Making the Case for IT

1
Chapter 4

• Making the Case for IT

2
Overview

• We spend a lot of Money on IT Why?
• How do we defend IT spending.
• What are the benefits

3
IT Spending

• We spend over 2 trillion annually on IT
• Seek a competitive advantage
• Was once Proprietary software, but was there an
  advantage?
• Infrastructure has value when shared
• What is the value of proprietary email systems
• What would be the value of a proprietary web
  format
• How would Carrs argument hold up in the AHS case?

4
The Scarce Resource

• People and the culture are the key to obtaining
  benefit from IT
• IT management skills are still in short supply
• Most executives view IT as a budget expense item
• To be minimized
• Managed on a budget-cycle basis

5
The Internet

• Evolution of the Internet
• Open standards allow for easy creation of new
  applications
• Until1993 the internet was restricted to
  government and educational uses
• Internet based electronic commerce began to take
  of in 1997
• Business-to-business commerce is also a large
  part of ecommerce

6
Internet

• Keys to Internet adoption
• It is global and utilizes open standards
• Will work with any computer, operating system or
  compatible application software
• No government or organization owns it
• Does not limit the type of information which can
  travel in a packet
• Widespread expertise for connecting to the network

7
Value from the Internet

• Reusable
• infrastructure
• Data/information
• standardized
• Infrastructure
• IT operations (data center, network, call
  centers)
• Supporting enterprise processes (procurement,
  HR, finance, enterprise resource planning)

8
IT Infrastructure

• Most was assembled over time and piecemeal
• Legacy systems were inefficient and incompatible
• In 2000, at the height of the economic recession,
  firms continued to spend over 50 of their
  capital budgets on IT equipment and projects
• Global IT expenses in 2002 were over 2 trillion
• Maintenance can be over 80 of the yearly IT
  budget
• Some IT infrastructure is outsourced or offshored
  while other firms seek to improve their IT
  infrastructure in-house
• Are there other benefits to in-house vs. sending
  infrastructure outside of the firm?

9
Options Value

• Views IT investment as a purely financial
  transaction
• Security Option the right, but not the
  obligation to buy or sell at a given price
• IT Option the right to pursue IT-enabled
  business opportunities
• Given the cost reduction from offshoring and
  outsourcing
• Why not offshore or outsource all IT functions?
• What is the value of in-house IT
• What is the risk of offshoring or outsourcing
• How do you insource once your outsource?

10
Financial Analysis

• What are the risks of a purely financial
  evaluation of the costs/benefits of II
• How do you value spin-off applications
• How do you capture all of the benefits
• What is customer/supplier service worth
• How do you value goodwill
• How do you value costs not encountered

11
Proprietary Assets

• Give advantages which are difficult to replicate
• Can provide IT options
• Often not integrated with the rest of the
  industry
• May not follow industry standards
• May not be acceptable to some firms or governments

12
Chapter 4
13
Questions on Chapter 4?