Class 10: Valuing Information Systems Investments

Class 10: Valuing Information Systems Investments 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, and Cindy Joy Marselis.

Learning Objectives • Discuss how organizations can use information systems to help create a strategic advantage • Describe how to create a business case for an information system • Explain how to evaluate an information system

Valuing Information Systems What are three ways an Information System can add value to an organization? Where do you think the most value is added?

Valuing Information Systems What do we mean when we say we can create business value by automating, informing, and supporting strategy? Automating Informing Strategy Support

Valuing Information Systems Automating – doing things FASTER

Valuing Information Systems Informing – doing things BETTER

Informing: Example Tell me more about the loan processing example from the book…

Learning Organization One that is skilled at creating, acquiring and transferring knowledge and at modifying its behavior to reflect new knowledge and insights. David Garvin, Harvard Business Review - 1993

Valuing Information Systems Supporting Strategy– doing things SMARTER

Strategizing: Five Types of Organizational Strategies What are “Organizational Strategies”? Can technology be leveraged to create value supporting these strategies?

Overall Low Cost Leadership Strategy What is an example of a company that adopts an overall low cost leadership strategy?

Focused Low-Cost Strategy What is an example of a company that adopts a focused low cost strategy?

Broad Differentiation Strategy What is an example of a company that adopts a broad differentiation strategy?

Focused Differentiation Strategy What is an example of a company that adopts a focused differentiation strategy?

Best-Cost Provider Strategy What is an example of a company that adopts a best-cost provider strategy?

Strategizing: Five Types of Organizational Strategies Can technology be leveraged to create value supporting these strategies?

Sources of Competitive Advantage Who has … 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 Can MIS professionals help you achieve this?

Competitive Advantage How do you identify opportunities to use information systems for competitive advantage? What are “Value Chains”? What is “Porter’s Five Forces Model”? Analysis tools or communication tools?

What is Value Chain Analysis? Core Value Activities Support Value Activities

IS and Value Chain Analysis What are specific examples of how these IS functions add value and help create competitive advantages? Why might it be important for systems supporting these activities to function at an enterprise level?

The Five Forces Model – Evaluating Business Segments 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

Buyer Power • What does it mean when “Buyer Power” is high? • How to loyalty programs influence buying power? • Can IT be the “enabler”? Examples of situations where IT has increased buyer power? How can I become the preferred supplier?

Supplier Power • What does it mean when “Supplier Power” is high? • How do tightly integrated supply chains influence supplier power? Examples of situations where IT has increased supplier power? How can I increase my number of suppliers?

Threat of Substitute Products or Services • When is the threat of substitute products high? • What are “switching costs” and how do they influence the threat of substitute products? • Can IT be the “enabler”? Examples of situations where IT has increased the threat of substitutes? Can I increase switching costs?

Threat of New Entrants • Give an example of when the threat of new entrants is high? • What is an “Entry Barrier” and how does this influence the threat of new entrants? • Can IT be the “enabler”? Examples of situations where IT has affected the threat of new entrants? Can I create barriers to entry?

Rivalry Among Competition • Price, product, service and distribution? • How can you use IT?

Making the Business Case for an IS Identification of benefits that the proposed information system will bring to the organization Automating benefits Informing benefits Strategic benefits

Productivity Gains Easy to identify costs with developing an IS How do you measure productivity gains? Why hasn’t productivity increased at the rate of IS investments?

The Productivity Paradox Give an example of how information systems may be used in unintended ways.

Measurement Problems Give an example of how the wrong things can be measured

Time Lags When can the benefits of an information system lag behind the realized benefits?

Redistribution If an information systems simply redistributes the pieces of the pie rather than make the pie bigger, does it create any value?

Mismanagement Can a good information system overcome a bad business model?

Making a Successful Business Case On what can we base a successful business case?

ArgumentsBased on Faith Do you need a cost benefits analysis for an argument based on faith?

Arguments Based on Fear Do you need a cost benefits analysis for an argument based on fear? Come on, how do you instill “fear” in an organization?

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 disaster recovery plan • Is a business case based on “Fear” effective?

Business Continuity andDisaster Recovery • Catastrophic loss of ability to deliver services from primary location • Must resume services from alternate location • Disaster recovery plan driven by the business’ • Recover time objective (RTO) • Recovery point objective (RPO) • Business Continuity – How you continue to provide essential business services between time of the disaster and the execution of DR plan

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 business interruption • 20% of small to medium size businesses suffer a major disaster every five years • 43% of US companies never reopen after a disaster and 29% close within three years • 93% of companies that suffer a significant data lose are out of business within five years

It’s not always what you expect • It’s in not always an earthquake or a hurricane

Arguments Based on Fear Do you need a cost benefits analysis for an argument based on fear?

Arguments Based on Fact Do you need a cost benefits analysis for an argument based on fact?

Cost-Benefit Analysis Identifying costs What is “Total Cost of Ownership” (TCO)? What are “Recurring vs. Non-recurring costs”? What are “Tangible vs. Intangible costs”?

Class 10: Valuing Information Systems Investments