The Business Value of Information Technology

1. The Business Value of Information Technology Yuliani Dwi Lestari dan Togar M. Simatupang Sekolah Bisnis dan Manajemen Institut Teknologi Bandung Dipresentasikan pada Seminar Information Technology (IT) Value Engineering diselenggarakan oleh KK Teknologi Informasi Sekolah Teknik Elektro dan Informatika (STEI) ITB Kampus ITB Jatinangor - Kamis, 4 Desember 2014

2. Outline • Basic Definitions • Examples of the value of IT in Business • Present Models of the Value of IT Investments • The Practice of Business Value • Concluding remarks 2

3. Objective • Provides a brief introduction to the business value of Information Technology, a brief survey of the benefits of IT in Business as reported by major industry studies, and an overview of popular value methods. • Provides a suite of basic metrics useful for quantifying the business value of Information Technology. • Discusses the practice of the business value of Information Technology. 3

4. Basic Definitions 4

5. Objectives of a Business • Create value for its shareholders while maintaining a sound financial position. • Other important objectives include: – Employee satisfaction – Social responsibility – Ethical consideration 5

6. Business as a money engine 6

7. Business Value • An approach for estimating the tangible and intangible worth of organizational assets. • An appraisal of intellectual assets such as knowledge, experience, and skills. • A technique for determining the complete worth of an investment to an enterprise. • A method of determining the health and well- being of a firm in the long run. • A set of measures including employee, customer, supplier, alliance, management, and societal value. 7

8. Sources of Business Value 8

9. New Business Platform 9

10. Information Technology is mainly an enabler, and a facilitator of various business functions 10

11. The recursive relationship between It Capabilities and Business Process Redesign How can IT support business processes? Business Process Redesign IT Capabilities How can business processes be transformed using IT? 11

12. Business Value and the Role of ICT Innovation Management Team Customer Value Financial Performance Commercial Advantage Information and Communications Technologies Acting as an Enabler and as a Differentiator 12

13. Business transformation through ICT The four components… Technology Adoption Strategy and Motivation Importance of ICT Demands of Customers Demands of Suppliers IT skills within organisation Internet connectivity Broadband Email Website LAN/WAN Wireless Application integration Influences Support Business Transformation Through ICT Ordering online Paying online Selling online Online collaboration Sharing knowledge online Managing supplier relationships Managing customer relationships Benefits gained to-date Return on investment Business growth profile Attitude to future adoption Attitudes and Impact Business Processes Source: Gordon Lee (2005), Increasing the Value of Business: The Role of ICT. 13

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

15. Examples of the value of IT in Business 15

16. 16

17. The Value of Business Intelligence The results of the investment: • Improving the decision-making process • Significant decrease of the dependency on the IT Department • Increased visibility over the entire business • Optimize the business for future changes Source: A Business Intelligence solution helps you discover the added value of an ERP at http://www.seniorerp.ro/en/a-business-intelligence-solution-helps-you-discover-the-added-value-of-an-erp/ 17

18. 18

19. 19

20. 20

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

22. 22

23. The Existing Value Models 23

24. Theories, approaches and methodologies investigating the business value generating potential of IT Source: Márta Aranyossy (2007), Business Value of IT Investment: The Case of a Low Cost Airline’s Website 24

25. Phases and steps in the AIAC framework for measuring IT Payoff (Adapted from Devaraj and Kohli, 2002) 25

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

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

28. Intel’s Business Value Chart 28

29. Intel’s process for measuring IT business value 29

30. The business value index (BVI) evaluates IT investment benefits 30

31. Total Economic Impact (TEI) Source: Forrester Research, Inc. 31

32. Val IT™Framework Establish informed and committed leadership. Define and Define portfolio characteristics. implement processes. Value Governance (VG) Align and integrate value management with enterprise financial planning. Continuously improve value management practices. Establish effective governance monitoring. Establish strategic direction and target investment mix. Determine the availability and sources of funds. Manage the availability of human resources. Portfolio Management (PM) Monitor and report on investment portfolio performance. Evaluate and select programmes to fund. Optimise investment portfolio performance. Develop and evaluate the initial programme concept business case. Understand the candidate programme and implementation options. Develop the programme plan. Develop full life cycle costs and benefits. Develop the detailed candidate programme business case. Launch and manage the programme. Update operational IT portfolios. Investment Management (IM) Monitor and report on the programme. Update the business case. Retire the programme. 32

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

34. 34

35. Benefits Management Source: http://www.dfpni.gov.uk/benefits-management-mainsection1-3 35

36. 36 Source: http://www.reedintegration.com/services/ppm/program_project_management.html

37. Business Value in Practice 37

38. The problem: CIOs lack a framework for describing business contribution Source: Innovation Value Institute 38

39. The Principle 39

40. Effective strategies answer three key questions How will we Create value? How will we Capture value? How will we Deliver value? 40

41. Answer seven critical questions: • How will we create value? – How will the technology evolve? – How will the market change? • How will we capture value? – How should we design the business model? – Where should we compete in the value chain? – How should we compete if standards are important? • How will we deliver value? – How do we manage the core business and growth simultaneously? – How do we use our strategy to drive real resource allocation? 41

42. Put Into Practice • Best practice delivery system (consulting, coaching, implementation) • Operating accreditation • Quality control • Continuous learning • Leverage (scalability, expertise) • Strategic partners (credibility, value added) • Collegial culture Operating Capabilities Resource Network Leadership Imperatives Tools Realization of Business Value Enablement • Vision and values • Advantaged business model • Client centric approach • Innovation agenda • Individual empowerment • Future proofing • Business Analysis • IT Strategy • Value engineering • Benefits Management 42

43. Tools of Business Value Business Analysis Benefits Management IT Strategy Value Engineering 43

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

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

46. Value Engineering 46

47. 47

48. Benefits Management Source: http://www.turnerdesign.org/Consulting/Project%20Management.htm 48

49. Concluding Remarks • IT leaders should create a business case for any new technology before deciding to adopt it. There is a need to assign a small team of engineers and technology architects to explore enabling technologies opportunities. After feasibility study the team should test the water projects to understand how IT supports the run of business or the grow of the business. The team should explore how the IT adoption can provide breakthroughs to the business practices. There is a combination of long terms strategic benefits and short term tactical goals. The management should apply the integrated tool to deliver the value of IT. • • • • • 49

50. Thank You 50