Manageable Trends

1
Manageable Trends

• IT Influences different industries, and the
  firms within them, in different ways
• Telecommunications, computing, and software
  technologies are evolving rapidly and will
  continue to evolve
• The time required for successful organizational
  learning about IT limits the practical speed of
  change

2
Manageable Trends

• External industry, internal organizational, and
  technological changes are pressuring firms to
  buy rather than make IT S/W and services
• While all elements of the IT system life cycle
  remain, new technologies both enable and require
  dramatically different approaches to execution
• Managing the long-term evolution of the
  partnership between general management, IT
  management, and user management is crucial for
  capturing the value of new IT-enabled business
  opportunities

3
Six Themes

• Strategic Impact
• Integrating Changing Technology Platforms
• Assimilating Emerging Technologies
• Sourcing Policies for the IT Value Chain
• Applications Development Process
• Partnership of Three Constituencies

4
Theme 1 Strategic Impact

• Technology is core component of many products we
  use today
• Cars
• Cell Phones
• Internet
• Corporations
• Competing on Quality / Speed Cost
• Design / Manufacturing (CAD/CAM)
• Factory Automation / Control
• Distribution
• Sales
• Marketing

5
IT Marketing Opportunities

• Does the business require a large number of
  routine interactions each day with vendors for
  ordering or requesting information?
• Is the product choice complex
• Do customers product/service/price
  configurations simultaneously?
• Is a quick customer decision necessary?
• Is accurate, quick customer confirmation
  essential?

6
IT Marketing Opportunities

• Are customers tastes potentially volatile?
• Do significant possibilities exist for product
  customization?
• Is pricing volatile?
• Is the business heavily regulated?
• Can the product be surrounded by value-added
  information to the customer?
• Is the real customer two or more levels removed
  from the manufacturer?

7
Operational Opportunities

• Is there large geographical dispersion in
  sourcing?
• Is sophisticated technology embedded in the
  product?
• Does the product require a long, complex design
  process?
• Is the process of administering quality control
  standards complex?

8
Operational Opportunities

• Are there large inventory buffers in the
  manufacturing process?
• Does the product require complex manufacturing
  schedule integration?
• Are time and cost savings possible?
• Are direct and indirect labor levels high?

9
Airline Industry Example

• Reservation System (SABRE)
• American Airlines and United Airlines
• Maximize utilization
• Differentiate product
• Became such an advantage that they were
  investigated for potentially unfair trade and was
  eventually spun-off to give other airlines better
  access and to monetize its full value
• Others who invested less heavily could not
  differentiate their product or maximize
  utilization
• Peoples Express

10
Banking Industry Example

• Some institutions have used IT to distinguish
  their products and services
• Providian Financial Corp.
• Citibank
• Chase Manhattan
• Others use it to simply automate back-office
• Others could find no way to competitively
  leverage IT and outsourced it
• Continental Bank Since merged out of existence
• While some firms fail to reap competitive
  benefits from IT, others use IT to dramatically
  change the basis of competition

11
Retail Industry

• IT has dramatically altered the industry
• Operationally Bar coding, Inventory Management
• Marketing / Sales Internet
• As in many other industries, when one player
  incorporates IT in the value chain, other players
  are forced to follow
• Wal-Mart

12
Targeting IT-Based Investment

• Firms that have already used IT to develop
  defensible position
• Transformed marketing and production and the
  organization design and management processes
  necessary to support IT-enabled operations
• Senior business leaders assume responsibility for
  the IT strategy of the firm.
• IT is considered a core capability of the firm
• Firms where IT-enabled marketing opportunities
  are minimal
• IT investment targeted towards streamlining,
  integrating, coordinating production and
  distribution.
• Controlling costs and improving product quality

13
Targeting IT-Based Investment

• Firms faced with catching up with industry
  leaders by better differentiating their products
• RD
• Marketing support
• Firms in a deep catch-up situation
• Considerable effort needed to develop a
  defensible position.
• Often these firms end up being acquired or going
  out of business
• Banking industry
• Airlines
• Frontier, Peoples Express, Midway, etc..

14
Contingency Approach to IT Management

• Criteria relating to the potential impact of IT
  Management
• Where reliable, zero-defect, zero-downtime IT
  operations are critical to the ongoing success of
  the firm
• Telecom long distance services ATT
• Banking ATM Citibank
• Internet e-Commerce eBay
• Where new IT development initiatives are of
  strategic importance

15
Categories of Strategic relevance and Impact
16
Strategic

• Growing number of firms
• IT is strategic to current operations
• IT is strategic to future competitiveness
• Examples
• Banks
• Insurance
• Major retail
• Internet / e-Commerce

17
Turnaround

• Current IT operations are important but not
  totally critical
• Future use of IT seen as key to becoming or
  remaining competitive
• Of critical importance that investment in future
  IT be maintained and well planned for
• Examples
• Manufacturing

18
Factory

• Heavily dependent on cost-effective, reliable IT
  operational support to run smoothly
• IT systems under development, though profitable
  and important, are not fundamental to the firms
  ability to compete
• Mid-sized firms in this quadrant often outsource
• Example Investment banking

19
Support

• Impact on current operations and future strategy
  is low.
• Example A professional services firm spending
  30 Million on IT to support 2,000 employees
  (100M - 200M) IT is about 5.
• Many of these firms could use IT as a way to
  differentiate themselves

20
Theme 2 Integrating Changing Technology Platforms

• Dramatic, long-term, sustained evolution of IT
  cost/performance and merging of a variety of
  technology platforms
• Convergence
• Obsolescence 3-year old PC
• Integrated management of Computing, telecom,
  office support, and broadcast technologies.
• Why these technologies are managed as an
  integrated whole
• IT applications require extensive network of
  physical interconnections.
• Execution of IT app dev. Using independently
  managed technologies difficult and
  cost-ineffective.

21
Theme 2 Integrating Changing Technology Platforms

• Era I
• 1950s 1970s
• Management of data processing was most imporant
  aspect of IT management
• Centrally managed
• Specialized, non-shared expertise
• Era II
• Introduction of minicomputers and time sharing in
  1970s
• Accelerated in 1980s with PC
• No longer necessary to go to centralized IT
  manager for access
• Individuals became decision makers
• Individual and work unit effectiveness primary
  justification

22
Theme 2 Integrating Changing Technology Platforms

• Era III
• 1990 today
• Widely distributed, flexible, integrated IT
  systems
• Share knowledge any time, any place, and in any
  form

23
Theme 3 Assimilating Emerging Technologies

• Implementing a portfolio of IT systems projects
  around evolving technologies is an
  extraordinarily complex task
• Phase 1 Technology Identification and
  Investment
• Alternative 1 (Solution looking for a problem)
  Identify an interesting technology, find and fund
  an appropriate pilot project.
• Alternative 2 (Problem looking for a solution)
  Thru business-planning process, identify
  promising applications that require innovative
  technology.

24
Theme 3 Assimilating Emerging Technologies

• Phase 2 Technology Learning and Adaptation
• Encourage user-oriented experimentation with the
  newly identified technology
• User-defined pilot projects

25
Theme 3 Assimilating Emerging Technologies

• Phase 3 Rationalization/Management Control
• Technology is reasonably well understood by
  management and key users
• Challenge Develop appropriate systems and
  controls to ensure that the technologies are
  utilized effectively.
• Standards
• Development
• Documentation
• Cost / Benefit analysis
• Transfer pricing

26
Theme 3 Assimilating Emerging Technologies

• Phase 4 Maturity/Widespread Technology Transfer
• Required skills have been developed
• Users are aware of benefits
• Management controls are in place
• Careful vigilance required to ensure that
  out-of-date technologies and applications are not
  extended beyond their useful lives.

27
Theme 3 Assimilating Emerging Technologies

• Preparing for the next new technology
• Knowledgeable business managers better sources of
  new applications than technology experts or
  single minded champions
• All 4 phases exist with regards to different
  systems in the same organization simultaneously

28
Theme 4 Sourcing Policies for The IT Value Chain

• Outsourcing - Greater reliance on external
  resources for
• Software
• Networking
• Help Desk
• Focus on core competencies
• Dissatisfaction with internally developed
  systems and services
• Buy vs. Make

29
Criteria Business Strategy

• Make / Own
• IT applications provide proprietary competitive
  advantage
• Secret trading system Hedge Funds
• Buy / Outsource
• IT applications or infrastructure supports
  strategy but is not considered strategic in its
  own right

30
Criteria Core Competencies

• Make / Own
• Business or IT knowledge/expertise required to
  develop/maintain app is core competency of the
  firm
• Buy / Outsource
• Business or IT knowledge/expertise required to
  develop/maintain app is NOT core competency of
  the firm
• Accounting system at a typical company

31
Criteria Security Confidentiality

• Make / Own
• Information or processes considered highly
  confidential
• Buy / Outsource
• Failure of routine security, while problematic,
  not serious
• Credit Card / Banking

32
Criteria Partner Availability

• Make / Own
• No reliable partners available
• Buy / Outsource
• Reliable, competent and appropriately motivated
  partners are available
• Payroll processing

33
Criteria Availability of Packaged Applications

• Make / Own
• IT application required by the firm is unique
• Buy / Outsource
• Packaged software or solutions are available that
  would meet the majority of business requirements
• Word Processing
• Changes over time
• e-Commerce Shopping Basket

34
Criteria Cost / Benefit Analysis

• Make / Own
• The cost of purchasing the product or service
  and/or coordinating and controlling operations is
  greater than that of using in-house resources
• Buy / Outsource
• The cost of purchasing the product or service
  and/or coordinating and controlling operations is
  significantly less than that of using in-house
  resources
• Critical to incorporate all costs in analysis

35
Criteria Time Frame

• Make / Own
• There is sufficient time available to develop
  internal resources and skills to implement
  internally
• Buy / Outsource
• Not enough time to develop internally AND there
  are outside resources that can implement within
  the time frame
• Critical to use conservative / realistic
  estimates of time requirements

36
Criteria Evolution Complexity of Tech

• Make / Own
• Firm is able to attract, retain, and develop the
  range of IT experts needed to develop and
  maintain the system at a reasonable cost
• Buy / Outsource
• Firm is unable to keep pace with the rapidly
  changing and increasingly complex technologies
  required by the firm
• Again, changes over time
• OOAD
• Smalltalk

37
Criteria Ease of Implementation

• Make / Own
• Reasonably functional tools are available
• Buy / Outsource
• Tools not available
• Again, changes over time
• Java

38
Theme 5 Application Development Process

• Design
• Construct
• Implement
• Operate
• Maintain

39
App Dev

• Design
• Produce a definition of the information service
  desired
• Users
• Tasks
• Long-run service and support
• Feasibility analysis
• High-level picture of costs and benefits
• Decision to proceed

40
App Dev

• Construction
• Highly specialized activity art science
• Important steps
• Selection of computer equip, networking, S/W
  packages, development languages and methods.
  Decisions to outsource some or all of the
  development
• Documentation
• Technical
• End-user
• Testing

41
App Dev

• Implementation
• Extensive user-IT coordination
• Transition to new system
• Far ranging impact

42
App Dev

• Operation
• After the system has been built and installed
• Measures to access cost effectiveness and service
  delivery
• Formal operating procedures
• Quality Control

43
App Dev

• Maintenance
• Enhancements or changes in a system that has been
  installed and is operating
• Often does not receive appropriate focus as there
  is more interest in developing new systems

44
Theme 6 Partnerships of Three Constituencies

• IT Management
• Scan leading edge technologies for potential use.
• Business Process Reengineering (BPR)
• User Management
• Business professionals with business and IT
  expertise
• General Management
• IT assuming an increasingly visible role
• Need to understand IT in context of the business