Strategic Planning for Information Systems Third Edition phần 8 pps

some IT investments, especially major infrastructure investments. 17 Essentially, an option is the right, but not the obligation, to act at some future date. The choice whether or not to act is dependent on specific situations occurring in the future, but it is usually uncertain as to which of the potential situations will actually happen. By taking an option (i.e. making an IT investment today), the possibility is provided to take some action(s) in the future when less uncertainty exists. While real options can be used to make investment decisions, the approach is more helpful in making choices among investment options available. In relation to the portfolio, the approach is best used for strategic and high potential applications where future uncertainty can be expressed in terms of different scenarios that can be subjected to ‘what-if ’-type assessments. Working with a mid-sized Austrian auto parts manufacturer, Taudes et al. 18 applied real options to the problem of deciding whether to migrate from SAP ERP system R/2 to R/3. Even though the initial set of applica- tions to be run under R/3 were the same as currently running under R/2, the real options an alysis demonstrated that the future opportunities to introduce applications based on EDI, workflow management, document management and e-commerce justified the introduction of R/3. The higher implementation costs could be related to higher future benefits and the additional value provided by R/3 could be explained. Setting priorities among key operational systems is more complex than support, but involves less uncertainty than strategic applications. The arguments for (i.e. benefits of ) key operational investments will essen- tially comprise: . financial; . critical success factors (either directly or by enabling strategic devel- opments); . risk to current business (critical failure factors); . infrastructure improvement. Each of these benefit areas must be given some form of relative weighting based on the cu rrent business situation, to decide the preferred mix of benefits before looking at resource constraints. Then, the costs and/or resources used by the project should be compared against its relative importance in each of the four categories to establish overall priorities. Economic benefi ts are straightforward, and business objectives can be assessed via CSFs. The view of ‘infrastructure’ implies providing adequate technologies or improving the organizational capability to utilize its IS/IT, or enhancing specific competencies to improve the future business contribution from IS/IT. Risk to current business could be assessed by describing ‘what risks are run if the project does not go Setting Priorities for Applications 433 ahead’, which should be expressed in terms of the impact on the business, its probability of occurrence and an assessment of when the risk might arise. Applications scoring highly in all four categories are obviously higher in priority than those scoring highly in one, two or three cat- egories, and those at each level in the ranking using fewer resources get priority. It is a subjective method, but it does allow for the strategic, financial, business and IS/IT perspectives to be included. Buss 19 makes an important observation concerning, as he says, the ‘misconception’ that ‘a steering committee can decide the priorities.’ In general, he suggests, politics will interfere, representation in discussion will be unbalanced and the only common ground will end up as econom- ics! He says the best way to set priorities is to make them the product of a formal planning process at corporate or business unit level. The mech- anisms to be employed can be agreed by a steering group, but it should not be implemented as a meeting-based process. Hochstrasser 20 argues that these mechanisms must be applied consis- tently across all projects, or the priority setting process will remain arbi- trary and chaotic. High potential applications are difficult to prioritize and will tend to be driven somewhat in the reverse of strategic applications: what resource is available to do it and then which application might best employ that resource? As discussed in Chapter 7, high potential applications are often ‘individually’ driven, a champion usually exists; it is the secondary resources that are the problem. While it sounds wrong to suggest that ‘he who shouts the loudest’ or ‘has the most influence’ will obtain priority, in this segment it may be the best way to allow priorities to be set because: . the results will depend not just on the value of the idea, but also on the force with which it is pursued; . setting objective priorities on scant evidence is not very reliable anyway. If the idea potentially impacts many CSFs, it clearly stands out from others and should be elevated above the general scramble for R&D- type resources. In the discussion below, high potential applications are not considered as being in competition for IS/IT funds, but are funded from R&D general budgets. But, of course, they may well compete for key skills or resources. The remaining task is to set priorities across the segments of the portfolio to decide how much resource to devote to the different types of application. This is not simple since the rationale for investment in each is different, as shown above. However, the approach recommended for key ope rational applications can be extended to cover the whole portfolio. Strategic applications will score heavily on CSFs, whereas 434 Managing Investments in Information Systems and Technology TEAMFLY Team-Fly ® support applications should deliver a good financial return. Management must decide the weighting they wish to attribute to each type of benefit and then rank the systems. The relative weighting given to each will depend on a number of factors, a few of which are listed in Table 9.1. In general, the greater the confidence senior management have in their business strategy and collective judgement, without the need to be reassured by figures, and the trust they have in the competencies of business users and IT profes- sionals in developing effective syst ems, the greater the weighting that will be given to CSFs, etc., relative to financial aspects. In a way, this is a sign of maturity of the organization regarding how it plans and manages IS/ IT as described in Chapter 3. It also tends to reflect the relative strength of the enterprise within its industry: the strong er the position, the fewer IS/IT investments are expected (like other investments) to prove an economic case in advance. If the overall plan is developed and maintained in a priority sequence, that reflects the ratio of benefits to be achieved (adjusted for risk) to the limiting resource consumed, then it helps both in short and long-term planning decisions because: . resources can be reallocated where necessary from lower to high er- priority applications on a rational basis, with the agreement of line managers; Setting Priorities for Applications 435 Table 9.1 Examples of effect on weighting of various factors (High, Medium, Low) Objectives/ Business FACTOR CSFs risks Infrastructure Economics 1. All types of investment have to be cost- justified to meet strict ROI hurdles L L L H 2. Business is in weak position or in decline—short-term profitability L M L H 3. Business is in a high-growth market and satisfying the market demand is paramount H H M L 4. Environment is very competitive and business performance must be improved H H L M 5. Need for redevelopment of old systems. Systems and/or technology are out of date compared with competitors or peer organizations L H H M 6. New systems are required to support major business/organization change or rationalization M H M L 7. Technology cost performance enables lower costs for existing systems if redeveloped L L H H . appropriate resourcing levels for the future can be set, and action taken to obtain the right type of resources to meet the demand s, based on a full understanding of the benefits achievable. It is quite possible then to produce a ‘planning system’, that should keep the plans and resource utilization up to date. It is important to dissemi- nate the current plan to all involved to aid understanding of the reasons for the relative ranking of any particular project. Mystery or uncertainty are far more destructive of strategies than the discussion and reconcilia- tion of real problems. Again, the above arguments may lack the precision ideally required for setting priorities. Much subjective judgement is inevitably involved, but ‘rules’ for inclusion of the relevant factors can be established, to avoid each priority decision being made on a different set of criteria. BENEFITS MANAGEMENT One of the factors that differentiates successful from less successful com- panies in their deployment of IS/IT, according to a number of surveys, 21 is the management resolve to evaluate IS/IT investments before and after they occurred. A survey of approaches to managing IS/IT benefits in 60 major organizations 22 revealed that only 26% of the companies always reviewed projects after completion to determine whether benefits were delivered—a finding in line with earlier surveys. However, as with previous surveys, most respondents believed that their organization’s investment appraisal processes were not appropriate for the types of investment being undertaken, and 45% admitted overstating the benefits to gain approval, in the full and certain knowledge that no evaluation would be made after implementation! In the same survey, 76% of organizations believed there was significant scope for improve- ment in managing the benefits of IS/IT projects, but only 10% had any defined process as a basis for management action to deliver the benefits on which investments are justified. There is limited value in any sophisticated system of investment evalu- ation and priority setting unless the ‘system’ is examined in terms of whether or not it delivers the business improvements required. Some form of post-implementation review must be carried out on a high percentage of projects to identify whether (i) they were carried out as well as possible and (ii) whether the benefits claimed (or possibly different benefits) were achieved or not. While preinvestment appraisal and post- implementation review are obviously important, they are essentially one-off ‘snapshots’ of the situation and, hence, insufficient in terms of 436 Managing Investments in Information Systems and Technology the actions needed to ensure that the maximum benefits available are delivered. In a detailed study of 11 strategic IS/IT investments (varying in cost from £5m to £100m) across a range of industries, 23 a number of factors that differentiated success from failure were identified. While some were already well known (e.g. involvement of senior management throughout the project life cycle), the successful investments were characterized by a deliberate, comprehensive approach to managing the benefits and allocation of responsibilities to line managers for benefit delivery (see Figure 9.4). In addition, in highly-successful projects, management treated the IT investment as a component of organizational change and were able to use existing change management processes to ensure the business maximized the value of the IT investment through associated changes to business practices. What is also clear from surveys a nd the study above is that it is becoming increasingly difficult, given the types of systems being imple- mented, to predict all the benefits that can be delivered. That increases Benefits Management 437 Figure 9.4 Factors increasing the degrees of success in strategic information systems the importance of having a process that actively addresses the manage- ment of benefits throughout the investment’s life. In particular, any post- implementation review should focus not only on what has happened in terms of delivered benefits but should also consider what further benefits could now be gained. These issues prompted an extended research program at the IS Research Centre, Cranfield School of Management, in collaboration with major UK-based organizations, to develop new approaches to improving IS/IT benefit realization. Key aspects of the approach resulting from that work, and now in use in over 100 organ- izations, are described below. A Wentworth Research report 24 described the approach as one of the few that comprehensively addressed the range of management issues associated with maximizing actual benefits delivered. The Context of Benefits Management A major IS/IT development will consist of a large number of activities in business areas and the IS function. Any particular development will also rely upon an ongoing set of organizational competencies that enable new systems to be devised, implemented and operated successfully. These are not just technology competencies but also business competencies in defining its information and processing needs, managing the changes that are required to gain benefits from the technology and using the systems successfully. In essence, therefore, any major IS/IT development will consist of the mix of activities for which best practices and relevant methodologies have been developed over the last 30 years. Systems development methodologies such as SSADM (Structured Systems Analysis and Design Methodology), DSDM (Dynamic Systems Development Methodology) and SSM (Soft System s Method- ology) are processes and methods designed to ensure that the right system is developed in the most appropriate way to agreed quality and perform- ance requirements. Project management methodologies like PRINCE (Project Management in a Controlled Environment) are essential for managing the activities and resources associated with a project to deliver the system and complete the other tasks to agreed times and costs. Most organizations now recognize that this is a shared responsibility between business and IT management. Ultimately, it is the business that suffers the real conse- quences of poor project management and business project managers are often appointed for major IS/IT investments, although their roles and responsibilities are not always clear. As stated above, few organizations have a complementary process focusing on identifying and managing the business benefits required. 438 Managing Investments in Information Systems and Technology Often, this is seen merely as part of the investment appraisal approach to enable a valid business case to be developed. The results of the R&D program described above suggest that investment appraisal should be considered as one event (albeit an important one!) within an overall process that can be defined as: Benefits Management: the process of organizing and managing such that potential benefits arising from the use of IT are actually realized. It would seem most appropriate that the business project manager should be responsible for this particular set of activities. The ability to achieve benefits from a particular investment will depend largely on the organi- zation’s experience and knowledge of what types of benefit IS/IT invest- ments can or cannot deliver and how they can be obtained. Based on the different objectives and rationale for the applications in each segment of the application portfolio, it can be seen that the mix of activities and their criticality to success will vary. Strategic applications imply that significant business changes will need to be made in associa- tion with the new system to create the desired advantage. Equally, under- standing and defining the benefits required will need considerably more innovative thinking than, say, buying a new accounting package. Figure 9.5 summarizes the generic sources of benefit for the different segments in the matrix. These align closely with the ‘information econom- ics’ concepts discussed earlier in this chapter. While the Benefits Management process is applicable across the whole portfolio, its value increases as the issues associated with delivery of benefits become more complex. The inputs to the process provide a first understanding of the range of tasks involved. They essentially ask three questions: . Why is the investment being made—what is causing the organization to change and how critical to its future is the successful management of the changes? (the benefit drivers) . what types of benefit is the organiz ation expecting from the invest- ment overall—to reduce costs, improve operational performance, gain new customers, create a new capability, etc.? These need to be understood in general terms before detailed analysis of potential benefits in relation to the extent of change required is undertaken. . How will other activities, strategic initiatives, business developments or organizational issues affect the particular investment either to facilitate or inhibit its progress and outcome? (the organizational context) Benefits Management 439 An assessment of these inputs provides the background to setting objectives for the project and to identi fy the key stakeholders and their potential role in and influence on the project. The Benefits Management process then enables the relationship between the enabling technology and changes to processes, structures and working practices to be assessed, in combination, to identify the best way of realizing the maximum set of benefits from the investment. Since the purpose of any IS/IT investment is to deliver improve ments to business and/or organizational performance, it would seem logical that the main ‘process’ around which others should fit is benefits management, rather than the project management, investment appraisal or systems development approaches. These should be adapted to match the types of change involved in the investment and the range of benefits expected to be achieved. Figure 9.6 summarizes the context of the Benefits Manage- ment process described below. THE BENEFITS MANAGEM ENT PROCESS In considering the activities required to manage the delivery of benefits, it has been assumed that the IT-based system is delivered to specification 440 Managing Investments in Information Systems and Technology Figure 9.5 Generic sources of benefit for different applications (i.e. the technical part of the development is successful). However, as the benefits management process proceeds, it may cause revision to the spe- cification, and it is assumed that effective change control processes can deal with this. The other related set of activities are organizational changes of many types that have to be made to deliver the benefits. The benefits management process should be the driving mechanism for these change activities. How to bring them about in detail is addressed in the wealth of change management and organizational development literature. The model proposed here for a benefits management process draws heavily on total quality management philosophies and incorporates a number of tools and techniques from different sources to address par- ticular aspects. The five steps in the iterative process are described in outline in the following subsections (see Figure 9.7). Each stage is con- sidered in overview from the viewpoint of the business management roles and responsibilities, and key tools and techniques are briefly described. This description is a summary of the Best Practice Guidelines 25 developed for organizations to utilize the process. Stage 1: Identification and Structuring of Benefits Based on the outcome of the strategy processes, the overall business rationale for a new or improved system will have been identified: the nature of the types of target benefit and extent of change involved to The Benefits Management Process 441 Figure 9.6 Benefits management context obtain them will depend on their impact and criticality for the business strategy which in turn determines whether the system is strategic, key operational or support, as described in Chapter 7. If the nature of the benefits and/or how to obtain them is unclear, then the system should be put through the R&D stage implied by the high potential segment until they are better known. Hence, the whole benefit management process does not really apply to the high potential segment, but some of the techniques can be used to enable the benefits to be identified or assessed in terms of how best to achieve them. Identifying the target benefits implies an iterative process of establish- ing the investment objectives and the possible business performance im- provements that the system and associated changes should or could deliver. The achievement of each objective could well deliver a variety of different benefits across the organization and also to trading partners and customers: customer service improvements in one area could produce new marketing or selling opportunities; productivity gains in administra- tion may release resources for ‘front-office’ activities. The process is in- evitably iterative since objectives may be modified and new benefits identified as ideas and options are considered in the ‘creative’ stage of 442 Managing Investments in Information Systems and Technology Figure 9.7 A process model of benefits management [...]... investments’, Journal of Information Technology, Vol 5, No 4, 1990 V Symons, ‘Evaluation of information systems: Towards multiple perspectives’, in L Willcocks, ed., Information Management: The Evaluation of Information Systems Investments, Chapman & Hall, London, 1994 T Lincoln, and D Shorrock, ‘Cost justifying current use of information technology’, in T Lincoln, ed., Managing Information Systems for Profit, Wiley,... Information Systems, Vol 15, No 1, 19 98, 165– 185 ; M Benaroch and R.J Kauffman, ‘A case for using option pricing analysis to evaluate information technology project investments’, Information Systems Research, Vol 10, No 1, 1999, 70 86 ; A Kambil, J.C Henderson and H Mohsenzadeh, Strategic management of information technology: An options perspective’, in R.D Banker, R.J Kauffman and M.A Mahmood, eds, Strategic. .. to ‘richer’ information presents new challenges for the traditional role of information management Information management has also become the basis for many new Internet-based business models— ebay.com, Amazon.com, Betdaq.com and Covisint are obvious examples here—highlighting just how strategic it has become Data are the raw material of information the raw facts or observations—with information usually... study of current practice’, European Journal of Information Systems, Vol 4, 1996, 214–225 P McGolpin and J.M Ward, ‘Factors affecting the success of strategic information TE 1 Team-Fly® Endnotes 24 25 26 27 28 29 30 31 32 33 34 35 36 37 465 systems , in J Mingers and F Stowell, eds, Information Systems: An Emerging Discipline?, McGraw-Hill, London, 1997, pp 287 –327 Benefits Realisation Many Happy Returns,... users At the same time, it must be recognized that much of the information used by employees in a business is not automated, and that while some information can be tightly managed, users will gather information from informal as well as formal sources This informal information cannot be managed in the same regulated way An additional necessity is for an environment within the organization that is conducive... some meaning Yet, a key challenge for all organizations is to transform information into knowledge that can subsequently be utilized to effect action and business results Both information and knowledge are, at the same time, related yet quite distinct Innovation, for example, demands not only information but also the application of knowledge from a variety of sources Information can be considered as explicit... of Information Systems, Vol 4, 1996, 214–225 K Grindley, Managing IT at Board Level, Pitman Publishing, London, 1993 L Willcocks, ed., Information Management: The Evaluation of Information Systems Investments, Chapman & Hall, London, 1994 B Farbey, F Land and D Targett, IT Investment: A Study of Methods and Practice, Butterworth-Heinemann, Oxford, 1993 M.M Parker and R.J Benson, with H.E Trainor, Information. .. L Willcocks and S Lester, ‘Evaluating the feasibility of information systems investments: Recent UK evidence and new approaches’, in L Willcocks, ed., Information Management: The Evaluation of Information Systems Investments, Chapman & Hall, London, 1994 B Hochstrasser, ‘Evaluating IT investments: Matching techniques to projects’, Journal of Information Technology, Vol 5, No 4, 1990 G Peters, ‘Beyond... management of knowledge INFORMATION AS AN ASSET: THE SENIOR MANAGEMENT AGENDA The importance of information 1 as a key asset continues to grow, following a period where its production, complexity, volume and demand have rocketed, but where satisfaction of the real information needs of the organization has been limited due to many obstacles Often, this can be 4 68 Strategies for Information Management due... ed., The Corporation of the 1990’s: Information Technology and Organisational Transformation, Oxford University Press, New York, 1991, pp 122–1 58. ; and ‘IT enabled business transformation: From automation to business scope redefinition’, Sloan Management Review, Winter, 1994, 73 87 B Hochstrasser, ‘Evaluating IT investments matching techniques to projects’, Journal of Information Technology, Vol 5, No 4, . business performance must be improved H H L M 5. Need for redevelopment of old systems. Systems and/or technology are out of date compared with competitors or peer organizations L H H M 6. New systems. tabular rather than list form showing (a) how they arise (the columns) and (b) how explicitly they can be stated in advance (the rows). 4 48 Managing Investments in Information Systems and Technology Figure. of 436 Managing Investments in Information Systems and Technology the actions needed to ensure that the maximum benefits available are delivered. In a detailed study of 11 strategic IS/IT investments