Managing and Using Information Systems A Strategic Approach, 5th Edition Solution Manual

Managing and Using Information Systems A Strategic Approach, 5th Edition By Pearlson, Saunders

Instructor Manual for Managing and Using IS, Fifth Edition-Chapter 1

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Chapter 1: The Information Systems Strategy Triangle Overview This chapter presents a very simple framework, the Information Systems Strategy Triangle, which links business strategy with organizational strategy and information strategy. The chapter describes this model, and builds on several other popular strategy models and organizational models. The goal of this chapter is to make sure every student has a basic understanding of both strategy and organizations. For students familiar with business strategy and organizational behavior, this chapter is a review of key points from those two fields.

Discussion Opener: Why should general managers have a broad understanding of information systems? How can that knowledge be helpful in their careers?

Key Points in Chapter The Information Systems Strategy Triangle links business strategy with organizational strategy and information strategy. The triangle is used to suggest that all three points must be in balance in any organization to have optimal efficiency and effectiveness. An imbalance can lead to organizational tension or possibly a crisis. A company is out of “alignment” when its business strategy is not supported by the IS. There are several implications from this model. First, business strategy drives organizational and information strategy. Second, organizational strategy must complement business strategy. Third, information strategy must complement business strategy.

Fourth, organizational and information strategy should complement each other. Finally, if a change is made to one corner of the triangle, it is necessary to evaluate the other two corners to ensure balance is maintained. That means that if the business strategy is changed (i.e. such as becoming a "bricks and clicks" company), then the manager must also consider a redesign of both the organization (i.e. do we have people that can be successful in this new strategy) and the information systems (i.e. do we have the capability to process inquiries taken off of the Web).

Strategy is defined and is tied to the mission of the organization. Examples of mission statements are provided in the text (Figure 1.2), along with a discussion of how Dell has creatively adjusted its business strategy to meet the rapidly changing computer industry.

There are several ways to describe business strategy. This chapter summarizes two well-accepted models: the Porter generic strategies framework and the D'Aveni hypercompetition model.

Current examples are offered to illustrate the models.

The Porter generic strategies framework (Differentiation, Cost Leadership, Focus) has spawned many variants. A cost leadership focus means that the company maintains above average performance by selling products that are comparable in quality (i.e. the customer perceives relative value), but at a lower price in the marketplace. Differentiation strategy involves uniqueness of the product in the marketplace in some appreciable qualitative dimension. A focused strategy directs products to meet the specific needs of a particular segment of the market, either based on cost focus or differentiation focus. Hypercompetition models, and the dynamic framework, focus on flexibility and rapid change in response to the volatility in the marketplace. Competitive advantage

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is a moving target; companies must be ready to adjust quickly to changes in the marketplace. In this environment, agility becomes the competitive advantage. Chapter 2 discusses strategic use of information resources, building on these and other models.

“Social Business Lens: Building a Social Business Strategy” – Variations on the Social Business Strategy include collaboration (bringing people together to share ideas, information, and expertise), engagement (increase perceived attachment through increased interaction), and innovation (development of new ideas). Example: National Instruments (ni.com) has created a ‘branded community’ to collect and disseminate new ideas.

The chapter also summarizes several frameworks for describing organizational strategy. Included are the business diamond and the managerial levers framework. The business diamond links four key inter-related components of the organization’s plan: information/control, people, structure, and tasks (Figure 1.5). The managerial levers model is somewhat more comprehensive, linking organizational structure variables, control variables, and cultural variables. Decision makers can manipulate the managerial levers to effect change within the organization. Chapters 3, 4, and 5 discuss the managerial levers in greater detail and apply the organizational strategy frameworks to assessing the impact of IS. The IS strategy provides the plan for information services, and supports the business strategy through needs fulfillment. Figure 1.8 provides a basic framework showing the four components of the information system, the hardware, software, networking and data, and the key managerial concerns for each: what, who, and where.

Discussion Question: How can we recognize a misalignment between business strategy and IS strategy? Do you have any examples from internships or work experiences?

Illustrative Answers to Discussion Questions This is a summary chapter of the key models for the information systems strategy triangle, so discussion questions were provided to get students focused on and thinking about using these models. Below are some sample answers, but expect creative answers from your students that are not represented here. We encourage you to post some of your best answers to the online community webpage and share them with other instructors.

1. Why is it important for business strategy to drive organizational strategy and IS strategy? What might happen if business strategy was not the driver?

Ans: The primary point in this chapter is that in any well-run organization, the business strategy drives the rest of the operational strategy, and information systems are no different. The business strategy defines the goals and objectives based on the organizational capabilities and structure.

Information systems are intended to enable and facilitate successful realization of the goals and objectives. Technology for its own sake is not usually a good investment. However, typically, managers seem to think that changing or upgrading an information system (or even a component of an information system) will only positively impact a business. This is commonly referred to as the “Technological Imperative.” Quite the opposite, in fact, is true. By making changes in

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organizational strategy or IT strategy first, the triangle is "out of balance" and there will be consequences in the affected areas. For example, building a virtual organization, but not changing the business strategy to something like "ensuring our people are productive and have the widest possible work place opportunities" can lead to significant disconnects between workers, their managers, and their customers. And, worse, without supplying the virtual worker with the appropriate information system (a computer at home, a laptop, etc.) will lead to a decrease in productivity by the virtual worker, and a major disruption of business operations. Therefore, allowing IS strategy to drive business strategy could easily lead to poor implementations with disappointing outcomes (i.e. wasted resources).

2. Suppose managers in an organization decided to hand out tablets (iPad) to all salespeople without making any other formal changes in organizational strategy or business strategy. What might be the outcome? What unintended consequences might occur?

Ans: Salespeople might not use them, without training and modifications to their jobs. They may be accustomed to a manual, paper system and resist moving to the tablet devices. They might not appreciate the added benefits of the mobility, choosing familiar business processes instead. If they do use the devices, there will eventually be strain on the rest of the organization if it doesn't adapt to this new technology. For example, messaging might become ineffective if salespeople use e-mail on their tablets and voice mail. Where is the primary place or method to contact them? When someone is urgently needed, it is a hindrance to have multiple places to check. Likewise, if the tablets are used for order entry, but the order process is not changed to accommodate the tablets, there will be problems. Lack of integration could lead to unnecessary delays and frustrated customers. Support systems must also be redesigned. It does a salesperson little good to have to bring a tablet device into the office for repairs, especially if this involves a substantial geographical distance. Many troubleshooting activities can be performed by the salespeople, but only if they have been trained and feel confident. Support processes will have to adapt to the mobility of the technology, or the company can expect to have agents further resist. Employees are adept at creating their own “workarounds,” particularly when they do not support a mandatory change.

3. Consider a traditional manufacturing company that wanted to build a social business strategy.

What might be a reasonable business strategy, and how would organizational and IS strategy need to change? How would this differ for a restaurant chain? A consumer-products company? A nonprofit?

Ans: A reasonable business strategy might be to provide what the customer wants when the customer wants it. The idea is to use the Web as a mechanism to connect to customers, to take their orders, to provide services when the customer wants them, and to link with suppliers and partners.

To do that, the organization would have to be actively engaged and responsive, and would have to include elements of empowerment and authority for the employees tasked with monitoring the social network. It would not work to have a centralized decision making authority if the organization wants to be responsive because it would take too long to get appropriate information and communicate decisions back to the field. The manufacturing process might be organized around build-to-order rather than on market analysis and product histories, but then there would need to be a series of organizational processes and people that would be in place to make sure the manufacturing company is able to actually build the products when they are ordered. The IS

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strategy to support this business strategy would be one of rethinking the use of the Web as a tool for delivering information to customers, suppliers and employees. One direct value of social networks is the involvement of customers in the design and operation of the product. It is imperative that the company listen to the customer. In all of the instances listed, organizations could use social networking technologies to advertise, set up discussion groups, monitor discussions on social networking sites, use visualization tools to promote products and services, etc.

The business strategy would need to adapt to listening to the customer, rather than “if we build it, they will come.” A restaurant chain could provide incentives for customers to join the social network (e.g. coupons, special orders, preferred seating, etc.). Service industries are often more agile than manufacturing firms, so implementing changes identified by customers could be nearly instantaneous. Consumer-products companies would be expected to respond to customer notifications rapidly. Customers who take the time to provide personal opinions are usually in the two extremes: either very happy with their experience or very unhappy. The latter group will impatiently demand action, or they will be likely to broadcast their negative views to a wide audience. Sensitivity in the company’s reply will be critical. A non-profit would be open to learning new ways to attract contributions and volunteers. The level of creativity from a social network could far exceed the capabilities of staff members. Responding to comments can create momentum and greater interest. View social networking as enhanced word-of-mouth, and don’t underestimate the impact of the media.

4. This chapter describes key components of an IS strategy. Describe the IS strategy of a consulting firm using the matrix framework.

Ans: The matrix framework is a very simple structure for decomposing the confusing IS architecture of an organization. For a consulting firm, some of the components would look like this: Element Hardware

What Tablets and servers to store information, along with necessary back up devices

Who Consultants have their own tablets, managed by the centralized IS dept, which also "owns" the servers

Software

Office suite, collaboration tools

Consultants have the software on their tablets, but software is managed centrally by the IS group

Networking

Internet, hard wired connections from office, dial up and/or high bandwidth lines from remote (home and client) locations (e.g. secure VPN)

ISP service is obtained from AT&T or AOL or other provider who has international access numbers for dialing in. Company has own IS group provide the necessary servers to be

Where Tablets are mobile, traveling with consultants. Servers are fixed at corporate offices.

All software resides on the mobile devices but is backed up on servers. Some corporate applications might only be on the servers.

Global access is needed. Nodes are not managed by the consulting company, but by the ISP they contract with.

Instructor Manual for Managing and Using IS, Fifth Edition-Chapter 1

Data

Engagement data such as details of the work done for clients, client data with info about who the client is, previous engagements done for them, etc., and personnel data so consultants can be identified and assigned to projects (billable work hours)

connected to the Internet All data is "owned" by the company, but is made available to any consultant on an as-needed basis

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Data reside on the servers, but are "replicated" to the tablets as needed.

Information is not considered part of the company until it is on the servers, therefore information only residing on the tablets would not be recognized until uploaded to the servers.

5. What does this tip from Fast Company mean: “The job of the CIO is to provide organizational and strategic flexibility”?

Ans: The job of the CIO does not just narrowly involve information systems (IS) or solely focus on developing IS strategy. Rather the CIO must work with top level executives and functional supervisors to ensure that the IS strategy is aligned with the business and organizational strategy. A particular challenge for the CIO is to ensure that the IS architecture and infrastructure can support the business and organizational strategy. In making long-term decisions about IS architecture, the CIO must attempt to promote flexibility in the future with scalable architecture that meets the organization’s present and future needs. Being responsive to the needs of the business will create a mutual benefit for all stakeholders.

Further Discussion Questions: 1. How can managers determine an imbalance between the three strategies in the Information Systems Strategy Triangle? How might corrections be made before the imbalance leads to a catastrophic failure?

2. a. Imagine that you purchase an expensive home appliance. The first time you use the device, sparks literally fly, and the device shuts down automatically. You read on the box that the company engages in social networking using a dedicated site. Would you use the social networking site to share your concerns? Why/why not? What do you expect to happen in this instance? b. Now imagine that you are the corporate representative assigned to respond to the customer feedback provided in part a. What is the appropriate way to engage this irate customer? (“Ignore it; hope it goes away”?)

3. Many companies have created corporate Facebook pages/groups. From your experience, why are those pages often poorly utilized? How might a company motivate customers to interact with it using social networking technologies? How would the organizational and IS strategies need to change to increase the effectiveness of this social business strategy?

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Case Study 1-1: Lego 1. How did the information systems and the organization design changes implemented by Knudstorp align with the changes in business strategy?

Ans: Knudstorp determined that the way to save the company was to focus on productivity and profits. The organizational strategy included incentives for employees, encouraging them to develop profitable new product ideas. From the modeler approach, the IS strategy followed the same pattern. The infrastructure was streamlined and the systems supported a more responsive product ordering/operations/shipping business process. The entire company adapted to the new goals and objectives, focusing on key performance indicators of creating products that were wellreceived by customers.

2. Which of the generic strategies does Lego appear to be using on this case? Provide support for your choice.

Ans: Lego appears to be following a differentiated focused strategy. These are toys designed for creative play. They are high quality, and not the cheapest products on the market. However, they are designed to appeal to a variety of customers – themes to capture movie followers (e.g. Star Wars), video games, and creative artists. Each product line can be targeted toward a particular group.

3. Are changes implemented by Knudstorp an indication of hypercompetition? Defend your position.

Ans: This would be a hypercompetition strategy since the market continues to change rapidly, and Lego must keep pace with the market. Also, the company is attempting to dynamically adapt to the rapid pace of change. Entering into new markets with innovative product offerings is one way to stay ahead of the competition.

4. What advice would you give Knudstorp to keep Lego competitive, growing, and relevant?

Ans: Student responses will vary. Answers should be creative and reflect deep, critical thinking. In general, Lego should remain financially viable through cost cutting practices, automation using IT, and innovative product designs based on sound marketing studies and focus groups. Remove products from inventory if they are not selling well, or if they are not resulting in financial profits.

Higher margin products should be added to the portfolio to help secure the company’s future.

Case Study 1-2: Google 1. How is Google’s mission statement related to its business strategy?

Ans: Google’s primary goal is to organize the world’s information and make it universally accessible and useful (mission statement). Google continues to take risks and expand into new

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markets to further its reach into the information world. It takes advantage of new avenues to expand its market share by making information freely available on its Intranet, and by willing to take risks by investing in speculative and strange projects if they see a large potential payoff.

2. How does Google’s information systems strategy support its business strategy?

Ans: Through openness and innovation. It permits users to download their own software, maintains official and unofficial blogs, and buys and makes software to suit the needs of the business. IT encourages innovation by allowing employees to spend 20% of their time on a project of their own choosing. This “flexible” IT structure supports the innovation and creativity that its business strategy espouses.

3. How does Google’s organizational strategy support its business strategy?

Ans: Google has a culture of innovation and creativity. However, it still provides a level of structure when making decisions. Specifically, Google’s mission statement relates to its business strategy by making data on all ongoing projects and systems available to all of its employees through its corporate Intranet. Any employee can see what is transpiring in other areas and can lend a hand through Google’s “free day” policy and other open work-environment strategies.

4. Which of Porter’s three generic strategies does Google appear to be using based upon this case?

Provide a rationale for your response.

Ans: Differentiation, though one may argue that cost leadership is also utilized with its very reasonable ad costs. However, through the use of its innovative processes and unique business model, Google has differentiated itself from its competitors by keeping a clean and simple interface (which most of the other search engines have emulated), and by continuing to invest in its employees to provide innovation on a large scale.

5. Analyze Google’s strategy and the type of market disruption it has created using a dynamic environment perspective.

Ans: In some form or another Google has almost utilized D’Aveni’s entire framework. Specifically, it has gained superior stakeholder satisfaction through offering a superior product to its customers and adding new products that provide value to its customers (AdSense, etc.). It is continually seeking out new knowledge through its innovative management styles and by its willingness to invest in risky projects that have a high-return potential. Google positions for speed and surprise by constantly innovating by setting limitations on how long it will take to make changes to its products and services. Through this innovative approach, it is able to stay on the cutting edge of technology and lead this market of the IT world. Through its new products and services (AdSense, GoogleApps, etc.) and its low cost marketing, it shifts the rules of competition by finding new and better ways to serve its customers.

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Supplemental Cases: Google Inc. by Edelman, B., and Eisenmann, T.R., Harvard Business School. 9-910-036, 21 pages, 2011 (setting: US) This case study provides a glimpse of Google’s history and is a good compliment to the mini-case provided in the chapter. The authors discuss the strategic focus and competition with Yahoo! and Microsoft. Students will be required to recommend a course of action for the company going forward.

Airbnb (A) by Edelman, B., and Luca, M., Harvard Business School. 9-912-019, 7 pages, 2012 (setting: US) Airbnb is an online apartment rental site. This case study explores the online reputation service developed to address trust issues in the apartment rental business. Students will investigate the tradeoff between complexity/simplicity and amount of information necessary.

Introducing Expert Systems at The Corporation by Liebowitz J., Idea Publishing Group.

IT5555, 8 pages (setting: US) This case study highlights the concept the “management” of the technology is usually the limiting factor causing the demise of a project rather than the “technology” itself. This real case study involves creating an awareness of a new technology within the company and trying to start a muchneeded project using this technology.

Risks and Rewards at Frontier Communications: Improving Customer Service Using Client/Server Technology by Mathieson, K. and T. Toland , Idea Publishing Group. IT5561, 11 pages (setting: US) The case shows how a firm can improve a critical business function with new technology. In addition, the case shows that a firm can use new technology to build mission-critical information systems and examines the risks and benefits of restructuring.

Business Reeingineering at a Large Government Agency by McGarry, N.and T. Beckman, Idea Publishing Group. IT5562, 25 pages (setting: US) This case describes the difficulties and successes encountered in a reengineering effort. A team of consultants undertook reengineering the delivery of compensation and benefits at a large quasigovernmental agency. Benefits included six programs which accounted for time-intensive processes such as “cafeteria plan,” options enrollment period where information is dispersed to assist employees in plan selection, and retirement accounts.

End-User computing at BRECI: The Ordeals of a One-Person IS Department by Moffitt, K. Idea Publishing Group. IT5563, 11 pages (setting: US)

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The intention of the case study is to show an unsuccessful attempt at the introduction and use of information technology in a small business, leading to the finding that the application and understanding of technology is lacking in many small businesses that could benefit greatly from its use.

Implementing a Wide-Area Network at a Naval Air Station: A Stakeholder Analysis Hocevar, S.P., B.A. Frew, and V.C. Bayer. Idea Publishing Group. IT5568, 13 pages (setting: US) This case study illustrates the use of a non-traditional approach to determine the requirements for the Naval Air Systems Team Wide-Area Network (NAVWAN). It is considered to be nontraditional because the case data enable the use of Stakeholder Analysis and SWOT (strengths, weaknesses, opportunities, threats) assessments to determine the requirements instead of asking functional proponents about function and data requirements.

Reengineering the Selling Process in a Showroom by Crnkovic, J., N. Janicijevic, and G. Petkovic, Idea Publishing Group. IT5630, 14 pages (setting: Yugoslavia) The case study describes a process of successful re-engineering of a small Yugoslavian showroom wholesale company (“Wissol”) during the period of economy in transition. An established organizational solution was not supported by adequate IS support. It opens possibilities for designing an IS prototype and for planning future steps in IT and IRM. Enterprise Wide Strategic Information Systems Planning for Shanghai Bell Corporation by Long, Y., F. Fui-hoon Nah, and Zhanbei Shu. Idea Publishing Group. IT5581, 16 pages (setting: China) This case examines Shanghai Bell Corporation, Limited, a leading telecommunications enterprise located in Shanghai, China, and its initiative to develop its new generation Information Technology/Information Systems (IT/IS) plan. The issues covered include alignment of IT strategy with evolving business needs, application of a methodology to develop the enterprise-wide strategic IT/IS plan, and the evaluation of strategic planning project success.

Sun Microsystems, Inc: Web Services Strategy by Eisenmann, T. R., Suarez, F. F. Harvard Business School Publishing. 2005 (20 pages) Microsoft and IBM have excluded Sun Microsystems from the board of the Web Services Interoperability Organization (WS-I), an industry consortium that will shape the evolution of Web services standards. Sun managers must decide whether to join WS-I as a contributing member--a less influential role that lacks the veto and agenda-setting powers of a board position. Sun has recruited leading IT vendors--including several WS-I board members--to create technologies that compete with proposed standards jointly developed by Microsoft and IBM. Volkswagen of America: Managing IT Priorities by Austin, R. D., Ritchie, W. & Garrett, G. Harvard Business School Publishing. 2005 (19 pages)

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Describes the efforts of Volkswagen of America, the U.S. subsidiary of Volkswagen AG, to arrive at a process for setting IT funding priorities so that they align with business priorities and the company's overall strategy.

Kemps LLC: Introducing Time-Driven ABC by Robert S Kaplan. Harvard Business School Publishing; 08/03/2005 (10 pages) Managers use the information to enhance process efficiencies, negotiate new terms with customers, and attempt to win new business. The company now faces some crucial decisions about how to forge new relationships with key customers.

Readings/Articles from Chapter 1: Learning to Compete: IT's Next Transformation from EMC http://www.emc.com/microsites/cio/articles/learning-to-compete/pwf.htm This white paper covers the changing relationship between IT and business. Rapid implementation, efficiency, and reliability are the clear expectations. There is competition for IT solutions not present in years past. Alignment with the business users’ needs is critical to attracting internal clients. These changes lead to operational changes as well.

Andrew McAfee and Erik Brynjolfsson, “Investing in the IT that makes a competitive difference,” Harvard Business Review, July 2008.

This article provides practical advice for managers to create a sustainable competitive advantage through a strategic use of technology. The three key points are: deploy an enterprise technology that is integrated, innovate by improving work processes, and propagate those successes throughout the company. It is important to continue these endeavors to stay ahead of the competition.

Brad Wyckoff and David Thompson, “Unlocking the Value of IT” Harvard Business Review.

May 25, 2010. www.hbr.org Organizations must become information-centric (predictive) rather than system-centric (historical).

In order to facilitate competitive advantage, data must be pushed out to the decision makers throughout the organization. This article exposes the gap that exists between what companies say about the value of this critical asset and what they are actually doing with their data.

Shayndi Raice, “Is Facebook Ready for the Big Time?” Wall Street Journal January 14-15, 2012, B1.

The article features an interview with Mark Zuckerberg, Chief Executive of Facebook, and Sheryl Sandberg, former Google Inc. executive. They discuss the initial public offering for the social networking company and the original purpose behind the product.

Warren McFarland & Richard Nolan, “Information Technology and the Board of Directors” Harvard Business Review. 83(3): 2005.

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Most boards remain largely in the dark when it comes to IT spending and strategy, despite the fact that corporate information assets can account for more than 50% of capital spending. This article spells out the conditions under which boards need to change their level of involvement in IT decisions, explaining how members can recognize their firms' IT risks.

Tarun Khanna, Krishna G Palepu & Sinha, Jayant “Strategies That Fit Emerging Markets” Harvard Business Review. 83(2): 2005.

If Western companies don't come up with good strategies for engaging with emerging markets, they are unlikely to remain competitive. The best way to do this, the authors have found, is by using the five contexts framework. The five contexts are a country's political and social systems, its degree of openness, its product markets, its labor markets, and its capital markets.

Robert S. Kaplan and David P. Norton, “Having troubles with your strategy? Then map it.”

Harvard Business Review. 78(5): 167-176. 2000 Sep/Oct. A workforce needs clear and detailed information to execute a business strategy successfully. Until now, there have not been many tools that can communicate both an organization’s strategy and the processes and systems needed to implement that strategy. But Kaplan and Norton, the creators of the balanced scorecard, have adapted that seminal tool to create strategy maps.

Books: R.D. Austin, R.L. Nolan, and S. O'Donnell, The Adventures of an IT Leader. MA: Harvard Business School Press, 2009.

N.G. Carr, Does IT Matter? Information Technology and the Corrosion of Competitive Advantage MA: Harvard Business School Press, 2002.

R. D'Aveni, Hypercompetition: Managing the Dynamics of Strategic Maneuvering. New York: Free Press, 1994.

P. Evans and T. Wurster, Blown to Bits. Boston, MA: Harvard Business School Press, 2000.

B. Girard, The Google Way. San Francisco, CA: No Starch Press, Inc., 2009.

F. Hogue, V. Sambamurthy, R. Zmud, T. Trainer, and C.Wilson, Winning the 3-Legged Race.

Upper Saddle River, NJ: Prentice Hall, 2005.

M. Porter, Competitive Advantage. New York: Free Press, 1985.

M. Porter, Competitive Strategies. New York: Free Press, 1998.

Websites:

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www.bp.com BP is a global petrochemical company. The website includes a tab featuring the innovative uses of technology, from seismic imaging to biofuels. Links also update the cleanup from the Gulf of Mexico oil spill that occurred in April 2010.

Ritz-Carlton Gold Standards: http://corporate.ritzcarlton.com/en/About/GoldStandards.htm The website describes the values and philosophy for the premier hotel chain. www.cisco.comThe Cisco website is an excellent source of additional information on the importance of linking business, organizational and IT strategy. Look at the annual report letter from the CEO, and at the numerous cultural and organizational references Cisco describes as part of their various programs and opportunities. www.brint.comThis @Brint website is a good general starting place for articles and other web links related to the management and use of IT in business. This page contains many links to other portals on more specific topics such as e-business strategies, organizational strategies, business strategies, and IT management. www.cio.comCIO and CIO.com are published by CXO Media Inc. to meet the needs of CIOs (Chief Information Officers) and other information executives. CIO is read by more than 140,000 CIOs and senior executives who oversee annual IT budgets in excess of $175 million. CIO.com serves over 12 million pages annually. www.google.com Founded in 1998, the statement from the website is, “Google’s mission is to organize the world’s information and make it universally accessible and useful.” Visitors can learn a detailed history of the company, from the original search engine to the IPO in 2004 and, more recently, the launch of Google+. This website is a valuable companion to the case study.

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Chapter 2: Strategic Use of Information Resources Chapter Overview A long-standing management topic for information systems courses is the use of information and information systems for strategic advantage. The triangle model of chapter 1 sets up this discussion by making the link between IT and business strategy.

This chapter explores some of these concepts, building on the classic Porter models.

Discussion Opener: Why are we concerned with the alignment of business, organizational, and information strategies? How can that knowledge be helpful to you in your career?

Key Points in Chapter Innovative use of a firm’s information resources can provide companies with substantial advantages over competitors. The introduction to this chapter explores Zara, a global retail and apparel manufacturer based in Spain that has successfully implemented this idea by having a continuous flow of new products that are typically limited in supply.

Zara has created a system that draws its clientele into its stores, on average, 17 times per year as compared to 4 times per year for most stores. This is made possible by aligning its IS model with its business model. The conclusion is that a company can achieve substantial advantage over its competitors through innovative use of its information resources.

The evolution of information resources for business advantages is explored. Building on the eras model of Harvard Business School professors Applegate, McFarlan and McKenney, this model succinctly summarizes how IT has been used to create efficiency, effectiveness, strategic gain, and value. This model is useful to show how leading edge companies have engaged IT for more than just automation of activities and removal of paper from the business. The model also incorporates the economics of information vs. the economics of things that was discussed in Chapter1. New in the 5th edition is Era VI 2010+, which includes the new focus on creating relationships and social networking (including Web 2.0). The text explains some of the key components of this new era.

Students might be engaged in discussion as to what a business's objectives are and how IT can help achieve those objectives, based on the objectives discussed in Figure 2.1.

Students should explain how Era VI is different from Era V and the implications for these changes.

The term information resources is defined as the data, technology, people, and processes available to perform business processes and tasks. Information resources can be either assets or capabilities. IT asset is anything, tangible or intangible, that can be used by a firm in its processes for creating, producing and/or offering its products (IT infrastructure is an asset). IT capability is something that is learned or developed over time in order for the firm to create, produce, or offer its products. Figure 2.2 shows these

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resources with a definition and an example. Students would do well to understand the difference between an asset and a capability.

Crafting advantages using information resources is the job of the manager. Information resources include the technical systems, as well as the people and processes associated with the systems. To evaluate the business advantages of using a particular information resource, five questions are asked: • What makes the information resource valuable?

• Network effects occur when benefits increase as the network grows.

• Who appropriates the value created by the information resource?

• Is the information resource equally distributed across firms now and in the future?

• Is the information resource highly mobile?

• How quickly does the information resource become obsolete?

Information resources can be used strategically. They can influence competitive forces (see Porters model in Figure 2.3). For example, the potential threat of new entrants is influenced by using information resources to build barriers to entry. The bargaining power of buyers is influenced by using information resources to build switching costs.

The bargaining power of suppliers can be influenced by using information resources to integrate backwards or to reduce costs of linking with other suppliers. Substitute products are more difficult to create if information resources are used to add value to a business’s product and service offerings. And, industry competition can be influenced by information resources when these resources are used to differentiate products or services and to build new markets such as net markets. In Figure 2.4 the 5-forces model evaluates how Zara was able to gain competitive advantage through the strategic use of IT resources and services.

Information resources can be used to alter the value chain of a business, creating strategic advantages through lower costs and/or increased value. Porter's value chain suggests primary and support activities a business can use to create value. Information resources lower activity costs, which may create an advantage for the firm. Information resources add value only if a firm has accurate information regarding customers. By extending Porter's model to include supply chains of business partners, information resources are useful to create advantages through innovative linking of a business's supply chain and distribution channel chain. Students often fail to apply the value chain to business partners. Figure 2.5 shows Porter’s Value Chain model of the firm, and Figure 2.6 applies the value chain model to show the extended value system and the interconnected relationships between organizations, including suppliers and buyers. SCM and CRM are introduced, showing how they are applied to the value chain. Figure 2.7 describes the value added to Zara’s primary and support activities by its innovative IS. The main focus is on the value added to Zara’s processes, but it also shows how its suppliers and customers realize this value.

Next there is discussion on the Resource-Based View (RBV). It is a useful approach to identify two subsets of information resources: those that enable a firm to attain

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competitive advantage and those that enable a firm to sustain the advantage over the long term.

Information resources can support the strategic purposes that drive the use of the business's resources or strategic thrusts. While not discussed in this chapter, a lecture on this topic might include a discussion of Wiseman's theory of strategic thrusts. There are four types of thrusts: differentiation, cost, growth, and alliance. To find specific strategic opportunities, this model suggests asking three questions: • What is the mode of the thrust?

• What is the direction of the thrust?

• What is the strategic target of the thrust?

Figure 2.8 indicates the extent to which the attributes of each information resource may add value to Zara. In the table you will notice that the resources are categorized by asset and capability and then by value creation and sustainability. The new edition includes Relationship Skills – Externally Focused and Relationship Skills – Spanning under the IT Capability dimension. A discussion on this table may be useful to have students provide their own experiences and frame of reference on each of these resources.

Social Business Lens: Social Capital – Social capital is created through relationships.

Three types of value potentially created are: structural (pattern of relationships), relational (nature of the relationship), and cognitive (thoughts of people in the network).

Next in the chapter is a discussion of strategic alliances. Supply chain management (SCM) is used as an example. Facebook’s IPO and the partnership with Zynga is used to illustrate this concept. A discussion of Brandenburger and Nalebuff’s co-opetition theory demonstrates that some virtual corporations are formed with competitors. Basically, companies both cooperate and compete in the same industry.

The last section in this chapter includes a discussion of risks of information systems. This discussion, which describes information systems that failed, is necessary to balance the discussion of competitive advantages afforded by information systems. Instructors are encouraged to have a discussion about the risks and to challenge students to come up with additional risks.

Geographic Box: Mobile-Only Internet Users Dominate Emerging Countries – This vignette outlines the common practice of emerging countries to bypass traditional computing, opting for completely mobile connectivity. Malaysia is called a “test case.”

The chapter concludes with the concept of co-creating IT and business strategy. The focus of the chapter has been on how IT strategy is aligned with business strategy. It discusses how information is increasingly a core component of the product or service offered by the firm, that IT strategy is business strategy – they cannot be created without each other. FedEx is considered as an example; since its main product is information, the company cannot function without IT even though it is primarily a package delivering company. Business models cannot be built without consideration of information systems.

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Illustrative Answers to Discussion Questions 1. How can information itself provide a competitive advantage to an organization? Give two or three examples. For each example, describe its associated risks.

Ans: There are many appropriate responses to this question. This chapter explores some of them, such as building barriers to entry, creating switching costs, reducing operating costs, opening up new markets, and creating time-based advantages. Encourage students to give specific examples from companies they know about. For each example, explore the risks (i.e., awaking a sleeping giant, demonstrating bad timing, implementing IS poorly, failing to deliver what users want, or running afoul of the law). Discuss their answers in the context of Zara and FedEx. 2. Use the five competitive forces model as described in this chapter to describe how information technology might be used to provide a winning position for each of these businesses: a. A global airline b. A local dry cleaner c. A mobile phone company d. A bank e. A web-based wine retailer Ans: The five forces are substitutes, supplier, buyer, new entrants, and inter-industry.

The question asks the student to pick a force and describe how each of these 5 types of business might use information resources to reduce the threat of that force. An example of analyzing the substitute force is given below: • Global airline – It is difficult to think of what might be a substitute threat for a global airline. Perhaps it might be a cruise ship offering "offices at sea." In that case the global airline might use information resources to offer "offices in the air."

• Local dry cleaner – Substitute services might be using a customer's own washer/dryer to be able to wash "dry clean only" clothes. In that case, information resources might be useful to create switching costs using a frequent customer card, or to provide customers with information about their garments such as how to extend the life of the material using the dry cleaner's services (note that these ideas might also be useful to reduce the threat of other forces, too).

• A mobile phone company - A substitute service might be the traditional phone company. The firm can reduce the threat of substitution by increasing the reliability and emphasizing the superior features of the mobile services. Mobility is the new expectation, and the majority of individuals own cellular devices.

• Bank- A substitute service that might threaten a bank is a trend to keep money in a brokerage firm. Banks might use their information resources to offer other services of value to the customer such as instant on-line loan application and approval, extra incentives for longevity in accounts, and links with brokerage firm partners.

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• Web-based wine retailer – A substitute service might be a brick and mortar wine shop where customers could actually taste the wines prior to buying or a grocery store or other wine retailer where the customer has instant access to the wine (if sold there). The web-based wine retailer might use IS to offer a broader array of wines with more helpful information on how the wine is paired with foods, and feedback from customers on each wine and expert recommendations. Also, the web-based retailer could create value by setting up discussion forums for customers where they could interact with others interested in their particular wine selections.

3. Using the value chain model, describe how information technology might be used to provide a winning position for each of these businesses: a. A global airline b. A local dry cleaner c. A mobile phone company d. A bank e. A web-based wine retailer Ans: The value chain has primary activities (inbound logistics, operations, outbound logistics, marketing and sales, and service) and secondary activities (organization, human resources, technology, and purchasing). The question asks the student to describe how each of these 5 businesses might use information resources to add value to the activities to their company (and possibly to partners in their supply chain). An example of analyzing the inbound logistics is: • Global airline – The reservation system data can be analyzed by an information system to see which customers fly particular routes. When the seat occupancy drops on these routes, the customers that frequently fly such routes could be contacted and offered a reduced price on a ticket for flying that route during the next month. In that way, the load factor could be improved (this could also be modified to be a marketing and sales activity).

• Local dry cleaner – An information system could be programmed with an Economic Order Quantity model to determine when it is best to order dry cleaning supplies. This could also improve the outbound logistics activities of its supplier for these goods.

• A mobile phone company – An information system can be used to keep track of customer accounts, billing, services performed, and products purchased. This adds value for the customer, since employees will know their customers better, thereby impacting several primary activities, including marketing and sales.

• Bank- The telecommunications system may support Electronic Funds Transfers to ensure the transfer of funds into the bank. This could also make the outbound logistics of the Federal Reserve Bank more efficient.

• Web-based wine retailer – A system could be set up where the wine retailer has a direct connection with wine companies and even growers to reduce costs that can then be passed on to consumers to drive up revenues. Also, predictive analytics could be used to help the retailer predict future demand for various types of wines which could be communicated to suppliers up stream.

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4. Use the resource-based view as described in this chapter to describe how information technology might be used to provide and sustain a winning position for each of these businesses: a. A global airline b. A local dry cleaner c. A mobile phone company d. A bank e. A web-based wine retailer Ans: The Resource-Based View (RBV) looks at gaining competitive advantage through the use of information resources. Two subsets of information resources have been identified: those that enable firms to attain competitive advantage (rare and valuable resources that are not commonplace), and those that enable firms to sustain competitive advantage (resources must be difficult to transfer or relatively immobile). The question asks the student to describe how each of these 5 businesses might use information resources to add value to the activities of their company.

• Global airline – The airline could utilize its global relationships to market strategically to customers through a CRM system that would be difficult to imitate because of the firm’s global reach. IT talent could be utilized from all parts of the world to create systems that are innovative and strategic in nature (a specialized billing system, for example).

• Local dry cleaner – A customer preference system could be set up which markets to customers that have not utilized the cleaner recently. Perhaps offer coupons to these customers, etc.

• A mobile phone company – An IS system could be used to track interactions with customers, thereby developing sustainable relationships. This would generate customer loyalty. Competitive advantage can be attained by innovative IT embedded in the features of the phones. IT can sustain that competitive advantage through superior customer service, facilitated by a CRM system.

• Bank – Provide a new service through their ATM machines that takes advantage of a service that is unique to that bank and difficult to emulate.

• Web-based wine retailer – Take advantage of its online presence to offer other services like wine recommendations, possibly creative cooking recipes, and other services that would enhance its services.

5. Some claim that no sustainable competitive advantages are gained from IT other than the capability of the IT organization itself. Do you agree or disagree? Defend your position.

Ans: This is, of course, a very open-ended question. As the chapter discusses, sustainable advantage is hard to come by. Just about any advantage gained by a company seems to be copied by another at some point in the future. Students who agree with this statement might argue that the key to sustaining any advantage comes from the way all business resources are organized and used, and ultimately that comes down to how the managers

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and the people are able to perform. Students who disagree with this statement might argue that even the capability of the IT organization is not a sustainable advantage because people come and go, they can be bought by another organization as a move to create the capability elsewhere, and their skills and knowledge atrophy over time, when new capabilities arise. Witness IT organizations who excelled at managing mainframe applications, who are now struggling to keep up with web-based applications.

6. Cisco Systems has a network of component suppliers, distributors, and contract manufacturers that are linked through Cisco’s extranet. When a customer orders a Cisco product at Cisco’s Web site, the order triggers contracts to manufacturers of printed circuit board assemblies when appropriate and alerts distributors and component suppliers. Cisco’s contract manufacturers are aware of the order because they can log on to Cisco’s extranet and link up with Cisco’s own manufacturing execution systems. What are the advantages of Cisco’s strategic alliances? Does this Cisco example demonstrate SCM? Why or why not?

ANS: Cisco is linked via its extranet to contract manufacturers who print circuit board assemblies. The circuit boards can be provided when the order is made, or shortly thereafter. This reduces the circuit board inventory that Cisco needs to maintain.

Similarly, since it is linked to component suppliers, it can be anticipated that Cisco’s inventories for component supplies can be maintained for several days (or less) of manufacturing needs, instead of for weeks or months. The distributors linked via the extranet can be alerted that a customer order is being processed. This can help them schedule the delivery and complete the paper work so that the customer order can be completed more speedily. By making the processing more efficient, inventory and processing costs may be reduced. Ultimately this may result in reduced prices and speedier delivery to the customer. b) Does the Cisco example demonstrate SCM? Why or why not?

ANS: Supply Chain Management is an approach that improves the way a company finds raw components it needs to make a product or service, manufactures that product or service, and delivers it to customers. This example demonstrates improvements through collaboration with trading partners in the handling of inventory and in delivering the product to the customers. This is an example of Supply Chain Management.

Further Discussion Questions: 1. Social networking, used strategically, can be viewed as an information resource. Select a firm to analyze. Explain how SN can be used as an IT Asset and how the skills acquired by corporate staff can be viewed as an IT Capability.

2. Apple’s iPad is saturating the market, commanding huge market share. Use Porter’s five competitive forces model to analyze how Apple has attained a competitive advantage in the tablet market.

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Case Study 2-1: Groupon Students might not be familiar with Groupon. They should visit the website (http://www.groupon.com/ ) and visit the entry on Wikipedia. From the case in the textbook and this additional information, they should be able to answer the questions posed.

1. How does information technology help Groupon compete?

Ans: IT creates the network and communicates daily deals to participating potential consumers. The deals are e-mailed to the public. The system also tracks acceptance of the offers, determining when constraints are satisfied.

2. Do you agree or disagree with the statement that “Groupon has no sustainable competitive advantage”? Please explain your point of view.

Ans: Student responses might support or oppose the statement. The important point is for them to justify their positions with logical arguments. The case seems to agree with the statement, since there are a number of competitors entering the market, and Groupon’s service is not truly unique. However, Groupon could continue to innovate in order to establish itself as the premier service for this type of market. Branding its product will be critical, so that consumers only think of Groupon for this activity.

3. How does Groupon add value to the companies whose offers are sold on the site?

Ans: The value created for companies is both direct and indirect. As stated in the case, a large number of companies realize a loss from the volume of coupons redeemed.

However, they increase their visibility by appearing on Groupon’s site and the coupons get the target customers to visit the company. Getting new customers through the door creates the opportunity for up-selling and cross-selling.

4. What impact, if any, will Groupon Now have on Groupon’s competitive position?

Explain.

Ans: Groupon Now will create an immediate competitive advantage by making use of the geographical location-based systems and the pervasiveness of mobile devices. However, it would not be sustainable since Groupon’s competitors will likely duplicate that feature quickly. More features must be developed to remain ahead of the competition.

5. What would you advise Groupon leaders to consider as their next application?

Ans: Student responses should be creative and reflect serious possibilities. One obvious extension would be to capitalize on the social networking phenomenon. Another possibility is to create an application designed specifically for entrepreneurs. Third, there might be an application that could limit the number of coupons based on quantity or time.

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This would encourage more members to respond with urgency and mitigate the negative financial losses of companies offering coupons.

6. Apply the Resource-Based View to Groupon’s business model to show how information resources may be used to gain and sustain competitive advantage.

VALUE CREATION Value Rarity

VALUE SUSTAINABILITY Imitation Substitution Transfer

IT ASSET IT M M M M H Infrastructure Info.

H M M L M Repository IT CAPABILITY Technical M L M M M Skills IT Mgmt.

M M L L L Skills Relationship H H L L L Skills – Externally Focused Relationship H H L L L Skills Spanning Students will likely have different assessments of the individual cells. They should be able to explain their decisions, describing the uniqueness and value created by the information resources as used by Groupon.

Case Study 2-2: Zipcar This is an interesting, short case about how a new type of rental car company is able to operate in a completely new business model, as compared to other rental car companies, and embrace Web 2.0 technologies to gain further competitive advantage.

1. Analyze the business model of Zipcar using Porter’s five forces model.

Ans: Zipcar has created a model that would be difficult for other companies to imitate with its technology infrastructure and low over-head. This model would be difficult for traditional car rental companies to model due to their existing infrastructure and model.

Buyers could utilize other rental companies, but they would lose the convenience offered by the Zipcar model of hourly rental agreements and convenient locations. Zipcar does not really have to worry about supplier power since it does not rely on proprietary goods.

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2. Discuss the synergy between the business strategy of Zipcar and information technology.

Ans: There is tremendous synergy between Zipcars business and IT strategy. Zipcar is heavily dependent upon an automated process and supports social networking of its clients so that they can freely provide feedback on the company and its products and services. IT completely supports what Zipcar is trying to accomplish.

3. Are there any network externalities in the workings of Zipcar? If so, do they add value? How? Ans: Through their use of social networking, they provide value to the customer by providing an open exchange of ideas and feedback to Zipcar.

4. As the CEO of Zipcar, what would you do to sustain a competitive advantage?

Ans: Continue to innovate through the use of IT and by listening to customer feedback on the social network sites. Look for strategic partnerships with suppliers or other potential providers of services that Zipcar could leverage to improve its service or add extra value.

Supplemental Cases: Groupon by Chatterjee, S., O’Keefe, S., and Streiff, A., Richard Ivey School of Business. W12674, 15 pages, 2012 (industry: retail trade) This case study provides a foundation for the “collective buying industry,” a new business model. As discussed in the case, the future is uncertain, relying on the innovative decisions of the market leaders. This case is a good compliment to the minicase provided in the chapter. Students will be asked to recommend a course of action for the company to maintain the incredible growth trajectory.

Apple Inc. in 2010 by Yoffie, D.B. and Kim, R., Harvard Business School. 9-710-467, 25 pages, 2011 (setting: California) Apple launched the iPad to the market in April 2010, on the heels of the incredibly successful iPhone and iPod products. This case study explores the competitive challenges Apple faced worldwide, particularly with struggling sales of the Macintosh personal computer. Students will investigate the growth potential for this new product, suggesting ways to build market share into the future.

Carnival Cruise Lines by Applegate, L.M. & Robert J Kwortnik, Gabriele Piccoli, Harvard Business School Publishing; 07/07/2005; (33 pages) Highlights the potential value of customer data and the choices and challenges the firm faces when attempting to capture this value. Carnival collects a significant amount of

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individual-level behavioral and demographic customer data. Senior management must now decide how to leverage such a wealth of data.

Information Systems at FirstCaribbean: Choosing a Standard Operating Environment by Beaubien L & S. Mahon, Ivey School of Business; 3/22/2005; (12 pages) The Canadian Imperial Bank of Commerce and Barclays Bank PLC were in advanced negotiations regarding the potential merger of their respective retail, corporate, and offshore banking operations in the Caribbean. Currently there are four systems in operation in the region. All are carry-overs from the pre-merger operation of the bank.

Each of the systems has different pros and cons consisting of degree of fit with the organization strategy, likely impact on organizational culture, and functionality.

Kemps LLC: Introducing Time-Driven ABC by Robert S Kaplan. Harvard Business School Publishing; 08/03/2005; (10 pages) Managers use the information to enhance process efficiencies, negotiate new terms with customers, and attempt to win new business. The company now faces some crucial decisions about how to forge new relationships with key customers.

Change Management of People & Technology in an ERP Implementation by Edwards, H. E., Humphries, L. P. Idea Group Publishing; 2005 Eighteen months after adopting an enterprise resource planning (ERP) system, the chief executive officer wanted an investigation into the performance of the system. The results of the investigation reported here reveal problems with the acquisition and implementation process.

Developing Inter-Organizational Trust in Business-to-Business E-Commerce Participation – Case Studies in the Automotive Industry, P. Ratnasingam, Idea Publishing Group Case, 11 pages, IT 5610 (setting: Australia) The case study describes the process involved in an EDI implementation in the Australian automotive industry. Buyer-supplier interactions during EDI implementation and its impact on technical, political, behavioral, and trading partner trust aspects are discussed in this case study between Ford Australia (manufacturer) and Patents, Brakes and Replacements Limited (their first tier supplier).

Analyzing the Evolution of End User Information Technology Performance: A Longitudinal Study of a County Budget Office, J. Sacco and D. Hackler, Idea Publishing Group Case, 14 pages, IT 5611 (scope: U.S.) This case study examines end-user information technology evolution from microcomputers to World Wide Web applications in a large county budget office over a fifteen-year period. The study evaluates end-user information technology performance

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and comments on organizational, technical, and social issues that accompany information technology implementation.

Risk in Partnerships Involving Information Systems Development: Lessons From a British National Health Service Hospital Trust, G. Harindranath, J.A.A. Sillince, and R. Holloway, Idea Publishing Group Case, 22 pages, IT 5619 (setting: UK) This case study presents a UK-based project that promised new healthcare service delivery by redesigning healthcare procedures and developing sophisticated new information systems through a unique partnership between public and private sectors.

The case study concentrates on one of the more important determinants of success or failure of such partnerships involved in information systems development, i.e., ‘risk.’

Success and Failure in building Electronic Infrastructure in the Air Cargo Industry: A Comparison of the Netherlands and Hong Kong SAR, E. Christiaanse and J. Damsgaard, Idea Publishing Group Case, 13 pages, IT 5645 (setting: worldwide) This case describes the genesis and evolution of two IOSs in the air cargo community and provides information that lets students analyze what led one to be a success and one to be a failure. The two cases are from the Netherlands and Hong Kong SAR. Success in Business-to-Business E-Commerce: Cisco New Zealand’s Experience, P. Ratnasingam, Idea Publishing Group Case, 19 pages, IT 5649 (setting: New Zealand) The case study about Cisco New Zealand permits students to learn about the factors that influence the successful trading partner relationships in business-to-business e-commerce participation among other pertinent issues.

The Role of Virtual Organizations in Post-Graduate Education in Egypt – The Case of the Regional IT Institute, S. Kamel, Idea Publishing Group Case, 13 pages, IT 5653 (setting: Egypt) This case reports on the experience of Egypt’s Regional IT Institute in the field of education and training. The Regional IT Institute was established in 1992 targeting the formulation of partnerships and strategic alliances to jointly deliver degree (academic) and non-degree (executive) programs for the local community capitalizing on the enabled processes and techniques of virtual organizations.

Readings/Articles from Chapter 2: G. Piccoli and B. Ives, “IT-Dependent Strategic Initiatives and Sustained Competitive Advantage: A Review of the Synthesis of the Literature,” MIS Quarterly, 29(4), pp. 747-776, 2005.

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The authors present a thorough review of the literature, focusing on the IT-dependent strategic advantage literature. This interdisciplinary literature presents a clear picture of the value of these initiatives on corporate success.

Gary, Loren “Network vs. Network: The New Arena of Competition,” Supply Chain Strategy, Harvard Business Publishing, 2005.

As companies increasingly build value through often far-reaching relationships with other firms--through alliances, outsourcing, deep supplier relationships, and other partnerships-more and more leaders are facing a new reality: to succeed, they and their partners must address the market as one competitive unit.

Martin J. Garvey, “IT helps utilities stay competitive” Information Week. (803): 375383. 2000 Sep 11.

For years, the specter of deregulation hung over the utility industry, threatening to bring major changes to what traditionally had been a slow-moving market. Now that the specter has become reality, utilities are using IT to reduce the trauma of deregulation, compete more effectively and efficiently, improve customer service, and boost profits.

Books: Carr N.G. Does IT Matter? Information Technology and the Corrosion of Competitive Advantage MA: Harvard Business School Press, 2002.

Ward, J. & Griffiths P. M. Strategic Planning for Information Systems (Wiley Information Systems Series) NY: John Wiley & Sons, 1996.

This book takes a clear, practical, and comprehensive look at the impact of information systems (IS) on business performance and its contribution to the strategic development of organizations. It provides the tools, techniques, and management framework for identifying and implementing the opportunities offered and shows how IS/IT helps organizations achieve a competitive advantage.

Boar, B.H. Strategic Thinking for Information Technology NY: John Wiley and Sons, 1996.

This book shows managers how to apply strategic thinking about information technology to their business process to create and maintain aggressive, competitive, and productive computer systems. A special chapter reviews forty strategic ideas and shows IT managers how to directly apply them to their system Evans, P. & Wurster, T. Blown to Bits. MA: Harvard Business School Press, 2000.

This book examines how the new economy is "deconstructing" industries such as newspapers, auto retailing, and banking while creating new opportunities for others. They

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write that the "glue that holds today's value chains and supply chains together" is melting, and that even "the most stable of industries, the most focused of business models and the strongest of brands can be blown to bits by new information technology” (this is also a good book for the e-business chapter).

Websites: www.brint.com This website contains lots of interesting links to articles related to strategic use of IT. Of particular interest should be the e-business articles and the reengineering articles, both of which discuss business strategy and IT. www.cio.com CIO and CIO.com are published by CXO Media Inc. to meet the needs of CIOs (Chief Information Officers) and other information executives. CIO is read by more than 140,000 CIOs and senior executives who oversee annual IT budgets in excess of $175 million. CIO.com serves over 12 million pages annually. www.groupon.com/ The Groupon web site provides details on the company and the service provided. In particular, students should visit the “How It Works” tab. This is a good reference site when discussing the case study. www.zipcar.com The ZIPCAR web site shows how they function, rates, etc. This can be a good tool when discussing the case study. http://www.zara.com/ The website is aesthetically pleasing, presenting many samples of their products. Their mission statement page is devoted to the company’s eco-friendly environmental focus.

This can be used to supplement the textbook discussion of strategic use of IT at Zara.

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Chapter 3: Organizational Impacts of Information Systems Use Chapter Overview This chapter is about the organizational impacts of using information systems. It will set up, and in many ways complement, the following chapter, Chapter 4: IT and the Design of Work.

Whereas this chapter is about the organizational level impacts, the next chapter is about the individual worker level impacts. Many students find these discussions complementary, and in some ways they overlap. But we felt it was important to present them as two different chapters to make sure the key points from both perspectives were not lost.

Discussion Opener: What information resources (assets and capabilities) are employed by your university? How can IS lead to competitive advantage?

Key Points in Chapter The opening scenario, about Cognizant Technology Solutions, highlights how an outsourcing company had to change its model of managing its employees across the globe, particularly in India. Managers were moved to customer locations while the software engineers stayed in their original location. This led to new headaches, but Cognizant learned that some of the teams were working well. They changed to a new layout that enabled the company to adopt a matrix structure (Figure 3.1) that utilized the best of both styles of management.

Tata Consultancy Services (TCS), the largest outsourcing company and software exporter in India, created a different organizational structure (Figure 3.2). This organization focused more on New Growth Markets and Strategic Initiatives.

This chapter builds on the concepts in Chapter 1, particularly those around organizational design and organizational strategy. The Business Diamond reminds students that there are several components to be considered when designing the organization, and the Cash, Eccles, Nohria and Nolan table (Figure 3.3) suggests how IT affects the design specifically. This table builds upon the discussion of managerial levers in Chapter 1. Decision rights indicate the persons designated with specific responsibilities and control. Holding these individuals accountable for results leads to greater effectiveness. Organizational design includes appropriately allocating decision rights.

The middle part of this chapter reviews some specific instances of how IT allows organizations to be structured differently. We present a brief overview of 4 classic organization structures: hierarchical, flat, matrixed, and networked. These can be embellished in many ways with the use of IT. The resulting organization is often one that feels flat (because everyone can talk with anyone in the organization, and information is easily passed between organizational entities and workers) but has some semblance of structure. Further, IT facilitates easier reconfiguration of organization structures, because the history of the company is embedded in the IT, rather than in file cabinets or other paper artifacts. Reorganization is a completely different activity for an IT savvy company versus a "traditional company."

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Today, most organizations are a hybrid of the traditional structures. Students will relate to the networked organization, which is well described in the HBR article by Applegate, Cash, and Mills (HBR Nov-Dec 1988). Perhaps more interesting is an extension of networked organization, the T-form organization, described by Lucas (in the book, T-Form Organization, 1996). That organizational design is technology-based, and suggests designs similar to many we see today: easy access to information, electronically-coordinated work, larger span of control, electronically-based business processes, etc.

Informal networks are then discussed and their importance on management. Managers must be aware and actively seek to manage these informal networks. Some organizations are clearly able to utilize informal networks – like communities of practice – to get feedback, employee support, and learning groups.

Social Business Lens: Social Networks – A Social Network brings together people of similar interests. Within corporations, this directory can be integrated with expertise and work processes to create a more dynamic knowledge repository and information resource.

IT's effect on management control is then discussed. Managers are able to use IT as a means of monitoring, evaluating, providing feedback, compensating, and rewarding workers. An interesting discussion here might stem around the bounds of "what is possible" versus "what should be done." How can IT be used to monitor? When is it appropriate to deliver feedback via e-mail? What types of deliverables are appropriate/inappropriate for evaluation over the computer? When is it appropriate to monitor employees?

Then the text discusses how planning and IT interact. There are three ways in which IT can play a role in planning. Data can be provided to help in developing a strategic plan, to automate the process, and to be the focus of the strategic initiative. Monitoring work can take on a completely new meaning with the use of information technologies. There are lots of software programs on the market that make it possible for companies to monitor exactly what their employees are doing. What web sites they visit, what keys they press on their keyboards, etc. Companies need to understand what is appropriate to monitor and what monitoring techniques may be perceived as overly intrusive and decrease employee morale.

Performance measurement and incentives and rewards are another part of management control systems. Managers can use this data to determine rewards, but they have to be careful to not over analyze data to the point that decisions become bogged down in a glut of data. Some organizations use the 360 degree method of evaluation which can be useful when getting a better and clearer picture from all those that interact with the employee. Students need to clearly understand the importance of keeping evaluation data secret. Incentives and rewards need to be fairly and carefully created. Employees need to be recognized for their hard work and rewarded for a job well done. Technology can support this and managers need to understand how this can be done.

The next section presents the relationship between information technology and culture. With the globalization of many businesses this is an important and timely topic. Students need to

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understand that they cannot apply the same strategies across the board in an organization that may be comprised of many different cultures and cultural norms. What is acceptable in one culture may be extremely offensive in another. This chapter defines Values, Beliefs, and Assumptions. New to this edition is Figure 3.5, “Levels of Culture.” This diagram shows the impact of IT issues on organizational values and national values. Make sure to spend adequate time discussing this topic and look for ways for students to share what they have seen in their particular environments (taking care not to demean other cultures). Figure 3.6 gives a summary of national cultural dimensions. Take time to go through and to discuss these with your class.

Geographic Lens: Does National Culture Affect Firm Investment in IS Training? This vignette reports the results of a research study that showed that countries with low power distance, high future orientation, and high uncertainty avoidance were more likely to invest in training than countries with the opposite values. Students might be encouraged to explain the logic behind these findings, putting these concepts in their own words.

Illustrative Answers to Discussion Questions Below are some sample answers, but expect creative answers from your students that are not represented here (please send us some of your best answers so we can share them with other instructors): 1. How might IT change a manager's job?

Ans: Managers are traditionally information managers. They get information from those working for them, they massage it, format it, add interpretations, etc., and pass it upwards in an organization. Likewise they take information from the top managers and pass it downwards. All of this can change with IT. The information system itself will handle the information sharing.

Interpretation is still needed, and managers might do some of that. But information coming directly from the source where it is created will always be more valuable than some passed through several layers of people who might distort, change, or even lose some of it. Other managerial tasks will change, too. Managing people who you don't see every day is different than managing people sitting at desks near you.

2. Is monitoring an employee's work on a computer a desirable or undesirable activity from a manager's perspective? From the employees' perspective? Defend your position.

Ans: From the manager’s point of view, computer monitoring is a mixed blessing. It is desirable because it is easy. Work done on the computer is accessible, and if it involves repetitive tasks, (such as filling in forms) then it is easily measurable. An example is the traditional call center, where agents answer calls from customers. The duration of the call, the number of screens the agent had to use, the number of handoffs of the customer to other agents, etc. are all easily measurable. However, the numbers don't tell the whole story (not surprising). The quality of the interaction, as measured by how nice the agent was to the customer, how professional, how satisfied the customer was, etc. are not easily measurable. So management can easily fall into the trap of measuring those things that are easily measurable, at the expense of measuring things that are important.

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Regarding the employees, monitoring work done on a computer is not much different than monitoring any output. Should that monitoring take place covertly, that is without informing employees, then it becomes a different issue from an ethical perspective and in terms of increasing employee stress. Workers tend to work in a way that maximizes what they are monitored and rewarded for. If managers are monitoring them for how quickly they get work done on the computer, managers can expect workers to do things as quickly as possible, even if it means sacrificing quality.

3. Consider the brief description of the zero time organization. What is an example of a control system that would be critical to manage for success in the zero time organization? Why? Ans: It would be critical to manage just about all the control systems to ensure success of a zero time organization, so any example is probably good if it is supported well. For example, it would be important to monitor the people, processes, and technology to ensure that they are all able to respond instantly. It would be important to create evaluation criteria and feedback mechanisms to ensure the success of the people when they respond instantly.

4. Mary Kay, Inc., sells facial skin care products and cosmetics around the globe. The business model is to provide one-on-one, highly personalized service. More than 500,000 Independent Beauty Consultants (IBCs) sell in 29 markets worldwide. Each IBC runs his or her own business by developing a client base and then providing services and products for sale to those clients.

Recently the IBCs were offered support through an e-commerce system with two major components: mymk.com and Mary Kay InTouch. Mymk.com allows IBCs to create instant online sites where customers can shop anytime directly with their personal IBC. Mary Kay InTouch streamlines the ordering process by automatically calculating discounts, detecting promotion eligibility, allowing the IBCs to access up-to-date product catalogs, and providing a faster way to transact business with the company. a. How would organizational strategy need to change to respond to Mary Kay’s new business strategy?

Ans: Organizational changes would need to be consistent with a revised organizational strategy.

If no organizational changes were made, we’d expect the systems to be rejected by many of the workers. Managers would expect IBCs to use the systems, but IBCs are independent agents, so they would most likely delay in using the systems unless motivated to do otherwise. Thus the reward and compensation systems would need to be adjusted to accommodate the new system.

And unless business processes were also changed to accommodate the new systems, we would expect problems to occur that make it difficult for the new systems to be used (information entered into the system might be just printed out, if the processes are expecting paper-based forms rather than screen shots).

You might also want to explore business processes that would have to change to accommodate the new systems. The paper-based ordering system would have to be removed, if managers wanted IBCs to only use the new system, since running the older system discourages IBCs from using the new system. Fulfillment and reconciliation processes would be different with the use of mymk.com, since the order information was entered earlier into the system. If customers of IBCs

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place orders automatically, IBCs lose control over what is ordered, and will have to build new ways to keep track of their sales. If fulfillment processes are done using paper pick lists, then the process either needs to be redesigned to use electronic lists (shown on the screen or such) or to print out paper lists.

b. What changes would you suggest Mary Kay, Inc. managers make in their management systems in order to realize the intended benefits of the new systems? Specifically, what types of changes would you expect to make in the evaluation systems, the reward systems, and the feedback systems?

Ans: Evaluation systems would include a component of how well the systems were used by the IBCs. There would need to be an evaluation of the frequency and effectiveness of the use of the systems. That may translate into the reward systems, where IBCs are compensated for their use of the systems (direct bonuses, etc.), or where they find that using the systems gives them advantages they didn’t get otherwise (faster orders, better book keeping, etc.). IBCs might need incentive packages to encourage them to buy computers if they don’t have one already (such as discounts from a preferred vendor). Support processes would be needed to help IBCs learn how to use the systems effectively, and to help them identify new ways to do their business better.

The results of the evaluation process would have to be used to provide feedback to the employees. Possibly, in discussing an employee’s performance, it may be helpful to share with them average performance levels of other employees.

Further Discussion Questions 1. How has the progression of communication technology affected the business environment?

For example, discuss how the evolution of standard business communications (from telephone, to fax, to email) has altered the process of doing business. How are capabilities and costs affected?

2. Business and commerce are activities much older than the microchip (or the phone for that matter). In a similar vein as the previous question, imagine companies in the 1600s through the 1800s and how information was managed in these instances. The East India Company and the Hudson’s Bay Company (which still exists today) were some of the biggest companies of their day. Imagine how simple business tasks such as logistics and employee transfer (from one country to another) might have been accomplished. What might this tell us about how companies use IT today? What lessons can we draw from this knowledge?

Case Study 3-1: The Merger of Airtran by Southwest Airlines: Will the Organizational Culture Merge?

This case study allows the students to explore real world cultural issues related to the merger of two companies that basically offer the same services, but have two very different organizational structures and cultures.

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1. Discuss the layers of culture that are evident in this case.

Ans: The organizational values of both airlines are discussed. This includes the employees’ foundational values regarding their work processes. It also includes the expectations of customers. Each firm has built a reputation based on its values, so the assimilation of those divergent cultures can create some friction and confusion.

2. What are the similarities and dissimilarities between the cultures, values and beliefs of Southwest and AirTran airlines?

Ans: Both airlines include “fun” in their value statements. They both want customers to have a pleasant experience. Southwest Airlines takes it a step further, emphasizing the “over the top” experience the company is noted for providing. AirTran includes safety and more serious notions as part of its value and belief statement. They want to have fun, but there are other things that are more important.

3. What problems could arise due to the different perspectives of both airlines towards online reservation systems? What do you recommend the managers do to solve these problems?

Ans: Depending on familiarity with the reservation systems, preference might be given to one system over the others. This could disadvantage some customers if they elected to use the other online system. The outcome could be confusion and frustration for customers. Managers need to ensure that all employees are trained properly. They should also actively monitor the reservation process to check for any disruptions. They might even try pairing employees from the two airlines to work together, thereby overcoming any confusion in processing the reservations.

4. What would you recommend managers do to ensure a smooth integration of the information systems, given the culture differences?

Ans: The information systems should focus on efficiency and effectiveness standards. Ease of use would be important when designing the user interface. Retain familiar features, as much as possible, and require the least amount of business process change. Open and constant communication is imperative for a smooth transition. Assess the results at regular intervals, and make changes as required.

Case Study 3-2: The FBI The FBI has always been an information intensive organization, but as part of the US Federal Government, IT spending is managed by an extensive budgeting process that can mean funds are not available, or insufficient for the necessary expenditures. There is a webpage on the IT at the FBI (www.fbi.gov/hq/ocio/ocio_home.htm). Recently, the FBI, and its history of IT leadership, has been discussed extensively in the popular press. The interested instructor need only do a Google search on “FBI Information Technology” or “FBI IT” to find several.

This is a case about the virtual case file system, which has caused FBI IT leaders many problems.

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Sample Answers to Discussion Questions: 1. What do you think were the real reasons why the VCF system failed?

Ans: Some critics think it failed because there was a misalignment between ‘business goals’ and IT. Others, such as John Ashcroft, suggest it was hurt by deficient IT funding. The case suggests a misalignment between the organization structure and culture and IT. But astute students may suggest other ‘real reasons’ such as an inherent lack of understanding over what the secretive FBI needs and what Congress will give it.

2. What were the points of alignment and misalignment between the Information Systems Strategy and the FBI organization?

Ans: While there was some alignment at the top (clearly there was understanding that for the ‘business’ to succeed, they needed to spend significant amounts--$170million-- on a new case management system.) The case describes a problem with culture (everything has to be kept a secret) and org structure (a decentralized amalgam of 56 field offices) and the misalignment with the goals of the IT project (sharing information in a centralized way).

3. What do you think of the CIO’s final comment about how to change attitudes? Do you think it will work? Why or why not?

Ans: The final comment by the CIO suggests that the way to change attitudes is to let the agents see that technology can actually enhance their productivity. Some students will agree that showing them the benefits of the technology will change their attitudes about using the technology. Other students may suggest that the technology won’t change the attitudes and that other organizational interventions are needed (for example, directives from the FBI director, examples of successful information sharing or culture change from the top as a way to show that it’s not only acceptable but expected, changing the incentive system to reward sharing, etc.).

4. If you were the CIO, what would you do to help the FBI modernize and make better use of information technology?

Ans: As the CIO, you should be a member of the senior executive team of the organization. At least, you should have significant influence with the FBI Director. In that role, your job is broader than just introducing new technologies. To help the FBI modernize, as the CIO, you would have to dive into organizational issues that are walls keeping modernizing techniques from working. You would have to suggest how to break down these walls (by perhaps helping redesign the organizational systems such as the compensation system, the incentive systems, the hiring process, etc.) and the culture to make them more supportive of the goal of modernizing and change.

Cases:

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GE’s Two-Decade Transformation: Jack Welch’s Leadership by Bartlett, C.A. and Wozny, M., Harvard Business School. 9-399-150, 24 pages, 2005 (revision) (setting: US) This case study provides a historical analysis of the Welch era at GE, including the dramatic turnaround of the 1980s. The six major software initiatives are: Globalization, Redefining Leadership, Stretch Objectives, Service, Business Development, and Six Sigma Quality.

Students will discover what it takes for a large corporation to achieve radical, transformational change.

Online Marketing at Big Skinny by Edelman, B., and Kominers, S. D., Harvard Business School. 9-911-033, 13 pages, 2012 (setting: US) This case study introduces a wallet maker’s adoption of the following Internet marketing technologies: display ads, algorithmic search, sponsored search, social media, interactive content, online distributions, and A/B testing. Various majors will appreciate the practical application of technology to sales and marketing.

R&D Management at Universal Luxury Group: Perfumes and Cosmetics Division by Manuel Sosa, INSEAD; 07/2005; (5 pages) This case describes the challenges faced by the cosmetics division of a large corporation when determining the set of products to develop in 2004. The key players involved are the centralized R&D center and the decentralized brands. The case provides data to estimate the utilization rate of the R&D center.

Sun Microsystems, Inc: Web Services Strategy by Eisenmann, T. R., Suarez, F. F. Harvard Business School Publishing. 2005 (20 pages) Microsoft and IBM have excluded Sun Microsystems from the board of the Web Services Interoperability Organization (WS-I), an industry consortium that will shape the evolution of Web services standards. Sun managers must decide whether to join WS-I as a contributing member--a less influential role that lacks the veto and agenda-setting powers of a board position.

Sun has recruited leading IT vendors--including several WS-I board members--to create technologies that compete with proposed standards jointly developed by Microsoft and IBM. Technology Strategy at Banco Comercial Portugues by Soumitra Dutta, Paul Verdin & James Howe; INSEAD; 05/2005; (24 pages) This case describes how Banco Comercial Portugues (BCP) has grown to become one of Portugal's largest and Europe's most admired banks by leveraging its technology excellence.

BCP's success has been driven by the implementation of an effective strategy of technologyenabled innovations. BCP is also unique amongst most banks in having developed a core competence in integrating banking systems as it has merged with both small and large banks over the years.

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Volkswagen of America: Managing IT Priorities by Austin, R. D., Ritchie, W. & Garrett, G. Harvard Business School Publishing. 2005 (19 pages) Describes the efforts of Volkswagen of America, the U.S. subsidiary of Volkswagen AG, to arrive at a process for setting IT funding priorities so that they align with business priorities and the company's overall strategy.

Case Study of the St. Paul Companies Virtual Office for Risk Control Division – N. Johnson, Idea Publishing Group Case, 11 pages, IT 5597 (scope: U.S.) This case reports the success of St. Paul Companies with their new virtual office (VO) working environment for their US distributed construction risk control and commercial risk control employees of the past six years.

IT Help Desk Implementation: The Case of an International Airline – S. Clarke and A. Greaves, Idea Publishing Group Case, 19 pages, IT 5614 (scope: worldwide) This case study concerns the practical implementation of IT help desk management within an international airline, and illustrates the issues raised by over-concentration on technical factors.

An alternative approach is proposed and applied retrospectively to the case, based on constructs drawn from social theory.

Systems Development by Virtual Project Teams: A Comparative Study of Four Cases – D. Croasdell, A. Fox and S. Sarker, Idea Publishing Group Case, 17 pages, IT 5682 (scope: worldwide) This case study provides a comparative analysis of four cross-cultural virtual project teams as they analyze, design, and develop information systems, specifically examining the issues organizations face in trying to understand what factors are determinants of success with respect to virtual teams. Additionally the case examines the factors causing managers to reconsider traditional IS development practices. These factors include increasing network bandwidth, continuously improving communication technologies, shifting global economies, and changes in social practices.

Readings/Articles from Chapter 3: Thompson, W., and Stolovitsky, N. “Seeing the Big Picture - A Corporate Guide to Better Decisions through IT.” http://www.webbuyersguide.com/resource/resourceDetails.aspx?id=21491&category=88&sitena me=webbuyersguide&kc=WBGWPSNL062712&src=WBGWPSNL062712&email=mwbuche% 40mtu.edu (last accessed 25 June 2012) This white paper explains how information can be one of the most vital resources for creating and maintaining competitive advantage. The focus on alignment of IT with business strategy supports the IS Strategy Triangle first introduced in Chapter 1.

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Werbach, K. “Using VoIP to Compete.” Harvard Business Review. 83(3) 2005 VoIP isn't just a new technology for making old-fashioned calls cheaper, says consultant Kevin Werbach. It is fundamentally changing how companies use voice communications. What makes VoIP so powerful is that it turns voice into digital data packets that can be stored, copied, combined with other data, and distributed to virtually any device that connects to the Internet.

Gary, Loren. “Network vs. Network: The New Arena of Competition.” Supply Chain Strategy. Harvard Business Publishing,2005 As companies increasingly build value through often far-reaching relationships with other firms-through alliances, outsourcing, deep supplier relationships, and other partnerships--more and more leaders are facing a new reality: to succeed, they and their partners must address the market as one competitive unit.

Applegate, L. Cash, J., and Mills, D. Q. “Information Technology and Tomorrow's Manager." Harvard Business Review, November-December 1988, pg. 128-136 This is a very interesting article to use to highlight the role IT plays in the design and implementation of management control systems. It's a bit dated, but it is still relevant to the discussions many managers are having today.

Taylor, W. C. “At Verifone It's a Dog's Life (And They Love It!)” FastCompany online at: http://www.fastcompany.com/online/01/vfone.html This article updates the case on Verifone, a company organized from the beginning as a virtual organization. It's a very interesting and relevant article to talk about how IT affects organizational structure, communications, and effectiveness.

J. M. J. Loeffen and J. C. Wortmann. “IT challenges organizational design: How to connect manufacturing concepts to IT.” International Journal of Technology Management.

19(6): 630-637. 2000.

The complex organizational design of the past century proves to be too slow in adapting to the actual, ever-changing environment. During the past few decades, the distinction between routine and non-routine jobs was used to cope with this problem. Routine jobs are now executed quickly and accurately with the help of information technology (IT). Non-routine jobs make use of specific organizational structures in order to simplify coordination between people; organizational design now focuses on unity of time, place and action; teamwork has become a central issue.

Markus, M. L., B. Manville and C. E. Agres, “What Makes a Virtual Organization Work?”

Sloan Management Review, Fall 2000, 42(1), pp. 13-26.

This article addresses how traditional management tasks of motivating and directing employees change in the face of increasing virtuality of organizations. The authors answer this question by

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examining an example of an economic enterprise that acts in many ways like a voluntary organization: the open-source software movement.

Books: B. Gates with C. Hemingway. Business @ the Speed of Thought. NY: Warner Books, Inc., 1999.

This book describes the factors that influenced the development of the Information Age and the key role of Microsoft in that rapid evolution. Take a tour of the digital nervous system, integrating the information flows within corporations.

H. Lucas, Jossey. The T-Form Organization: Using Technology to Design Organizations for the 21st Century. NY: Bass Publishers, 1996.

This book is the in-depth description of the T-form organization. It was written before the Internet was in full swing, but contains interesting ideas and suggestions for managers thinking about organizational impacts of IT. R. Yeh, K. Pearlson and G. Kozmetsky Zero Time: Providing Instant Customer Value--Every Time, All the time. NY: John Wiley and Sons, 2000.

This book describes the vision of how companies must organize in order to be instantly responsive to dynamic customer expectations. The focus is on business strategy for the new economy and the organizational systems and information systems that must match the business strategy. It is useful for discussions of how to design organizations with the internet and other current technologies in mind.

S. Davis and C. Meyer. Blur. NY: Perseus Books, 1998.

This book is about the blurring of lines and delineations in life: business and personal life, online and off-line, social and private, etc. It is an interesting book for fueling the discussions of how IT is changing organizations in general.

Websites: www.brint.com/EmergOrg.htm This is one of the BRINT websites. It contains a very comprehensive list of other websites, articles, and references for the virtual organization, change management, and other emerging organizational forms. Most of these articles and links are about forms enabled by the use of information technology in general. www.cio.com

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CIO and CIO.com are published by CXO Media Inc. to meet the needs of CIOs (Chief Information Officers) and other information executives. CIO is read by more than 140,000 CIOs and senior executives who oversee annual IT budgets in excess of $175 million. CIO.com serves over 12 million pages annually. www.cognizant.com From the corporate website: “Cognizant is a global leader in business and technology services that helps clients bring the future of work to life – today – in a business environment that is being transformed by accelerating globalization, virtualization, and the shift toward cloud technologies.” The company highlights shows that Cognizant recently (2011) joined the Fortune 500 listing.

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Chapter 4: Information Systems and the Design of Work Chapter Overview [Note the chapter name change with this new edition.] This chapter is complementary to chapter 3. Chapter 3 is focused on organizational level issues, and manager's issues, and chapter 4 is focused on individual worker level issues. Individual level issues include how work is performed, the design of work, satisfaction, and effectiveness. IT affects the work of employees by creating new work and new working arrangements, and by presenting new challenges. This chapter also includes a discussion of telecommuting and alternative work arrangements, as well as a discussion of IM, VoIP, and other tools used in collaboration. The impact of IT on collaboration and communication issues is presented. The topic of virtual teams is discussed, including culture challenges associated with globally distributed groups.

Discussion Opener: Why is an organization’s culture important when discussing information systems? Isn’t technology culturally independent? Explain.

Key Points in Chapter Work design is traditionally the job of the manager. A simple framework (Figure 4.1 – new to this edition) can be used to assess how emerging technologies may affect work, and that framework is discussed in this chapter. This simplistic framework makes clear the point that some work is best done by computer, and other work is best done by a person. The manager must make that decision, although today many managers seek the input of the workers as part of the design process. And while computers continue to get increasingly more sophisticated, there is still a set of tasks that are best done by people. For example, interactions with people, particularly when the interaction involves an emotional situation such as a system failure, product return, etc., are best done with other people, not with computers.

Figure 4.2 summarizes IT tools for communications and collaboration. This is new to the text, and several technologies are given to show how IT has influenced and assisted with communications and collaboration. For example, e-mail is now a must for all people, and many people have multiple e-mail addresses for home, work, etc. Instant Messaging has moved from a casual, non-professional environment to the workplace. It is used by large corporations as an internal communication system. Voice Over IP has allowed companies to integrate voice and data in one network, and to take advantage of existing infrastructure to lower costs. One example of an easy to use VoIP system is Skype. At any time there are millions of users on the system (see www.skype.com) and rates are very low for national and international calls. This is a key topic as more and more organizations are moving to VoIP. Cisco Systems is a good web site to visit to read more about VoIP. Also, video teleconferencing, unified communications, and virtual private networks are discussed as tools that enable communication. Under collaboration, there is discussion of Web 2.0 technologies such as RSS Web feeds, social networking, virtual worlds, web logs (Blogs), and wikis. Lastly, groupware is covered as another collaboration tool. Make sure that students understand that tools like WebCT, Blackboard, and Angel are all examples of collaboration tools. If you use one of these, or another course management system for your

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course, make sure to review this and discuss some of the pros and cons of these systems. You may want to give students a chance to give their input on how they would change the design of your particular course management system.

IT is changing the nature of work. There are three primary ways IT affects employee life: 1) by creating new types of work, 2) by creating new ways to do traditional work and 3) by supporting new ways to manage talent.

Creating new type of work: new positions have been created due to the unique skills required by IT-enabled work processes. Changing traditional work: many tasks are now automated, especially data entry or clerical work. Changing communication patterns: employees should learn the appropriate communication medium based on the receivers’ preferences.

IT enables more group work (collaboration). Organizational strategies increasingly require higher levels of collaboration -- collaboration between workers, with workers in various departments, and with customers, suppliers, and others outside the organization. IT strategies increasingly involve the use of collaborative tools, such as groupware, videoconferencing, and web-based chat rooms, intranets etc.

Social Business Lens: Activity Streams – An activity stream is a list of actions taken, allowing participants to track what has happened. An example is the News Feed on Facebook. Students might be able to provide other examples from their own experiences.

Managers need to adapt to the new working arrangements by finding different ways to measure performance other than through personal observation. It is important for managers to assess performance based on outcomes and quality, rather than physical presence. Another method is to use an electronic employee monitoring approach. However, that might lead to negative morale and violations of employee privacy. Figure 4.3 provides a comparison between traditional and newer approaches for supervision, evaluation, compensation, and hiring.

IT changes where work is done. Work can be done in a variety of places rather than only from the office. Telecommuting has become a popular concept which includes workers who work from home or other remote locations, and mobile workers perform their work from a variety of locations rather than from one, remote location. Factors affecting the trend towards more telecommuting and mobile work are 1) work is increasingly knowledge-based, 2) new technologies enable working from remote locations, and 3) workers increasingly desire to "timeshift" their work to accommodate their lifestyle. Disadvantages include difficulty in managing remote workers, increased worker stress, difficulty in coordinating with remote workers, and difficulty in feeling connected to the organization for the remote workers. One warning is the blurring of lines between work and personal life. It would be easy to reach “burn out” if boundaries are not respected. Another caution is that jobs designed for telecommuting are often equally vulnerable to offshoring, outsourcing overseas to lower cost providers.

Geographic Lens: How Do People Around the World Feel About Working Remotely? This vignette can lead to a rich class discussion on personal attitudes towards telecommuting.

Students can reflect on their own attraction/aversion to this type of work arrangement. What does

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it take to be a successful telecommuter? Is it appropriate for the job he or she is preparing to enter?

A key component of today’s virtual organization is the virtual team. The section describes what virtual teams are and distinguishes them from more traditional teams. Students should relate well to this topic since at school; they are members of multiple virtual teams (just about every course they take requires team projects and those teams don’t reside together; this is a good jumping off point for a discussion about the benefits and drawbacks of virtual teams. Maybe start with a question like, “Think about the teams you are on for your work at school. What are some of the benefits of a team structure like this? What makes this type of team difficult to work on?”). Take time to discuss the managerial issues of telecommuting and mobile work. Ask your students to consider how they would manage, evaluate, and reward these workers.

The next section is about gaining acceptance of Information Systems. Figure 4.8, new to this edition, presents eight steps in change management proposed by John Kotter (1996). To explain factors leading to actual system use, the Technology Acceptance Model is presented. The TAM is a useful way for managers to think about how to help their organizations accept any change, but particularly those changes motivated by IT.

Illustrative Answers to Discussion Questions 1. Why might a worker resist the implementation of a new technology? What are some of the possible consequences of asking a worker to use a computer or similar device in his or her job?

Ans: Resistance might come because the worker is afraid his/her job will significantly change and he/she will be unprepared for the new requirements. Resistance might come because the change is distasteful (like having to do more repetitive work, rather than the thinking work).

Resistance may also come because new skills are needed but compensation is not altered to reward the use of new skills. The possible consequences of using a computer are numerous. The opening case in this chapter discusses how IT created confusion and distanced workers from the work process itself. In effect, the workers were just watching numbers and data, whereas before the computers they were actually doing the "art" of the work itself. The newer job required more interpretation of the numbers and different skills in judging and decision making. As a note to the instructor: Zuboff's work also described a paper mill, where workers used to mix paper by hand, using smell and feel as key aids in making just the right mix. When automation was introduced, these same workers were put in a control room and asked to use their computers to monitor the process and make the paper. Needless to say, using the information on the computer was significantly different to the workers than mixing a vat of paper. Many such examples exist.

To overcome resistance to change (by applying the Technology Acceptance Model), managers need to combat negative perceptions about the system’s usefulness and system developers need to design systems that are easy to use.

2. How can IT alter an individual's work? How can a manager ensure that the impact is positive rather than negative?

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Ans: IT can alter an individual's work by changing the work itself, changing where the work is done, changing communication and collaboration patterns, changing the ways that organizational decisions are made, or by changing how work is managed (these are topics from the chapter). A manager can help ensure a positive impact through traditional management processes (as discussed in Chapter 3) such as the way individuals are rewarded, evaluated, compensated, etc.

Training is an important factor in ensuring success. And communication is important. Managers cannot communicate enough about changes that will take place in an individual's job.

3. What current technologies do you predict will have the most impact on the way work is done?

Why? Ans: This is a very open-ended question, designed to let students consider the most current technologies and their potential impact. At the time of the writing of this book, a sample answer might be the Internet, which has the potential to change just about every job done. It might be used to change who is working with whom. It might be used to change how knowledge and learning are delivered to workers (using e-learning). It might be used to remotely control equipment. Also, a number of individual technologies such as blackberries, iPods, etc. are increasingly popular. Students may focus on these technologies. Students might also focus on specific application domains on the Internet, such as blogs.

4. Given the growth in telecommuting and other mobile work arrangements, how might offices physically change in the coming years? Will offices as we think of them today exist by 2020?

Why or why not?

Ans: Offices in the future might look significantly different. The objective of this question is to let students have a chance to practice visioning. One such vision might be that all offices are gone, and people just work from wherever they are. Another vision might be that offices as we know them today are more like hotels, with workers checking into cubicles when they need to work someplace. With the widespread use of cellular phones and personal digital assistants (PDAs) with access to the internet, people may be carrying access to their entire office in their shirt pocket (or purse), making a physical office less important. However, offices provide places to go, locations for gathering people with common objectives, and a physical space for a company to exist. These are harder to replicate in the virtual world. So while offices will most likely exist in 2020, they may look more like a place for groups to meet, for companies to provide a common cultural experience, and for occasional drop-in workers, rather than like they do today, where people have a specific desk they report to daily. Many companies already have sites that are purely meeting space for employees who are mobile and work from home, or wherever they happen to be (IBM is a good example of this new office philosophy). The students might also be familiar with Regus (http://www.regus.com/), a company that provides virtual office space for individuals needing temporary office accommodations.

5. How is working at an online retailer different than at a brick and mortar retailer? What types of jobs are necessary at each? What skills are important?

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Ans: Again, this question is designed to get students thinking differently about business today.

There are similarities between online and brick and mortar retailers. Both must deal with enduser customers, both have inventories to manage, sell, and distribute. Both have the same basic business functions including marketing, finance, accounting, sales, and administration. And clearly, working at the online retailer means you need web skills, whereas you may not need them for the brick and mortar retailer. But there are other examples of different skills. For example, whereas a brick and mortar retailer must get goods to the store where customers come to buy them and take them home, online retailers only need to get goods as far as a warehouse, but need significantly different logistics to get them to their customers' home. Working at an online retailer might be different in that facing the customer must be done electronically, rather than face to face. That requires one to have different communication skills. For example, working in customer service for an online retailer would mean being able to write (e-mail) significantly well, whereas customer service at a brick and mortar retailer would mean handling face-to-face interactions very well. Sales skills for the online retailer mean proactively thinking about how to build the website, instead of how to talk a customer into buying your goods.

6. Paul Saffo, director of the Institute for the Future, noted, “Telecommuting is a reality for many today, and will continue to be more so in the future. But beware, this doesn’t mean we will travel less. In fact, the more one uses electronics, the more they are likely to travel.” Do you agree with this statement? Why or why not?

Ans: On one hand, the students can argue that electronic communications obviates the need to travel. One of the motivating factors for initially starting telecommuting programs was to reduce the travel required by organizational workers. Instead of driving in to work five days a week, telecommuters may travel only one or two days a week (or less). On the other hand, many telecommuters work at locations that are very distant from their employer’s headquarters: that is, they may live out of state, or even across the country. Thus, though they may travel to the office only a few days every other week, the total distance may increase dramatically. Further, it could be argued that communication and information technologies open a business’s horizons to include the entire world. As the world shrinks through the use of technology, the need for some face-to-face communications may increase global travel overall.

7. (This long question is about information-driven self-service options and the predicted backlash.) Does this mean the end of doing business the “old-fashioned way?” Will this put a burden on the elderly or the poor when corporations begin charging for face-to-face services?

Ans: This is an opinion question. One perspective would say “Yes, this is the end of doing business the old-fashioned way,” but that is a good thing. Evolution always means survival of the fittest, and self-service must be the preferred way to do business or else more businesses would abandon it for other alternatives, maybe even the old-fashioned way. Another perspective would say “No, there is room in the business community for both. Companies will pick the best alternative for their customers. It’s not the end of the ‘old-fashioned way.” There may be a burden placed on the elderly and poor if corporations begin charging for face-to-face service.

Elderly who have not grown up in a self-service environment may not be comfortable with the lack of personal assurances that the business transaction has occurred. They might not be able to do the service themselves (my father can’t read a computer screen so he can’t do the internet-

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based self-service options offered by many). The poor also might be burdened, if they do not have access to the self-service outlets (for example, if they require a computer and the individuals can’t afford one). It’s up to the businesses to ensure that their customers have access to their business. The alternative is that they will lose that business to some other company who does pay attention to these issues.

Further Discussion Questions 1. Provide a description of a job ideally suited for telecommuting. Explain.

2. Describe the characteristics of an employee ideally suited for telecommuting. Explain.

3. What are some issues you might face while collaborating on a virtual team? How could you mitigate the negative impact of those challenges?

Case Study 4-1: Trash and Waste Pickup Services, Inc. This is an interesting case about using IT to monitor employees. In this case, it’s a GPS system used to monitor the location of trucks and company cars. Ultimately, however, it plays out as a system to monitor drivers and salesmen. Management must walk a fine line as they build a process to implement such a system in an organization. As an extension to this discussion, the instructor might ask, “Would it be easier for management to implement a GPS system in an existing company (which previously didn’t have one) or in a new company (where all employees are just learning the processes and systems)?

Sample Answers to Discussion Questions: 1. What are the positive and negative aspects of Andersen’s use of the GPS-based system to monitor his drivers and salesmen?

Ans: Positive aspects might include the ability of Andersen to know where his trucks are at any given time. If someone has to go into an ‘unsafe’ area and/or is not where they are supposed to be at a given time, Andersen can help them by knowing where they are. The case also mentions the money savings that accrued due to the reduction in overtime, presumably because the drivers knew they were not only ‘on the clock’ but being watched. The negative aspects might include the cultural impacts: his drivers feel big brother is watching, which may make them resent the system or in the worst case, sabotage it. It might drive unintended consequences such as drivers speeding or taking unsafe risks because they know their management is watching and they have certain time restrictions and milestones to make.

2. What advice do you have for Andersen about the use of the system for supervising, evaluating and compensating his drivers and salesmen?

Ans: It’s one thing to use the system to monitor behavior and correct it. It’s another thing entirely to use it as part of the evaluation and compensation system. Andersen must be very careful how he introduces that to the workers. If they are unionized, he must make sure to have buy-in from the union. But in any case, he should start by letting the drivers get used to the system without

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fear of it impacting their compensation. After they are used to it and have changed their behavior, he can slowly introduce a plan to use the information for evaluation and compensation.

Should he not do it slowly, he can expect some employees to not only complain, but possibly sabotage the systems, breaking them (and claim it was an accident or something they know nothing about). Astute students will use the TAM model to structure their response to this question.

3. As more and more companies turn to IS to help them monitor their employees, what do you anticipate the impact will be on employee privacy? Can anything be done to ensure employee privacy?

Ans: This is an opinion question. The impact on employee privacy is clearly an issue when IT is introduced to monitor behavior and activities. We’ve seen lots of legal action regarding monitoring of e-mail, but usually the courts come down on the side that company e-mail systems are the property of the company, and therefore monitoring the emails is not an invasion of individual privacy. On the other hand, monitoring individuals such as the drivers in this case study can uncover some information that may be deemed private (like visiting their girlfriends, their local bar, or other private activity). What the company does with that information is the key here. To ensure employee privacy, companies need very clear guidelines on what information they plan to collect, what they will do with that information, and what consequences result if the guidelines are not followed. These guidelines must be clearly communicated to both management and monitored employees, so that all is out in the open and the monitoring is not seen as a spying operation or subversive management activity.

Case Study 4-2: Social Networking: How Does IBM Do It? This is a unique example of social networking employed by IBM to support programmers and developers. This case shows how technologies, particularly collaborative and Web 2.0-based systems, can help to develop software solutions.

Sample Answers to Discussion Questions: 1. How does My developerWorks leverage changes in the way people work?

Ans: The social network allows individuals to share information, ask questions, and support each other over this online collaboration environment. Software developers prefer to work independently while having access to other experts anytime, anywhere. The online access provides the network they need to be productive without being geographically co-located with other developers.

2. Why do you think Alice Chou carefully monitors the My developerWorks site? What would be an example of an insight she would gain from the data she’s collecting?

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Ans: Alice Chou would montior the site for accuracy of information being shared, unique contributions by participants, and complaints about the products IBM supports. She would be alerted immediately to any flaws, which would allow IBM to respond proactively to the problem.

She might also be watching for the presence of competitors attempting to gain access to protected intellectual property.

3. Why do you think Alice Chou thinks a rewards program is necessary for My developerWorks, given that so many profiles have already been developed. Do you agree that a reward would be necessary?

Ans: A rewards program will provide incentive for developers to return and share their knowledge in the future. Rewards can be nominal or simply recognition. The developer community is generally motivated by challenging projects and recognition. This is a simple way for IBM to acknowledge developers who take the time to visit the social networking site.

Additional Cases: 1-888-JUNK-VAN by Jimenez, L.L., Richard Ivey School of Business. W11145, 15 pages, 2011 (setting: Canada) The company is a small, waste-collection firm in Ontario, Canada. The owner considered the following five options: database upgrade, contracting for a newly developed application, using Google Docs, adopting a Platform-as-a-Service solution, and an ERP system for small companies. This case requires critical thinking skills, assessing the strengths and weaknesses of each opportunity.

Dropbox: “It Just Works” by Eisenmann, T.R., Pao, M., and Barley, L., Harvard Business School. 9-811-065, 22 pages, 2012 (setting: Silicon Valley) Founded in 2006, Dropbox provides online storage and backup ideal for collaboration. The case introduces the concept of the “freemium” pricing model: free + premium offers. Students will help to assess the new product features being considered by the founder and CEO, Drew Houston.

Amagansett Funds (A) by A.P. McAfee, Harvard Business School Publishing; 2005 Amagansett Funds has had a troubled history with its customer relationship management (CRM) system. Sales agents feel that they derive no value from it and that it is a "tax on their jobs."

Amagansett is investigating whether CRM can be improved by making its data available wirelessly to Blackberry devices. These devices will also provide mobile phone and e-mail capability.

R&D Management at Universal Luxury Group: Perfumes and Cosmetics Division by Manuel Sosa, INSEAD 2005

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This case describes the challenges faced by the cosmetics division of a large corporation when determining the set of products to develop in 2004. The key players involved are the centralized R&D center and the decentralized brands. The case provides data to estimate the utilization rate of the R&D center.

Kemps LLC: Introducing Time-Driven ABC by Robert S Kaplan, Harvard Business School Publishing; 08/03/2005; (10 pages) Managers use the information to enhance process efficiencies, negotiate new terms with customers, and attempt to win new business. The company now faces some crucial decisions about how to forge new relationships with key customers.

An Internet-Based Workflow System: The Case of Lawrence Livermore National Laboratories’ Zephyr Project, J. Gebauer and H. Schad, Idea Publishing Group, 12 pages, IT 5544, (setting: U.S.) This case enumerates how Lawrence Livermore National Laboratories’ Zephyr System demonstrates how emerging technologies can help streamline procurement processes and improve the coordination between participants in engineering projects by enabling new ways of collaboration.

The Telecommuting Life: Managing Issues of Work, Home and Technology, G. Kelly and K. Locke, Idea Publishing Group, 11 pages, IT 5553, (setting: U.S.) This case introduces one company that has decided to experiment with the telecommuting arrangement. Through the eyes of one teleworker, many of the benefits and challenges of telecommuting are explored.

The Lonely Comate: The Adoption Failure of an Intranet-Based Consumer and Market Intelligence System, P. Hendriks and W. Jacobs, Idea Publishing Group, 21 pages, IT 5562, (setting: U.S.) The case study concerns the disappointing reception of an intranet application at TopTech, a prominent player in the field of electronics. The application in question, called Comate, which stands for ‘Consumer and Market Intelligence Technology Environment’, was conceived and built by the central staff department for Consumer and Marketing Intelligence (CMI) at the company. This case study focuses on the organization’s decision to form a project team to investigate why users did not accept the system change.

Readings/Articles from Chapter 4: Shin, B., Omar A. El Sawy, Olivia R. Liu Sheng and Kunihiko Higa. “Telework: Existing Research and Future Directions.” Journal of Organizational Computing and Electronic Commerce, 2000. 10(2).

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Economist “Solving the Paradox,” Economist.com, Sept 21, 2002, http://www.economist.com/displayStory.cfm?Story_ID=375522 This article provides a concise presentation of indicators supporting and arguing against the productivity paradox.

Brynjolfsson, E. J., T. Malone, V. Gurbaxani & A. Kambil. “Does Information Technology Lead To Smaller Firms?”MIT working paper, CCS-TR #123 September, 1991 (available at: http://ccs.mit.edu/papers/CCSWP123/CCSWP123.html) The primary goal of this paper is to assess the hypothesis that the rapid growth of information technology (IT) is at least partially responsible for one important organizational change: the shift of economic activity to smaller firms. This paper uses industry-level data on IT capital and four measures of firm size, including employees per firm. It finds broad evidence that investment in IT is significantly associated with subsequent decreases in the average size of firms and that the effects of IT on organizations are most pronounced after a lag of two to three years.

Karsten, H. “Collaboration and collaborative information technologies: A review of the evidence.” Data Base for Advances in Information Systems. 30(2): 44-65. 1999 Collaborative information technologies have been claimed to enhance collaboration in organizations, under certain conditions. This claim was found problematic in several respects, also in the light of the results of 18 case studies of Lotus Notes usage. The cases may be split into three groups: 1. exploratory, conservative or cautious use, 2. planned and expanding use, and 3. extensive and engaged use of Notes. A number of issues emerged in the review that could help to understand the relationship of collaborative information technologies and changes in work and organization.

Zuboff , S. “New Worlds of Computer-Mediated Work.” Harvard Business Review, reprint.

82513. 9/1/82.

This is a very early, but still relevant, HBR article on computer-mediated work and its implications for managers and workers. Information technology alters the individual's relation to the task. The new relationship is called "computer-mediated." The computer mediation of simple jobs creates tasks that are routine and unchallenging, while demanding focused attention and abstract comprehension. Computer mediation shifts the overall shape of the organization from a pyramid to a diamond because managers will perform a variety of tasks that others once did for them, thereby diminishing clerical support staff and swelling the number of professionals and middle managers.

Reynolds, C. “Global compensation and benefits in transition.” Compensation & Benefits Review. 32(1): 28-38. 2000.

In the millennium, international human resources will undergo a rapid transformation. Expatriate compensation once consumed most of the time and resources of international HR. Today, strategic areas such as the integration of compensation, global staffing and business strategy, and

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a variety of other international HR challenges are taking over. This article describes the evolution of the field of international compensation and benefits, the forces shaping its development, and its prospects for the future. It also explores information technology, outsourcing and other issues that will shape careers in the field.

Sedam, S. “E-Dreams for the new millennium.” Professional Builder. 65(1): 69-70. 2000.

A few predictions are offered on the Internet and information technology's impact on the home building industry. Predictions include: 1. Scheduling suppliers and trades via the Internet will become routine for both initial building and service. 2. The tool of choice for all field personnel wi11 be a hand-held digital assistant that includes voice, paging, and data in a single unit. 3.

Purchasing everything from lumber to plumbing fixtures to office supplies will be Internet-based and highly automated. 4. A majority of customer-selected colors and options and virtually all of the related paperwork will be done via the Internet. 5. Traditional real estate brokerages will change or die.

Comerford, R. “An interview with John Patrick.” IEEE Spectrum. 37(1): 49-50. 2000.

John Patrick is vice president for Internet technology, IBM Corp., and chairman of the Global Internet Project, an international group of senior executives committed to fostering continued growth of the Internet. In a brief interview, he discusses the challenges facing information technology. The Internet is the one advance in information technology that will likely have the most impact on the way people live and work in the future.

Books: L. Bossidy and R. Charan, Execution: The Discipline of Getting Things Done, NY: Crown Business, 2002.

B.Travica, New Organizational Designs: Information Aspects NY: Ablex, 1999.

P. A. Strassmann. Information Productivity: Assessing Information Management Costs of U. S. Corporations. NY: Information Economics Press, 1999.

A statistical analysis of the productivity paradox researched in over 1500 firms. It provides a nice way to quantitatively study this problem and a set of diagnostics to evaluate additional companies.

S. Zuboff. In the age of the Smart Machine: The future of work and power. NY: Basic Books, 1988.

This is a great book for those who like well-written academic prose about key managerial topics.

The book goes into great detail about how IT is changing the work done by individuals. It is based on extensive research at a number of organizations around the world. Difficult for the average person to understand, but worth the effort for students of IT and job design.

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R.E. Walton, Up and Running : Integrating Information Technology and the Organization.

MA: Harvard Business School Press, 1989.

This book presents a framework for managers to follow as they design and implement IT in their organizations.

C. Alan. The Inmates Are Running the Asylum : Why High Tech Products Drive Us Crazy and How To Restore The Sanity. NY: SAMS, 1999.

This book highlights the darker side of how IT is changing our lives and our jobs. It is a humorous and well-written book about the many impacts, intentional and unintentional, of IT. Websites: www.dropbox.com The website includes a video tour and links to history and press releases. Students might not be familiar with this free product. Encourage students to explain the advantages and possible disadvantages of using this free product. (For instance, some external grant contracts do not allow sensitive data to be stored on servers located outside of the United States.) www.ibm.com The IBM website provides a wealth of information about the history and innovations of the corporate giant. “Let’s build a smarter planet” is the familiar motto, emphasizing innovative thinking as the company continues to re-invent itself. www.brint.com/EmergOrg.htm This @Brint web portal has a number of interesting links to articles, sites, and other information portals related to the use of IT and the design of work. www.simnet.org SIM has inspired the minds of the most prestigious IT leaders in the industry. Highly regarded as the premier network for IT leadership, SIM is a community of thought leaders who share experiences and rich intellectual capital, and who explore future IT direction.

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Chapter 5: Information Systems and Changing Business Processes Chapter Overview The title for this chapter has been changed in this edition to emphasize the overall systems involved, rather than simply the technologies responsible for the changes in business processes.

This chapter explores the relationship between the transformation of business and information systems. There are three key concepts in this chapter: the first is that businesses operate as a set of business processes, rather than as a set of functions, departments, or other organizational forms; second is that business processes are redesigned using both radical (reengineering) and incremental techniques: and third, IS are used to transform a business (by way of changing their business processes). Two of the major concepts discussed in the chapter are Integrated Supply Chains and Enterprise Systems. Other subjects covered in this chapter are agility and the need for constant redesign of business processes. Also, business process management systems are introduced.

Discussion Opener: How might IS change your collaboration and communication while participating in a virtual team project? What are the main challenges you would anticipate?

Key Points in Chapter IS can enable or impede business change. IS enables change by providing both the tools to implement the change and the tools on which the change is based. However, IS can impede change, particularly when the desired transformation is mismatched with the capabilities of the IS. The chapter starts out with the case study of Sloan Valve Company and how this company was able to change the way it did business through efficient management of its new product development processes. This is a good case to discuss with your students and to set the stage for the importance of the process management model.

To understand the role IS plays in business transformation, one must take a business process, rather than a functional, perspective. A business process is a well-defined, sequential set of tasks that has a beginning and an end, a set of associated metrics, and cross-functional boundaries. Most businesses operate according to business processes, even if their organization charts are structured by functions rather than by processes. The text compares functional (or silo) perspective with the process perspective.

Agile processes are flexible and simplified, focusing on iterative design rather than structural procedures for system design. Dynamic processes refer to systems that learn and develop as they are used in business. Both are critical for companies to remain competitive in rapidly changing, competitive industries.

Making changes in business processes is typically done through either TQM or BPR techniques.

TQM techniques tend to imply an evolutionary change, where processes are improved incrementally. Six Sigma is mentioned as an example of a TQM approach. BPR techniques, on the other hand, imply a more radical objective and improvement. Both techniques can be disruptive to the normal flow of the business; hence strong project management skills are needed.

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Business Process Management (BPM) Systems are a class of systems that emerged to help manage workflows in the business. They primarily help track document-based processes where people execute the steps of the workflow. They exceed the document-management capabilities, including features that manage person-to-person process steps, system-to-system steps, and those processes that include a combination. Systems include process modeling, simulation, code generation, process execution, monitoring, and integration capabilities for both company-based and web-based systems. The tools allow an organization to actively manage and improve its processes from beginning to end.

Enterprise systems are large information systems that provide the core functionality needed to run a business. These systems are typically implemented in order to help organizations share data between divisions. However, in some cases enterprise systems are used to affect organizational transformation by imposing a set of assumptions on the business processes. SAP and Oracle are the most widely used enterprise systems around the world; the comprehensive software packages contain enterprise resource planning (ERP), customer relationship management (CRM), and supply chain management (SCM) software modules. Other vendors offer systems, and some companies have chosen to put together their own enterprise system rather than buy a single package from one vendor. Implementing an enterprise system, regardless of the vendor, is an enormous task.

They are well-suited to drive business process design when organizations are just building their processes, when the operational business processes are not a source of competitive advantage, and when current systems are in crisis. It is inappropriate for the enterprise system to drive business process design when the strategic advantage of the organization is derived from these processes, since using a vendor-designed enterprise system might force the organization to change their processes and lose their advantages.

Horizontal integration is a term for looking beyond individual business processes and considering the bigger, cross-functional picture of the corporation. Integrated databases, web 2.0 technologies and services, and common infrastructure are the tools IT brings to the implementation of horizontal integration. This model consolidates all individuals from all business units into a single organization, run centrally, and utilized by each business unit. Company decision makers must determine two primary design elements: integration and standardization. CEMEX is an example that is cited, which demonstrates how one company used these concepts to create a competitive advantage.

ERP is an integrated solution, allowing users to access a centralized data repository and common applications that are easily coordinated. These solutions require large-scale implementations with sound project management, and are often costly to pursue. Due to the radical changes often associated with ERP implementations, particularly to business processes, end-users are often resistant to adopt the new processes. The issue of change is important to discuss with your students and why people will resist change.

Geographic Lens: Global vs. Local ERPs – The major ERP vendors, like SAP and Oracle, show a Western bias in reporting best practices. Due to problems encountered, businesses in non-Western companies/locations are turning to local vendors. If the system is based on a cultural model that conflicts with the local customs and which cannot easily be accommodated by the ERP, it should

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not be implemented. Therefore, managers must be aware of the cultural intricacies of their organization and determine the best way to implement a system that will meet the needs of the organization as a whole. It would be helpful to brainstorm on this section to determine the best way to handle a situation where a system is being introduced in a cross-cultural environment. Perhaps the students can discuss ideas that may help to minimize issues as they relate to culture.

The text has a section on integrated supply chains. This is the concept of linking business processes across companies. The instructor can direct students to review Chapter 2 (specifically, Figures 2.5 and 2.6). A supply chain is the process that begins with raw materials and ends with a product or service ready to be delivered to a customer. Integrated supply chains have to overcome several challenges such as information integration, synchronized planning, and workflow coordination. The challenges for integrating ERP systems between companies are covered in this section. Similarly to the integrated supply chain issues, there are issues of what to share, how to share it, what to do with it when it’s shared, and how to secure it. Another concern is the “neighborhood effect”: the high cost of transportation leading to identification of suppliers closer to the parent company.

Product Lifecycle Management (PLM) is another type of enterprise system that tracks a product from idea to sales. Included are innovation, design, production, maintenance, components, vendors, customer feedback, and marketing. Since this is less familiar, students should be encouraged to investigate these systems and share their findings with the class.

Social Business Lens: Crowdsourcing Change Innovation Processes – Companies use social networking to solicit ideas and gather feedback. Customers and interested participants voluntarily provide their opinions and comments, often without any promise of compensation. Examples are given.

The instructor should remind students of both the benefits and challenges associated with enterprise systems. Customization might aid in user adoption by changing the business processes to match common practices, but the cost of modifying the system could become prohibitive. Therefore, serious consideration must accompany any changes to the enterprise system.

Illustrative Answers to Discussion Questions 1. Why was radical design of business processes embraced so quickly and so deeply by senior managers of so many companies? In your opinion, and using hindsight, was its popularity a benefit for businesses? Why or why not?

Ans: This idea was embraced so quickly because managers realized they needed to change the way they did business and reengineering offered them a roadmap to do that. Reengineering was written up as the method to use to achieve very significant (75% or more) increases in productivity, decreases in costs, and increases in efficiency.

It was a benefit for businesses in part because even if they didn't achieve the radical objectives they set for themselves, they did realize that changing their operations was not only possible, but also critical if they want to operate at a reasonable cost level. Other managers realized that business

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processes were the critical unit of business, not functional or geographical region. Still other businesses achieved real savings and real productivity gains from the process of reengineering.

It was not necessarily a benefit to business because the process of reengineering was disruptive to daily operations. Many people were pulled out of the daily business and put on reengineering teams. Those left in the operations were overloaded, and in many cases, the business was forced to abandon reengineering efforts. This was costly.

2. Off-the-shelf enterprise IS often forces an organization to redesign its business processes. What are the critical success factors to make sure the implementation of an enterprise system is successful?

Ans: The critical success factors would include things like a well-thought-out design of the business process when the enterprise system is used, a comprehensive communications plan to ensure everyone affected is adequately informed, and a well-tested technology to ensure that no technical problems inhibit operations.

3. ERP systems are usually designed around best practices. But whose best practices are the right ones? A Western bias is common; practices found in North America or Europe are often used as the foundation. When transferred to Asia, however, the resulting systems may be problematic. Why do you think this is the case? What might be different in the way different countries use processes (besides the standard “language” difference)?

Ans: It would be helpful to have students from various cultures discuss this question based on their personal understandings of their native countries. As explained in the chapter, allocating beds in a hospital depends on expectations of a particular country. Other considerations involve accounting practices (credit or type of payment), level of granularity required of the data, decision rights of the personnel involved, time/task duration (conservative estimates or flexible), etc., would all be impacted by culture.

4. Have you been involved with a company doing a redesign of its business processes? If so, what were the key things that went right? What went wrong? What could have been done better to minimize the risk of failure?

Ans: This is a very open-ended question. Depending on the students’ backgrounds, they may or may not have any insights to answer it. For a less-experienced student, the instructor might suggest trying to redesign a process at the school (or work location) to gain some insights.

Typically, things that go right include a good process design, a high-energy team ready to make changes, good people working on the process design, and other technology- and process-oriented issues. Things that go wrong typically include insufficient resources (e.g. people, time, money), poor communication with those affected by the changes, lack of strong leadership (or senior leadership support), and other people-oriented issues. Try to get students to be specific in their responses.

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5. What do you think the former CIO of Dell, Jerry Gregoire, meant when he said, “Don’t automate broken business processes”?

Ans: The system development process starts by looking at the current system. This is good for understanding the environment and determining problems with the current system. However, it may bias the system’s designers and keep them from seeing innovative approaches to resolving problems and meeting organizational needs. Business process reengineering involves radically rethinking how system components can best work together. Often this means coming up with a new set of processes instead of designing the system around current inefficient and/or ineffective processes. By automating a broken business process, it might only enable people to do the wrong activities more quickly.

6. What might an integrated supply chain look like for a financial services company such as an insurance provider or a bank? What are the components of the process? What would the customer relationship management process look like for this same firm?

Ans: A bank may use this type of system to link payroll services that it sells to its customers, but which are actually purchased by the bank from a 3rd party organization; the bank in turn links directly to its customers through a web site where customers order the particular payroll items they want, which are then forwarded by the bank to the 3rd party organization and then sent to the customer. Another example could be the printing of new checks for clients of a bank. Clients order the checks from the bank which in turn automatically forwards the orders to a 3rd party printer, who in turn mails the checks directly to the clients. To clients, these transactions are transparent. They only know that they need checks, and ordering them online through their bank and getting them as soon as possible is their primary concern.

The customer relationship management process would include all interactions, or touch points, between the company and the clients. The data repository would contain all personal information such as addresses and phone numbers, products purchased (including services), recent transactions, and any complaints registered. Corporate employees would have all of this information available to them whenever the clients use the call center, maintaining a positive, long-term relationship with the clients.

7. Tesco, the U.K. retail grocery chain, used their CRM system to generate annual incremental sales of £100 million. Using a frequent-shopper card, a customer got discounts at the time of purchase and the company got information about their purchases, creating a detailed database of customer preferences. Tesco then categorized customers and customized discounts and mailings, generating increased sales and identifying new products to expand their offerings. At the individual stores, data showed which products must be priced below competitors, which products had fewer price-sensitive customers, and which products must have regular low prices to be successful. In some cases, prices are store-specific, based on the customer information. The information system has enabled Tesco to expand beyond groceries to books, CDs, DVDs, consumer electronics, flowers, and wine. The chain also offers services such as loans, credit cards, savings accounts, and travel planning. What can Tesco management do now that they have a CRM that they could not do prior to the CRM implementation? How does this system enable Tesco to increase the value

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provided to customers?

Ans: Tesco can implement differentiated pricing strategies based on detailed information about price elasticity. Previously, management did not possess this level of detailed information.

The benefit to customers is that coupons and discounts can be targeted to their unique preferences.

Rather than getting bombarded with sales announcements unrelated to their interests, this approach would be a welcomed change. Logically, both Tesco and its customers would benefit from this new system.

Further Discussion Questions 1. What are some of the “hidden costs” that must be considered in BPR or the implementation of enterprise systems? Is incremental (or continuous) improvement preferable to BPR? Explain.

2. How can organizations encourage end-users to adopt a new ERP system? Provide specific examples, possibly from personal work experiences.

3. What are some of the challenges of managing the processes of an organization and how can BPM systems help? What are some of the challenges of integrating a BPM system?

Case Study 5-1: SANTA CRUZ BICYCLES This case is to show how innovation of processes can significantly improve time to market of new designs through simulation prototyping. The company was able to significantly shorten the designto-prototype process (from 28 to 14 months).

1. What, in your opinion, was the key factor in Santa Cruz Bicycles’ successful process redesign?

Why was that factor the key?

Ans: The key change that improved time to market was Santa Cruz’s more efficient design and prototype process. This led to the implementation of a simulation and design system that permitted the prototypes to be designed and tested in a confined and semi-realistic environment much faster than in the past. Changing the process allowed the R&D team to work in a much more efficient and timely manner, reducing the cycle time from 28 months to less than half the time. If the organization had not changed the way it was doing R&D, they would have been in the same dilemma of a long design-to-prototype process.

2. What outside factors had to come together for Santa Cruz Bicycles to be able to make the changes they did?

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Ans: The introduction of PLM software. They were able to leverage the same type of system used by a large, global manufacturer which was obviously affordable to Santa Cruz Bikes. This permitted the designers to create and modify the designs and model them in a simulated environment. Also, the company hired a master frame builder so that construction of new designs could be done more quickly and with greater control. Lastly, they purchased a new system for fabricating parts for the prototype, accomplishing these tasks in-house rather than outsourcing the production. All of these changes were made due to the change in how the company viewed the processes that were currently being performed.

3. Why is this story more about change management than software implementation?

Ans: Software implementation can be done by any organzation, at least theoretically. This new way of doing business by Santa Cruz Bicycles was spurred by a willingness to change the way the company performed R&D. If they had not been willing to change their business processes, then the new software would probably never have been implemented.

Case Study 5-2: Boeing 787 Dreamliner This case explores the challenges of implementing a radical process change into a large organization and relying on an extensive supply chain that is integrated globally across many companies.

1. Why did Boeing adopt the radical redesign for designing and developing the 787 Dreamliner?

In your opinion, was it a good move? Defend your choice.

Ans: Boeing decided to rely on collaboration and to use collaboration as a competitive tool, rather than relying on just technical know-how in a new global supply chain process. It hoped that this change would spur cost and time savings for the company. The company was confident (perhaps overly so) that it could pull off such a radical process change.

(This next part of the question is opinion, so there will be a variety of possible answers. Ensure that students are able to substantiate their answers.) If a student states that it was a good move, then they need to discuss such things as the long term effect of the new system on Boeing and how it could radically change and improve the way things are done once the kinks are worked out. If they say that is was not a good move, they may say that Boeing should have tested the new system on a lower risk and lower profile project.

2. Using the Silo Perspective vs. Business Process Perspective analyze the Dreamliner program.

Ans: The dreamliner program suffered from some of the disadvantages of the silo perspective.

Vendors were not communicating with each other in the supply chain which led to delays and defects in the components delivered to Boeing. The goal of the program was to change the process and adopt a perspective that links all members of the supply chain together into one giant seamless process. So even though Boeing set out to capitalize on the business process perspective, and that was the design of the new system, the company encountered problems that would normally occur in a silo perspective environment.

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3. What are your conclusions about the design of the integrated supply chain? Give some specific ideas about what could have been done to integrate it better.

Ans: Obviously, the integrated supply chain failed in its implementation. Theoretically, the plan had merit, but the components did not communicate well or work together for a common successful outcome. Focusing on skills as the measure of comparison is an interesting change from costs, however, the project failed at the intersections and handoffs of the deliverables. More time and energy needed to be devoted to meeting detailed specifications. Setting quality requirements would have eliminated some of the negative outcomes. Creating cross-functional teams that were forced to communicate regularly would have prevented some of the flaws. There was obviously a lack of a coherent communications program since several of the vendors were not communicating with each other, which led to the major set backs of the project. There was probably unnecessary complexity in the new system for a process that had worked in previous iterations of Boeing airliners. The new integrated supply chain system had not been proven on a less critical project. Lastly, Boeing outsourced some of the major components-- wings and fuelage-- for the first time in design history , while attempting to reengineer the entire design and production process. This may have created an environment in which the employees failed to embrace the system.

4. If you were the program manager, what would you have done differently to avoid the problems faced by the Dreamliner program?

Ans: They could have made sure that the system was tested on part of the new system prior to roll out to the entire massive Dreamliner project. The manager could have tested the idea on a different, less high-profile product that still had a large number of suppliers in the supply chain. Careful monitoring and testing is critical. Also, the manager should have established a clear communication flow chart for the suppliers that needed to interact with each other, and closely monitored and facilitated this communication. (Your students will have a plethora of suggestions for the project manager. Take the time to discuss this question as many of them will be either involved in a project like this, or may even be the manager of such a project.)

Supplemental Readings Cases: Continental Airlines Continental Airlines entered into a ten-year outsourcing agreement with EDS when Continental Airlines was suffering financial setbacks and bankruptcy. This agreement was initially designed to provide expertise to Continental in an area that was not a core competency and to also help cut costs for the airline. However, Continental successfully turned their business around in the mid1990s, and this case discusses the implications this has for the relationship between Continental and EDS. While this relationship had worked well initially, there were some strains developing by the mid-1990s, and this case focuses on where Continental should have gone with their relationship with EDS. Integrated Systems: Management Approaches To Acquiring Them in Australian Universities

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This case describes the situation that Central Queensland University (CQU) found itself in during the late 1990s as they faced increasing pressures from the government for information reporting, internal pressures to decrease administrative requirements of their systems and yet provide increasing responsiveness to their students, and the deadline of December 31, 1999 to solve their Y2K problem. To address all of these concerns, CQU decided to implement PeopleSoft. This case describes the process that a consortium of universities in Australia went through in trying to address these issues, and then the process that CQU specifically went through.

Integrated Systems in State Government This case describes the process that the State of Louisiana went through in implementing SAP R/3.

They were the first state government to make this transition, and the process was not always a smooth one. This case describes the interactions between the State and their consultants. It also stresses the importance of planning for the changes inherent in any systems development effort of this magnitude. This is the key focus of this case.

Stately Furniture and Décor This case describes the various business processes involved in taking and filling customer orders for custom-built furniture at Stately Furniture. These processes are explored from the view of a number of different departments in the firm: information systems, production, quality control, sales and marketing, and accounting and finance.

WWW.Flexlease.com The Flexlease case describes a unique combination of two traditional businesses - an auto leasing firm and an Internet Service Provider (ISP). These two enter into a joint venture to offer automobile leases via the World Wide Web. This case could be used in the BPR case, as it describes how the current business processes had to be revised in order to make Flexlease a reality. The case further points out how some of the benefits of the system cannot be recognized because not all of the trading partners of Flexlease have the ability to tie into their electronic systems. This case concludes with a brief appendix that describes the workflow modeling technique used in the case.

Additional cases: Implementing Sales Force Automation at Quantum Technology; by Lattin, J., & Nunn, D.; Stanford Graduate School of Business; M311, 12 pages, 2008 (setting: California).

This case presents challenges faced during the implementation of a CRM sales force automation software solution. Students will be expected to make recommendations regarding future directions for the project.

Oracle vs. salesforce.com; by Yoffie, D.B., and Wagonfeld, A.B., Harvard Business School; 9705-440, 29 pages, 2006 (setting: USA).

This document describes the progression from software to service, including the use of a CRM solution as a Web-based service.

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Clothes ‘R’ Us Point-of-Sale Initiative: Managing IT Programs; by Jeffery, M., Norton, J.F., Yung, D., and Gershbeyn, A.; Kellogg School of Management, KEL304, 22 pages (setting: USA).

This case covers a complex CRM implementation and new POS system in 400 stores of a national retail chain. Students will be challenged to evaluate the spreadsheet data and come up with solutions to the essential questions of what to do next and how best to gain competitive advantage using the new system.

Carnival Cruise Lines; by Applegate, L.M. & Robert J Kwortnik, Gabriele Piccoli; Harvard Business School Publishing; 33 pages, 07/07/2005.

This case highlights the potential value of customer data and the choices and challenges the firm faces when attempting to capture this value. Carnival collects a significant amount of individuallevel behavioral and demographic customer data. Senior management must now decide how to leverage such a wealth of data.

An Experiential Case Study in IT Project Management Planning: The Petroleum Engineering Economics Evaluation Software Imperative by Davis, C. K.; Idea Group Publishing; 2005.

The case covers key issues in information technology dealing with developing a full set of project plans, including milestones, tasks, schedules, staffing, deliverables, and projected costs, for a complex software development project.

Change Management of People & Technology in an ERP Implementation by Edwards, H. E.; Humphries, L. P. Idea Group Publishing; 2005.

Eighteen months after adopting an enterprise resource planning (ERP) system the chief executive officer wanted an investigation into the performance of the system. The results of the investigation reported here reveal problems with the acquisition and implementation process.

Pillsbury: Customer Driven Reengineering by Robert Kaplan (HBS Case 195-144) After initial successes applying activity-based costing to manufacturing operations, two senior executives decide to collaborate to propose a major reengineering project across the company's entire value chain. The case describes the project's definition and scope to yield projected annual cost savings and margin improvement between $100 and $300 million.

Cisco Systems, Inc: Implementing ERP by Robert Austin, Richard Nolan and Mark Cotteleer (HBS Case 699022) Reviews Cisco System's approach to implementing Oracle's Enterprise Resource Planning (ERP) software product. This case chronologically reviews the diverse, critical success factors and obstacles facing Cisco during its implementation.

Readings/Articles:

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*Note: There are a very large number of articles and readings on this topic. Refer to the instructors’ community webpage for the most current resources. Harvard Business Review and Sloan Management Review have dozens of articles on related issues. A few classics are listed here.

Rettig, C. “The Trouble with Enterprise Software.” MIT Sloan Management Review, 49(1), 2007, SMR259, 9 pages.

The author uses evidentiary materials to support the claim that enterprise systems have not delivered the value anticipated and/or promised. This paper will lead to critical discussion of the topic, forcing future managers to evaluate the practicality of implementing enterprise systems.

Davenport, T. H. “The Coming Commoditization of Processes.” Harvard Business Review 83(2), 2005.

A new world is coming, says the author, and it will lead to dramatic changes in the shape and structure of corporations. A broad set of process standards will soon make it easy to determine whether a business capability can be improved by outsourcing it. Such standards will also help businesses compare service providers and evaluate the costs vs. the benefits of outsourcing.

Davenport, T. "Need Radical Innovation and Continuous Improvement? Integrate Process Reengineering and TQM," Planning Review, May/Jun 1993.

Davenport, T. and Short, J. "The new Industrial Engineering: Information Technology and Business Process Redesign," Sloan Management Review, Summer 1990, pp. 11-27.

Hall, G., Rosenthal, J. and Wade, J. "How to Make Reengineering Really Work," Harvard Business Review, November-December 1993, pp. 119-131.

Markus, Lynne and Robert Benjamin, "The Magic Bullet Theory in IT-Enabled Transformation" Sloan Management Review, Winter 1997, pp. 55-68.

Venkatraman, N. "IT-Enabled Business Transformation: From Automation to Business Scope Redefinition," Sloan Management Review, Winter 1994, pp. 73-87.

Austin, Robert, Cedric Escalle and Mark Cotteleer, "Enterprise Resource Planning Technology Note," Harvard Business School Press, product number 699020, February 1999.

Plotkin, Hal, "ERPS: How to make them work." Harvard Management Update, Harvard Business School Press, March 1999, product number U9903C. Davenport, T. "Putting the Enterprise into Enterprise Systems," Harvard Business Review, July 1998, product number 98401.

Koch, C. “The ABCs of ERPs”, CIO.com, http://www.cio.com/research/erp/edit/erpbasics.html

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Books: Friedman, T.L. The World is Flat: A Brief History of the Twenty-First Century. NY: Farrar, Straus and Giroux, 2006.

This book is referenced extensively in business courses. It quickly became a “must read” book for business executives.

Berger, S. How We Compete: What Companies Around the World Are Doing to Make it in Today’s Global Economy, NY: Doubleday, 2006.

This book presents the complicated picture of globalization, from lower costs of production to the concerns of rapidly changing high tech companies.

Hammer, M. & Champy, J. Reengineering the corporation: a manifesto for business revolution NY: HarperBusiness Press, 2001 Hammer, M. & Champy, J. Reengineering the Corporation. NY: Harper Business Press, 1993.

This classic is the one that got reengineering started. There have been many subsequent books on the topic of reengineering, and a few from M. Hammer or J. Champy. But the original still best describes the concepts that caused the business world to really, fundamentally rethink how they did business.

Davenport, T. Process Innovation: Reengineering Work through Information Technology.

MA: HBS Press, 1993.

This was one of the first books published on the topic. This book gives a good description of how to redesign business processes and it more clearly links it to information systems. It has a more practical approach than the Hammer/Champy book, but is less well known.

Sethi, V. & King, W. Organizational Transformation Through Business Process Reengineering: Applying Lessons Learned. NY: Prentice Hall, 1998.

This is a textbook with a number of readings of "classic" reengineering and related topics. It also includes measurement issues, operational aspects, and quality improvement readings.

Davenport T. Mission Critical: Realizing the Promise of Enterprise Systems. MA: Harvard Business Press, 2000.

This book takes the point of view that companies must change information systems, business processes, and business strategies at the same time, and offers many examples of real organizations that do that. It is a good book for understanding the challenges as well as the benefits of enterprise information systems.

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Cook, M. Building Enterprise Information Architecture: Reengineering Information Systems.

NY: Prentice Hall, 1996.

This is a good basic book to use to understand what an Enterprise architecture is and how to develop one. The book provides a step-based approach to help a company define and evolve its enterprise architecture. It's not a technical book, but has enough jargon to be useful to the management and information systems student.

El Sawy, O. A. Redesigning Enterprise Processes for e-Business NY: McGraw-Hill, 2001.

This is one of the newer books in this area, and nicely combines reengineering concepts with enterprise information systems and process flow concepts. It includes a CD-ROM with an academic version of business process redesign software (Workflow.BPR from HoloSofx Inc.).

Websites: www.zara.com This website provides more information on the integration of IS in the enterprise, leading to a competitive advantage. Innovative designs are produced and presented to customers quickly. The responsiveness of the decision making process keeps customers coming back time and again. www.boeing.com This is the official company website for the Boeing company. Students can discover innovative uses of technology through press releases and reports to stakeholders. www.brint.com This website contains lots of interesting links to reengineering and enterprise information systems readings. In fact, reengineering was the first subject to be included in the site, so the readings list is extensive. www.eil.utoronto.ca/tool/BPR.html Tools for business process reengineering.

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Chapter 6: Architecture and Infrastructure Overview This chapter focuses on how organizations move from strategy (vision) to architecture (design) to infrastructure (implementation of design). This is a good chapter in which to include discussions of hardware, software, and network technologies that make up the infrastructure of an organization. That includes the latest architectural trends (mainframe, client/server, peer-topeer, wireless, etc.), business communications trends (broadband, ISDN, DSL, etc.), and information management trends (data warehousing, database management, web services such as Web 2.0, etc). This should be supplemented appropriately based on the instructor's and the student's interests and background. Consult the instructor’s community site for current technologies and trends.

Discussion Opener: What are some of the challenges companies face when they implement large, complex information systems, such as ERP systems? Summarize actions managers can take to mitigate the effects of end user resistance.

Key Points in Chapter Most students believe they need a thorough understanding of technologies to understand how their businesses can prosper with information systems. They are both right and wrong. A basic, fundamental understanding of technologies is necessary; but a detailed, technical understanding of all technologies is not only unnecessary but a fruitless exercise. Any technology covered in a course today will most likely be out of date by graduation time. Therefore it is the point of view of this book, and this chapter in particular, to offer a very basic framework for understanding technologies and for learning how to manage them. It is envisioned that students will use the basic framework, but in any specific situation, they will need to deeply study the specific technology they intend to use.

The beginning of this chapter describes Valero Energy’s business need for an integrated information system following a history of mergers and acquisitions. The service-oriented architecture (SOA) was selected as a solution for integrating diverse entities, while maintaining productivity and performance.

This chapter focuses on architecture and infrastructure using comparisons to a structural architecture approach. First, there is a vision of what should be built. This equates to the strategy.

Then, the architect develops plans based on the vision. The plans provide guidance and direction for others involved in building the system (or building). The architecture is the blueprint which translates the business strategy into a workable plan. The infrastructure includes the physical components which, once assembled, execute the plan.

The large number of IT choices available, coupled with the fast pace of technology changes, makes it nearly impossible to build the perfect architecture. But managers must, nevertheless, make decisions in this environment. The first step is translating strategy into architecture, and the second is to translate architecture into infrastructure. Strategy drives a number of business goals.

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The goals, in turn, drive business requirements, which drive architectural requirements. The architecture drives a number of functional specifications, which drive decisions about hardware, software, data, and networks. Essentially, the process model begins with an abstract concept and finishes with tangible elements that satisfy the original vision.

A simple framework is presented for use by managers who seek to understand both what a current information system looks like, and what questions to ask in order to build a new one.

The framework is shown in the table below (this is a simplified version of the Figure 6.3 in the textbook).

Component Hardware Software Data Network

What

Who

Where

This framework is most useful when applied to both architectural and infrastructure decisions.

New to this edition is the concept “Bring Your Own Device.” This topic can be used to engage students in a friendly debate on the pros (e.g. transfer the cost of the device to the employee, familiarity using a personal device, less training required) and cons (e.g. security, lack of standardization, maintenance headaches for IT staff) of a BYOD corporate policy.

Consumerization of IT is also new to this edition. This involves creating mobile applications for employee and customer convenience. The expectation is that you will provide an online “app” for most software functionality that is web-enabled.

Enterprise Architecture includes four key components: core business processes, shared data (e.g. centralized repository or data warehouse), linking and automation technologies, and customer groups. Information from experts Ross, Weill and Robertson from their book “Enterprise Architecture as a Strategy” (2006) is the main source of information for this section.

Enterprise Architecture is important to highlight as many companies have embraced enterprise systems (SAP, Peoplesoft/Oracle, etc.). A good discussion point for this section may be to discuss the challenges of implementing such a framework, particularly within a global organization, or use the TennisUp case (later in the chapter).

The 5th Edition moves some topics into this chapter that appeared in Chapter 9 of the previous version. Virtualization and cloud computing are two concepts that move computing requirements to third party vendors, transferring the responsibilities and maintenance from the corporate IT group to a separate entity. Core components that are typically offloaded to vendors are servers, storage, backup, network, and disaster recovery.

Other managerial considerations when designing and implementing an appropriate information system are explored. The first is to understand existing architecture, which allows the manager to evaluate the requirements of an evolving business strategy in terms of current IT capacity and capability. Second, there is the issue of strategic timeframe. By the time an IT decision is made,

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the technology is often already out of date. The architecture must take into account technological advances and have the capability to adapt as technologies evolve. Third, technical issues including adaptability, scalability, standardization, maintainability, and security are introduced. It is important to focus on the security portion of this discussion since that is a tremendous risk for organizations and must be carefully and properly planned. Fourth, financial justifications for IT investments are difficult, if not impossible, to calculate since they include both tangible and intangible costs. Payback calculations in the form of increased productivity, increased interoperability, improved service, and others are often considered "soft numbers."

(Financial issues are discussed in greater detail in Chapter 7: The Business of IT.) This chapter takes students through a simple case, TennisUp, to illustrate how to go from strategy to infrastructure, using the framework and questions posed in the chapter. Figure 6.8 provides an example of the managerial considerations using the TennisUp case. This edition replaces the “EDI technology” with “SCM technology” under Technology Advances.

Social Business Lens: Building Social-Mobile Applications – Given the ubiquitous usage of mobile communications devices, social mobile applications are becoming an expectation by this population. The widespread adoption of smartphones is changing digital communications in general. Corporations must respond to this demand.

Illustrative Answers to Discussion Questions 1. Think about a company you know well. What would be an example of IT architecture at that company? An example of the IT infrastructure?

Ans: This is an open-ended question, asking students to draw upon their personal experiences.

An answer would include a description of the architecture as distinct from the infrastructure, and the advanced student might even start with a strategic business goal and show how it was translated into both an architectural goal and an infrastructure. Others might use the matrix framework from the chapter to describe the architecture or infrastructure. Architectural goals might be used to build an information system that efficiently connects employees, customers, and vendors, and supplies them with information they need at the time they need it. The infrastructure that supports that architectural goal might be an intranet connecting personal computers in every office, supporting software, and a centralized data warehouse with the data available.

2. What, in your opinion, is the difference between a decentralized architecture and a centralized architecture? What is an example of a business decision that would be affected by the choice of the architecture?

Ans: This is a more difficult question for a non-IT manager. Decentralized architecture (previously referred to as client/server architecture) would be one where the personal computers (e.g. laptops or desktops) and the network itself contain intelligence, store data, and perform localized processing. In comparison, a centralized architecture (previously called mainframe architecture) is one where the majority, if not all, of the data storage and processing functions are performed by the server. In a centralized architecture, the local systems simply "connect" to the

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server and the server does all the work. An example of a business decision that might be affected is the decision to open up the company's systems to customers. If the architecture is centralized, the customers need only connect to the server. If the system is decentralized, the customers need to be added as separate and independent nodes on the network. Security concerns differ for both architectures, based on where the data is stored and where the processing is performed. For example, centralized architectures would need protection against problems that might bring down the whole system. Decentralized architectures would need protection from corrupting the data and software that might be stored on the local PCs. 3. From your personal experience, what is an example of software as a service? Of BYOD? Ans: Students will offer a variety of answers from their personal experiences. Google Docs is a useful starting point for classroom discussion. The software is maintained by the vendor, not installed on the personal device. The local (or client) device uses the applications through an Internet connection, making the software universally available and accessible, as long as the user is online.

BYOD is a hot topic being discussed by managers, without a clear consensus on the outcome.

Students should critically assess the benefits and risks associated with a BYOD corporate policy.

For example, the benefits might include employee familiarity with the devices, transferring the cost of the device to the employee, and less training required by the employer. Risks might include network security, lack of standardization and compatibility across the network, and maintenance headaches for IT staff trying to troubleshoot a large variety of device malfunctions.

Finally, a clear and comprehensive BYOD corporate policy would be required in order to protect the company from liability with employees and customers.

4. Saab minicase.

The case is described in more detail at www.cio.com/archive/enterprise/051599_deen.html a. Use this case to describe how Saab went from vision to infrastructure.

Ans: Saab’s vision was to produce high quality cars. This vision was reflected in its business strategy to improve productivity and reduce costs. To do so, Saab wanted to take advantage of the Internet while leveraging its legacy system. The business requirements derived from the business strategy could include facilitating dealer access to corporate information to improve the timeliness of the information and to consolidate the information about vehicles, customers, warranties, sales, and service that is accurate to the xxx% level. These requirements were then translated into infrastructure: this IRIS system is written in Java using IBM DB2 running on the IBM AS/400. Lotus Domino is the middleware that mediates between the legacy system and the front-end Web interface. b. What criteria did Saab use in selecting its infrastructure?

Ans: Saab clearly was interested in cost (considering its business strategy of reducing costs) and such technical issues as scalability and reliability. Saab needed an infrastructure that was

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compatible with its existing legacy system. Other issues that were important in building its ebusiness infrastructure were probably: • Bandwidth to handle needs during its peak processing • Speed • Security • Mirror sites • Routing of internal vs. external traffic • Implementation approach (outsourcing) • Virtual Private Network for the Dealer Communication System Further Discussion Questions 1. The use of mobile technologies in the workplace has the potential to provide advantage to the organization. When thinking of mobile computing and communication devices such as a smartphone, how does this affect the complex interplay between choices of IT infrastructure, architecture, and software?

2. To supplement this chapter in a classroom setting, students can be asked to research and report on a current technology. The reporting can take place in a number of ways: students can prepare a written report (I suggest making it 5 pages or less, since writing less is much more difficult than writing more); students can prepare a 1-2 page briefing (which they can copy or post on a web site for their classmates); students can deliver a presentation on the topic and distribute a one-page “take away” summary; or students can be charged with teaching the topic to classmates (which, in my class, meant anything but a PowerPoint-type presentation; it had to be fun, entertaining, and teach something specific about their chosen topic).

4. Corporations are making the assumption that everyone uses a smartphone. For example, QR (Quick Response) codes can be found in magazines, on posters, and on brochures for all sorts of products. How does this perpetuate the negative outcomes created by the “Digital Divide”? What can companies do to change this perception of alienating a sub-population of their customer base?

Case Study 6-1: Enterprise Architecture at American Express This case covers American Express’s use of enterprise architecture to provide a framework to unite IT and business strategies. Individual units use a common set of road maps to develop and build architecture and governance processes.

1. What are the key components of the architecture American Express has created?

Ans: The key components presented in the case focus on reference architectures and road maps.

Using a standardized language and initiatives, the company is able to create applications that work on a common platform.

2. Why was it important to standardize so much of the architecture? What are the advantages and disadvantages of a standard EA for American Express?

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Ans: American Express was determined to maintain a common architecture to improve efficiency. The advantages include easier maintenance for the IT staff, common language and general understanding for American Express employees, and a consistent interface for customers. The disadvantages will focus on the requirement for units to comply with the standardized architecture. This might require significant changes and modifications, leading to some initial confusion. There might be resistance from individuals less convinced of the importance of developing a common architecture.

3. Describe how the new architecture supports the goals and strategy of American Express.

Ans: The corporate goals are to align IT and the business strategy. This includes a consistent customer experience and the ability to evolve as the industry changes. The enterprise architecture will facilitate the presentation of new products and services that come along. This structure will permit the company to grow and change as necessary.

4. What types of future payment products and services should be anticipated and prepared for by the EA group? What is your vision of how payments might work? If you were advising the CIO of American Express, what would you suggest his group prepare for?

Ans: With the consumerization of applications, customers will expect to be able to make mobile payments, check their accounts using their smartphones, and use American Express services at any time. Smartphone apps will need to include scanner features to deposit checks. Customers will expect to be able to reconcile problems with their accounts without having to interact with a human service agent. Electronic signatures will be the norm, allowing for real-time processing of transactions. American Express will have to continue to innovate. Maintaining a continuous dialogue with customers and listening to their feedback will allow the company to respond quickly to new demands. This feedback can also be obtained through social networking outlets.

Case Study 6-2: The Case of Extreme Scientists This case discusses the use of cloud computing to analyze large, complex data sets. No longer will individuals require expensive, proprietary technologies to perform intensive calculations.

These functions can be performed relatively cheaply, requiring users to only pay for the capacity required.

Sample answers to discussion questions: 1. How would you describe the architecture Dr. Schadt uses to do his research?

Ans: The architecture used by Dr. Schadt is a service-oriented architecture (SOA). Amazon.com is a web-enabled service that the scientist can access using an Internet connection.

2. What are the risks Dr. Schadt faces by using Amazon for his supercomputing? What are the benefits?

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Ans: The risks would include security, reliability, and scalability. Dr. Schadt must rely on the third party vendor to ensure that any sensitive data is adequately and reasonably protected from unauthorized access. Users are dependent on the vendor for 24/7 reliability as part of the contractual agreement. Dr. Schadt is also counting on Amazon to ensure that the capacity is available, even if his needs increase dramatically. In each case, the end-users must trust that the vendor will meet their needs. The benefits are that Dr. Schadt can use an advanced analytical system to process his data while not having to maintain that system himself. He pays a relatively minimal cost for only the services he uses, without having the expense of hardware, software, network, and IT staff to ensure the operation of the system. This meets the user’s needs while shifting the burden of responsibility to the vendor.

3. If you were advising a company trying to make a decision about using cloud computing for key business applications, what would you advise and why?

Ans: My advice would be to research carefully before signing any contracts. The company needs to be confident that the vendor is reliable and that the data will be secure. A mutually acceptable fee structure would be negotiated, as well as intentions for the vendor to maintain current technologies. It would be unacceptable for the vendor to allow the technologies to lapse, ignoring any relevant innovations that enter the market. I would consult other clients to determine their satisfaction with the vendor, and assess the stability of the firm. I would also prefer a vendor that is somewhat familiar with the needs of companies in our industry.

Supplemental Readings: Other Cases: Cisco Systems Architecture: ERP and Web-Enabled IT by Nolan, R.L., Harvard Business School, 301099, 23 pages, 2005 (setting: California) This case discusses Cisco’s replacement of legacy back-office systems with its strategic I-Net. This includes the ERP implementation and connecting with customers over the Internet. Students will gain an appreciation of the complexity of implementing an ERP system.

Mercedes-Benz India by Chandrasekhar, R., Haggerty, N., and Venkatagiri, S., Richard Ivey School of Business, W11084, 13 pages, (setting: India) While relocating a manufacturing facility to India, the company’s CIO must decide on the appropriate architecture, IT infrastructure, and IT skills necessary to support the new plant.

Students will be required to consider various tradeoffs as they make managerial decisions. The international setting will also help students to appreciate the added complexity of global operations.

Offshoring at EDC by H.W. Lane & D.T.A. Wesley; Richard Ivey School of Business

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Education Development Center (EDC), a non-governmental organization, is an example of offshoring best practice and will help identify factors for successful implementation of an outsourcing project.

Up In Smoke: Rebuilding After an IT Disaster by S. C. Ross, C. K. Tyran, D. J. Auer Idea Group Publishing, 2005 (18 pages) This case discusses the issues faced by the college as they resumed operations and planned for rebuilding their information technology operations. The almost-total destruction of the college's server assets offered a unique opportunity to rethink the IT architecture for the college.

End-User System Development: Lessons from a Case Study of IT Usage, by M. E. Jennex; Idea Group Publishing; 2005; (14 pages) This case looks at a study of end-user computing within the engineering organizations of an electric utility undergoing deregulation. The case was initiated when management perceived that too much engineering time was spent doing IS functions.

Power Conflict, Commitment & the Development of Sales & Marketing IS/IT Infrastructures at Digital Devices, Inc., T. Butler,; Idea Group Publishing. 2005; (18 pages) The case reports on the web of individual, group and institutional commitments and influences on the IS development and implementation processes in an organizational culture that promoted and supported user-led development.

Prudential Chamberlain Stiehl: The Evolution of an IT Architecture for a Residential Real Estate Firm, A. Borchers and B. Mills, Idea Publishing Group, 16 pages, IT5622, (setting: U.S.) This case describes the evolution of an IT architecture for Prudential Chamberlain Stiehl Realtors (PCSR), a 14 office, 250 sales agent real estate firm located in Southeast Michigan.

Information Systems Development and Business Fit in Dynamic Environments, P. Kanellis, P. Papadopoulou, and D. Martakos, Idea Publishing Group, 12 pages, IT5669 This case describes the effects of privatization on a large industrial organization and sets the context for illustrating the vulnerability of information systems in turbulent environments. The case presents a detailed chronology of the events that lead to an increased awareness of the importance of information systems flexibility. The case examines the difficulties faced by an organization when its information systems were incapable of dealing with frantic changes in environmental contingencies.

Nation-Wide ICT Infrastructure Introduction and Its Leverage for Overall Development, P. Pale and J. Gojsi, Idea Publishing Group, 24 pages, IT5690 This case describes a ten-year effort of creating an information and communications technology infrastructure in Croatia. Although initially an independent agency, five years after it began

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operation, the Croatian Academic and Research Network – CARNet—had been transformed into a government agency. The case explores the question of whether or not CARNet has truly been successful and seeks to answer the question of whether the initial goals have been realistic and achievements sufficient, considering the low penetration of ICT into the Croatian society.

Outrigger Hotels and Resorts: A Case Study, Gabe Piccoli, 2005, Communications of AIS, Volume 15, Article 5 This case describes the history, strategy, and current information systems infrastructure of a midsize, privately owned hospitality firm. The case is designed to provide the substantial background information needed to engage successfully in setting a direction for IS resources and their use at Outrigger Hotels and Resorts headquartered in Hawaii.

Readings/Articles: McAfee, A. “What Every CEO Needs to Know About the Cloud,” Harvard Business Review R1111J, November, 2011.

This article provides a general discussion of the anticipated benefits of cloud computing. It also includes a discussion of the challenges associated with the conversion to cloud computing, and the resources necessary to facilitate a smooth transition.

Apgar, M. & Keane, J.M. “New Business with the New Military,” Harvard Business Review. 82(2). 2004.

Virtually all aspects of the military are changing to ensure that it can fight unpredictable threats while sustaining the infrastructure needed to support and train forces. The military is turning to nontraditional business partners to meet a wide range of needs, from health care to housing to information technology.

Kane, K. “Leveraging the New IT Infrastructure for Strategic Agility,” Balanced Scorecard Report. Harvard Business School Publishing, 2003 (5 pages).

In most companies, IT infrastructure is built in an ad hoc, piecemeal manner, with heavy investments made on a project or operational basis--and little forethought given to how it must support the enterprise's evolving strategy. IT infrastructure along with thoughtful, deliberate decision-making made jointly by business and IT leaders delivers the strategic agility organizations need in a rapidly changing world.

Managing Your 'Ecosystem', William M. Ulrich, Computerworld, (January 22, 2001) Component-based frameworks for E-commerce, Peter Fingar, Communications of the ACM Volume 43, No. 10 (Oct. 2000). Pages 61 - 67.

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Personalized communication networks, Doug Riecken, Communications of the ACM Volume 43, No. 8 (Aug. 2000). Pages 41 - 42.

Capturing human intelligence in the net, Paul B. Kantor, Endre Boros, Benjamin Melamed, Vladimir Meñkov, Bracha Shapira and David J. Neu. Communications of the ACM Volume 43, No. 8 (Aug. 2000). Pages 112 - 115.

New I/O architecture draws strong backers, Nancy Weil, Computerworld, (January 08, 1999).

See also the companion article on this architecture at: I/O Rivals Declare Truce, Plan New Architecture, Stacy Collett, Computerworld, (September 06, 1999).

Schwab simplifies Web trade architecture, Carol Sliwa, Computerworld, (February 22, 1999).

Architecture's promise of better performance will take a while, April Jacobs, Computerworld, (April 27, 1998).

Books: NOTE: There are many books written about IT architecture and infrastructures, ranging fromvery technical to highly managerial. Interested faculty and students should visit local bookstores and/or online bookstores for the most current titles. Below is just a sampling.

McGovern, J. The Practical Guide to Enterprise Architecture. NY: Prentice Hall, 2003.

Wiell, P. and Marianne Broadbent Leveraging the New Infrastructure: How Market Leaders Capitalize on Information Technology. MA: HBS Publishing, 1998.

Cook, M. Building Enterprise Information Architecture: Reengineering Information Systems.

Prentice Hall, 1996.

Fitzgerald, Jerry, and Alan Dennis. Business Data Communications and Networking. John Wiley, 1996.

Kenn, Peter G.W. & Cummins, J. Michael. Networks in Action: Business Choices and Telecommunications Decisions. Belmont, CA; Wadsworth, 1994.

Rowe, Stanford H., Telecommunications for Managers. 3rd. ed., Prentice Hall, 1995.

Stallings, William, & Van Slyke, Richard. Business Data Communications. 2nd. ed., Macmillan, New York, 1994.

Stallings, William. Data and Computer Communication. MacMillan, 1993.

Websites: www.techweb.com/encyclopedia

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TechWeb's TechEncyclopedia offers definitions and links for more than 20000 information technology terms.

IS World Net has a number of articles and cases that may be of interest: http://www.cob.asu.edu/fac/ABhatt/ISTeachingCases.html

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Chapter 7: The Business of IT Overview IT serves a variety of customers. This chapter introduces the business-IT maturity model and applies that framework to typical activities expected of the IT department. The purpose of this chapter is to introduce managerial students to using the language of business, financials, and metrics to manage IT. The chapter begins with a discussion about what the IT organization does and does not do and how the leadership within the IT organization ensures that the IT organization’s activities are conducted efficiently and effectively, both domestically and globally.

The reader is introduced to the basic elements of a business case, IT portfolio management, and valuing and monitoring IT investments. The remainder of the chapter focuses on funding models and total cost of ownership. A significant change in the 5th edition is from a general focus on management information systems (MIS) to information technology (IT). Another significant change to the 5th edition is the elimination of options pricing as a valuation method for IT projects.

Discussion Opener: What is the relationship between business strategy and architecture design? How does a company move from architecture design to infrastructure design?

Key Points in Chapter This chapter begins with a discussion of how Avon Products, Inc., uses the language of business to value IT investments. The CIO used net present value (NPV) and internal rate of return (IRR) to support the business imperative of an IT project. Further, metrics such as a red-yellow-green dashboard were used to monitor IT projects, removing the typical complexity of communicating the status in “IT speak” and replacing it, again, with something simple, straightforward, and easily understood by any business person. The key point is this: to be successful in the business, IT managers must speak the language of business, and that is a language based in accounting and finance.

The business-IT maturity model framework identifies characteristics that define the level of maturity for both demand (business needs) and supply of IT services. Ideally, business and IT are at the same level of maturity in order to be more effective.

Managers need to know what to expect from the IS organization. This section was included to explicitly discuss how general managers and IT organizations might work together. The IT organization activities are grouped by their related levels of maturity. Activities related to cost reduction (level 1 functional view) are developing and maintaining systems, managing supplier relationships, managing data, information and knowledge, managing Internet and network systems, managing human resources, operating the data center, providing general support, and planning for business discontinuities. Business effectiveness (level 2 process view) is the focus of innovating current processes, establishing architecture platforms and standards, and promoting enterprise security. At the highest level of maturity, innovation (level 3 strategic view) is the goal of the following IT activities: anticipating new technologies, participating in setting and implementing strategic goals, and integrating the use of social IT. The last item is a new addition to this section, creating value through correctly managed business transformation through social IT. However, IT

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sourcing is increasingly employed to meet these organizational needs. (See Chapter 9 for a detailed discussion on sourcing issues.)

Geographic Lens: What should you look out for when managing global supplier relationships? This vignette demonstrates the complexities introduced by global work standards and supplier conditions worldwide. Apple is forced to respond to complaints regarding working conditions in China. Students should broaden their awareness of international issues.

Global considerations include time zones, language, and cultural differences. Managers must learn to adjust to ever-changing environments.

General managers must learn to work with IT professionals, but they must not abandon their responsibilities and control over the processes. The core business processes and strategies must be retained by the business units. As always, the IT strategy must be aligned with the business strategy.

The CIO is the chief information officer of a business. This person is an executive, not a day-today manager. He or she has the responsibility to help set strategic direction for the business and to help execute the strategic plans from the information systems perspective. A new term used to describe this role is business technology strategist. The historic evolution of the CIO role is explored, emphasizing the importance of executive and strategic positions within the organizational structure. Gartner published an article describing the skills needed for a CIO, and these are included in this chapter.

Not all organizations have a CIO. Someone is responsible for running the computers in the business, but no one in particular is charged with helping the business understand the strategic use of IT. There may be no one on the executive team charged with these responsibilities.

There are a number of other roles in the IS organization. Some IT organizations have such extensive web organizations that new jobs and roles are creeping up everywhere. In today’s business environment, two new positions are emerging: Chief mobility officer (CMO) and chief social media officer (CSMO). The skills required for these new positions necessitate keeping up with innovative technologies (IT maturity level 3) and determining new ways to create value.

Business managers need to develop the critical skill of building a business case. A business case is a structured document where all relevant information needed to make a decision is laid out. It also provides a way to establish IT priorities and to determine which projects to invest in. Figure 7.5 lists the primary elements of a business case. It is critical to identify both costs and benefits (financial and non-financial). The business case is needed to justify the proposed investment.

Next, IT portfolio management is discussed. Managing the IT investment is similar to managing the financial investments, with the goal of balancing risks, complexities, and costs. Peter Weill and his colleagues have published extensively on this topic, and we share his framework for the IT portfolio in this section. As every manager knows, the value of an investment is very different than either the cost or the funding approach.

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The next section of this chapter raises the issue of valuing IT investments. Justifying costs by calculating potential revenue, payback, or budget impacts of IS projects is now the norm for almost all IT investments. The challenge comes from the fact that most benefits of IT investments are intangibles. They are “soft numbers,” such as the increased efficiency of a process or the new business to be gained with the new IS system. This section outlines valuation methods such as Return on Investment (ROI), Net Present Value, Economic value added, and several others.

General managers are encouraged to carefully balance the general need for calculating the “hard numbers” with the business objectives and strategic value of “infrastructure investments” such as those typified by many IS investments.

Monitoring IT investments is necessary to ensure that benefits are obtained and that costs are controlled. Setting up appropriate metrics and understanding how those metrics affect the perception of the value of the IT investment is a critical skill for managers.

Communicating the metrics of IT’s performance should not be solely focused on financial metrics.

The balanced scorecard and IT dashboards help to communicate information that incorporates a variety of sources. The balanced scorecard, based on the concept by Kaplan and Norton (HBR, 1992) suggests that four perspectives (customer, internal business, innovation, and financial) are necessary to get a realistic picture of the IT organization. While scorecards offer a balanced picture of IT’s performance over a period of time, IT dashboards provide snapshots of the state of the IT function at a given time. Dashboards tend to be summarized using the familiar red-yellow-green indicators and are often electronically available with real-time information. An important feature of dashboards is the ability to “drill down” to investigate the underlying data that creates the aggregated indicator. Four types of dashboards are common: portfolio, business-IT, service, and improvement. The type of dashboard should be selected based on the decision-making purpose.

This chapter provides basic instruction on three funding methods: chargeback, allocation, and corporate budget. Chargeback is when IT costs are recovered by charging the users directly for their consumption of IT products and services. Costs are distributed based on a unit cost, making them the most equitable approach to funding IT. Business managers like this approach because it gives them the most control over their IT costs. If they want to lower IT costs, they clearly understand they must consume less, and likewise, if they plan to increase their consumption, they know they will pay more. But chargeback systems are highly complex and difficult to manage. The difficulty begins with questions such as “what is the correct unit?” and “what is the unit cost?” And issuing a bill to users can be fraught with stress and complexity, depending on the answers to the unit and unit-cost questions. Some organizations produce highly detailed bills for their users, which in turn require audit and time for the users to understand. An additional disadvantage is that the IT expense is difficult to budget since it varies based on actual usage.

The other two methods, allocation and corporate budget, alleviate the complexity of a chargeback system, but at the same time, do not distribute costs as equitably. Allocation simply lumps together all of the IT costs into a single charge, and based on a single unit of measure such as number of people in the organization, divides up the costs among the departments. Units that are high-IT-users pay less for their services, and expenses are subsidized by the units that use less.

Corporate budget, on the other hand, combines all IT costs into a single budget item, usually at a

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managerial level distinct from any specific user. The expenses are treated as corporate overhead.

The tradeoffs of each method are summarized in Figure 7.14 of the text.

While funding approaches dictate the cost recovery mechanism of IT, calculating the actual costs is a completely different story. Three common IT cost calculation approaches are summing up all the expenses (i.e. hardware, software, network, and human labor), activity-based costing (ABC), and total cost of ownership (TCO). Each of these approaches has its place in the business discussion, and often all three are used depending on the accounting question to be answered by the cost calculation. It is important to thoroughly discuss TCO as more companies not only use TCO to determine IT investments, but many software and hardware vendors tout their TCO numbers in marketing. Figures 7.15 (TCO component evaluation) and 7.16 (Soft costs considerations) both deal with TCO. TCO can also help managers understand how infrastructure costs break down: it provides the fullest picture of where managers spend their IT dollars as TCO results can be evaluated over time against industry standards; even without comparison data, the numbers that emerge from TCO studies assist in decisions about budgeting, resource allocation, and organizational structure. Students need to understand Total Cost of Ownership of any IT resource.

Illustrative Answers to Discussion Questions 1. Using an organization with which you are familiar, describe the role of the most senior IS professional. Is that person a strategist or an operational manager?

Ans: Most students have some work experience on which to formulate an answer to this question.

Some students will be familiar with very large Fortune 500 companies, consulting firms, or service organizations, which usually have a CIO in the organizational chart. In that case, they will most likely describe an executive-type individual who is a strategist for the company. In other cases, the student will have worked for a company where the most senior information systems person is either the person running the data center or someone who makes sure all the PCs are running. In that case, the description will be of an operational manager, someone concerned with operations but not involved with the business strategy on a regular basis. Encourage students to provide specific descriptions of the roles of the senior IS professional.

2. What advantages does a CIO bring to a business? What might be the disadvantages of having a CIO? Ans: The CIO brings both a business perspective and a technical perspective to a business. He or she typically has a technical background (although not always) and a general business background.

The CIO helps the senior executive team make decisions with information systems impacts in mind. Not having a CIO might mean that a business decision is made which either costs too much to implement or is technically infeasible. A disadvantage of having a CIO might be that this person is often expensive. Finding someone who understands the business side of the equation as well as the technical side is difficult, and for some organizations it is too costly. Another disadvantage is that in some cases, having a CIO is seen by other managers as a signal that they, themselves, do not have to understand or worry about information systems impacts. Their thinking goes like this: “If there is a CIO, then he/she is going to worry about the IT side of things, and I don’t have to.” But in

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an increasingly web-based marketplace, every manager must be knowledgeable about IT and understand the impacts as they are wide-reaching and devastating if problems occur.

3. Under what conditions would you recommend using each of these funding methods to pay for information systems expenses: allocation, chargeback, and corporate budget?

Ans: The most astute students will identify that the funding method should reflect the corporate culture and governance structures. If most costs are typically charged back to business units, then IS will be expected to charge back. If most expenses are funded through the corporate budget process, then IS will be expected to be funded this way. Another way to think about these methods might be to consider the type of IS investment. Infrastructure investments, which are typically made to provide a foundation upon which other business applications will be built, might be funded through allocation (since everyone uses it and gains some benefits) or budget (since it is a ‘capital investment’ like the buildings, plants, or overhead). Specific business applications might be funded by chargeback, since they benefit a specific group or department in the organization (for example, the sales force automation system is to increase productivity of the sales force). And investments in studying future technologies might be funded through corporate budget since they are experimental and not clearly of benefit to anyone yet.

4. Describe the conditions under which ROI, payback period, NPV, and EVA are most appropriately applied to information systems investments.

Ans: ROI is appropriate when there is a clear investment, a clear recipient of the benefits of that investment, and a clear set of metrics to measure that benefit. For example, if an application in an airline to automate the ticketing process will benefit the operations group by increasing throughput and decreasing agent and process costs, then an ROI calculation is appropriate (calculating the cost of the system, and the financial benefits to be gained). A payback period is appropriate when there are competing investments, both of which seem to have similar benefits. Understanding which one will be ‘covered’ more quickly is a useful piece of information. NPV is appropriate when there is a stream of benefits, and sometimes costs, to be considered over a period of time. For example, an application may have an initial investment and an ongoing maintenance cost, while at the same time, benefits may not start to be seen for several years, but increase annually after that. Comparing investments with different costs and benefit streams is most easily done with an NPV analysis.

EVA is particularly appropriate for capital-intensive investments.

5. A new inventory management system for the ABC Company could be developed at a cost of $260,000. The estimated net operating costs and estimated net benefits over six years of operation would be: Year

0 1 2

Estimated Net Operating Costs $260,000 7,000 9,400

Estimated Net Benefits

$

0 42,000 78,000

Cumulative Costs

Cumulative Benefits

$260,000 267,000 276,400

$0 42,000 120,000

BenefitsCosts

-$260,000 35,000 68,600

PV Factor

1.000 0.870 0.756

NPV

-$260,000 30,450 51,862

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3 4 5 6

11,000 14,000 15,000 25,000 $341,400

82,000 115,000 120,000 140,000 $577,000

287,400 301,400 316,400 341,400 -

202,000 317,000 437,000 577,000 -

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71,000 101,000 105,000 115,000 $235,600

0.657 0.572 0.497 0.432 -

46,647 57,772 52,185 49,680 $28,596

Total a. What would the payback period be for this investment? Would it be a good or bad investment?

Why? b. What is the ROI for this investment? c. Assuming a 15 percent discount rate, what is this investment’s NPV? Ans: Note: the formula to calculate the PV factor is 1/(1+discount rate)year . This is somewhat confusing in Figure 7.10 (in the text). You do not multiply (1 + discount rate) by year. Rather, the year is used as an exponent. a. The year in which benefits will equal or exceed costs is Year 4. To calculate the time of the year when the cumulative costs equal the cumulative benefits, use the formula: 287,400 +14,000x = 202,000 + 115,000x. This yields the equation 85.4 =101x, or x = .85. The payback period for this investment is 3.85 years, and it is a good investment from this perspective, if there is enough cash to fund it through this period. Of course, the desired payback period is normally set by the firm. If this firm had a payback period of 4 years or less, then this is a good investment. It is likewise a good investment because the future benefits are significant compared to the expenses. b. If the operating costs and net benefits both went to 0 after year 6, the ROI, before considering any discount rate, is $235,600 (i.e., benefits of $577,000 less costs of $341,400). c. If we assume a 15 percent discount rate, the NPV is $28,596. The value of the NPV would be to use this calculation in comparison with an alternative project. The project with the higher NPV would be preferred, all things being equal.

6. Compare and contrast the IT scorecard and dashboard approaches. Which, if any, would be most useful to you, as a general manager? Please explain.

Ans: The scorecard is a method for summarizing a balanced view of 4 key types of metrics: customer, financial, innovation, and internal business. This is typically a ‘report’ created based on results over a period of time (quarter, year, etc). The dashboard, on the other hand, is a useful snapshot tool, something that can be used to monitor the changes in key metrics on a frequent basis.

Most people think of the ‘dashboard’ like the dashboard of a car or airplane cockpit, which relays real time data such as speed and fuel level. For an IT organization, it might be system reliability, throughput, daily expenses and costs, etc. In comparison, a scorecard might have metrics such as budget, number of employees or projects, and customer profitability or satisfaction. Many metrics lend themselves to either type of reporting mechanism, but the span of time covered in the reported metric varies: dashboards typically report real-time changes, and scorecards report periodic results.

7. TCO is one way to account for costs associated with a specific infrastructure. This method does not include additional costs such as disposal costs—the cost to get rid of the system when it is no longer of use. What other additional costs might be of importance in making total cost calculations?

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Ans: This is a difficult question given that TCO includes so many of the costs of the system. The goal of this question is to get students thinking beyond the obvious costs of purchasing hardware and software, and maintaining the system. The text suggests that TCO costs include technical support, administrative overhead, and training. Other costs might include integration of new systems with legacy systems, the cost to integrate with vendor or customer systems, physical space, site preparation for the equipment (a new desk, new chair, or even a new room), disposal costs (as mentioned in the question itself) that might be incurred when getting rid of the system, storage costs which might be incurred to store and hold the system when it is no longer of use, and process redesign costs that might be incurred in redesigning processes to fit with the new system.

8. (This question is new to the 5th edition of the textbook.) Check out the US Federal government IT dashboard site at http://www.itdashboard.gov/portfolios . Based upon the site: a. Describe the portfolio for the Department of Justice. b. Which investments, if any, appear to be in trouble in the Department of Justice? Based on the information that is provided, can you estimate the status of those projects? Is there any additional information that you think a manager would like to see about the status of the project?

Ans: The details provided on this website are likely to change over time. Students should report the current number of investments and the number of major investments. It is helpful for visitors to watch the overview available on the homepage (5 minutes in length). Instructors might choose to show this video in class. This would help students to appreciate the interactive functionality of the site. Currently, of the 19 projects reported in the pie charts, 4 are in a cautionary status (yellow) and one should be of concern (red). Project cost issues appear to be improving over time (most concern occurred in Sep. and Oct. 2011). Project schedules are also improving, but one project is still in the yellow and one in the red in the current snapshot view. Specifically, FBI Top Secret/Sensitive Compartmented Information Operational Network (SCION) Site 2 delivery is noted as suffering from schedule variance (red indicator). FBI Data Centers are also in the yellow (3 Rating) due to Network Bandwidth and Server Virtualization metric goals not being met.

Students should be encouraged to drill down into the data to conduct a thorough analysis of the information presented. However, the results do not adequately explain “why” the goals are unmet.

Additional information that would be helpful includes: turnover (particularly of top personnel), external events (e.g. inclement weather), and what steps have been taken to remedy the situation. In some instances, more frequent updates of the data would be helpful (some are monthly, others are quarterly).

Further Discussion Questions: 1. What is the essential value of building a business case to justify IT investments? (In your own words, explain the usefulness of this exercise.)

2. Many companies today are multi-national corporations. Select a specific industry and summarize the basic considerations companies have about global IT organizations.

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3. Discuss the importance of creating a balanced IT portfolio. Explain what might happen if the IT portfolio contained too many high risk projects.

Case Study 7-1: Troon Golf This is a short case study on the global automaker’s investment in a cost management system. It cost less than $1 million but has generated millions of dollars of ideas.

Discussion Questions 1. Why does the TCO approach allow Troon management to refresh its hardware at the optimal cost level?

Ans: It permits Troon to see what the actual costs are for the each piece of equipment that it purchases, instead of just the cost of the physical item. TCO accounts for support costs, productivity loss, and other costs that are not included in the price of the equipment. Troon can determine when the useful life of a piece of equipment has been reached due to all the factors that go into computing TCO. 2. Why, in your opinion, were IT expenses spiraling out of control before the TCO system? What are examples of the hidden costs of operating and maintaining the hardware?

Ans: Troon did not know what the real costs were. The managers did not take into account replacement costs, life of product costs, downtime costs, user support costs, etc.

3. If you were the head of marketing for Troon, what benefit would you receive from Mr. Westmark’s decision to implement TCO? Ans: I would know if equipment that we are using is not worth the investment. Also, as newer technologies are released, proper costing would enable the company to determine if the new technology was really worth implementing, or will be too costly. A number of potential answers are possible for this question.

Case Study 7-2: Balanced Scorecards at BIOCO (New to 5th edition) This is a short case study on the global automaker’s investment in a cost management system. It cost less than $1 million but has generated millions of dollars in ideas.

Discussion Questions 1. What benefits has BIOCO realized from its use of balanced scorecards?

Ans: The BIOCO Way has led to better communication between units, focusing on a long term corporate strategic plan. Each business unit is able to determine how best to meet the strategic goals of the organization. Measurement makes sense, and progress can be reported with more accuracy.

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2. Do you think the BIOCO Way was useful in helping the IT department align its goals with that of the company? Why or why not?

Ans: The BIOCO Way did prove useful for IT alignment. The CIO stated that communication was enhanced, providing a “focal point and common language around the key drivers of the organization.” The IT department was able to provide better service to the business units once required needs were clearly outlined, relative to Balanced Scorecard performance indicators.

3. Do you think that the BIOCO approach could be implemented successfully in large companies?

Why or why not? If so, what, if any, adjustments need to be made?

Ans: Although it would take more coordination, this approach could be implemented in large companies. The common language and focal points would be even more relevant for improving communication. Executives should first determine whether or not the benefits of the method outweigh the costs (resources, time, communication). It is possible that the effort is too great, and it should be abandoned for another technique. It would require executive support and dedication.

4. BIOCO recently was sold and now has a new CEO. Do you think the BIOCO way will be as successful under the new CEO? Why or why not?

Ans: It is difficult to answer this question with certainty. The BIOCO Way depends, to a great extent, on the CEO’s commitment to the approach. If the new CEO does not support the previous approach, the departments will likely experience rapid decline in participation. It would be as if the corporate direction had been lost.

Supplemental Readings Cases: The San Diego City Schools: Enterprise Resource Planning Return on Investment by Jeffery, M., Kellogg School of Management. KEL174, 18 pages, 2006 (setting: California) This case study evaluates the ROI on a complex ERP implementation in a non-profit context. The ROI calculation is based on two components: cost savings from retired legacy applications and productivity improvements. Some measurements are hard to quantify.

Enterprise Resource Planning Software – Ongoing Maintenance Cost Benefit Analysis by Canniff, M., Richard Ivey School of Business, 906E12, 16 pages, 2006 (setting: USA) The acquisition of PeopleSoft by Oracle is explained, focusing on the financial benefits of the customer base. Students will critically analyze the advantages and disadvantages of large ERP implementations.

Information Systems at FirstCaribbean: Choosing a Standard Operating Environment by Beaubien, L. & Mahon, S. Ivey School of Business, 12 pages, 2005

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The Canadian Imperial Bank of Commerce and Barclays Bank PLC were in advanced negotiations regarding the potential merger of their respective retail, corporate, and offshore banking operations in the Caribbean. Currently there are four systems in operation in the region; all are carry-overs from the pre-merger operation of the bank. Each of the systems has different pros and cons consisting of degree of fit with the organization strategy, likely impact on organizational culture, and functionality.

An Experiential Case Study in IT Project Management Planning: The Petroleum Engineering Economics Evaluation Software Imperative by Davis, C. K.; Idea Group Publishing; 2005 The case covers key issues in information technology dealing with developing a full set of project plans, including milestones, tasks, schedules, staffing, deliverables, and projected costs, for a complex software development project.

Volkswagen of America: Managing IT Priorities by Austin, R.D., Ritchie, W., Garrett, G., Harvard Business School Publishing 2005, 19 pages Describes the efforts of Volkswagen of America, the U.S. subsidiary of Volkswagen AG, to arrive at a process for setting IT funding priorities so that they align with business priorities and the company's overall strategy.

Recognizing Runaway IS Projects When they Occur: The Bank Consortium Case by Mann, J.C., Idea Publishing Group, IT5616, 8 pages (setting: USA) The case study describes a runaway project that occurred when several savings and loans formed a consortium to create a data center that would develop and operate basic transaction processing software for its members. The case highlights practical issues related to how runaways develop.

Readings/Articles: Gold, R.S. “Follow the Money: IT Finance and Strategic Alignment.” Balanced Scorecard Report, Harvard Business School Publishing, 2004.

Gold offers a prescription for overcoming the widespread mismatch between IT's responsibilities and IT funding practices to achieve strategic alignment between IT and the enterprise.

Rangan, V. K. “Lofty Missions, Down-to-Earth Plans.” Harvard Business Review; 82(1).

Most nonprofits make program decisions based on a mission rather than a strategy. This article outlines a four-step process for nonprofits for developing strategy.

Russell, R.H. “The State of IT and Business Alignment—2003.” Balanced Scorecard Report, Harvard Business School Publishing, 2004.

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Alignment between IT and business strategy is generally improving. However, initiative/budget mismatch persists. This article examines: "How Does IT Funding Affect Alignment?"

Seeing the Forest and the Trees: ABC and BSC at Finnforest U.K.HBR Publishing: Balanced Scorecard Report Article, March 15, 2001, article B0103B. When Finnforest Ltd., Europe's largest manufacturer and supplier of timber products, acquired Stantons in 1995, the latter enjoyed a large customer base and strong wholesale and retail relationships. The firm's then finance and information technology director chronicles Finnforest U.K.'s woes and its path to sound management and profitability. The remedy: a combination of activity-based costing and the Balanced Scorecard. Together, the two systems provided muchneeded measurability and accountability.

Emigh, J. “Total Cost of Ownership,” Computerworld, December 20, 1999.

Gartenberg, M. “Myths behind TCO,” Computerworld, October 30, 2000.

Liebmann, L. “TCO is a bad measurement tool; use this instead,” Computerworld, February 08, 1999.

Billington, J. “The ABCs of ABC: Activity-Based Costing and Management.” Harvard Management Update, 4 (5) 1999.

Kaplan, R. “Introduction to Activity-Based-Costing.” HBS Technical Note 9-197-076, 2001.

Ross, J., Michael Vitale, and Cynthia Beath. “The Untapped Potential of IT Chargeback.”

MIS Quarterly, June 1999, Pg. 215-237.

Beath, C. and J. Ross. “Beyond the Business Case: New Approaches to IT Investment.” Sloan Management Review, 43(2) 2002, Pg. 51-59.

Books: Weill, Peter and Broadbent, Marianne. Leveraging the New Infrastructure: How Market Leaders Capitalize on Information Technology, HBS Press, June 1998.

This book has a great model for thinking about IT as an investment portfolio, with infrastructure, transactional, strategic, and informational types of IT investments.

Harvard Business Review on the Business Value of IT. HBS Press, Feb. 1999.

This book is a compilation of a number of HBR articles related to managing the costs of IT, including outsourcing, planning, and strategic potential.

Websites www.brint.com

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This site has many interesting links to sites on the web that relate to this topic. www.infoweek.com, www.computerworld.com These magazines have frequent articles on MIS organizations, CIOs in the news, and strategic business decisions made by information systems executives. www.CIO.com This magazine is devoted to issues of interest to CIOs and senior IS managers. It is a good site for finding current case studies and in-depth interviews with CIOs. www.hbr.harvard.edu This is the website for all Harvard Business School publications, including articles and case studies. www.gartner.com This is the website for Gartner Research. They have an extensive library of TCO, measuring business value, and IT investment portfolio reports.

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Chapter 8: Governance of the Information Systems Organization Overview (The 5th edition contains several modifications, additions and deletions to the material contained in this chapter. Several sections from Chapter 9 in the previous edition have been relocated to this chapter.) Many managers have never had to interact directly with an information systems group.

The point of this chapter is to introduce managers to the methods used to formulate decisions regarding IT. This includes the determination of decision rights as well as security necessary to protect IS. When teaching this chapter, it might be helpful to bring in a guest speaker who is a CIO of a company. It would be ideal to bring in a CIO of a large, Fortune 500-type business, but anyone with the CIO title will have an impact on the general student.

Discussion Opener: What are the benefits provided to managers by using the Balanced Scorecard method? What benefits are realized from the use of dashboards?

Key Points in Chapter This chapter begins with a brief discussion of Sony PlayStation’s data breach and how the Chief Information Security Officer improved security through new policies and standards. Reitinger changed the structure of how customer data was managed and protected, a topic that was previously ignored or undervalued. This case is interesting from several perspectives: students will be familiar with the company, and they might even be aware of the security breach. Decision rights are also introduced as a possible factor that enabled the breach to occur.

The section on IT Governance includes a discussion of centralized versus decentralized organizational structures, and presents Weill’s five categories of IT decisions in Figure 8.5 (principles, architecture, infrastructure strategies, business application needs, and investment and prioritization). Centralized organizations offer advantages of control and scale. Decentralized organizations offer the advantage of local responsiveness. Both are desirable when managing IS. Federalism is a combination of the two and can offer the advantages of both or, sometimes, the disadvantages of both.

Within IT governance, there is discussion of decision making mechanisms and managing global considerations. Archetypes are patterns used to identify decision rights allocation, including the appropriate balance of business executives, business unit supervisors, and IT executives necessary for the issue being scrutinized. Figure 8.6 provides a concise description of each archetype and identification of the appropriate decision makers.

The next section covers IT Governance and Security (moved to this chapter – appeared in Chapter 9 in previous edition). Important to any organization is a well-planned security strategy. Figure 8.7 shows an appropriate governance pattern for each security decision. The last column is new to this edition, adding “major symptoms of improper decision rights allocation.” The infrastructure must be carefully planned to enhance security and the proper tools (firewalls, intrusion detection and prevention systems, etc.) must be implemented to provide for a secure environment (within constraints defined by the organization). Employees must be properly educated and trained on the

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security strategy and policies. Something as simple as knowing how to create a strong password should be communicated to the employees (for a brief explanation, see http://www.microsoft.com/protect/yourself/password/create.mspx). There must be strong support for security efforts to prevent a breach from occurring.

Social Business Lens: The Consumerization of Technology – This box covers the current increasing demand for applications designed specifically for mobile devices. Companies are dealing with the pressure of converting their products and services to this type of equipment.

The discussion of decision-making mechanisms includes three types: Policies, a Review Board, and a Steering Committee. The policies define the process for making decisions. The review board is charged with approving, monitoring, and reviewing specific topics. The steering committee contains representatives from various units who provide guidance on relevant IT decisions.

Business Process Continuity involves returning the company to its pre-crisis functional state after a catastrophic event has occurred. Three major stages include preplanning, planning, and postplanning. Contingency planning is necessary to help organizations respond quickly to mitigate loss and regain an acceptable level of normalcy.

The Sarbanes-Oxley Act of 2002 has brought security and controls to the attention of IT managers as well as CEOs, CFOs, and auditors. IT managers are finding that they play a critical role in ensuring the accuracy of financial data and implementing organizational control. Companies rely on IT professionals to ensure compliance with the regulations. The section specifies five IT weaknesses that were repeatedly uncovered by auditors. Some frameworks for implementing SOX include COSO, COBIT, and the ITIL. COSO (Committee of Sponsoring Organizations) of the Treadway Commission created three control objectives for management and auditors that focused on dealing with risks to internal control: Operations, Compliance, and Financial Reporting.

COBIT (Control Objectives for Information and Related Technology) is an IT governance framework that is consistent with COSO controls. It was issued in 1996 by the Information Systems Audit & Control Association (ISACA). A company determines the processes that are the most susceptible to the risks that it judiciously chooses to manage. Control objectives are then established, identifying specific key indicators. The advantages of COSO are that it is well-suited to organizations focused on risk management and mitigation, and that is is very detailed.

Disadvantages are that it can be costly and time consuming (see Figure 8.8).

ITIL (Information Technology Infrastructure Library) is a set of concepts and techniques to facilitate IT infrastructure management, implementation, and continuous improvement of operations. The current version is v3, a set of 5 core publications that cover the 5 basic stages of IT Service Management (ITSM).

This chapter concludes with an explanation of the CIO’s role in implementing SOX compliance. As is common with federal regulations, the law is vague on details, requiring organizations to assess and operationalize their own courses of action.

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Illustrative Answers to Discussion Questions 1. The debate about centralization and decentralization is heating up again with the advent of BYOD and the increasing use of the Web. Why does the Internet make this debate topical?

Ans: The Internet makes this debate topical for several reasons. First, the Internet makes decentralization much more cost effective because it lowers the costs of transporting information between locations. It is possible to be miles apart and act as if, technically, people are in the same building. Second, the number of applications on the Internet make possible local decisions (decentralization) on new ways to use IS to do business. But centralization is also an issue. Who will manage a company’s use of the Internet? Will it be a central MIS group or local business unit managers? How will standards be set? Can a business unit use any available Web vendor they find?

What happens when the Web vendor disappears or fails to provide the services needed? Who will be responsible? BYOD presents a potential security threat that IT staff are just beginning to comprehend and address. Policies and standards are being created, but best practices are yet to be determined and communicated. The convenience and cost savings of BYOD must be considered in light of the security tradeoff.

2. Why is the discussion of decision rights among mangers in a firm important?

Ans: Who has the right to make a decision is critical to the success of an organization. It determines how the organization as a whole is organized (centralized, decentralized, etc.). The CIO must know how the decision structure is organized and who has the power to make decisions, particularly when it involves the IT structure. Ownership of the decision implies accountability and responsibility. Outlining these roles increases efficiency and effectiveness of business decisionmaking processes.

3. Why can an IT governance archetype be good for one type of IS decision but not for another?

Ans: It would depend upon the type of decision needing to be made and the speed and flexibility needed for the decision. In a centralized environment, decision making may be slower and more bureaucratic, but decision control is easier to manage since power is consolidated. In a decentralized environment or at a lower level (business unit), those closest to the system and/or problem have a greater level of influence on the decision. Steering committees and other group decision models can produce more sophisticated results but may also take more time than may be available for a critical decision that must be made on the spot.

Further Discussion Questions: 1. Locate examples of actual security policies and privacy statements from company websites.

Compare the details of each. Look at the corporate mission and vision statements. Is there an obvious link between these documents?

2. Have students investigate ITIL and update their classmates on the basic elements included in ITIL Version 3.

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3. Find actual examples of both centralized and decentralized organizational structures. Compare and contrast the advantages (and disadvantages) of decision making in each. Create a specific scenario that would be most effective under each setting. That is, identify a decision that would be most appropriate under a centralized organizational structure, and a separate decision that is ideally suited for a decentralized organizational structure.

Case Study 9-1: IT Governance at University of the Southeast This case covers a centralized IT governance model at an institution of higher education. Changes were often made without input from the stakeholders. The latest project was to centralize the email accounts on one server, including changing email addresses without informing faculty of the changes. The biggest issue is that the IT governance system does not fit the organizational culture.

Students should look back at the IS Strategy Triangle from Chapter 1.

1. Discuss the IT governance system currently in place at the University of the Southeast using both decision rights and structure as the basis of governance.

Ans: The IT governance system currently in use at the University of the Southeast is a centralized, IT Monarchy. All IT-related decisions are tightly controlled without communications to the individuals directly affected by the choices. This led to significant frustrations and problems that could have been avoided with open dialogue.

2. The CIO wants to implement a centralized IT governance system. As demonstrated by the case above, what are the advantages of a centralized IT governance system? What are the disadvantages?

Ans: Clear advantages of centralized IT governance systems are security and efficiency imposed by the IT department. Standardization can be beneficial for maintaining common infrastructure, leading to efficiencies. However, as introduced in the IS Strategy Triangle, it is important to align the IS strategy with the organizational strategy and corporate culture. End-users expect to be consulted on decisions that affect them. Disadvantages include lack of responsiveness to business unit complaints and a one-size-fits-all perspective that might lead to problems for the end-users.

3. In your opinion, what assignment of decision rights would be best for the University of the Southeast? Please explain.

Ans: The best decision rights archetype would be either a Federal system that includes the IT department or an IT Duopoly that includes the business units. Feedback and buy-in from the business units (faculty departments) is necessary for optimal decision making. The IT department cannot fully appreciate the needs and desires of the faculty. Creating unnecessary obstacles only leads to poor interactions and distrust between the IT and business units.

Case Study 9-2: The Big Fix at Toyota Motor Sales (TMS) This case covers the change from a centralized IT governance system to a decentralized system that included divisional information officers (DIOs). This change resulted in clearer understanding of

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the process of funding IT projects. Toyota also formed an executive steering committee (ESC) that was responsible for allocating resources for all major IT projects.

1. Describe the advantages of TMS’s new decentralized IS structure. What are its disadvantages?

Ans: Note: Although the article talks about a decentralized structure, astute students may note that the structure is more of a federated one. The DIOs are assigned to the business units and work closely with them. However, six major enterprise systems have been implemented, a high-level steering committee makes decisions about funding, and funding appears to be billed to the corporate level.

The primary advantage to this new structure is IT’s ability to better meet the needs of the users. By becoming more involved in and gaining a better knowledge of the operational units, IT personnel would produce more effective and probably more efficient tools for the business units. This should also reduce the number of varying IT systems used within the organization now that the IT department is more involved. Possibly, this would lead to a clearer unified business strategy with a more integrated IT strategy. The new steering committee reflects a high level of executive involvement. It should now be able to better prioritize projects and provide more focus to IT initiatives.

As far as the disadvantages, ongoing communications and training amongst the IT staff will be more difficult with a decentralized structure. Sharing of technical knowledge amongst the staff will require more effort since they are more spread out throughout the organization. Further, the IS department may have more difficulty getting funding since all departments must vie for limited funding. On the other hand, the IS department may be less accountable for its activities or projects that have gone sour than if a chargeback funding system had been employed since the business unit heads (and not the steering committee) would be carefully monitoring every expense. The students may point out that the steering committee may lack the requisite IT knowledge to make good decisions. That is why it is important for Cooper to serve on the committee.

2. How did the new structure change decision rights? How did it change accountability for IS project success?

Ans: The new structure was based on an IT Duopoly archetype. This created a partnership between the IT staff and the business units. Another benefit was that there was better transparency for IT decision making. The steering committee allocates resources, and business executives are responsible for project performance. This policy of requiring executive sponsorship for IT projects ensures that there is some degree of oversight and validation before the project is brought before the steering committee for approval. The executives hold the project teams accountable for adequate progress. If the project shows inadequate progress, the steering committee can re-allocate resources and the project can lose its funding. This eliminates the common waste of resources, where companies throw more money at failing projects.

3. Why, in your opinion, would business executives shy away from the new approval process? In your opinion, will Cooper’s demand that each project be backed by an executive solve the problem? Explain.

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Ans: Business executives might shy away from the new approval process due to the fear of being associated with a bad project. It would be embarrassing to be linked to a failing project that loses its funding. They also might resist gaining more responsibilities and greater involvement in IT decision making. They might not feel qualified to make those decisions, lacking expertise in IT subjects. Cooper needs to be consistent in requiring executive backing for IT projects. Open communication with the business executives is critical to help them in this new role. Support and buy-in is vital to the success of the new system.

Supplemental Readings Other Cases: IBM Canada LTD: Implementing Global Strategy by Mark, K. & Compeau, D. Richard Ivey School of Business, 910E08, 10 pages, 2010 (setting: Canada).

This case covers the global decision making of a senior manager. The CRM developed locally might be replaced by a CRM system created using global standards. Students will gain an appreciation of the global considerations of CRM systems.

Investing in the IT that Makes a Competitive Difference by McAfee & Brynjolfsson, E. Harvard Business Review, R0807J, 12 pages, 2008.

This article presents a comparison of IT investments across competitors since the 1990s. It highlights the need for rapid innovation in order to maintain competitive advantage, and the increasing gap between leaders and laggards. Students will learn the importance of creative use of IT in order to stay ahead of the competition. iPremier (A): Denial of Service Attack (Graphic Novel Version) by Austin, R.D., & Short, J.C. Harvard Business School, 609092, 32 pages, 2009 (setting: Washington) This case covers an IT security crisis, including preparation and management of crisis situations.

There are two additional related cases (parts B and C). The presentation is in a comic strip format, giving a different appearance than most graduate school business cases. Students will learn appropriate responses to DoS attacks and how to protect their company through proper security measures.

NTT DoCoMo, Inc.: Mobile FeliCa by Stephen P Bradley, Thomas R Eisenmann, et. al.

Harvard Business School Publishing. 2005 (23 pages) DoCoMo, Japan's largest mobile phone company, is formulating a strategy for mobile FeliCa: contactless integrated circuits that will be built into DoCoMo phones. The options, which are not mutually exclusive, include: reducing mobile phone subscriber acquisition and retention rates by offering "sticky" differentiated new services; extracting monopoly rents from a joint venture (with Sony, FeliCa's inventor) that will license FeliCa technology to other mobile phone companies and

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application providers; and profiting from eMoney (retail payments), either through partnerships with incumbent financial services firms or by offering payment services directly.

Change Management of People & Technology in an ERP Implementation by Edwards, H. E.; Humphries, L. P. Idea Group Publishing; 2005 Eighteen months after adopting an enterprise resource planning (ERP) system, the chief executive officer wanted an investigation into the performance of the system. The results of the investigation reported here reveal problems with the acquisition and implementation process.

Samsung Electronics by Jordan Siegel & James Jinho Chang. Harvard Business School Publishing. 2005 (27 pages) This case discusses how Samsung should best respond to large-scale Chinese entry into its industry.

Cisco Systems, Inc, Richard Nolan and Kelley Porter, HBS case 398-127 This case describes how Cisco has used IT to build an Information Age organizational structure that not only provides a highly competitive cost structure, but also enables the company to provide extraordinarily high service levels. Much of the focus is on the “renaissance” CIO and the strategic impact of strong IT leadership.

Xerox: Outsourcing Global Information Technology Resources, Lynda M. Applegate; Kevin Davis.

In order to increase revenues, develop new technologies, and manage information technology more efficiently, Xerox decided to sign a 10-year, $3.2 billion contract with Electronic Data Systems (EDS). This case describes the events that preceded Xerox's decision to outsource information technology.

Xerox Corp.: Leadership of the Information Technology Function; HBS, Lynda Applegate, Case 191-024.

This case describes the initiatives taken by Tosh Barron, head of corporate information management at Xerox. It outlines Barron's team assessment of information technology needs for the 1990s and the long term challenges the Xerox Corp. faces.

The Information Plan for Celerity Enterprises, Inc.: A Teaching Case, Laurie Schatzberg. Idea Publishing Group, 27 pages, IT5513, (setting: U.S. and International) The case describes information and business planning, realities of the volatile industry, outsourcing for IS planning leadership, and using a combination of top-down and bottom-up planning in Celerity Enterprises, which competes in the semiconductor manufacturing industry.

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The Training Challenge: Installing a POS for Improved Reporting and Customer Satisfaction, Janette Moody and David Jordan, Idea Publishing Group, 18 pages, IT5572, (setting: U.S.) This case chronicles the problems that can arise in outsourcing agreements due to factors such as poorly defined user requirements, passive resistance from technical support personnel, and lack of contract specificity and documentation detailing who performs what.

Information Systems & Technology Outsourcing: Case Lessons from “TravelTrack,” Jeremy Rose and Ray Hackney, Idea Publishing Group, 12 pages, IT5580, (setting: U.K.) The case concerns an Information Systems and Technology (IS/IT) action research intervention into a train operating company in the newly privatized rail industry in the United Kingdom. The project involved information management in the maintenance wing of the company.

Large-Scale Sustainable Information Systems Development in a Developing Country: The Making of an Islamic Banking Package, Adekunle Okunoye, Idea Publishing Group, 16 pages, IT5680, (setting: International) This case study explores the difficulties encountered in technology transfer to developing countries, specifically examining a company offering IT services to an Islamic bank. The case highlights the circumstances that led to the bank’s decision to develop the systems locally. The case looks at the outsourcing decisions, project management issues, and systems development problems as they relate to developing countries’ successful IS projects.

How to Successfully Manage an IT Department Under Turbulent Conditions: A Case Study, Awie Leonard, Idea Publishing Group, 18 pages, IT5684, (setting: South Africa) The case study describes the history of the IT Department of a South African bank and how it started to introduce information technology to gain competitive advantage. The case study explains the problems and frustrations end-users and IT professional experienced with regard to wrong decisions made by the management team. Management models for problem management and project management that were used by the management team to organize and direct the action of IT specialists are introduced.

Readings/Articles: “The End of Delegation? Information Technology and the CEO,” Harvard Business Review, September-October 1995, 161-172.

Six IT experts give their views on which IT responsibilities CEOs should delegate and what roles other managers, including the CIO, should assume.

Ridout, R. “The Virtual IT Organization” CIO Forum September 22, 1997, Issue: 649 Section: 500: http://www.techweb.com/

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Information Week article on the virtual IS organization. Interesting article about how Dupont and others are outsourcing their IS functions.

Cope, J. “One Plus One Equals One'; How Honeywell and AlliedSignal merged IT, with 90 days to plan, 90 days to do it.” Computerworld. May 8, 2000.

This article describes the successful merging of two very different IT organizations and two sets of IT systems, Honeywell and AlliedSignal. Challenges detailed include distinct corporate cultures, degree of centralization, legal issues, and cost control. The CIOs formed 20 IT integration teams, each with a well-defined scope, deliverables, target dates, communication, and reporting processes.

Rosen, C. “Quest For Calm Waters -- Royal Caribbean is on an aggressive voyage to overhaul IT and its business culture.” InformationWeek. Oct 30, 2000.

Quinn, J.B. “Outsourcing Innovation: The New Engine of Growth.“ Sloan Management Review. Summer, 41(4) 2000.

The article describes how technology helps make outsourcing of innovation possible. Many examples of joint design and development are explored including Dell, Intel, Cisco, and Boeing.

Ulfelder, S. “Oh No, not another O,” CIO Magazine, Jan 15, 2001. http://www.cio.com/archive/011501/ohno_content.html Discusses the role of the Chief Privacy Officer and the challenges that CPOs face.

Books: J.S. Brown, J.S. & P. Duguid. The Social Life of Information. MA: HBS, 2003.

Whitehead, R. Leading a Software Development Team: A Developer's Guide to Successfully Leading People and Projects. NY: Addison-Wesley. 2001.

Holtsnider, B. & Brian D. Jaffe. IT Manager's Handbook: Getting Your New Job Done. NY: Morgan Kaufmann Publishers. 2000.

This unique book provides a guide to help create budgets, manage projects, evaluate technology, and hire and motivate personnel. The authors provide sound advice for an overall, winning strategy for success.

Plotnick, N. IT Professional's Guide to Managing Systems, Vendors and End Users. NY: Osborne. 1999.

PC Week columnist and veteran IT manager Neil Plotnick provides valuable insights and tested techniques for the day-to-day management of an effective IT department

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Websites: http://www.itil-officialsite.com/ This webpage provides the most current information on the Information Technology Infrastructure Library. Many resources can be accessed through this site. A quick search will provide students a wealth of information on this growing de facto standard. www.brint.com This site has many interesting links to sites on the web that relate to this topic. A Brint site with many links on the topic of outsourcing and alternative MIS organizational forms is listed below: http://www.brint.com/EmergOrg.htm www.infoweek.com, www.computerworld.com These magazines have frequent articles on MIS organizations, CIOs in the news, and strategic business decisions made by information systems executives. www.CIO.com This magazine is devoted to issues of interest to CIOs and senior IS managers. It is a good site for finding current case studies and in-depth interviews with CIOs. www.cio.com/archive/061500_case.html This site describes four companies whose IS departments are adapting well to change. The entire June 15, 2000 issue of CIO magazine focuses on the future of CIOs and MIS organizations. Other linked articles include: articles about the survival of IS management, the new leadership focus, strategic planning in a rapidly changing environment, and successful outsourcing. Links to the successful companies are also provided.

CIO.com also has a web area dedicated to outsourcing and to ASPs: www.cio.com/forums/outsourcing/ www.cio.com/forums/asp/

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Chapter 9: Information Systems Sourcing Overview (This chapter is basically the same as chapter 7 from the 4th edition but adds cloud computing and onshoring, along with a couple of new figures.) This chapter covers the various types of “sourcing” now available in the IT world and helps managers evaluate the sourcing decision.

This chapter also looks at the “sourcing cycle” to consider the full range of decisions related to who should perform the information systems work of an organization (to buy or to rent). This includes outsourcing, insourcing, backsourcing, and more.

Discussion Opener: How does a centralized or decentralized organizational structure impact the governance of IS? Summarize the importance of properly assigning decision rights.

Key Points in Chapter This chapter begins with a case of how Kellwood signed a multi-year outsourcing contract with EDS for most of its IT functionality. But the situation changed dramatically when Kellwood was purchased by Sun Capital Partners in 2008 and was taken private. The decision was made to move operations in-house in order to increase control and reduce costs. The case focuses on the fact that many factors must be considered when a company is considering “sourcing” part or all of its IT functionality. This is both a strategic and tactical decision.

This chapter provides a comprehensive overview of the various sourcing models and the decisions that go into deciding which sourcing model would be the best fit for an organization.

The chapter starts with a discussion on the “sourcing decision cycle framework.” Key to this section are the series of questions that need to be asked by an organization when determining what type of sourcing model should be deployed. Figure 9.1 shows an example of the sourcing decision cycle framework. (Cloud and Onshoring have been added to the figure in the 5th edition.) Make sure that students understand that deciding on a sourcing model is not easily answered, but requires attention to a number of issues. The cycle begins with the basic question of Make vs. Buy. Figure 9.2 assists managers with a list of questions and risks to consider in this decision making process.

Next, insourcing is discussed. Insourcing is the “make” decision, meaning it is going to be done in house. Examine the drivers that favor this decision and make sure that students discuss the challenges of this model.

Outsourcing is covered next with relevant factors being discussed, including its risks and how to outsource successfully. Make sure to discuss the various factors and have students discuss what events in the economy most influence outsourcing decisions. One of the big challenges is giving up control of the IT function to another company. This was one of the root causes that Kellwood stated when it brought IT back in-house. This would be a good discussion point for the class.

One way to ensure a successful outsourcing arrangement is to carefully craft the Service Level

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Agreement (SLA) to cover all important aspects. These legal documents should include exit strategies for clients dissatisfied with the outsourcing arrangement.

Another related decision is whether to outsource all of the IS functions (full outsourcing) or only part of the IS functions (selective outsourcing). Encourage students to discuss the advantages and disadvantages of each.

Once the decision is made to outsource, the next question to be addressed is “where?”

Outsourcing abroad covers the issue involved in moving IT to another country. There are three common solutions: Onshore, Offshore, or in the Cloud. Offshoring is moving the IT function to a geographically separate country, where onshoring is moving the IT function to another company within the national borders. Figure 9.3 (new to the 5th edition) provides a concise table outlining the tradeoffs between the three outsourcing options.

Cloud Computing is discussed in an enhanced section (new to the 5th edition). This would be a good topic to have students research further, since so many innovations are occurring and the field is changing rapidly. The public clouds include: Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS). SaaS is sometimes called Application Service Provider (ASP).

Social Business Lens: iCloud – This section discusses Apple’s iCould, a technology designed for backup and synchronization of multiple devices such as laptops, iPads, and iPhones. Benefits include ease of use and scalability.

Onshoring is a new section in the 5th edition. This includes the same strategic goals as offshoring (e.g. reduced labor costs), but maintains the work domestically. One option is to consider rural sourcing, taking advantage of the lower costs of living for individuals in the country’s midsection (e.g. Nebraska).

Two of the key issues in outsourcing are cultural and language differences. Managers must understand the culture of the country or region where they are considering offshoring their IT. Carefully examine the factors that drive a company to offshoring, as it is not always just a financial decision.

Geographic Lens: Corporate Social Responsibility – This section encourages managers to carefully consider the impact of outsourcing arrangements on global partners. Taking advantage of lower wages might lead to exploitation of foreign workers, etc. A useful student activity would be to debate the issues associated with offshoring. In particular, argue the pros and cons of these arrangements from the perspective of both the client and IS services provider.

Opportunities exist for various offshoring solutions: farshoring (greater distance from the client firm), nearshoring (closer in proximity to the client firm), and Captive Centers (an overseas subsidiary owned by the client firm).

Three major areas need to be discussed when determining the answer to the “Where abroad?” question. Attractiveness includes legal, socio-political, and governmental elements. Level of

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development is focused mainly on advanced technological foundations. There are also different tiers of software exporting nations which may help a manager to decide which region makes the most sense. Cultural differences pose the third area of influence. This is broader than merely considering language barriers. Nearshoring is a type of outsourcing where a company sends work to a foreign, lower-wage country that is relatively close in distance or time zone. The client company hopes to benefit from one or more ways of being close, such as geographically, temporally, culturally, linguistically, economically, politically, or from historical linkages.

Outsourcing decisions must be reevaluated periodically to ensure continued benefits. Make sure to take time discussing backsourcing and the factors that influence the decision to bring the IS function back in-house. More and more companies are deciding to backsource for a variety of reasons (see the Deloitte Consulting study results). It is interesting to see that what was perceived as a significant cost savings by a corporation ended up costing the company more than anticipated, or that it was not what they expected. As noted in the text, the reasons for backsourcing mirror the reasons for outsourcing the IT function in the first place: cost savings and improved efficiency. Figure 9.5 shows some best practices of offshoring and summarizes the chapter nicely.

Lastly, there is coverage of another sourcing model: a strategic network. These are long-term partnerships that benefit the participants. The company becomes a hub with suppliers as part of its network. This model can lower the cost of working with others in the network and the company can become more efficient than its competitors (and very flexible). Japanese keiretsu is a similar type of strategic network. Students might not be familiar with these concepts and should research the topic further.

Illustrative Answers to Discussion Questions 1. The make-versus-buy decision is important every time a new application is requested of the IS group. What, in your opinion, are the key reasons an IS organization should make its own systems? What are the key reasons it should buy an application?

Ans: There will be a variety of answers to this question, though students should integrate the information covered in this chapter to formulate an appropriate answer. Per the text, the key factors to insource are: good for core competencies; good for confidential or sensitive IS services or software development; time available in-house to complete software development projects; inhouse IT professionals have adequate training, experience or skills to provide service or develop software. The buy decision will also depend upon things such as cost, availability of resources (human, technical, etc.), and other factors. Based on the chapter text, the key considerations are: offers costs savings; provides greater capacity on demand; eases the transition to new consolidation strategies; and might provide a cash-infusion.

2. Is offshoring a problem to your country? To the global economy? Please explain.

Ans: This is an opinion question. There are generally strong opinions on both sides of this question, and students will most likely be on both sides as well. It is important to make sure that students “opinions” are grounded in actual facts, not just emotionally charged rhetoric.

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Encourage students to think through the actual benefits and costs to a country and the world economy as a whole. Governments can hinder or support offshoring, but the playing field is not equal, and some countries subsidize offshoring. Look at the data in the text, such as the loss of jobs in countries offshoring (500,000 US jobs in 2004, expected to reach 3.4 million in 2015).

The US congress proposed 20 federal law proposals to restrict offshoring and states have proposed laws to limit and or restrict offshoring.

3. When does cloud computing make sense for a large corporation that already has an IS organization? Give an example of when cloud computing might make sense for a start-up company.

Ans: Cloud computing can be used by companies to increase productivity, lower production costs, and fill skill gaps. For a large corporation, it would make sense when software or applications development is not the core competency, and when the company wants to ensure greater capacity on demand as the needs grow. Inhouse IS staff can still manage the integration and coordination, training, and transition to the cloud technologies. For a start-up, it might make sense when they are wanting the benefits of the cloud computing while only paying for the services used. This reduces the initial expense of hardware and software equipment and transfers the responsibility of increasing capacity needs to the vendor.

4. Does a captive center resolve the concerns managers have about outsourcing to a third vendor?

Why or why not?

Ans: Yes and no. Managers must continue to maintain supervision over the results of the work performed, since failures are associated with the firm. There is more influence and control, since the captive center is actually a company subsidiary. The benefits are related to cost reductions of the local environment and taking advantage of onsite location of technical resources.

Further Discussion Questions: 1. Why are client companies reluctant to agree to long-term contracts (e.g. 10 years)? Why do vendors prefer longer contract periods?

2. Why are some managers wary about moving to cloud computing? What are their concerns? How can the IS staff relieve those fears?

3. Have you ever particpated in crowdsourcing? If so, what was your experience? If not, research the opportunities and (if you are willing) test it out for yourself.

4. The text refers to the social responsibilty of sourcing options. Discuss your perspective of the global impact of outsourcing/offshoring on the national economies. Is there “goal conflict” between the business focus and the national perspective? Explain.

Case Study 9-1: Crowdsourcing at AOL This case was used because crowdsourcing is yet another option for outsourcing creative work.

1. Is crowdsourcing as used by AOL a form of outsourcing? Why or why not?

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Ans: AOL recently used crowdsourcing to outsource the inventorying task of the video library.

By breaking the large project down into smaller units of work, individuals could process that portion and receive minimal compensation for their efforts. AOL benefitted from the exercise by completing the project quickly, and paying less than if their internal staff completed the work.

2. What steps do you think Maloney might have taken to ensure that the crowdsourcing would be a success for the inventory project?

Ans: Maloney would take actions to control the distribution of work units and evaluate the quality of the crowdsourcing work performed. He would also be integral in determining the acceptable payment for work performed and any specific requirements (i.e. procedures) for accomplishing the tasks.

3. What factors should be considered when deciding whether or not to crowdsource a particular part of a business?

Ans: The factors that should be considered include: cost savings – Maloney was able to reduce costs; quality – AOL needed the work to be completed in a way that met their standard of performance; and the opportunity for better strategic focus – AOL staff were able to work on other projects that were more relevant for their competitive advantage. This project was not critical to the success of AOL, and there was no reason to maintain this work in-house. One other factor is time – if the crowdsourcing community could not produce results in a reasonable time period, it would not be practical to send it out.

4. Describe the advantages and disadvantages of crowdsourcing.

Ans: Crowdsourcing makes use of a diverse voluntary workforce. Participants receive nominal payment for their efforts and there are no fringe benefits included. The individuals contribute their personal expertise to solving problems. The nature of the challenge is typically the greatest motivator for these participants. There is also a sense of social benefit in “hiring” people to work flexible schedules from their own homes. Disadvantages include lack of control over the work – if the instructions are not clear, the results might not be useable; dependency on volunteers to commit the time to accomplish the work; and the possibility that competitors are monitoring the work being released, possibly signaling future directions for the company.

Case Study 9-2: Altia Business Park 1. Discuss offshoring from the perspective of potential workers in your country. Discuss offshoring from the perspective of potential workers in Honduras.

Ans: For corporations, the cost savings is a sound business decision, as long as the quality of the work is equal to the results of local workers. Many of these jobs are lower skilled positions and pay lower salaries. However, there are many individuals searching for work in the USA that would appreciate the opportunity to gain employment with these companies, even at an entry level. For Honduran workers, this is an outstanding opportunity – to work for foreign firms for decent wages. The work is desirable, and competition for the jobs is intense. This is a huge benefit for local workers in Honduras who have very few alternatives.

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2. Barbara Rivera is marketing Altia Business Park as a nearshoring site to companies in North America. What characteristics make this a desirable nearshoring site to companies in North America?

Ans: Honduras is in closer proximity, geographically, than many other offshoring options. Many of the workers speak English and enjoy many cultural similarities. The literacy rate is high, providing a large number of qualified employees. Finally, the time zones are often the same (or close) to the client corporation, eliminating the inconveniences of time zone incompatibilities.

3. Is this a good idea to market Altia Business Park as a nearshoring site to people in North America? Why or why not?

Ans: This seems like a positive approach for Altia Business Park. The decision should be informed by the critical factors of attractiveness, development ties, and cultural differences. Due to historical pressures and political tensions, there is greater resistance to offshoring in India, China, and Russia. Therefore, Honduras would be welcomed as a preferable alternative. The country is relatively stable, both financially and in terms of its governmental structures. Also, language barriers are less of a factor than in many other countries. In support of that point, many Americans (particularly in Florida and Texas) are proficient in the Spanish language. Cultural differences and security are not likely to cause difficulties for North American employers.

Supplemental Readings Other Cases: Managing Customer Relations in Offshore Outsourcing: B2Bcs, and Israeli Consulting Firm by Das, A.K., Kaiser, K.M. & Bharadwaj, S.S. Richard Ivey School of Business, W11081, 10 pages, 2011 (setting: Israel) This case covers the process of establishing an offshore outsourcing arrangement. Students will learn the details required and strategic decision making.

Cathay Pacific: Doing More with Less by McFarlan, F.W. & Young, F. Harvard Business School, 9303106, 25 pages, 2003 (setting: Hong Kong) Although this case is a bit older, it covers various aspects of IT that can be outsourced. Students will gain an understanding of the outsourcing topic.

The following cases can be found at http://www.offshoringmanagement.com/research.htm.

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Outsourcing Case Study JPMorgan's multi-location strategy: "The ETC has also led to the development of what JPMorgan calls a multi-location strategy, which looks beyond near-shore to offshore options. Now, projects are planned based on what kind of work needs to be done at primary, secondary and tertiary locations, corresponding to risk, cost and technology profile evaluations." - Wall Street & Technology

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Outsourcing Solutions and Industry Expertise Power De Novo Bank For Exponential Growth : "Success In Motion" - Fidelity IFS

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Case Study: Was Outsourcing to India the Right Move? - Inc.com

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Why offshoring fails, by Tana George - IT Manager's Journal

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How BofA Banks on Offshoring; Having grown via acquisition, it's used to having farflung operations. Now with centers in Asia, it's able to keep projects moving 24 hours a day - "We ask ourselves, 'Is there a core competency where we wouldn't want our Infosys team to learn what we're doing?' We're very careful what we send to third parties," she says. "We're not going to give people access to something that is proprietary or differentiating." Business Week

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Strategic opportunities at the intersection of globalization, technology and lifestyles. In this article, we discuss four “hot” strategic opportunities for the next three-five year time frame arising from globalization and technology trends and present frameworks that can help business executives leverage these opportunities. - Handbook of Business Strategy 2006

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Beyond Offshoring: Assess Your Company's Global Potential D Farrell - Harvard Business Review, 2004

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Move Over, India: The Shifting Geography of Offshore Outsourcing Creates New Challengers India took an early lead in establishing itself as a center for offshore outsourcing. Now, however, according to experts at Wharton and elsewhere, as many as 40 locations - including cities in the Middle East, Eastern Europe and Latin America - are vying to attract BPO work. The next big phenomenon will be the emergence of a huband-spokes model in the globalization of services, says one Wharton professor.

Knowledge@Wharton explores the topic

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Cutter Consortium: TWO POSITIONS: THE OFFSHORE OUTSOURCING DEBATE: There are two positions held by the supporters and the opponents in the offshoring debate. Generally, supporters of offshoring cite a persuasive list of global businessrelated advantages that result from offshore outsourcing. Most of the opponents concentrate mainly on the loss of jobs and the loss of technological advantage in the outsourcing country. We will discuss some of the main arguments from each side of the debate.

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Near-Term Growth Of Offshoring Accelerating Forrester has increased its estimate of how many US services jobs will go offshore in the near term. Long term, we believe that our previous projection of 3.3 million by 2015 is still accurate. The near-term increase is driven by a combination of the following four factors: 1) Visibility has encouraged more conservative companies to experiment with going offshore to protect themselves competitively; 2) a broadening of the IT services offered by offshore vendors like Wipro and Infosys; 3) the establishment of captive offshore centers by user companies for business process outsourcing (BPO); and 4) onshore IT technology and services vendors setting up shop in locations like India, China, and Belarus to develop/maintain products or provide lower-cost services.

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Readings/Articles: Fogarty, Kevin. (2008, May 16). “The State of Outsourcing IT.” Located at http://www.baselinemag.com/c/a/Outsourcing/The-State-of-Outsourcing-IT/.

The market for outsourcing services is shifting as U.S.-based customers divide their outsourcing work among more providers, build in simple ways to break contracts, and hire more U.S.-based software-as-a-service providers in addition to offshore outsourcing services.

Jae-Nam Lee, Shaila M. Miranda, Yong-Mi Kim. “IT Outsourcing Strategies: Universalistic, Contingency, and Configurational Explanations of Success” Focus on individual outsourcing decisions in IT research has often yielded contradictory findings and recommendations. To address these contradictions, we investigate a holistic, configurational approach with the prevailing universalistic or contingency perspectives in exploring the effects of IT outsourcing strategies on outsourcing success. Based on residual rights theory, we begin by identifying three dimensions of IT outsourcing strategies: degree of integration, allocation of control, and performance period. We then develop a model of fit-as-gestalt, drawing from literatures on strategy, governance, interorganizational relationships, and outsourcing.

Mandel, Michael. (2007, June 18) “The Real Cost Of Offshoring. U.S. data show that moving jobs overseas hasn't hurt the economy. Here's why those stats are wrong.” Located at http://www.businessweek.com/magazine/content/07_25/b4039001.htm Whenever critics of globalization complain about the loss of American jobs to low-cost countries such as China and India, supporters point to the powerful performance of the U.S. economy. And with good reason: despite the latest slow quarter, official statistics show that America's economic output has grown at a solid 3.3% annual rate since 2003, a period when imports from low-cost countries have soared. Similarly, domestic manufacturing output has expanded at a decent pace.

On the face of it, offshoring doesn't seem to be having much of an effect at all.

Metcalfe, Lisa. “The Ins of Outsourcing.” (2008) Located at http://technology.inc.com/managing/articles/200802/metcalfe.html Making the move to outsource functions, such as IT, may be intimidating for businesses the first time around. But it may be cost effective in an economic downturn. As the dollar continues to decline and markets remain volatile, businesses throughout the U.S. are looking at ways in which they can save on expenditure and bring in more profits. For some businesses this may involve hiring less staff, restructuring the company, or seeking capital, but for many, outsourcing can help accomplish these goals.

Mitchell, Bradley. “Information Technology Outsourcing, How Outsourcing Affects Your Career in IT.” Located at http://compnetworking.about.com/cs/careersjobs/a/career_outsourc.htm In the United States, corporations plan to outsource many thousands of Information Technology (IT) jobs to outside firms. Most of these jobs will belong to so-called offshore organizations in

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India or Southeast Asia. The media buzz and corporate momentum around IT offshoring and outsourcing continues and shows no signs of abating.

Overby, Stephanie. “Backsourcing Best Practices: Backsourcing—that is, bringing IT functions back in-house after they’ve been outsourced—may be the right move to make for some ...” Located at http://www.cio.com/article/10510/_Backsourcing_Best_Practices_ Backsourcing—that is, bringing IT functions back in-house after they’ve been outsourced—may be the right move to make for some companies, such as JPMorgan Chase. But it isn’t easy.

"There isn’t a lot of quantitative data out there on how to do this right," says Jeff Kaplan, senior consultant with the Cutter Consortium’s Sourcing and Vendor Relationships Advisory Service and the managing director of ThinkStrategies. But some best practices are beginning to emerge.

Rosenthal, Beth. (2008) “How Outsourcing Helped John Wiley's IT Department Keep the Business Going During an Acquisition.” Located at http://www.outsourcing-informationtechnology.com/wiley.html.

Three years ago book publisher John Wiley & Sons was about to purchase Blackwell Publishers.

The acquisition created a challenging situation for Wiley’s IT department: it had to keep its other businesses going before, during, and after the acquisition. But the publisher didn’t want to grow its internal IT staff. Offshoring was the answer. (2008) Books: Brown and Wilson. (2005) “The Black Book of Outsourcing: How to Manage the Changes, Challenges, and Opportunities.” Wiley; 1 edition (May 2, 2005) ISBN-10: 0471718890.

The Black Book of Outsourcing is a comprehensive guide and directory for the emerging field of outsourcing, including expert advice on how to operate an outsourcing program, how to deal with the political aspects of outsourcing, and how to find a career in outsourcing. A controversial and emotional subject among business leaders and workers in the global business community, outsourcing is fast becoming one of the greatest organizational and industrial shifts in modern history. In this one-of-a-kind resource, outsourcing gurus Douglas Brown and Scott Wilson chart a course for business leaders charged with managing outsourcing initiatives and present a wealth of employment opportunities for workers who want to enter this growing field.

Kennedy and Sharma. (2009) “The Services Shift: Seizing the Ultimate Offshore Opportunity.” FT Press; 1 edition (January 19, 2009). ISBN-10: 0137133502.

“Global Sourcing of Services is a powerful source of competitive advantage as economic borders become thinner... Kennedy pulls up the curtain and explains the what, why, and where of offshoring. His work with both providers and customers illuminates both the potential and the challenges of global sourcing. The Services Shift provides insights on the shifting business paradigms. This book cuts through the rhetoric and provides managers practical advice. A must

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read!!!” –Anurag Jain, Managing Director, Asia Pacific; President for Applications Solutions (AS); and President of Insurance & Business Process Solutions (IBPS) for Perot Systems.

Power, Desouza and Bonifazi. (2006) “The Outsourcing Handbook: How to Implement a Successful Outsourcing Process.” Kogan Page (February 28, 2006) ISBN-10: 0749444304.

“A comprehensive, 'user-friendly' nicely organised reference and guide which is confidently recommended reading." -The Midwest Book Review "Provides a strategy that any manager can implement." -European Foundation for management development "A hands-on and applied approach to exploring the intricacies of commencing, managing, renewing and/or terminating outsourcing engagements." -Journal of Economic Literature "Helps the reader understand each stage of the outsourcing process, improves and strengthens the process once it has been implemented and gives important details needed to ensure success." Abstracts of Public Administration, Development and the Environment "Provides detailed insight into the processes, issues, pitfalls and successes for any type of outsourcing activity. The detail and advice given in the core of the book are first class; the authors do not assume any prior knowledge of the subject matter and they provide a valuable set of customer outsourcing methodology activities." -E-Code Tjia and Carmel. (2006) “Offshoring Information Technology: Sourcing and Outsourcing to a Global Workforce.” Cambridge University Press (June 13, 2006). ISBN-10: 0521843553. '... there are some fascinating insights here for IT executives ... The superb content isn't surprising once you realize that co-author Erran Carmel ... was a leading expert on globally dispersed software teams long before CNN's Lou Dobbs ever heard of offshore outsourcing. ...

As you'd expect, the book has country sketches and thoroughly covers subjects such as managing contractors, risks and legal issues. But for me, the richest sections deal with 'soft' topics like cross-cultural issues and overcoming the problems of distance, time zones and language. For example, there's a great danger of miscommunication with Indian IT workers if Americans use slang, business code words or too-subtle hints. An American who says, 'I was a bit disappointed that ...' may actually be upset, but the Indian may interpret that statement as 'It doesn't really matter.' And while American IT workers use the word contractor as a business term, in India, the term could mean one who cleans toilets. Don't fly to Bangalore without reading this book.' Computerworld Websites: http://www.sei.cmu.edu/cmmi/ This site explains the Capability Maturity Model Integration (CMMI) framework. The level of maturity is relevant for determining the stability, efficiency, and standards that exist in the organization. www.cio.com

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http://news.cnet.com www.wired.com http://www.outsourcing-information-technology.com/ - this site has lots of articles and information about outsourcing. http://www.unisys.com/services/outsourcing/it__outsourcing/ - IT Outsourcing at Unisys http://www-935.ibm.com/services/us/index.wss/itservice/so/a1000414 - IBM Outsourcing and hosting.

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Chapter 10: Managing IT Projects Overview (The chapter title and location have been changed for the 5th edition.) For management students, it seems that most of their time will be spent either managing projects or as a member of a project management team. Further, most projects in businesses today involve building, using, altering, or integrating an information system. Therefore, the authors included this important chapter dedicated to project management. This chapter is about project management in general, and also about issues such as SDLC, prototyping, and agile development, which are specific to managing IT projects.

Additional methods are included, such as RAD, JAD, object-oriented development, and the open sourcing approach. The instructor interested in covering these IT specific topics are encouraged to supplement this chapter with readings that give more detail on systems development methodologies (some of which are suggested in this Instructor’s Manual). The goal is to help management students understand how to be knowledgeable participants and leaders of projects.

Discussion Opener: As a manager, what questions do you need to answer before making a sourcing decision? What are your greatest concerns?

Key Points in Chapter This chapter opens up with a brief discussion of a failed IT project in the UK. The Rural Payments Agency (RPA) implemented a new system without proper testing which resulted in late payments to the tune of ₤1.5 billion. Only 15% were paid out by the end of 2006. The RPA had to make substantial changes to the system post-implementation. The system had not been properly managed, with costs at 122 million pounds that were originally estimated at 46.5 million. The latest update is that the project is still dysfunctional, leading to continued distress of the rural workers. The importance of this case is to illustrate the problems that can occur when proper project management is not implemented. In particular, requirements must be specified at the outset, or the result is unlikely to meet the needs of the end-users.

Standish Group found that 67 percent of all software projects are challenged and are either late, over budget, or fail to meet performance criteria. Managing a business project means managing an information systems project.

Projects are defined as the work done as a "temporary endeavor." This is distinguished from operations, where work is ongoing and tasks are frequently repeated. All projects have stakeholders, people or organizations that are impacted by the project in some way. A project manager is responsible for the organization of the project, as well as the ongoing activities necessary to make sure the project is successful. A useful resource for project managers is the PMBK. Project management, therefore is the "application of knowledge, skills, tools, and techniques to project activities." There are a number of tradeoffs that must be made by the project manager and the "owners" of the project itself including scope and time, cost and quality, needs and expectations, and conflicting needs of different stakeholders.

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Project management requires tradeoffs. To illustrate these tradeoffs, the project triangle is referred to (Figure 10.3) with its three elements: time, cost, and scope. Any two of these elements can be maximized, but at the expense of the third element. A successful balance of these elements yields a high-quality project. You might choose to use examples to illustrate the tradeoffs. For example, writing a research paper: the deadline is inflexible – Friday by 5:00pm; the resource allocation or cost is set – assuming only one student is working on the research project, you cannot throw more money or workers at the project; therefore, the quality/scope of the paper is the element that is going to have to adjust. In other words, whatever the student has produced by 5:00pm on Friday is what’s handed in. Students should be able to come up with other examples.

The Project Management Office (PMO) is a department responsible for improving the outcomes of projects through efficiency, allocating expertise, and improving project delivery. Actual responsibilities will vary depending on the needs and availability of staff for the organization.

Four elements are essential for any project (reordered for this edition): project management, a project team, a project cycle plan, and a common project vocabulary. Project management requires the following skills: requirements identification, organizing, project team management, planning, risk and opportunity management, project control, visibility, status, corrective action, and leadership. Each of these skills is discussed in some detail. The project team works together to accomplish the common goals. A project cycle plan begins with a breakdown of the project into workable tasks, allocation of resources, and estimated duration of task completion. Project managers often use software applications to assist with project monitoring (e.g. PERT, Gantt charts, and critical path method). Common project vocabulary helps the team to build consensus and understanding, along with commitment to shared goals.

Geographic Lens: Allocating software development projects to available sites around the globe – Companies can benefit from globally distributed expertise, reduce labor costs, and “follow the sun” project design. However, as discussed in Chapter 9 on sourcing decisions, managers must weigh the factors before committing to global team solutions. There might be unexpected costs and risks that override the anticipated savings.

Most projects today are IT projects, involving some use of information systems. There is little difference from a pure project management perspective. However, IT projects tend to follow one of a very few number of processes. One common IT process is the Systems Development Life Cycle, or SDLC. There are 7 phases to a typical SDLC: initiation and feasibility, requirements definition, functional design, technical design and construction, verification, implementation, and maintenance and review. Figure 10.8 provides descriptions and sample activities for each phase of the SDLC. Depending on a number of factors, the project team will select an appropriate conversion strategy.

The types described are (1) parallel conversion – the company runs the old and new systems simultaneously, and (2) direct cutover – the company switches over to the new system, and the old system is no longer available. Each approach has benefits and risks.

Due to some significant problems with SDLC, agile development methodologies are being adopted. The attraction for companies is the speed and responsiveness of the procedures. A common feature is that these methods are iterative in nature – “code a little, test a little.” Using

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short deadlines and small sub-projects, projects make rapid progress. These methodologies are dynamic and tend to be more people-oriented than project-oriented.

Prototyping, or evolutionary development, is the method of building systems where a version of the system is quickly built and shared with users. RAD is a more structured process for developing systems quickly, and is similar to prototyping in some ways, where the user interface is quickly developed using specialized tools, reusable code, code generation systems, etc. RAD often refers to the process; prototyping often refers simply to the part of the process where a version of the system is shared with the users. JAD is a version of RAD or prototyping which is built around the involvement of a group of end-users. The object-oriented approach is also introduced, which is the encapsulation of objects and methods. The purpose is to make project development more efficient and faster by reusing objects stored in a repository. Open sourcing has been added to this edition, making use of distributed “team” of programmers working together on the source code to create software applications. Some key issues in this decision are preservation of intellectual property, updating and maintaining open source code, competitive advantage, tech support, and maintaining standards.

Social Business Lens: Mashups – Mashups are independent applications that are integrated by end-users in order to gain additional benefits and meet needs. For example, combining a map application with a retail site in a mash-up would be a useful tool for shoppers.

Putting it all together and then dealing with the associated risks is the manager's job. The project's complexity, clarity, and size determine the risk factor. The level of risk determines how formal the project management system and planning detail should be. Managing the complexity aspects of project risk can include leveraging the technical skills of the team, relying on consultants and vendors, and integrating within the organization. Organizational factors must be managed such as managing project stakeholders, sustaining commitment to projects, and managing cultural, structural, and systemic influences. These organizational factors help improve the clarity of the project.

In some projects the risk is too great or the payoffs are too little. The plug needs to be pulled on these projects.

We often ask our students when they are doing projects, "how will you know if your project has been successful?" or "what are the measures of success?" There are four dimensions of success: resource constraints, impact on customers, business success, and preparation for the future. Figure 10.12 summarizes the dimensions of success. Finally, at the completion of a project, the team should meet once more to discuss the experience and identify “lessons learned.”

Illustrative Answers to Discussion Questions 1. What are the trade-offs between cost, quality, and time when designing a project plan? What criteria should managers use to manage this trade-off?

Ans: The key point here is that cost, quality, and time are the key elements for a project. Often projects seek to be low cost, high quality, and completed in a short time frame. But while important

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to a client, these objectives are often in conflict with each other. It is often impossible to be successful in the project if all three of these elements are inappropriately specified. For example, given a restrictive, low-cost budget, a goal of high quality (things like zero defects, high level of functionality, etc.) and short timeframe, a project is most likely set up for failure. On the other hand, it is possible to design a project where cost, quality, and time objectives are all met. If they are all very generous, it may be possible to achieve all three. A manager must be clear as to which of these objectives is of greatest importance to the client/project owner. After identifying the most important objective (getting it done quickly, staying within a restrictive budget, or producing high quality), a manager must then negotiate a reasonable level for the other objectives. For example, if time is the most important factor, is there a new budget that makes the quality level achievable? Or is there a reduced scope/lower quality that is acceptable that makes the restrictive budget achievable?

2. Why does it often take a long time before troubled projects are abandoned or brought under control?

Ans: This is a very open-ended question. I believe troubled projects are slowly abandoned or brought under control because of the human nature to try to fix problems before abandoning them.

People often think that if they just do one more thing or one thing differently, they will get it right and make their objectives. There is a reluctance to abandon a project after time and resources have been committed and spent. Additionally, people are hesitant to admit failure, making it difficult to honestly address the failing project objectively.

3. What are the critical success factors for a project manager? What skills should managers look for when hiring someone who would be successful in this job?

Ans: Critical success factors for a project manager are somewhat subjective. This chapter does not specifically list CSFs. The chapter covers “10 elements” of project management, and many students will list these as the critical success factors (the 10 are: requirements definition, organizing, project team management, planning, risk and opportunity management, project control, visibility, status management, corrective action, and leadership). The more astute students will take some subset of these and give explanations as to why they are the most critical. Managers should look for skills such as ability to get along with people, organization, knowledge of managing projects, ability to negotiate through seemingly contradictory customer/owner demands, budgeting, schedule and risk management capabilities, agility and flexibility to change as necessary to meet dynamic project conditions, and ability to see the big picture.

4. What determines the level of technical risk associated with a project? What determines the level of organizational risk? How can a general manager assist in minimizing these risk components?

Ans: Technical risk is determined by how new the technology is to the world (is it mature or likely to have significant bugs?), how new it is to the organization (is there substantial experience in the organization with it or not?), and complexity (is it a simple technology or a very complex system?).

Organizational risk is determined by similar factors: how new is the idea to the organization (do they have to make a big change or a small change from the current organization)? How complex is the change the organization must make (is it very complex or simple? How widespread must the

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change be to take place? Will it affect a single individual or group, or will it take place across the wider organization)? How adaptable is the organization to change (do people make change often or not)? And how much time is there to make the change (must people change immediately or is there time for education and communication)? A general manager can assist in minimizing these components by careful planning, alternative scenario planning, careful monitoring the progress of the project, and by continually assessing metrics which reflect these risk factors.

5. Lego’s Mindstorms Robotics Invention System. a. What are the advantages of Lego’s approach to open sourcing?

Ans: Lego’s customers are clearly excited about generating code and this excitement is translating into increased sales. Further, the robots are being programmed to perform additional tasks, thanks to open sourcing. b. What are the disadvantages of Lego’s approach to open sourcing?

Ans: This question is designed to help students consider the downside of open sourcing for Lego.

Some of these negative effects may result in damaged robots that don’t live up to Lego’s reputation, difficulty in maintaining the code, difficulty in producing advanced versions of the robots, physical harm to customers from the programmed robots, etc. c. How should Lego manage the open-source movement?

Ans: Have the students focus on some of the issues discussed in the chapter. Some examples are: preservation of intellectual property, maintaining open source code, setting standards, and offering tech support.

Further Discussion Questions 1. What experiences have you had with system changes either in the university setting or work environment? Was your opinion collected before the implementation, such as during the requirements gathering phase? Was your feedback sought post-implementation? Would it have made a difference in your acceptance/adoption of the new system?

2. Re-read the opening case. List and discuss all of the problems you can identify that led to the failure of the RPA project. What would you have done differently? Be specific.

3. Explain, in your own words, why it might not be helpful to add more team members to a project that is already behind schedule. Have you ever experienced something similar? Discuss your personal experiences on group projects. How might problems have been handled better?

4. Create a framework of questions/items that you would ideally cover in your post-project feedback debrief. Ensure that the items do not focus on allocating blame, but create positive recommendations for future projects.

Case Study 10-1: Implementing Enterprise Change Management at Southern Company

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Discussion Questions 1. What type of development methodology appears to have been employed at Southern Company for the ECM project? Was this a good approach? Provide a rationale for your response.

Ans: The original system was apparently designed using the traditional systems development and project management plan, although little effort was made to involve the end-users in the design stage. This led to significant resistance later on. This project covered a rather long period of time (6 months spent designing the new processes, 10 months to customize the software suite, and 7 months to build the system). That might seem excessive in today’s mindset. Perhaps an agile development approach could have moved the project along more rapidly, with greater involvement of the end-users. Also, prototypes might have eliminated some of the issues that emerged in the implementation stage.

2. Describe how Traynor could have applied Lewin’s three stage model of change in implementing ECM. What would have been the advantages of applying Lewin’s three-stage model?

Ans: The IT staff wasn’t included in the planning phase, as part of the “unfreeze” stage. The way they accomplish their normal tasks was being radically changed, so this consideration should have been communicated to the individuals most impacted by the change. That would lead to a smoother transition in the actual “change” stage. The implementation should have only taken place after the requirements and design activities were completed. The “refreeze” stage would include an institutional acceptance and adoption of the new processes in compliance with the new system. If Traynor had employed Lewin’s three stage model of change, he would have anticipated the problems in advance. This would have given all of the project stakeholders an opportunity to communicate concerns and reservations long before the actual design was in production. The IT staff would have developed buy-in for the new system, since their perspectives would be part of the solution.

3. Assess Southern’s ECM system on the four dimensions of project success. How successful do you think this project is?

Ans: 1) Resource constraints – The project seems to be successful as far as keeping to the schedule.

The project had a long timeline, and there isn’t mention of significant or excessive schedule breach.

2) Impact on customers – In the first phase of the ECM project, the customers (IT department) were not included in the planning and design. This led to a negative impact, and the changes were unwelcomed by the stakeholders. The second phase seems to be greatly improved, creating IT ambassadors who will be intimately involved in the testing and training activities. 3) Business success – Initially, the response was to implement additional change requests, compared to the previous system. Traynor created processes to help focus on only emergency or high-risk changes.

Routine changes could be approved through a standard format and an efficient pre-approval process. The change advisory board was able to decrease the necessity of holding 3 meetings per week down to once a month. That is a vast improvement on time and resources. 4) Prepare the future – This was successful as demonstrated by the acceptance and efficiency demonstrated after

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the early glitches were worked out. Going forward, it appears that the project stakeholders will be more satisfied with the new system, particularly since they are actively engaged in the design and development of the second stage. Students might have different views on this question. Encourage them to support their perspectives with information from the text.

Case Study 10-2: Dealing with Traffic Jams in London Discussion Questions 1. Assess the risks of this project. Given your assessment of the project complexity, clarity, and size, what management strategies would you recommend? What, if any, of these strategies were adopted in this project?

Ans: The transportation project was very complex. There were many technological factors that the system developers needed to decide: what type of camera technology to use, the image store component that collected images and converted them into license numbers, the telecommunication links between the cameras and the image store, the customer service infrastructure, where to situate the cameras, and identifying an extensive network of retail outlets, kiosks, and gas stations where people could pay the toll. They also had to deal with a tight implementation timetable--there was no preexisting model to follow--and they were under a new transit authority. Not typically considered an aspect of technology, but certainly important to the success of the project were the hundred year old, convoluted streets.

To handle the complexity, the project was outsourced to a team with the expertise to handle the complexity. An elaborate approach was taken to determine the expertise of the consultants by having the two finalists draw up a technical design that could be compared to one another. Further, a second firm (first PricewaterhouseCoopers and then Deloitte & Touche) was hired to handle the critical project management elements. To reduce the technical risks associated with complexity, the technologies selected for the five packages were the best available.

Luckily, the project was of high clarity. The project team knew what they wanted, and this scope did not change frequently throughout the project. According to the article, they vigorously guarded against scope creep by limiting changes to the requirements. Few other management strategies were needed to deal with clarity.

This was definitely a large project. They were going to be placing 699 cameras at 203 sites in an 8 square mile target for traffic congestion control. The estimated cost was $11.6 billion. It was also estimated that this project would likely translate into total revenues of $2.2 billion dollars within 10 years. To handle the risks from size, the project was subdivided into five parts. All parts were subject to strict project management controls. There were clear milestones with penalties for Capita if they did not meet the deadlines.

2. Describe the development methodology that was applied to this project. Was this the most appropriate approach? Provide a rationale for your response.

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Ans: Not much information was given about the methodology, so it is important to explore the student responses. On one hand, the development methodology applied to this project seemed to have been the Systems Development Life Cycle. First, an initial Feasibility Analysis was done, in order to determine what kind of solution was possible to implement. The result was the idea for the toll system. Secondly, Project Requirements were established in order to decide on an appropriate course of action. After all these requirements were identified, bids were entertained. After discarding most of the bids, two companies were left. These two companies were provided with the Functional requirements for the project, and both of them presented their Technical Designs for the implementation. One of the companies was selected, and another contractor was hired to revise and supervise their work. When they were ready, they Implemented the system. After the system was in place, they monitored the system for any Maintenance and correction needed.

Some students may say that a RAD approach was used because of the rapidity with which the system was developed. Point out that RAD usually is associated with prototyping, as opposed to the production system that was implemented. Further, RAD usually relies upon various development tools that were not mentioned in this case.

3. When a project is outsourced, who should manage the project --- the internal group or the outsourcer? Why? Ans: The internal group should not abrogate all responsibility for the project. However, for very complex projects they may not have the expertise to manage the project. In this case, Transport of London hired a consultant (first PricewaterhouseCooper and then Deloitte & Touche) to manage the project for them.

Supplemental Readings Other Cases: Successfully Navigating the Turbulent Skies of a Large-Scale ERP Implementation by Aubert, B.A., Bourdeau, S., & Walker, B. International Journal of Case Studies in Management. 2012. (29 pages) Describes the successful ERP implementation at Bombardier Limited, a company in the transportation industry. Students will learn more details about ERP systems and the difficulties inherent in implementing a large, complex system. The case explains how job roles were changed and business processes modified to improve efficiency. Organizational transformation resulted in significant benefits.

Pearson’s Successmaker: Putting the Customer First in Transforming Product Development Processes by Raghu, T.S., & Sellman, C. Richard Ivey School of Business. 2012. (13 pages) Describes the move from waterfall to agile development processes in the creation of new products for the higher education instructional market. Students will develop an understanding of the complexities of collaborative work in a business setting, and the necessity of using complimentary processes.

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Red Hat Global Support Services: The Move to Relationship-based Customer Servicing and Knowledge-centered Support by Kesner, R.M. Richard Ivey School of Business. 2011. (19 pages) This case identifies changes and innovations in the customer service delivery at Red Hat. As the market influence has increased, the company has adjusted to the changes and transitioned to a firm that is more responsive to customer needs.

Keda’s SAP Implementation by Fung, T., Fang, Y., Wang, H., & Neufeld, D. Richard Ivey School of Business. 2011. (14 pages) Describes the successful ERP implementation at the Keda firm in China. Students will learn more details about ERP systems and the difficulties inherent in implementing a large, complex system.

Volkswagen of America: Managing IT Priorities by Robert D. Austin, Warren Ritchie & Greggory Garrett. Harvard Business School Publishing. 2005. (19 pages) Describes the efforts of Volkswagen of America, the U.S. subsidiary of Volkswagen AG, to arrive at a process for setting IT funding priorities so that they align with business priorities and the company's overall strategy.

Offshoring at EDC by HW Lane & DTA Wesley. Richard Ivey School of Business 2005 (19 pages) Education Development Center (EDC), a non-governmental organization, is an example of an offshoring best practice and will help identify factors for successful implementation of an outsourcing project.

The PCNet Project: (A) Project Risk Management in an IT Integration Project, by Christoph Loch. INSEAD. 2005 (20 pages) The case illustrates competent project risk management, including risk identification, assessment, and management.

Network Implementation Project in the State Sector in Scotland: The Influence of Social and Organizational Factors, Ann McCready and Andrew Doswell, Idea Publishing Group, 15 pages, IT5506, (setting: International - Scotland) This case study is about the introduction of networked PCs in a local government office in Perth, Scotland. The case focuses on the importance of organizational and social factors during the implementation process.

The Application of IT for Competitive Advantage at Keane, Inc., Mark R. Andrews and Raymond Papp, Idea Publishing Group, 19 pages, IT5509, (setting: International - Scotland)

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This case focuses on Keane Company’s approach to Project Management and how they provide this service to their clients.

Managing the NICS Project at the Royal Canadian University, Charalambos L. Iacovou, Idea Publishing Group, 12 pages, IT5550, (setting: International - Canada) This case describes the installation of an IBM mainframe computer at the Royal Canadian University. The goal of the described project was to establish a Numerically Intensive Computing Service (NICS) in order to provide “first-class” computing facilities to the researchers.

Systems Requirements and Prototyping, Vincent Yen, Idea Publishing Group, 14 pages, IT5559, (setting: U.S.) This case study is based on a multi-year information systems plan for a marketing firm. The case describes the critical components of the enterprise system, including the software and hardware architectures.

Recognizing Runaway IS Projects When They Occur: The Bank Consortium Case, J. C. Mann, Idea Group Publishing, 8 pages, IT 5616, (setting: U.S.) The case study describes a runaway project that occurred when several savings and loans formed a consortium to create a data center that would develop and operate basic transaction processing software for its members. The case highlights practical issues related to how runaways develop.

The T1-Auto Inc. Production Part Testing Process: A Workflow Automation Success Story, Charles Cain, Thomas W. Lauer and Eileen Peacock, Idea Publishing Group, 14 pages, IT5658, (setting: Australia) This case describes the development, design, and implementation of a workflow automation system at a tier one automotive supplier, T-1 Auto. In 1994, Lotus Notes was installed as the corporate standard e-mail and workflow platform. The case goes on to describe the design and development of the Lotus Notes workflow management system. The case concludes with a discussion of project success factors and planned future enhancements.

A Dream Project Turns into a Nightmare: How Flawless Software Never Got Implemented, V. Roy and B.A. Aubert, Idea Group Publishing, 8 pages, IT 5660, (setting: Canada) This case details the experience of Integra, a large Canadian life insurance institution, and its partner Intex Consulting, the Canadian subsidiary of a large international information system (IS) integration firm’s launch of its Banking and Loan Insurance Software System (BLISS) development project. After 1.3 million dollars of investment from each partner and twelve months of intensive efforts, the project came to an abrupt stop. Specifically, this case looks at the ramifications of introducing a new and unproven IS product and how to avoid and recover from and IS project failure.

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Large-Scale Sustainable Information Systems Development in a Developing country: The Making of an Islamic Banking Package, Adekunle Okunoye, Idea Publishing Group, 16 pages, IT5680, (setting: International) This case study explores the difficulties encountered in technology transfer to developing countries, specifically examining a company offering IT services to an Islamic bank. The case highlights the circumstances that led to the bank’s decision to develop the systems locally. The case looks at the outsourcing decisions, project management issues, and systems development problems as they relate to developing countries’ successful IS projects.

Colorado Benefits Management System: Decision Time Donald J. McCubbrey and Cynthia V. Fukami, Communications of AIS, Volume 16 Article 34 (setting: public agency, US) In a sense, this is a failure story where a decision must be made about whether the project should be continued or abandoned. Such stories are hard to come by from private firms since the PR people and the management will always try to bury the failure. Thus, this case, like many failure cases, comes out of the public sector where transparency is higher.

Readings/Articles: Fichman, R.G., Keil, Mark, Amrit,T. “Beyond Valuation: "Options Thinking" in IT Project Management.” California Management Review, 2005.

Iacovou, C.L. & Dexter, A.S. “Turning Around Runaway Information Technology Projects.”

California Management Review, 2004.

Lam, W. and Alton Chua. “Knowledge Management Project Abandonment: An Exploratory Examination of Root Causes.” Communications of AIS, 16(35) 2005.

This article studies the abandonment of Knowledge Management systems in Singapore. Lam and Chua use root cause analysis to identify the causes of KM project abandonment in five welldocumented cases of KM drawn from the literature.

AlMarzouq, M., Li Zheng, Guang Rong, Varun Grover, “Open Source: Concepts, Benefits, and Challenges.” Communications of AIS, 16 (37) 2005.

This article represents a tutorial on free and open source software F/OSS that tries objectively to identify and present open source software’s concepts, benefits, and challenges. It also describes approaches to benefiting from F/OSS. King, J. “Post-Y2K: Project management.” Computerworld, (January 18, 1999) http://www.computerworld.com/cwi/story/0,1199,NAV47_STO33557,00.html

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Now that year 2000 work is winding down at Clark Refining & Marketing in St. Louis, CIO Jeff Chasney finally has the time and money to start in on the backlog of IT projects that earlier were forced to the back burner.

Melymuka, K. “Born to Lead Projects.” Computerworld, (March 27, 2000) http://www.computerworld.com/cwi/story/0,1199,NAV47_STO44218,00.html You can train somebody to be a good project manager, but great project managers seem to be born, not made. Excellence depends on certain innate characteristics: some of us got 'em, and some of us don't. "Project management requires competencies in three subject areas: technology, business, and behavior," says Linda Pittinger, CEO of People3, a human resources consultancy in Somerset, N.J. Ideally, project managers should have all three, she says, but if you had to choose only one to focus on, it should be behavior. "People can go to school to learn the technical things, and they can learn the business over time," she says. "The behavioral competencies are the ones people are least able to learn. They're intuitive."

Agarwal, R. J. Prasad, M. Tanniru & J. Lynch. “Risks of rapid application development.”

Communications of the ACM 43(11). 2000.

Millman, H. “Project Management On the Lite Side.” Computerworld, (June 26, 2000), http://www.computerworld.com/cwi/story/0,1199,NAV47_STO46311,00.html Article about an entirely Web-based, free and independently hosted, project management tool called eProject.

Barki, H. S. Rivard & J. Talbot. “An Integrative Contingency Model of Software Project Risk Management.” Journal of Management Information Systems, 17(4) 1999.

This article builds a model of software project risk management based on a profile deviation perspective of fit between the project’s risk and how the project is managed. The model is tested with longitudinal data obtained from leaders of 75 software projects.

Schmidt, R., K. Lyytinen, M. Keil and P. Cule. “Identifying Software Project Risks: An International Delphi Study.” Journal of Management Information Systems, 17(4) 1999.

International Delphi study to obtain listing of project risks.

Books: Yourdon, E. Death March: The Complete Software Developer’s Guide to Surviving “Mission Impossible” Projects. Upper Saddle River, NJ: Prentice Hall, 1997.

This book discusses “doomed to fail” projects that developers get trapped into performing.

Yourdon walks the reader through the project life cycle and shares insights on how to survive failing projects.

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Wysocki, R.K. Effective Project Management: Traditional, Adaptive, & Extreme. NY: John Wiley and Sons, 2003.

Forsberg, K., H. Cotterman, & H. Mooz. Visualizing Project Management: A Model for Business and Technical Success. NY: John Wiley & Sons, 2000.

Rather than offering a full inventory of management techniques, they decompose them into 10 essential elements to provide an innovative approach to project management using a universal project cycle. Excellent graphic charts and 3D models help readers understand the project cycle, enabling them to visualize how each element fits into the overall project picture.

A Guide to the Project Management Body of Knowledge, 3rd edition. Newton Square, PA: Project Management Institute, 2004.

Often referred to as the PMBOK, this book describes a generic project management model, suitable across many disciplines. It is written to be a standard. While it is authoritative and something you should definitely read, it is tough reading for beginners. The book does not proceed in the same sequence as project phases. Available at Amazon.com and other bookstores, and from the PMI, www.pmi.org.

McConnell, S.C. Software Project Survival Guide. Redmond, WA: Micrsoft, 1997.

Provides a short overview of a successful software project and details a plan for software development for medium-sized client/server projects using such modern development practices as object-oriented design and programming. (Can also be adapted for projects using traditional development practices and mainframe computers.) Designed for commercial applications and business systems.

Fleming, Q.W. and Joel M. Koppelman. Earned Value Project Management. Upper Darby, Pa.: Project Management Institute, 2000.

Most project managers with formal project management training know earned value is what you get for what you spend. It's a three-dimensional “early warning'' signal for management. Instead of the conventional actual cost vs. budget comparisons, it includes the dimension of relating the project's scope to the schedule and to the cost performance. It's the “budgeted cost of work performed,'' known affectionately as BCWP. Gilbert, S. 90 Days to Launch: Internet Projects on Time and on Budget. NY: John Wiley & Sons, 2000.

The first in its genre, 90 Days to Launch shows business managers and decision makers how to plan and deliver successful Internet projects, giving step-by-step instructions that will enable a company to efficiently launch a site.

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Ferry, D.D. & N.F. Ferry. 77 Sure-Fire Ways to Kill a Software Project: Destructive Tactics That Cause Budget Overruns, Late Deliveries, and Massive Personnel Turnover. iUniverse.com.

2000.

This book is a lighthearted, black sheep guide to managing software projects. Do you really believe that a spiffy SEI rating or the latest software engineering fad will save someone from working long nights, missing deadlines, or having a nervous breakdown? We've got news: the project didn't get that way by accident. It took a lot of careful planning, and this book will describe how things get out of hand for projects. A fun read.

Websites: www.pmi.org The website for the project management institute. This is a great resource for this topic. The website is for general projects, but they have the latest research, publications, communities of practice, etc. on project management. You can also get the Project Management Body of Knowledge book at this site, and it used to be a free .pdf file (or you can buy the book from them or Amazon.com). www.4pm.com/ A website for project managers, with a lot of good references for the general project manager and a whole sub-website on managing IT projects. www.ipma.ch/ A United Kingdom based project management website for international perspective on project management. Has some good information for "young project managers." http://www.gnu.org/philosophy/free-sw.html Free software definition

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Chapter 11: Knowledge Management, Business Intelligence, and Analytics Overview (The title and location are changed in the 5th edition.) Managers use diverse sources of information to make sound business decisions. Managers struggle with how to generate, capture, analyze, and disseminate knowledge to make sure the organization learns from past experiences and to minimize reinvention. This chapter explores the basics of knowledge management and the current understanding of business intelligence and analytical practices. These topics continue to evolve rapidly.

Discussion Opener: What are the most important considerations regarding IT project management? How will you determine the appropriate software development methodology – SDLC, agile computing, prototyping, etc.?

Key Points in Chapter The introductory case in this chapter is on Caesars Entertainment Corporation, the largest gaming company in the world. Caesars found a way to double revenues by collecting and then analyzing customer data. CEO Gary Loveman did this through mining customer data completely. The company uses loyalty cards to track customer behavior and to determine high revenue customers. It was determined that these customers were motivated by reduced hotel room rates, and they wanted quicker service and shorter lines. This enabled Caesars to keep customers coming back. This case shows how important information can be to an organization, but the organization must be able to collect this data and properly interpret the results of the information. From that point, the company must apply the findings in order to improve business outcomes.

Knowledge management, an emerging discipline, is the collection, organization, and distribution of knowledge assets. Business intelligence describes the set of technologies and processes used to produce actionable information on business performance. Business analytics refer to the use of quantitative data and predictive models to inform business decisions.

Intellectual capital and intellectual property are important topics in this chapter. Individuals expect to be compensated for their knowledge work, and their products should be legally protected.

However, it is difficult to enforce these rules and laws when the product is easily replicated and distributed.

Geographic Lens: When Two National Views of Intellectual Property Collide – This vignette highlights the difficulty of protecting intellectual property rights in an international environment.

This is an uncomfortable topic, especially in diverse class settings with students of different cultural backgrounds. These values of personal property rights might be hard to convey clearly.

Data, information, and knowledge are often used interchangeably, but have significant and discrete meanings within the knowledge management domain. Figure 11.1 concisely summarizes these differences. Figure 11.2 focuses on three types of knowledge (the feedback loops from the 4th edition have been removed). At the most basic level is knowing-what, which encompasses the facts

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without fully understanding these facts. Knowing-how is learned through experience and incorporates an understanding of how to do something. Through reasoning it is possible to have the most complete type of knowledge, knowing-why. Knowing-why involves both knowing-what and knowing-how, and often includes a deeper appreciation of the causality of the situation.

We often speak of two types of knowledge: tacit knowledge is personal, context-specific, and hard to formalize, while explicit knowledge is easily collected, organized, stored, and transferred through digital means. Most information systems focus on this latter type of knowledge, although more current systems are beginning to acknowledge and incorporate facilities to support social interactions and information sharing among individuals as a key component of the system.

There are four main processes to knowledge management. First, the knowledge generation process includes all activities that discover new knowledge. Second, the knowledge capture process includes all the activities that scan, organize, and package the knowledge. Third, the knowledge codification process includes the actions to make the knowledge available to those who need to use it. And finally, the knowledge transfer process includes all the activities that allow the knowledge to be distributed for a variety of uses, and for the absorption of the new knowledge. Tagging allows users to access information more easily through standardized folksonomies of coded data. (XML and XBRL are two examples of tagging that have gained widespread popularity.)

Business intelligence is discussed in the context of moving from knowledge management to BI. Remember, managing knowledge is not a new concept, but one reinvigorated by IT, and KM is still an emerging discipline. Common elements of BI include reporting, querying, dashboards, and scorecards. Visual representations of the data are often preferred by managers since they are easy to interpret and they are often aesthetically pleasing. Color-coding the graphs and charts can increase readability. Technological innovations are rapidly incorporating near real-time data analysis, thereby improving decision making on dynamic performance data. However, it is important to stress that an organization’s only sustainable competitive advantage lies with how its employees apply knowledge to business problems. Students also need to understand that KM is not a magic bullet.

The chapter turns to the more technical aspects of business analytics. Data repositories store the massive amounts of data in data warehouses, or some form of digital collection that is easily indexed and accessed by authorized users. In order to be useful, the data must first be gathered and cleaned (ETL – Extract, Transform, and Load). The software tools are often complex and robust, including techniques such as data mining, searching for trends and patterns in the data, and clustering, grouping data on some key dimensions. The four categories include: statistical analysis, forecasting/extrapolation, predictive modeling, and optimization.

In order for BI and analytics to be institutionalized successfully, managers must create an environment that supports and encourages the use of performance data in decision making. Leaders need to model evidence-based management. A workforce skilled in quantitative analysis techniques is required. Additionally, continued training on new methods is beneficial. Figure 11.7 summarizes the 5 levels of analytical maturity, along with descriptions and sources.

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Big data is a term commonly used to refer to techniques and technologies that are capable of manipulating vast amounts of data (in the exabyte 1018 and zettabyte 1021 ranges). Normal software applications cannot function at that level; specialized tools are required.

With this edition, the chapter includes an overview of social analytics. This class of data is often unstructured and publicly available from social media outlets. Due to the nature of the data, it is difficult to quantify and index for reuse. The postings are often context dependent, leading to rich information on a variety of topics.

The chapter concludes with a discussion of “caveats” for managers to consider. First, KM and BI continue to be emerging disciplines. Managers must continuously scan for new technologies.

Second, making knowledge more visible isn’t always the objective. Managers should be cognizant of competitors seeking information on your business performance. Third, knowledge can be used to develop predictive models and develop future directions. Lastly, it’s all about the people – the analysts with technical skills, the managers making better business decisions, and the employees collecting accurate data at the source. Knowledge sharing is critical to realizing value from these processes.

Illustrative Answers to Discussion Questions 1. The terms data, information, and knowledge are often used interchangeably. But as this chapter discussed, they can be seen as three points on a continuum. What, in your opinion, comes after knowledge on this continuum?

Ans: Some students will say that knowledge is the furthest point on that continuum, as knowledge is the understanding needed to make sense of information. But others may say that wisdom is even further out on the continuum, where wisdom is the extrapolated learning of a number of experiences and a large quantity of knowledge. Note: the continuum was first introduced in the Introduction chapter. This concept is so fundamental that it was repeated in this chapter.

2. What is the difference between tacit and explicit knowledge? From your own experience, describe an example of each. How might an organization manage tacit knowledge?

Ans: Tacit is the knowledge we each, individually, know from our experiences and our thinking. It may not be easily communicated because it may not be something we have ever expressed in words, pictures, or numbers. Explicit knowledge, on the other hand, is the stuff we can point to, write about, or otherwise communicate easily. The trick, of course, is to make tacit knowledge explicit so we can communicate it to others. Each student should have examples of both types of knowledge. Tacit knowledge might be how to throw a baseball, hit a tennis ball, run a marathon, solve a homework problem, etc. Explicit knowledge examples might be the formula for a chemistry project, a financial calculation, the statistics of your favorite sports team, etc. An organization might manage tacit knowledge explicitly, that is by trying to get individuals to make their tacit knowledge explicit then record it in a database, or by acknowledging the difficulty and by creating communities of practice, gurus, and other people-based systems that facilitate discussions and interactions as a means of transferring knowledge. (See Figure 11.5 for Nonaka and Takeuchi’s four modes of knowledge conversion.)

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3. What does it take to be a successful competitor using business analytics? What is IT’s role in helping build this competence for the enterprise?

Ans: Good data (i.e. accurate and timely) is at the core of business analytics. Organizations must have high quality data that can be accessed and examined very carefully and methodically. Data mining is key to finding the “gems” of information. Organizations must be able to quickly turn their data into valuable information that can be used for competitive advantage. The corporate culture needs to be aligned to an analytics environment that includes: an incentive system, metrics to be used to measure the success of initiatives, and appropriate processes that have been developed for using analytics. Also, a skilled work force (experts) is needed. To be truly successful, the managers must set the example (CEO-level sponsorship) and the organization must require that decisions be made using analytics. IT is key to providing the infrastructure to enable and support such a movement.

4. How do social analytics aid an organization?

Ans: Social analytics capture dynamic, current information about the company and its products, typically from customers and prospects. Knowing the real-time response to products and services gives valuable information to the company. A quick response, validating the feedback and acting upon it, can secure goodwill and market share. Customers might even signal future directions for new products or services, much like crowdsourcing.

5. Why is it so difficult to protect intellectual property? Do you think that the Digital Millennium Copyright Act is the type of legislation that should be enacted to protect intellectual property? Why or why not?

Ans: It is difficult to protect intellectual property because information can be reproduced at zero cost, with a perfect copy of the original work. Unlike physical or tangible products, there are no manufacturing costs and essentially no degradation in the reproduction process. Piracy is a huge problem for copyrighted materials (e.g. movies and music). Students are usually strongly opposed to the DMCA. The emotional, less rational response tends to be either, “It’s the industry’s fault for not protecting the material,” “The product is overpriced, and I can’t afford it. So, I had to take it,” or “Everybody’s doing it!” Be sure they understand what is meant by intellectual property. Urge them to look at the DMCA from multiple perspectives: the record companies, the musical artists, and the people who want to hear the music (not always customers). Move from the music industry to the software industry. For those who are planning on becoming software developers, ask them how they would feel about people using their code without paying for it. (There may be a discussion of open sourcing here. Open sourcing is discussed at the end of the preceding chapter.)

6. PriceWaterhouse Coopers. Why do you think the Knowledge Curve is underutilized?

Ans: There could be many reasons. Some include: the knowledge is not stored in an easily retrievable form (i.e., people may use different terms), experts may be unwilling to place the knowledge that distinguishes them from others in a repository that can be accessed by anyone in the company (i.e., the reward system may not compensate them adequately for sharing their

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knowledge), or people may prefer talking with a colleague to retrieving the information from a computer-based system. Ask the employees why they aren’t using the Knowledge Curve.

Further Discussion Questions 1. The terms data, information and knowledge are often discussed as a progression. Ask students to identify a number written as such: 4018651000. They will likely have many guesses such as a social security number. Then, ask them to identify the same number if you write it out as follows: (401) 865-1000. They will know it is a phone number. The point is that the data (the raw number) ‘became’ information when it was seen displayed in the proper context. The format provided meaning. However, students only knew this because they had a priori knowledge of what a North American phone number would look like. Engage them in this discussion and then pose the following discussion questions: a.) Does this mean we can only gather data if we know what to look for? If so, where does knowledge come from? b.) What implications does this thought have for actual data collection (marketing data)?

For instance – how much a priori knowledge must we have to make data gathering useful?

2. Because students typically have a difficult time applying the knowledge transfer process, a short exercise (15-20 minutes) may be helpful. Break them into small groups and ask them to focus on one organization, preferably an organization where one of the students works. Ask them to identify different experts in this organization. For one of these types of experts describe: a) tacit knowledge they have. b) explicit knowledge related to their jobs and places where this knowledge can be found. c) benefits derived from capturing their tacit knowledge and making it explicit. d) problems in capturing their tacit knowledge. e) suggestions on how to capture their tacit knowledge.

Case Study 11-1: Stop and Shop’s Scan it! App This case explains a company’s use of convenient, time-saving, self-scanning technology for customer use, and the added benefit of data analytics to improve business decision making.

Discussion Questions 1. What is the benefit of the Scan It data to Stop and Shop? What are some of the questions they can answer about their customers?

Ans: Stop & Shop received multiple benefits from their new application. First, their customer loyalty increased. Second, the customers bought more products, encouraged to make purchases based on the special offers directed to them. Third, their customer base increased through word of mouth advertising. The data allowed the company to manage its inventory and to direct special offers to customers based on purchasing history. They can answer questions such as: what do my customers want to buy? What compatible products can I offer for cross-selling opportunities? What

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possible up-selling opportunities might there be? Students should think creatively about the uses of customer data.

2. How would you assess the level of maturity of Stop & Shop’s use of analytics? What might they do differently with the data to gain more value?

Ans: Reference Figure 11.7, “Analytical capabilities maturity levels.” Answers may vary, but the students should be able to explain their decision based on the information presented in the text. The Stop & Shop data is collected dynamically in real-time. It’s possible to gauge them as Level 4: Operationalizing since their analytical tools can process the data and provide predictions and the information can be viewed from an enterprise perspective. To move up to Level 5: Activating, Stop & Shop could integrate the Scan It! system with other operational systems to gain the most from the data collected. The inventory management system could automatically re-order based on actual sales. Even employee scheduling could be linked into the database and adjust employee hours based on predictive information. To be more creative, the system could be linked to external event calendars to help Stop & Shop anticipate uncommon demand for specific products (e.g. Gatorade for a basketball tournament in the town). Encourage creative brainstorming.

3. What concerns might shoppers have about their privacy? How would you advise Stop & Shop management to respond to these concerns?

Ans: Shoppers might want to be assured that the data was being protected and not shared in ways they weren’t told about in advance. Also, databases are often sold to external 3rd parties that use the data to spam the customers with unwanted products and services. That is a huge imposition and annoyance. Stop & Shop management should provide privacy assurances and post the data use policies in the store. They should also have a webpage, blog, and/or social media site to explain how they protect customer data. They could invite customer feedback, and respond honestly to questions.

Mini Case 11-2: Business Intelligence at CKE Restaurants This case is the same as Case 12-2 in the 4th edition, although the title was changed.

Discussion Questions 1. How does the BIS at CKE add value to the business?

Ans: CKE’s CPR analyzes a great amount of information: 44 factors from each of its stores. The massive amounts of data would be difficult to analyze without data mining. By analyzing some of these factors in juxtaposition, data mining uncovers previously unknown relationships related to buying habits and potential new products such as Monster Thickburger. The results are used to identify trends and areas where the company can cut costs. Chasney, the CIO, says the results are only noise if they don’t report important information or enable good decisions.

2. What are some tips for developing and using the knowledge management system described in the case?

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Ans: The designers of CPR focused on providing managers with insights, not just “mountains of data.” CPR provides a context that is meaningful for managers for analyzing the information generated by the system. The designers of the system started with decision-making processes to understand how executives made decisions and the information that they needed for these decisions. Then the designers studied the preferred formats of these decision makers. They found that different decision makers wanted different information in different formats. For instance, the COOs wanted help in exposing business opportunities, while the CEO wanted to know what caused changes in sales. The system was designed to be flexible in providing different types of information. The designers of the system focused on what information could be provided, not what information was currently provided.

3. Was the introduction of the Monster Thickburger a good idea or an example of information leading to a wrong decision?

Ans: All indications are that this was a good decision, at least for the short term. Sales clearly are up and the Monster Thickburger is received well by Hardee’s customers. CKE’s CPR provided enough information to ensure that the burger is priced to make a good profit. Given the focus on health consciousness in the US, the decision to sell the Monster Thickburger may be viewed as counterintuitive. Yet CKE’s CPR helped management realize the potential of selling Monster Thickburgers. In the long run, the Monster Thickburger may lead to a negative image of Hardee’s as a fast food provider that ignores the health of its customers, similar to that experienced by McDonald’s. They will need to continue to monitor sales and trends to anticipate social changes affecting revenue. (CKE might develop a marketing campaign similar to McDonald’s current ‘Under 400 Calories’ advertising message.)

Supplemental Readings Cases: Prediction Markets at Google, Coles, P.A., Lakhani, K.R., and McAfee, A. Harvard Business School, 21 pages, 607088, 2007 (setting: California) Google has used predictive analytics over eight quarters of operation. They are now looking for ways to increase participation in the market and to find new uses for the predictions.

A Strategic Approach to Knowledge Management, Perrott, B.E. Business Horizons, Vol. 50, pp.

523-533, 11 pages, BH257, 2007 (setting: Health Care Industry) This article presents a new model, or paradigm, for knowledge management. The authors offer a knowledge process model to guide future discussion and research.

Supply Chain Management at Wal-Mart, Johnson, F.P. Richard Ivey School of Business, 15 pages, 907D01, 2008 (setting: U.S./Retail)

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This case focuses on Wal-Mart’s use of SCM to optimize inventory management. Competitors have copied many of the processes that created a competitive advantage in the past. Wal-Mart needs to develop new practices to regain first mover advantage.

McKinsey and the Globalization of Consultancy by Geoffrey Jones & Alexis Lefort. Harvard Business School Publishing, 2005 (15 pages) Considers McKinsey's strategy during the first stage of the globalization of the management consultancy industry.

IDEO: Service Design by Manuel Sosa. INSEAD. 2005; (25 pages) This case describes how IDEO adapts its famed innovation process (developed to design new products) to the particularities of services and their design. The case series describes four service design projects to show how IDEO has developed and codified a series of design methods, which constitute a toolbox from which teams can pick and choose depending on the innovation project.

Intelliseek by Luc Wathieu & Allan Friedman. Harvard Business School Publishing. 2005; (22 pages) This "marketing intelligence" company has been successful selling its reports to the car industry, but finds it difficult to achieve client retention. New initiatives are suggested: (1) to arrange data in problem-specific templates so that it is more "actionable" and (2) to develop industry benchmark metrics against which the metrics can be compared in a more informative manner.

IBM's Knowledge Management Proposal for the Ontario Ministry of Education by D. Meister & K. Mark. Richard Ivey School of Business. 2005 (14 pages) The knowledge management consultant for IBM Canada's Ltd. business consulting service was preparing for a meeting with Ontario's Deputy Minister of Education. The purpose of the meeting was to secure top-level support for an early-stage Knowledge Management program at the ministry.

Knowledge Management at Ernst & Young by Miklos Saryary and Ann Marie Chard, Stanford University This case reviews a six year effort to build a firm-wide KM system. The case raises the following points for discussion: the definition of KM, the impact of KM on the consulting industry, the use of KM to build competitive advantage, the criteria used to evaluate a KM, and the process for building a KM system.

Buckman Laboratories (A) by William Fulmer, Harvard Business School, Case number 800160 This case explores the implementation of a cutting-edge knowledge management system in a midsize, specialty chemical company. This case also examines the challenge of building virtual trust in a global organization. The case has a video available showing the President of Buckman

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Laboratories talking with an Executive Education class at Harvard. The case can stand alone, without the video.

SAFECO: Leveraging the Web in a Knowledge-Based Service Industry, Debabroto Chatterjee and Leonard M. Jessup, Idea Publishing Group, 17 pages, IT5578, (setting: U.S.) This case examines how SAFECO, a large corporation in the insurance and financial services industry, is strategizing for and implementing technologies to exploit the Web. Enterprise Information Portal Implementation: Knowledge Sharing Efforts of a Pharmaceutical Company, Allison Manning and Suprateek Sarker, Idea Publishing Group, 17 pages, IT5632, (setting: U.S.) This case study provides a detailed account of a portal implementation initiative for enabling knowledge sharing in a pharmaceutical company. Specific issues discussed include selection of a portal, justification for this selection, challenges in organizing and linking documents, as well as the social and behavioral issues influencing the implementation.

Spreadsheets as Knowledge Management Documents: Knowledge Transfer for Small Business Web Site Decisions, Stephen Burgess and Don Schauder, Idea Publishing Group, 17 pages, IT5686, (setting: Australia) This case describes the creation of a practical decision support tool (using a spreadsheet) for the initiation and development of small business Websites. Using selected literature from structuration theory, information management, and knowledge management, decision support tools are characterized as knowledge documents (communication agents for explicit knowledge).

Understanding decision support tools as knowledge documents sheds light on their potentialities and limitations.

Readings/Articles: Michelman, Paul. “Methodology: Making Idea Sharing Pay Off.” Harvard Business Review, 83(1) 2005.

Reich, R. B. “Plenty of Knowledge Work to Go Around.” Harvard Business Review, 83(2) 2005.

Ruggles, R. “The State of the Notion: Knowledge Management in Practice.” California Management Review. 40(3) 1998.

Reports survey results about how firms are actually managing knowledge, what they think they could or should be doing, and what they feel are the greatest barriers they face in their efforts.

Alavi D. & D.E. Leidner. “Review: Knowledge Management and Knowledge Management Systems: Conceptual Foundations and Research Issues.” MIS Quarterly, 25 (1) 2002.

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Provides a review and integration of knowledge management literature.

Colins, H.M. “Humans, machines, and the structure of knowledge.” SEHR, July, 4(2) 1995. http://www.stanford.edu/group/SHR/4-2/text/collins.html Discusses different types of knowledge and what can and cannot be transferred by machines.

Deckmyn, D. “U.K. Firm Hopes to Cash In On Knowledge Management.” Computerworld, June 28, 1999.

Article about British energy company BG PLC's knowledge management project, which started as a homegrown system, but is now marketed to others. http://www.computerworld.com/cwi/Printer_Friendly_Version/0,1212,NAV47_STO36184,00.html Garner, R. “Please Don't Call it Knowledge Management!” Computerworld, August 09, 1999.

Five years ago, a ballroom full of pioneers and enthusiasts flocked to Boston to discuss the hot new concept of knowledge management. Today, those disillusioned pioneers have a pointed message. http://www.computerworld.com/cwi/story/0,1199,NAV47_STO36610,00.html Ambrosino, J. “Knowledge Management Mistakes.” Computerworld, July 3, 2000. http://www.computerworld.com/cwi/story/0,1199,NAV47_STO46693,00.html.

Experts reveal five pitfalls to avoid when starting down the knowledge management path.

Anthes, G. “Charting a Knowledge Management Course.” Computerworld, August 21, 2000. http://www.computerworld.com/cwi/story/0,1199,NAV47_STO48722,00.html Great article about the knowledge management activities in the US Navy.

Fickel, L. “Know-It-Alls.” CIO Magazine, November 1, 2001. http://www.cio.com/archive/110101/knowitall.html To streamline customer service, Marconi employed a system to facilitate knowledge sharing among its tech support personnel. In the process, the roles of tech agents changed dramatically.

Books: Davenport, T. & J. C. Beck. The Attention Economy: Understanding the New Currency of Business. MA: Harvard Business School Press, 2001.

Sutton R. & J. Pfeffer. The Knowing-Doing Gap: How Smart Companies Turn Knowledge into Action. MA: Harvard Business School, 2000.

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Von Krogh, G. Kazuo Ichijo, & Ikujiro Nonaka. Enabling Knowledge Creation: How to Unlock the Mystery of Tacit Knowledge and Release the Power of Innovation. London: Oxford University Press, 2000.

Davenport, T. & L. Prusak. Working Knowledge, MA: Harvard Business School, 2000.

Liebowitz, J. Building Organizational Intelligence: A Knowledge Management Primer.

NY: CRC Press, 1999.

Tiwana, A. Knowledge Management Toolkit, The: Practical Techniques for Building a Knowledge Management System. NJ: Prentice Hall, 1999.

Koulopoulos, T.M. & Richard Spinello (Contributor), Wayne D. Toms. Corporate Instinct: Building a Knowing Enterprise for the 21st Century. NY: John Wiley & Sons, 1997.

Nonaka, I., Hirotaka Takeuchi, & Hiro Takeuchi. The Knowledge-Creating Company: How Japanese Companies Create the Dynamics of Innovation. London: Oxford Univ. 1995.

Websites: http://www.microsoft.com/en-us/bi/default.aspx Microsoft’s BI webpage presenting the portal for this product. http://www.sas.com/technologies/bi/ SAS product description and links to BI and Analytics product offerings. http://www.oracle.com/us/solutions/business-analytics/overview/index.html Oracle’s BI and Extreme Analytics page, with links to more information. http://www.sap.com/solutions/analytics/business-intelligence/index.epx SAP’s solution for Business Intelligence. http://www.brint.com/km/ Knowledge Management Portal at Brint.com, The BizTech Network This portal is a virtual library on KM. The library has links to forums, articles, events, white papers, recent news, resources, job postings, and more. www.cio.com/research/knowledge/ Knowledge Management Resource Center at CIO.com

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This site contains well-written, detailed cases of companies that are implementing KM systems.

There are also links to articles, white papers, book reviews, resources, radio interviews, and events. http://www.cio.com/forums/knowledge/ Cases, Q & A, Book Reviews, etc. www.kmresource.com KMWorld.com www.systems-thinking.org/kmgmt/kmgmt.htm An introduction to key concepts in the field. Features annotated links to related resources. By Gene Bellinger.

Note that both Computerworld (www.computerworld.com) and Information Week (www.infoweek.com) have extensive libraries on this topic. Do a search at either website on knowledge management to find the latest articles.

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Chapter 12: Using Information Ethically Overview Managers are regularly faced with decisions that call into question the ethical or moral aspect of using information. Just because something can be done, technically or organizationally, does not mean it should be done. The objective of this chapter is to bring this debate out in the open in order to sensitize the general manager to situations and consequences of information system decisions.

Discussion Opener: How can data analytics and business intelligence assist managers in developing competitive advantage? What specific actions can managers take to benefit from knowledge management systems?

Key Points in Chapter This chapter begins with a discussion of the problem encountered at TJX Co. when it found the largest security breach in the history of retailing. It estimated that as many as many as 94 million customers’ credit card data had been compromised. According to law, they had up to 45 days to contact the customers about the security breach. They faced the dilemma of whether or not they should immediately notify their customers so that they could take action to prevent themselves from identify theft; if they notified them before they had corrected the problem they might have more problems from other hackers who might take advantage of the breach, which may hurt their image and in turn impact their shareholders value. Managers must serve as the guardians of the information entrusted to them by their customers and must be prepared to know all of the legal issues involved in protecting and utilizing the information. But it highlights the main message of this chapter: technology allows companies to create valuable competitive advantages with information, but at the same time, technology, and the new knowledge created, must be managed, protected, and used responsibly, ethically, and legally.

Managers must deal effectively with issues related to ethical and moral governance of IS. Unfortunately, as with many emerging fields, well accepted guidelines do not exist. Therefore, managers bear a greater responsibility as they make decisions. The managers are the guardians of the public and private interest and must act accordingly. Managers must assess current information initiatives with particular attention to possible ethical issues. Managers in the information age must translate their current ethical norms into terms meaningful for the electronic corporation. To begin to develop this new language, this chapter presents three normative theories of business ethics: stockholder theory, stakeholder theory, and social welfare theory.

The stockholder theory begins with the assumption that stockholders engage corporate managers to act as agents to advance stockholder interests, usually interpreted as maximizing stockholder value.

This theory implies that managers must employ legal means to do business and that managers must take the long-term view of stockholder interest (they must forgo short term gains if doing so will maximize value over the long term). This theory provides a limited framework for moral argument because it assumes the ability of the free market to fully promote the interests of society at large.

However, the singular focus on profit at the expense of moral and ethical considerations is not often compatible with the long-term success with which managers are charged.

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The stakeholder theory suggests that managers are bound by their relationship to stockholders and in addition entrusted with fiduciary responsibility for all individuals and groups who have a stake in the organization. That means stockholders, as well as employees, management, unions, customers, vendors, the local community, and a number of other groups. This theory calls for managers to balance the often-competing interests of these groups and to act responsibly to make decisions.

The third theory, the social contract theory, puts the needs of society first and foremost in the priority of corporate managers concerns. The overriding objective of managers, under this theory, is to create value for society in a manner that is just and nondiscriminatory. The problem with this theory is that, in the absence of a contract, it is difficult for managers to put societal interests ahead of corporate profitability simply in the name of altruism. Yet the strength of this theory is the broad assessment it gives to evaluating morality of business activities. It is important that students understand that even though each of these theories are distinct, they are not incompatible. Many organizations employ a hybrid approach to normative ethics.

Control of information is covered next and there are four key areas where control of information is critical, as summarized by Mason’s PAPA framework: Privacy, Accuracy, Property, and Accessibility. For example, most Americans consider privacy to be one of the most important areas in which their interests need to be safeguarded. Customers expect a certain level of information gathering as part of normal management activity. But used inappropriately, the information gathered through normal business processes for management purposes becomes the focus of legal actions designed to protect individual privacy rights. Even if companies don’t intend to share personal information, allowing accessibility can negatively impact individuals, as in the case when it leads to identity theft. This is becoming increasingly important with the rash of identify thefts that take place on a daily basis, and with new laws being enacted by government agencies; managers must know what they can and cannot do with the information stored in there IS. This is also true for the accuracy of the information in the system. Clients must have confidence that the information stored about them is accurate. Imagine the hardship that someone must endure if their financial or health data is incorrect, or the potential physical harm that could befall a patient at a hospital if their information is entered incorrectly or mixed up with another patient’s information.

In the networked age, many managers have begun to question the efficacy of technology in the workplace. An increasing number of products allow managers to monitor or restrict access of employees to certain Internet sites. The use of monitoring and surveillance software highlights an increase in the level of control employers can exert over employees. Environmental issues are a third area of concern for managers, as societal pressures on businesses have increasingly focused on worker health and atmosphere pollution. Information usage guidelines must come from senior executives, however every manager is responsible for making his or her decisions in an ethical and moral manner.

Security and control of the Internet is another issue concerned with protecting organizational data from hackers and undesirable viruses. Threats to security can be both internal and external. While a number of tools exist to help managers implement security and control policies to counteract these threats, it is still up to the general managers, not just the information systems managers, to set the policies. Further, managers at all levels must champion the protection of their employees’ rights and information. The importance of training and awareness programs is stressed. DDoS and other

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types of attacks need to be at least partially understood by managers so that they can appreciate the seriousness of these attacks (see Figure 9.3 for some tools that are used to restrict access).

The next section covers IT Governance and Security. Important to any organization is a wellplanned security strategy. Weill and Ross Framework for IT governance (see Chapter 8) offers a new perspective for assigning responsibility for key security decisions. Figure 9.4 shows an appropriate governance pattern for each decision. A good project for students would be to evaluate several information security policies of different kinds of organizations and then to recommend one for their own company (create a fictitious business case). The infrastructure must be carefully planned to enhance security and the proper tools (firewalls, intrusion detection and prevention systems, etc.) must be implemented to provide for a secure environment (within constraints defined by the organization). Employees must be properly educated and trained on the security strategy and policies. Something as simple as how to create a strong password should be communicated to the employees (see http://www.microsoft.com/protect/yourself/password/create.mspx for a brief explanation).

The Sarbanes-Oxley Act of 2002 has brought security and controls to the attention of IT managers as well as CEOs, CFOs, and auditors. Though not originally intended for them, IT managers are finding that they play a critical role in ensuring the accuracy of financial data and implementing organizational control. The section specifies five IT weaknesses that were repeatedly uncovered by auditors. Some frameworks for implementing SOX include COSO, COBIT, and the ITIL. COSO (Committee of Sponsoring Organizations) of the Treadway Commission created three control objectives for management and auditors that focused on dealing with risks to internal control.

COBIT (Control Objectives for Information and Related Technology) is an IT governance framework that is consistent with COSO controls. It was issued in 1996 by the Information Systems Audit & Control Association (ISACA). A company determines the processes that are the most susceptible to the risks that it judiciously chooses to manage. Control objectives are then set up with more specific key indicators. The advantages of COSO are that it is well-suited to organizations focused on risk management and mitigation, and very detailed. Disadvantages are that is can be costly and time consuming (see Figure 9.5).

The food for thought section of this chapter focuses on Green Computing. More and more organizations are embracing environmentally responsible computing. Gartner has put Green Computing at the top of its list of upcoming strategic technologies which puts pressure on companies to implement these strategies. Companies are working to become more efficient through a number of strategies (make sure to discuss this point with students and have them brainstorm on other ways that an organization can become more efficient).

Illustrative Answers to Discussion Questions 1. Private corporate data is often encrypted using a key, which is needed to decrypt the information.

Who within the corporation should be responsible for maintaining the "keys" to private information collected about consumers? Is that the same person who should have the "keys" to employee data?

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Ans: This question is designed to provoke thoughtful decision making about protecting security.

Maintaining the key can be done by the system itself, by the owner of the system, by the IS organization, or any number of other individuals or groups. There is no reason the person maintaining the key for customer data should not be the same person as the one maintaining the key to employee data, if that person’s job is a security-type job. On the other hand, marketing may manage customer data, and therefore manage the key to that data. And HR might manage the employee data and hence manage the key to that data.

2. The Lotus Marketplace case study highlighted the potential of combining otherwise unthreatening databases. In their case, the resulting database showed patterns of spending and placed consumers into categories that reflected personal data the consumers felt was private. But many organizations these days collect individual information, including your credit card provider, your bank, your creditors, and virtually any retail store in which you use a credit card or other identifying customer number. Who owns the information that is collected? Do you, the person who initially provided information to the collector? Or the collecting organization that spent the resources to save the information in the first place?

Ans: Again, there is no right answer to these questions. Some feel that the individual customer owns the information about purchases, credit cards, etc. Others feel that when a credit card is used, the customer gives permission to the retailer to use that information to make a purchase. If the student thinks the customer owns the information, then using it for anything other than the single transaction authorized at the moment is a violation of the implied agreement between the customer and collector. In that case, the collector should not store the information at all (a debatable action), and certainly should not use that information for any further transactions (such as alerting customers to related opportunities, etc.). But most websites, for example, collect such information and regularly use it to alert customers to information they may be interested in. For example, Amazon.com keeps track of my book purchases and suggests books I might want to know about when I next log in. Other companies are more intrusive, sending me information via email or fax.

The astute student will give some indication where their personal line is, and examples of when it is crossed.

3. Consider arrest records, which are mostly computerized and stored locally by law enforcement agencies, but have an accuracy rate of about 50%--about half of them are inaccurate, incomplete, or ambiguous. But these records are used by more people than just law enforcement. Approximately 90% of all criminal histories in the United States are available to public and private employers. Use the 3 normative theories of business ethics to analyze the ethical issues surrounding this situation.

How might hiring decisions be influenced inappropriately by this information?

Ans: The perspective from the three theories might be: a. Stockholder theory- Managers must collect all information on employees if that information may give indication that the employee may cause potential loss of profit to a company. For that reason alone, managers must get this information to make the responsible hiring decisions its stockholders expect. b. Stakeholder theory- Managers must collect all information on employees if that information indicates that the new hire may cause harm or damage to the interests of

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the other stakeholders. The new hire him/herself is a stakeholder, but under this theory, the effect on the many would often outweigh the potential harm to the individual. Managers have the responsibility to check to make sure the information is accurate, and possibly should confront the potential new hire to seek an explanation (which may point out that the information is inaccurate). But ultimately it is only the manager’s responsibility, under this theory, to consider the impact on all stakeholders and make the responsible decision. c. Social contract theory- This theory, with the widest net cast on concerns the manager must consider, would question the validity of even requesting the information if it is known how inaccurate it is likely to be. A responsible manager may still want to collect this information to make sure the organization, and all that it constitutes, is protected if possible, but it would also be the responsibility of the manager to make sure that inaccurate records are cleared up. That means, at a minimum, confronting the potential hire and giving him/her a chance to explain or clear up his/her record.

A manager who gets information indicating that a person has a criminal record might be discouraged from hiring a potential candidate. But if that information is incorrect, and if the candidate were to learn that the information was known by the organization, then there might be opportunity for legal action to be taken against the organization that manages the criminal information.

4. The European Community’s Directive on Data Protection that was put into effect in 1998 strictly limits how database information is used and who has access to it. Some of the restrictions include registering all databases containing personal information with the countries in which they are operating, collecting data only with the consent of the subjects, and telling subjects about the database and the intended and actual use of the databases. What effect might these restrictions have on global companies? In your opinion, should these types of restrictions be made into law? Why or why not? Should the United States bring its laws in agreement with the EU Directive?

Ans: The effect of these restrictions on global companies can be looked at from an economic perspective and from an ethical perspective. From an economic perspective these restrictions are at best costly and at worst would keep managers from doing interesting and potentially valuable business in the European Community. Contacting, seeking consent, and managing the replies received from all individuals in the database in every country in which the data exists is a costly venture. But worse would be the vast complexities in each country that must be known and managed using local customs and laws. Ethically, however, this type of restriction begins to protect the individual citizens by alerting them to the information collected on them. Using the three theories from the chapter would show that the stockholder theory and possibly the shareholder theory would suggest that this type of compliance would only be done if it was a law or if local reaction was anticipated to be so strongly negative as to affect the company’s ability to do business.

The social contract theory would suggest that such a restriction would be a reasonable way to safeguard the individuals in each country. This type of restriction, however, might keep companies from doing business in the European Community because of the enormous cost of compliance and the potential risks of noncompliance. Students are asked for their opinion on whether this type of

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restriction should or should not be implemented. Either answer is acceptable, provided an explanation is given.

5. Should there be a global internet privacy policy?

Ans: This could be a very lively discussion question for students. Perhaps write it on the board or put it in the PPT presentation to start off the class, or embed after the slide on privacy policies.

There will most likely be a diverse set of answers and opinions on this subject. The pros of creating this policy would be to standardize the way data is handled and treated around the globe. This would make it easier for companies to do business in other nations and regions. Cons would include the enforcement of such a policy (very difficult and expensive). Also, who would be responsible for this policy and have control and influence over what goes into the substance of the document? This could be problematic and may cause more problems than it could potentially fix.

The U.N. is likely to come up as a managing body, but it will be interesting to see how students respond to this question.

6. Is anonymous click-stream tracking and profiling objectionable? Is sending targeted advertising information to a computer using cookie ID numbers objectionable?

Ans: There will be a significant amount of disagreement on this question. Students that are concerned with any data being tracked and profiled will see this as an intrusion on their privacy and use of the Internet. Students who see the benefit of this data collection from a business perspective will see the potential competitive advantage that may be achieved and will therefore be more lenient. The discussion should be addressed from the social contract theory to help students determine the infringement issues that this question raises. They should discuss informed consent versus anonymous tracking, and how anonymous that tracking really is.

7. What is your opinion of the English ID card discussed in this chapter?

Ans: Remind the students of the purpose of the card - “in the United Kingdom a debate is underway about making compulsory a national identity card that would contain 49 different types of information including name, birth date and place, current and past addresses, a head and shoulders photograph, fingerprints, an iris scan and other biometric information, personal reference information, and registration and record histories. The British government is arguing that the card would give people a convenient way of proving their identity and preventing identity theft. It would also offer a secure way of identifying people for national security, detect crime, aid in enforcing immigration controls, prevent illegal working, and assist in providing public services. Opponents fear the card will create a “Big Brother” world.”

On the one hand, the card would provide for easier identification of the holder. But it also contains a significant amount of information on the holder that could be compromised if lost or stolen. Also, it may give too much information and be used against the holder by government agencies and employers. Students need to debate this issue from a variety of perspectives (national security vs. personal privacy).

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Further Discussion Questions When the video cassette recorder (VCR) was introduced, charges were laid against one of the largest manufacturers of the device that the manufacturer should bear the liability for the ability the VCR gave consumers to steal copyrighted material (copy movies and videotapes). The company in question successfully defended itself and established a long-held precedent that a manufacturer should not be liable if its products are misused. That manufacturer was Sony. Sony is now one of the largest owners of digital content libraries in the world, and it aggressively prosecutes individuals that steal copyrighted material. And, in a radical change of direction, Sony is attempting to bring legal action against software development companies for the production of software that allows peer-to-peer (P2P) sharing of material. The claim Sony is making is that these corporations are providing a tool that allows individuals to steal Sony’s intellectual property. The companies defending themselves against Sony are using the “Sony Defense.”

1. Discuss whether you think companies should be allowed to develop P2P applications; what are the dangers of stifling such development? Can it truly be stopped?

2. What alternatives might Sony pursue, rather than aggressive litigation, to solve the problem it currently faces in the theft (piracy) of copyrighted material?

3. Discuss how legitimate Sony’s claim is, given its past defense.

Case Study 9-1: Ethical Decision Making These six small situations can be used to spark discussion about how to think about and use the ethical frameworks from the book. While the simplicity of these situations is unrealistic, it is useful to begin a dialog about ethical issues before a manager actually faces one and has to make a decision. It is in this light that these situations, and my comments, are offered.

Situation 1: The point of this minicase is to highlight that even though you have the ability to look at something, it may not be right to do it. The supervisor is in a difficult position, since Doug wants him/her to look at individual hard disks. Technically, the hard disks and anything on them belongs to the company, but historically, it has been treated as though it was private for the person using the computer. How might the supervisor handle it? He/she might ask Doug for more specific criteria to enhance quality of the work (go to the root of the problem and look for a more ethical way to handle it). He/she might ask each member of the pool to submit a document and/or take part in regular reviews. Or he/she might just go on the hard disk and get the document sample, if a good process is put in place to evaluate and respond to the information found. In any case, the pool needs to know that in the future all work on the disk is the property of, and hence can be looked at by anyone at, the company. This open communication may help improve the level of trust between the manager, supervisor, and employees at this company. The management can communicate that the data may be used to provide rewards for good performance, or to indicate areas where more training is needed.

Situation 2: The dilemma comes into play because while Olsen is violating a company principle of no personal calls, he is doing so for an emergency situation: a sick child. Essex might want to have a discussion with Olsen to make sure he knows company policy, but at the same time, reassure him that an emergency situation will not mean expulsion from the company. Essex might also work to

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make sure the management practices take into account personal emergencies so there is no ambiguity the next time this happens. Have the students analyze this case from the perspective of stockholder versus stakeholder versus social contract theories.

Situation 3: Legally, Jane is required to get rid of her backup copy when the license is revoked and the company cannot still use the system beyond any contracts they have already executed with the original company. The critical nature of the system only increases the anxiety about finding a new system to replace it. We_Sell_More.com might want to negotiate with the parent company for continued rights beyond any contract they already have.

Situation 4: Point out to the students that although this case led to Napster filing for bankruptcy and ultimately reorganizing under a new business model, the issues are still relevant. Those students who argue that Napster should have been allowed to continue their operations often argue that the record companies do not treat customers or artists fairly. Explore with them the arguments that they may make regarding the fact that copying music files is a widespread practice. While it could be argued that Metallica is losing money from the copying, students often counter that they primarily earn money from their concerts and not from the sale of the music. In fact, some music files are available for free on the Metallica site. Explore the issue from the perspective of the various stakeholders.

Situation 5: This situation ties in with the current US debate about the rights of individuals vs. the need for the government to enact stringent measures to combat terrorism. Congress is clearly divided, as are the states. Some states are participating in MATRIX while even more have decided not to. Why did some states decide to pull out of MATRIX? Explore the situation from the perspective of various stakeholders.

Situation 6: This situation is another version of Situation 1. At issue here is the right of an organization to employ software to study the emails of its employees. Legally, emails may be read by employers. Given the pervasiveness of email usage in the workforce, is this an ethical practice?

Here again, the surveillance without notifying the employees is an important issue. Discuss steps managers should take if the software is installed. Explore the situation from the perspective of various stakeholders.

Case Study 9-2: Midwest Family Mutual Goes Green This case focuses on how a company can become more responsible with its use of natural resources. Midwest saw a substantial decrease in energy consumption through its implementation of a number of green initiatives (virtual “work from home” office environment). They also found that being “green” helped their bottom line by decreasing expenses. Through the use of IT, the company has been able to achieve this remarkable transformation.

1. Do you think that the economic benefits that Midwest Family Mutual realized as a result of green computing are unusual? Do you think most companies can see similar types of economic gains? Explain.

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Ans: I don’t think they are unusual for a service industry, but it would depend upon the type of company and the need of having the employees work in close physical proximity. A company that is involved in manufacturing would not be able to realize the same level of economic gain, since its employees would need to be at the plant location. However, any type of insurance company or company that didn’t rely on the need to be at a particular physical location could see the same results.

2. What are some possible disadvantages the employees of Midwest Family Mutual may be experiencing as a result of their new virtual "work from home" office environment?

Ans: Possible disadvantages include:isolation from other workers, accountability from supervisors, always being at work (when home), etc. Teleworkers tend to work more hours since their work is just down the hall or in the other room. Security and reliability of their connection to the corporate network, including the VoIP system could easily be disruptive due to an issue in their neighborhood. The company will need contingency plans in case of wide spread outages of services with their employees.

3. Apply the normative theories of business ethics to this situation.

Ans: In the stockholder theory, the company would be helping to maximize shareholder value by minimizing costs and maximizing profit. For stakeholder theory, the company is considering its employees, customers, and others, but it may have an indirect impact on companies in close proximity to the office (fewer people eating at local restaurants, supplies are in smaller demand, etc.). For the social contract theory, they are hitting a home-run, both by reducing energy costs and by keeping more vehicles off of the road.

Supplemental Readings Cases: AdNet by Ashish Nanda, Harvard Business School Publishing, 2004.

DoubleClick, Inc by T.D. Fields & J, Cohen, Harvard Business School Publishing, 2003.

International Rivers Network and the Bujagali Dam Project (A), by Benjamin C. Esty; Aldo Sesia, Jr. Harvard Business School Publishing, 2004 (25 pages).

To consider the ethical implications of large-scale investments in developing countries, including the roles and responsibilities of the major parties involved (i.e., project sponsor, host government, and project financiers). To consider the implications of project information disclosure, or the lack thereof, to all parties, including the consumers of electricity.

Tata Consultancy Services, by Rohit Deshpande, Seth Schulman, Harvard Business School Publishing, 2005 (11 pages).

Canadian Imperial Bank of Commerce: Digital Employee Privacy by M. Wade & K. Mark, Richard Ivey School of Business, 2001.

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Lotus Marketplace: Households... managing information privacy concerns. Culnan, M. J. & Smith, H. J. (1995). In Johnson, D. G. & Nissenbaum, H. (Eds.). Computers, Ethics, and Social Values. Englewood Cliffs, NJ: Prentice-Hall, 269-278.

The Lessons of the Lotus MarketPlace: Implications for Consumer Privacy in the 1990's by Mary Culnan, available at the CPSR website: http://www.cpsr.org/conferences/cfp91/culnan.html Contains commentary on the original Lotus situation.

Incident at Waco Manufacturing, by John Sviolka, HBS Publishing, Case Number 189142 (March 1990).

Describes an information system that continually traces the location of every employee. This data is used by a visiting manager to assess a problem situation.

Competitive Information Policy at Pratt and Whitney by Lynn Sharpe Paine, HBS Publishing, Case Number 394154 (July 1994).

Officials at United Technologies Corp. (UTC) must decide on an ethics policy to govern competitive intelligence gathering. The flow of competitor information into the Pratt & Whitney division has declined sharply since adoption of UTC's code of ethics.

Readings/Articles: (Note: the interested instructor should investigate the IS World website (www.isworld.org) on ethics resources for a comprehensive and current list of interesting articles on this topic.)

Smith, H. J. “Information Privacy and Marketing: What the U.S. Should (and Shouldn't) Learn from Europe.” California Management Review, 2001.

Herzlinger, R. E. & Bokser, Seth. “Note on Accountability and Information in the U.S. Health Care System.” Harvard Business School Publishing, 2001.

Smith, H. J. and Hasnas, J. “Ethics and Information Systems: The Corporate Domain.” MIS Quarterly, 23(1) 1999.

Couger, J.D. “Preparing IS Students to Deal with Ethical Issues,” Management Information Systems Quarterly, 13(2) 1989.

Davies, S. G. “Re-engineering the right to privacy: how privacy has been transformed from a right to a commodity.” In Agre, P. E., & Rotenberg, M. (Eds.), Technology and Privacy: The New Landscape. Cambridge, MA: MIT Press, 1997.

Mason, R. “Four Ethical Issues in the Information Age.” MIS Quarterly 11(1) pg. 4-12.

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Shneiderman, B. “Designing Trust into online Experiences.” Communications of the ACM 43(12) 2000, pg. 57-59.

Olson, J.S. & G.M. Olson. “i2i trust in e-commerce.” Communications of the ACM, 43(12) 2000, pages 41 – 44.

Kreie, J. and T.P. Cronan. “Making ethical decisions.” Communications of the ACM, 43(12) 2000, pages 66 – 71.

Books: Information Ethics: Privacy, Property, and Power. Adam D. Moore (Editor). Seattle: University of Washington Press. 2005.

Lane, F.S. Naked Employee, The: How Technology Is Compromising Workplace Privacy. NY: American Management Association, 2003.

Forester, T. Information Technology Revolution. MA: MIT Press, 1985.

Johnson, D. Computer Ethics, NJ: Prentice Hall Inc., 1985.

Kallman, E.A. and Grillo, J.P. Ethical Decision Making and Information Technology: An Introduction with Cases. NY: McGraw Hill, 1996.

Langford, D. Internet Ethics, London: Macmillan, 2000.

Johnson , D.G. & Nissenbaum, H. Computers, Ethics & Social Values. NJ: Prentice Hall, 1995.

Websites: World website: http://aisnet.org/or go specifically to: Ethics page: http://c.ymcdn.com/sites/ais.siteym.com/resource/resmgr/Admin_Bulletin/AIS_Code_of_Research_Conduct.pdf Faculty in the IS area have been working on resources to teach this topic for a number of years.

One of the best resources for readings, syllabi, and other teaching support can be found at the IS. In addition, to supplement the IS research ethics panel at the 21st International Conference on Information Systems this December in Brisbane, Australia, this website was created: http://aisel.aisnet.org/icis/ The center for Computer Professionals for Social Responsibility has a terrific website with a number of resources. Some of their papers and publications will make good case studies.

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