Week 11: Valuing Information Systems

1. Week 11: Valuing Information Systems Douglas M. Schutz MIS 2101: Management Information Systems Based on material from Information Systems Today: Managing in the Digital World, Leonard Jessup and Joseph Valacich, Pearson Prentice Hall, 2007 Also includes material by David Schuff, Paul Weinberg, Cindy Joy Marselis, Munir Mandviwalla, and Mart Doyle.

2. Learning Objectives • Learn how organizations can use MIS systems to help create strategic advantage • Learn how to make a business case for an MIS system • Learn how to evaluate an MIS system

3. From Module 1:Definition of an MIS System A set of interrelated components that collect (or retrieve), process, store, and distribute information to support decision making and control in an organization. . . . Source: Laudon, K & Laudon, J, Managing Information Systems

4. MIS: Adding Value to the Organization • MIS systems can enable innovative growth and productivity throughout the organization • Used strategically, enable firms to gain and sustain competitive advantage over rivals. • Need to constantly innovate to stay ahead - competitors can copy (and improve) how MIS systems are used. • New, constantly advancing innovations and opportunities make MIS an exciting field!

5. MIS Systems: Adding Value MIS Systems Can be Used in Three Ways for adding business value (from lowest to highest) to an organization: 1) Automating 2) Informating 3) Strategizing Which approach can add the most value? Automating Informating Strategizing

6. 1) Automating: Example Loan application processing comparison Process start: customer takes the application Process end: customer notified of the decision Manual loan process – 25 to 40 days Technology-Supported Process - 5 to 20 days Fully automated process – 1 hour to 15 days

7. 2) Informating/Learning: Example Computer-based loan system identifies peak times during the year when specific loans are processed

8. 3) Strategizing:Five Types of Organizational Strategies Strategic Planning: forming a vision of where the organization needs to head; crafting an organizational strategy defining the way in which a company plans to gain/sustain __________________ .

9. 1) OverallLow Cost Leadership Strategy Offer best prices in the industry or product/ service category Broad range of buyers What is an example?

10. 2) Focused Low-Cost Strategy Offer lower prices in the industry or product/ service category Focus on niche e.g. Dell

11. 3) Broad Differentiation Strategy Offer better products/ services than the competitors Broad Buyer Range e.g. Starbucks

12. 4) Focused Differentiation Strategy Offer better products/ services than the competitors Focus on niche Apple IPad Home market segment HP HP Slate Vs. Apple’s IPad

13. 5) Best-Cost Provider Strategy Provide products of reasonably good quality at competitive prices Target

14. Sources of Competitive Advantage: can be gained or sustained using MIS Best-made product on the market Superior customer service Achieving lower costs than rivals Having proprietary manufacturing technology Having shorter lead times in research and development projects Having a well-known brand name and reputation Giving customers more value for their money

15. Achieving Competitive Advantage • How do you identify opportunities to use MIS systems for competitive advantage? • “Value Chain”: what is this? • “Porter’s Five Forces Model”

16. Value Chain Analysis: 1) 5 Core Value Activities/Phases : 2) Support Value Activities 1) 5 Core Value Activities 2) Support Value Activities

17. Improving Value Chains by using MIS System How MIS systems add value and help create competitive advantage throughout the value chain Why would it be important for MIS systems supporting these activities to function in an integrated manner?

18. Porter’s Five Forces Model – What are They?Evaluating Business Segments seekingMIS System Opportunities for Supporting Strategy = Strategizing Product returns Lower market share Lost customers Decision support and business intelligence CAD product redesign Increased costs Reduced quality Reduce prices Increase quality Value added services Competition in price, distribution and service Electronic connections to more suppliers ERP to reduce costs and react more quickly ERP reduce costs CRM CAD/CAM improve quality Better web presence Lower costs through ERP, supply chain, etc. Reduced prices Lost market share

19. Learning Objectives • Learn how organizations can use MIS systems to help create strategic advantage • Learn how to make a business case for an MIS system • Learn how to evaluate an MIS system

20. Making the Business Case for an MIS System Identification of benefits that the proposed MIS system will bring to the organization Will the proposed MIS system provide: 1) Automating benefits? 2) Informating benefits? 3) and/or Strategizing benefits?

21. Beware of Productivity Costs vs. Gains Relatively “easy” to identify the costs for developing an MIS system More difficult to identify productivity gains Productivity Paradox: The observation of lower or higher? productivity gains than expected with the implementation of new MIS systems. Reasons Why???

22. The Productivity Paradox Reason for Limited Productivity Gains at the User Level: MIS systems may be used in ________ ways e.g. Web surfing Junk mail Games What else can Be added to the List???

23. More Reasons Contributing to the Productivity Paradox of MIS Investments: 1) Measurement 2) Time Lags 3) Redistribution 4) Mismanagement

24. 1) Measurement Problems Benefits are difficult to quantify Wrong things measured . . . For example volume of transactions, cost savings

25. 2) Time Lags Benefits do not always occur at the same time the MIS system is _______. Some MIS implementations require people to first gain experience MIS systems normally need to be integrated with existing systems

26. 3) Redistribution MIS system may redistributethe pieces of the pie rather than make the pie bigger Increases in market share come at the expense of other firm’s market share

27. 4) Mismanagement Bad business model can not be overcome by good MIS systems MIS system implementation as temporary fix Creation of unanticipated bottlenecks

28. Making a Successful Business Case On what can we base a successful business case for an MIS system: Faith, Fear, and/or Fact?

29. 1) Arguments Based on Faith Is a cost benefits analysis needed for an argument based on faith?

30. Email System Migration:cc:Mail to Outlook Migration • Manager struggled to make business case based on fact • Sticking with cc:Mail would be less expensive than migrating to Outlook in the short run • Outlook migration, however, was necessary for the organization to benefit from additional office automation tools e.g. integrated calendars and tasks • External vendor support for Outlook was cheaper than for cc:Mail • Outlook was more scalable for future message growth resulting in long-term cost savings • Outlook was easier to use than cc:Mail • Made case on “Faith”, not “Fact”

31. 2) Arguments Based on Fear Is a cost benefits analysis needed for an argument based on fear?

32. Business Continuity andDisaster Recovery (DR) • Business Continuity – Providing essential business services between the impact of the disaster and the execution of DR plan • Results from the catastrophic loss of ability to deliver services from primary location • Must resume services from an alternate location • DR plan driven by the business • Recover time objective (RTO) • Recovery point objective (RPO)

33. Sobering Statistics From the U.S. National Fire Protection Agency and the U.S. Bureau of Labor: • Nearly 75% of all U.S. businesses have experienced a significant business interruption • 20% of small to medium size businesses suffer a major disaster every five years • 43% of all US companies never reopen after a disaster and another 29% close within three years • 93% of companies that suffer a significant loss of data are out of business within five years

34. Scenario • You are the CIO of a small to mid sized company • You are meeting with an independent consultant who is trying to get you to hire him to develop a business continuity plan and a DR plan • Can a business case based on Fear be effective?

35. Catastrophic Losses do not have to be caused by Hurricanes or Earthquakes

36. 3) Arguments Based on Fact Do you need a cost benefits analysis for an argument based on fact? Why does timing matter with cost benefits analysis?

37. Productivity Business Case

38. Review Question When making a successful business case, "Arguments based on beliefs about organizational strategy, competitive advantage, industry forces, customer perceptions, market share, and so on" are known as arguments based on _____?

39. Cost-Benefit Analysis: Identifying Costs Total Cost of Ownership (TCO) 1) Cost of acquisition/implementation 2) Cost of ongoing use 3) Cost of ongoing ___________??? Recurring vs. Non-recurringcosts Tangible vs. Intangible costs

40. Cost-Benefit Analysis: Identifying Benefits Tangiblebenefits examples: $500K increase in sales Reduction of order entry errors by 5% Intangiblebenefits examples Improvement to customer service Improvement in overall perception of a firm _______ variables are used to measure changes in terms of perceived value to the organization.

42. Recurring and Non-recurring Costs

43. Recurring Costs

44. Recurring Cost Savings = Benefits

46. MIS System Evaluation is Critical • MIS Systems should address a business need • Otherwise: • Waste of money, time, and resources which should have been directed elsewhere • May still have an unresolved “business problem” that needs to be addressed

47. Learning Objectives • Learn how organizations can use MIS systems to help create strategic advantage • Learn how to make a business case for an MIS system • Learn how to evaluate MIS systems

48. How do you Evaluate Systems? • Understand what is needed by the business • Understand what the system does • Match the two up Application functionality Business needs

49. Understand What the Business Needs • Requirements Gathering - Talk to: • Users involved in the business process = user requirements • MIS support personnel that implement (and maintain) the system • …to determine key features needed by the business MIS Analyst

50. Understand What the Application Does • Once you have the key features needed… • Verify what the application does - Talk to: • Vendors • Reference organizations which have bought, built, or subscribed to this or similar products • Now you have a basis for comparing alternatives