What’s Happening!?
HP posted what they felt were good financial
results and got hammered by the stock market.
Fortune released its “Most Admired Company”
issue.
Who was number 1?
Fortune’s Most Admired
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Wal-Mart Stores
Southwest Airlines
Berskhire Hathaway
Dell Computer
General Electric
Johnson & Johnson
Microsoft
FedEx
Starbucks
Procter & Gamble
Wal-Mart Significance

$240 Billion in Sales Revenue

1.4 Billion Associates

First time in the 21 year history of the
Fortune most admired list that the largest
company is listed number one.
Wal-Mart = Largest Customer
Disney
Procter & Gamble
Kraft Foods
Revlon
Gillette
Campbell Soups
Wal-Mart Significance
It Buys the Most
% of its total sales to Wal-Mart
 Tandy Brands Accessories
39%
 Clorox
23%
 Revlon
20%
 RJR Tobacco
20%
 Procter & Gamble
17%
It Sells the Most Product
U.S. market share**
Dog food
36%
Disposable diapers
32%
Photographic film
30%
Toothpaste
26%
Pain remedies
21%
**Percent of all sales through food, drug, and mass-merchandisers.
It Sells the Most in the US
1. DVDs
9 .Detergent
2. Groceries
10. Jewelry
3. Toys
11. Sporting goods
4. Guns
12. Video games
5. Diamonds
13. Socks
6. CDs
14. Bedding
7. Apparel
15. Toothpaste
8. Dog food
It is the Largest
• Film developer
• Optician
• Private truck fleet operator
• Energy consumer
• Real estate developer
Wal-Mart Significance
• Wal-Mart's sales on one day last fall--$1.42 billion—
were larger than the GDPs of 36 countries.
• It is the biggest employer in 21 states, with more people
in uniform than the U.S. Army.
• It plans to grow this year by the equivalent of a Dow
Chemical, a PepsiCo, a Microsoft, or a Lockheed Martin.
• If the estimated $2 billion it loses through theft each year
were incorporated as a business, it would rank No. 694
on the FORTUNE 1,000.
On a final note
$50,000 salaried buyers with $1 billion budgets are
fairly common.
200 vendors have located offices in Bentonville.
“Every thing here is like Wal-Mart.”
Sam’s culture seems to be alive and well.
“How would Sam deal with this?”
“What would Sam think?”
Chapter 14 Summary
Information Systems Value
and
Financial Strategy
Chapter Objectives
1. Recognize the issues related to determining
the business value of information systems.
2. Understand possible financial strategies that
can be implemented to better manage the
increasing amounts of money being spent on
information systems.
What Triggers a Possible
Problem?
Senior management asks the question:
What am I getting for that!
High Costs Get Senior Management’s
Attention
As information systems have become a more accepted
resource within many organizations, there are three trends:
1. There is a growing dependence on information systems to
run the organization.
2. Information systems expenses and capital funding have
become quite large.
3. The growth trends regarding IS expenditures becomes a
topic of concern.
The Answer to the Question
The best answer lies within the context of
business management and contribution to
key factors that make a major contribution
to the success of the business.
The Evolution of Information Systems
Justification
Evolution of Financial Strategy
Application
Support
Motivation
Financial
Justification
DP Planning
Organization
Initiation
Expansion
Control
Maturity
I
II
III
IV
Organizational
Strategy
People
Cost
Competitive
DP Efficiency
Displacement
Avoidance
Advantage
Business Case
Charge-Out
Management
Budget
Installation Audit
System
Process
Single Area
Little
Proliferation
Containment
Reactive
Directed
Finance Dept. Multiple Dept.
Centralized
Based on material from Gibson and Nolan, Harvard Business Review, January-February 1974, pp. 76-88.
Proactive
Centralized
Decentralized
Distributed
Stage I
Stage I: In the Beginning There Are Budgets
Organizations include funding for information systems
as part of a departmental budget.
Challenge: To do as much as possible while not
exceeding the budget.
Problem: Use of IS is limited to the amount of the
budget.
Stage II



Stage II: With Growth Comes The Need for a
Business Case
Challenge: To create business case proposals that
do a good job of reflecting the value to the
business whether it be cost avoidance or
displacement, efficiency, effectiveness or
competitive advantage.
Problem: While most business cases reflect the
impact of the proposed system over multiple years
it is still a snap shoot in time and does not reflect
the dynamics of the environment or the changing
needs for the new system.
Stage III
Stage III: Departments Should Pay for the IS Support
They Receive
Challenge: To implement a charge-out approach that
makes sense based on the intended role of information
systems that is understood and accepted by user
management.
Problem: To gain a sense of responsibility and
accountability for IS costs while not discouraging
doing things with IT that make sense in better running
the business.
Stage IV
Stage IV: Time for a Management Process
Challenge: To implement a new process based on
factors that drive the success of the business that
does a better job of articulating the value of
information systems to senior management.
Problem: Requires time and resources that can be
criticized as “justifying the air conditioner in a car
that one doesn’t logically need to do if you live in
Arizona.”
Is There a Way to Manage Large
IS Expenditures?
•Four key elements that contribute to the overall success
of the organization:
•Commitment planning that identifies specific goals and
accountable managers.
•Effort to minimize user emotion while establishing
expectations regarding IS support.
•Emphasis on an entrepreneurial attitude and approach
within the IS organization and the company as a whole.
•Regular communication regarding IS performance.
Possible Exam Questions
1. What prompts senior management to
questions the value of information systems?
2. Identify and explain the four stages of the
evolution of financial strategy including what is
right about each approach and what is
potentially wrong with it.
Chapter 15
Integrating IS
into the Business Plan
Objective of planning
Planning should be used as a
way to communicate the
direction of the organization
through the best strategies and
tactics.
Major Planning Challenges
• What to do
-Important to know where the
company is going
• Making it happen
-Can be difficult because it involves
changes
Drivers Influence Planning
New Markets,
Opportunities
and
Competitors
Employees
• Skills
• Empowerment
• Quality Circles
• Teams
Organization
• Decentralization
• Downsizing
• Outsourcing
• Business Partnering
• Corp. Alliances
Organizational
Response to
Business Drivers
Process
• Reengineering
• Redefining
• TQM
Time, Flexibility
and
Responsiveness
as Competitive
Product Customization Factors
• Value-added Services
• Markets
• Customers
• Global Standards
Figure 15-1
IS needs to be integrated into the
business planning process
Strategic Enterprise Planning
Strategic Information planning
Architecture Planning
Tactical Planning
Implementation Planning
Barriers to Aligning IS with
Business Objectives
1.
Senior management perception
of information systems
2.
Executive skills of the IS
executive
Business Management Issues
1. Executives are reluctant to become more closely
involved with an information technology based
strategy because they are not comfortable with it,
or in some cases do not really understand it.
2. Senior management does not view IS as an
important competitive weapon.
3. The long-range planning process does not force IS
to be addressed at all or as an integral part of the
development of new strategies.
IS Management Issues
1. IS managers might not really understand the
issues and challenges of the business and are
not in a position to make good
recommendations regarding the role of IS.
2. IS is not being sold proactively within the
organization.
3. Little or no previous computer-based systems
within the organization could mean that using
IS to make a major contribution to the
business would be both costly and time
consuming.
Conclusions
• The objective of planning is not to control but to
guide and direct.
• Planning is a tool to be used by an organization to
identify the right things to do, and to initiate
action programs to accomplish the things
identified.
• It its crucial to have IS managers who can make
tough decisions on resource allocations to pursue
new opportunities and orchestrate structural
change.
Chapter 15
Business
and
Information Systems
Planning
The Topic of Planning Raises a
Number of Questions
• Importance of Planning?
• Purpose (Objective)?
• Who does what?
• Impact on the organization?
• How to keep the process dynamic?
• Relationship with information systems?
• Right planning methodology?
• Planning success factors?
Importance of Planning?
Nothing seems more logical, more
reasonable or more appropriate than
planning.
A Planning Job?
How many of you would like a job
where your primary responsibility
deals with planning?
Planning
Plans are nothing.
Planning is everything!
Dwight D. Eisenhower
Business and IS Planning
1. Is information systems a legitimate high
priority consideration in the developing of
business strategic plans?
2. Who needs to play a key role in integrating the
role of information systems with the business
strategy?
3. Why is this even an issue?
4. What are major barriers to linking information
systems with the business strategies?
Business and I/S Planning
5. What would be an ideal role for an information
systems executive to play relative to business
strategies?
6. What planning methodologies really work?
Why?
Integrating IS into the Business Plan
It all starts with business planning, so answers
are needed to the following questions:
1. Why plan?
2. What to plan?
3. How to plan? (Best methodology?)
Planning
Doing things today to make us better
tomorrow.
Because the future belongs to those who
make the hard decisions today.
Business Planning
An effort that tells people within the
organization where to put their emphasis,
priorities and resources.
The issue is not methodologies but one of
priorities--where the people running the
business spend their time.
Business and IS Planning
• Doesn’t the unpredictability of the future preclude
the planning and implementation of computer
systems that will be appropriate and responsive to
a company’s needs?
• Can a company really innovate and computerize at
the same time?
• With so much happening with technology how can
a company stay current?
Strategic Planning
Strategic planning is the systematic examination of
opportunities and threats in the business environment
so that you are in the position to identify those
opportunities that should be exploited and the threats
that should be avoided.
George Steiner
To create opportunity that can be leveraged to create
differential advantage in the marketplace.
N. Les Clark
New Markets,
Opportunities
and
Competitors
Employees
• Skills
• Empowerment
• Quality Circles
• Teams
Organization
• Decentralization
• Downsizing
• Outsourcing
• Business Partnering
• Corp. Alliances
Organizational
Response to
Business Drivers
Process
• Reengineering
• Redefining
• TQM
Time, Flexibility
and
Responsiveness
as Competitive
Product Customization Factors
• Value-added Services
• Markets
• Customers
• Global Standards
Figure 15-1
The objective of business planning is not
to control but to guide and direct. The
same is true for IS planning but this needs
to be directed by plans for the business.
Strategy Versus Planning
Strategy is thinking through a company’s
basis for competitive advantage.
Planning is a means of establishing a strategy
but it also focuses on making the strategy work.
Planning Focus
Performance Control
Objectives
Budgets
Action Planning
Strategies
Tactics
Do people rely on data or market
instincts to make judgments?
Criticism of Planning
Control
 Politics
 Conservatism
 Conformity
 Inflexibility
 Non-responsive to Market Demands
 Leads to Generic Change

Worth Remembering!
Business planning becomes
meaningful when accompanied
by prompt execution.
Planning Myopia
Be careful not to develop planning
myopia where the plan becomes
more important than execution.
Strategic Planning
Vision
Formulation
Strategies
Budgets
Tactics
Implementation
Actions
Traditional Approach in IS Planning
Vision
Strategy
Tactics
Traditional I/S Role
Figure 15-2
Strategic Planning Model
Environment
(External)
Opportunities
Mission
Vision
Strategic
Plan
Threats
Enterprise
(Internal)
Strengths
Tactical
Plan
Goals
Business Unit
Objectives
Functional
Programs
Strategic
Positioning
Major
Projects
Business
Plan
Detailed
Projects
Resources:
Headcount,
Capital and
Expense
Budgets
Weaknesses
Culture
(Explicit/Implicit)
Figure 15-3
SWOT Analysis
Strengths
Weaknesses
Opportunities
Treats
Suggest
Strategies
That Should
Be Tested
Against
Vision and Goals
Company Values
Current Strategies
Financial Status
Cash Position
ROI Potential
Customer Values
Competition
Societal Demands
Core Competencies
People Skills
Overall Resources
What to Plan?
Strategic Enterprise
Planning
Enterprise Strategies
Strategic Information
Planning
Information Strategies
Architecture Planning
Architecture
Tactical Planning
Implementation Planning
Time Oriented
Objectives
Project Plans
Figure 15-4
Business - IS Planning
Business
Strategy
Dictates
I/S Strategy
Benefits
Determines
Information
Technology
Figure 15-6
Business - IS Planning
Opportunities
Corporate
Strategy
Business
Strategy
Dictates
Technology
Environment
I/S Strategy
1) Strategic Capability
Benefits
2) Technology Driven
Business Change
Determines
Information
Technology
Figure 15-7
Marion Merrell Dow
1. An unusual ability to execute plans.
2. Management of risks.
Plan Process
Not a plan but a plan process:
Work at it.
Change it.
All of the time!
Barriers to Aligning IS with Business Objectives
Business Plan?
I/S Track Record
and Credibility?
Communication of
Business Plan?
Senior Management
Perception of I/S?
Executive Skills
of I/S Executive?
Clear I/S Role?
Effective
I/S Management?
I/S Organization?
Is keeping I/S aligned
with the business
objectives someones
high priority objective?
I/S Policies?
A Problem with
I/S Capacity?
I/S Skills and
Capabilities?
Does the I/S
Organization Have a
User/Business Focus?
Managing I/S to
Business Objectives?
Figure 15-5
Enterprise-Wide Information Systems
Strategic Planning Process
Organization
Strategic Plan
Business Processes
and Organization
Information Technology
Domain
Impact
Information Technology
Opportunities
Opportunity
Business Domain
Alignment
Information Systems
Architecture and
Organization
Parker/Trainor/Benson, INFORMATION STRATEGY AND ECONOMICS, (c)1989, p.5.
Adapted by permission of Prentice Hall, Upper Saddle River, New Jersey
Figure 15-8
Strategic Plan
Vision – Do we have a clear vision of where the organization
is going?
Decisions – Do we make major decisions based on our vision
and strategies?
Innovations – Do the values and goals of the organization call
for innovation?
Risk Taking – Does the reward system support employees and
management risk taking?
Change – Do we respond quickly to changes that affect our
organization?
Competitors – Are our strategies based on market intelligence
and competitive information?
Strategic Plan
External Factors – Do we regularly review the economic,
social and demographic trends that can affect our
performance?
Management Teamwork – Are our interactions
characterized by openness, candor and teamwork?
Quality – Do we emphasize and measure quality throughout
the organization?
Fundamental Strategic Planning
Issues
Can the strategy formulation be reduced to a
consistent process?
 How stable is the context for the strategy?
 How close to the actual situation should the
planners be?
 How much hard data is available to assist in
formatting the right strategy?
 What are the consequences of an incorrect
strategy?

Planning Methodologies




There are many planning methodologies.
Methodologies are seldom the reason for
planning success or failure.
Planning methodologies are like systems
with input, processing and output all being
key elements.
Key to planning is communicating the
intended direction through practice.
Planning Methods
• Planning sessions
• Critical success factors
• Vision process
• Business Systems Planning
• Reengineering
• Linkage analysis
• Etc.
Planning Session
• Facilitator
• Sponsor (top executive)
• 6-8 people
• Off premise and casual clothes
• 3-5 days
• Schedule discipline
• Question set is a key factor
Competitive Analysis Question Set
1. What is the fundamental nature of our products and services,
our dealings with our customers and the way they make their
purchasing decisions?
2. How do our customers measure the value of our products and
services?
3. How does our business systems serve our customers?
4. What key activities or decisions significantly affect the cost
of serving our customers and how they place a value on this?
5. To what extent could these decisions or activities be changed
in a way that would improve services or reduce total costs
through the availability or more, better or more timely
information?
6. Would such changes involve one part of a current business
process, cut across multiple processes or require direct
linkages with groups outside of our own organization?
7. How quickly and easily could such initiatives be duplicated
by a competitor as an assessment of the durability of the
competitive advantage?
8. How would the extent and durability of the competitive
advantage be affected by decisions about following a
proprietary or non-proprietary approach to building the
information systems?
9. How would we spend $10 million to improve our
competitive position?
10. How would our primary competitor spend $10 million with
the same objective?
11. Would the answer to the last two questions be any different
if computers and networks were free?
Planning Session Approach
• Commitment
• Consensus
• Conflict
• Creativity
• Communication
Critical Success Factors (CSF)
• “The few key areas of the job that must go right in order
for an organization to flourish.”
• Focuses on individual managers and their current
informational needs.
• Can be used as part of a planning methodology to identify
information systems that are needed to run the business.
• Includes keeping abreast of ongoing operations
(monitoring) and tracking change progress (building).
• Vary from organization to organization, from time period
to time period and from manager to manager.
Source: Rockart and Crescenzi
Critical Success Factor Sources
1. The business environment.
2. The industry.
3. The company’s situation within the
industry.
4. Organizational activity that is currently
unacceptable and needs attention.
The True Benefactors
of IS Planning
• Those who are shaping the future of the
business.
• Those with profit and loss responsibilities.
Why IS Planning Fails
Management Authority and Responsibility
1. A lack of support of the planning process.
2. A failure to support the final plan through actual
implementation.
3. The unexpected happens that was not anticipated by
the plan. The key here is systems flexibility.
4. Too much time is spent on “turf battles” or other
political issues and not enough on the desired
results.
5. Impatience by senior management for results.
Why IS Planning Fails
IS and General Business-related Issues
1. Its outcome is stated in terms of technology and
not business results.
2. A lack of user understanding of how IS relates to
the business objective or a failure to accept or
support the proposed approach.
3. Tends to place blame on today’s environment
rather than project a new and better way of doing
things.
4. A lack of risk taking leads to an incremental
approach that fails to motivate people.
Final Thoughts on IS Planing
Planning is a tool. There is an organizational
learning curve regarding methodologies.
A good plan with no execution borders on a waste
of the entire effort.
A relatively weak plan with a few strong thoughts
followed by tenacious implementation can provide
major business benefits.