What’s Happening!?

What’s Happening!?What’s Happening!?

HP posted what they felt were good financial results and got hammered by the stock market.

Fortune released its “Most Admired Company” issue.

Who was number 1?

Fortune’s Most AdmiredFortune’s Most Admired

1.1. Wal-Mart Stores Wal-Mart Stores 2.2. Southwest AirlinesSouthwest Airlines3.3. Berskhire HathawayBerskhire Hathaway4.4. Dell ComputerDell Computer5.5. General ElectricGeneral Electric6.6. Johnson & Johnson Johnson & Johnson 7.7. MicrosoftMicrosoft8.8. FedExFedEx9.9. StarbucksStarbucks10.10. Procter & GambleProcter & Gamble

Wal-Mart SignificanceWal-Mart Significance

$240 Billion in Sales Revenue$240 Billion in Sales Revenue

1.4 Billion Associates1.4 Billion Associates

First time in the 21 year history of the First time in the 21 year history of the Fortune most admired list that the largest Fortune most admired list that the largest company is listed number one.company is listed number one.

Wal-Mart = Largest Customer Wal-Mart = Largest Customer

Disney

Procter & Gamble

Kraft Foods

Revlon

Gillette

Campbell Soups


It Buys the Most% of its total sales to Wal-Mart Tandy Brands Accessories 39% Clorox 23% Revlon 20% RJR Tobacco 20% Procter & Gamble 17%

It Sells the Most Product U.S. market share**Dog food 36%Disposable diapers 32%Photographic film 30%Toothpaste 26%Pain remedies 21%**Percent of all sales through food, drug, and mass-merchandisers.

It Sells the Most in the USIt Sells the Most in the US

1. DVDs

2. Groceries

3. Toys

4. Guns

5. Diamonds

6. CDs

7. Apparel

8. Dog food

9 .Detergent

10. Jewelry

11. Sporting goods

12. Video games

13. Socks

14. Bedding

15. Toothpaste

It is the LargestIt is the Largest

• Film developer

• Optician

• Private truck fleet operator

• Energy consumer

• Real estate developer


• Wal-Mart's sales on one day last fall--$1.42 billion— were larger than the GDPs of 36 countries. • It is the biggest employer in 21 states, with more people in uniform than the U.S. Army. • It plans to grow this year by the equivalent of a Dow Chemical, a PepsiCo, a Microsoft, or a Lockheed Martin. • If the estimated $2 billion it loses through theft each year were incorporated as a business, it would rank No. 694 on the FORTUNE 1,000.

On a final noteOn a final note

Sam’s culture seems to be alive and well.

“How would Sam deal with this?”

“What would Sam think?”

$50,000 salaried buyers with $1 billion budgets are fairly common.

200 vendors have located offices in Bentonville. “Every thing here is like Wal-Mart.”

Chapter 14 SummaryChapter 14 Summary

Information Systems Value

and

Financial Strategy

Chapter Objectives

1. Recognize the issues related to determining the business value of information systems.

2. Understand possible financial strategies that can be implemented to better manage the increasing amounts of money being spent on information systems.

What Triggers a Possible What Triggers a Possible Problem?Problem?

Senior management asks the question:

What am I getting for that!

High Costs Get Senior Management’s Attention

As information systems have become a more accepted resource within many organizations, there are three trends:

1. There is a growing dependence on information systems to run the organization.

2. Information systems expenses and capital funding have become quite large.

3. The growth trends regarding IS expenditures becomes a topic of concern.

The Answer to the Question

The best answer lies within the context of business management and contribution to key factors that make a major contribution to the success of the business.

The Evolution of Information Systems Justification

Evolution of Financial Strategy

Application Support

Motivation

Financial Justification

DP Planning

Organization

Initiation Expansion Control Maturity

I II III IV

Single Area Proliferation ContainmentOrganizational

Strategy

People Displacement

Cost Avoidance DP Efficiency

Competitive Advantage

Little Reactive Directed Proactive

BudgetBusiness Case

Installation AuditCharge-Out

SystemManagement

Process

Finance Dept. Multiple Dept. CentralizedCentralized

Decentralized Distributed

Based on material from Gibson and Nolan, Harvard Business Review, January-February 1974, pp. 76-88.

Stage I: In the Beginning There Are Budgets

Organizations include funding for information systems as part of a departmental budget.

Challenge: To do as much as possible while not exceeding the budget.

Problem: Use of IS is limited to the amount of the budget.

Stage IStage I

Stage IIStage II Stage II: With Growth Comes The Need for a Business

Case Challenge: To create business case proposals that do a

good job of reflecting the value to the business whether it be cost avoidance or displacement, efficiency, effectiveness or competitive advantage.

Problem: While most business cases reflect the impact of the proposed system over multiple years it is still a snap shoot in time and does not reflect the dynamics of the environment or the changing needs for the new system.

Stage III: Departments Should Pay for the IS Support They Receive

Challenge: To implement a charge-out approach that makes sense based on the intended role of information systems that is understood and accepted by user management.

Problem: To gain a sense of responsibility and accountability for IS costs while not discouraging doing things with IT that make sense in better running the business.

Stage IIIStage III

Stage IVStage IV

Stage IV: Time for a Management ProcessStage IV: Time for a Management Process

Challenge: To implement a new process based on factors that drive the success of the business that does a better job of articulating the value of information systems to senior management.

Problem: Requires time and resources that can be criticized as “justifying the air conditioner in a car that one doesn’t logically need to do if you live in Arizona.”

•Four key elements that contribute to the overall success of the organization:

•Commitment planning that identifies specific goals and accountable managers.

•Effort to minimize user emotion while establishing expectations regarding IS support.

•Emphasis on an entrepreneurial attitude and approach within the IS organization and the company as a whole.

•Regular communication regarding IS performance.

Is There a Way to Manage Large Is There a Way to Manage Large IS Expenditures?IS Expenditures?

1. What prompts senior management to questions the value of information systems?

2. Identify and explain the four stages of the evolution of financial strategy including what is right about each approach and what is potentially wrong with it.

Possible Exam QuestionsPossible Exam Questions

Chapter 15Chapter 15

Integrating IS Integrating IS

into the Business Plan into the Business Plan

Objective of planningObjective of planning

Planning should be used as a way to communicate the

direction of the organization through the best strategies and

tactics.

Major Planning Challenges Major Planning Challenges

• What to do

-Important to know where the company is going

• Making it happen

-Can be difficult because it involves changes

Drivers Influence PlanningDrivers Influence Planning

OrganizationalResponse to

Business Drivers

Organization• Decentralization• Downsizing• Outsourcing• Business Partnering• Corp. Alliances

Process• Reengineering

• Redefining• TQM

Time, Flexibilityand

Responsivenessas Competitive

FactorsProduct Customization• Value-added Services• Markets• Customers• Global Standards

New Markets,Opportunities

and Competitors

Employees• Skills• Empowerment• Quality Circles• Teams

Figure 15-1

Traditional Approach in IS PlanningTraditional Approach in IS Planning

Traditional I/S Role

Tactics

Strategy

Figure 15-2

Vision

IS needs to be integrated into the IS needs to be integrated into the business planning processbusiness planning process

Strategic Enterprise PlanningStrategic Enterprise Planning

Strategic Information planningStrategic Information planning

Architecture PlanningArchitecture Planning

Tactical PlanningTactical Planning

Implementation PlanningImplementation Planning

Barriers to Aligning IS with Barriers to Aligning IS with Business ObjectivesBusiness Objectives

1. Senior management perception of information systems

2. Executive skills of the IS executive

Business Management IssuesBusiness Management Issues

1. Executives are reluctant to become more closely involved with an information technology based strategy because they are not comfortable with it, or in some cases do not really understand it.

2. Senior management does not view IS as an important competitive weapon.

3. The long-range planning process does not force IS to be addressed at all or as an integral part of the development of new strategies.

IS Management IssuesIS Management Issues

1. IS managers might not really understand the issues and challenges of the business and are not in a position to make good recommendations regarding the role of IS.

2. IS is not being sold proactively within the organization.

3. Little or no previous computer-based systems within the organization could mean that using IS to make a major contribution to the business would be both costly and time consuming.

ConclusionsConclusions• The objective of planning is not to control but to

guide and direct.

• Planning is a tool to be used by an organization to identify the right things to do, and to initiate action programs to accomplish the things identified.

• It its crucial to have IS managers who can make tough decisions on resource allocations to pursue new opportunities and orchestrate structural change.

Chapter 15Chapter 15

Business and

Information Systems Planning

• Importance of Planning?• Purpose (Objective)?• Who does what?• Impact on the organization?• How to keep the process dynamic?• Relationship with information systems?• Right planning methodology?• Planning success factors?

The Topic of Planning Raises a The Topic of Planning Raises a Number of QuestionsNumber of Questions

Nothing seems more logical, more

reasonable or more appropriate than

planning.

Importance of Planning?Importance of Planning?

A Planning Job?A Planning Job?

How many of you would like a job where your primary responsibility deals with planning?

PlanningPlanning

Plans are nothing.

Planning is everything!

Dwight D. Eisenhower

Business and IS PlanningBusiness and IS Planning

1. Is information systems a legitimate high priority consideration in the developing of business strategic plans?

2. Who needs to play a key role in integrating the role of information systems with the business strategy?

3. Why is this even an issue?

4. What are major barriers to linking information systems with the business strategies?

Business and I/S PlanningBusiness and I/S Planning

5. What would be an ideal role for an information

systems executive to play relative to business

strategies?

6. What planning methodologies really work?

Why?

Integrating IS into the Business PlanIntegrating IS into the Business Plan

It all starts with business planning, so answers

are needed to the following questions:

1. Why plan?

2. What to plan?

3. How to plan? (Best methodology?)

PlanningPlanning

Doing things today to make us better

tomorrow.

Because the future belongs to those who

make the hard decisions today.

Business PlanningBusiness Planning

An effort that tells people within the

organization where to put their emphasis,

priorities and resources.

The issue is not methodologies but one of

priorities--where the people running the

business spend their time.

Business and IS PlanningBusiness and IS Planning

• Doesn’t the unpredictability of the future preclude the planning and implementation of computer systems that will be appropriate and responsive to a company’s needs?

• Can a company really innovate and computerize at the same time?

• With so much happening with technology how can a company stay current?

Strategic planning is the systematic examination ofopportunities and threats in the business environment so that you are in the position to identify those opportunities that should be exploited and the threatsthat should be avoided.

George Steiner

To create opportunity that can be leveraged to createdifferential advantage in the marketplace.

N. Les Clark

Strategic PlanningStrategic Planning

OrganizationalOrganizationalResponse to Response to

Business DriversBusiness Drivers

Organization• Decentralization• Downsizing• Outsourcing• Business Partnering• Corp. Alliances

Process• Reengineering

• Redefining• TQM

Time, Flexibility andResponsivenessas Competitive FactorsProduct Customization

• Value-added Services• Markets• Customers• Global Standards

New Markets,Opportunities

and Competitors

Employees• Skills• Empowerment• Quality Circles• Teams

Figure 15-1

The objective of business planning is not to control but to guide and direct. The same is true for IS planning but this needs to be directed by plans for the business.

Strategy Versus PlanningStrategy Versus Planning

Strategy Strategy is thinking through a company’s is thinking through a company’s

basis for competitive advantage.basis for competitive advantage.

Planning is a means of establishing a strategy but it also focuses on making the strategy work.

Planning FocusPlanning Focus

Performance Control

Objectives

Budgets

Action Planning

Strategies

Tactics

Do people rely on data or market

instincts to make judgments?

Criticism of PlanningCriticism of Planning Control Politics Conservatism Conformity Inflexibility Non-responsive to Market Demands Leads to Generic Change

Business planning becomes

meaningful when accompanied

by prompt execution.

Worth Remembering!Worth Remembering!

Planning MyopiaPlanning Myopia

Be careful not to develop planning

myopia where the plan becomes

more important than execution.

Strategic PlanningStrategic Planning

Vision

Strategies

Tactics

Actions

Budgets

Formulation

Implementation

Traditional Approach in IS PlanningTraditional Approach in IS Planning

Traditional I/S Role

Tactics

Strategy

Figure 15-2

Vision

Strategic Planning ModelStrategic Planning Model

BusinessPlan

TacticalPlan

StrategicPlan

Environment(External)

Opportunities

Threats

Strengths

Weaknesses

Enterprise(Internal)

Goals

Objectives

Strategic Positioning

Culture(Explicit/Implicit)

Business Unit

Functional Programs

MajorProjects

DetailedProjects

Resources:Headcount,Capital andExpenseBudgets

Figure 15-3

MissionVision

SWOT Analysis

StrengthsWeaknesses

OpportunitiesTreats

SuggestStrategies

That ShouldBe TestedAgainst

Vision and GoalsCompany ValuesCurrent StrategiesFinancial StatusCash PositionROI PotentialCustomer ValuesCompetitionSocietal DemandsCore CompetenciesPeople SkillsOverall Resources

What to Plan?What to Plan?

Strategic EnterprisePlanning

Strategic InformationPlanning

Architecture Planning

Tactical Planning

Implementation Planning

Enterprise Strategies

Information Strategies

Architecture

Time Oriented Objectives

Project Plans

Figure 15-4

Business - IS PlanningBusiness - IS Planning

I/S Strategy

Determines

InformationTechnology

Benefits

BusinessStrategy

Dictates

Figure 15-6

Business - IS PlanningBusiness - IS Planning

Technology Environment

Opportunities

I/S Strategy

Determines

InformationTechnology

Benefits

BusinessStrategy

Dictates

CorporateStrategy

1) Strategic Capability

2) Technology Driven Business Change

Figure 15-7

Marion Merrell DowMarion Merrell Dow

1. An unusual ability to execute plans.

2. Management of risks.

Plan ProcessPlan Process

Not a plan but a plan process:

Work at it.

Change it.

All of the time!

Barriers to Aligning IS with Business ObjectivesBarriers to Aligning IS with Business Objectives

I/S Track Recordand Credibility?

Senior ManagementPerception of I/S?

Communication ofBusiness Plan?

Executive Skillsof I/S Executive?

Business Plan?

Clear I/S Role?

Effective I/S Management?

I/S Organization?

A Problem withI/S Capacity?

I/S Policies?

Does the I/SOrganization Have a

User/Business Focus?

Managing I/S toBusiness Objectives?

Is keeping I/S alignedwith the businessobjectives someones high priority objective?

Figure 15-5

I/S Skills andCapabilities?

Business Domain Information Technology Domain

Information Technology Opportunities

Strategic Plan

Information SystemsArchitecture and

Organization

Business Processesand Organization

Alignment

Impact

Org

aniz

atio

n

Opp

ortu

nity

Enterprise-Wide Information Systems Strategic Planning Process

Parker/Trainor/Benson, INFORMATION STRATEGY AND ECONOMICS, (c)1989, p.5. Adapted by permission of Prentice Hall, Upper Saddle River, New Jersey

Figure 15-8

Strategic PlanStrategic PlanVision – Do we have a clear vision of where the organization is going?

Decisions – Do we make major decisions based on our vision and strategies?

Innovations – Do the values and goals of the organization call for innovation?

Risk Taking – Does the reward system support employees and management risk taking?

Change – Do we respond quickly to changes that affect our organization?

Competitors – Are our strategies based on market intelligence and competitive information?

Strategic PlanStrategic Plan

External Factors – Do we regularly review the economic, social and demographic trends that can affect our performance?

Management Teamwork – Are our interactions characterized by openness, candor and teamwork?

Quality – Do we emphasize and measure quality throughout the organization?

Fundamental Strategic Planning Fundamental Strategic Planning IssuesIssues

Can the strategy formulation be reduced to a consistent process?

How stable is the context for the strategy? How close to the actual situation should the

planners be? How much hard data is available to assist in formatting the right strategy? What are the consequences of an incorrect

strategy?

Planning MethodologiesPlanning Methodologies

There are many planning methodologies. Methodologies are seldom the reason for

planning success or failure. Planning methodologies are like systems

with input, processing and output all being key elements.

Key to planning is communicating the intended direction through practice.

Planning MethodsPlanning Methods

• Planning sessions

• Critical success factors

• Vision process

• Business Systems Planning

• Reengineering

• Linkage analysis

• Etc.

Planning SessionPlanning Session

• Facilitator

• Sponsor (top executive)

• 6-8 people

• Off premise and casual clothes

• 3-5 days

• Schedule discipline

• Question set is a key factor

Competitive Analysis Question SetCompetitive Analysis Question Set1. What is the fundamental nature of our products and services,

our dealings with our customers and the way they make their purchasing decisions?

2. How do our customers measure the value of our products and services?

3. How does our business systems serve our customers?

4. What key activities or decisions significantly affect the cost of serving our customers and how they place a value on this?

5. To what extent could these decisions or activities be changed in a way that would improve services or reduce total costs through the availability or more, better or more timely information?

6. Would such changes involve one part of a current business process, cut across multiple processes or require direct linkages with groups outside of our own organization?

7. How quickly and easily could such initiatives be duplicated by a competitor as an assessment of the durability of the competitive advantage?

8. How would the extent and durability of the competitive advantage be affected by decisions about following a proprietary or non-proprietary approach to building the information systems?

9. How would we spend $10 million to improve our competitive position?

10. How would our primary competitor spend $10 million with the same objective?

11. Would the answer to the last two questions be any different if computers and networks were free?

Planning Session ApproachPlanning Session Approach

• Commitment

• Consensus

• Conflict

• Creativity

• Communication

Critical Success Factors (CSF)

• “The few key areas of the job that must go right in order for an organization to flourish.”

• Focuses on individual managers and their current informational needs.

• Can be used as part of a planning methodology to identify information systems that are needed to run the business.

• Includes keeping abreast of ongoing operations (monitoring) and tracking change progress (building).

• Vary from organization to organization, from time period to time period and from manager to manager.

Source: Rockart and Crescenzi

Critical Success Factor SourcesCritical Success Factor Sources

1. The business environment.

2. The industry.

3. The company’s situation within the industry.

4. Organizational activity that is currently unacceptable and needs attention.

The True Benefactors The True Benefactors of IS Planningof IS Planning

• Those who are shaping the future of the business.

• Those with profit and loss responsibilities.

Why IS Planning FailsWhy IS Planning Fails

Management Authority and Responsibility1. A lack of support of the planning process.

2. A failure to support the final plan through actual implementation.

3. The unexpected happens that was not anticipated by the plan. The key here is systems flexibility.

4. Too much time is spent on “turf battles” or other political issues and not enough on the desired results.

5. Impatience by senior management for results.

Why IS Planning FailsWhy IS Planning Fails

IS and General Business-related Issues1. Its outcome is stated in terms of technology and not business results.2. A lack of user understanding of how IS relates to the business

objective or a failure to accept or support the proposed approach.3. Tends to place blame on today’s environment rather than project a new

and better way of doing things.4. A lack of risk taking leads to an incremental approach that fails to

motivate people.

Final Thoughts on IS PlaningFinal Thoughts on IS Planing

Planning is a tool. There is an organizational learning curve regarding methodologies.

A good plan with no execution borders on a waste of the entire effort.

A relatively weak plan with a few strong thoughts followed by tenacious implementation can provide major business benefits.

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What’s Happening!?