MIS 6413 Chapter 4 of Applegate Dr. Segall Spring 2006

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MIS 6413Chapter 4 of ApplegateDr. Segall
Spring 2006

• Making the Case for IT
• Abbreviated Lecture Notes

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Making the Case for IT

• Building the Business Case for IT
  p.118-134
• Nicholas Carr Revisited p.134
• Summary p.135-136

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Making the Case for IT

• We continue pumping 2 trillion annually into
  information technology to pursue competitive
  advantage and spur productivity. But extracting
  strategic value and productivity from IT has
  become increasingly challenging.
• Applegate p.115

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Figure 4.1 Key Premises of Nicholas Carrs
Argument
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• What are Carrs assumptions?
• How does Carr define IT?
• Is a byte of data a commodity?
• What advice does Carr offer?

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Carrs Advice

• ?Spend less.
• ? Follow, dont lead.
• ? Focus on vulnerabilities, not opportunities.
• ? Manage costs and risks carefully.

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Key Premises of Nicholas Carrs Argument

• Economists considered past applications of time
  and money for IT applications a scarce
  resource.
• Carr argued that IT should be a considered a
  commodity-part of the infrastructure upon which a
  firm does business.
• Infrastructure is more important if shared.
• Widespread adoption of Internet-based technology
  standards has provided the perfect channel for
  quickly disseminating IT applications throughout
  an industry.

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IT Doesnt Matter by Carr

• Carrs arguments seem to be based on the
  traditional mainframe-based client-server
  approach to building IT infrastructure.
• Executives that fail to recognize the new
  economics of emerging On Demand IT
  infrastructures can quickly fail find
  themselves at serious disadvantage.

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Building the Business Case for IT p.118-134

• IT-Value Framework See Figure 4.2, p. 120
• Identifies 3 categories of benefits that can be
  used to define the business case for IT
• (1.) value-enabling
• (2.) value-creating
• (3.) value-sustaining.

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Figure 4.2 IT Value Framework
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Building the Business Case for IT p.118-134

• Table 4.1 IT Investment Categories, Examples,
  and Metrics on page 121
• Achieve Proprietary Advantage
• Drive Profitable Growth
• Leverage Infrastructure
• Create Options

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Value Creating IT Applications(p.118-120)

• The OLD industry value chain
• 21st century technologies are radically changing
  the way we work, play, interact, learn and build
  business.

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• The NEW industry value chain
• Sequential
• Functionally organized and transitional in nature
• Vertical organization structures within
  organization boundaries

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Leveraging Infrastructure and Creating Options
p.120-125

• Analyzing the Options Value of Investments in IT
  Infrastructure p.122-124
• Figure 4.3(a) represents an investment that
  executives of a medical device company are
  considering as they evaluate a business plan to
  launch a new Internet-enabled remote monitoring
  business.

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Figure 4.3(a) Comparing 3 Cash Flow Scenarios
for MedCo Patient Monitoring Investments
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Leveraging Infrastructure and Creating Options
p.120-125

• Figure 4.3(b) on page 124 compares cash flow
  curves of two investments one by MedCo A and
  one by executives in MedCo B.
• Assume MedCo A executives plan to spend the first
  2 years and 150 million of the investment.

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Figure 4.3(b) Comparing MedCo A and MedCo B
Patient Monitoring Investments
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Leveraging Infrastructure and Creating Options
p.120-125

• Figure 4.3(c ) shows how supposing the same
  network, database, call center, and remote
  monitoring infrastructure could also be leveraged
  to pursue other value-creating IM business
  opportunities.

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Figure 4.3(c) MedCo B Leverages
Infrastructure and Exercise Options
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Leveraging Infrastructure and Creating Options
p.120-125

• The shaded area below the break-even dotted line
  in Figure 4.3(d) represents the cumulative
  investment in IT applications and infrastructure
  over the life of the patient monitoring business.
• The shaded area above the line represents the
  cumulative value created by business applications
  built on the infrastructure.

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Figure 4.3(d) The Value of Leveraging
Infrastructure and Exercise Options
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Key questions

• 1. Changing Economics?
• 2. Linking Strategy to Execution to Results?
• 3. Developing a Business Case for IT?

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The Trillion-Race to E

• The valuation of New Economy players
  represents a bet by the worlds financial markets
  that a few companies will leverage the Internet
  to fundamentally change the competitive game in
  their industries.
• --------------------------------------------------
  ----------------------------------------
• It is a gamble that powerful, low-cost
  business models will emerge, that new businesses
  will rise from disintermediated value chains, and
  that some companies will exert such influence
  that they will generate extraordinary long-term
  shareholder returns.
• --------------------------------------------------
  ----------------------------------------
• While we cannot predict the winners of the
  e-races we can be sure that the winners will be
  few and the losers will be many.
• Source Applegate, p. 263 of previous 6th
  edition.

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Benefits from Doing Business on a Networked
Infrastructure

• Reduce paperwork improve transaction efficiency
• Improve control of suppliers, customers
• Improve customer relationships
• Share resources and/or risks
• Examples of Commerce, Content and Community

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2. Linking Strategy to Execution to Results

• The BUSINESS MODEL consists of
• A CONCEPT that defines the
• opportunity
• strategy.
• Capabilities that identify the resources
  required.
• A value proposition.

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2. Linking Strategy to Execution to Results

• Analyzing Performance Drivers
• Business concept
• Capabilities (Operating and innovating, Managing
  and Learning, Leading and Engaging)
• Value (Financial drive and market performance)
• Scenario Based Approach to Validation (Table 4.1)

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Table 4.1 A Scenario-Based Approach to Valuation

• 1. Define the purpose for the value assessment.
• 2. Select time frame in future e.g. next 5
  years.
• 3. Analyze the business concept strategy.
• 4. Analyze the capabilities resources required
  to reach future state.
• 5. Conduct estimates.
• 6. Formulate worst best-case scenarios.
• 7. Validate your model.
• 8. Re-evaluate value analysis scenarios on a
  regular basis.

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3. Developing the Business Case for IT

• We can use the framework (linking strategy to
  execution to results) to analyze and priorities
  IT investments.
• Type 1 benefits arise from improvements in IT
  infrastructure.
• An organization is poised to pursue the Type 2
  benefits that accrue when an organization
  exploits new IT-enabled business opportunities
  that take advantage of the infrastructure.
• The next slide presents Table 4.2 The IT
  Business Value Scorecard from page 275 of
  Applegate.

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The Ideal IT Project

• 1. Improve Infrastructure Performance
• 2. Launch a New IT Service Business
• 3. Launch and Continually Enhance
• Internal Web Services
• 4. Improve Knowledge Worker
• Performance
• 5. Launch E-Procurement and others

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Building the Business Case for IT p.118-134

• IBMs decade of Transformation A Case Study in
  Turnaround Leadership and Delivering IT-Enabled
  Business Value p.126-134
• Leveraging Infrastructure and Creating Options
  p.127-129
• Driving Profitable Growth p.130-131
• Achieving Proprietary Advantage p.131-134

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Building the Business Case for IT p.118-134

• Table 4.2 Leveraging Infrastructure at IBM IT
  Operations p.128
• Table 4.3 Leveraging Infrastructure at IBM
  Enterprise Support Proceses p.129
• Table 4.4 Driving Profitable Growth at IBM
  p.132
• Table 4.5 Creating Proprietary Advantage at IBM
  p.134

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Figure 4.4 Nicholas Carrs Argument as
Framed on the Strategic Grid p.134
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Developing a Strategic Plan and Metrics
Determine Firm Type Net-Enabled Organization
Classification Grid (2)
Determine Metrics Three Types of Metrics (4.2)
Determine Primary Applications E-Commerce Value
Grid (3.1) E-Business Value Grid (3.2)
Determine Secondary Applications and Rollout
Prioritization Functionality Interaction (4.1)
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1. Identify Key Value Driver(s) for a New Concept

• Use Net-Enabled Business Classification to
  identify critical functionalities

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2. Determine Key Functionalities and Primary
Applications

• What functionalities are needed to deliver value
  drivers?

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2. Determine Key Functionalities and Primary
Applications

• What functionalities are needed to deliver value
  drivers?
• Use both grids to determine primary applications
  to be developed
• discussion board
• recommender system

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3. Determine Interactions and Prioritization

• Determine functionality interactions
• Schedule sequence of functionality rollout
• Enabling vs. enhancing functionalities

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3. Determine Interactions and Prioritization

• Apply real options value analysis to set
  functionality priorities
• value of enabled functionalities included in
  value analysis of enabling functionality

Personalization application
April
December Rollout
Enhancing Enabling
May
Product demand forecasting tool
Streaming multimedia
July
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4. Develop/Measure Business Metrics for
Benchmarking
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Iterate the Process for New Opportunities
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Summary p.135-136

• Executive questions for forecasting the value of
  digital business strategies and the ability of
  their organizations to execute them.
• Go to pages 135-136 items 1-10.

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MIS 6413Management Information Systems
CHAPTER 4 Making the Case for IT Dr.
Richard Steven Segall Office BU 216 Phone
972-3989 Fax [phone] Email rsegall_at_astate.edu
Web http//www.clt.astate.edu/rsegall