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The Top IS Job Chapter 2 Information Systems Management In Practice 7E McNurlin & Sprague PowerPoints prepared by Michael Matthew Visiting Lecturer, GACC, Macquarie University – Sydney Australia

Chapter 2 The responsibilities of the head of the IS function now go far beyond operating highly efficient “production programming shops.” These executives must understand the goals of the enterprise and work in partnership with line executives to deploy IT to attain the organization’s goals This lecture / chapter discusses the top IS executive’s job, looking first at the top job itself by summarizing six major responsibilities, and then exploring several ways the information systems function is evolving in organizations The SABRE system, Lifescan, BP, Aetna Life and Casualty, Duke Energy International, Wal-Mart Vs. Kmart, AXA Financial, and Rexam provide examples of how the role of information systems management is changing

Today’s Lecture Introduction Where is the IS Organization headed? The Escalating Benefits of Information Technology Traditional Functions Are Being ‘Nibbled Away’ New Roles Are Emerging Towards ‘IS Lite’

Today’s Lecture cont. The CIO’s Responsibilities CIO’s Roles in Three Eras Leading Creating a Vision by Understanding the Business Governing Establishing an IS Governance Structure Investing Shaping the IT Portfolio Managing Establishing Credibility and Fostering Change The Office of the CIO Whither CIOs?

Introduction Management of IT has changed drastically in the past 50 years Early days = manage the technology: Get it to work Keep it running Reduce cost of doing business Then = manage the information resources Support (management) decision making Delivering information when and where it was needed Now = IT is pervasive and is a mandatory link between enterprises

Introduction cont. Responsibilities of the head of IS now go far beyond operating highly efficient ‘production programming shops’ These executives are now part of top management and help form the goals of the enterprise in partnership with the CEO, CFO and other members of top management

Where Is The IS Organization Headed? The Escalating Benefits of Information Technology Kenneth Primozic, Edward Primozic, and Joe Leben introduce the notion of “Waves of Innovation” which they define as how IT is used by industries and enterprises. There are five Waves of Innovation (Figure 2-1): Reaching the consumer Enhancing executive decision making Enhancing products and services …………………………………………………………………………………… Leveraging investments Reducing cost

Where Is the IS Organization Headed? Escalating Benefits of IT

Waves of Innovation - Below the line (Saving $) Wave 1: Reducing costs Began in the ’60s Focused on increasing the productivity of individuals and business areas by e.g. automating manual processes Wave 2: Leveraging Investments Began in the ’70s Concentrated on more effective use of corporate assets Systems justified on ROI, cash flow etc.

Waves of Innovation - Above the line (Making $) Wave 3: Enhancing Products & Services Began in the ’80s Attention shifted to using IT to produce revenue by gaining strategic advantage or creating entirely new businesses Wave 4: Enhancing Executive Decision Making Began in the late ’80s Changed fundamental structure of organizations Created real-time business management systems Waves 1 & 2 = could be done at ‘any time’ (and are still being done!) Waves 3 & 4 = must be implemented once an industry leader has set a precedent Companies that don’t do = cease to be competitive

Waves of Innovation - Above the line (Making $) cont. Wave 5: Reaching the Consumer Began in the ’90s Uses IT to communicate directly with consumers leading to new: Marketing Distribution, and Service strategies Changes the rules of competition Management must be involved in guiding IT use once you ‘cross the line’ Management must steer the company in the new (evolved) business environment Not the ‘techies’

Waves 1 and 2 SABRE built to reduce costs of making airline seat reservations Wave 3 System expanded so it could be used directly by travel agents Wave 4 System expanded to include hotels and rental cars through alliances with these suppliers The SABRE system (American Airlines) Case example: ‘Waves of Innovation’

Wave 5 American extended their reach to the consumer: Introduced EAASY SABRE that enabled consumers direct access from their PCs AAdvantage – frequent flyer program Enhanced their Wave 5 connections to consumers via the Web (and mobiles?) Targeted its most profitable customers = Frequent Flyers Marketing strategy including ‘distressed inventory’ (the unsold seats) Note: this example also illustrates that as the benefits of IT increase, the importance of executive guidance also increases The SABRE system (American Airlines) Case example: ‘Waves of Innovation’ cont.

IT has become an essential piece of business strategy Not keeping up in IT may even mean going out of business The job has become too large for one group While the growing importance of IT is causing the IS Department’s work to expand into new areas of responsibility, management is realizing that the traditional and more operational portions of the job do not have to be performed by the IS department Particularly ‘centralized’ Traditional Functions Are Being Nibbled Away

The traditional set of responsibilities for IS has included: Managing operations of data centers, remote systems, and networks Managing corporate data Performing systems analysis and design, and constructing new systems Systems planning Identifying opportunities for new systems Traditional Functions Are Being Nibbled Away cont.

The traditional functions still need to be performed but the following trends are moving their performance out of the IS department and into other parts of the organization or to other enterprises: Distributed systems Software applications migrating to user areas Ever more knowledgeable users have taken on increased IS responsibilities Better application packages Less need for ‘armies’ of programmers, analysts etc. Outsourcing Traditional Functions Are Being Nibbled Away (Figure 2-2)

(Another way to look at it:) IS is not a single monolithic organization, but rather a cluster of four functions (Fig. 2-3): Run operations Develop systems Develop architecture Identify business requirements The ‘Squeeze’ on Traditional IS Activities (Figure 2-4): Growing External Services Growing Capabilities of Users ‘ Future’ Roles for IS (Figure 2-5): Broker Systems and Information Architecture New Roles are Emerging

IS started ‘centralised’ and evolved into a ‘federal model’: Some things (standards, operations) = centralised Others (application development) = dispersed locally to best meet local needs To make the federal model work better, companies are shifting attention from roles to processes The IS department can be viewed as managing three overall processes (Figure 2-6): Driving innovation Managing change Supporting infrastructure Toward IS Lite (another ‘view’)

Johnson and Johnson subsidiary New CIO = agenda to align the department with the business Focussed on execution and measurement to gain credibility with the business units Strong project management and not allow scope creep Emphasis on staff with these skills Uses Johnson and Johnson Group ‘stuff’ combined with local (LifeScan) ‘culture’ Centralization of policies, procedures etc. Local implementation with all projects business led Moves ownership of systems to the business people LifeScan Case example: The ‘Federal’ Model

The CIO’s Responsibilities In line with the evolution of IS departments, the emphasis of the top job has changed 86 = Infrastructure 89 = helping formulate corporate policy 92 = IT as a catalyst for revamping the way enterprises worked 98 = revamp business operations using IT continued with the Internet (customers +) 02 = the ‘technical member’ of top management 04 = a cost and risk based approach Vs. “let’s get into e-commerce fast…” Today the cost emphasis remains Outsourcing continues to grow (amid controversy) CIOs are expected to do much more with not much more $$ Also = under pressure: To implement protective measures New financial reporting e.g. Sarbanes Oxley Keep the IT innovations coming!!

CIO Responsibilities — History

CIO Responsibilities — History cont. The Mainframe Era Predominated 1960s – early ’80s Role of DP / IS Manager = operational manager of a specialist function Distributed Era End of ’70s as PCs became commonplace LANS and WANS linking computers Took on 4 more roles: Organizational Designer Technology Advisor Technology Architect Informed Buyer

CIO Responsibilities — History cont. The Web Era Started in the mid-1990s for some Arose from the emergence of the Internet, and esp. the Web as a business tool Era is still in its ‘infancy’ but add to the CIO’s ‘job’ the role of business visionary Relationship between CEO and CIO vary along a wide spectrum

Four Aspects of the CIO role Leading: Creating a vision by understanding the business Governing: Establishing an IS Governance structure Investing: Shaping the IT portfolio Managing: Fostering change

Leading: Creating a Vision by Understanding the Business

There are seven approaches CIOs are using to understand the business and its environment: Encourage project teams to study the marketplace Concentrate on lines of business Sponsor weekly briefings Attend industry meetings with line executives Read industry publications Hold informal listening sessions Become a “partner” with a line executive 1. Leading: Creating a Vision by Understanding the Business

Gather the following information about the company and its industry: Current industry environment Business goals and objectives Major practices of competitors Pertinent government regulations The inputs, outputs, and resources of the firm 1.A Understand the Business : Encourage Project Teams to Study the Marketplace

It is recommended to ask the following questions about each line of business: Are we organized to serve that line of business? Do we have an account manager in IS who has responsibility for that line of business? Do we have someone within that line of business who oversees IT activity and talks the business language? Do we have a sponsor in the line of business? Do we have the attention of their management? Does the line of business offer an opportunity to use systems in new ways? 1.B Understand the Business : Concentrate on Lines of Business

1.C Understand the Business : Sponsor Weekly Briefings To understand the business, one needs to understand the marketplace By sponsoring short presentations by the people closest to a business, IS management can help fix the problem of employees not being given exposure to the marketplace without cutting into working time too greatly

1.D Understand the Business: Attend Industry Meetings with Line Executives Attending meetings with a line executive can be even more enlightening because he or she can explain what the company is or is not doing in areas discussed by the speakers It is also likely to foster new friendships

1.E Understand the Business: Read Industry Publications News publications provide information on new products, current issues, company changes, and so on They provide better analyses of industry trends, discussions of ongoing research, and projections about the future

1.F Understand the Business : Hold Informal Listening Sessions Employees learn a lot by listening to each other’s needs Meetings are held in a setting that is not charged with tension, participation is voluntary, and their purpose is to “just chat”

1.G Understand the Business : Partner with a Line Executive The Society for Information Management presents an award each year to honor an IS executive business team who have achieved significant business results through their alliance It reinforces partnering which is needed to successfully guide and deploy IT today

UNDERSTAND THE BUSINESS TALK TO PEOPLE THE ‘KEY’

1.2 Leading: Creating a Vision of the Future and Selling It IS executives are no longer reactive, providing only support They manage some of the most important tools for influencing the firm’s future They are becoming more “proactive” by helping to create a vision of the firm’s future and its use of IT and selling those ideas to others

1.2 Leading: Creating a Vision of the Future and Selling It: What is a Vision? It is a statement of how someone wants the future to be or believes it will be “ We will put a man on the moon and return him safely to earth, by the end of the decade” – JFK, early 1960s Beath and Ives present several corporate visions, e.g.: Otis Elevator “ Any salesperson can completely order an elevator in a day” Rittenhouse Homes “ Customers can get a house designed and built from a retail store” Once a vision is in hand, then a strategy can be formulated on how to bring the vision into being

1.2 Leading: Creating a Vision of the Future and Selling It: Why develop a Vision? A vision of a desirable future can provide stability when it sets a direction for an organization Today most corporate visions have an IT underpinning – leveraging the Internet for business purposes That vision sets their direction

Main activities = exploration and production of crude oil and natural gas The Business is in the Business Units 150 business units in 100 countries Each have their own balance sheet and performance contract HQ must convince the business units of the wisdom of BP-wide practices Overarching this distribution of power is a set of group-wide policies based on shared core values BP Case example: Leading - Vision

Digital Business (DB) Underpins Transformation 1999 = rare companywide mandate for a common operating environment (COE) Early 2000 = formed Digital Business Moved IT out of the beleaguered role of technology provider into a strategy-creation role Delivered overarching strategy, enterprise infrastructure and projects and standards while supporting differentiated service offerings driven by the business streams DB Strategy and Chief of Staff DB Chief Technology Office DB Projects DB Operations BP Case example: Leading – Vision cont.

Living on the Web Moving processes and systems to the Web and simplifying both at the same time Socializing Technical Directions Socialize the idea of a new common good to the point where people accept it Technical choices are now made through business-based networks of experts Going Forward: Foster Learning and Focus on Explanation Major challenge = fostering learning Real leverage comes from the new value a new system opens up Bright people have been attracted to DB because it is involved in the most important conversion: where BP is going digitally BP Case example: Leading – Vision cont.

A champion is someone with a vision who gets it implemented by obtaining the funding, pushing the project over hurdles, putting his or her reputation on the line, and taking the risk of the project The first step in encouraging champions is to find them (they can’t be ‘appointed’!) They are opinion leaders, and they have a reputation for creative ideas or being involved with innovations They have developed strong ties to others in their organization, and they command respect within the firm They have the organizational power to get strategic innovations implemented 1.2 Leading: Creating a Vision of the Future and Selling It: Encouraging Champions of IT Projects

Information systems champions need three things from IS Management: They Need Information: Champions need information, facts, and expertise for persuading others that the technology will work Information systems people can help them find the information they are lacking 1. Leading: Creating a Vision of the Future and Selling It: Encouraging Champions of IT Projects cont.

2. They Need Resources: Giving champions “free” staff time is especially helpful during the evaluation and persuading portions of a project Champions are likely to need material resources, such as hardware and software 3. They Need Support: Champions need people who approve of what they are doing and give legitimacy to their projects 1. Leading: Creating a Vision of the Future and Selling It: Encouraging Champions of IT Projects cont.

Financial services company (employee benefit and pension programs) Much of their IT work is decentralised, therefore the ‘Corporate Admn. Department’ focuses on 3 functions they call: Plan Build Run Aetna Life and Casualty Case example: ‘Champions’

They seek out ‘Business Champions’ who think a technology might solve their business problem(s) Extensive use of: Pilot Projects Steering Committees Challenges; especially making a future technology credible to people today has been one hurdle Aetna Life and Casualty Case example: ‘Champions’ cont.

2. Governing: Establishing an IS Governance Structure The term ‘Governance’ has become prominent in all areas of business including IT. IT Governance “ The assignment of decision rights and the accountability framework to encourage desirable behavior in the use of IT” Governance differs from management in that Governance is about deciding who makes decisions whereas Management is about making decisions once decision rights have been assigned Numerous business scandals (U.S. – Enron, Global Crossing etc.; Australia – HIH) have prompted the increased interest in this area

2. Governing: Establishing an IS Governance Structure cont. ‘ Governance’ has become more important in the IS world because IT expenditures have become so large and diverse that management has had to find a way to bring order to all the decision making Centralizing all IT decisions is not a solution All business units and local employees need a voice in the decisions to tailor their business to the local culture and customers Striking such a balance is a major IS emphasis

2. Governing: Establishing an IS Governance Structure cont. Assigning Decision Rights (Figure 2-9) Six governance styles (the rows) A business monarchy is where C-level executives (CIO..) hold the right to make decisions IT monarchy = where IT executives hold the right to make decisions Feudal is where business unit leaders (or delegates) have decision or input rights Federal means that the rights are shared by C-level executives and one other tier of the business hierarchy A duopoly is where one IT group and one business group share a right Anarchy is where individual process owners or end users hold a right

2. Governing: Establishing an IS Governance Structure cont. Assigning Decision Rights (Figure 2-9) Five decision areas (the columns) IT principles are high-level statements about how IT will be used to create business value IT infrastructure strategies state the approach for building shared and standard IT services across the enterprise IT architecture states the technical choices that will meet business needs Business application needs is where the business defines its application needs IT investment and prioritisation defines the process for moving IT-based investments through justification, approval and accountability

2. Governing: Establishing an IS Governance Structure cont.

Duke Energy International Case example: IS Governance US HQ but operates all over, esp. Latin America – manages a diverse portfolio of natural gas and electric supply, delivery, and trading businesses Product and service innovation combined with speed and flexibility are key drivers IT Governance is based on Principles and Relationships 8 Principles in managing Information Management (IM): Agree on the reason for being Have a vision for IM Put a clear organizational design in place Implement successful IT governance Implement demand management Design useful reporting information flows Manage business-IM value relationships Implement global collaborative networks

Duke Energy International Case example: IS Governance cont. Regional CIOs follow these guidelines: I will involve others if the consequences of my actions affect others I will not involve others if it just affects me I will inform others when the consequences of my actions will be of benefit to others Aims to foster relationships with the business which: Increase nimbleness Help identify opportunities (save costs) Lead to innovation

3. Investing: Shaping the IT Portfolio IT investments are large and important to company success How to make such investments is getting increased attention Business executives can no longer “blame CIOs” for poor IT investments CIOs can only implement good systems They are not responsible for changing business practices to take advantage of those systems = the job of line executives!

3. Investing: Shaping the IT Portfolio – A Strategic View of Making IT Investments Intense competition in ‘non-regulated’ industries forced executives in these to innovate By investing in IT By improving their business processes, and By offering new products and services These innovations, in turn, increased productivity Virtuous circle (Figure 2-10) Competition leads to innovation, which leads to productivity increases

3. Investing: Shaping the IT Portfolio – A Strategic View of Making IT Investments cont. Sequencing and timing IT investments Companies that reaped the highest productivity generally sequenced their IT investments so that new ones built on existing ones Timing is also important ‘ Rush in’ only when it advances company goals, builds on strengths and cannot be easily replicated by competitors ‘ Everybody is doing it’ = not a good reason

Wal-Mart Vs. Kmart Case example: Sequencing and timing IT investments Wal-mart First installed systems to automate the flow of products in its internal supply chain Then = turned outward to suppliers co-ordinating its own operations with theirs Then turned to customers to better plan its merchandising mix and replenishment ‘ Last’ = data warehouse Kmart = did not get the sequence right First = used IT to target its marketing promotions Vs. investing in supply chain As a result – increase in demand from successful promotions could not be met due to problems getting products into stores Lost sales and $$$$

3. Investing: Shaping the IT Portfolio – A Strategic View of Making IT Investments cont. Complementing IT investments IT investments do not reap anticipated results until accompanying management practices change to take advantage of potentially better ways of working NOTE: IT is not the only contributor to increased productivity

3. Investing: Shaping the IT Portfolio – A Tactical View of Making IT Investments Much attention has been placed on shaping the IT portfolio as business executives seek to maximize the business value of their IT investments Most companies have far more opportunities than they can fund Must find a way to prioritize the possibilities to best support their business’ strategic objectives Prioritization “ Doing more with less”

AXA Financial Case example: Prioritizing projects AXA Group = global financial services organization with 140,000 employees Introduced a governance process to instill more efficient management controls Key principle = not all projects and investments are created equally Each one’s merit depends on its economics, not on executives’ emotional attachment to it or other non financial factors

AXA Financial Case example: Prioritizing projects cont. Introducing a New Methodology The Prioritization Process Winnowing the Wish List Selecting Business Objectives Prioritizing the Objectives Ranking Projects Using the Objectives Funding the Projects The process uses 4 filters: The EVP’s wish list filter The must-have/should-have filter The UMT prioritization filter, and The business case filter The result is a list of projects that can be funded Benefits of the Project Prioritization Process Future Plans

3. Investing: Shaping the IT Portfolio cont. Benefits Come More From the Discussions Than the Prioritizations When the discussions are structured, focused and well moderated, the participants better understand the business goals, better support others and other business units and are more committed Leads to: Healthier teamwork Better decision processes, and Better definitions of projects Put Projects into Categories Where They Are Comparable Once defined, projects belong in different categories and thus require different treatment E.g. R&D projects can’t generate immediate tangible benefits Have a minimum $ - projects below this should be funded from discretionary budget

3. Investing: Shaping the IT Portfolio cont. Address Project Risks Risk that project will fail Need mitigation strategies and include cost thereof in the project cost Risk of not doing the project E.g. Virus protection Risk that it is the wrong project for what is trying to be achieved Prioritize Quarterly, and Apportion Your Budget Accordingly Not wise to close the approved list of projects for a long time Track projects and if significant deviations = consider project costs, risks and benefits Be Consistent

4. Managing: Establishing Credibility and Fostering Change CIOs are in the change business Information systems bring about change BUT – before a CIO and the IS organization will be heard as a voice for change, the must be viewed as being successful and reliable To foster change, a CIO must establish and then maintain the credibility of the IS organization

4. Managing: Establishing Credibility The first job of IS management is to get the “today” operation in shape Until that task is accomplished, CIOs will have little credibility with other top management Managing “today” includes: Computer operations Technical support (including networks) The help desk, and Maintenance and enhancement of existing systems Delivery oriented with a high level of service Some = outsource parts Once you have “today” working well – they will listen to you re “tomorrow”

4. Managing: Fostering Change ‘ Techies’ presume a technically elegant system is a successful one Not so. Many technically sound systems have turned into implementation failures because the people side of the system was not handled correctly IT is all about managing change New systems require changing how work is done Focusing on the technical aspects is only ‘half’ the job. The other job is change management

4. Managing: Fostering Change cont. People resist change, especially technological change May react in several ways: Deny, distort or delude ODR (and others) methodology: Sponsor Change agent Target

4. Managing: Fostering Change cont. Working across Organizational Lines CIOs now find that systems they implement affect people outside their firm Supply side = fewer suppliers but deeper relationships Customer side = need buy-in to building / using inter-business systems

REXAM Case example: Working across organizational lines One of the world’s top 5 consumer packaging companies and the world’s top drink can maker Rethinking Interactions with Customers Initial doubts Vs. “If we can demonstrate value to them they will (use it)” Benefits of the Project Prioritization Process Phase 1: CRM Made Simple Testing the System with Customers Phase 2: Knock Customer’s Socks Off Competitive advantage? – They’ll ‘never leave’! The CIO’s Role The Steering Committee’s Role

REXAM Case example: Working across organizational lines cont. Rexam case illustrates a number of points about the CIO’s current role: CIOs are working outside as much as inside these days They are working in concert with their peers in the company in selling and implementing their visions To stay ahead they need to keep their staffs experimenting with new technologies Selling the vision occurs one customer, supplier or executive at a time Need to know how ‘IT ready’ a customer, supplier, executive, department or group is

UNDERSTAND THE BUSINESS TALK TO PEOPLE ALSO

The Office of the CIO? Some believe the office of the CIO is so broad it should be handled by a team Four ‘positions’: Chief Information Officer Heads IS and works with top management, customers and suppliers Chief Technology Officer Heads IT planning, which involves architecture and exploration of new technologies Chief Operations Officer Heads day-to-day IS operations Chief Project Officer Oversees all projects and project managers IT is so critical to enterprise success and the know-how needed to run it so deep and wide = management needs to become a team effort

Whither CIOs? Different periods of recent history have seen executives with different backgrounds “running the show” Manufacturing = in the early 1900s Sales and Marketing – 30s to 50s Finance – 70s to 90s Problems and scandals Future – perhaps now CIOs have the most appropriate backgrounds to run companies

IT decision making must be ‘shared’ - The main responsibility for managing the use of IT needs to pass to the line, while the management of the IT infrastructure is retained by the IS group It is reflected in the following saying: “ We used to do it to them”- IS required end users to obey strict rules for getting changes made to systems, submitting job requests, etc. “ Next, we did it for them”-IS moved to taking a service orientation “ Now, we do it with them”-which reflects “partnering” “ We are moving toward teaching them how to do it themselves ” Conclusion

To achieve this transformation, CIOs must play a leadership role in their enterprise and develop partnerships with senior management, internal and external customers, and suppliers Conclusion cont.

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