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Week 10: Valuing Information Systems Investments. MIS 2101: Management Information Systems. 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

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week 10 valuing information systems investments

Week 10: Valuing Information Systems Investments

MIS 2101: Management Information Systems

learning objectives
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
what is value
What is Value?
  • Shareholder Value
  • Customer Value
  • Employee Value
  • Societal Value
how does it create value
How does IT create value?

Information systems can be used in three ways to add value to an organization:

Automating

Informing

Strategizing

automating doing things faster
Automating: Doing Things Faster

Loan processing comparison for 3 methods (from the moment the customer takes the application until the applicant is notified of decision)

Manual loan process – 25 days

Technology-supported process – 5 days

Fully automated process – 1 hour

informing doing things better
Informing: Doing Things Better

Computer-based loan system identifies peak times during the year when specific loans are processed

strategizing five types of organizational strategies
Strategizing: Five Types of Organizational Strategies

Organizational strategies define the way in which a company plans to gain/sustain competitive advantage

competitive advantage
Competitive Advantage

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 you think of other examples?

Where does SouthWest Airlines fit?

competitive advantage10
Competitive Advantage

How do you identify opportunities to use information systems for competitive advantage?

Porter’s Value Chain

Porter’s Five Forces Model

value chain analysis
Value Chain Analysis

Tool used by managers to identify opportunities for gaining competitive advantage

Core

Value

Activities

Support

Value

Activities

is and value chain analysis
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
The Five Forces Model – Evaluating Business Segments
  • Organizations use Porter’s Five Forces Model to determine the relative attractiveness of an industry
buyer power
Buyer Power
  • Buyer power – high when buyers have many choices of whom to buy from and low when their choices are few
    • Loyalty programs – reward customers based on the amount of business they do with a particular organization

Examples of situations where IT has increased buyer power?

supplier power
Supplier Power
  • Supplier power – high when buyers have few choices of whom to buy from and low when their choices are many
    • Supply chain – consists of all parties involved, directly or indirectly, in the procurement of a product or raw material

Examples of situations where IT has increased supplier power?

electronic marketplaces
Electronic Marketplaces
  • Two types of Business-to-Business (B2B) marketplaces
    • Private exchange – a single buyer posts its needs and then opens the bidding to any supplier who would care to bid
    • Reverse auction – An auction format in which increasingly lower bids are solicited from organizations willing to supply the desired product or service at an increasingly lower price
threat of substitute products or services
Threat of Substitute Products or Services
  • Threat of substitute products or services – high when there are many alternatives to a product or service and low when there are few alternatives from which to choose
    • Switching costs – costs that can make customers reluctant to switch to another product or service

Examples of situations where IT has increased the threat of substitutes?

threat of new entrants
Threat of New Entrants
  • Threat of new entrants – high when it is easy for new competitors to enter a market and low when there are significant entry barriers to entering a market
    • Entry barrier – a product or service feature that customers have come to expect from organizations in a particular industry and must be offered by an entering organization to compete and survive

Examples of situations where IT has affected the threat of new entrants?

learning objectives19
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
making the business case for an is
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
Productivity Gains

Easy to identify costs with developing an IS

Difficult to identify productivity gains

Why hasn’t productivity increased at the rate of IS investments?

the productivity paradox
The Productivity Paradox

Information systems may be used in unintended ways

Web surfing

Junk mail

Games

making a successful business case
Making a Successful Business Case

Based on

Faith

Fear

Facts

arguments based on faith
ArgumentsBased on Faith

Qualitative Arguments about:

Organizational strategy

Competitive advantage

Industry forces

Customer perceptions

No consideration for costs

arguments based on fear
Arguments Based on Fear

Arguments based on the notion that if system is not implemented:

Company loses to a competitor

Goes out of business

arguments based on fact
Arguments Based on Fact

Arguments based on:

Data

Indisputable factors

arguments based on fact29
Arguments Based on Fact

Cost-benefit analysis

Identify costs

Identify benefits

Contrast expected costs and benefits

Consider the timing of costs and benefits

Why does timing matter?

cost benefit analysis
Cost-Benefit Analysis

Identifying costs

Total cost of ownership (TCO)

Cost of acquisition

Cost of use

Cost of maintenance

Recurring vs. Non-recurring costs

Tangible vs. Intangible costs

cost benefit analysis31
Cost-Benefit Analysis

Identifying Benefits

Tangible benefits

5% increase in sales

Reduction of order entry errors

Intangible benefits

Improvement to customer service

Improvement in overall perception of a firm

learning objectives32
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
evaluating information systems
Evaluating Information Systems
  • Identify Stakeholders
  • Identify business drivers
  • Quantify benefits
  • Evaluate Risks
    • Technical, Non-technical
  • Fit-Feature Comparison
fit feature comparison
Fit – Feature Comparison
  • Understand what you need
  • Understand what the system does
  • Match the two up

Application

functionality

Business

needs

understanding what you need
Understanding what you need
  • We talked about this way back
  • Talk to
    • People involved in the business process
    • Technical staff who have to implement the system
  • …to determine key features

MIS Analyst

understanding what the application does
Understanding what the application does
  • Once you have the key features…
  • Talk to
    • Vendors
    • People who have bought or built similar products
  • Now you have a basis for comparing alternatives
evaluating innovations
Evaluating Innovations
  • How would you evaluate
    • Blogger.com (http://www.blogger.com)
    • Facebook.com (http://www.facebook.com)
  • What would you compare them to?
    • No pre-exiting benchmarks
  • What is their business value?
key learnings
Key Learnings
  • What is value?
  • How does IT create value
    • Automating
    • Informating
    • Strategizing
  • IT and Strategy
    • Five Forces Model
    • Value Chain Model
key learnings39
Key Learnings
  • Productivity Paradox
    • 4 reasons
  • Making a Business Case using
    • Faith, Fact and Fact
    • Quantifying Business Value
  • Valuing Innovations
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