THE ROLE OF IT AND PLANNING FOR IT VALUE MODUL 2. SESSION 4 - 6

Matakuliah : M0624/Information Technology ValuationTahun : 2008

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INTRODUCTION• THE RATE OF CHANGE IN TODAY’S BUSINESS

ENVIRONMENT HAS PUSHED THE NEED FOR TECHNOLOGIES AND ACCEPTANCE OF THEM TO A CONTINUOUSLY ACCELERATING PACE.

• THE NEW TECHNOLOGIES ARE ENABLING ORGANIZATIONS TO BE FLATTER, AND MORE FLEXIBLE, REDEFINING OUR NOTIONS ABOUT EVERYTHING FROM R&D TO DISTRIBUTION, AND IN THE PROCESS MAKING POSSIBLE SMARTER, MORE CUSTOMIZED PRODUCTS AND SERVICES.

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INTRODUCTION• THE ORGANIZATIONS SPEND ENORMOUS SUMS OF MONEY

ON COMPUTER HARDWARE, SOFTWARE, COMMUNICATION NETWORKS, DATABASES, AND SPECIALIZED PERSONNEL, COLLECTIVELY KNOWN AS INFORMATION TECHNOLOGY. THERE IS A GREAT DEAL OF QUESTIONING ABOUT PAYOFF OF THESE LARGE INVESTMENTS IN IT.

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THE ROLE OF IT VENKATRAMAN SUGESTS FIVE STAGES OF GROWTH:• STAGE 1: LOCALIZED EXPLOITATION OF IT.

IT SUPPORTS SUCH AS ORDER ENTRY, CUSTOMMER SUPPORT SYSTEMS, CIM, PAYROLL.BENEFIT: EFFICIENCY OF BUSINESS PROCESS.

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THE ROLE OF IT• STAGE 2: INTERNAL INTEGRATION OF IT.

IT SUPPORTS OF BUSINESS FUNCTION AND THE

INTEGRATION FUNCTIONS AND TASK THROUGH IT.BENEFIT: RELATIVELY MINOR ORGANIZATIONAL ADJUSTMENTS FOLLOW IMPLEMENTATION, FUNCTIONAL DIVISIONS OF THE BUSINESS AND THEIR WORKS METHODS REMAIN LARGERLY UNCHANGED.

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Degree of business

transformation

One : Localized exploitation

Two : Internal integration

Three : Business process redesign

Four : Business network redesign

Five : Business scope redefinition

Revolutionary levels

Evolutionary levels

HIGH

HIGH

LOW

LOW

Range of potential benefits

Figure 2.1 Venkatraman’s Five stage of Growth

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THE ROLE OF IT• STAGE 3: BUSINESS PROCESS REDESIGN,

A FUNDAMENTAL RETHINKING OF THE MOST EFFECTIVE WAY TO CONDUCT BUSINESS. TO TRANSFORM ANY PROCESS WELL, ORGANIZATIONS NEED TO MAKE SURE THEY HAVE THE RIGHT RESOURCES IN PLACE AND IN TIME.BENEFIT: HUGE MONETARY SAVINGS, MOTIVATED AND EMPOWERED EMPLOYEE, RESTRUCTURING WORKFLOWS. THE BENEFITS SHOULD FAR EXCEED THOSE ARISING FROM THE INCREMENTAL IMPROVEMANTS THROUGH IT IN STAGES 1 AND 2.

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THE ROLE OF IT

• STAGE 4: BUSINESS NETWORK REDESIGN,

THE USE OF IT BY THE ORGANIZATION TO RECONFIGURE THE SCOPE AND THE TASKS OF THE BUSINESS NETWORK INVOLVED IN THE CREATION AND DELIVERY OF PRODUCTS AND SERVICES.

BENEFIT: IT IS A MAJOR CONTRIBUTOR TO THE NECESSARY MANY TO MANY COMMUNICATION, WHILE WORKFLOW MANAGEMENT TOOLS MAKE COORDINATED PARALLEL ACTIVITY POSSIBLE, ELIMINATING GEOGRAPHICAL, TIME BASED AND ORGANIZATIONS BOUNDARIES.

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THE ROLE OF IT• STAGE 5: BUSINESS SCOPE REDEFINITION,

PERTAINING TO THE POSIBILITIES OF ENLARGING OR SHIFTING THE BUSINESS MISSION AND SCOPE.

IT IS NO LONGER PART OF THE STRATEGIC OPTIONS; IT RATHER IS THE FOCUS OF BUSINESS STRATEGY. THE VALUE OF IT IS DETERMINED BY THE TOP AND BOTTOM LINES THE ANNUAL FINANCIAL STATEMENTS.BENEFIT: BUSINESS SUCCESS INCREASINGLY DEPENDS OF HOW TO FUSE THE POTENTIAL POWER OF IT INTO PRODUCTS, SERVICES, AND BUSINESS NETWORKS.

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CustomersEmployees

Shareholders

Figure 2.3 Weaving Information Technology into the organization

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THE ROLE OF IT

• MANY OF TODAY’S ORGANIZATIONS APPLY AT ALL LEVEL OF

VENKATRAMAN’S MODEL. IT HAS SIGNIFICANT IMPACT ON MARKET AND PRODUCT STRATEGIES TO SATISFY THE NEED OF THE MAIN STAKEHOLDERS (SHARE HOLDERS, CUSTOMERS, EMPLOYEES).

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THE ROLE OF IT• PROGRESS IN TECHNOLOGICAL CAPABILITIES IS

PARTICULARLY MADE IN THREE AREAS, EACH OF WHICH IS

CENTRAL TO THE ABILITY OF IT TO CHANGE THE WAY WORK IN ORGANIZATIONS PERFORMED:A. EXTENSIVE COMMUNICATIONB. ACCESSIBILITY OF DISTRIBUTED DATABASES AND KNOWLEDGE BASESC. ENHANCED WORKSTATIONS AND USER DEVICES.

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THE IT INFRASTRUCTURED• THE IT INFRASTRUCTURE AS A CORE COMPETENCE IS A

COMBINATION OF SKILL, PROCESSES, PROCEDURES, ORGANIZATIONAL STRUCTURES, PHYSICAL SYSTEMS, AND COMPONENT, FORMING THE CONTINUING BASIS FOR A FIRM’S COMPETITIVENESS.

• IT INFRASRUCTURE AS THE ROLL-UP OF TECHNOLOGY INTO THREE DISTINCT LAYERS OF SERVICE, HELD TOGETHER BY PROCEDURES AND KNOWLEDGE.

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THE IT INFRASTRUCTUREDMCKAY AND BROCKWAY DISTINGUISH:

A. SHARED IT COMPONENTS

B. SHARED IT SERVICESC. SHARED BUSINESS CAPABILITY

THESE “BRICKS” COMPRISING THE THREE LAYERS OF IT STRUCTURE, ARE HELD TOGETHER BY MORTAR CONSISTING OF THE SPESIFIC KNOWLEDGE AND SKILLS REQUIRED TO COMBINE THE IT INFRASTRUCTURE COMPONENTS INTO ROBUST IT SERVICES AND BUSINESS CAPABILITIES.

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PLANNING FOR IT

• MANAGEMENT IS TYPICALLY DEFINED AS A SYSTEMATIC PROCESS OF PLANNING, ORGANISING, LEADING AND CONTROLLING THE EFFORTS OF ORGANIZATION MEMBERS AND OF USING OTHER ORGANIZATION RESOURCES TO ACHIEVE STATED ORGANIZATIONAL GOALS.

• THE FOUR KEY WORDS: PLANNING, ORGANIZING, LEADING, CONTROLLING.

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Definition of objectives

Planning

Execution• Organizing• leading

Controlling

Figure 2.5: The Planning and Control Cycle

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TRADITIONAL PLANNING FOR IT AND PROBLEMS

IN RELATIONS WITH IT, PLANNING HAS TRADITIONALLY BEEN PERFORMED AT THREE DISTINCT LEVELS:

A. BUSINESS PLANNING

B. IT PLANNING

C. IT SUPPLY PLANNING

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TRADITIONAL PLANNING FOR IT AND PROBLEMS• OBJECTIVES OF BUSINESS PLANNING:

BUSINESS PLANNING IS AIMED AT CONFIGURING SKILLS AND CAPABILITIES, INCLUDING IT, IN SUCH A WAY THAT THE MOST PROFITABLE AND COMPETITIVE ADVANTAGE IS ATTAINED IN THE FUTURE.

• THE FIRST OBJECTIVE OF BUSINESS IS TO CREATIVELY AND INNOVATIVELY ANSWER THE QUESTIONS “WHAT BUSINESS ARE WE REALLY IN?”

• THE SECOND OBJECTIVE IS TO DEVELOP THE STRATEGIES TO SATISFY THE NEEDS OF STAKEHOLDER VIS-A-VIS THE ORGANIZATION’S COMPETITIVE POSITIONING

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PROBLEMS OF TRADITIONAL BUSINESS PLANNING IN THE PAST

• TRADITIONAL BUS. PLAN HAS 2 STEP:1. DEVELOPMENT THE STRATEGY2. STRATEGY EXECUTION AND IMPLEMENTATION

• THE PROBLEMS ARE: THE PROCESS OF STRATEGY DEVELOPMENT AND BUSINESS PLANNING ARE NOT AS SEQUENTIAL, NOT AS LOGICAL AND STRAIGHT FORWARD, AND NOT AS RELIABLE AS ONE WOULD HOPE

WHEN PLANNING FOR EFFECTIVE IT. LET SEE EXH 2.1.

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OBJECTIVE OF IT PLANNING

• IT PLANNING IS THE PLANNING ACTIVITIES UNDERTAKEN BY AN ORGANIZATION TO SYSTEMATICALLY DETERMINE ITS

REQUIREMENTS IN BROAD TERMS SO THAT IT CAN PREPARE TO MEET ITS SHORT TERM (1-2 Y), MEDIUM TERM (2-4 Y) AND

LONG TERM (5-7 Y) IT PLAN.

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OBJECTIVE OF IT PLANNING

• THE MOST IMPORTANT GOALS OF IT PLANNING ARE TO ALLOW FOR:

A. ALIGNMENT OF IT WITH THE BUSINESS OBJECTIVES AND REQUIREMENTS

B. DECISION MAKING ON THE SCOPE, SCALE AND PACE OF IT PROJECTS

C. INVESTMENT DECISIONS AND IT BUDGETING

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OBJECTIVE OF IT PLANNING

D. ALLOCATION OF RESOURCES TO IT ACTIVITIES

E. COMMUNICATION BETWEEN IT MANAGEMENT AND TOP MANAGEMENT

F. OVERALL QUALITY OF IT.

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PROBLEMS OF TRADITIONAL IT PLANNING IN THE PAST

• TRADITIONAL IT PLANNING APPROACH HAVE POORLY ALIGNED WITH BUSINESS PLANNING APPROACHES FROM METHODOLOGICAL AND PRACTICAL PERSPECTIVES.

LET SEE EXH. 2.2. AND EXH. 2.3.

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OBJECTIVES OF IT SUPPLY PLANNING

• IT IS CONCERNED WITH PLANNING IT SUPPLY ACTIVITIES - IT

OPERATIONS AND DEVELOPMENT OF NEW OR ENHANCED IT PRODUCTS AND SERVICES (E.G. INFORMATION SYSTEMS) - WITHIN AN ORGANIZATION.

• NEW IT PRODUCTS AND SERVICES MUST BE PLANNED IN RESPONSES TO BUSINESS NEEDS, AND SHOULD BE GUIDED BY

AN IT ARCHITECTURE.

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PROBLEMS OF TRADITIONAL IT SUPPLY PLANNING IN THE PAST

• THE EMPHASIS OF IT PLANNING WAS ON THE EFFICIENCY OF OPERATIONS AND USE OF SCARCE RESOURCES AND MOST

ORGANIZATIONS HAD A CENTRALIZED, FULL SERVICE IT DEPARTMENT AS A STAFF FUNCTION

• NOW, MANY ORGANIZATIONS HAVE DECENTRAL-IZED PARTS

OF IT SUPPLY TO BUSINESS FUNCTIONS AND OUTSOURCED

OTHER PARTS TO EXTERNAL, COMMERCIAL IT SERVICE PROVIDERS.

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PROBLEMS OF TRADITIONAL IT SUPPLY PLANNING IN THE PAST

• MANY ORGANIZATIONS HAVE OUTSOURCED THEIR ENTIRE IT

DEPARTMENT OR HAVE TURNED OVER PIECES OF THEIR IT OPERATIONS TO IMPROVE SERVICE, REDUCE COST, OR FREE UP MANAGE-MENT ATTENTION.

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CONTEMPORARY BUSINESS, IT, AND IT SUPPLY PLANNING

• AS BUSINESS AND ITS ENVIRONMENT HAVE CHANGED, IT MANAGEMENT PRACTICES HAVE ALSO CHANGED. AND AS

CAPABILITIES OF IT HAS CHANGED, BUSINESS PLANNING APPROACH HAVE CHANGED ACCORDINGLY TO INCORPORATE

THE POTENTIAL OF IT.

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CONTEMPORARY BUSINESS, IT, AND IT SUPPLY PLANNING

• TODAY’S BUSINESS PLANNINGMINTZBERG: COMPANIES MUST DIFFERENTIATED BETWEEN PLANNING AND STRATEGIC THINKING, WHICH CAPTURE WHAT MANAGEMENT LEARNS FROM ALL SOURCES, AND THEN SYNTHESIZE THAT LEARNING INTO A VISION OF THE DIRECTION THAT THE BUSINESS SHOULD PURSUE.

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CONTEMPORARY BUSINESS, IT, AND IT SUPPLY PLANNING

• SUCH STRATEGIES OFTEN CANNOT BE DEVELOPED ON SCHEDULE AND IMMACULATED CONCEIVED. THEY MUST BE FREE TO APPEAR AT ANY TIME AND AT ANY PALCE IN ORGANIZATIONS TYPICALLY THROUGH MESSY PROCESS OF INFORMAL LEARNING THAT MUST NECESSARILY BE CARRIED OUT BY PEOPLE AT VARIOUS LEVELS WHO ARE DEEPLY INVOLVED IN THE SPECIFIC ISSUES AT HAND.

LET SEE FIG 2.6

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CONTEMPORARY BUSINESS, IT, AND IT SUPPLY PLANNING

• TODAY’S IT PLANNING

AT THE IT PLANNING LEVEL, THE TRADITIONAL TOP-DOWN PLANNING PROCESS BE GRADUALLY REPLACED BY A MORE ITERATIVE, GOAL ORIENTED, EVOLUTIONARY, AND CONTINUOUS PROCESS OF ORGANIZATIONAL LEARNING AND SOME DEGREE OF EXPERIMENTATION FOR A GREAT DEAL OF UT PLANNING ASPECTS.

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CONTEMPORARY BUSINESS, IT, AND IT SUPPLY PLANNING

• THE TRADITIONAL TOP DOWN PLANNING PROCESS COULD BE LABELED AS ALIGNMENT PLANNING, THE BOTTOM UP PLANNING AS IMPACT PLANNING.

• A CONTEMPORARY IT PLANNING PROCESS COMBINES BOTH DIRECTIONS, STARTING FROM THE BUSINESS ORGANIZATIONS AND

NEEDS, GENERATING AN IT ARCHITECTURE (TOP-DOWN); WHILE

OPPORTUNITIES FROM EXISTING IT AND IT SUPPLY CAN BE GENERATED AND DEPLOYED TO CHANGE BUSINESS PLANS AND/OR ALIGN WITH BUSINESS NEED (BOTTOM UP)

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CONTEMPORARY BUSINESS, IT, AND IT SUPPLY PLANNING

• SUCH A PRAGMATIC IT PLANNING APPROACH CONSISTS OF THE FOLLOWING PRINCIPAL STEPS:

A. THE BUSINESS IDENTIFIES ABROAD, BUT CLEARLY ARTICULATED STRATEGIC VISION (A COMBINATION OF CHALLENGING BUT ATTAINABLE MEDIUM) TERM GOALS, AND A MORE GENERAL EXPRESSION OF THE ORGANIZATION’S STRATEGIC INTENT, ITS VALUES AND BELIEFS.

B. IN PARALLEL WITH THE DEVELOPMENT OF THE BUSINESS VISSION, THE MAIN THRUSTS OF THE APPLICATION AND DEVELOPMENT OF IT ARE EXPRESSED IN A SERIES OF IT PRINCIPLES.

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CONTEMPORARY BUSINESS, IT, AND IT SUPPLY PLANNING

C. THE BUSINESS IDENTIFIES AND DEFINES ITS KEY AND SUPPORTING PROCESSES. PROCESSES ARE STRUCTURED SETS OF ACTIVITIES, ORDERED ACROSS TIME AND PLACE, WITH A BEGINNING, AN END, AND CLEARLY DEFINED INPUT AND OUTPUT.

D. HAVING IDENTIFIED YHE PRINCIPLED PROCESSES CRITICAL TO THE BUSINESS’S SUCCESS, ANOTHER STEP IS TO ANALYZE THE WORKFLOW AND WORK ACTIVITIES AND THE LOCATIONS WHERE WORK IS PERFORMED, AND IMPROVE (RE-ENGINEER) THEM.

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CONTEMPORARY BUSINESS, IT, AND IT SUPPLY PLANNING

E. BASED ON REENGINEERED PROCESSES, NEW JOB (OR RATHER ROLES OF EMPLOYEES, CUSTOMERS, AND OTHER PARTICIPANTS WITHIN THE RENEWED BUSINESS PROCESSES) ARE IDENTIFIED.

F. THE TOTAL SET OF REENGINEERED BUSINESS PROCESSES, WORKFLOWS, LOCATIONS, ROLES, AND INFORMATION

NEEDS IS FURTHER EXPANDED INTO THE TARGET IT ARCHITECTURE.

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TODAY’S IT SUPPLY PLANNING

• THE MAJORITY OF IMPROVEMENTS IN THE PLANNING OF IT SUPPLY, COMPARED WITH THE PAST, HAVE AIMED AT MEETING AGREED UPON DEADLINES, COST REDUCING, AND

IMPROVED QUALITY LEVELS OF IT SUPPLY.• FOR EXAMPLE:A. FOR MANY OPERATIONAL SERVICES CARRIED OUT ON A DAILY

BASIS BY A DATA CENTER, SLA’S ARE PUT INTO PLACE.B. STANDARD S/W PACKAGE MIGHT BE PREFERABLE TO THE

DEVELOPMENT OF IT APPLICATIONS

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TODAY’S IT SUPPLY PLANNING

C. FOR APPLICATION DEVELOPMENT PROJECTS, THE CONVENTIONAL, SEQUENTIAL “WATERFALL” METHOD IS BEING REPLACED BY A MORE ITERATIVE, GOAL ORIENTED AND CONTINUOS PROCESS OF EVOLUTIONARY DEVELOPMENT.

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PLANNING FOR VALUE FROM IT• 5 MAIN BUSINESS PURPOSES OF IT INVESTMENTS CAN BE

IDENTIFIED:

1. MANDATORY IT, REQUIRED TO SATISFY REGULAT-ORY REQUIREMENTS (SUCH AS CHANGES TO THE PAYROLL SYSTEM), TO MEET INTERNAL ORGANIZA-TIONAL REQUIREMENTS (SUCH AS CONSOLIDATION OF FINANCIAL REPORTING FOR A MULTINATIONAL COMPANY)

2. TO IMPROVE THE EFFICIENCY AND EFFECTIVENESS OF THE ORGANIZATION, AIMED AT REDUCING OR AVOIDING OPERATIONAL AND LABOR COST, INCREASING BUSINESS PRODUCTIVITY

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PLANNING FOR VALUE FROM IT

3. TO CHANGE THE BUSINESS, THE BUSINESS NET-WORK AND

THE BUSINESS SCOPE. OFTEN CALLED “STRATEGIC IT”

4. IT INFRASTRUCTURES WHICH ENABLES THE BENEFITS OF

OTHER IT APPLICATIONS TO BE REALIZED. THEY DO NOT OFFER DIRECT BENEFITS.

5. IT RESEARCH WHICH EXECUTED TO ENSURE THAT THE BUSINESS IS NOT LEFT BEHIND BY TECHNOLO-GICAL PROGRESS.

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CONCLUSION

• IT NOT ONLY SUPPORTS AND CHANGES BUSINESS

OPERATIONS, IT ALSO INTRODUCES IT ENABLED PRODUCTS AND DISTRIBUTION CHANNELS AND IT ALLOWS INDIVIDUALS AND ORGANIZATIONS TO WORK TOGETHER EFFECT-IVELY AND AFFICIENTLY, WHILE SIMULTANEUSLY WEAVING IN THE

ENABLING IT APPLICATIONS AND IT INFRASTRUCTURES

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CONCLUSION

• THE WHOLE PROCESS OF IT PLANNING IS MORE APPROPRIATELYTHOUGHT OF AS “ WORK TRANSFORMATION” AND “BUSINESS SCOPE REDEFINITION”.

APPLICATION OF IT NEEDS TO BE A BROAD, CROSS FUNCTIONAL, AND CROSS BUSINESS PROCESS THAT ENTAILS UNDER-STANDING BUSINESS GOALS AND STRATEGIES,

REFASHIONING BUSINESS PROCESS AND WEAVING IT INTO THE FABRIC OF THE ORGANIZATION.

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CONCLUSION

• IT PLANNING CAN BE MOVED FAOR A GREAT DEAL OF ITS APPLICATION TO FAST TRACKED, ITERATIVE, PROTOTYPING ORIENTED APPROACH THAT INVOLVED BUSINESS EXECUTIVES IN EVERY STEP OF THE PROCESS.

• ALTHOUGH IN PRINCIPLE THE BUSINESS LEADS AND IT FOLLOWS, REALITY SHOWS SYNERGISTIC INTERACTION AND

PARTNERSHIPS BETWEEN IT AND BUSINESS PEOPLE,

BUSINESS AND IT INITIATIVES.

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CONCLUSION

• A CONTEMPORARY IT PLANNING APPROACH ACKNOWLEDGES THAT VARIATIONS EXIST IN THE DEGREE OF RIGOR TO BE APPLIED TO PLANNING DIFFERENT CLASSES OF

IT.

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• THE END OF MODUL 2