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Micro-Lecture 5aManaging the Relationship Between IS and

the Functional Units of the Organization



© 2013 Flores MBA Program

• The emphasis of the top job has changed over theyears – 86 = Infrastructure

– 89 = helping formulate corporate policy

– 92 = IT as a catalyst for revamping the way enterprisesworked

– 98 = revamp business operations using IT continuedwith the Internet (customers +)

– 02 = the ‘technical member’ of top management

– 04 = a cost and risk based approach vs. “let’s get into e-commerce fast…”

The Responsibilities for the CIO




• Focus on cost – Outsourcing continues to grow

– CIOs are expected to do much more with not much

more $$• Also = under pressure:

– To implement protective measures

– New financial reporting e.g. Sarbanes Oxley – Keep the IT innovations coming!!

Today’s CIO Responsibilities




A History of the Responsibilities of the CIO




• The Mainframe Era – Predominated 1960s – early ’80s

– Role of DP / IS Manager = operational manager of aspecialist function

• Distributed Era – End of ’70s as PCs became commonplace

– LANS and WANS linking computers

– Took on 4 more roles:• Organizational Designer

• Technology Advisor

• Technology Architect

• Informed Buyer

CIO Responsibilities by Era




• The Web Era – Started in the mid-1990s

– Arose from the emergence of the Internet, and esp.

the Web as a business tool – Era is still in its ‘infancy’ but add to the CIO’s ‘job’

the role of business visionary

• Relationship between CEO and CIO vary along a

wide spectrum

CIO Responsibilities by Era


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• Ability to communicate

effectively

• Strategic thinking and planning

• Understanding business

processes and operations

What it’s Like to be a CIO

• 71%Interacting with your

company’s CXOs and business

executives

• 58%Strategic planning

• 54%Interacting with IT

vendors/outsourcers/service

providers

Source: CIO Magazine

Important Personal Skills How you spend your time

This involves two important actions: Governing and Leading



• The method by which a corporation is directed,administered or controlled

– The mechanism via which individuals are motivated

to align their actual behaviors with the overallcorporate good

• IT creates a governance that aligns with the

organization governance

Corporate and IT Governance



• More focused strategies – Greater differentiation between customer intimacy, product innovation,

or operational excellence

• Clearer business objectives for IT investment – Greater differentiation between supporting new ways of doing business,

improving flexibility, or facilitating customer communication

• High level executive participation in IT governance – Greater involvement, impact of CEO, COO, Business Heads, Business

Unit CIOs and CFO

– Who could accurately describe IT governance arrangements

• Stable IT governance, fewer changes year to year

• Well functioning formal exception processes• Formal communication methods

Characteristics of High IT Governance

Performers



• If strategy is where we are headed, governancedefines how we make the decisions that we needto execute our strategy

• Research has suggested that structure follows

strategy (Chandler) – Strategy dictates what the organization needs• Single product, single plant, single function organizations tend

to be single-owner with no clear functional differentiation ofstrategic, administrative, and operating decisions

• Single product, multi-plant, multi-function organizations tendto have a functional structure

• Multi product, multi-plant, multi-function organizations tendto have a multi-divisional structure

Governance and Strategy



• However, structure also restricts strategy – Organization can restrict the ability of the

organization to quickly react to changing market

conditions

• Thus, there is a mutually enhancing relationship

between strategy and structure

– However, at a higher level, it is crucial that strategy

and structure align with one another

Governance and Strategy (2)



Micro-Lecture 5bManaging the Relationship Between IS and




• The assignment of decision rights and theaccountability framework to encourage

desirable behavior in the use of IT

• Governance is really composed of three things – What decisions are to be made

– Who will make each of those decisions

– What process will be used to make andcommunicate those decisions

IT Governance Defined



• IT Principles – High-level statements about how IT will be used to create

business value

• IT infrastructure strategies – The technical choices that will meet business needs

• IT architecture – State the approach for building shared and standard IT services

across the enterprise

• Business application needs – Where the business defines its’ application needs

• IT investment and prioritization – Defines the process for moving IT-based investments through

justification, approval, and accountability

Decision Categories



• Governance defines two types of rights – Decision rights = who has the right and

responsibility to make a decision about how IT is

used

– Input right = who has the right to provide input to a

decision, but not make a decision?

Decision Makers



Decision Process

Style Definition Mechanism

Business

Monarchy

C-level executives hold the right to

make decisions

Executive committee or IT council

with executive committee

members

IT Monarchy IT executives hold the right to make

decisions

IT leadership council that includes

corporate and business unit CIOs

Feudal Business unit leaders have decision

or input rights

Business-only committee

Federal Rights are shared by C-level

executives and one other tier of the

business hierarchy

Committees that draw from

several organizational levels

Duopoly One IT group and one business

group share a right

IT-business unit committee

Anarchy Individual end users hold a right None




• Key factors influencing the structure: – Business characteristics (number/size of products

or market divisions and their locations)

– Level within the organization of the most senior IS

officer – How the rest of the enterprise is organized

– Types of technologies managed by IS

– The role of IS in the organization – Organization philosophy on the responsibility ofbusiness managers for IT

Selecting the IT Organization Structure




• There is a question within every governancearrangement

– Who has the decision and input rights?

• IT dominates or

• User dominates

Governance Tension




• User demand• Need for flexibility

• Easy to buy pre-packaged software

• Users desire to control their own destiny

• Need for global firm, but local sensitivities

Drivers towards User Dominance




• IT has skills that business unit does not• Need for standardization and ensuring system

stability

• Business leaders not adept at envisioningpossibilities with IT, nor at determiningfeasibility

• Need for corporate-wide data management

– Eliminate stovepipes

• IT better at cost estimation and analysis

Drivers towards IT Dominance




• Structure deals with roles, style deals with rights – Certain structures mix better with style

• e.g. Classic IS tends to go better IT monarchy

• There is no one “best” governance arrangement

– Tends to be…. • Those seeking synergies among business units enforce-top

down decisions

• Those with autonomous business units emphasize localdecision making

• Those with both synergy and autonomy try to encourage fasterdecision making

Combining Structure and Style




Governance Framework

Business

Monarchy

IT Monarchy Feudal Federal IT Duopoly Anarchy

IT Principles

IT

Infrastructure

IT Architecture

Applications

IT Investment

I t d d i i t l tt i IT




Input and decision style patterns in IT

governance of a range of organizations

Numbers are percentages of the 256 Gartner for-profit

and not-for-profit enterprises studied in 23 countries in

2002

Input Decision

IT principles

0 27

1 18

0 3

83 14

15 36

Input Decision

IT infrastructure

strategies

0 7

10

1 2

59 6

30 23

Input Decision

IT architecture

0 6

20

0 0

46 4

34 15

Input Decision

Business

application needs

1 12

0 8

1 18

81 30

17 27

Input Decision

IT investment and

prioritization

1

0 10

0 3

93 27

306

BusinessMonarchy

ITMonarchy

Feudal

Federal

Duopoly

0 0 0 1 0 1 0 3 0 1 Anarchy

1 2 0 2 0 1 0 2 0 0Don’t Know

© 2002 MIT Sloan Center for Information Systems Research (CISR). This framework is adapted from Weill & Woodham's work originally published and

copyrighted by the MIT Sloan CISR as Working Paper No. 326, "Don't Just Lead, Govern: Implementing Effective IT Governance," April 2002, and is usedby Gartner with permission.

Common decision rights styles

Common input styles

Domain

Style

30

7359

27



Business and IT executive collaboration

mark high IT governance performers

© 2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner, Inc, drawing on the framework of Weill and Woodham, 2002.

IT principles IT infrastructurestrategies

IT architecture Businessapplication needs

IT investment andprioritization

BusinessMonarchy

ITMonarchy

Feudal

Federal

Duopoly

Anarchy

Domain

Style

Top three performers as measured by governance performance

1 2 3




Not Effective Very

© 2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner, Inc.

Top IT governance mechanisms focus on

business and IT relationships

% respondentsusing

85

87

71

89

86

96

89

56

67

62

79

62

IT Governance mechanism effectiveness

1 2 3 4 5

Chargeback arrangements

Web-based portals, intranets for IT

Formally tracking IT’s business value

Architecture committee

Capital approval committee

Service level agreements

Tracking of IT projects and resources

Process teams with IT members

Executive committee

IT council of business and IT executives

IT leadership committee

Business/IT relationship managers




Example of an effective IT governance arrangements matrix

© 2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner, Inc. drawing on the framework of Weill and Woodham, 2002.

Exec comm

Biz leaders

Exec comm

IT leadership

CIO

IT leadership

Exec comm

Biz leaders

CIO

IT leadership

Biz leadersBiz pro own

Biz/IT rel mgs

Exec comm

Biz leaders

Biz leaders

Biz pro own

Cap appr

comm

Biz leaders

Biz pro own

Business/IT relationship managersBiz/IT rel mgsCIO, CIO’s office and biz unit CIOs IT leadership

Business process ownersBiz pro ownBusiness unit heads/presidentsBiz leaders

Exec comm subgroup, includes CIOCap appr commExecutive committee ‘C’ levels) Exec comm

Input Decision

IT principles

Input Decision

IT infrastructurestrategies

Input Decision

IT architecture

Input Decision

Businessapplication needs

Input Decision

IT investment andprioritization

BusinessMonarchy

ITMonarchy

Feudal

Federal

Duopoly

Governance mechanisms

Domain

Style

Input rights Decision rights



Micro-Lecture 5cManaging the Relationship Between IS and





• Autonomy – Emphasize BU decisions, negotiation, peer

socialization

• Synergy – Emphasize enterprise-wide styles and mechanisms

• Agility

– Emphasize IT’s role in agility, the use of principles,education

Business & IT Orientation




Synergistic enterprises Agility-focused enterprises Autonomy-focused enterprises

Decision-

making

styles

•Tight corporate coupling

between business and IT

executives

•Top down mandated

technology decision making

•Business and IT leaders

combine for specific

purposes

•Enterprise-wide

arrangements emphasize

coordination & learning

•IT works with individual business

units and process owners

• Emphasis on local business

decision making

Focus of key

mechanisms

•Well developed business and

decision processes

•Executive-level committees

•High level centrally reporting

business-IT relationship

managers

• Extensive use of IT

principles

• Business ownership of IT

projects

• Planned IT-business

education experiences

• Transparency and

Communication

•CIOs work through 1/1

negotiation

•Standards achieved through

socialization and peer pressure

• Business-IT service

arrangements are in place

Implement key IT governance styles and

mechanisms for your business orientation




• Top-performing enterprises govern IT differently fromeach other and from average enterprises

• Firms leading on growth decentralize more of their ITdecision rights and place IT capabilities in the businessunits

• Firms leading on profit centralize more decision rights;senior business leaders make the major IT decisions

• Top performers design their IT governance to reinforce

their performance goals and link IT governance to thegovernance of their other key enterprise assets anddesired behaviors.

Top Performing Enterprises




• Organizational governance is less likely to be centralized ordecentralized – Hybrid, federal, or dispersed allocation of decision rights

– Focus on demand side and supply side governance

– Management of risk, finance, and outsourcing will becomesignificant

• We do not know how to do this yet

• Emerging models for governance – Emergence/proliferation of new organizational roles

• CIOs will have to balance their roles between

– Managing the “IT business of the business” – Seeding, stimulating, influencing, and driving IT-enabled business

innovation

Emerging Trends




Business Technology

Council

– Project Managers

– Business Analysts

– Technical Analysts

IT Investment Board

Office of Architecture

& Standards

– Head of Enterprise Architecture

– Business Architects

– Technical Architects

– CIO

– CTO

– Head of IT Finance

(e.g. CFO of IT)

– CIO

– CFO

– Selected Business

SVPs

– Developers

– Trainers

– Head of IT Strategy

– CIO

– Selected Business SVPs

– Head of IT Applications

– Functional Area Leads

– Client Relationship

Managers

Project TeamsFunctional

Groups

– IT Director

– IT Strategists

– Business Analysts

Office of the CIO

– Head of IT HR

– Head of Vendor Management

– Head of IT Application Areas

– Head of Portfolio & Program Mgt.

– Head of Enterprise Architecture

– Head of IT Communications

– Chief Information Officer (CIO)

– Chief Technology Officer (CTO)

– Head of IT Security

– Head of IT Risk

– Head of IT Finance


Corporate Project

Approval Committee

– Head of Portfolio &

Program Mgt.

– Head of Enterprise

Architecture


– Business Strategy Analyst

– Finance Representative

Divisional Project

Approval Committee

– Divisional Functional Heads

– Divisional CFO

– Divisional PMO and Finance rep.

– Divisional CIO, Divisional CTO

– Enterprise Functional Leads

– IT Directors

Proliferation of IT Roles




• If strategy is where the organization is headed,structure is the roles people play to execute

strategy and style is how decisions are made

during execution

– Governance must allow the organization to

effectively execute strategy

• Key step in being a strategic partner

• At a practical level, governance tells how IT getswork done

Importance of Structure and Style

G d th S i l M k f th Fi




• Inside the governance arrangements are people – Roles dictate how people interact

• Always a tension between IT and the business

units – Who knows best?

• As IT and the end users interact, are making

decisions about technology and business – Who is advising who?

Governance and the Social Make-up of the Firm




A True Story

After months of RFPs, due diligence and testing, a CIO selects a

solution from his primary vendor. Let's say it's for supply chain

management software.

His CEO, meanwhile, accepts an invitation to play a round of golf

with the CEO of a supply chain software provider, who just

happens to be a competitor of our CIO's primary vendor. Over 18

holes, a beer or two and a fine cigar, the CIO's CEO decides that

his golfing partner's supply chain offering would be a much better

fit. The CEO makes a new friend, the new friend gets a newcontract, and our CIO feels like he just took a Titleist to the head

What does this story mean?




• The process of gathering, incorporating, and measuringstakeholder expectations for IT – Clarifying what technology can and can not do

• Do IT executives know… – What keeps top management up at night?

– Key political challenges? – New business unit opportunities?

• Do business unit leaders know… – The complexity of IT?

– Which systems are strategic? – What IT is doing to enable new initiatives?

– How to make informed IT decisions?

Expectation Management

i




• IT must interact within the roles and styles andgive business unit leaders:

– Knowledge

– Skill sets – Incentives

– Metrics

– Relationships

– That were not possible without IT

Expectation Management

A h T S




Another True Story

Kevin Jordan, vice president of corporate accounts for Allsteel went

to the IT department with a proposal. He told Ralph See, an IT

project manager with whom Jordan had a working relationship, that

he could improve the efficiency of his field sales employees if they

had more tools to communicate with each other and with corporateheadquarters. He wanted IT's help in looking for a solution that

would integrate with the rest of the company's business systems.

Jordan was obviously under the impression that finding and

implementing a comprehensive, off-the-shelf contact management

system would be simple.

The failure rate for CRM is 50 to 70%. This is a business

individual trying to drive development. How should Ralph

respond?

W P d




We Proceed….

Within a few days, the CIO (Fields) heard about their meeting and

decided he better get involved. He knew he needed to make Jordan

understand what it takes to successfully pull off a CRM project.

First, Fields needed to show Jordan the reasons behind CRM's high

failure rate: The scope of these projects easily and frequentlyexplodes; the products, with their bells and whistles, are too

complicated and difficult for field salespeople to use; and the

logistics of getting software installed and synchronized on every field

sales employees' laptop is too complex.

Now the CIO is involved. How should the CIO respond to

this situation?

Wh H d




What Happened….

Fields and See began by giving Jordan copies of articles about CRM projects so that he

could read for himself the difficulties companies face when implementing such

systems. They also attended meetings that Jordan set up with vendors.

"I went to every meeting until I saw in Kevin Jordan's eyes how damn hard this was

going to be," says Fields. Every time the software salesmen began crowing about theirproducts' special features, which likely would have unrealistically raised Jordan's

expectations for the products' functionality, Fields gently reminded the vendors how

difficult these projects are. He also asked each vendor point-blank what its success

rate was. All the vendors fessed up to a 50 percent to 70 percent failure rate.

"Instead of me saying, 'Kevin, these projects are very difficult and they typically fail,' Ibasically asked each vendor what their success rate was," says Fields. This way, Fields

says, he didn't have to worry about insulting Jordan's intelligence or appearing

negative or confrontational.

Th R t f th St




The Rest of the Story…

Jordan was able to ask informed, pointed questions because he had read the

articles provided by Fields. With vendors' sobering pronouncements about their

success rates, Jordan soon realized what he was getting into. In fact, he was ready

to can the CRM software project altogether, says Fields.

Knowing the software was something the business needed, however, Fields and his

project manager quickly set out to help Jordan establish parameters for the project

and the software's functionality. In one-on-one conversations, See asked Jordan

what functionality he really needed, advised him on the importance of limiting a

project's scope, and cautioned him against getting caught up in all the "fluff"

vendors showed off during demonstrations.

R l ti th St t G




• As individuals enact the structure and style,expectation management is key

– You as future executives must be able to define

how a structure should look and what the style

should be

• But, you also need to understand expectation

management

– Golden rule!

Relating the Story to Governance

G i d L di




• A recent survey found… – 69% of CIO’s believe IT should proactively envision

business opportunities, 31% should IT should

support and enable defines business opportunities

– 56% of CEO’s believe IT should proactively envision

business opportunities, 44% should IT should

support and enable defines business opportunities

Governing and Leading

L di




• “The only definition of a leader is someone who has followers”

– Peter Drucker• “The process of influencing the behavior of other people toward group goals

in a way that fully respects their freedom” – Leadership Development Process of the Diocese of Rochester

• “People ask the difference between a leader and a boss. . . . The leaderworks in the open, and the boss in covert. The leader leads, and the boss

drives.“ – Theodore Roosevelt

• "Management is efficiency in climbing the ladder of success; leadershipdetermines whether the ladder is leaning against the right wall.“ – Stephen R. Covey

• “As we look ahead into the next century, leaders will be those whoempower others." – Bill Gates

Leading



Th Offi f th CIO?




• Some believe the office of the CIO is so broad it should be handled by

a team• Four ‘positions’:

– Chief Information Officer• Heads IS and works with top management, customers and suppliers

– Chief Technology Officer

• Heads IT planning, which involves architecture and exploration of newtechnologies

– Chief Operations Officer• Heads day-to-day IS operations

– Chief Project Officer• Oversees all projects and project managers

• IT is so critical to enterprise success and the know-how needed to runit so deep and wide that management needs to become a team effort

The Office of the CIO?



Thoughts on Governance




• IT decision making must be ‘shared’ – Responsibility for managing the use of IT needs to pass to the line,

while the management of the IT infrastructure is retained by theIS group

• It is reflected in the following saying: – “We used to do it to them”

• IS required end users to obey strict rules for getting changes made tosystems, submitting job requests, etc.

– “Next, we did it for them” • IS moved to taking a service orientation

– “Now, we do it with them”

• Reflects “partnering” – “We are moving toward teaching them how to do it themselves”

Thoughts on Governance

Thoughts on Governance (2)




• To achieve this transformation, CIOs must play aleadership role in their enterprise and developpartnerships with senior management, internal andexternal customers, and suppliers – Means you must have the ability to communicate

effectively; think strategically, and understand businessprocesses and operations

– Then, with that knowledge, learn how to govern and leadthe IT organization

• With that leadership in mind, how does IT create

systems that reach across the enterprise to enact truechange? – We will explore this next

Thoughts on Governance (2)



Micro-Lecture 5dManaging the Relationship Between IS and


Systems Development/ Analysis




• Systems analysis: The analysis of the business problem that

the organization will try to solve with an information system – Plan

– Analysis

• Systems development: The activities that go into producingan information systems solution to an organizationalproblem or opportunity – Design

– Develop

– Test

– Implement – Maintain

Systems Development/ Analysis




Systems Design and

Analysis Steps – theWaterfall Method

Step 1:

Plan

Step 3:

Design

Step 2:

Analysis

Step 4:Develop

Step 5:

Test

Step 6:

Implement

Step 7:

Maintain

Step 1: Plan Activities




• Goal – to create a plan for develop the system• Three activities:

– Define the system to be developed

– Set the project scope – Develop the project plan

• Tasks

• Resources

• Timeframes

Step 1: Plan Activities

Step 1: Plan Deliverables




• System definition activity – Definition of the required system

– Definition of the Critical Success Factors

• Elements that are critical to the system being successful

• Set the project scope

– High level system requirements of the project

• Develop the project plan

Step 1: Plan Deliverables

Step 2: Analysis Activities and Deliverables




• Goal – End users and IT work together togather, understand, and document the

business requirements for the proposed system

• Three activities – Gather the business requirements

– Conduct a feasibility study

– Determine the answer to the need






• Gather the business requirements

– Detailed set of requests that the system must need• More specific than CSF’s

– Deliverable – requirements definition document

• Conduct a feasibility study – Determine whether a solution is possible, given the organization’s

resources/constraints• Technical resources (Hardware, software, technical)

• Economic resources (Will benefits outweigh costs?)

• Operational resources ( Is solution desirable within existing conditions?)

• Strategic resources (Does this system fit within our SISP?)

• Determine the answer to the need

– From the feasibility study, determine the list of possible alternatives anddecide upon which mix of costs, benefits, features, and impacts is mostdesirable


Step 3: Design Activities




• Goal – to build a technical blueprint of how theproposed system will work

• Two activities:

– Design the technical architecture required tosupport the system

– Design system models

Step 3: Design Activities

Step 3: Design Deliverables




• Design the technical architecture required tosupport the system

– A technical architecture plan is developed

– Architecture must be compatible with

infrastructure unless organization builds one for

this project

• Design system models

– A graphical representation of the system is built

– Includes screens, reports, software, and databases

Step 3: Design Deliverables

Step 4: Develop Activities and Deliverables




• Goal – Transform design documents from thedesign phase into an actual system

• Activities:

– Writing and coding the software – Creating the databases

– Deploying the telecommunications equipment

– Installing hardware and software

• Deliverable – finished system

Step e e op ct t es a d e e ab es

Development Options




• Application software packages: Set of prewritten,pre-coded application software programs

commercially available for sale or lease

• Customization: Modification of software package

to meet organization’s unique requirements

without destroying the software’s integrity

• Write from scratch: Writing and coding software

using standard programming tools and databases

Development Options

Effects of Customization




Effects of Customization

Step 5: Test Activities




• Goal – verify that the system works and meetsall of the business requirements defined in the

analysis phase

• Activities: – Develop a test plan – what needs to work

– Implement the test plan

– If the testing is successful, go to step 6

Step 5: Test Activities

Step 5: Test Options




• There are two broad options for testing: – Unit testing: test each module in the program

individually

– System testing: test the whole program

• Test programs can list thousands of conditions

– Every condition must be tested prior to step 6

Step 5: Test Options

Step 6: Implement Activities




• Goal – to place the proposed system in theorganization

• Activities: – Define the distribution approach

– Carry out the conversion

– Train the users• Can happen during conversion

– Provide users with documentation• Highlights how to use the system

• Deliverable – the system is being used by everyuser

Step 6: Implement Activities



Step 7: Maintain Activities




• Goal – monitor and support the new system toensure that it continues to meet business goals

• Activities:

– Debugging/solve problems (20%)• Help desk

– Upgrades/changes (20%)

– Adding new functionality (60%)

Step 7: Maintain Activities

Alternatives to the Waterfall:




Extreme programming (XP) methodology – breaks a

project into tiny phases, and developers cannot continue

on to the next phase until the first phase is complete

Extreme Programming

Agile Methodology




• Agile methodology – a form of XP, aims forcustomer satisfaction through early and

continuous delivery of useful software

components

– Agile is similar to XP but with less focus on team

coding and more on limiting project scope

– An agile project sets a minimum number of

requirements and turns them into a deliverableproduct

Agile Methodology



Micro-Lecture 5eManaging the Relationship Between IS and


Ensuring User Acceptance: Process




• Users must be involved in all phases of theanalysis and design

– Involved and participating—not just in action

• Users must drive systems effort – This must be driven by functional business unit

needs

– This must be integrated with business and IT

strategic plans

Initiatives

Involving End Users: A Step-by-Step Process




• Plan

– End users should define CSF’s and be included inthe project plan

• Analysis

– End users should review business requirements andhighlight unclear or inaccurate requirements

• Design

– End users should be provided prototypes – Use of RAD or JAD

Involving End Users: A Step-by-Step Process




• Development – End users should be kept up-to-date on progress and be

provided with modules as they are created

• Test – End users should perform User Acceptance Testing

(UAT) to ensure that it is easy to use• Implement

– End users should be encouraged to attend training

• Maintain – End users should be urged to offer suggestions on how

the system should work better

Thoughts About Acceptance




• IT can not fall into the few “pitfalls” ofimplementation

– User behavior is not deterministic

– The social nature of the organization is crucial

– Power and politics play a role in implementation

– Users want the innovation to liberate them and set

them free from the constraints of their job

– Upper management support is crucial

Thoughts About Acceptance

Factors in IS Success or Failure




Factors in IS Success or Failure

Why IT Project Management is Unique




• More stakeholders

– End users, business owners, and IT

• Technological challenges

– Integration with architecture and pre-existing software

• Cost issues – Who is paying for the project? And what happens when

it is over budget?

• More knowledge

– Must interface with all functional areas in theorganization and speak their language

Why Projects Fail




• Ignorance

• Bad management

• Poor control

• Not relying upon proper planning

• Failure to communicate• Not understanding sociotechnical view

• Mythical man-month – Man month: the amount of work a person can be

expected to complete in a month – More people Less time

y j

Consequences of Poorly Executed Project




• Cost overrun

• Time slippage

• Technical problems

• Benefits not achieved

• Perception of IT altered

• 2/3 of all enterprises have had a poorlyexecuted project in the past year - KMPG

To Increase the Likelihood of Success…




• Handle projects with appropriate tools, methodologies, and practices

• Get team and customer buy-in (business value, not technologyvalue!)

• Understand the sociotechnical view of the firm

• If possible, modularize your project and speed up the delivery of theproduct

• Use tools as a guide, not as a rule• Be well informed and optimistic

– Pessimism is not the mark of a leader

• Understand the strategic importance and convey this to your team

• Communicate, communicate, and communicate

– Realize that bad news spreads quicker than good news

Characteristics of a Good Project Manager




• Disciplined individual who will follow the techniques and practices of

the organization• Has a strong knowledge of the organization and its politics

• A leader who clearly defines roles, manages expectations, focuses onpeople (playing both coach and mentor) and knows when to delegate

• Can handle failure and how to learn from past mistakes (you will

make them)• An effective communicator - can deliver bad news as well as good,articulate the vision of the project throughout the organization, andcan say “no”

• Knows how to negotiate (with vendors, users, and uppermanagement)

• Has integrity (people must believe you), self-awareness (know whento seek help), and a strong belief in themselves and others

Source: Gregersen, UHISRC

Understanding Project Management at a

D L l




• “Strategic” IT Project Management is a deeperlevel understanding

– A project is not just a project

– Projects are about change and risk

Deeper Level

Change Management




• IS often assume a technically elegant system is a

successful system. (No!)

• Many technically sound systems have turned intoimplementation failures because the people-side of thesystem was not handled correctly

– System is only a success if it meets the users’ requirementsand they are happy with it and with using it

• Information technology is all about managing change

– New systems require changing how work is done

• Focusing only on the technical aspects is only half the job – the other job is change management

g g

Change Management & Socio-Technical Systems

Theory




Theory

ORGANIZATION

STRUCTURE

TECHNOLOGY

TASKS PEOPLE

Remember: Changing technology has

corresponding changes in people, structure, and

tasks



Change Management: People Involved




• Sponsor – The person or group that legitimizes the change

• Change agent

– The person or group who causes the change tohappen

• Target

– The person or group who is being expected to

change and at whom the change is aimed

Change Management Methodology




• Conduct surveys with all three groups to determine:

– Whether the scope of the project is do-able, or whether theorganization is trying to change too much at one time

– Whether the sponsors are committed enough to push thechange through, or whether they are sitting back expecting

the organization to change on its own – Whether the change agents have the skills to implement the

change, or whether e.g. they are not adept at rallyingsupport

– Which groups are receptive to the change and which areresistant



Micro-Lecture 5fManaging the Relationship Between IS and


Risk Management




• Not all IT-based projects succeed

– Many fail, especially the really large ones e.g. ERP, CRM – 30 to 70% fail

– Why? = Do not overcome their risks• Technical

• Business

• Technical risks

– Sub-performance, scope creep making it too complex – Can’t always be predicted but they can be contained

• Business risks – Business does not change properly to use the new systems

– Are not as easily righted

• Need to:

– Assess the risk – Mitigate the risk

– Adjust the project management approach

Risk Management Methodology

Step 1: Assess the Risks




• Three risk factors – Leadership of the business change

– Employees’ perspective of the change

– Scope and urgency of the change

• For each risk factor, assess whether it is

positive or negative

Step 1: Assess the Risks

Risk Management Decision Tree




Project

manager

matters

Project

championmatters

Risk Management

Step 2: Mitigate the Risks




• Now that you have determined the appropriateproject style, need to determine how to lead

• The method determines the management style

and project budget and deadlines

Step 2: Mitigate the Risks

Management Style

Authoritative Participative

Fixed Big Bang Guided Evolution

AdjustableTop-down

CoordinationImprovisation

P r o j e c t B u d g

e t

a n d D e a d l i n

e s



Concluding Thoughts: Why do Systems Fail?




• Unclear requirements• Phases are skipped

– Pressure from multiple fronts to get the system

done

• Failure to manage project scope

– Project scope – the size of the project

– Project creep – developers adding features not on

the requirements – increases scope

Concluding Thoughts: Why do Systems Fail?




• Failure to maintain the project plan• Technology changes quickly, but project is long

– Modularize big systems to ensure success

• End users do not “accept” the new technology – IT must develop systems with a methodology to

encourage users to accept the system

– User involvement can help to decrease the risk



Micro-Lecture 6aManaging the Information Systems Function

Introduction




• In this lecture, we will investigate how IT

relates to the remainder of the organization at

the strategic level

– The role of IT today should be as a strategic partner

to increase the competitiveness of organizations

• The formation of strategy is the topic of this

lecture

Current technology

Formulating IT

Strategy




Current technology

portfolio

External businessenvironment Internal ITenvironment

External IT

environment

Strategic IT Planning

Process

IT Management

Strategy

Business IT

Strategy

Overall IT

Strategy

Internal business

environment

I n p u

t

P r o c e s s

O u t p u t

Strategy

Internal Business Environment




• Examine what is going on within theorganization

– Conduct an enterprise analysis

• As part of the enterprise analysis, identify:

– Stated strategy of the organization – Strategy type

• Miles & Snow Taxonomy

• Porter’s Competitive Strategies

– Future expansion plans

What is Strategy?




• Strategy: an elaborate and systematic plan of

action

– High level statement of what the organization

intends to do

• Typically set by CEO and other top executives

• Tool – SWOT Analysis

– Strengths, Weaknesses, Opportunities, Threats



Characteristics of Defender Organizations




• Locates and maintains a secure niche in a relatively

stable product or service area• Offers limited range of products or services

• Protects domain by offering higher quality,superior service and lower prices

• Not usually at the forefront of developments in theindustry – Tends to ignore industry changes that have no direct

influence on current areas of operations

– Concentrates on doing the best job possible in a limitedarea

Characteristics of Prospector Organizations




• Operates within a broad product-market domainthat undergoes periodic redefinition

• Values “first in” in new-product and market areas

– Even if efforts are not highly profitable

• Organization responds rapidly to early signalsconcerning areas of productivity

– Responses often leads to a new round of competitiveactions

• Organization may not maintain market strength inall areas it enters

Characteristics of Analyzer Organizations




• Attempts to maintain a stable, limited line of

products or services

– Moves out quickly to more promising new

developments in the industry

• Seldom a major competitor in areas compatible

with its stable product-market base

• Is frequently “second in” with a more cost-

efficient product or service

Characteristics of Reactor Organizations




• Does not appear to have a consistent product-market orientation

• Not as aggressive in maintaining establishedproducts and markets as some of its

competitors• Not willing to take as many risks as other

competitors

• Responds in those areas where it is forced to byenvironmental pressures

Porter’s Competitive Strategies




Cost

LeadershipDifferentiation

Cost

Focus

Differentiation

Focus

Products are….

Cheaper Unique

M

a r k e t i s …

Broad

Narrow

Expansion Options




• Diversification mode

– Internal growth v. acquisition

• Diversification breadth

– Related v. unrelated markets

• Exploitation strategy

– Consolidation v. Partnerships

Internal Business Environment




• After examining the corporate strategy, look at

the other business units

– Identify the critical success factors (CSF) for each

business unit

– Allocate resources based upon the position of the

business unit in the value chain

• The IT function must support corporate and

business unit strategy

External Business Environment




• Examine trends in the external business

environment to determine their impact upon

the organization and how IT can respond

– How is the nature of work changing

– How is the economy changing?

• Immediate access – “now” economy

• No physical boundaries – “global” economy

• IT has changed commerce – the “e-conomy” • Information moves electronically – “digital” economy



Micro-Lecture 6bManaging the Information Systems Function

Current Technology Portfolio




• Examine all of the applications that are

currently being used in the organization for

business unit

• Assess technology, infrastructure, databases,

and decision support software for each

business unit

• Identify strengths and weaknesses of current

technology portfolio

Internal IT Department




• Assess current governance arrangement

• Examine systems development approaches –

are they successful?

• Look at project management methodologies – over or under budget?

• Identify role of IT department and stage

McFarland’s Strategic Grid:

Identifying the Role of IT Department




y g p

Turnaround Strategic

Support Factory

Current State

Not Critical Critical

F u t u r e S

t a t e

Critical

Not

Critical

Nolan’s Six Stages of Growth




Stage 1:

Initiation

Stage 6:

Maturity

Stage 2:

Contagion

Stage 3:

Control

Stage 4:

Integration

Stage 5:

Data

Administration

Initiation: Initial introduction of computers to

the organization. Batch processing toautomate clerical operations to achieve cost

reduction, operational systems focus, lack of

management interest, and centralized

development





Stage 1:

Initiation

Stage 6:

Maturity

Stage 2:

Contagion

Stage 3:

Control

Stage 4:

Integration

Stage 5:

Data

Administration

Contagion (expansion): Centralized rapid

growth as users demand more applicationsbased on high expectations of benefits, move

to online systems, trying to satisfy user

demands. Little control if any. IT expenses

increase rapidly.





Stage 1:

Initiation

Stage 6:

Maturity

Stage 2:

Contagion

Stage 3:

Control

Stage 4:

Integration

Stage 5:

Data

Administration

Control: In response to management concern

about cost vs. benefits, systems projects areexpected to show a return, plans are

produced, and methodologies/standards

enforced. Planning controls are introduced.





Stage 1:

Initiation

Stage 6:

Maturity

Stage 2:

Contagion

Stage 3:

Control

Stage 4:

Integration

Stage 5:

Data

Administration

Integration: Considerable expenditure on

integrating (via telecommunications anddatabases) existing systems. User

accountability for systems established and IT

provides a service to users. At this time,

there is a transition to supporting knowledge

workers and from data processing





Stage 1:

Initiation

Stage 6:

Maturity

Stage 2:

Contagion

Stage 3:

Control

Stage 4:

Integration

Stage 5:

Data

Administration

Data administration: Information

requirements rather than processing drive theapplications portfolio and information is

shared within the organization. Database

capability is exploited as users understand the

value of the information and are willing to

share it





Stage 1:

Initiation

Stage 6:

Maturity

Stage 2:

Contagion

Stage 3:

Control

Stage 4:

Integration

Stage 5:

Data

Administration

Maturity: The planning and development of IT

in the organization is closely coordinated withthe business development. Corporate wide

systems are in place. The IT department and

the users share accountability regarding

resources. IT is a strategic partner.

External IT Environment




• Examine technology trends to determine how

organization will be impacted

• Assess Best Practices from other organizations

• Look at external opportunities to leveragerelationships

Inputs to IT Strategy




• Trends in the external business environment

– Impact upon organization

– Impact upon IT

• Internal business environment

– Overall organizational strategy/vision

– Corporate goals

– Information needs for each BU

– CSF for each BU

Inputs to IT Strategy




• Technology Portfolio

– Assessment of applications, infrastructure, hardware,software, and decision-making tools

• Internal IT department – Governance

– Systems Development

– Project Management

– Role and Stage

• External IT environment – Emerging trends

– Best practices

– Strategic outsourcing

Strategic IT Planning




• With all of the inputs in mind, IT management

determines their response

• The result – Strategic Information Systems Plan(SISP)

– Overall IT (vision, goals, etc) – IT management strategy (Budgetary issues, HR

issues, etc)

– Business IT strategy (necessary infrastructure

management, use management, and projectmanagement issues)

Types of Planning




• Planning is usually defined in three forms,

which correspond to the three planning

‘horizons’

– Strategic = 3-5 years

– Tactical = 1-2 years

– Operational 6 months – 1 year

• Each differs by who is doing the planning and

the issues involved

Planning Types




Focus Horizon Issues Primary Responsibility

Strategic 3 – 5 years • Vision

• Architecture

• Business goals

• Senior management

• CIO

Tactical 1 – 2 years • Resource allocation• Project selection

•Middle managers•IS line partners

•Steering committees

Operational 6 months – 1

year

• Project management

• Meeting time

• Budget targets

•IS professionals

•Line managers

•Partners

Traditional Strategy-Making




• Steps in traditional strategy-making

– Business executives created a strategic business plan• Where the business wanted to go

– IS executives created an IS strategic plan• How IT would support the business plan

– IT implementation plan created

• Describe exactly how the IS strategic plan would be implemented• Assumptions:

– The future can be predicted

– Time is available to do all three steps

– IS supports and follows the business

– Top management knows best (broadest view of firm) – Company = like an ‘Army’

Problems with Traditional Approach to IS

Strategic Planning




• The future cannot be predicted

– Who predicted Internet, Amazon, eBay etc.?

• Time is not available for the sequence

• IS does not JUST support the business anymore• Top management may not know best

• An organization is not like an army

– Industrial era metaphor no longer always applies

Successful Planning




• Two necessary ingredients to a good strategic

planning effort:

– IS plans must look towards the future

• Future is not likely to be an extrapolation of the past

• Successful planning needs to support “peering into thefuture” – most likely in a sense-and-respond fashion

– IS planning must be intrinsic to business planning

Successful Planning (2)




• IS plans typically use a combination of planning

techniques presented – No single technique is best and no single one is the

most widely used in business

• Sense-and-respond is the new strategy-makingmode

– Creating an overall strategic envelope andconducting short experiments within that envelope,

moving quickly to broaden an experiment thatproves successful

Strategic Plans Succeed When…




• IT partners with the business

• Organizations have sophisticated businessplanning

• Organizations have participation by the ISdepartment in business planning

• The top IS executive is at the same level as a CEO,CFO, COO, etc.

• Top management initiates integration activitiesacross the enterprise

• IT examines all BU’s and not just one



Micro-Lecture 6cManaging the Information Systems Function

A Successful IT Strategy




• The ultimate goal for a successful IT department is IT-

business alignment – Alignment is the tight linkage of IT strategies and businessstrategies

• Alignment is one of the biggest problems in IT – 73% of IT executives claimed to have spent significant time during

the past year working on aligning IT and corporate goals. – Aligning IT and corporate goals placed third on the list of the mostcritical issues facing IT, cited most often by companies with $501million to $1 billion in sales

– Aligning IT and corporate goals has been third on the list of themost critical issues facing IT during the past three years in a row

Business & IT Strategies – Survey Data




• Recent survey results:

– 87% of executives believe that IT is critical to their

companies’ strategic success

– 33% of leaders reported that IT is very involved

– 30% reported business executive responsible forstrategy works closely with IT division

• Alignment improves revenue.

IT-Business Alignment Defined




The degree to which the information

technology mission, objectives, plans,

and technology support and are

supported by the business mission,

objectives, plans, and business

processes

Six Key Enablers to Alignment




• Senior executive support for IT

• IT involved in strategy development

• IT understands the business

• Business-IT partnership• Well-prioritized IT projects

• IT demonstrated leadership

Six Inhibitors to Alignment




• IT/business lack close relationships

• IT does not prioritize well

• IT fails to meet commitments

• IT does not understand business• Senior executives do not support IT

• IT management lacks leadership

Impact of IT-Business Alignment




IT-Business

Alignment

Firm

Performance

IT

Effectiveness

Impact of IT-Business Mis-Alignment




IT-Business

Mis-Alignment

Little return for

IT investments

Poor utilization

of IT resources

Sub-optimal

firm

performanceHigher IT

spending

Missed IT

opportunities

Types of Alignment




• Strategic alignment

– Congruence of the firm’s IS strategy with thebusiness strategy

• Structural alignment

– Congruence of the business and IS structures withinthe organization

• Social alignment

– The level of mutual understanding of and

commitment to the business and IT mission,objectives and plans

Key Issues in Strategic Alignment




• Key considerations

– Linked business and IS missions, priorities, and

strategies

– Interconnected business and IS planning processes,

and resulting plans

• Goal

– IS priorities, capabilities, decisions, and actions to

support those of the entire business

Key Issues in Structural Alignment





– Location of IT decision-making rights

– Reporting relationships

– (De)centralization of IT services and infrastructure

– Deployment of IT personnel

• Goal

– IT and business structures to support organizational

objectives

Key Issues in Social Alignment





– Ensure line and IS executives are communicating

– Obtain buy-in from line executive commitment to IS

issues and initiatives

• Goal

– Ensure both business and IS executives have a

similar view of the role of IT in the firm

Strategic Alignment Framework




IT

Strategy

Business

Strategy

Org Infrastructure

and Processes

IT Infrastructure

and Processes

Strategic Alignment ModelExternal and Internal Domains




• Four Domains

• Two internal and two external domains

• External domains also referred to as Strategy

Domains (Business Strategy Domain and IT

Strategy Domain)

• Internal domains also known as Infrastructure

Domains (Business Infrastructure and IT

Infrastructure Domains)

Strategic Alignment Framework




IT

Strategy

Business

Strategy

Org Infrastructure

and Processes

IT Infrastructure

and Processes

Strategy

Domains

Infrastructure

Domains

Strategic Alignment Framework:Four Domains of Organizational Choice




IT

Strategy

Business

Strategy

Org Infrastructure

and Processes

IT Infrastructure

and Processes

Functional Integration

Strategic

Fit

Yet, each ofthese domains

are multi-

faceted

Components of Business Strategy




• Business Scope – Markets, products, services, groups of customers/clients, and locations

where an enterprise competes as well as the buyers, competitors,suppliers and potential competitors that affect the competitive businessenvironment.

• Distinctive Competencies – Critical success factors and core competencies that provide a firm with

a potential competitive edge – Includes brand, research, manufacturing and product development, costand pricing structure, and sales and distribution channels.

• Business Governance – How companies set the relationship between management stockholders

and the board of directors.

– Also included are how the company is affected by governmentregulations, and how the firm manages their relationships and allianceswith strategic partners.

Components of Organizational Infrastructure




• Administrative Structure

– The way the firm organizes its businesses• Examples include central, decentral, matrix, horizontal,

vertical, geographic, and functional.

• Processes

– How the firm’s business activities (the work performedby employees) operate or flow

– Major issues include value added activities and processimprovement.

• Skills – H/R considerations such as how to hire/fire, motivate,

train/educate, and culture.

Components of IT Strategy




• Technology Scope

– The important information applications and technologies• Systemic Competencies

– Capabilities (e.g., access to information that is important tothe creation/achievement of a company’s strategies) that

distinguishes the IT services.• IT Governance

– How the authority for resources, risk, and responsibility forIT is shared between business partners, IT management and

service providers – Project selection and prioritization issues are included here

Components of IT Infrastructure




• Architecture

– Technology priorities, policies, and choices that allow applications,software, networks, hardware, and data management to be integrated

into a cohesive platform

• Processes

– Practices and activities carried out to develop and maintain applications

and manage IT infrastructure

• Skills

– IT human resource considerations (e.g. hire/fire, motivate,

train/educate, culture)

Business I/T




Business I/T

Distinctive Competencies

Business

Governance

Business Scope

Systemic Competencies

I/T

Governance

Technology Scope

Business Strategy I/T Strategy

Processes Skills

Administrative

Processes Skills

I/T

Organizational I/T InfrastructureInfrastructure

Structure Architecture

Functional Integration

StrategicFit

Alignment




• Extent & degree to which firm’s business and

information technology strategies andinfrastructures linked

• Interrelationships between the domains reflect thelinkages between the four domains

– Strategic Fit (vertical)

– Functional Integration (horizontal)

• Assess both linkages simultaneously

– 12 alignment perspectives• Model provides “roadmap” for firm

How to use the Strategic Alignment Model




• Identify your strongest and weakest domain

– Need to develop communication with and increase

understanding of weaker domains

• Select the strongest domain as an anchor

domain and the weakest as a pivot domain

• Then, draw an arrow from the anchor to the

pivot domain to another domain – the

impacted domain

Examples of the Model in Use




BusinessStrategy

OrganizationInfrastructure I/T Infrastructure

I/T Strategy

Depending upon your analysis, there are

different roles of top management; roles of IT

management; foci for IT; Performance Criteria

for IT; and Strategic Planning Methods

To assess your firm, go to: www.strategic-alignment.com

Ensuring Alignment




• Alignment matters and will continue to be a

challenge for IT

• Firms that embrace the challenge and have well

defined strategy processes will succeed and see

the impacts

• The Strategic Alignment model provides a

further example of the inter-relationship

between structure, systems, and strategy



Micro-Lecture 6dManaging the Information Systems Function



Portfolio Management: The New Approach




• More than 50% of Global 2000 firms use

portfolio management

• Definition - the functions of project planning

and procurement, focusing upon the

aggregation of resources – Translation – looking at projects at a top level

• Uses a set of the criterion above

Portfolio Management Methodology




• For each project, assess four areas:

– Economic Value of project

– Strategic Value of project

– Project risk

– Project reward

• Examine all projects and rank them in order of

importance, based upon all areas

Q ifi bl ( ibl ) i h l b i

Economic Value of Project




• Quantifiable (tangible) impact or the value to business

• Examples of metrics: – Payback Method: How long will it take to pay back the

investment?

– Return on Investment (ROI): Does return during useful life of anitem exceed the cost to borrow money?

– Cost-Benefit Ratio: Does the ratio of benefit versus cost exceed 1? – Profitability Index: What is the ratio of present value of cashinflow to initial investment?

– Net Present Value: Accounting for cost, earnings & time value ofmoney what is the investment worth?

– Internal Rate of Return: Accounting for the time value of money,what is the return rate of an investment?

Strategic Value of Project




• Strategic (intangible) advantages that could

result from a more effective deployment of thetechnology

– Changing the nature of competition

– Reduce switching costs

– Altering the power of Porter’s Forces

– Creating a competitive advantage for the

organization



Degree of Organizational Change




Automation:Use

technology

to speed up

tasks

Rationalization:Use technology

to streamline

operating

procedures

Reengineering:Use technology

to radically

redesign

business

processes

Paradigm shift:Use technology

to radically

reconceptualize

the nature of

the business

Low High

Possible Return

Low

High

Potential

Risk

Portfolio Management




• Each project is assessed on all of the areas

• The result of this analysis indicate how critical

that the project is to the organization

– High versus low

Portfolio Management Software




• Artemis International Solution – Portfolio

Director

• Pacific Edge Software – The Edge for IT

• Pro Sight – Pro Sight Portfolios

• Business Engine Corp. – Business Engine

Network

• United Management Technologies – Stat Frame

Software



Micro-Lecture 6eManaging the Information Systems Function

Wi h h j d fi h i

Sourcing the Development




• With the project define, the next step is to

determine where to source the work – Internally or externally

• IT outsourcing

– Describes a process whereas an organizationdecides to contract-out or sell the firm’s IT assets,people and/or activities to a third party vendor,who in exchange provides and manages these

assets and services for an agreed fee and over anagreed time period.



All Outsourcing Not Created Equally



1966 EDS f d

Important Dates in Outsourcing History




• 1966 – EDS formed

• 1969 – Blue Shield of PA first deal

• 1973 – GM outsources to EDS

• 1980’s – Continental, First City Bank, and Enron

to EDS

• 1989 – Kodak legitimizes outsourcing

• Since 1989 over 100 ‘big’ (>$200m) outsourcing

Brief Background of Outsourcing




• Since 1989, over 100 big (>$200m) outsourcing

contracts have been signed and the numbercontinues to grow – 70% of companies have outsourced IT to some extent

• IT services market

– 1999: $324 billion• Growing at 19.6% rate

– Now: around $792 billion.

• Market becoming more heterogeneous with new

vendors and new forms of selective sourcingemerging

R d d IT t

Why Firms Outsource




• Reduced IT costs

• Improved technology and services

• Business focus

• Downsizing and rightsizing

• Access to knowledge

• Reduced capital expenditure

• Vendor value proposition

T t l O t ll IT

Outsourcing Options




• Total: Outsource all IT

• Transitional: Outsource legacy systems while

working on new systems

• Selective: Outsource some aspect of IT

Ad t

Total Outsourcing




• Advantages

– Consistency and stability with the same vendor for

many activities

– Lower transaction costs

• Disadvantages – Vulnerable to vendor manipulation of pricing and

maintenance costs

– Vulnerable to loss of vendor support



• Advantages

Selective Outsourcing




• Advantages

– Select best-of-breed for an activity – Create a competitive environment

– Flexible; adapt to change

– Capitalize on organizational learning

– Less risky than total outsourcing

• Disadvantages

– Multiple vendors to manage

– Higher transaction costs associated with multipleevaluations and contract negotiations

• Firms seeking to selectively sourcing applications (or

Selective Sourcing of Applications




• Firms seeking to selectively sourcing applications (or

application development) have three main choices: – Offshore vendor• Utilizing an organization external to a firm that performs some or all

of the programming in a country other than the one where theproduct will be sold or consumed

– Domestic vendor• Utilizing an organization external to a firm that performs some or all

of the programming in a country where the product will be sold orconsumed

– Application Service Provider• Utilizing an organizational external to a firm that offers, on a rental

basis, IS application services, which it hosts and manages for itscustomers.

• IT is the first of the functions to lead outsourcing

Current Trends in Sourcing




• IT is the first of the functions to lead outsourcing

– Emerging trend: Business process outsourcing (BPO)

• Outsourcing occurs across all sizes of companies

and in all industries

• New vendor types – Offshore and near-shore outsourcing

– ASPs

• Infrastructure nearly uniformly outsourced;application work next area to go



IT

• IT is not a homogeneous function, but comprises a wide variety of IT

Distinctive IT Nature




g , p yactivities

• IT capabilities continue to evolve at a dizzying pace; thus, predictingIT needs past a three-year horizon is wrought with uncertainty

• There is no simple basis for gauging the economics of IT activity

• Economic efficiency has more to do with IT practices than inherenteconomies of scale

• Most distinctively of all, large switching costs are associated with ITsourcing decisions

Source: Lacity and Willcocks, Global Information TechnologyOutsourcing, 2001

• The client-vendor relationship is solidified

Achieving Outsourcing Success:It’s All About Relationships




• The client-vendor relationship is solidified

with… – Contract

– Performance Measurement

– Service Level Agreement• Taken together, these three account for 72% of

the risks of outsourcing

– The rest is mitigated by the quality of the

partnership

• Trust: Degree of confidence and willingness between

Partnership Quality




Trust: Degree of confidence and willingness between

partners• Business understanding: Degree of understanding ofbehaviors, goals, and policies between partners

• Benefit/risk share: Degree of articulation and agreementon benefit and risk between partners

• Conflict avoidance: Degree of compatibility of activities,resource share and goals between partners

• Commitment: Degree of the pledge of relationshipcontinuity between partners

Source: Lee and Kim, Journal of MIS, 1999




Partnership Quality

Trust

Business understanding

Benefit and risk share

Conflict avoidance

Commitment

Business Perspective:

Achievement of benefits

from outsourcing

User Perspective:Quality of offered

services by the service

provider

Outsourcing Success

Lee and Kim, Journal of MIS, 1999




g g

– How to manage the increasingly complex set of relationshipsand vendors who provide IT products and services – domestic, near-shore and offshore vendors; rural sourcing;contractors (short and long term); consultants; researchfirms (Gartner, Forrester); interim management; SBU ITunits; corporate IT units; and customer desires …. multi-

sourcing… the long tail (e.g. Rent A Coder, eLance,MyNetResearch)

• New titles: – Chief Sourcing Officer (CSO)

– Head of Resourcing – Head of Transformation

• IT management strategy alignment and

Concluding Thoughts




• IT management, strategy, alignment, and

outsourcing represent significant challenges tothe IT function

• The ability of a firm to manage the IS function

will translate to higher levels of performance• These lectures are meant to provide you with

insights into this challenge



Micro-Lecture 7aLeveraging Future and Emerging Information

Technology for Competitive Advantage

• The Learning Organization

Revolutions in IT




The Learning Organization

• Processes Rather Than Functions• Communities Rather Than Groups

• Virtual Rather Than Physical

• Self-Organizing Rather Than Designed• Adaptable Rather Than Stable

• Distributed Rather Than Centralized

• Changing Nature of Users• Increasing Executives’ Understanding of IT

• Most organizations live only 40yrs

Revolution #1: The Learning Organization




g y y

– 1/2 the life of a person, because they have ‘learningdisabilities’

• Organizational Learning Disabilities – Enterprises move forward by looking backward

• Rely on learning from experience

• Solve the same problem over & over – Organizations fix on events

• Real threat comes from processes that move so slowly, no onenotices them

– Teamwork is not optimal, contrary to current belief

• Team based organizations operate below the lowest IQ on the team= skilled incompetence

• Organizations that can learn faster than their

Revolution #1: The Learning Organization




• Organizations that can learn faster than their

competitors will survive – It is the only sustainable advantage

• To become a learning organization, an

enterprise must create new learning & thinkingbehaviors on its people

– Need to exhibit 5 learning principles

• Lifelong learning of employees

Five Learning Disciplines




g g p y

– Forms the spiritual foundation for the learning organization• Surface mental models of employees and test for

relevancy

– Deeply ingrained assumptions, generalizations, and images

that influence how people see the world and what actionsthey take

• Clearly defined shared vision

– Organization’s view of its purpose, its calling

– Provides the common identity by which its employees andothers view it

• Team “dialogue”

Five Learning Disciplines




g

– “Dialogue”: Where people essentially think together,occur when people explore their own and others’ ideas,in order to arrive at the best solution

– “Discussions”: occur when people try to convince

others of their point of view – Few teams dialog; most discuss, so they do not learn.

• Systems thinking

– To understand systems, people need to understand the

underlying patterns

• Changes to organizations need be made from a process

Revolution #2: Processes Rather ThanFunctions




centered rather than task centered view – Tasks - about individuals

– Processes – about groups

• The shift to processes ramifications include: – Need for new position, such as process owners

– In one process virtually all departments are involved – One person needs to have end-to-end responsibility

– Process owners provide the knowledge of the process – not just manage people (still important!)

– Sense of urgency & intensity as teams are more intense &allow less slack time

• Process Centering:

Revolution #2: Processes Rather ThanFunctions




g

– Turns people into professionals rather than workers• If you define a professional as someone who is

responsible for achieving results rather than performing atask

• The professional is responsible to customers, solving theirproblems by producing results

• Implication for IT

– IT in charge of process centering and BPR

– Puts IT in center of organization design



• Most people belong to several communities of

Revolution #3: Communities Rather ThanGroups




practice, and most important work in companies isdone through them

• Communities are the critical building blocks of aknowledge-based document

– People, not processes, do the work – Learning is about work, work is about learning, andboth are social

– Organizations are webs of participation

• Implication for IT – community-based, rather thangroup-based technologies

• Virtual organization doesn’t exist in one place or time

Revolution #4: Virtual Rather Than Physical




g p

– Exists whenever & wherever the participants happen to be – Popular description of new organizational form

• Underlying principle = time & space are no longer the

main organizing foundations

• Implication for IT – how to extend time and space for

employees

• Form of future organizations – chaos theory,

Revolution #5: Self-Organizing Rather ThanDesigned




ecology, biology, and look at nature & how itorganizes itself

• The basic tenet is that nature provides a goodmodel for future organizations that must dealwith: – Complexity

– Share information & knowledge

– Cope with change

• The message is about being to adapt, it’s likeimitating structures found in nature



Micro-Lecture 7bLeveraging Future and Emerging Information


• In the future, successful organizations will be

Revolution #6: Adaptable Rather ThanStable




, g

structured to naturally support (perhaps evenfoster) volatility and continual surprises

– Today’s organizations are structured to maintain

stability; change is minimised• Change costs a lot

• Firms built for stability are not adaptable

• IT is causing the world to become more

Revolution #6: Adaptable Rather ThanStable




g

connected – Connectivity increases volatility

– To keep pace companies will need to adapt more

quickly – The only way to achieve adaptability = through

distributed intelligence and action

• Thus organizational models will be built around networks

and will be designed to evolve

• Organizations of the future could become more

Revolution #7: Distributed Rather ThanCentralized




distributed• Two views:

– View #1: Distributed Capitalism

• Commercial purpose of organizations is changing, hencestructures will change

• Managerial capitalism will not really satisfy today’sconsumers due to the huge gap between consumerdesires and the good and services for sale

• Will possibly lead to federations

• Two views:

Revolution #7: Distributed Rather ThanCentralized




– View #2: Market-Based Organizations• Cost of communications has influenced the structure of

organizations

– High = centralize

– Reducing (like now) = more decentralized

• Organizations will structure more like democracies or markets

• Job of management will move from command and control tocoordination and cultivation

• Implication for IT – flexible, dynamic networked

infrastructure to allow for networked organization

• Individuals have different levels of eagerness

Revolution #8: Changing Nature of Users




g

concerning any new technology – To help them use a new technology IS needs to

understand user comfort levels

• The eagerness is changing – users are moresophisticated than ever before

– Challenging to the IS organization

• Individuals have different levels of comfort with

Revolution #8: Changing Nature of Users




new technology – Eager Beavers: The Innovators and Pioneers (.5%)

– Early Adopters: The First Consumers (5%)

– Early Majority: The First Big wave (30-35%) – Late Majority: The Technology Skeptics (40-50%)

– Technically Averse: “Not On My Time You Don’t”

(10-15%)

The Technology Camel




• Everything about (technology) is wonderful

Eager Beavers: The Innovators and Pioneers




– Most = in software and hardware companies wheretheir enthusiasm (vision?) might be an asset

– Some = part of ‘Advanced Technology Group’

• Approach = support them with some fundingand learn from them

– ‘Bleeding edge’ companies may need to support

with big $$$$

• ‘Disciples’, not too far behind the innovators

Early Adopters: The First Consumers




• Often have a lot of discretionary income ($$$) andthink the corporation does too!

• Enterprises could miss a market by ignoring thesepeople

• Approach = Need to be managed.• They need IS’s help and encouragement but should

not be allowed to overwhelm

• Watch $$$ closely!

– Make sure they invest their own money in theexperiments

• Willing to use technology but need some help to make ithappen

Early Majority: The First Big Wave




happen

• Not the self-sufficient pioneers or risk takers

• Tend to be in relatively important positions

• Make or break introduction of new technology

• Approach = Need to understand how they view thecompany, customers and competition; then help themchoose a strategy to expand their familiarity with, say,the wireless Internet

• IS management must become adept at creating options

that can be tested for acceptance or rejection

• Not afraid of technology, but they do have serious

Late Majority: The Technology Skeptics




concerns about risks and costs• Concerned about wasting time and $

• Approach = IS management needs to be prepared

to address risks and costs as they are to addresstechnology opportunities

• Need to show an appreciation of ‘bottom-line’ ($)

concerns and answer security questions at a level

that late majority people can appreciate

• Resist technology

Technically Averse: Not on My Time YouDon’t




• In many cases, their concerns about loss of privacy,security, control, and possible exposure to competitionoverride any perceived benefits of the technology

– Some = industry ‘trend’ / trait • Sunk costs etc.

• Approach = IS first needs to understand their concerns

• They (may) have justifiable business fears that need tobe identified and addressed before any thought of using

a new technology for business purposes can beentertained

• The message is clear for IS departments:

Users and the IS Department




– IS cannot work in the top-down broadcast mode,“I’m IS and I’m the expert, so here’s your solution

customer”

– More than ever, IS must get input from itscustomers to determine the services they want,

when they want them and where they want them

• Hearing directly from customers is both a

goldmine and a massive challenge

• Leadership of IT is no longer a technical

Revolution #9: Increasing Executives’Understanding of IT




challenge; it is a challenge for all businessmanagers

• CIOs need to ensure that the businessmanagers:

– Stay abreast of the changes and new uses of IT

– Are comfortable with IT, and

– Understand its impact and potential value to the

business

• dot-com boom and bust had a “damaging” effect

Revolution #9: Increasing Executives’Understanding of IT




on collective opinions about IT• Many now de-emphasize the importance of e-commerce at the very time when early promise isbeing realized in many industries and sectors – e-commerce boom taking place right now

• CIOs need to be concerned with the potential gapbetween what their fellow business executivesbelieve is important about IT versus what theyreally need to know to effectively guide the use ofIT



• Revolutions means IT becomes about business

Revolutions




and needs to be the responsibility of thebusiness folks, not just technology folks – The foundations of past ways of working are

changing

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

• Part of this will be the evolution of firms from

Enterprise 2.0 to 3.0



Micro-Lecture 7cLeveraging Future and Emerging Information


• Web 1.0: The web as information

Peering into the Future through the Past




– In a web 1.0 world, producers provided consumerswith information

– Producers controlled both the structure of the

delivery as well as the content on top of thestructure

– There was no context surrounding the content,

there was little interaction between the consumers

– The focus was on who owned content

• Web 2.0: The web as platform

Peering into the Future through the Past




– In a web 2.0 world, the focus was on the power ofthe community

– Producers began to free up the structure of the

delivery and began to open up the content toconsumers

– There was limited portability and interoperability

– The focus was on the community

• Web 3.0 is just a marketing term

Differing Views of Web 3.0




• Artificial intelligence and machine learning asWeb 3.0

• The semantic web (using machines to

understand language)

• The virtual (world) web

• The convergent web

My View of Web 3.0

The Personal,Portable




Portable,Organized

Web

• Trends pointing towards ubiquity

Ubiquity




– Mobility of the population and technology

– Embeddedness of the web in devices

– Software “in the cloud”

– Apps not trapped in one location

• Web 3.0 content will be organized by the

Organized




collective will of the “crowd” – But your crowd is different from my crowd

• When we google the same term, we get the

same results – In a Web 3.0, the information will be collected,

organized, and filtered for you by you and others

like you

• Web 3.0 will use collective wisdom to predict

Predictive




your behavior with increasing accuracy – Requires a broader collective view of you and your

behavior

– Can we take the books you might like at Amazon

and the movies you rent through Netflix to predictthe clothes you will buy at Banana Republic?

• This is more than marketing – this is also aboutsearch, delivery of content, recommendations,etc.

• Web 3.0 will leverage the Web as an operating

Mashed-Up




system and will allow us to create separate eco-systems of apps that operate the way we want

them to (Programmable Web)

• Now we will control not only the content butalso the underlying structure of the Web

• Web 3.0 will converge content, regardless of

Converged




originator, format, or location• Convergence is technically possible now, but

remains difficulty

– The cloud and mobility will assist with convergence

• Convergence requires breaking traditional

business models



• Whether this vision for Web 3.0 occurs or the

Wrap-up Reflections




web morphs in an unpredictable manner, it isevident that e-commerce has and will continue

to have a profound impact upon our lives

• The challenge is yours – how will you respondto these shifts and changes in the societal and

business environment?

– Embracing these challenges is the managementchallenge of the 21st century!



Micro-Lecture 7dLeveraging Future and Emerging Information


• An advantage gained over competitors by

What is a Competitive Advantage?




offering consumers value – Either by lower price or greater benefits and service

that justifies higher service

• A company that has a competitive advantage ismore profitable than its’ rivals

• A competitive advantage is either temporary

Temporal Nature of Competitive Advantage




(since someone else copies it) or is sustainable• To be sustainable, advantage must be:

– Valuable (Important)

– Rare (Uncommon) – Inimitable (Unable to be imitated)

Model of Competitive Advantage

Firm-specific assets

that few competitors

can acquire easily




Resources

Capabilities

Distinctive

Competencies

Cost OrDifferentiation

Advantage

Value

Creation

Ability of the firm to

leverage resources

Ability to create

value in a way

different than

competitors

Competing on cost

or uniqueness

Determining Sustainability

Is resource or

capabilityNo Yes




valuable?

Is resource

uncommon?

Is resource

unable to be

imitated?

Competitive

Disadvantage

Competitive

Parity

Temporary

Competitive

Advantage

Sustained

Competitive

Advantage

Yes

Yes

No

No

R e s o u r c e i s n

o t v a l u a b l e

R e s o u r c e i s c o m m o n

R e s o

u r c e c a n

b e

e a s i l y

c o p i e d R

e

s o ur c e

c an

n o t b e

e a si l y c o pi e d

• Technology alone does not lead to a competitive advantage

IT and Competitive Advantage




• Systems can be a differentiator, but not necessarily acompetitive advantage

• Two questions

– Is the system critical to the organization or not?

– How pervasive is the technology in other firms?

Pervasiveness

Commodity Differentiator

Critical

Critical

Commodities

Critical

Differentiators

UsefulUseful

Commodities

Eliminate/

Migrate C o n t r i b u t i o n

• So, how does IT enable competitive advantage?

IT and Competitive Advantage




– Allowing the firm to locate relevant resources byproviding the necessary capabilities

– By helping the firm find the “sweet spot” in the

network

• The “sweet spot” in the network is where there

The “Sweet Spot” in a Network




is value – The place where your competitors have not

leveraged

• There is value in four places in networks – At the core and periphery

– In common infrastructures

– In modularization and orchestration

• Value moves to the ends – Value is in the core (leadership and

Value #1: Core and Periphery Services




( pstrategy handled by topmanagement) and the periphery(customer-facing employees makingdecisions and taking actions)

• For IT, this means puttingtechnologies that provide distinctcapabilities for interacting withcustomers and for aggregatingrelevant information for strategydecisions

Customer-

facing

Tactical

Management

Leadership/

Strategy

• Firms are increasingly sharing infrastructure by

Value #2: In Common Infrastructures




using common providers through outsourcingprovides

– Allows for infrastructure to be operated as a utility

• As utility, pay what you use (like chargeback systems)• Dynamic combinations of infrastructure when needed

• Provides economies of scale through

networking with other firms

– Reduces cost to individual firms

• Common infrastructure leverage the power of

IT for Competitive Advantage & CommonInfrastructures




the networked economy and allow theindividual firm to focus on resources and

capabilities

– Infrastructure is non-core and non-strategic• Implication – the value of the network is not in

the network itself, but what flows through the

network

• Connecting more devices to a network exponentiallyincreases the value of the network for everyone involved as

IT for Competitive Advantage & CommonInfrastructures




so many new connections are created – With unlimited connections & abundant information, the

organization is peer-to-peer rather than hierarchical

• Customer & company create together on a peer-to-peerbasis, they both get smarter together & develop a closer

relationship – Technology that enhances these relationships is called

relationship technology

• Company with the smartest customers wins – requires moretrust from both company & customer

– Simple examples – social networking (facebook)

• Selective outsourcing and the network based

Value #3: Modularization and Orchestration




economy showed is the modularization of thefirm

• The true value for organizations then is the

ability to put these modules back together• IT leverages the inter-connection of the

modules with providers to source services

• By leveraging the power of the network, IT can

Distinctive Competencies




bring together the resources and leveragecapabilities to create distinctive competencies

• With the competencies in place, these

competencies are then combined to generate acost or differentiation advantage

Advantages and Strategy




Cost

LeadershipDifferentiation

CostFocus DifferentiationFocus

Products are….

Cheaper Unique

M a

r k e t i s …

Broad

Narrow

Cost

AdvantageDifferentiation

Advantage

• The importance of competitive advantage lies

’ l f h f

Importance of Competitive Advantage




in its’ power – it creates value for the firm inthe long run

• Competitive advantage enables a firm to have

long-term value – One caveat: to ensure long-term value, must also

mitigate the influence of the five forces



• At points in the organization, a strategic

i fl i i i h i i

Competitive Advantage and the StrategicInflection Point




inflection point exists when an organizationmust decide whether or not to implement asystem or re-organize

– Injects chaos in to the organization

• At a high level, a strategic inflection point is achallenge

Market Leaders Non Market Leaders

Focus on business outcomes of investing in IT Focus on how much they are spending relative to

the market

Being a Market Leader




Spent three times as much as non-market

leaders on decision support and 50% more on

customer self-service applications

Struggle to find strategic imperative for investing

in IT

Focus on being agile in response to customer

demand fluctuations

Do not gauge customer demand using IT

Business units participate in determining the IT

budget in 83% of market leader firms

Business units participate in determining the IT

budget in 58% of non market leader firms

IT leadership devotes 60% of their time to new

implementations

IT leadership devotes 38% of their time to new

implementations

56% of outsourcing focused on new development 32% of outsourcing focused on new development

Market leading firms realize the strategic importance of IT and seek

to make IT a strategic partner

• The business world is clearly changing and IT is

l i i i l l i hi h

Conclusions



playing a critical role in this metamorphoses• Where will the business world turn next and

how will this convergence enable new levels of

growth?• I challenge you to take this mantle and build a

sustainable organization for the 21st century

is lectures for final

Documents