Decision making Workers assigned Formal/informalDescription Bureaucratic w/

defined levels of management

Decision-making pushed down to lowest level

Workers assigned to 2 or more supervisors

Formal/informal communication networks that connect all

Characteristics Division of labor specialization, unity of command

Informal roles, planning and control; often

Dual reporting based on function/purpose

Known for flexibility and adaptability

Type of Environment Best

Stable

sm.,young orgs.

Unstable Unstable UnstableEnvironment Best Supported

Basis of

Certain

Primary function

Uncertain Uncertain

Functions and

Uncertain

NetworksBasis of Structuring

Power Structure Centralized

Primary function

Centralized

purpose

Distributed Distributed

Key Tech. Supporting this

Mainframe, centralized data

d i

Personal computers

Networks Intranets and Internet

and processing

Figure 3.4 Comparison of Organizational Structures


g p g

Figure 3.5 The networked organization.


T-Form OrganizationT Form Organization• T form (“technology based”) organizations• T-form ( technology-based ) organizations

take the networked structure one step further by combining IT with traditional componentsby combining IT with traditional components to form new types of components

• These include electronic linking production• These include electronic linking, production automation, electronic workflows, electronic customer/supplier relationships and self-customer/supplier relationships and selfservice Internet portals

• Work is often coordinated electronically, whileWork is often coordinated electronically, while systems enable information to more easily move around the organization, and gdecentralizing decision-making


INFORMATION TECHNOLOGYINFORMATION TECHNOLOGY AND MANAGEMENTAND MANAGEMENT CONTROL SYSTEMSCONTROL SYSTEMS


Management Controlg• IT profoundly affects the way managers controlIT profoundly affects the way managers control

their organizations.• People and processes are monitored in waysPeople and processes are monitored in ways

that were not possible only a decade ago.• The activities of management control areThe activities of management control are

summarized in figure 3.6• Depending upon the organizational structure willDepending upon the organizational structure will

determine the level of control that a manager must exercise over their employees.p y

• IS play three important roles in management control processesp– Collection, Communication, and Evaluation.


Control Activities Brief Definition

Monitoring Observing and keeping track of the progress, quality, cost, time and other relevant parameters

Evaluating Comparing the data collected through monitoring to standards or historical data.

Providing Feedback Communicating the results of evaluation to the individuals responsible for the activities and tasks.

Compensating Deciding on salary or other forms of payment to those individuals who preformed the tasksindividuals who preformed the tasks.

Rewarding Deciding and delivering bonuses, recognition, or other t f i f l ktypes of prize for exemplary work.

Figure 3.6 Model of management control activities.


IT Changes Management g gFunctions

• IT changes the way managers:– Monitor: IS makes possible new ways to track– Monitor: IS makes possible new ways to track

performance and behavior– Evaluate: models are easily built making it easier toEvaluate: models are easily built, making it easier to

understand progress and performance– Provide Feedback: IS makes rapid feedbackProvide Feedback: IS makes rapid feedback

possible (e.g., through electronic forms)– Compensate & Reward: team-based efforts can be p

evaluated and complex formulas used– Control Processes: IS also used extensively in y

industrial processes, and makes it easier to collect, analyze and move information


VIRTUAL ORGANIZATIONSVIRTUAL ORGANIZATIONS


Virtual OrganizationsVirtual Organizations

• IT has made it possible for an individual to• IT has made it possible for an individual to work for an organization and live anywhere

• Virtual organization structure is “networked”. – Extensive collaboration takes place electronicallyExtensive collaboration takes place electronically

(e-mail).• Managers in a virtual environment monitor• Managers in a virtual environment monitor

results, not progress• Forms are electronic, tech. support through a

web interface• Business processes are designed differently.


Virtual TeamsVirtual Teams• Virtual Teams are geographically and/or

organizationally dispersed coworkers assembled usingorganizationally dispersed coworkers assembled using telecommunications and IT to accomplish an organizational task.

• Several reasons explain their growing popularity:– As information needs mushroom, firms rely on the skills and

knowledge of individuals dispersed across countries/timeknowledge of individuals dispersed across countries/time zones, etc

– Enhanced bandwidths promote the use of networks linking individuals internal and external to the organizationindividuals, internal and external to the organization

– Technology (group support systems, groupware, etc) is available to assist collaboration

– Difficulties in getting relevant stakeholders together physically are relaxed

– Growing pressures for off-shoring has resulted in systemsGrowing pressures for off shoring has resulted in systems development by global virtual teams whose members are located around the world.


Challenges Virtual Teams Traditional TeamsC i ti M lti l Z l d t t T ll t d iCommunications Multiple Zones can lead to greater

efficiency but can lead to communication difficulties.

Teams are collocated in same time zone. Scheduling is less difficult.

Communication dynamics such as non-verbal are altered.

Teams may use richer communication media.

Technology Team members must have Technology is not critical and toolsTechnology Team members must have proficiency across a wide range of technologies.

Technology is not critical and tools not essential for communications.

Technology offers electronic Electronic repositories are notTechnology offers electronic repository.

Electronic repositories are not typically used.

Work group effectiveness may be d d t li t f

Task technology fit may not be as iti lmore dependent on alignment of

group & technologies used.critical.

Team Diversity Members typically come from Because members are more ydifferent organizations and/or cultures which makes it:

homogeneous, group identity is easier to form.

-Harder to establish a group identity. Because of commonalities,g p y-Necessary to have better com. skills-More difficult to build trust, norms …

Because of commonalities, communications are easier to complete successfully.

Fi 3 7 C i f h ll f i i t l d t diti l tCopyright 2006 John Wiley & Sons, Inc. 24

Figure 3.7 Comparison of challenges facing virtual and traditional teams.

FOOD FOR THOUGHT:FOOD FOR THOUGHT: IMMEDIATELY RESPONSIVEIMMEDIATELY RESPONSIVE

ORGANIZATIONSORGANIZATIONS


Immediate Responsive Organizations

To accomplish the goal of instant “customization”, an organization must master five disciplines:an organization must master five disciplines:

1. Instant value alignment – ready to provide exactly what the customer wants

2. Instant learning –building learning directly into the company’s tasks and processes

3. Instant involvement – using IT to ensure that everyone is ready to deliver products, services, etc

4 I t t d t ti ti th lt t t thi4. Instant adaptation – creating the culture to support this5. Instant execution – During It to cut cycle times to appear

instant to the customerinstant to the customer


SUMMARYSUMMARY


SummarySummary• IS must be a key component of organizational designIS must be a key component of organizational design.• Organizational designers must have an understanding of

what IS can do.• The flow of information can inhibit or facilitate organization

structures.Vi t l d t k d i ti i i i d• Virtual and networked organizations are rising in use and are replacing older legacy structures.

• IT affects managerial control mechanisms and managers• IT affects managerial control mechanisms and managers must ensure that these controls are in place.

• Virtual organizations make it possible for employees to live g p p yanywhere.

• Virtual Teams are increasing in frequency and the h ll th t th t b dd dchallenges that they pose must be addressed.


Chapter 4Chapter 4Information TechnologyInformation Technology and the Design of Workand the Design of Work

Managing and Using Information Systems: A Managing and Using Information Systems: A Strategic Approach

b K i P l & C l S dby Keri Pearlson & Carol Saunders

Introd ctionIntroduction• How can the automation of work lower morale

and job satisfaction?and job satisfaction?• How can management help to prevent or at least

minimize this impact?minimize this impact?• What is a job design framework?• How does IT change the way work is done and

where it is done?• Discuss the advantages and disadvantages of

telecommuting?telecommuting?


JOB DESIGN FRAMEWORK


JOB DESIGN FRAMEWORKJOB DESIGN FRAMEWORK• A simple framework can be used to assessA simple framework can be used to assess

how emerging technologies may affect work.Thi f k i f l i d i i k• This framework is useful in designing key characteristics of jobs by asking key questions (see figure 4.1). Such as:– What tasks will be performed?p– How will the work be performed?– Who will do the work?– Who will do the work?– Where will the work be performed?

H IS i f ti f ti d– How can IS increase performance, satisfaction and effectiveness of the workers doing the work?


Figure 4.1 Framework for job design impacts.


HOW INFORMATION TECHNOLOGY CHANGES THE NATURE OF WORKTHE NATURE OF WORK

Creating New Types of WorkCreating New Types of Work• IT has created many new jobs or types of work.IT has created many new jobs or types of work.• Examples of newly created jobs now common in

traditional organizations include: g– Knowledge managers – Systems analysts – Database and network administrators– Webmasters and web site designers

IT S it f i l d– IT Security professionals, and more.• It has changed not only the organizational decision-

making process the information used in makingmaking process, the information used in making decisions, plus the amount and type of information available to workers.

• The ITAA places the number of IT workers at 10.5 million in 2004.


New Ways to do Traditional WorkNew Ways to do Traditional Work• Many traditional tasks are now done byMany traditional tasks are now done by

computers, while many work processes have been greatly changed by the introduction of ITbeen greatly changed by the introduction of IT

• Communication patterns have also changed, workers now use mobile devices to send andworkers now use mobile devices to send and receive messages and tap into databases, greatly affecting sales and service tasksaffecting sales and service tasks.

• The cost and time needed to access information i d ti ll l i i k t lis dramatically lower, giving workers new tools.

• Work has become much more team oriented - an effect amplified by the Internet.


New Challenges in IT HR ManagementNew Challenges in IT HR Management

• Organizations face the challenge of managing• Organizations face the challenge of managing a work force that is no longer in a single locationlocation.

• Work is more team oriented, making it more diffi lt t i di id l t ib tidifficult to assess individual contributions.

• One solution is to use electronic employee ymonitoring systems automating supervision, but possibly hurting morale and undermining p y g gefforts encourage workers to contribute their ideas to the organization.g


Traditional Approach: Subjective Observation

Newer Approach; Objective Assessment

Supervision Personal. Manager is usually present or relies on others to ensure that employee is present

Electronic, or assessed by deliverable. As long as the employee is producing value, he

and productive. does not need formal supervisions

Evaluation Focus is on process through Focus is on output by deliverableEvaluation Focus is on process through direct observation. Manager sees how employee performed at work. Subjective (personal) factors are

Focus is on output by deliverable or by target. As long as deliverables are produced and/or targets achieved the employee isSubjective (personal) factors are

very important.targets achieved, the employee is meeting performance expectations adequately.

C ti Oft i di id ll b d Oft t b d t t llCompensation and Rewards

Often individually-based. Often team-based or contractually spelled out

Hiring Personal with little reliance on Often electronic with recruiting computers. Often more reliance on clerical skills

websites and electronic testing. More informated work that requires a higher level of IT skills.

Figure 4.2. Changes to supervision, evaluation, compensation, and hiring


Work It creates millions of new jobs, some in

W ki

j ,entirely new industries.

M k i t i t d bl d bWorking Arrangements

More work is team-oriented, enabled by communications and collaboration technologies. Geographic constraints of g g psome professions are eliminated, enabling telecommuting.

Human ResourcesNew strategies are need to supervise,evaluate, and compensate remotely , p yperformed, team-oriented work. ITrequires new skills workers often lack.

Fig. 4.3 Summary of IT’s Effects on Employee Life


HOW INFORMATIONHOW INFORMATION TECHNOLOGY CHANGESTECHNOLOGY CHANGES WHERE WORK IS DONEWHERE WORK IS DONE


The Growth of TelecommutingThe Growth of Telecommuting• Telecommuting has gained popularity since the

late 1990s because:– It lowers corporate overhead. Telecommuting workers

don’t take up office space, lowering facilities costs– Workers who are giving increased flexibility are more

productive and express higher levels of job satisfaction

2/3’ f Ci l i ll k f• 2/3’s of Cisco employees occasionally work from home. – This has saved them $1M in overhead and increased

productivity by 25%, as workers prefer to set their h d l d k i f t blown schedules and work in more comfortable

surroundings.


Enabling Factors for TelecommutingEnabling Factors for Telecommuting

Th f t t th th f t l ti• Three factors support the growth of telecommuting growth (Figure 4.4):– Work is increasingly knowledge-based so workers

don’t need to be “at work” to do their jobs.– Telecommuting enables workers to shift their work to

accommodate their lifestyles, esp. parenting or living in locations far from the office.

– More powerful PCs + cheap, high speed telecom (ADSL, cable modem) mean telecommuters can connect to corporate network efficiently.


Driver Effect:Shift to knowledge-based work

Eliminates need that some work be done in a specific pplace

Changing demographics and lifestyle preferences

Provide workers with geographic and time-and lifestyle preferences geographic and timeshifting flexibility

New technologies Make remotely performed work practical and costg work practical and cost-effective

Figure 4.4 Driving factors of telecommuting


New Technologies SupportingNew Technologies Supporting Telecommuting & Mobile Workg

• Sales and service personnel can now quote p qorders at point of sale, improving customer satisfaction, reducing sales cycle time and , g ycutting costs.

• Roles changing due to heavy use of fourRoles changing due to heavy use of four technologies: laptops, PDAs, handheld terminals and mobile phones (See Figure 4 5)terminals and mobile phones (See Figure 4.5).

• High quality laptops are the most important and widely used of all mobile work technologieswidely used of all mobile work technologies.


Disadvantages of TelecommutingDisadvantages of Telecommuting and Mobile Work

• More difficult for managers to evaluate and t fcompensate performance

• Workers must be extremely self-disciplinedy p• Can disconnect them from corporate culture

L b i liti i t b t• Labor unions, politicians, etc., worry about foreign outsourcing of software development and computer services enabled by the same technologies g


Technology Used By ImpactsTechnology Used By ImpactsLaptop computers

Professionals, particularly consultants and salespeople

Eliminate constraints of travel. Enables workers to

PDAs Mostly professionals, but gaining mass acceptance

be productive anywhereProvides a low-cost, simple way of organizing

Handheld

gaining mass acceptance

Service professionals,

way of organizing information and data

Handheld terminals

Service professionals, particularly delivery, technical support, and service and repair technicians

Enhances productivity and adds capabilities and real-time communication

Portable phones

repair technicians

Any worker who travels during

time communication

Allows immediate voice y ghis or her work routine communication

(and sometimes data)

Figure 4.5 Key technologies in redesigning work


Employee Advantages of Potential ProblemsTelecommutingReduced stress due to increased ability to meet schedules heightened

Harder to evaluate performance, Increased stress from inability toability to meet schedules, heightened

morale, and lower absenteeism Increased stress from inability to separate work from home life

Geographic flexibility Employee may become disconnected from company culture

Higher personal productivity Telecommuters are more easily replaced by electronic immigrants

Housebound individuals can join the

replaced by electronic immigrants

Not suitable for all jobs or employees jworkforce

Figure 4.6 Advantages and disadvantages of telecommuting


Managerial Issues In a age a ssuesTelecommuting and Mobile Work

• Planning, business and support tasks must g ppbe redesigned to support mobile and remote workersworkers

• Training should be offered so all workers can d t d th k i tunderstand the new work environment

• Employees selected for telecommuting jobs p y g jmust be self-starters


INFORMATION SYSTEMS ENABLE MOREENABLE MORE GROUP WORKGROUP WORK

Groupware and Electronic Collaboration

• Groupware tools such as Lotus Notes, and technologies such as video conferencingtechnologies, such as video conferencing have made it cost-effective for distant workers t t dit d h l t ito create, edit and share electronic documents and processes.

• Collaboration adds value to many types of tasks particularly those that benefit from antasks, particularly those that benefit from an exchange of ideas.


Whirlpool’s Product DesignWhirlpool s Product Design Management (PDM) systemg ( ) y

• PDM unites design teams electronically using aPDM unites design teams electronically using a central data repository.E i d th ld ll b t li• Engineers around the world collaborate online to create several basic designs using PDM.

• Each region then customizes generic design for local use.for local use.

• PDM halves design time, saves money and b i d t t k t i klbrings products to market more quickly.


F d M t CFord Motor Company

• Ford now develops cars for world markets by electronically linking design and engineering centers via videoconferencing and corporate g pintranets.

• Faster more efficient communication allows• Faster more efficient communication allows Ford to design and produce cars in less time.


GAINING ACCEPTANCEGAINING ACCEPTANCE FOR IT-INDUCED CHANGEFOR IT INDUCED CHANGE

Gaining acceptance for g pIT-induced Change

• To avoid resistance to change, system implementers and managers must activelyimplementers and managers must actively manage the change process

• The Technology Acceptance Model (TAM) (Figure 4.7) suggests that employee attitudes ( g ) gg p ymay change if they think the new system will help them to do more or better work for thehelp them to do more or better work for the same effort, and that it’s easy to use.E l ti i ti i th t ’ d i• Employee participation in the system’s design and implementation also helps.


Perceived Usefulness

B h i l A lExternalVariables

Attitude Toward

Using

Behavioral Intention

to Use

ActualSystem

Use

Perceived Ease of Use

Figure 4.7 Technology Acceptance Model


FOOD FOR THOUGHTFOOD FOR THOUGHT: THE PRODUCTIVITYTHE PRODUCTIVITY

PARADOXPARADOX

Does IS/IT Investment ImproveDoes IS/IT Investment Improve Worker Productivity?

• Some researchers argue ongoing costs outweigh productivity gainsoutweigh productivity gains

• Other research suggests employee productivity is risingproductivity is rising

• Some argue the measurement of productivity i fl d f il t t i iis flawed; e.g., fails to capture gains in service.

• Recent research suggests that heavy investment in IT is finally paying off.y p y g


SUMMARYSUMMARY

S mmarSummary• Technology has played a major role in

transforming the way work is donetransforming the way work is done.• Individuals must become comfortable with new

technologies to stay marketabletechnologies to stay marketable.• Managers must be sensitive to employees as

t h l i ll d tnew technologies are rolled out.• Telecommuting is a reality and many g y y

corporations have a percentage of their workforce involved in this practice.p


Ch t 5Chapter 5I f ti T h lInformation Technology

d Ch i B iand Changing Business ProcessesProcesses

Managing and Using Information Systems: A Strategic Approach


Copyright 2006 John Wiley & Sons, Inc.

IntroductionIntroduction• How can IT enable business change?How can IT enable business change?

– Think of several examples.• How can IT impede business change?• What problems are caused by the• What problems are caused by the

functional (silo) perspective of a business?• The process perspective keeps the big

picture in view. How can IT help with this p ctu e e o ca e p t t smanagement style?Ho are TQM and BPR sed to transform• How are TQM and BPR used to transform a business?


SILO PERSPECTIVESILO PERSPECTIVE VERSESVERSES

BUSINESS PROCESSBUSINESS PROCESS PERSPECTIVE


Silo (Functional) PerspectiveSilo (Functional) Perspective• The silo perspective views the business asThe silo perspective views the business as

discrete functions (accounting, sales, production, etc.). Figure 5.1 shows a traditional org chart etc.). Figure 5.1 shows a traditional org chart which is how a functional business is organized.

• Each functional area determines its coreEach functional area determines its core competencies and focuses on what it does best.

• Advantages:Advantages:– Allows optimization of expertise.– Group like functions together for learning.p g g

• Disadvantages:– Significant sub-optimization.Significant sub optimization.– Tend to lose sight of overall organizational objectives.


Figure 5.1 Hierarchical Structure


Process PerspectiveProcess PerspectiveK th bi i t i i• Keeps the big picture in view.

• Focuses on work being done to create optimal l f th b ivalue for the business.

• Advantages:– Helps avoid or reduce duplicate work.– Facilitate cross-functional communication.– Optimize business processes.

• Figure 5.2 shows a typical procurement process.• Figure 5.3 shows the cross-functional view of

processes as they cross departments (f i )(functions).


Figure 5.2 – Sample business processg p p


Figure 5.3 Cross-functional nature of business processes


Process Perspective (continued)Process Perspective (continued)

• When managers gain the process perspectiveWhen managers gain the process perspective they begin to lead their organizations to change.Q ti t t• Question status quo.

• Don’t accept “because we have always done it p ythat way” as an answer to why business is done in a particular way.a particular way.

• Allows managers to analyze business’s processes i li ht f l lin light of larger goals.

• Figure 5.4 summarizes the silo and process g pviews.


Silo Perspective Business Process Perspective

D fi iti S lf t i d f ti l it I t l t d ti l tDefinition Self-contained functional units such as marketing, operations, finance, and so on

Interrelated, sequential set of activities and tasks that turns inputs into outputs

Focus Functional Cross-functional

Goal Optimizes on functional goals, Optimizes on organizational Accomplishment which might be a suboptimal

organizational goal.goals, or “big picture”

Benefits Highlighting and developing core Avoiding work duplication Benefits g g g p gcompetencies; Functional efficiencies

g pand cross-functional communication gaps; organizational effectiveness

Figure 5.4 Comparison of Silo Perspective and

g

Business Process Perspective


OO S O C GTHE TOOLS FOR CHANGE


TQMTQM

• Total Quality Management (TQM) is a tool f h th t ll i t lfor change that uses small incremental changes.g

• Personnel often react favorably to TQM.• Greater personnel control and ownership.

Change is viewed as less of a threat• Change is viewed as less of a threat.• Six-Sigma is one popular approach toSix Sigma is one popular approach to

TQM


BPRBPRB i P R i i (BPR) i• Business Process Reengineering (BPR) is a more “radical” change management tool.

• Attain aggressive improvement goals.• Goal is to make a rapid, breakthrough impact on Goa s o a e a ap d, b ea oug pac o

key metrics.• Figure 5 6 shows the difference over time of the• Figure 5.6 shows the difference over time of the

radical (BPR) and incremental (TQM) approaches to changeapproaches to change.

• Greater resistance by personnel.• Use only when radical change is needed.


Figure 5 5 Comparison of radical and incremental improvementFigure 5.5 Comparison of radical and incremental improvement


The Process for Radical RedesignThe Process for Radical Redesign• The different approaches for radical redesign all pp g

include:– Begin with a vision of which performance metrics bestBegin with a vision of which performance metrics best

reflect the success of overall business strategy.– Make changes to the existing process.g g p– Measure the results using the predetermined metrics.

• Figure 5 6 illustrates a general view of radicalFigure 5.6 illustrates a general view of radical design.

• Figure 5 7 illustrates a method for redesigning a• Figure 5.7 illustrates a method for redesigning a business process.

• Tool used to understand a business process is a workflow diagram.


Figure 5.6 – Conceptual flow of process design


Figure 5.7 – Method for redesigning a business process


Risks of Radical RedesignRisks of Radical Redesign

• Difficult to manage the process.– Manager needs a strong set of skills.

• Insuring acceptance of the new process• Insuring acceptance of the new process.• Transformation champion needed.p• Clear and well thought out plan.• Risk of failure of the new process.


INTEGRATED SUPPLY CHAINS


Integrated S ppl ChainsIntegrated Supply Chains

• Processes linked across companies.• Supply chain begins with raw materials

and ends with a product/serviceand ends with a product/service.• Globalization of business and ubiquity of

communication networks permits use of suppliers from anywheresuppliers from anywhere.

• Requires coordination among partners of q g pthe integrated supply chain.


Integrated Supply Chain ( ti d)Integrated Supply Chain (continued)

Ch ll i l d• Challenges include:– Information integration.g– Synchronized planning.

Workflow coordination– Workflow coordination.• Leads to new business models.

– For example when banks link up to businesses new financial services are offeredbusinesses new financial services are offered such as on-line payments.

– Companies list needs and vendors– Companies list needs and vendors electronically bid to be the supplier.


ENTERPRISE SYSTEMS


Enterprise S stemsEnterprise Systems• A set of information systems tools used to• A set of information systems tools used to

enable information flow within and between processesprocesses.

• Enterprise systems are comprehensive software packagespackages.

• ERP (Enterprise Resource Planning) software packages are the most frequently discussedpackages are the most frequently discussed type of enterprise system.

• Designed to manage the potentially hundreds of• Designed to manage the potentially hundreds of systems throughout a large organization.

• SAP is the most widely used ERP software• SAP is the most widely used ERP software package.


Characteristics of Enterprise pSystems

• Integration – seamlessly integrate information flows throughout the companyflows throughout the company.

• Packages – they are commercial packages purchased from software vendors (like SAPpurchased from software vendors (like SAP, Oracle, Peoplesoft, etc.).

• Best practices reflect industry best practices• Best practices – reflect industry best practices.• Some assembly required – the systems need to

be integrated with the existing hardware OS’sbe integrated with the existing hardware, OS s, databases, and telecommunications.

• Evolving the systems continue to change to fit• Evolving – the systems continue to change to fit the needs of the diverse marketplace.


Benefits and Disadvantages of gEnterprise Systems

• Benefits:– All modules easily communicate together– All modules easily communicate together.– Useful tools for centralizing operations and decision

makingmaking.– Can reinforce the use of standard procedures.

• Disadvantages:• Disadvantages:– Implementation is an enormous amount of work.

M t i l l f d i i b i– Most require some level of redesigning business processes.H ft i t ( ld it )– Hefty price tag (sold as a suite).

– They are risky.


The Adoption DecisionThe Adoption Decision• Sometimes it is appropriate to let the enterprise

system drive business process redesign.– When just starting out.– When organizational processes not relied upon for

strategic advantage.When current systems are in crisis– When current systems are in crisis.

• Sometimes it is inappropriate to let the enterprise system drive business processenterprise system drive business process redesign.

When changing an organizations processes that are– When changing an organizations processes that are relied upon for strategic advantage.

– When the package does not fit the organization.p g g– When there is a lack of top management support.


FOOD FOR THOUGHTFOOD FOR THOUGHT: THE RISKS OF RADICALTHE RISKS OF RADICAL

REDESIGN ALONEREDESIGN ALONE


Risks of Radical RedesignRisks of Radical Redesign

• Research shows some of the common reasons why companies fail to reach their goals:why companies fail to reach their goals:– Lack of senior management support.– Lack of coherent communications.– Introducing unnecessary complexity.g y y– Underestimating the amount of effort needed.– Combining reengineering with downsizingCombining reengineering with downsizing.

• Hammer argues that radical redesign is often di t t d i f fi li t d 5distorted in one of five ways as listed on page 5-19.


Real World ExamplesReal World Examples• Cigna needed to radically improve operational efficiency due to the

following factorsfollowing factors.– Income had fallen 11%.– Exceeded market costs of other companies.

S i d i i i i l– Sagging productivity in crucial areas.• IT investments were not supporting the strategic direction of the

company and sophisticated new applications were being layered on top of existing organizations and processes.

• Cigna decided to initiate a program to radically redesign the company’s operating processes in key areas.p g p y

• Successes were replicated to other areas and the company realized savings of more than $100 million from more than 20 reengineering initiatives.initiatives.– Operating expenses reduced by up to 42%.– Cycle time improvements of 100%

Customer satisfaction increased 50%– Customer satisfaction increased 50%– Quality improvements of 75%


SUMMARYSUMMARY


SummarySummary

• IS can enable or impede business change.• You must look at business process to• You must look at business process to

understand the rule IS plays in business transformationtransformation.

• TQM or BRP are normally used to make h t b ichanges to business processes.

• ERP systems can be used to affect yorganizational transformation.

• Information systems are useful tools to bothInformation systems are useful tools to both enable and manage business transformation.


Chapter 6Chapter 6Architecture andArchitecture and

InfrastructureInfrastructureManaging and Using Information Systems: A

Strategic Approach



Introd ctionIntroduction

• What is the architecture of an i ti ?organization?

• What is the infrastructure of anWhat is the infrastructure of an organization?

• How should a manager influence a companies architecture and infrastructure?companies architecture and infrastructure?

• How does a company move from p yarchitecture to infrastructure?


Real World Examplesp• In 1998 People’s Bank decided that its existing

IT hit t li itiIT architecture was limiting.• They needed seamless links to external partners

f t f l ti d t t ffor support of real-time data transfer.• They developed a new 4-tier architecture that

d i b O t b 2000was up and running by October 2000 – Figure 6.1 shows this 4-tier architecture.

B fit• Benefits –– The ability to introduce new services more rapidly at

lower costs and improved operational efficiency inlower costs, and improved operational efficiency in many areas.

– Also cut customer response time 30% and savedAlso, cut customer response time 30% and saved more than $100,000 on desktop administration.


About InfrastructureInfrastructureArchitecture

The first (client) tier is composed of web browsers serving as the interface for customers and employees

ClientPeople’s

Bank Customers

Call CenterRepre-

sentatives

Tellers atBranches

In the second tier, IBM WebSphereApplication Server, Advanced Edition, serves as the Web

employeesCustomers sentatives

In the third tier transactionServers

,application server.Web and

ApplicationTier 2

Web Servers

In the third tier, transaction processing control is built around IBM WebSphere Application Server, Enterprise Edition. The architecture is integrated with

Servers

3rd Party Tier 3

The tier 3 servers and legacy Legacy

architecture is integrated with external data sources via TCP/IP sockets

yData Sources Web Servers

g ysystems communicate through message broker hub. Unisys mainframe runs core banking systems, while IBM S/390 runs

Legacy Systems

IBMS/390

Client ServerApplications

UnisysMainframe systems, while IBM S/390 runs

general ledger, payroll and HR systems.

Figure 6 1 Architecture/Infrastructure of People’s BankCopyright 2006 John Wiley & Sons, Inc.

Figure 6.1 Architecture/Infrastructure of People s Bank

FROM VISIONFROM VISIONTOTO

IMPLEMENTATION


From Vision to ImplementationFrom Vision to Implementation• Architecture translates strategy into

infrastructure (see Figure 6.2).( g )• The architect develops plans based on a vision

of the customer of the system (or in this example y ( pa house) which is a blueprint of the companies systems.

• This “blueprint” is used for translating business strategy into a plan for IS.

• The IT infrastructure is everything that supports the flow and processing of information (h d ft d t d t k )(hardware, software, data, and networks).


Figure 6.2 From abstract to concrete – building vs. IT.


The Manager’s RoleThe Manager’s Role

• Must understand what to expect from IT hit t d i f t tarchitecture and infrastructure.

• Must clearly communicate their businessMust clearly communicate their business vision.

• May need to modify the plans if IT cannot realistically support themrealistically support them.

• Manager MUST be involved in the gdecision making process.


THE LEAP FROMTHE LEAP FROM STRATEGY TOSTRATEGY TO

ARCHITECTURE TOARCHITECTURE TO INFRASTRUCTURE


From Strategy to ArchitectureFrom Strategy to Architecture• Manager must start out with a strategy• Manager must start out with a strategy.• This strategy must then be used to gy

develop more specific goals as seen in Figure 6 3Figure 6.3.

• Business requirements must be fleshed t f h l i d t id thout for each goal in order to provide the

architect with a clear picture of what IS pmust accomplish.

• Figure 6 4 shows how this detailed• Figure 6.4 shows how this detailed process is accomplished.


Figure 6.3 – From Strategy to Business Requirements


Fi 6 4 F B i R i t t A hit tFigure 6.4 – From Business Requirements to Architecture


From Architecture to InfrastructureFrom Architecture to Infrastructure• This stage entails adding more detail to the• This stage entails adding more detail to the

architectural plan.• This detail comprises the actual hardware,

software, data, and networking.g– Figure 6.5 shows this phase.

• These components must be combined in a• These components must be combined in a coherent fashion.

• Global level – focus at the enterprise level; Inter-organizational level – focus on communications gwith customers, suppliers or other stakeholders.


Fi 6 5 F A hit t t I f t tFigure 6.5 – From Architecture to Infrastructure


A Framework for the TranslationA Framework for the TranslationC id th f ll i h d l i• Consider the following when developing a framework for transforming business strategy into architecture and then infrastructure:– Hardware – physical components.Hardware physical components.– Software – programs.

Network software and hardware– Network – software and hardware.– Data – quantity and format of data is of utmost

concern.• The framework that guides analysis of these

components is found in Figure 6.6a.


Component What Who Where

Hardware What hardware does the organization have?

Who manages it?Who uses is?

?

Where is it located? Where is it used?have? Who owns it? is it used?

Software What software does Who manages it? Where is it the organization have?

Who uses is?Who owns it?

located? Where is it used?

Network What networking does the organization have?

Who manages it?Who uses is?

Where is it located? Where is it used?have? Who owns it? is it used?

Data What data does the Who manages it? Where is it ataorganization have?

gWho uses is?Who owns it?

located? Where is it used?

Figure 6.6a Information systems analysis framework.


Anal sis of ComponentsAnalysis of Components• Managers must begin with an overview that is

completecomplete.• The framework must answer the what, who and

where questions for each infrastructurewhere questions for each infrastructure component.

Wh t i th ifi t f t h l ?– What is the specific type of technology?– Who is involved (individuals, groups, departments)?

?– Where is everything located?• Table 6.6b shows the connections between

strategy and systems.


Component What Who WhereArchitecture Infrastructure Architecture Infrastructure Architecture Infrastructure

Hardware Does fulfillment or our strategy require thick

What size hard drivers do we equip our thick clients with?

Who knows the most about servers in our

Who will operate the server?

Does our architecture require centralized or

Must we hire a server administrator for the Tokyorequire thick

or thin clients?

clients with? in our organization?

centralized or distributed servers?

for the Tokyo office?

Software Does f lfill t

Shall we go ith SAP

Who is ff t d b

Who will need SAP t i i ?

Does our hi l

Does Oracle id thSoftware fulfillment or

our strategy require ERP software?

with SAP or Oracle applications?

affected by a move to SAP?

SAP training? geographical organization require multiple database

provide the multiple-database functionality we need?database

instances?we need?

Network What kind of bandwidth do

Will 10BaseT Ethernet

Who needs a connection to

Who needs an ISDN line to

Does our WAN need to

Shall we lease a cable or use

we need to fulfill our strategy?

suffice? the network? his or her home?

span the Atlantic?

satellite?

Data Do our Which VAN Who needs Who needs Will backups Which storage Data vendors all use the same EDI format?

provides all the translation services we need?

access to sensitive data?

encryption software?

pbe stored on-site or off-site?

gservice shall we select?

Figure 6.6b Infrastructure and architecture analysis framework with sample questions.


y p q

Architecture ExamplesArchitecture Examples• The following are examples of architectures that are g

used in organizations.– Client/server - widely used and relies and clients that

t i d th t d t threquest services and servers that respond to these requests. The workload is shared and distributed.

– Mainframe – employs a large centralized computer that– Mainframe – employs a large centralized computer that handles all of the functionality of the system.

– Peer-to-peer – networked computers share resources, p p ,every system is equal.

– Wireless (mobile) – allow communication from remote locationslocations.

• Managers must be aware each ones trade-offs.Fi 6 7 i th h t i ti f h• Figure 6.7 summarizes the characteristics of each of the architectures.


Other FrameworksOther FrameworksS i l l• Some companies apply even more complex frameworks.

• Two popular examples (built on an enterprise architecture) are:architecture) are:– Zachman – goes farther by asking how, when, and

why?why? – TOGAF (The Open Group Architecture Framework) –

k t id ti l t d di dseeks to provide a practical, standardized methodology to successfully implement an Enterprise Architecture into a companyArchitecture into a company.


OTHER MANAGERIAL CONSIDERATIONS


Understanding existing g garchitecture

• Understanding existing architecture allows t l t th IT i t fmanagers to evaluate the IT requirements of

an evolving business strategy vs. their current IT.

• Plans for the future architecture can then be• Plans for the future architecture can then be compared with the current infrastructure to h l id tif hi h t f thhelp identify which components of the current system can b e used in the system being developed.


Relevant questions for managers:

• What IT architecture is already in place?I th d l i th IT• Is the company developing the IT architecture from scratch?

• Is the company replacing an existing architecture?

• Does the company need to work within• Does the company need to work within the confines of an existing architecture?

• Is the company expanding an existing architecture?

Copyright 2006 John Wiley & Sons, Inc.architecture?

Strategic IT planning andStrategic IT planning and legacy systemsg y y

• Managers usually must deal with adapting existing architectures as part of planning their new systemsof planning their new systems.

• In so doing they encounter both:– the opportunity to leverage the existing

architecture and infrastructure andarchitecture and infrastructure and– the challenge to overcome the old system’s

h t ishortcomings.


Optimal conversion of legacy systems:

• The following steps allow managers to derive the most value and suffer the fewest problems when working with legacy systems:legacy systems:– 1. Objectively analyze the existing

hit t d i f t tarchitecture and infrastructure– 2. Objectively analyze the strategy served by

the existing architecture.– 3. Objectively analyze the ability of the3. Objectively analyze the ability of the

existing architecture and infrastructure to further the current strategic goals.


further the current strategic goals.

Distinguishing Current vs. FutureDistinguishing Current vs. Future Requirements

• Strategic Time FrameWh t i th lif f th t ?– What is the life span of the system?

• Technological Advancesg– Can the infrastructure and architecture

support these advances? SOA (Servicesupport these advances? SOA (Service Oriented Architecture) defines a service or an interface as a reusable piece of softwareinterface as a reusable piece of software.

• Growth Requirements– Will it meet future demand? Is it scalable?


• Assessing Financial Issues– Evaluate on expected financial value.– Can be difficult to quantify.Can be difficult to quantify.– Steps

• Quantify costs• Determine the anticipated life cycles of system

components• Quantify benefitsy• Quantify risks• Consider ongoing dollar costs and benefitsConsider ongoing dollar costs and benefits


• Assessing Technical Issues– ScalabilityScalability.

• Plight of AOL (improperly estimated growth).Standards– Standards.

– Maintainability.– IT staff skill set.

• Differentiating Between Architecture andDifferentiating Between Architecture and Infrastructure

Fi 6 8 h h hit t d– Figure 6.8 shows how architecture and infrastructure are evaluated based on the

i i iprevious criteria.


Criteria Architecture InfrastructureStrategic time frame Very applicable Not applicable

Technological advances Very applicable Somewhat applicable

Assessing financial issuesNet present value

Somewhat applicable Very applicable

Payback analysisIncidental investments

G th i t / V li bl V li blGrowth requirements/ scalability

Very applicable Very applicable

Standardization Very applicable Very applicableStandardization Very applicable Very applicable

Maintainability Very applicable Very applicable

Staff experience Very applicable Very applicableStaff experience Very applicable Very applicable

Figure 6 8 Applicability of evaluation criteria to discussionFigure 6.8 Applicability of evaluation criteria to discussion of architecture and infrastructure.


FROM STRATEGY TOFROM STRATEGY TO ARCHITECTURE TOARCHITECTURE TO

INFRASTRUCTURE: AN EXAMPLE


BluntCo fictitious caseBluntCo. fictitious case• BluntCo a fictitious cigar clipper maker• BluntCo., a fictitious cigar clipper maker,

serves to illustrate the process of creating IT architecture and infrastructureinfrastructure.

• The process includes four steps:Step 1: Defining the Strategic GoalsStep 2: Define Related Architectural GoalsStep 2: Define Related Architectural GoalsStep 3: Apply Strategy-to-Infrastructure y gy

FrameworkStep 4: Evaluate Additional Issues


Step 4: Evaluate Additional Issues

Hardware Software Network Data

3 servers:•Sales

ERP system with modules for:

Cable modem to ISP

Database:•SalesSales

•Manufacturing•Accounting

•Manufacturing•Sales Dial-up lines

Sales•Manufacturing•AccountingAccounting

Storage systems

•Accounting•Inventory

pfor backup

Accounting

g y

Enterprise

RoutersHubs

Application Integration (EAI) software

SwitchesFirewalls

software

Figure 6.10 Blunt Co’s infrastructure components


Step 1: Defining the Strategic Goalsp g g

• Blunt Cos. business strategy is to respond to gy ppossible changes in demand by outsourcing clipper manufacturing.clipper manufacturing.

• The company’s strategic goals are as follows:– To lower costs by outsourcing manufacturing– To lower costs by clipper distribution– To improve market responsiveness by outsourcing

clipper manufacturingpp g– To improve market responsiveness by outsourcing

clipper distributionpp


Step 2: Define Related Architectural Goalsp

• Consider the first goal: outsourcing clipper manufacturing. How can the company’s IT architecture support this goal?

• It must provide the following interfaces to its new manufacturing partners:– Sales to manufacturing partners: send forecasts,

fi d i dconfirm orders received– Manufacturing partners to sales: send capacity,

fi d hi dconfirm orders shipped– Manufacturing partners to accounting: confirm orders

shipped electronic invoices various inventory levelsshipped, electronic invoices, various inventory levels, returnsAccounting to manufacturing partners: transfer funds– Accounting to manufacturing partners: transfer funds for orders fulfilled


Step 3: Apply Strategy to Infrastructure Framework

• Translating the strategic goals to the architectural and infrastructural framework means asking the what, who and where questions discussed before.

• For example, for the network:– Arch.: What is the anticipated volume of transactionsArch.: What is the anticipated volume of transactions

between BluntCo and its manufacturing partners?– High volume may require leased lines to carry g y q y

transaction data, dial-up connections may suffice for low volume (i.e., what’s the best leased line to use?).

• See Fig. 6.7 for a detailed list of such questions


Step 4: Evaluate Additional IssuesStep 4: Evaluate Additional IssuesTh l t t i t i l• The last step is to compare managerial considerations such as strategic time frame, t h l i l d t ith thtechnological advances, etc., with the architectural goals listed in step 2.

• For example, regarding HR compatibility:– Architecture: The new model will displace some p

current human resources. BluntCo must analyze costs and the effect on morale.

– Infrastructure: Current staff not familiar with EDI; must be trained, some new staff hired. BluntCo must analyze associated costsanalyze associated costs.


FOOD FOR THOUGHT: BUSINESS CONTINUITYBUSINESS CONTINUITY

PLANNINGPLANNING


Business Continuity Planning (BCP)us ess Co t u ty a g ( C )• BCP is an approved set of preparations andBCP is an approved set of preparations and

sufficient procedures for responding to a range of disaster events such as:range of disaster events, such as:

1. Planning stage – alternative business recovery operating strategies are determinedoperating strategies are determined

2. Emergency Response Procedures – designed to prevent/limit injury to personnel on site, damage toprevent/limit injury to personnel on site, damage to structures/equipment and the degradation if vital business functions

3. Employee Awareness and Training Programs –must be well communicated throughout the

i tiorganization


SUMMARYSUMMARY


Summaryy• Strategy drives architecture.

M t d t d h t l IT t li• Managers must understand how to plan IT to realize business goals.Logical framework is used to guide the translation from• Logical framework is used to guide the translation from business strategy to IS design.

• Know the state of existing architecture and infrastructure• Know the state of existing architecture and infrastructure when translating strategy into architecture and then infrastructure.infrastructure.

• A business continuity plan is an approved set of preparations and sufficient procedures for responding to p p p p ga disaster event.

• It is becoming more important that business managers g p geffectively translate business strategy into IT infrastructure.


Chapter 7Chapter 7Doing Business on theDoing Business on the

InternetInternetManaging and Using Information Systems: A

Strategic Approach



IntroductionIntroduction• How has the Internet changed business?g• What is the difference between the Internet and

Intranets and Extranets?Intranets and Extranets?• What is EDI and why did it not grow as

predicted?predicted?• What is disintermediation and how has it

i t d th i i d t ?impacted the music industry?• What are the four key building blocks of e-y g

commerce?• How can managers assist in the prevention ofHow can managers assist in the prevention of

identify theft?


Real World E amplesReal World Examples

• VeriSign, Inc. helps millions of Internet users each dayeach day.

• VeriSign makes money by providing security, billing, and payment services to telecommunications and online retail customers.

• They are an example of a completely new business made possible by the Internetbusiness made possible by the Internet.

• They have grown their reputation for “trust” into a business customers are willing to pay a fee.


OVERVIEW OF THE INTERNET


InternetInternet• The Internet is a global, interconnected network ofThe Internet is a global, interconnected network of

millions of computers (hosts).Began in 1969 with the US DOD’s ARPANET– Began in 1969 with the US DOD s ARPANET.

– In 1985 NSF built NSFNET.• Today no single “owner” owns the Internet but it is

shared.• Relies on the TCP/IP protocol.

Fi 7 1 h l f TCP/IP k t– Figure 7.1 shows an example of a TCP/IP packet.• Broadband has permitted many to gain fast access

to the Internet making it a very useful tool.


TCP/IP PacketComputer address Computer address Packet length Data Checksum pof sender (HEADER)

pof receiver (HEADER)

g(HEADER) (TRAILER

)

Regular Mail

Return address Address Letter

Figure 7.1 Comparison of regular mail and TCP/IP packet.


World Wide WebWorld Wide WebA i i l l th d f i th• An increasingly popular method of accessing the Internet.

• Documents transmitted over the “web” are in HTML format (Hypertext Markup Language) orHTML format (Hypertext Markup Language), or in any number of other compatible languages.

• HTML was created in 1989 by Tim Berners-Lee at CERN.

• Web browsers (Internet Explorer and Netscape) are commonly used tools for accessing the webare commonly used tools for accessing the web.


More NetsMore Nets• Intranets, extranets, and virtual privateIntranets, extranets, and virtual private

networks (VPN’s) are other networks that use web technologyuse web technology.– Intranet looks like the Internet but is used only

i t ll b i ti ( i itinternally by an organization (university, business, etc.).

– Extranet is similar to an intranet but includes access available to partners, or customers.p

– VPN’s are used to connect private data using the public telecommunications system VPN’sthe public telecommunications system. VPN s use tunneling.


Evolution of E-BusinessEvolution of E Business• Conducting business over electronic channels• Conducting business over electronic channels

has been a reality for decades.• EDI (Electronic Data Interchange) is one of the

oldest forms of e-business.– EDI is the direct computer to computer transfer of

business information, using a standard format., g– Software programs on different systems can

exchange information without human intervention.exchange information without human intervention.• Quote requests, order forms, etc.

– EDI was never widely used due to substantial setup– EDI was never widely used due to substantial setup effort.


Evolution of E-Business ( ti d)

With th th f th I t t b i

Evolution of E-Business (continued)

• With the growth of the Internet more businesses are using it to transact business between

t (B2B Fi 7 2)partners (B2B – see Figure 7.2).• Now, the term e-business refers to business

conducted over the Internet.• Business on the Internet has evolved through aBusiness on the Internet has evolved through a

number of stages:– Content Provider: Stage IContent Provider: Stage I– Transaction Forum: Stage II– Integrator: Stage III– Integrator: Stage III– Catalyst for Industry Restructuring: Stage IV


B2B Business-to-business targets sales and services primarily to otherB2B Business to business targets sales and services primarily to other businesses.

B2C Business-to-consumer targets sales and services primarily to consumers.

B2E Business-to-employee provides services other companies can use to interface with employees (like retirement funds management, health care p y ( gmanagement, and other benefits management).

B2G Business-to-government involves companies who sell the bulk of their goods and services to state, local, and national governments.

C2C Consumer-to-consumer sites primarily offer goods and services to assist consumers to interact (e g auctions)consumers to interact (e.g., auctions).

Hybrid Combines B2B and B2C modelsHybrid Combines B2B and B2C models.

Fi 7 2 B i b i d l f th I t tFigure 7.2 Basic business models for the Internet.


E-channel PatternsE channel Patterns• An e-channel is a chain of electronic

“relationships between companies and partners/resellers”

• They can lead to industry restructuring when there are massive changes brought about by:– e-channel compression (disintermediation –

Figure 7.3), and – e-channel expansion (the adding of brokering

functionality)• These brokers provide information for users (like

Edmunds.com, or KBB.com for automobile research).• E-channel expansion is also seen in e-marketplaces (special p p ( p

kind of B2B network).


Old Music Industry New Music Industry

Few Record Distributor Retailer Customer Many Artists E-Business Website CustomerArtists Company Pays+$1 +$9 +$1 +$5 $16/Album

PaysAlbum: + $3 +$7 $10Song: +$.30 +$.70 $1g

Figure 7.3 Example of Channel Compression


FRAMEWORK OF ELECTRONIC COMMERCE


E Commerce Frame orkE-Commerce Framework

• Kalakota and Whinston offer a generic f k fframework for e-commerce (see Figure 7.4).

• This framework assumes that newThis framework assumes that new technology will be built on existing t h l i f t ttechnology infrastructure.

• It uses four key building blocks and two• It uses four key building blocks and two supporting pillars.


Four key building blocks:Four key building blocks:1. Common business services infrastructure2. Message and information distribution3 Multimedia content and network3. Multimedia content and network

publishing4. The Internet (infrastructure)

Two supporting pillars:Two supporting pillars:1. Public policy (“governance”)2. Technical standards

Fig. 7.4 Kalakota and Whinston’s E-commerce framework


Common Business ServicesCommon Business Services Infrastructure

• The common business infrastructure for electronic commerce consists of four main elements:– Security

Authentication– Authentication– Encryption– Electronic Payments


SecuritySecu y• Major concern for doing business on the Internet.• Businesses feel vulnerable to attack.• Encryption is used to help secure data.yp p• HTTPS (HTTP with SSL) is used to encrypt data

to ensure its integrity and safety.g y y– Secure Sockets Layer (SSL) is a standard for secure

interactions use on the Web. SSL, uses a combination of private key encryption (using a one time session key)of private key encryption (using a one-time session key) and digital signatures to enhance the security of transmission.

• Concerns remain for e-commerce transactions since there are numerous examples of data and pprivacy issues.


AuthenticationAuthentication

• Authentication is the security process of verifying that a user is who he or she saysverifying that a user is who he or she says they are.P d th t t f• Passwords are the most common type of authentication.– It is important that users understand strong

passwords.p• Digital signatures are now gaining popularity

for authenticating transmitted informationfor authenticating transmitted information.


A th ti ti Di it l Si tAuthentication: Digital Signatures• Digital signatures take the place of ordinary

signatures in online transactions to prove thatsignatures in online transactions to prove that the sender of a message is who he or she claims to beclaims to be.

• When received, the digital signature is compared with a known copy of the sender’s digital signature.g g

• Digital signatures are also sent in encrypted form to ensure they have not been forgedform to ensure they have not been forged.


EncryptionEncryption• Encryption systems translate data into a secretEncryption systems translate data into a secret

code (many types of encryption used).• Encryption systems include 4 main components:• Encryption systems include 4 main components:

– Plaintext: the unencrypted messageA ti l ith th t k lik th l ki– An encryption algorithm: that works like the locking mechanism to a safeA k th t k lik th f ’ bi ti– A key that works like the safe’s combination

– Ciphertext is produced from the plaintext message by the encryption functionthe encryption function.

– Decryption is the same process in reverse (like a modulation/demodulation) but it doesn’t always use themodulation/demodulation), but it doesn t always use the same key or algorithm. Plaintext results from decryption.


dec ypt o

Encryption TechniquesEncryption Techniques

• The two main encryption techniques now in use (see figure 7.5):– Symmetric encryption in which both– Symmetric encryption in which both

sender and receiver use the same key.– Asymmetric or public key encryption,

which uses two separate keys, called ypublic and private keys.


Symmetric EncryptionSymmetric Encryption• Symmetric or private key encryption uses• Symmetric or private key encryption, uses

the same algorithm and key to both encrypt and decrypt a messageand decrypt a message.

• Historically, this is the most common ti t h iencryption technique.

• Since the key must be distributed, however, it yis vulnerable to interception. This is an important weakness of symmetric key p y yencryption.

• DES uses symmetric encryption.DES uses symmetric encryption.


Asymmetric or Public Key Encryptiony y yp

• A second popular technique is asymmetric orA second popular technique is asymmetric or public key encryption (PKE).

• PKE is called asymmetric since it uses two• PKE is called asymmetric since it uses two different “one way” keys:– a public key used to encrypt messages anda public key used to encrypt messages, and– a private key used to decrypt them.

• PKE greatly reduces the key management• PKE greatly reduces the key management problem since the private key is never distributeddistributed.

• PGP (pretty good privacy) is a popular form of PKE available as sharewarePKE available as shareware.


Figure 7.5 Encryption


Electronic PaymentsElectronic PaymentsA b f t th d d b• A number of payment methods are used by businesses to make and receive payments on the Internet.

• These methods are basically the equivalent of• These methods are basically the equivalent of off-line payment methods.

• Here are a few of the most popular types:– Virtual Terminals.– Transaction Processors.– Internet CheckingInternet Checking.– Electronic Funds Transfer (EFT).


Search EnginesSearch Engines• Search engines are used to index the contents

of the Internet so that information about aof the Internet so that information about a specific topic can be located.

• Managers should pay attention to search• Managers should pay attention to search engines for two reasons:

Th id f l d t i t– They provide useful and extensive access to information.And they can provide the visibility that becoming– And, they can provide the visibility that becoming listed with them provides.

Google founded in 1991 by two Stanford Ph D• Google, founded in 1991 by two Stanford Ph.D. students, is the most popular search engine.


Web Services & PersonalizationWeb Services & Personalization• A web service is a standardized way of y

integrating web-based applications.– Organizations can share data transparently.Organizations can share data transparently.– Web services are the basic building blocks of the

SOA (Service Oriented Architecture).( )– They are excellent for integrating systems across

organizational boundaries.g• Personalization is the “selective delivery of

content and services to customers andcontent and services to customers and prospective customers”.– Can offer customized services to meet the past andCan offer customized services to meet the past and

future interests of customers.


Messaging and InformationMessaging and Information Distribution Infrastructure

• Second building block of supporting g pp gframework for e-commerce.

• Includes email instant messaging Voice• Includes email, instant messaging, Voice over IP (VoIP), point-to-point file transfers (FTP) d(FTP), and groupware.

• E-mail is still largest use in this areaE mail is still largest use in this area.– ISP (Internet Service Provider) connects the

user to the Internetuser to the Internet.


Multimedia ContentMultimedia Content• Third building block of supportingThird building block of supporting

framework for e-commerce. Includes t d d f i lti di fil tstandards for various multimedia file types.

Examples of materials transported in thisExamples of materials transported in this way include:

Vid– Video – AudioAudio– Text/Electronic documents– Graphics & Photos– Realtime/Non-realtime applications


Realtime/Non realtime applications

Internet InfrastructureInternet Infrastructure• Fourth building block of supporting framework• Fourth building block of supporting framework

for e-commerce. Includes data communications circuits over which information travels Includes:circuits over which information travels. Includes:– Packet-switched networking (telephony is circuit-

switched)– Packets contain overhead information including

addressing – They are also routed, like maily– All of this flows across Internet backbones– Newer Internet access technologies include wireless– Newer Internet access technologies include wireless

access, cable access and DSL.


Figure 7.6 A sample journey of information f I t t t t thfrom one Internet computer to another.


Public PolicyPublic Policy• Public policy is one of two supporting pillars for

P bli li i i l de-commerce. Public policy issues include: – universal access, – privacy, – information pricing, – information access.

• Privacy issues include what information is private y pand/or who should have the right to use/sell information about Internet users:information about Internet users:– Requesting personal information on visiting a web site– Creating customer profilesCreating customer profiles– Leaving electronic footprints when visiting a web site


Technical Standards

• Standardization is the second supporting pillar forStandardization is the second supporting pillar for e-Commerce. Standards are critical for electronic interactioninteraction.

• Secure Electronic Transaction (SET) for secure payments of online credit card transactions is onepayments of online credit card transactions is one of the most heavily promoted standardsOth li ti t d d i l d fil t f• Other application standards include file transfer protocol (FTP), hypertext transfer protocol (HTTP) i l t k t t l(HTTP), simple network management protocol (SNMP), post office protocol (POP), and

lti di i t t il t i (MIME)multimedia internet mail extensions (MIME)


Identity Thefty• Managers must be aware of this danger and properly

t i l th h dli f l d ttrain employees on the proper handling of personal data.• Identity theft takes place when a thief steals a person’s

identity to open a credit card account or steal funds fromidentity to open a credit card account, or steal funds from their bank.

• It can be categorized in two ways:• It can be categorized in two ways:– True name – thief uses personal information to open new

accounts.– Account takeover – uses personal information to gain access to

the person’s existing accounts.I 2004 ID h f l $ 00 illi• In 2004 ID theft losses cost over $500 million.

• There were over 388,000 cases reported.• See figure 7.7 for ways to combat identify theft.


•Do not share passwords or PIN numbers with anyone (95%).D t l t li k li k ithi il th t•Do not reply to, or click on links within emails or pop-up messages that

ask for personal or financial information (92%).•Update virus protection software regularly (91%)p p g y ( )•Update security patches for web browsers and operating systems regularly (90%).P t t i l it b t ll t (i d t i it t•Protect your social security numbers at all costs (i.e., do not give it out

unless it is mandatory) (90%).•Shred, or otherwise destroy, all documents with personal information prior , y, p pto disposal (90%).•Monitor personal credit reports and statements from financial accounts

l l (89%)regularly (89%).•Install firewall software (88%).•Before transmitting personal information online, verify that the connection g p , yis secure (84%).•Do not email personal or financial information (71%).

Figure 7.7 Precautions to take to avoid identity theft.


FOOD FOR THOUGHT 1:E LEARNINGE-LEARNING


E-LearningE Learning• Businesses do not want their employees to ever

stop learning.• E-Learning is using the Internet to enable g g

learning (eliminates time and distance barriers).• Include:Include:

– Computer-based training.Distance learning– Distance learning.

– Online learning.O d d l i– On-demand learning.

• Embedding learning within the business processes.


FOOD FOR THOUGHT 2:WEB LOGS AND BLOGSWEB LOGS AND BLOGS


Logs and BlogsLogs and Blogs• Online journals that link together into a large• Online journals that link together into a large

network of information sharing.• Blogs discuss topics from poetry to political• Blogs discuss topics from poetry to political

opinions.• In 2005 there were 9 million blogs with an• In 2005 there were 9 million blogs with an

estimated 40,000 new ones generated every dayday.

• Can take on different forms:Moblogging– Moblogging

– VloggingPodcasting– Podcasting

• Make every individual a virtual publisher.


SUMMARYSUMMARY


SummarySummary• 1. The Internet is an entirely new marketplace that will y p

soon be second nature to consumers.• 2. Intranets and Extranets, similar to the Internet, are

used for private communications within an organizationused for private communications within an organization or between organizations.

• 3 Managers must understand the elements that3. Managers must understand the elements that comprise e-commerce.

• 4. Building blocks of e-commerce include: g– Common business services infrastructure.– Messaging and information distribution infrastructure.

Multimedia content– Multimedia content.– Information superhighway infrastructure.

• 5. Managers can expect a future in which the Internet5. Managers can expect a future in which the Internet becomes larger, faster, more powerful and commonplace.


Chapter 8Chapter 8Using InformationUsing Information

EthicallyEthicallyManaging and Using Information Systems: A

Strategic Approach



Introduction• What are some of the challenges of insuring the

ethical use of IT?• Mason identified four areas of information

control. What are they and why are they important?p

• What are normative theories of ethics concerned with?with?

• Why are most managers ill-equipped to handle ethical issues in organizations?ethical issues in organizations?

• What can managers do to insure that IT is handled ethically?


Real World E amplesReal World Examples

• Blockbuster was chastised by the Wall Street Journal for its plan to sell customer movieJournal for its plan to sell customer movie preference information for targeted marketing

icampaigns.• Information collected for one purpose shouldn’t p p

be used for another purpose without an individual’s consentindividual s consent.

• This example is not illegal but raises issues of i d thi l h dli f i f tiprivacy and ethical handling of information.


CONTROL OF INFORMATIONCONTROL OF INFORMATION


Pri acPrivacy

• Those who possess the “best” information and know how to use it winknow how to use it, win.

• However, keeping this information safe and secure is a high priority (see Figure 8.1).

• Privacy – “the right to be left alone”Privacy the right to be left alone .• Managers must be aware of regulations that are

i l di th th i d ll tiin place regarding the authorized collection, disclosure and use of personal information.– Safe harbor framework of 2000.


Area Critical Questions

Pri ac What information m st a person re eal abo t one’s self to others?Privacy What information must a person reveal about one’s self to others?What information should others be able to access about you – with or without your permission? What safeguards exist for your y p g yprotection?

Accuracy Who is responsible for the reliability and accuracy of information? y p y yWho will be accountable for errors?

Property Who owns information? Who owns the channels of distribution, and how should they be regulated?

Accessibility What information does a person or an organization have a right to bt i d h t diti d ith h t f d ?obtain, under what conditions, and with what safeguards?

Figure 8.1 Mason’s areas of managerial concern.


Acc racAccuracy

• Managers must establish controls to i th t i f ti i tinsure that information is accurate.

• Data entry errors must be controlled andData entry errors must be controlled and managed carefully.

• Data must also be kept up to date.Keeping data as long as it is necessary or• Keeping data as long as it is necessary or legally mandated is a challenge.g y g


PropertProperty

• Mass quantities of data are now stored on clientsclients.

• Who owns this data and has rights to it is gare questions that a manager must answer.answer.

• Who owns the images that are posted in b ?cyberspace?

• Managers must understand the legal rightsManagers must understand the legal rights and duties accorded to proper ownership.


Accessibilityy• Access to information systems and the data that y

they hold is paramount.• Users must be able to access this data from anyUsers must be able to access this data from any

location (if it can be properly secured and does not violate any laws or regulations)not violate any laws or regulations).

• Major issue facing managers is how to create and maintain access to information for society atand maintain access to information for society at large.

Thi d t b t ll d t th h h– This access needs to be controlled to those who have a right to see and use it (identity theft).Al d t it t b i l– Also, adequate security measures must be in place on their partners end.


NORMATIVE THEORIES OF BUSINESS ETHICSBUSINESS ETHICS


IntroductionIntroduction• Managers must assess initiatives from an ethical g

view.• Most managers are not trained in ethicsMost managers are not trained in ethics,

philosophy, and moral reasoning.Difficult to determine or discuss social norms– Difficult to determine or discuss social norms.

• Three theories of business ethics are examined to develop and apply to particular challengesto develop and apply to particular challenges that they face (see Figure 8.2):

S kh ld h– Stockholder theory– Stakeholder theory– Social contract theory


Stockholder TheorStockholder TheorySt kh ld d it l t t• Stockholders advance capital to corporate managers who act as agents in advancing g g gtheir ends.

• Managers are bound to the interests of the• Managers are bound to the interests of the shareholders (maximize shareholder

l )value).• Manager’s duties:Manager s duties:

– Bound to employ legal, non-fraudulent means.M t t k l i f h h ld i t t– Must take long view of shareholder interest.


Stakeholder TheorStakeholder Theory• Managers are entrusted with a fiduciary• Managers are entrusted with a fiduciary

responsibility to all those who hold a stake in or a claim on the firma claim on the firm.

• Stakeholders are –– Any group that vitally affects the corp. survival and

success.ff– Any group whose interests the corp. vitally affects.

• Management must enact and follow policies that balance the rights of all stakeholders without impinging upon the rights of any one particular stakeholder.


Social Contract TheorySocial Contract Theory• Consider the needs of a society with no y

corporations or other complex business arrangements.

• What conditions would have to be met for the members of a society to agree to allow a

ti t b f d?corporation to be formed?• Corporations are expected to create more value

t i t th t itto society that it consumes.• Social contract:

– 1. Social welfare – corporations must produce greater benefits than their associated costs.2 Justice corporations must pursue profits legally– 2. Justice – corporations must pursue profits legally, without fraud or deception, and avoid actions that harm society.


y

Theory Definition MetricsTheory Definition MetricsStockholder Maximize stockholder

wealth, in legal and non-f d l t

Will this action maximize stockholder value? Can goals be accomplished without

i i t d d dfraudulent manners. compromising company standards and without breaking laws?

Stakeholder Maximize benefits to all Does the proposed action maximizeStakeholder Maximize benefits to all stakeholders while weighing costs to competing interests.

Does the proposed action maximize collective benefits to the company? Does this action treat one of the corporate stakeholders unfairly?y

Social contract

Create value for society in a manner that is just and

di i i t

Does this action create a “net” benefit for society? Does the proposed action di i i t i t i ti lnondiscriminatory. discriminate against any group in particular, and is its implementation socially just?

Figure 8.2 Three normative theories of business ethics.


EMERGING ISSUES IN THEEMERGING ISSUES IN THE ETHICAL GOVERNANCE OFETHICAL GOVERNANCE OF

INFORMATION SYSTEMSINFORMATION SYSTEMS


Emerging Iss esEmerging Issues• Two distinct spheres in which managers operate

when dealing with ethical issues:when dealing with ethical issues:– Outward transactions of the business with a focus on

the customer.the customer.– Issues related to managing employees and

information inside the corporation.information inside the corporation.• Email, instant messaging, and the Internet have

replaced traditional communications but posereplaced traditional communications but pose their own set of issues.

Many companies are turning to programs that monitor– Many companies are turning to programs that monitor employees’ online activities (web sites visited, etc.).


• Many programs are available to accomplish this monitoringaccomplish this monitoring.– In 2001 sales of $140 million was reported for p

this type of software.• Employers can exert a higher level of• Employers can exert a higher level of

control over their employees.• Managers must be careful to create an

atmosphere that is amenable to IS useatmosphere that is amenable to IS use.• Ethically, managers are obliged toEthically, managers are obliged to

consider the welfare of their workers.


Figure 8.3 Some causal connections between identified areas of ethical concern.


1.Thou shalt not use a computer to harm other people.2 Thou shalt not interfere with other people’s computer work2.Thou shalt not interfere with other people s computer work.3.Thou shalt not snoop around in other people’s computer files.4.Thou shalt not use a computer to steal.p5.Thou shalt not use a computer to bear false witness.6.Thou shalt not use or copy software for which you have not paid.7.Thou shalt not use other people’s computer resources without authorization. 8.Thou shalt not appropriate other people’s intellectual output.9 Thou shalt think about the social consequences of the program you write9.Thou shalt think about the social consequences of the program you write.10.Thou shalt use a computer in ways that show consideration and respect.

Figure 8.4 Ten Commandments of Computer Ethics


SECURITYSECURITYANDAND

CONTROLSCONTROLS


Security and ControlsSecurity and Controls• Ernst and Young survey suggests that mostErnst and Young survey suggests that most

companies rely on luck rather than proven IS controls.

• Companies turn to technical responses to deal with security threats (worms, viruses, etc.).y ( )

• Managers go to great lengths to make sure that their systems are secure.y– Firewalls, IDS systems, password systems, and more.

• Future solutions will include hardware and software.

• Managers must be involved in the decisions gabout security and control.


Sarbanes-Oxley ActSarbanes Oxley Act• The Sarbanes-Oxley Act of 2002 was enacted toThe Sarbanes Oxley Act of 2002 was enacted to

increase regulatory visibility and accountability of public companies and their financial healthof public companies and their financial health.– All companies subject to the SEC are subject to the

requirements of the actrequirements of the act.– CEO’s and CFO’s must personally certify and be

accountable for their firm’s financial records andaccountable for their firm s financial records and accounting.

– Firms must provide real-time disclosures of any p yevents that may affect a firm’s stock price or financial performance.

– IT departments realized that they played a major role in ensuring the accuracy of financial data.


IT Control and Sarbanes-Oxleyy• In 2004 and 2005 IT departments began to identify

controls determined design effectiveness andcontrols, determined design effectiveness, and validated operation of controls through testing.

• Five IT control weaknesses were uncovered by• Five IT control weaknesses were uncovered by auditors:1. Failure to segregate duties within applications, and failure to set g g pp ,

up new accounts and terminate old ones in a timely manner.2. Lack of proper oversight for making application changes,

including appointing a person to make a change and another toincluding appointing a person to make a change and another to perform quality assurance on it.

3. Inadequate review of audit logs to not only ensure that systems q g y ywere running smoothly but that there also was an audit log of the audit log.

4 Failure to identify abnormal transactions in a timely manner4. Failure to identify abnormal transactions in a timely manner.5. Lack of understanding of key system configurations.


FOOD FOR THOUGHT: ETHICS AND THE INTERNET


Ethics and the InternetEthics and the Internet• The Internet crosses international boundariesThe Internet crosses international boundaries

posing challenges that are not readily resolved.• Different cultures laws customs and habits• Different cultures, laws, customs, and habits

insure that different countries police the Internet in very different ways.in very different ways.

• Managers face challenges in navigating their organizations through the murky waters oforganizations through the murky waters of ethical use of the Internet.

• Example: Free speech and censorship.Example: Free speech and censorship.– The U.S. provides for free speech protection, but

other countries do not.– An Internet code of ethics by the IFIP is being

debated.


SUMMARYSUMMARY


SummarySummary• 1. Ethics is important to the IS field particularly since new1. Ethics is important to the IS field particularly since new

technologies and innovations are arriving at an untold pace.

• 2. IS professionals must seek to uphold the ethical handling and dissemination of information adhering to i t ti l f d l t t d l l l iinternational, federal, state, and local laws concerning the ethical handling of data under their supervision.3 I h dli d f IS l d t l t• 3. Improper handling and use of IS can lead not only to internal organization problems but to legal problems as wellwell.

• 4. Don’t jeopardize your future by the mishandling of IS


Chapter 9The Management

Information Systems Organization

Managing and Using Information Systems: A Strategic ApproachStrategic Approach



Introd ctionIntroduction• What are the major MIS positions in an

organizations?organizations?• What is the main role of the CIO?

Wh t h ld t f th MIS• What should a manager expect from the MIS organization?

• What does the MIS organization NOT do?• How can outsourcing be used to provideHow can outsourcing be used to provide

competitive advantage?• What are some of the disadvantages of• What are some of the disadvantages of

outsourcing?


Real World ExamplesReal World Examples• The Southern Company is the dominant utilityThe Southern Company is the dominant utility

company in the southeast.• Every year since 1948 they have paid a• Every year since 1948 they have paid a

dividend.Th h d ti i IT billi• The company has seen a reduction in IT billings across the company by $54 million while f ti hfunctions have grown.

• Much of the success can be attributed to its IT chargeback system.– This system helps to assure that IT initiatives align y p g

with business goals.


UNDERSTANDINGUNDERSTANDING THETHE

MIS ORGANIZATION


CIO• The CIO (Chief Information Officer) is the head of ( )

the IS organization.• CIO’s primary goal is to manage IT resources to• CIO s primary goal is to manage IT resources to

implement enterprise strategy.• Provide technology vision and leadership for

developing and implementing IT initiatives to help p g p g pthe enterprise maintain a competitive advantage.

• As the importance of technology has increased• As the importance of technology has increased so has the position of the CIO.– Reports directly to the CEO.


Twelve Main Responsibilitiesp• The following responsibilities often define the g p

role of the CIO:1. Championing the organization.p g g2. Architecture management.3. Business strategy consultant.4. Business technology planning.5. Application development.6 IT infrastructure management6. IT infrastructure management.7. Sourcing.8. Partnership developer.8. Partnership developer.9. Technology transfer agent.10. Customer satisfaction management.11. Training.12. Business discontinuity/disaster recovery planning.


CTO CKO and OthersCTO, CKO, and Others• The CIO particularly in larger organizations• The CIO, particularly in larger organizations,

cannot guide the enterprise toward the future alonealone.

• Other strategic areas require more focused guidanceguidance.

• New positions created to deal with this growing needneed.– Figure 9.1 shows a list of other IT managers and their

responsibilities.espo s b es– Figure 9.2 lists other IT responsibilities within an

organization (such as DBA, Business Analyst, etc.).– Figure 9.3 shows the reporting relationships between

the CIO and other IT positions.


Title ResponsibilityChief technology officer (CTO) Track emerging technologiesChief technology officer (CTO) Track emerging technologies

Advise on technology adoptionDesign and manage IT architecture to insure consistency and compliance

Chief knowledge officer (CKO) Create knowledge management infrastructureBuild a knowledge cultureBuild a knowledge cultureMake corporate knowledge pay off

Chief telecommunications officer (CTO)

Manage phones, networks, and other i ti t h l ti(CTO) communications technology across entire

enterpriseChief network officer Build/maintain internal and external networks

Chief resource officer Manage outsourcing relationships

Chief information security officer Insures information management practices are y g pconsistent with security requirements

Chief privacy officer Responsible for processes and practices that insure privacy concerns of customersinsure privacy concerns of customers, employees and vendors are met

Figure 9 1 The CIO’s lieutenantsCopyright 2006 John Wiley & Sons, Inc.

Figure 9.1 The CIO s lieutenants

Job Title Job Description Job DescriptionIS Manager Implements strategy; leads Understands both business andIS Manager Implements strategy; leads

systems implementation projectsUnderstands both business and technology

System Developer Writes new software applications; Programming abilities, cross-Upgrades and maintains existing systems

technology knowledge, etc

Business Analyst Translates business requirements Understands core businessBusiness Analyst Translates business requirements into implementable IT solutions

Understands core business requirements

Database Administrator

Implements and maintains the software/hardware

Knowledge of database management systems etcAdministrator software/hardware management systems, etc

Operations Personnel

Implements/maintains software and hardware needed

Knowledge of database management systems, etc

Support Personnel Run, monitor and maintain the production applications

Monitor and maintain hardware and software

Developer Help desk project management Skills vary depending upon roleDeveloper Help desk, project management and desktop services, etc

Skills vary depending upon role

Webmaster Responsible for all web activities Knowledge of web trends

Web Designer Designs interface for web pages Knowledge of interface design

Figure 9 2 IS organization rolesCopyright 2006 John Wiley & Sons, Inc.

Figure 9.2 IS organization roles

Chief InformationInformation

Officer

Chief Chief ChiefKnowledge

OfficerTechnology

OfficerNetworkOfficer

IS ManagersNameTitle

Systems Developers/Developers

Business Analysts

Database Administrators

Support Personnel/Operations

OtherDevelopers Operations

Figure 9.3 Sample IS organization chart


INFORMATION SYSTEMSINFORMATION SYSTEMS ORGANIZATIONORGANIZATION

PROCESSESPROCESSES


Systems DevelopmentSystems DevelopmentTh d t d t d th• The manager needs to understand the processes internal to the IS group.

• Systems development is the primary processes performedperformed.– Building and developing systems.

I l b i l t t– Involves business analysts, programmers, systems analysts, users, etc. to test and make sure the system

k d t th b i bj tiworks and meets the business objectives.• Includes installation and configuration.


Systems MaintenanceSystems Maintenance

• Includes a number of personnel to keep the system running and performingsystem running and performing.– Such as DBAs, systems developers, business

l dit tpersonnel, managers, auditors, etc.• Some of the functions of systems maintenance y

include –– Daily transaction processingDaily transaction processing.– Report writing

Problem reporting and repairing– Problem reporting and repairing.– Compliance conforming (Sarbanes-Oxley Act).


Other IS Processes• Data center operations.

– Core computing systems location.– Managers have little interaction with.

I f ti t d d t b• Information management and database administration.

A ti iti f ll ti d t i th t l d t– Activities of collecting and storing the actual data created, developed, or discovered.

• Internet services• Internet services.– Includes intranets, extranets, email, etc.

Networking services• Networking services.– Responsible for designing network architecture.

G l t• General support.– Help desk.


WHAT A MANAGER CANWHAT A MANAGER CAN EXPECT FROM THEEXPECT FROM THE

IS DEPARTMENTIS DEPARTMENT


Eight Core Activitiesg• Anticipating new technologies.

IT must keep an eye on emerging technologies– IT must keep an eye on emerging technologies.– Work closely with management to make appropriate

decisionsdecisions.– Weigh risks and benefits of new technologies.

• Strategic directionStrategic direction.– IS can act as consultants to management.– Educate managers about current technologies/trendsEducate managers about current technologies/trends.

• Process innovation.– Review business processes to innovate– Review business processes to innovate.– Survey best practices.

• Supplier management• Supplier management.– Carefully manage outsourced IT.


Eight Core Activitiesg(continued)

• Architecture and standards• Architecture and standards.– Be aware of incompatibilities.

I i t t d t d i i t it– Inconsistent data undermines integrity.• Security

– Important to all general managers.– Much more than a technical problem.

• Business continuity planning– Disaster recoveryDisaster recovery.– “What if” scenarios.

• Human resource management• Human resource management.– Hiring, firing, training, outsourcing, etc.


Figure 9.4 User management activities


WHAT THE IS ORGANIZATION DOES NOT DO


What IS Does Not DoWhat IS Does Not Do

• Does not perform core business functions such as:such as:– Selling– Manufacturing– AccountingAccounting.

• Does not set business strategy.– General managers must not delegate critical

technology decisions.


ORGANIZING ANDORGANIZING AND CONTROLLINGCONTROLLING IS PROCESSESIS PROCESSES


Outsourcingg• The purchase of a good or service that was

i l id d i t llpreviously provided internally.• Drivers include:

– Reducing costs; Transition to new technologies; Focus on core business strategies; Provide better management and focus of IT personnel;management and focus of IT personnel;

• Disadvantages are present in outsourcing and include losing control expensive to undueinclude losing control, expensive to undue decisions, etc.

• Figure 9 5 provides details on drivers andFigure 9.5 provides details on drivers and disadvantages.

• Backsourcing is when a company brings backBacksourcing is when a company brings back previously outsourced IS functions.


Drivers Disadvantagesg•Offer cost savings•Ease transition to new technologies

•Abdication of control•High switching costs•Ease transition to new technologies

•Offer better strategic focus•Provide better mgmt of IS staff

•High switching costs•Lack of technological innovation•Loss of strategic advantage•Provide better mgmt of IS staff

•Handle peaks•Consolidate data centers

•Loss of strategic advantage•Reliance on outsourcer•Problems withConsolidate data centers

•Infuse cash Problems with

security/confidentiality•Evaporization of cost savingsg

Fi 9 5 D i d di d t f t iFigure 9.5 Drivers and disadvantages of outsourcing


Outsourcing ModelsOutsourcing ModelsCl i d l• Classic model – Outsource only those functions that do not give the

titi d t ( ili th dcompany competitive advantage (prevailing method of the 70s and 80s).

K d k ff t• Kodak effect.– Put ALL functions of IS up for “grabs” (can include

ff h i )offshoring).• New models:

– Application Service Provider – rents the use of an application to the customer.

– Full vs. Selective Outsourcing – complete outsourcing vs. only outsourcing specific functions.


Avoiding Outsourcing Pitfallsg g• Decisions must be made with adequate care

d d lib tiand deliberation.• Offshoring is an increasingly popular form of

t i ( i l i th t ioutsourcing (using employees in other countries like India).

Functions include routine IT transactions to higher– Functions include routine IT transactions, to higher end knowledge-based business processes.

– Labor savings range from 40-70%Labor savings range from 40 70%.– Long transition periods.– Workers often have advanced degrees.Workers often have advanced degrees.– Countries with high levels of English proficiency are

more attractive.– Risks can be considerable as the project size grows.– What could/should be offshored?


•Do not focus negotiation solely on priceC ft f ll lif l i t t th t i t t d•Craft full life-cycle services contracts that occur in stated.

•Establish short-term supplier contracts.U lti l b t f b d li•Use multiple, best-of-breed suppliers

•Develop skills in contract management.•Carefully evaluate your company’s own capabilities•Carefully evaluate your company s own capabilities.•Thoroughly evaluate outsourcers’ capabilities.•Choose an outsourcer whose capabilities complement yours•Choose an outsourcer whose capabilities complement yours.•Base a choice on cultural fit as well as technical expertise.•Determine whether a particular outsourcing relationship produces a netDetermine whether a particular outsourcing relationship produces a net benefit for your company.•Plan transition to offshoring.g

Figure 9.6 Steps to avoid pitfalls.


CENTRALIZED VSVS.

DECENTRALIZEDDECENTRALIZED ORGANIZATIONALORGANIZATIONAL

STRUCTURESSTRUCTURES


OverviewOverview• Centralized bring together all staff hardware• Centralized – bring together all staff, hardware,

software, data, and processing into a single location.

• Decentralized – the components in theDecentralized the components in the centralized structure are scattered in different locations to address local business needslocations to address local business needs.

• Federalism – a combination of centralized and decentralized structures.

• Figure 9.7 shows the continuum of where theseFigure 9.7 shows the continuum of where these structures fall.


Figure 9.7 Organizational continuum


The 5 Eras of Information Usageg1 1960s - mainframes dictated a centralized1. 1960s - mainframes dictated a centralized

approach.2 1970s - remained centralized due in part to the2. 1970s - remained centralized due in part to the

constraints of mainframe computing3 1980s - advent of the PC and decentralization3. 1980s - advent of the PC and decentralization 4. 1990s - the Web, with its ubiquitous presence

and fast network speeds shifted someand fast network speeds, shifted some businesses back to a more centralized approachapproach

5. 2000+ - the increasingly global nature of many businesses makes complete centralizationbusinesses makes complete centralization impossible


FederalismFederalism

• Most companies would like to achieve the advantages derived from both centralized and gdecentralized organizational paradigms.

• This leads to federalism a structuring• This leads to federalism – a structuring approach which distributes, power, h d f d d lhardware, software, data and personnel between a central IS group and IS in business units.


Figure 9.10 Federal IT


Managing the GlobalManaging the Global ConsiderationsConsiderations

• Large global MIS organizations face many of the g g g ysame organizational issues as any other global department.p

• For IS, a number of issues arise that put the business at risk beyond the typical globalbusiness at risk beyond the typical global considerations.

• Table 9 11 summarizes how a global IT• Table 9.11 summarizes how a global IT perspective affects six information management issuesissues.


Issue Global IT Perspective Example

Political How risky is investment in a India a country that facesPolitical Stability

How risky is investment in a country with an unstable government ?

India, a country that faces conflict with Pakistan

Transparency Domestically, an IT network can be end-to-end with little effort

d t l b l t k

SAP-R3 can be used to support production processes but only if i t ll dcompared to global networks installed

Business Continuity

When crossing borders, it is important to make sure that

Concern when crossing boarders is will data center be Continuity

Planningcontingency plans are in place available when/if needed

Cultural IT systems must not offend or Using images or artifacts may

Differences insult those of a different culture be insulting to another culture

Sourcing Some technologies cannot be Exporting it to some countries, gexported or imported into specific countries

especially those who are not political allies is not possible

Data Flow Data, especially private or For example: BrazilData Flow across Borders

p y ppersonal data, is not allowed to cross some borders.

p

Fi 9 11 Gl b l C id ti f th MIS O i tiCopyright 2006 John Wiley & Sons, Inc.

Figure 9.11 Global Considerations for the MIS Organization

FOOD FOR THOUGHT: GOING OFFSHORE FOR

IS DEVELOPMENT


Managing a Global NetworkManaging a Global Network• Managing a global network is a challengeManaging a global network is a challenge,

particularly when different parts of it are owned by different enterprises.by different enterprises.

• Offshoring is used (as covered earlier) by more and more companies.and more companies.

• Offshoring has resulted in a high number of lost IT jobs (500,000 in 2004 in the U.S.).IT jobs (500,000 in 2004 in the U.S.).– Some states are attempting to curb this trend by

regulating the privatization of state services. – There is likely to be continued pressure on curbing

offshoring by government and major corporations.H ff h i h t t b 10– However, offshoring has cut consumer costs by 10-30%.


SUMMARYSUMMARY


SummarySummary• The CIO is a high level IS officer• The CIO is a high-level IS officer.• There are a variety of key job titles in the IS

organizationorganization.• IS organizations can be expected to anticipate

new technologies set strategic direction etcnew technologies, set strategic direction, etc.• Managers must work with IT leaders to develop

a lean competitive enterprise where IT acts asa lean, competitive enterprise, where IT acts as a strategic enable.Full or selective outsourcing offers organizations• Full or selective outsourcing offers organizations alternatives to keeping strategic IT services.Offshoring is gro ing and is a contro ersial• Offshoring is growing and is a controversial issue.


Chapter 10pFunding IT & (Legalities)g ( g )


by Keri Pearlson & Carol Saundersby Keri Pearlson & Carol Saunders


Introd ctionIntroduction• How are IT costs best allocated across an

organization?organization?• Is there a method that is most likely to be fair

and accurate?and accurate?• How do companies determine what the real

t f IT i t t ?costs are for IT investments?• What metrics (ROI, NPV, etc.) should be used to ( )

evaluate IT investments?• What is TCO (Total Cost of Ownership)?What is TCO (Total Cost of Ownership)?


FUNDING THE IT DEPARTMENT


Funding the IT departmentFunding the IT departmentH t i t d ith d i i• How are costs associated with designing, developing, delivering and maintaining IT

t d?systems recovered? • There are three main funding methods:

• Chargeback • Allocation• Allocation • Corporate budget

• The first two are done for management reasons, while the latter recovers costs using corporate coffers


ChargebackChargeback

• IT costs are recovered by charging individuals, departments, or business units p ,

• Rates for usage are calculated based on the actual cost to the IT group to run the systemactual cost to the IT group to run the system and billed out on a regular basis

• They are popular because they are viewed as the most equitable way to recover IT coststhe most equitable way to recover IT costs

• However, creating and managing a chargeback t i tl dsystem is a costly endeavor


AllocationAllocation• Recovers costs based on something otherRecovers costs based on something other

than usage, such as revenues, log-in accounts or number of employeesaccounts, or number of employees

• Its primary advantage is that it is simpler to implement and applyimplement and apply

• True-up process is needed where total IT d t t t l IT f dexpenses are compared to total IT funds

recovered from the business units.• There are two major problems:

• The 'free rider' problemp• Deciding the basis for charging out the costs


Corporate BudgetCorporate Budget• Here the costs fall to the corporate P&L• Here the costs fall to the corporate P&L,

rather than levying charges on specific users or business units

• In this case there is no requirement to• In this case there is no requirement to calculate prices of the IT systems and hence no financial concern raised monthly by the business managersmonthly by the business managers

• However, there are drawbacks, as shown in the next slide (Figure 10.1).


Funding Method

Description Why do it? Why not do it?Method

Chargeback Charges are calculated based

Fairest method for recovering costs

Must collect details on usage;calculated based

on actual usagerecovering costs since it is based on actual usage

details on usage; often expensive and difficult

Allocation Expenditures are divided by non-usage basis

Less bookkeeping for IT

IT department must defend allocation ratesusage basis allocation rates

Corporate Corporate No billing to the Have to competeCorporate Budget

Corporate allocates funds to IT in annual budget

No billing to the businesses. Good for encouraging use of new

Have to compete with all other budgeted items for fundsbudget of new

technologies.for funds

Figure 10.1 Comparison of IT funding methods


HOW MUCH DOES ITHOW MUCH DOES IT COST?


O er ieOverview

• The most basic method of determining t i t dd ll f th h dcosts is to add up all of the hardware,

software, network, and people involved in , , p pIS.R l t i t t d t i• Real cost is not as easy to determine.

• Most companies continue to use the over-• Most companies continue to use the over-simplistic view of determining cost and never really know the real cost.


Activity Based CostingActivity Based Costing• Activity Based Costing (ABC) counts the actual

activities that go into making a specific product g g p por delivering a specific service.

• Activities are processes functions or tasks thatActivities are processes, functions, or tasks that occur over time and have recognized results. They consume assigned resources to produceThey consume assigned resources to produce products and services.

• Activities are useful in costing because they are• Activities are useful in costing because they are the common denominator between business process improvement and informationprocess improvement and information improvement across departments


Total Cost of OwnershipTotal Cost of OwnershipT t l C t f O hi (TCO) i f t• Total Cost of Ownership (TCO) is fast becoming the industry standardIt l k b d i iti l it l i t t t• It looks beyond initial capital investments to include costs associated with technical support administration and trainingsupport, administration, and training.

• This technique estimates annual costs per user for each potential infrastructure choice;user for each potential infrastructure choice; these costs are then totaled. Careful estimates of TCO provide the best• Careful estimates of TCO provide the best investment numbers to compare with financial return numbers when analyzing the netreturn numbers when analyzing the net returns on various IT options


TCO Component BreakdownTCO Component Breakdown• For shared components like servers and p

printers, TCO estimates should be computed per component and then divided among all p p gusers who access them

• For more complex situations such as whenFor more complex situations, such as when only certain groups of users possess certain components it is wise to segment thecomponents, it is wise to segment the hardware analysis by platform

• Soft costs such as technical support• Soft costs, such as technical support, administration, and training are easier to estimate than they may first appearestimate than they may first appear


TCO as a Management ToolTCO as a Management Tool

• TCO also can help managers understand how infrastructure costs break down

• It provides the fullest picture of where managers spend their IT dollars as TCOmanagers spend their IT dollars as TCO results can be evaluated over time against industry standardsindustry standards

• Even without comparison data, the numbers that emerge from TCO studies assist inthat emerge from TCO studies assist in decisions about budgeting, resource allocation and organizational structureallocation, and organizational structure


IT PORTFOLIOIT PORTFOLIO MANAGEMENT


IT Portfolio ManagementIT Portfolio Management• IT investments should be managed as any other

investment would be managed by aninvestment would be managed by an organization.

• IT Portfolio Management refers to the process of• IT Portfolio Management refers to the process of evaluating and approving IT investments as they relate to other current and potential ITrelate to other current and potential IT investments.Oft i l i ki th i ht i f• Often involves picking the right mix of investments.

• Goal is to invest in most valuable IT initiatives.


Asset ClassesAsset Classes

• According to Weill and Aral, there are four asset classes of IT investments:classes of IT investments:– Transactional systems – systems that streamline or

t t b i ticut costs on business operations.– Informational systems – any system that provides

information used to control, manage, communicate, analyze or collaborate.

– Strategic systems – any system used to gain competitive advantage in the marketplace.

– Infrastructure systems – the base foundation or shared IT services used for multiple applications.


Relative Investment ProfileRelative Investment Profile• Average firm allocates 54% to infrastructureAverage firm allocates 54% to infrastructure

each year and only 13% to transactional systems.systems.

• Service companies (such as food service) allocate:allocate:– 26% to informational systems– 18% to transactional systemsy– 45% to infrastructure systems– 11% to strategic systemsg y

• Figure 10.4 summarizes a typical IT portfolio.• Table 10 5 summarizes the differences ofTable 10.5 summarizes the differences of

strategies.


Informational Strategic20% 13%

Figure 10.4 Average Company’s IT Portfolio Profile


Infrastructure investments

Transactional investments

Informational investments

Strategicinvestmentsinvestments investments investments investments

Average 54% 13% 20% 13%Firm

Cost 42% 40% 13% 5%CostFocus

42% 40% 13% 5%

AgilityFocus

58% 11% 14% 17%

T bl 10 5 IT I t t t t i dTable 10.5 IT Investment strategies compared


Project and Portfolio ManagementProject and Portfolio Management

• Collecting information needed is a challengechallenge.

• Project and Portfolio Management (PPM) j g ( )systems exist that often have expanded capabilities.capabilities.

• These tools are called IT governance tsystems.

• Several successful companies produceSeveral successful companies produce systems used for PPM.


VALUING ITVALUING IT INVESTMENTSINVESTMENTS


Valuing IT Investmentsg• Soft benefits, such as the ability to make future

decisions make it difficult to measure thedecisions, make it difficult to measure the payback of IT investment

First IT can be a significant part of the ann al b dget– First, IT can be a significant part of the annual budget, thus under close scrutiny. Second the systems themselves are complex and– Second, the systems themselves are complex, and calculating the costs is an art, not a science. Third because many IT investments are for– Third, because many IT investments are for infrastructure, the payback period is much longer than other types of capital investments. o e ypes o cap a es e s

– Fourth, many times the payback cannot be calculated because the investment is a necessity rather than a ychoice, and there is no tangible payback

• Figure 10.6 show the valuation methods used.Copyright 2006 John Wiley & Sons, Inc.

g

Valuation Method DescriptionR t I t t (ROI) ROI (E ti t d lif ti b fit E ti t d lif tiReturn on Investment (ROI) ROI= (Estimated lifetime benefits- Estimated lifetime

costs)/Estimated lifetime costsNet Present Value (NPV) Calculated by discounting the costs and benefits for

each year of system’s lifetime using present value Economic Value Added (EVA) EVA = net operating profit after taxes

Payback Analysis Time that will lapse before accrued benefits overtake accrued and continuing costs

I t l R t f R t (IRR) R t th t th IT i t t i d t thInternal Rate of Return (IRR) Return that the IT investment is compared to the corporate policy on rate of return

Weighted Scoring Methods Costs and revenues/savings are weighted based on their strategic importance, etc

Prototyping A scaled-down version of a system is tested for its costs and benefitsand benefits

Game Theory or Role-playing These approaches may surface behavioral changes or new tasks attributable to a new system

Simulation A model is used to test the impact of a new system or series of tasks; low-cost method

Fi 10 6 V l ti M th dCopyright 2006 John Wiley & Sons, Inc.

Figure 10.6 Valuation Methods

MONITORING ITMONITORING IT INVESTMENTSINVESTMENTS


IT In estment MonitoringIT Investment Monitoring

• “If you can’t measure it, you can’t manage it”it”.

• Management needs to make sure thatManagement needs to make sure that money spent on IT results in

i ti l b fitorganizational benefit.• Must agree upon a set of metrics for• Must agree upon a set of metrics for

monitoring IT investments.• Often financial in nature (ROI, NPV, etc.).


The Balanced ScorecardThe Balanced ScorecardF tt ti th i ti ’ l• Focuses attention on the organization’s value drivers (which include financial performance)C i it t th f ll i t f• Companies use it to assess the full impact of their corporate strategies on their customers and workforce as well as their financial performanceworkforce, as well as their financial performance

• This methodology allows managers to look at their business from four perspectives: customertheir business from four perspectives: customer, internal business, innovation/learning, and financialfinancial

• Figure 10.7 shows the relationship of these perspectivesperspectives.


Figure 10.7 The Balanced Scorecard perspectives


g p p

The Balanced Scorecard applied to IT

• Applying the categories of the balanced scorecard to IT might mean interpreting them more broadly than originally conceived y g y

• For example, for the MIS scorecard, the customer is a user within the company not ancustomer is a user within the company, not an external customer

• The questions asked when using this methodology within the IT department are gy psummarized in the next slide


Dimension Description Example IT MMeasures

Customer Perspective

Measures that reflect factors that really matter

User defined operational metricsPerspective factors that really matter

to customersmetrics

Internal Business Measures of what the IT process metrics, project Perspective company must do

internally to meet customer expectations.

p p jcompletion rates, system operational performance metricscustomer expectations. metrics

Innovating and Learning

Measures of the company’s ability to

IT R&D, New technology introduction success rate,

Perspective innovate, improve and learn

training metrics

Financial Measures to indicate IT project ROI NPV IRRFinancial Perspective

Measures to indicate contribution of activities to the bottom-line

IT project ROI, NPV, IRR, cost/benefit, TCO, ABC

Figure 10.8 Balanced Scorecard applied to IT departments


The IT Balanced ScorecardThe IT Balanced Scorecard

• A scorecard used within the IT department.Helps senior IS managers understand their– Helps senior IS managers understand their organization’s performance, and measure it in a way that supports its business strategyway that supports its business strategy

• The IT scorecard is linked to the corporate scorecard, by insuring that the measures used by IT are those that support the y ppcorporate goals


IT DashboardsIT Dashboards• IT dashboards summarize key metrics for• IT dashboards summarize key metrics for

senior managers in a way that provides quick identification of the status of the organizationidentification of the status of the organization

• Dashboards provide frequently-updated i f ti f i t t ithi th ITinformation on areas of interest within the IT department.

• The data tends to focus on project status or operational systems status.p y

• Problems can also be identified and handled without waiting for the monthly CIO meetingwithout waiting for the monthly CIO meeting


FOOD FOR THOUGHT:FOOD FOR THOUGHT: OPTIONS PRICINGOPTIONS PRICING


Options PricingOptions Pricing• Options pricing offers management the

opportunity to take some future action in response to uncertainty about changes in the business and its environment.

• It offers a risk-hedging strategy to minimize the g g gynegative impact of risk when uncertainty can be resolved by waiting to see what happens. eso ed by a t g to see at appe s

• To be applied, managers need to have a project that can be divided into investmentproject that can be divided into investment stages, and be armed with estimates of costs of the project at each stage the projectedthe project at each stage, the projected revenues or savings and the probability of these costs and revenues/savings being


these costs and revenues/savings being realized.

NPV vs Option Pricing ViewNPV vs. Option Pricing View

• The next slide offers a very simple example of how options pricing would work for a newhow options pricing would work for a new Customer Relations Management (CRM)

t th t h t j tsystem that has two major components: • A customer identification module• A customer tracking module

• (NB: in this model all costs and revenues• (NB: in this model all costs and revenues reflect discounting)


Th N t P t V l ViThe Net Present Value ViewJune, 2005 June, 2006

(0.5) ($350,000-$120,000)

(0.5) ($20,000 - $90,000)

The Option Pricing View

June, 2005 June, 2006

(0.5) ($350,000-$120,000)

(0.5) ($0)

Figure 10.8 NPV vs. Option Pricing View.


SECURITYSECURITYANDAND

CONTROLSCONTROLS


Security and ControlsSecurity and Controls• Ernst and Young survey suggests that mostErnst and Young survey suggests that most

companies rely on luck rather than proven IS controls.

• Companies turn to technical responses to deal with security threats (worms, viruses, etc.).y ( )

• Managers go to great lengths to make sure that their systems are secure.y– Firewalls, IDS systems, password systems, and more.

• Future solutions will include hardware and software.

• Managers must be involved in the decisions gabout security and control.


Sarbanes-Oxley ActSarbanes Oxley Act• The Sarbanes-Oxley Act of 2002 was enacted toThe Sarbanes Oxley Act of 2002 was enacted to

increase regulatory visibility and accountability of public companies and their financial healthof public companies and their financial health.– All companies subject to the SEC are subject to the

requirements of the actrequirements of the act.– CEO’s and CFO’s must personally certify and be

accountable for their firm’s financial records andaccountable for their firm s financial records and accounting.

– Firms must provide real-time disclosures of any p yevents that may affect a firm’s stock price or financial performance.

– IT departments realized that they played a major role in ensuring the accuracy of financial data.


IT Control and Sarbanes-Oxleyy• In 2004 and 2005 IT departments began to identify

controls determined design effectiveness andcontrols, determined design effectiveness, and validated operation of controls through testing.

• Five IT control weaknesses were uncovered by• Five IT control weaknesses were uncovered by auditors:1. Failure to segregate duties within applications, and failure to set g g pp ,

up new accounts and terminate old ones in a timely manner.2. Lack of proper oversight for making application changes,

including appointing a person to make a change and another toincluding appointing a person to make a change and another to perform quality assurance on it.

3. Inadequate review of audit logs to not only ensure that systems q g y ywere running smoothly but that there also was an audit log of the audit log.

4 Failure to identify abnormal transactions in a timely manner4. Failure to identify abnormal transactions in a timely manner.5. Lack of understanding of key system configurations.


FOOD FOR THOUGHT: ETHICS AND THE INTERNET


Ethics and the InternetEthics and the Internet• The Internet crosses international boundariesThe Internet crosses international boundaries

posing challenges that are not readily resolved.• Different cultures laws customs and habits• Different cultures, laws, customs, and habits

insure that different countries police the Internet in very different ways.in very different ways.

• Managers face challenges in navigating their organizations through the murky waters oforganizations through the murky waters of ethical use of the Internet.

• Example: Free speech and censorship.Example: Free speech and censorship.– The U.S. provides for free speech protection, but

other countries do not.– An Internet code of ethics by the IFIP is being

debated.


Summaryy• IT is funded using either chargeback, allocation,

t b d tor corporate budget.• Chargeback is viewed as most equitable.• TCO is used to understand ALL costs

associated with a technology.• Activity-based costing can be a meaningful

measure of determining cost.• The portfolio of IT investments must be carefully

evaluated and managed.• Balanced scorecards and IT dashboards are

used to communicate the status and benefits of ITIT.

• Options pricing offers risk-hedging.Copyright 2006 John Wiley & Sons, Inc.

SummarySummary• Ethics is important to the IS field particularlyEthics is important to the IS field particularly

since new technologies and innovations are arriving at an untold pace.

• IS professionals must seek to uphold the ethical handling and dissemination of information gadhering to international, federal, state, and local laws concerning the ethical handling of d t d th i i idata under their supervision.

• Improper handling and use of IS can lead not l t i t l i ti bl b t tonly to internal organization problems but to

legal problems as well.D ’t j di f t b th i h dli• Don’t jeopardize your future by the mishandling of IS


CChapter 11P j t M tProject Management




Introd ctionIntroduction• What are the elements of a good project?• Why do so many IT projects fail to meet their• Why do so many IT projects fail to meet their

targeted goals?Wh t i th l ti hi b t ti• What is the relationship between time, scope, and cost of a project?

• Why are Gantt charts so popular for planning schedules?

• What is RAD? How does it compare to the SDLC?SDLC?

• When is it time to pull the plug on a project?


Real World ExamplesReal World ExamplesTh St t f Fl id dit ’ t b t• The State of Florida auditor’s report about HomeSafenet was blistering.

• The system was designed to keep track of the more than 40 000 children considered to bemore than 40,000 children considered to be abused or neglected.

• Started in 1994 not fully implemented until 2005.• More than five times the original cost estimate.More than five times the original cost estimate.• Development plagued by poor project

managementmanagement.


WHAT DEFINES A

PROJECTPROJECT


Project DefinitionProject Definition“[A] j t i t d“[A] project is a temporary endeavor undertaken to create a unique product or service. Temporary means that every project has a definite beginning and a definite end. as a de e beg g a d a de e e dUnique means that the product or service is different in some distinguishing way from alldifferent in some distinguishing way from all similar products or services.”

-Project Management Institute (1996)


ProjectsProjects

• Companies use projects and operations to generate revenue.g

• Projects are temporary endeavors that have a fixed start and stop date and timefixed start and stop date and time.

• Operations are ongoing, repetitive tasks that are performed until they are changed or replacedperformed until they are changed or replaced.

• Project managers may break projects into sub-j t d di th kprojects depending upon the work.

• Figure 11.1 show the differences between goperational and project based work.


Characteristics Operations ProjectsL b kill L Hi hLabor skillsTraining timeWorker autonomy

LowLowLow

HighHighHighWorker autonomy

Compensation systemMaterial input requirements

LowHourly or weekly wageHigh certainty

HighLump sum for projectUncertain

Suppler ties

R M t i l i t

Longer durationMore formalL

Shorter durationLess formalS llRaw Materials inventory

Scheduling complexityQuality control

LargeLowerFormal

SmallHigherInformalQuality control

Information flowsWorker-mgmt communication

FormalLess importantLess important

InformalVery importantVery important

DurationProduct or service

On-goingRepetitive

TemporaryUnique

Fig. 11.1 Characteristics of operational and project work


WHAT IS PROJECT MANAGEMENT


Project ManagementProject Management

• Project management is the application of knowledge skills tools and techniques toknowledge, skills, tools, and techniques to project activities in order to meet or exceed t k h ld d d t ti fstakeholder needs and expectation from a

project.• Involves continual trade-offs• Manager’s job to manage these trade offs• Manager s job to manage these trade-offs.


Typical Project Management yp j gtrade-offs

• Scope vs. Time– Product and project scope.– Scope creep can occur.

• Cost vs. Qualityy– The quality of a system will normally impact its cost.

• Identified requirements vs. Unidentified qrequirements

• User needs vs. User expectationsp• Differing needs and expectations vs. diverse

stakeholders• Figure 11.2 shows the three sides of the project

triangle.Copyright 2006 John Wiley & Sons, Inc.

g

Time Cost

QUALITY

Scope

Figure 11.2 Project Triangle


Project Management Acti itiesProject Management Activities

• The project manager will typically be involved in:Ensuring progress of the project according to defined– Ensuring progress of the project according to defined metrics..Id tif i i k– Identifying risks.

– Ensuring progress toward deliverables within time and resource constraints.

– Running coordination meetings.– Negotiating for resources on behalf of the project.


PROJECTPROJECTMEASUREMENT


Project MeasurementProject Measurement• Some metrics used for IS projects are the j

same as those used for all business projects• Projects are measured against budgets of j g g

cost, schedules of deliverables, and the amount of functionality in the system scope

• IT projects are difficult to estimate and most fail to meet their schedules and budgets

• Software systems often involve highly interactive, complex sets of tasks that rely on

h th t k l t d teach other to make a completed system.• Most projects cannot be made more efficient

i l b ddi l bsimply by adding labor


Business vs. System yFunctionalityy

• Metrics for functionality are typically divided along li f b i f ti lit d tlines of business functionality and system functionality

• The first set of measures are those derived specifically from the requirements and businessspecifically from the requirements and business needs that generated the projectTh d l t d t th t it lf h• The second are related to the system itself such as how well the individual using the system can and does use it, or system reliability


PROJECTPROJECTELEMENTS


Essential ComponentsEssential Components• There are four components essential for any

j t Th l t tproject. These elements are necessary to assure that the project will have a high probability of successprobability of success.– Common Project Vocabulary: so all team members

can communicate effectively (since many are new thiscan communicate effectively (since many are new this is very important).

– Teamwork: to insure all parts of the project come t th ff ti l d tl ( k ttogether effectively and correctly (make sure to clearly define the teams objectives). Project cycle plan: method and schedule to execute– Project cycle plan: method and schedule to execute the project (Gantt charts, CPM, and PERT diagrams).

– Management of the project is needed so that it isManagement of the project is needed so that it is coordinated and executed appropriately


Project Cycle Planj y• The project cycle plan organizes discrete project

ti iti i th i t t lactivities, sequencing them into steps along a time line.

• Identifies critical beginning and ending dates and breaks the work spanning these dates into phases

• The three most common approaches are:– Project Evaluation and Review Technique (PERT)Project Evaluation and Review Technique (PERT)

(Figure 11.3)– Critical Path MethodCritical Path Method– Gantt chart (Figure 11.4)

• Figure 11 5 provides detail on the project cycle• Figure 11.5 provides detail on the project cycle template.


Figure 11.3 PERT Chart


Figure 11.4 GANTT Chart


Requirements D fi iti i d

Production Period Deployment/Di i ti P i dDefinition period Dissemination Period

Investigation Task ForceUser requirement definition

Research concept definition

Information use specification

Collection planning phase

Collection and analysis phase

Draft report phase

Publication phase

Distribution phase

phase

Typical High Tech Commercial BusinessProduct Product Product Product Engineer Internal Production ManufacturProductrequirementphase

Productdefinition phase

Product proposal phase

Product develop-ment phase

Engineer model phase

Internal test phase

Production phase

Manufactur-ing, sales & support phase

Generic Project Cycle TemplateUser require- Concept System Acquisition Source Develo Verification Deployment or ment definition phase.

definition phase

yspecification phase

planning phase

selection phase

pment phase

phasey

production phase

Deactivate phase

Figure 11.5 Project cycle template


Aspects of Project Cycle WorkAspects of Project Cycle Work.• The manager must attend to the following• The manager must attend to the following

aspects of the work throughout the project cycle:cycle:– Technical - includes all activities related to

satisfying the technical and quality requirementssatisfying the technical and quality requirements.– Budget - describes all activities related to the

appropriation of project funds by executiveappropriation of project funds by executive management and the securing and accounting of funds by the project manager.y p j g

– Business - encompasses all activities related to the management of the project and any associated g p j ycontracts.


Elements of Project ManagementElements of Project Management• The following elements can be considered asThe following elements can be considered as

managerial skills that influence a project’s chance for success.

Id ifi i f i• Identification of requirements• Organizational integration• Team managementTeam management• Project planning• Risk and Opportunity management• Project control• Project visibility• Project statusProject status• Corrective action• Project leadership

• See figure 11.6 in the text for a description of each element


Organi ational IntegrationOrganizational IntegrationTh j t h ld id ll t t ith• The project manager should, ideally, start with a structure similar to the organization supporting th j tthe project.

• Different structures are ideal for different projects.

• For example a Pure Functional structure worksFor example a Pure Functional structure works best for a single project that operates with relative independence.relative independence.

• The following figures (11.7 – 11.10) show the general layout of these structuresgeneral layout of these structures.


Figure 11.7 Pure functional structure


Fi 11 8 P ( j t) t tFigure 11.8 Pure purpose (project) structure


Figure 11.9 Conventional matrix structure


Figure 11.10 Co-located matrix structure


Team ManagementTeam Management

• Project manager acquires and manages required human resourcesrequired human resources.

• Assessments of professional competencies and skills.

• Also personal traits and behaviors can help theAlso personal traits and behaviors can help the project manager select team members with specific roles in mindspecific roles in mind

• As a project progresses through its life cycle, the number of people assigned typically increases.


Risk and Opportunity Management

• Critical task of the team is to manage risks and opportunities.

• Steps include: p– Identification and assessment– Outcome predictionsOutcome predictions– Development of strategies

• By comparing costs and benefits of various• By comparing costs and benefits of various courses of action, the team can select which sequence of actions to take and obtainsequence of actions to take and obtain agreement from necessary parties


Project ControlProject Control• Effective project management requires the• Effective project management requires the

exercise of control.• Must be sufficient to minimize risks while• Must be sufficient to minimize risks while

maximizing the likelihood of meeting or exceeding requirementsexceeding requirements.

• Effective project control involves five variables:The nature and number of entities that require control– The nature and number of entities that require control

– Control standardsControl authority– Control authority

– Control mechanisms– Variance detectionVariance detection


Project VisibilityProject Visibility• Communication management among team• Communication management among team

members and between the team and any project stakeholders is essentialproject stakeholders is essential.

• Techniques range from the old-fashioned h ti ll d “ i bapproach sometimes called “managing by

walking around” to the more technological h f id f i il dapproaches of video conferencing, e-mail and

voice mail. • One effective technique to raise visibility uses

a project information center comprised of p j pphysical displays in a central location


Project StatusProject Status• Status checks measure the project’s

performance against the plan to alert everyone p g p yto any needed adjustments to budget, schedule or other business or technicalschedule, or other business or technical aspects of the project. Th f h l h ld b• The status of these elements should be evaluated in a combined format, since they interrelate.


Corrective Action

• Corrective techniques can place the project back on track after a variation from the plan is detected

• Examples of these reactive techniques include adding work shifts, lengthening work g , g ghours, and changing leadership


Project LeadershipProject LeadershipSt j t l d killf ll t• Strong project leaders skillfully manage team composition, reward systems, and other t h i t f li d ti t ttechniques to focus, align, and motivate team members

• In organizations that have developed strong processes for project management and professionals trained for this activity, the need for aggressive project leadership is reduced

• Strong project leaders are needed to help the organization develop project competency toorganization develop project competency to begin with (see Figure 11.11).


M l d hi L l d hiMore leadershipNeeded

Less leadershipNeeded

ProjectLeadershipp

ProjectjManagement Process

No PM process PM process existsNo PM processTeam is new to PM processTeam does not value process

PM process existsTeam is fully trained in processTeam values processTeam does not value process Team values process

Figure 11.11 Project leadership vs. project management process


IT PROJECT DEVELOPMENTDEVELOPMENT

METHODOLOGIESMETHODOLOGIES


Project DevelopmentProject Development Methodologiesg

• The choice of development methodologies and managerial influences distinguish IT projects from other projects. p j p j

• There are four main methodologies IT professionals use to manage the technologyprofessionals use to manage the technology projects: – Systems Development Life Cycle (SDLC) – Prototyping – Rapid applications development (RAD)– Joint applications development (JAD)


Joint applications development (JAD)

Systems Development Life CycleSystems Development Life CycleSDLC typically consists of seven phases

1. Initiation of the project2. The requirements definition phase3. The functional design phaseg p4. The system is actually built5. Verification phase5. Verification phase6. The “cut over” where the new system is put in

operation and all links are establishedp7. The maintenance and review phase


Limitations of SDLC • Traditional SDLC methodology for current IT gy

projects are not always appropriate:– Many systems projects fail to meet objectives becauseMany systems projects fail to meet objectives because

of the difficulty in estimating costs and each project is often so unique that previous experience may not provide the necessary skills

– Objectives may reflect a scope that is too broad or two th t th bl th t d i dnarrow so that the problem the system was designed

to solve may still exist, or the opportunity that it was to capitalize upon may not be appropriately leveragedcapitalize upon may not be appropriately leveraged.

– If the business environment is very dynamic, there may not be enough time to adequately do each step ofmay not be enough time to adequately do each step of the SDLC for each IT project


PrototypingPrototyping• SDLC may not work for all situations, requires aSDLC may not work for all situations, requires a

lot of planning and is difficult to implement quickly.

• Prototyping is a type of evolutionary development.p

• Builds a fast, high-level version of the system at the beginning of the project.g g p j

• Advantages include:– User involvement and comment early on and throughout the

d l tdevelopment process.• Disadvantages include:

D t ti b diffi lt t it– Documentation may be difficult to write.– Users may not understand the realistic scope of the system.


System Concept

VersionVersion “1”

VersionVersion “2”

Version “N”Software “N”Software

Development ProcessProcess

Figure 11.13 Iterative approach to systems development


RAD and JADRAD and JAD• RAD (Rapid Application Development) is similarRAD (Rapid Application Development) is similar

to the SDLC but it substantially reduces the time through reduction in steps (4 instead of 7).through reduction in steps (4 instead of 7).

• RAD, like prototyping, uses iterative development tools to speed up development:development tools to speed up development:– GUI, reusable code, code generation, and

programming, language testing and debugging• Goal is to build the system in a much short time

frame than normal.• JAD (Joint Application Development) is a

technique developed by IBM where users are more integrally involved throughout the development process.


Other Development MethodologiesOther Development Methodologies• Agile development methodologies are being g p g g

developed for those situations where a predictable development process cannot be p p pfollowed.

• Examples include:Examples include:– XP (Extreme Programming), Crystal, Scrum, Feature-

Driven Development and Dynamic SystemDriven Development and Dynamic System Development (DSDM).

• Tend to be people rather than process orientedTend to be people rather than process oriented.• DSDM is an extension of RAD used in the UK.

Obj O i d (OO) d l i b i• Object Oriented (OO) development is becoming increasingly popular.


MANAGERIAL INFLUENCESMANAGERIAL INFLUENCES


Technical InfluencesTechnical Influences • General managers face a broad range• General managers face a broad range

of influences during the development f j tof projects.

• Four software tools are available to aidFour software tools are available to aid in managing the technical issues:

C t Aid d S ft E i i• Computer-Aided Software Engineering (CASE) suite of tools

• Software development library • Automated audit trailAutomated audit trail • Software metrics


Key Termsy• Below is a list of key terms that a generalBelow is a list of key terms that a general

manager is likely to encounter:– Source lines of code (SLOC) is the number of lines of ( )

code in the source file of the software product.– Source statement is the number of statements in the

source filesource file– Function points describe the functional requirements

of the software product and can be estimated earlierof the software product and can be estimated earlier than total lines of code

– Inheritance depth is the number of levels through p gwhich values must be remembered in a software object

– Schedule slip is the current scheduled time divided by the original scheduled timethe original scheduled time

– Percentage complete measures the progress of a software product in terms of days or effort


software product in terms of days or effort

Managing Organizational andManaging Organizational and Socioeconomic Influences

• Balance goals of stakeholders– project manager– customer – end-user (there’s a difference)

sponsor– sponsor• Sustain commitment

– project – psychological (personal responsibility, biases)p y g (p p y, )– social (rivalry, norms for consistency)– organizational (political support culture)


– organizational (political support, culture)

MANAGING PROJECT RISKMANAGING PROJECT RISK


ComplexityComplexityFactors influencing a project’s complexity include:Factors influencing a project s complexity include:

1. How many products will this website sell?2 Will this site support global national regional or2. Will this site support global, national, regional, or

local sales?3 H ill thi l i t f ith th3. How will this sales process interface with the

existing customer fulfillment process?4. Does the company possess the technical expertise

in-house to build the site?5. What other corporate systems and processes does

this project impact?6. How and when will these other systems be

coordinated?


Cl itClarityCl it i d ith th bilit t d fi• Clarity is concerned with the ability to define the requirements of the system.

• A project has low clarity if the users cannot easily state their needs or define what theyeasily state their needs or define what they want from the system.

• A project with high clarity is one in which the systems requirements can be easily documented and which do not change


Size• Plays a big role in project risk• Plays a big role in project risk• A project can be considered big if it has:

– A big budget relative to other budgets in the organization

– A large number of team members (= number of man months))

– A large number of organizational units involved in the project p j

– A large number of programs/componentsA large number of function points or lines of code– A large number of function points or lines of code


High Risk LevelHigh Risk Level• Large highly complex projects that are• Large, highly complex projects that are

usually low in clarity are very risky S ll j t th t l i l it d• Small projects that are low in complexity and high in clarity are usually low risk

• Everything else is somewhere in between • The level of risk determines how formal theThe level of risk determines how formal the

project management system and detailed the planning should beplanning should be

• When it is hard to estimate how long or how much a project will cost because it is somuch a project will cost because it is so complex/clarity is so low, formal management practices or planning may be inappropriate


practices or planning may be inappropriate

Managing the Complexity g g p yAspects of Project Riskp j

Strategies that may be adopted in dealing with complexity are:

• Leveraging the Technical Skills of the Team such as having a leader or team members who have had significant work experience

• Relying on Consultants and Vendors – as their work is primarily project based, they usually possess the crucial IT knowledge and skillsIT knowledge and skills

• Integrating Within the Organization such as having frequent team meetings documenting critical projectfrequent team meetings, documenting, critical project decisions and holding regular technical status reviews


Managing Clarity Aspects ofManaging Clarity Aspects of Project Risk j

• When a project has low clarity projectWhen a project has low clarity, project managers need to rely more heavily upon the users to define system requirementsusers to define system requirements– Managing stakeholders – managers must

balance the goals of the various stakeholdersbalance the goals of the various stakeholders, such as customers, performing organizations and sponsors, to achieve desired project outcomes

– Sustaining Project Commitment – there are four primary types of determinants of commitment to projects


Pulling the PlugPulling the Plug• Often projects in trouble persist long after theyOften projects in trouble persist long after they

should have been abandoned• The amount of money already spent on a project• The amount of money already spent on a project

biases managers towards continuing to fund the project even if its prospects for success areproject even if its prospects for success are questionableWh th lti f f il ithi i ti• When the penalties for failure within an organization are also high, project teams are often willing to go to

t l th t i th t th i j t i tgreat lengths to insure that their project persists • Or if there is an emotional attachment to the project p j

by powerful individuals within the organization


Measuring SuccessMeasuring Success

• At the start of the project, the general manager should consider several aspects based on achieving the business goals.

• Care is needed to prevent a too narrow or ptoo broad set of goals.

• It is important that the goals be measurableIt is important that the goals be measurable so that they can be used throughout the project to provide the project manager withproject to provide the project manager with feedback.


Four dimensions of success

• According to Shenhar, Dvir and Levy (1998) th f di i fthere a four dimensions of success:– Resource constraints: does the project meet the

ti d b d t it i ?time and budget criteria?– Impact on customers: how much benefit does

the customer receive from the project?the customer receive from the project?– Business success: how high and long are the

profits produced by the project?profits produced by the project?– Prepare the future: has the project altered the

infrastructure of the org so future businessinfrastructure of the org. so future business success and customer impact are more likely?

• See Figure 11 16 in the textCopyright 2006 John Wiley & Sons, Inc.

• See Figure 11.16 in the text.

FOOD FOR THOUGHT:FOOD FOR THOUGHT: OPEN SOURCING


Open So rcingOpen Sourcing

• Linux, a version of Unix created by Linus Torvalds is a world class OSTorvalds, is a world-class OS.

• Linux was built using the open-source g pmodel.

• Open source software is really free• Open-source software is really free software that can be modified by anyone i th d i fsince the source code is free.

• It is premised upon open and unfetteredIt is premised upon open and unfettered access to the code to modify, update, etc.


Open sourcing = Free SoftwareOpen sourcing Free Software

Offers four kinds of freedom for the software users:1. The freedom to run the program, for any purpose1. The freedom to run the program, for any purpose2. The freedom to study how the program works, and

adapt it to your needs Access to the source code isadapt it to your needs. Access to the source code is a precondition for this

3 The freedom to distribute copies so that you can3. The freedom to distribute copies so that you can help your neighbor

4 The freedom to improve and release your4. The freedom to improve and release your improvements to the public, so that the whole community benefits Access to source code is acommunity benefits. Access to source code is a precondition for this


Managerial Issues associated with Open Sourcing

• Preservation of intellectual property – As its use cannot be restricted how are the contributions of individuals recognized?individuals recognized?

• Updating and maintaining open source code –Because it is “open” difficult to achieve theseBecause it is open , difficult to achieve these

• Competitive advantage – Since the code is available to all hard to achieve competitive thisall, hard to achieve competitive this

• Tech support – The code may be free, but technical support usually isn’tsupport usually isn t

• Standards – As standards are open, open sourcing may be unable to charter a viable strategy for selecting andbe unable to charter a viable strategy for selecting and using standards


SummarySummary• Plan Well• Plan Well.• Use the tools that fit.• Set realistic goals and expectations for the

project and continuously reevaluate.project and continuously reevaluate.• Communicate, communicate, communicate!• Organizational structure can provide insight.• Be aware of the advantages and disadvantagesBe aware of the advantages and disadvantages

of using open-source software.


• Copyright 2006 John Wiley & Sons, Inc.• All rights reserved. Reproduction or translation of this work beyond that

named in Section 117 of the 1976 United States Copyright Act without the py gexpress written consent of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons Inc The purchaser may make back-up copies forJohn Wiley & Sons, Inc. The purchaser may make back up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained hereinuse of these programs or from the use of the information contained herein


Chapter 12Knowledge Management




IntroductionIntroductionWh t i th diff b t d t• What is the difference between data, information, and knowledge?

• How does tacit knowledge differ from explicit knowledge?knowledge?

• Why is knowledge management so important?• How is must knowledge generated?• How is knowledge captured?• How is knowledge captured?• What is a knowledge map?


Real World E amplesReal World Examples• Ernst and Young implemented a state-of-the-art

knowledge management systemknowledge management system.• It was made available to 84,000 people in the

companies global organization to share bestcompanies global organization to share best practices and intelligence.Thi t it th t h• This system permits the user to search among more than 1,200 knowledge bases and external sources.

• In 2002 E&Y was ranked as one of the top 10 pMost Admired Knowledge Enterprises.


OverviewOverview

• Knowledge Management (KM) is defined as the d d t t t dif dprocesses needed to generate, capture, codify and

transfer knowledge across the organization to achieve competitive advantage

• Technology plays a significant role in managingTechnology plays a significant role in managing knowledge.I t ll t l it l i f KM• Intellectual capital is a synonym of KM


OverviewOverview (continued)

• KM is related to IS in three ways:• IT makes up the infrastructure for KM systems• IT makes up the infrastructure for KM systems• KM systems make up the data infrastructure for many

IS applicationsIS applications• KM is often referred to as an application of IS

• Recently a new position called “Coordinator for• Recently a new position called Coordinator for International Intellectual Property Enforcement” was created by the US Department ofwas created by the US Department of Commerce.


DATA INFORMATION ANDDATA, INFORMATION, AND KNOWLEDGEKNOWLEDGE


InformationInformation• Data, information, and knowledge have

significant and discreet meanings within KM g g(Figure 12.1 shows their differences).

• Data are specific objective facts or observationsData are specific, objective facts or observations (inventory contains 45 units).

• Information is defined as “data endowed with• Information is defined as data endowed with relevance and purpose”.D t i t d i t i f ti b i i th• Data is turned into information by organizing the data into some unit of analysis (dollars, dates,

)customers, etc.).


InformationKnowledgeData InformationKnowledgeData

Valuable information from the human mind:

Data with relevance and purpose:

Simple observations of the world:

Valuable information from the human mind:

Data with relevance and purpose:

Simple observations of the world:

includes reflection, synthesis, contextH d t t

•Requires unit of analysis

•Easily captured•Easily structured

includes reflection, synthesis, contextH d t t

•Requires unit of analysis

•Easily captured•Easily structured

•Hard to capture electronically•Hard to structure

•Needs consensus on meaning•Human mediation

•Easily transferred•Compact,

tifi bl

•Hard to capture electronically•Hard to structure

•Needs consensus on meaning•Human mediation

•Easily transferred•Compact,

tifi bl Hard to structure•Often tacit•Hard to transfer

•Human mediation necessary•Often garbled in

quantifiable Hard to structure•Often tacit•Hard to transfer

•Human mediation necessary•Often garbled in

quantifiable

Hard to transfer•Highly personal to the source

Often garbled in transmission

Hard to transfer•Highly personal to the source

Often garbled in transmission

Figure 12.1 The relationships between data, information, and knowledge.


KnowledgeKnowledge• Knowledge is a mix of contextual information• Knowledge is a mix of contextual information,

experiences, rules, and values.• Richer, deeper, and more valuable.• Consider knowing –Consider knowing

– What? - based upon assembling information and eventually applying iteventually applying it.

– How? – applying knowledge leads to learning how to do somethingdo something.

– Why? – casual knowledge of why something occurs.– (Figure 12.2 graphically illustrates these types of

knowing).


Figure 12.2 Taxonomy of Knowledge


Tacit vs. Explicit Knowledgep g• Tacit knowledge is personal, context-specific

d h d t f li d i tand hard to formalize and communicate– A [knowledge] developed and internalized by the

knower over a long period of time incorporates soknower over a long period of time . . . incorporates so much accrued and embedded learning that its rules may be impossible to separate from how an individual

‘k i h ’acts. ‘knowing how’• Explicit knowledge can be easily collected,

i d d t f d th h di it lorganized and transferred through digital means.– A theory of the world, conceived of as a set of all of

the conceptual entities describing classes of objectsthe conceptual entities describing classes of objects, relationships, processes, and behavioral norms. Often referred to as ‘knowing that’, or declarative gknowledge.

• See Figure 12.3 for more examples.Copyright 2006 John Wiley & Sons, Inc.

Tacit Knowledge Explicit Knowledgeg•Knowing how to identify the key issues necessary to solve a

•Procedures listed in a manual•Books and articlesN t d fi i lproblem

•Applying similar experiences f t it ti

•News reports and financial statements•Information left over from pastfrom past situations

•Estimating work required based on intuition & experience

•Information left over from past projects

based on intuition & experience•Deciding on an appropriate course of action

Figure 12.3 Examples of explicit and tacit knowledge


AN EVOLVING CONCEPTAN EVOLVING CONCEPT


Applying Knowledge ManagementApplying Knowledge Management• KM is not a new concept but one• KM is not a new concept, but one

reinvigorated by IT such as collaborative systems, the Internet and intranets.

• KM is still an emerging disciplineKM is still an emerging discipline• Ultimately, an organization’s only sustainable

competitive advantage lies how its employeescompetitive advantage lies how its employees apply knowledge to business problems

• KM is not a magic bullet and cannot solve all business problems.business problems.


WHY MANAGE KNOWLEDGE?


Factors to consider inFactors to consider in Knowledge Managementg g

• Information and knowledge have become the fields in which businesses compete.

• Several important factors include:p– Sharing Best Practice– GlobalizationGlobalization– Rapid Change– Downsizing– Downsizing– Managing Information and Communication Overload

Knowledge Embedded in Products– Knowledge Embedded in Products– Sustainable Competitive Advantage


Sharing Best PracticesSharing Best PracticesSh i b t ti l i th• Sharing best practices means leveraging the knowledge gained by a subset of the

i tiorganization.• Increasingly important in organizations who

depend on applying their expertise such as accounting, consulting and training firms.

• KM systems capture best practices to disseminate their experience within the firm.disseminate their experience within the firm.

• Problems often arise from employees who may be reluctant to share their knowledge (managersbe reluctant to share their knowledge (managers must encourage and reward open sharing).


Globali ationGlobalization• Historically three factors, land, labor and

capital were the key to economic successp y• Knowledge has become a fourth factor.• Low international labor costs are drivingLow international labor costs are driving

globalization (as is telecom) and pushing companies that fail to take part out of business.p p

• Knowledge has become the key resource for any organization (government, financial, y g (g , ,production, etc.).

• Lastly, knowledge is portable and must be y, g pmanaged carefully.


Other factors• Rapid change: firms must be nimble and adaptive to

competecompete• Downsizing: sometimes the wrong people get fired when

ti l i ticreating a leaner organization• Managing Info Overload: data must be categorized in

some manner if it is to be useful rather than overwhelming• Knowledge Embedded in Products: the intangibles g

that add the most value to goods and services are becoming increasingly knowledge-based

• Sustainable Competitive Advantage: KM is the way to do this. Shorter innovation life cycles keep companies ahead of the competition.


Sustainable C om petitive Ad t

Sh B P

Advantage•Shorter life-cycle of innovation•K now ledge as an infin ite resource•D irect bottom -line returns M anaging O verload

I bilit t i il t k l dSharing Best Practices•A void “ rein venting the whee l”•B uild on previous work

•Inability to assim ilate know led ge•D ata organization and storage is needed

D ow nsizing•Loss of know ledge

G lobalization•D ecreased cyc le tim esW hy M anage

K l d ?•P ortability of workers•Lack of tim e and resourcesfor knowledge acqu isition

•Increased com petitive pressures•G loba l access to know ledge•A dapting to local cond itions

K now ledge?

Em bedded K now ledgeS t d t

Rapid C hangeA id b l•Sm art products

•B lurring of distinction betweenservice and m anufacturing firm s

•V alue-added through intangib les

•A void obso lescence•B uild on previous work•Stream line processes•Sense and respond to change

Figure 12.4 Reasons for Managing Knowledge. ©IBM Global Services


KNOWLEDGE MANAGEMENTPROCESSES


Knowledge ManagementKnowledge Management• KM involves four main processes• KM involves four main processes –

– Generation – all activities that discover “new” knowledge.

– Capture – all continuous processes of scanning, organizing, and packaging knowledge after it has been generated.

– Codification – the representation of knowledge in a manner that can be easily accessed and transferred.

– Transfer – transmitting knowledge from one person or group to another, and the absorption of that g p pknowledge.


Knowledge GenerationKnowledge Generation• Generation concerns the intentional activities of

an organization to acquire/create new knowledge.g

• Two primary ways are knowledge creation and knowledge sharingknowledge sharing.

• Methods include:R h d D l t– Research and Development

– Adaptation– Buy or Rent– Shared Problem Solving– Communities of Practice


Shared Problem l i

Buy or Rent Creating (R&D)Solving

KNOWLEDGEGENERATION

Adaptation Communities of PracticePractice

Figure 12.5 Knowledge Generation Strategies


Research and DevelopmentResearch and Development K l d t d b R&D ff t• Knowledge generated by R&D efforts frequently arises from synthesis

• Synthesis brings disparate pieces of knowledge together, often from extremely diverse sources, then seeks interesting and useful relationships among them

• Realizing value from R&D depends largely on how effectively new knowledge ison how effectively new knowledge is communicated and applied across the rest of the firmof the firm


Ad t tiAdaptation

• Adaptation is the ability to apply existing resources in new ways when externalresources in new ways when external changes make old ways of doing business prohibitiveprohibitive

• A firm’s ability to adapt is based on two f t h i ffi i t i t l tfactors: having sufficient internal resources to accomplish change and being open and

illi t hwilling to change


B R tBuy or Rent

• Knowledge may be acquired by purchasing it b hi i i di id l ith lor by hiring individuals, either as employees

or consultants, who possess the desired k l dknowledge.

• Another technique is to support outside research in exchange for rights to the first commercial use of the results


Shared Problem SolvingShared Problem Solving

• Also called “fusion,” shared problem solving brings together people with different backgrounds and cognitivedifferent backgrounds and cognitive styles to work on the same problem

• The creative energy generated by problem-solving groups with diverseproblem solving groups with diverse backgrounds has been termed “creative abrasion”


Helping Fusion WorkHelping Fusion Work

• Ideas that help fusion work effectively include: – (1) fostering awareness of the value of the

knowledge sought and a willingness to invest g g gin it;

– (2) emphasizing the creative potential inherent in different styles of thinking and viewing the differences as positive;

– (3) clearly specifying the parameters of the problem to focus the group on a common goal


Communities of PracticeCommunities of Practice • Achieved by groups of workers with common• Achieved by groups of workers with common

interests and objectives, but not necessarily employed in the same department or locationemployed in the same department or location, and who occupy different roles on the organization chartorganization chart.

• Workers communicate in person, by telephone b il t l bl t thor by e-mail to solve problems together.

• Communities of practice are held together by a p g ycommon sense of purpose and a need to know what other members of the network know


Kno ledge CodificationKnowledge Codification

• Knowledge must be used or shared to be f lof value.

• Codification puts the knowledge into aCodification puts the knowledge into a form that makes it easy to find and use.

• It is difficult to measure knowledge in discreet units (since it changes over time)discreet units (since it changes over time).

• Knowledge has a shelf life.g


Four Basic Principles ofFour Basic Principles of Knowledge Codification*Knowledge Codification

1. Decide what business goals the codified gknowledge will serve (define strategic intent).)

2. Identify existing knowledge necessary to achieve strategic intentachieve strategic intent.

3. Evaluate existing knowledge for usefulness and the ability to be codifiedand the ability to be codified.

4. Determine the appropriate medium for difi i d di ib icodification and distribution.

*Davenport and Prusak (1998)


p ( )

Knowledge CaptureKnowledge CaptureK l d t t k i t t th• Knowledge capture takes into account the media to be used in the codification process.p

• The 3 main knowledge capture activities are: S i ( th “ ” i f ti ) b• Scanning (gather “raw” information) – can be electronic or human.O i i ( it i t t bl f )• Organizing (move it into an acceptable form) –must be easy for all types of users to access.

• Designing knowledge maps (providing a guide for navigating the knowledge base)


Organi ing Kno ledgeOrganizing Knowledge• One scheme for categorizing knowledge uses

four broad classifications (Ruggles 1997):four broad classifications (Ruggles 1997):– Process knowledge – best practices, useful

for increasing efficiencyfor increasing efficiency.– Factual knowledge – easy to document; basic

i f ti b t l /thiinformation about people/things.– Catalog knowledge – know where things are; g g g

like directories of expertise.– Cultural knowledge – knowing how things getCultural knowledge knowing how things get

done politically and culturally.


Knowledge MapsKnowledge Maps• A knowledge map (see figure 12 6) serves asA knowledge map (see figure 12.6) serves as

both a guide to where knowledge exists in an organization and an inventory of theorganization and an inventory of the knowledge assets available.

• Although it may be graphically represented a• Although it may be graphically represented, a knowledge map can consist of nothing more than a list of people documents andthan a list of people, documents, and databases telling employees where to go when they need helpwhen they need help.

• A good knowledge map gives access to th t ld th i b diffi ltresources that would otherwise be difficult or

impossible to findCopyright 2006 John Wiley & Sons, Inc.

Figure 12.6 Contents of knowledge maps


Kno ledge TransferKnowledge Transfer• Nonaka and Takeuchi’s Knowledge Transfer

describe four different modes of knowledgedescribe four different modes of knowledge conversion (transfer):

• Socialization: from tacit knowledge to tacit• Socialization: from tacit knowledge to tacit knowledge

• Externalization: from tacit knowledge to explicitExternalization: from tacit knowledge to explicit knowledge

• Combination: from explicit knowledge to explicitCombination: from explicit knowledge to explicit knowledge

• Internalization: from explicit knowledge to tacit p gknowledge


TYPES OF KNOWLEDGETYPES OF KNOWLEDGE MANAGEMENT PROJECTSMANAGEMENT PROJECTS


KM ProjectsKM Projects• KM projects differ widely from traditional IT

projectsprojects.• According to Davenport and Prusak if more than

one third of the time and money spent on aone-third of the time and money spent on a project is spent on technology it becomes an IT projectproject.

• Figure 12.8 summarizes the differences.• Examples include:

– Knowledge repositories – data warehouses.g p– Knowledge access, environment, and assets


KM Projects IT Projects•Emphasis on value added information

•Emphasis on accessing information

•Supports org. improvement and innovation

•Supports existing ops

D li t t linnovation•Adds value to content•Requires on-going user

•Delivers content only•Emphasis on one-way transfer of infoRequires on going user

contributions•Balanced focus on both

transfer of info•Primary focus on tech•Assumes all info inputs can

technology and culture•Variety of inputs often precludes automated

Assumes all info inputs can be automated

precludes automated capture of knowledge

Figure 12.8 Contrast between KM and IT Projects


Knowledge RepositoriesKnowledge Repositories• Three fundamental types of repositories have yp p

been identified: 1 Externally focused knowledge sometimes called1. Externally focused knowledge, sometimes called

competitive intelligence 2 Structured internal knowledge such as research2. Structured internal knowledge such as research

reports, marketing materials, and production processesprocesses

3. Informal internal knowledge such as discussion databases for “lessons learned” and internal bestdatabases for lessons learned and internal best practices

D t h ti• Data warehouses sometimes serve as repositories of organizational knowledge


MEASURING THE VALUE OFKNOWLEDGE ANAGEMENT


Project-Based MeasuresProject Based Measures

• Measuring the success of KM projects is often done by measuring the specific benefits y g pof the project examples include:

Enhanced effectiveness– Enhanced effectiveness– Revenue generated from extant knowledge assets

I d l f d d i– Increased value of extant products and services– Increased organizational adaptability– More efficient re-use of knowledge assets– Reduced costsReduced costs– Reduced cycle time


Intellect al Capital ReportIntellectual Capital Report• Widely known approach to measuring

intellectual capitalintellectual capital.• Developed by Skandia (see Figure 12.9).

Att t t d fi th k t l f• Attempts to define the market value of a company by differentiating between traditional b l h tbalance-sheet measures.


M k t V lMarket Value

Intellectual CapitalShareholder’s Equity

Structural CapitalHuman Capital

Customer CapitalOrganizational Capital Customer CapitalOrganizational Capital

Figure 12.9 Skandia Intellectual Capital Framework g p(cf. Edvinson & Malone, 1997)


Valuation of Knowledge CapitalValuation of Knowledge Capital

• Strassmann: “Knowledge capital” is the value a customer places on goods or services over p gthe cost of sales and cost of capital

• It is the amount an investor is willing to pay• It is the amount an investor is willing to pay for intangible assets, in excess of the cost of

i l f i k dj d i i hcapital, for a risk-adjusted interest in the future earnings of the company


CAVEATS FOR MANAGINGCAVEATS FOR MANAGING KNOWLEDGE


Caveats for Managing Knowledgeg g g• KM an emerging discipline• Competitive advantage increasingly depends on

knowledge assets that are hard to reproduce, so g p ,it is sometimes in the best interests of the firm to keep knowledge tacit, hidden, and p g , ,nontransferable

• Knowledge can create a shared context for• Knowledge can create a shared context for thinking about the future, not to know the future, but rather to know what projections influencebut rather to know what projections influence long-term strategy and short-term tacticsThe success of KM ultimately depends on a• The success of KM ultimately depends on a personal and organizational willingness to learn


FOOD FOR THOUGHT: DIGITAL MILLENNIUM

COPYRIGHT ACTCOPYRIGHT ACT


The Digital Millennium Copyright ActThe Digital Millennium Copyright Act• The DCMA, passed in 1998, makes it a crime to , p ,

circumvent copy protection, even if that impairs rights established by the earlier Audio Home g yRecording Act

• 2001: Dmitry Sklyarov of the Russian firm2001: Dmitry Sklyarov, of the Russian firm ElcomSoft, was charged in the U.S. for selling ‘cracked’ softwarecracked software

• DCMA Critics argue that fair use of digital products includes rights to make back upsproducts includes rights to make back-ups, translate files into other formats, “time-shift” audio or video for later playback or “space shift” audiosor video for later playback, or space-shift audios, videos or software.


S mmarSummary• KM is related to information systems in three

ways: IT makes up its infrastructure, KM makes y p ,up the data infrastructure for many IS and apps, and KM is often referred to as an app of IS.

• Data, information, and knowledge should not be seen as interchangeable.

• The 2 kinds of knowledge are tacit and explicit.• Manage knowledge carefully, there are many g g y, y

valid and of course legal reasons.• KM projects can be measured using project-p j g p j

based measures.


• Copyright 2006 John Wiley & Sons, Inc.• All rights reserved. Reproduction or translation of this work beyond that

named in Section 117 of the 1976 United States Copyright Act without the py gexpress written consent of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons Inc The purchaser may make back-up copies forJohn Wiley & Sons, Inc. The purchaser may make back up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained hereinuse of these programs or from the use of the information contained herein
