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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

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Week 11 valuing information systems l.jpg

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.


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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


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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


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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!


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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


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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


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2) Informating/Learning: Example

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


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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

__________________ .


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1) OverallLow Cost Leadership Strategy

Offer best prices in the industry or product/ service category

Broad range of buyers

What is an example?


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2) Focused Low-Cost Strategy

Offer lower prices in the industry or product/ service category

Focus on niche

e.g. Dell


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3) Broad Differentiation Strategy

Offer better products/ services than the competitors

Broad Buyer Range

e.g. Starbucks


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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


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5) Best-Cost Provider Strategy

Provide products of reasonably good quality at competitive prices

Target


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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


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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”


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

1) 5 Core

Value

Activities

2) Support

Value

Activities


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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?


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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


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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


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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?


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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???


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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???


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More Reasons Contributing to the Productivity Paradox of MIS Investments:

1) Measurement

2) Time Lags

3) Redistribution

4) Mismanagement


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1) Measurement Problems Investments:

Benefits are difficult to quantify

Wrong things measured . . . For example volume of transactions, cost savings


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2) Time Lags Investments:

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


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3) Redistribution Investments:

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


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4) Mismanagement Investments:

Bad business

model can not be

overcome by

good MIS systems

MIS system implementation as temporary fix

Creation of unanticipated bottlenecks


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Making a Successful Business Case Investments:

On what can we

base a successful

business case for

an MIS system:

Faith, Fear, and/or

Fact?


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1) Arguments Based on Investments: Faith

Is a cost

benefits analysis

needed for an

argument based on

faith?


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Email System Migration: Investments: 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”


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2) Arguments Based on Investments: Fear

Is a cost benefits

analysis needed for an

argument based on

fear?


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Business Continuity and Investments: Disaster 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)


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Sobering Statistics Investments:

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


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Scenario Investments:

  • 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?


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Catastrophic Losses do not have to be caused by Investments: Hurricanes or Earthquakes


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3) Arguments Based on Investments: Fact

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

Why does timing matter with cost benefits analysis?



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Review Question Investments:

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 _____?


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Cost-Benefit Analysis: Investments: 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


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Cost-Benefit Analysis: Investments: 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.



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Recurring Costs Investments:



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MIS System Evaluation is Critical Investments:

  • 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


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Learning Objectives Investments:

  • 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


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How do you Evaluate Systems? Investments:

  • Understand what is needed by the business

  • Understand what the system does

  • Match the two up

Application

functionality

Business

needs


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Understand What the Business Needs Investments:

  • 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


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Understand Investments: 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


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Two Evaluation Methods: Investments:

  • System Evaluation Questions

  • Evaluation Matrix


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1) Investments: System Evaluation Questions


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Weighted average of Investments: feature ratings

2) Evaluation Matrix Example: E-Mail System


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Partial Matrix of Investments: Functional Requirements


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Partial Matrix of Investments: Technical Requirements


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Partial Matrix of Investments: General Requirements


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Comparing Evaluation Methods Investments:

  • Comparing

    1) System Evaluation Questions

    2) Evaluation Matrix

  • What purpose does each method fulfill and what are the strengths and weaknesses?


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In-Class Activity: Investments: System Evaluation Questions

  • Working in small teams of 3-4 business professionals on a project for the CEO of Fitter Snacker…

  • Each team select an application from the following list which is being considered for use at Fitter Snacker

  • Your team will evaluate the application and prepare to answer the following questions for the CEO…


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Types of MIS Systems Investments: (Jessup & Valacich 2008, Table 6, p. 23)



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Project #3 – Emerging Technology Presentation Investments:

  • Emerging technologies = new technologies that are anticipated to have an impact on businesses.

  • Work in groups of 3

  • Research an emerging technology

  • Prepare 10 minute presentation (and short paper e.g. a paragraph describing each slide)

  • Teams chosen at random to present in class


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