Redesigning the Organization with Information Systems

Redesigning the Organization with Information Systems Panagiotis Kanellis, Επιστημονικός Συνεργάτης Τμήματος Πληροφορικής ΕΚΠΑ Business Consulting, 377 Syngrou Ave., 175 64 Athens, Greece Email: kanellis@di.uoa.gr Δρακούλης Μαρτάκος, Επίκουρος Καθηγητής Τμήματος Πληροφορικής ΕΚΠΑ Κτίρια Πληροφορικής, Πανεπιστιμιόπολη, 157 84Αθήνα Email: martakoσ@di.uoa.gr

Talk about... • Understand why building new systems is a process of organizational change • Explain how the organization can develop information systems that fit its business plan • Identify the core activities in the systems development process • Describe various models for determining the business value of information systems

Systems as Planned Organizational Change • An IS is a sociotechnical entity • Implies changes in jobs, skills, management and organization • IS as planned organizational change • Systems can be technical successes but organizational failures

Linking IS to the Business Plan • Information Systems Plan - A road map indicating the direction of systems development, the rationale, the current situation, the management strategy, the implementation plan, and the budget • Contents of an IS plan • Purpose of the plan • Strategic Business Plan (current situation, changing environment) • Current systems (difficulties meeting business requirements) • New developments (Business rational, new capabilities required) • Management Strategy (Acquisition plans, internal reorganization) • Implementation Plan • Budget requirements

Establishing Organizational Information Requirements • To develop an effective IS plan, the organization must have a clear understanding of both its long- and short-term information requirements • Two principal methodologies for establishing those: • Enterprise Analysis (Business Systems Planning) • Strategic Analysis (Critical Success Factors)

Enterprise Analysis • An analysis of organization-wide information requirements by looking at the entire organization in terms of organizational units, functions, processes, and data elements; helps identify the key entities and attributes in the organization’s data • Developed by IBM in the 1960s • Method: Take a large sample of managers and ask them how they use information, where they get it, what their environment is like, what their objectives are, how they make decisions and what their data needs are

Enterprise Analysis • Gives a comprehensive view of the organization • Produces an enormous amount of information, expensive to collect and difficult to analyze • Bias towards top management and data processing • Focus not on critical objectives but rather on what existing information is used • The result is a tendency to automate whatever exists

Critical Success Factors • A small number of easily identifiable operational goals shaped by the industry, the firm, the manager, and the broader environment that are believed to ensure the success of an organization.

Using CSFs to Develop IS

Critical Success Factors • Produces a smaller set of data to analyze • Can be tailored to the structure of each industry • Takes into account the changing environment • Data collection and analysis are ‘art forms’ • Confusion between individual and organizational CSFs • Biased towards top managers • Assumes that successful TPS already exist • Like the Enterprise Analysis method provides a static picture

Systems Development and Organizational Change • Global networks (International division of labor; global reach of firms) • Enterprise networks (collaborative work) • Distributed Computing (empowerment) • Portable Computing (virtual organizations) • Graphical User Interfaces (everybody has access to information)

The Spectrum of Organizational Change (1) • Automation: using the computer to speed up the performance of existing tasks • most common form of IT-enabled change • involves assisting employees perform their tasks more efficiently and effectively • akin to putting a larger motor in an existing vehicle

The Spectrum of Organizational Change (2) • Rationalization of procedures: the streamlining of existing operating procedures, eliminating obvious bottlenecks so that automation makes operating procedures more efficient • follows quickly from early automation • Toshiba had to rationalize its procedures down to the level of installation manuals and software instruction and had to create standard names and formats for the data items in its global data warehouse • Think: without a large amount of business process rationalization, computer technology would have been useless at Toshiba (what ERPs do)

The Spectrum of Organizational Change (3) • Business Process Re-engineering (BPR): The radical redesign of business processes, combining steps to cut waste and eliminating repetitive, paper-intensive tasks to improve cost, quality, and service and to maximize the benefits of information technology • Involves radical rethinking • Can change the way an organization conducts its business • IT allowed Baxter to be a manager of its customer’s supplies • Strikes fear, its expensive, its very risky and its extremely difficult to carry out and manage

Business Process Reengineering • Develop the business vision and process objective • Identify the processes to be redesigned (core and highest payback) • Understand and measure the performance of existing processes • Identify the opportunities for applying information technology • Build a prototype of the new process

The Spectrum of Organizational Change (4) • Paradigm Shift:Radical reconceptualization of the nature of the business and the nature of the organization • akin to rethinking not only the automobile, but transportation itself • e-business is a paradigm shift • Deciding which business process to get right is half the challenge • 70% of time programmatic reengineering efforts fail • Why then change? Because the rewards are high!

Information Systems Development • Systems Development: the activities that go into producing an information systems solution to an organizational problem or opportunity • Structured kind of problem with distinct activities

Systems Analysis (1) • Systems Analysis: the analysis of a problem that the organization will try to solve with an IS • thorough understanding of the existing organization and system • identify the primary owners and users of data in the organization • identification of the details of the problems of existing systems

Systems Analysis (2) • Feasibility Study: the way to determine whether the solution is achievable, given the organization’s resources and constraints • Technical feasibility • Economic feasibility • Operational feasibility Information Requirements

Systems Design • Systems Design: details how a system will meet the information requirements as determined by the systems analysis • Output, Input, User Interface, Database Design, Processing, Manual Procedures, Controls, Security, Documentation, Conversion, Training, Organizational Changes

Completing the Design Process • Programming • Testing • Unit testing • System testing • Acceptance testing Conversion Parallel strategy Direct cut-over strategy Pilot study strategy Phased approach strategy Maintenance

The Business Value of Information Systems

Capital Budgeting Models Information Systems are considered long-term capital investment projects • Capital budgeting: The process of analyzing and selecting various proposals for capital expenditures. The difference between cash outflows and cash inflows is used for calculating the financial worth of an investment. • The high rate of technological obsolescence in budgeting for systems means simply that the payback period must be shorter, and the rates of return higher than typical capital projects with much longer useful lives

Capital Budgeting Models (2) • The Payback Method-A measure of the time required to pay back the initial investment of a project • Accounting Rate of Return on Investment (ROI)- Calculation of the rate of return from an investment by adjusting cash inflows produced by the investment for depreciation • Net Present Value (NPV) -The amount of money an investment is worth, taking into account its cost, earnings, and the time value of money • Cost-Benefit Ratio - A method for calculating the returns from a capital expenditure by dividing the total benefits by total costs

Non-financial and Strategic Considerations

Redesigning the Organization with Information Systems