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IS 5800Management of Information Systems

Course IntroductionDr. Mary C. Lacity

Napoleon, Emperor of France Jean-Auguste-Dominique Ingres, painted 1806

Napoleon Crossing the St. BernardJacques-Louis David, painted 1801

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Module Objectives

Convince students in the value of 5800 because general managers need to understand and help manage information technology (IT) within organizations.

Introduce students to basic IT terms as they related to IT-enabled business applications

Make students aware of the ambiguity in IT management research reports and definitions

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Readings

Why General Managers Need to Study MIS (linked from my syllabus and mygateway)

Luftman, J., and Kempaiah, R., "Key Issues for IS Executives," MIS Quarterly Executive, Vol. 5, 2, 2008, pp. 99-112. (loaded on mygateway)

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There are many definitions for each term…

Data are numbers, words, or images, particularly as measurements or observations of a set of variables.

Information is a message sent from a source to a receiver (Information Theory)

Information is data in context

Information is data that has been categorized

Knowledge is information with guidance for action based upon insight and experience.

17 is “data”17 is “information” if you know that is the number of years I’ve been at UMSL.17 is “knowledge” if you need to know how many years an employee has worked in order to help make a sabbatical decision

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There are many definitions for each term…

An information system (IS) is a system that captures, stores, processes, and transmits information.

An IS comprises hardware, software, data, people, and procedures

Information technology (IT): all the technologies associated with an information system (hardware & software)

ICT = Information and Communication Technology

IT and IS are often used interchangeably

http://nlwra.gov.au/toolkit/images/diagrams/Figure_0-4.gif

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People design, develop and implement information systems within an organizational context to achieve a purpose, be it functional, political, economic, etc..

These people include business executives, users, IT managers, project managers, systems analysts, programmers, architects, contractors, external supplier employees, consultants, salespeople...

These people will rarely share the same agendas, expectations, or perceptions of IT.

IT is a social/economic/political activity

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Magnitude of dollars spent on IT

If general managers are involved in IT, IT enables:

Gaining a competitive advantage Streamlining business processes Expanding markets

If general managers are not involved in IT, problems emerge:

Dollars wasted on ITIn the extreme, businesses can fail

Why General Managers Need to Understand and Manage IT

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Information on IT Spend

Organizations, governments, and research firms track IT spend

Research methods are not always evident

Numbers are not precise and often vary across firms

Numbers are not always up to date

Information Technology Association of AmericaITAA consists of over 380 corporate members throughout the U.S.

Computer Economics research firm. Includes major IT organizations, large consulting firms, and financial services firms in North America and over 30 countries.

Gartner clients include many large corporations and government agencies, as well as technology companies and the investment community. Gartner has 3,700 associates, including 1,200 research analysts and consultants in 75 countries worldwide

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Organizations, governments and research firms track IT spend

Research methods are not always evident

Numbers are not precise and often vary across firms

Numbers are not always up to date

The World Information Technology and Services Alliance (WITSA) is a consortium of over 60 information technology (IT) industry associations from economies around the world. WITSA members represent over 90 percent of the world IT market

The Organization for Economic and Co-operation Development (OECD) also shares expertise and exchanges views with more than 70 other countries.

Information on IT Spend

CIO= Chief Information Officer

Society of Information Management

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Global ICT Spending 1999- 2009

Source: Digital Planet/Global Insight as downloaded from www.itaa.orghttp://www.witsa.org/digitalplanet/2006/WITSADP2006page.doc

In 2007, World Spent about $3.5 trillion on ICT

20092008200720062005200420032002200120001999

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Hardware Software ServicesCommunications Total ICT

Global ICT Spending 1999-2009 ($US Trillions)

25% of Global ICT spend is by consumers; 75% by organizations & governments

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Total US vs. Global ICT Spending 2000- 2007

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$US

Mill

ion

s

2000 2001 2002 2003 2004 2005 2006 2007

US Spend Global Spend

Source: Digital Planet/Global Insight as downloaded from www.itaa.org

25% of Global ICT spend is by consumers; 75% by organizations & governments

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36%

37%

38%

39%

40%

41%

42%

2000 2001 2002 2003 2004 2005 2006 2007

Total U.S. ICT Spending as % of Global ICT Spending

Source: Digital Planet/Global Insight as downloaded from www.itaa.org

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8.00%

8.20%

8.40%

8.60%

8.80%

9.00%

9.20%

9.40%

9.60%

2000 2001 2002 2003 2004 2005 2006 2007

U.S. ICT Spending as % of Gross Domestic Product

Source: Digital Planet/Global Insight as downloaded from www.itaa.org

GDP is defined as the market value of all final goods and services produced within a country

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Top ICT Spenders

In descending order, these are:

1. United States2. Japan3. Germany 4. United Kingdom 5. China6. France 7. Italy8. Canada 9. Brazil10. India11. Korea

By 2009, China will be the third largest ICT spending country.

http://www.witsa.org/press/DigitalPlanetPressRelease_rev.doc

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ICT Services Imports and Exports

Exports of ICT services consist of transactions in services from residents to non-residents.

Imports of ICT services consist of transactions in services from non-residents to residents.

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OECD Definition of ICT ServicesThis database tracks ICT spend for 33 countries.

http://stats.oecd.org/wbos/index.aspx

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OECD Definition of ICT Services

Computer and information services cover computer data and news-related service transactions between residents and non-residents.  In the EBOPS classification, they are further broken down into (a) computer services which cover hardware and software consultancy and implementation: provision of advice and assistance on matters related to the management of computer resources; analysis, design and programming of systems ready to use, and technical consultancy related to software; development, production, supply and documentation of customized software including operating systems made on order for specific users;  maintenance and other support services such as training. 

Excluded are packaged (non-customized) software and non-specific computer training courses which are treated in the same way as other educational services  (b) information services including database services: database conception, data storage and data dissemination on-line and on magnetic media;  news agency services including provision of news, photographs, and feature articles to the media;  and direct, non-bulk subscriptions to newspapers and periodicals.

This database tracks ICT spend for 33 countries.

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2002 2003 2004 2005 2006

Service Expression Net 2778 3014 1948 734 -996

Exports 7093 8453 8800 9782 10096

Imports 4315 5439 6852 9048 11092

data extracted on 2008/08/12 19:10 from OECD.Stat

Partner World

Year

COMPUTER AND INFORMATION SERVICES

Country United States

Trade in Computer and Information Services:

United States

Figures are in $US millions

Thus 2006, US had a trade deficit of $996 million

http://stats.oecd.org/wbos/index.aspx

Directions: Go to websiteSelect International TradeSelect Trade in ServicesSelect Computer and Information ServicesSelect country, partner, years

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Trade in Computer and Information Services:

Japan

Figures are in $US millions

Thus 2006, Japan had a trade deficit of over $2 billion

2002 2003 2004 2005 2006

Service Expression Net -1008.071 -1026.455 -1146.1 -1315.575 -2159.95

Exports 1140.46 1072.171 1042.581 1126.858 966.474

Imports 2148.531 2098.626 2188.681 2442.432 3125.564

data extracted on 2008/08/12 19:20 from OECD.Stat

Partner World

Year

COMPUTER AND INFORMATION SERVICES

Units Millions of US dollars

Country J apan

http://stats.oecd.org/wbos/index.aspx

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Trade in Computer and Information Services:

Ireland

Figures are in $US millions

Thus 2006, Ireland had a trade surplus of $20 billion

2002 2003 2004 2005 2006

Service Expression Net 9851.772 13821.14 18368.069 19155.101 20026.498

Exports 10405.157 14192.458 18749.263 19592.847 20682.274

Imports 554.327 371.318 381.194 437.746 655.776

data extracted on 2008/08/12 19:14 from OECD.Stat

Partner World

Year

COMPUTER AND INFORMATION SERVICES

Units Millions of US dollars

Country I reland

http://stats.oecd.org/wbos/index.aspx

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Trade in Computer and Information Services:

Czech Republic

Figures are in $US millions

Thus 2006, Czech Republic had a trade surplus of $346 million

2002 2003 2004 2005 2006

Service Expression Net 19.759 -73.38 -78.577 128.742 346.399

Exports 142.077 76.767 141.06 587.305 884.849

Imports 121.377 149.019 219.636 458.565 538.45

data extracted on 2008/08/12 19:17 from OECD.Stat

Partner World

Year

COMPUTER AND INFORMATION SERVICES

Units Millions of US dollars

Country Czech Republic

http://stats.oecd.org/wbos/index.aspx

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An average, how much do organizations spend on IT?

Two major types of IT budgets:

Operating IT Budget: Budget for expenses spent and consumed by an organization during the year. The biggest operating budget item is usually IT salaries & wages

Capital IT budget: Budgets for IT investments that will be made in one year and depreciated over the useful life of the asset.

Chief Financial Officers (CFO) generally do not like IT assets on the balance sheet because market value is always less than book value.

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Annual IT Operating Budgets as % of Revenues

Depending on which organizations are sampled, the average figures for annual IT operating budgets vary.

Operating Budget: Budget for expenses spent and consumed by an organization during the year. The biggest operating budget item is usually IT salaries & wages

24Luftman, J., and Kempaiah, R., "Key Issues for IS Executives," MIS Quarterly Executive, Vol. 5, 2, 2008, pp. 99-112.

Several sources reports that Average IT Operating Budget as % of Revenues is ~3.5%

On average, a company’s annual IT operating budget represents ~3.5% of annual revenues.

Average figures vary by industry.

Using 3.5%, this means a $1 billion company, on average, spends $35 million per year on IT

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Annual IT Budget as % Revenueby Size of Company

8.70%

6.40%

5.00%4.20% 4.00%

<$100M $100M-$499M

$500M-$999M

$1B-$4.9B

$5B-$10B

IT Budget

Source: Spending: How Bad is the Bite in Your Budget by Allan E. Alter, Source: Spending: How Bad is the Bite in Your Budget by Allan E. Alter, CIO InsightCIO Insight, January 14, 2003., January 14, 2003.

Smaller companies spend proportionately more on I.T.

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INDUSTRY % REVENUE SPENT ON I.T. Aerospace 4.76 Airlines 11.53 Automotive 3.6 Banks 4.18 Beverages 1.01 Broadcasting 4.54 Chemicals 4.18 Financial Services 3.60 Hotels 4.61 Food Processing 1.80 Government Agencies 9.01 Manufacturing 4.90 Medical Institutions 1.00 Natural Resources 1.87 Nonprofit Organizations 8.00 Paper Forest Products 1.80 Pharmaceuticals 4.40

Minoli, D., Analyzing Outsourcing, McGraw Hill, 1994

% of Revenue Spent on IT by Industry in 1993

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Magnitude of Dollars Spent on IT:Spend by Industry Per Employee

Information Week reports that ICT spend per employee in US(all industries) is $6,918

Banking industry $14,764Insurance $13,564Tcom $11,983Utilities $10,388Chemicals $ 6,736Manufacturing $ 4,541Heath Care $ 3,038Food Processing $ 1,349

IT spend Study conducted by Information Week,

from www.itmweb.com

ITAA reports that world-wide, average IT spend per employee is $1,277

www.itaa.org

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IT Operating Budget Allocation

Luftman, J., and Kempaiah, R., "Key Issues for IS Executives," MIS Quarterly Executive, Vol. 5, 2, 2008, pp. 99-112.

The biggest budget item is paying staff

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Magnitude of Dollars Spent on IT:Capital Expenditures

Capital IT budget: Budgets for IT investments that will be made in one year and depreciated over the useful life of the asset.

In the US, the capital expenditures are about 1.5 times greater thanoperating expenditures.

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Operating Verses Capital Expenditures in US Organizations

[In millions of dollars (91,320 represents $91,320,000,000).

 

Non-capitalized expenditures Capitalized expendituresType of expenditure and industry

  2003 2004 2003 2004

Total expenditures 91,320 92,608 132,086 139,335

Total equipment expenditures 39,569 38,871 (NA) (NA)

Purchases 19,924 17,780 87,794 86,445

Computer and peripheral equipment 13,469 11,899 55,847 52,690

Information and communication technology equipment 6,043 5,538 28,894 29,225

Electromedical and electrotherapeutic apparatus 413 344 3,052 4,530

Operating leases and rental payments 19,645 21,091 (NA) (NA)

Computer and peripheral equipment 12,337 13,813 (NA) (NA)

Information and communication technology equipment 6,588 5,724 (NA) (NA)

Electromedical and electrotherapeutic apparatus 720 1,555 (NA) (NA)

Total computer software expenditures 51,750 53,737 (NA) (NA)

Purchases and payroll for developing software 32,379 31,948 44,292 52,890

Software licensing and service/maintenance agreements 19,372 21,789 (NA) (NA)

http://www.census.gov/compendia/statab/tables/07s0761.xls

31http://strategis.ic.gc.ca/epic/site/ict-tic.nsf/en/h_it05656e.html

2000 2001 2002 2003 2004 2005 2006

ICT CAPITAL EXPENDITURES as a % of CANADIAN CAPITAL EXPENDITURES

9.2% 9.7% 7.9% 6.3% 6.3% 5.9% 6.1%

IT Capital Expenditures as % of Total Capital Expenditures in Canada

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Ensuring Value for IT Spend

General managers must manage IT to ensure value for money:

• Understand the nature of IT

• Strategic Alignment: Help set IT strategy to support business strategy: KM, BI, CRM, ERP, B2C, B2B

• Empower CIO to ensure core IT capabilities

Business runs on information, information runs on IT

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IT can Create Competitive Advantage

IT can differentiate a product or service (Federal Express vs. USPS)

IT can streamline and improve business processes:

E-commerce, KM, ERP, CRM, BI,

IT can change entire industry structuresDisintermediate: Napster; Amazon, Netflix

Dell-direct marketing to consumersFrom Products to Services: Software products to ASP

(Application Service Provision)

Porter, Michael, Competitive Strategy, Free Press, 1998; “25 Leaders From a Dangerous Time, Business Week, May 14, 2001, pp. 24-59

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Examples of IT-Enabled Business Initiatives

IT can be used to redesign business processes:

• Purchase Order / Receipt / Invoice Process

eliminated the purchase order by giving preferredsuppliers access to their inventory control databases.

eliminated the invoice with computerized matching of PO and receipt

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Examples of IT-Enabled Business Initiatives

IT can be used to improve customer service:

IT can be used to leverage suppliers, such as B2B exchanges:

Freemarkets

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IT-enabled businesses:E-commerce

Business-to-Business--the buying and selling of goods and services between companies online or by means of other electronic systems. >90% of e-commerce, about a $2 trillion market!

Business-to-Consumer-- the buying and selling of goods and services between companies and consumers, about $300 billion market.

Customers-to–Customers: market placers where customers sell to customers, such as eBay

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Knowledge Management (KM)

Knowledge management entails the capturing of one person's expertise and insights and sharing it with others.

Often entails trying to codify tacit knowledge such as how to fix a broken machine.

Also relies on directories of who knows what in a company.

Tacit knowledge: The knowledge that is in people’s heads, their experience.

Explicit knowledge: Knowledge that can be expressed/codified using language and that can be easily transmitted among individuals

TACIT Explicit

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IT-enabled businesses:Enterprise Resource Planning (ERP)

www.networkdictionary.com/software/erp.php and http://projects.bus.lsu.edu/independent_study/vdhing1/erp/

ERP systems are the large accounting and operating systems which capture most of the transactions in an organization, such as inventory control, accounts receivable, accounts payable, general ledger, human resource management (payroll, benefits), etc.

Most large organizations license ERP systems from the major ERP suppliers such as SAP and Oracle.

These systems are the “back office” or “foundational” systems in most organizations, and therefore are a vital component of the services provided by IT departments to internal users.

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IT-enabled businesses:Customer Relationship Management

CRM is the front end of the supply chain and entails the integration of all customer contact points such as phone calls, email, fax, face-to-face, and internet to provide product and service information, to process orders, to collect payments, to deliver products, and to service customers before, during and after the sale. http://www.amigolog.com/Amigolog-CRM-Overview-En.jpg

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IT-enabled businesses:Business Intelligence (BI)

http://www.obs3.com/why_olap.shtml

OLTP – Online Transaction ProcessingOLAP – Online Analytical Processing

Gathers important data Consolidates the data into

one location Easily accessed and

analyzed for decision making Serves as one version of

truth

Burns, M., “Accounting for Business” CA Magazine, Vol. 136, 3, Apr 2003, pp. 37-38Abukari, K. and Job, V., “Business Intelligence In Action” CMA Management, Vol. 77,1, Mar 2003, pp. 15

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Value for Money?

In 1985 to 1995, net average return on IT was 1% according to Gartner Group.

In 2002, A study of 7,000 large U.S. companies by Alinean and another by Forrester Research showed that most lavish spenders on IT had the poorest Financial Performance.

Reasons for low return: “Without proactive management of existing IT cost base, enterprises will continue to spend too much on the wrong kinds of IT.”

Gartner Group Strategic Planning Assumption, Enterprise Performance Through IT, 1996; Carr(2003)

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Examples of IT management failure creating business failure

• Branson’s Airline (Virgin Atlantic)

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Information Technology is too important to leave to the technologists!!!

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IS 5800 at a glance: Role of the Chief Information Officer Managing IT within and across organizations (i.e., IT

strategy, governance, organizational structures, technology acceptance)

Impact of IT on organizational competitiveness and global economies

Managing IT-enabled business projects E-commerce Management and utilization of data, information, and

knowledge (i.e., Business Intelligence, Knowledge Management, Data Warehouses)

Getting organizations and individuals to adopt IT innovations

Open source software IT sourcing arrangements IT issues related to security, privacy, intellectual

property rights, and ethics Societal impacts of IT: Green IT IT entrepreneurship Emergent technologies (i.e., RFID, blogs, wikipedia)

Management practices toensure valuefor IT spend