multinational manufacturing company

multinational manufacturing company

The following questions are designed to test your understanding of the material presented
in class. This is a take-home exam. As such, you are expected to provide answers of your
own crafting. You are not to discuss the questions with either those in your class or outside
of your class. Please see the course syllabus regarding Academic Dishonesty.
1. Permanence, Inc. is a multinational manufacturing company with facilities and offices in
twelve different countries around the globe. The company has fallen on hard times in
recent years mostly due to slow fulfillment and an aging product line. The company is
best described as a hierarchy with a centralized management structure and standardized
information systems and work processes. Production quotas are decided on by the CEO
and the management team and provided to operating managers at the distant locations.
Marketing is handled centrally with the advice of consultants and marketing personnel at
the distant sites. Materials are sourced in the United States and shipped to relevant sites.
The company realizes that its days are numbered if it does not adapt to changes in the
market. One of the ways that the company has decided to react to its problems is by
acquiring and implementing enterprise systems. Please help the company improve by
answering the following questions:
a. Which structural approach to IT governance should Permanence choose?
Thoroughly justify your assertion.
b. From a conceptual standpoint, is there necessarily a one-to-one correspondence
between governance structure and organizational structure? Explain.
c. Given the problems faced by the company, how should they constitute their IT
portfolio profile to address their concerns.
2. Revisit the company description above. Assume that Permanence will shift to a
decentralized/networked organizational structure and simultaneously apply full-scale
ERP to the solution of its problems.
a. Determine, explain, and justify a project management structure and plan that
includes a sourcing strategy.
Pearlson and Saunders – 5th Ed. – Chapter 10
Managing and Using Information Systems:
A Strategic Approach – Fifth Edition
Managing IT Projects
Keri Pearlson and Carol Saunders
Chapter 10
PowerPoint® files by Michelle M. Ramim
Huizenga School of Business and Entrepreneurship
Nova Southeastern University
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
10-2
Learning Objectives
•
List the elements of a good project.
•
Understand why many IT projects fail to meet their
targeted goals.
•
Explain the relationship between time, scope, and cost of
a project.
•
Explain why Gantt charts are popular for planning
schedules.
•
Define RAD and explain how it compares to the SDLC.
•
Be able to identify when it is time to pull the plug on a
project.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
10-3
Real World Example
•
Rural Payments Agency (RPA) in the UK blamed poor
planning and lack of system testing for delays in paying
out 1.5billion pounds of EU subsidies.
–
Only 15% were paid out by the end of 2006.
•
RPA had to make substantial changes to the system after
implementation.
•
The system had not been properly managed.
–
Costs were at 122 million pounds and were originally estimated
at 46.5 million.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
10-4
What Defines a Project?
•
Organizations combine two types of work—projectsand
operations(Figure 10.1).
•
Both types are performed by people and require a flow of limited
resources.
•
Both are planned, executed, and controlled.
•
Figure 10.1 compares characteristics of both project and operational
work.
•
A project is a temporary endeavor undertaken to create a unique
product, service, or result. Temporary means that every project has a
definite beginning and a definite end.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
10-5
Figure 10.1 Characteristics of operational and project work.
Characteristics Operations Projects
Labor skills
Training time
Worker autonomy
Compensation system
Material input requirements
Suppler ties
Raw Materials inventory
Scheduling complexity
Quality control
Information flows
Worker-management
communication
Duration
Product or service
Low
Low
Low
Hourly or weekly wage
High certainty
Longer duration
More formal
Large
Lower
Formal
Less important
Less important
Ongoing
Repetitive
High
High
High
Lump sum for project
Uncertain
Shorter duration
Less formal
Small
Higher
Informal
Very important
Very important
Temporary
Unique
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 10
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Project Stakeholders
•
All projects have stakeholders.
–
Project stakeholdersare the individuals and organizations that
are either involved in the project, or whose interests may be
affected as a result of the project.
•
Include the project manager, project team, and the project sponsor (a
general manager who provides the resources).
•
The customer is an important stakeholder group.
–
Individuals or organizations who use the project’s product.
–
Multiple layers of customers may be involved.
•
The relationships among the project stakeholders are
displayed in Figure 10.2.
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 10
10-7
Figure 10.2 Relationships among project stakeholders.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
10-8
Organizing the Project
•
A project managercan divide the project into
subprojects.
•
Subprojects can be based on distinct activities (e.g.,
quality control testing).
•
This organizing method enables the project manager to
contract certain kinds of work externally.
–
Provides a framework for managing crucial project resources,
competing resource requirements, and shifting priorities among
a set of projects.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
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What is Project Management?
•
Project management:
–
Applying knowledge, skills, tools, and techniques to project activities in order to
meet or exceed stakeholder needs and expectations.
–
Involves continual trade-offs managed by the project manager.
•
Trade-offs can be subsumed in the project triangle (Figure 10.3).
•
Scope may be divided into:
–
Product scope – the detailed description of the product’s quality,
features, and functions.
–
Project scope – the work required to deliver a product or service
with the intended product scope.
•
Time refers to the time required to complete the project.
•
Cost encompasses all the resources required to carry out the project.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
10-10
Figure 10.3 Project triangle.
(c) 2013 John Wiley &
Sons, Inc.
Time Cost
QUALITY
Scope
Pearlson and Saunders – 5th Ed. – Chapter 10
10-11
Project Management
•
Changes in any one of the sides of the triangleaffect one or both of the
other sides.
–
Scope creep – increasing the scope after a project has begun.
•
The project stakeholders decide on the overriding “key success
factor” (i.e., time, cost, or scope).
–
The project manager is responsible for demonstrating to
stakeholders the impact of the key success factors on the project.
–
Stakeholders are concerned about all facets of the project.
–
Measuring and tracking progress by tracking time, cost, scope,
resources, quality, and risks.
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 10
10-12
Project Management – Business Case
•
The business case spells out the components of the project and sets the
foundation.
–
Argues resources for the project.
–
Clearly articulates the details of the project and contingency plans.
–
Implementation issues, areas of concern, and gaps are first identified in the
planning phase.
•
A strong business plan gives the project team a reference
document to help guide decisions and activities.
•
Project management software (e.g., Microsoft Project, Intuit Quickbase,
Basecamp):
–
Tracks team members, deliverables, schedules, budgets, priorities, tasks,
and other resources.
–
Provides a dashboard of key metrics.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
10-13
Essential Project Elements
•
There are four components essential for any project and necessary to assure
a high probability of project success:
1. Project management.
–
A project sponsor and a project manager.
2. A project team.
–
Team members.
3. A project cycle plan.
–
The methodology and schedule.
–
The sequential steps of organizing and tracking the work of the
team.
4. A common project vocabulary. (c) 2013 John Wiley &
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10-14
Project Management – Key Players
•
The project sponsor:
–
liaises between the project team and other stakeholders.
–
is a project champion providing leadership.
–
is a senior C-level executive with influence with the key stakeholders and Clevel team.
–
provides the financial resources for the project.
•
The project manager:
–
Requires a range of management skills to make the project successful.
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 10
10-15
The Project Manager Skills
•
A Project Manager’s skills include:
1. Identifying requirements of the systems to be delivered.
2. Providing organizational integration by defining the team’s
structure.
3. Assigning team members to work on the project.
4. Managing risksand leveraging opportunities.
5. Measuring the project’s status, outcomes, and exception to provide
project control.
6. Making the project visible to general management and other
stakeholders.
7. Measuring project status against the plan, often using project
management software.
8. Taking corrective action when necessary to get the project back on
track.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
10-16
Figure 10.4 Project leadership vs. project management (PM) process.
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 10
10-17
Project leadership
•
Lack of leadershipcan result in unmotivated or
confused people.
•
Strong project leaders skillfully manage team
composition, reward systems, and other techniques to
focus, align, and motivate team members.
•
Figure 10.4 reflects the inverse relationship between the
magnitude of the project leader’s role and the experience
and commitmentof the team.
•
Factors influencing the project managers and team’s
performance:
–
Organizational culture.
–
Socioeconomic influences.
(c) 2013 John Wiley &
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Project Team
•
A project team consists of those people who work together to complete the
project.
•
Teams fail because members don’t understand the nature of the work
required.
•
Teamwork should:
–
Clearly define the team’s objectives.
–
Define each member’s role in achieving these objectives.
–
Have norms about conduct, shared rewards, a shared
understanding of roles, and team spirit.
•
Project managers should leverage team member skills, knowledge,
experiences, and capabilities.
•
Team members should share information about their departments.
(c) 2013 John Wiley &
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Project Cycle Plan
•
The project cycle plan:
–
organizes discrete project activities, sequencing them into steps
along a time line.
–
identifies critical beginning and ending dates and breaks the
work spanning these dates into phases.
•
The three most common approaches are:
–
Project Evaluation and Review Technique (PERT) (Figure 10.5).
–
Critical Path Method (CPM).
–
Gantt chart (Figure 10.6).
•
Figure 10.7 compares both a generic project cycle plan
and the Project Management Institute’s project life cycle.
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 10
10-20
Project Cycle Plan Software
•
PERT:
–
Identifies the tasks, orders the tasks in a time sequence, identifies their
interdependencies, and estimates the time required to complete the task.
•
Critical tasks – must be performed individually; together they account
for the total elapsed time of the project.
•
Non-critical tasks – can be built into the schedules without affecting the
duration of the entire project.
•
CPM:
–
A tool that is similar to PERT.
–
Incorporates a capability for identifying relationshipsbetween costs
and the completion date of a project as well as the amount and value of
resources that must be applied in alternative situations.
(c) 2013 John Wiley &
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Figure 10.5 PERT Chart.
(c) 2013 John Wiley &
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Project Cycle Plan Software
•
PERTand CPMdiffer in terms of time estimates.
–
PERT:
•
builds on broad estimates about the time needed to complete project tasks.
•
calculates the optimistic, most probable, and pessimistic time estimates for
each task.
–
CPM:
•
assumes that all time requirements for completion of individual tasks are
relatively predictable.
•
fits projects where direct relationships can be established between time and
resources (costs).
•
Gantt chartsare:
–
A visual tool for displaying time relationships between project tasks.
–
Effective for monitoring the progress toward project completion.
–
Useful for planning purposes.
(c) 2013 John Wiley &
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Figure 10.6 GANTT Chart.
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 10
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Figure 10.7 Project cycle template.
Requirements
Definition Period
Production Period Deployment/
Dissemination Period
Investigation Task Force
User
requirement
definition
Research
concept
definition
Information use
specification
Collection
planning
phase
Collection
and analysis
phase
Draft
report
phase
Publication
phase
Distribution phase
Typical High Tech Commercial Business
Product
requirement
phase
Product
definition
phase
Product
proposal phase
Product
development phase
Engineer
model phase
Internal
test
phase
Production phase Manufacturing,
sales & support
phase
Generic Project Cycle Template
User
requirement
definition
phase
Concept
definition
phase
System
specification
phase
Acquisition
planning
phase
Source
selection
phase
Development
phase
Verification
phase
Deployment or
production
phase
Operations/
maintenance
or sales
support
phase
Deactivate
phase
(c) 2013 John Wiley &
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Common Project Vocabulary
•
A typical project team includes a variety of members from different
backgrounds and parts of the organization that use a different
technical vocabulary.
–
Comprised of consultants, technical specialists, and business
members.
–
Difficult to carry on conversations, meetings, and correspondence.
•
Teams should establish a common project vocabulary for terms,
definitions, and meanings (i.e., acronyms, cryptic words).
•
Good management of the common project vocabulary as well as project
management, project team, and project life cycle are all essential to
project success.
(c) 2013 John Wiley &
Sons, Inc.
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IT Projects
•
IT projects are a specific type of business project.
–
The more complex the ITaspect of the project, the higher the
risk of failure of the project.
•
IT projects are difficult to estimate.
–
Projects can be measured in terms of function points or
functional requirements of the software product.
–
Projects can be measured in “man-months”—how many people
will be required to complete the project in a specified time
period.
•
Additional people may or may not speed up the process.
–
Requires more communication and coordination.
•
Adding people to a late project only makes the project
(c) 2013 John Wiley &
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IT Project Development Methodologies
and Approaches
•
The choice of development methodologies and managerial influences
distinguish IT projects from other projects.
•
The systems development life cycle (SDLC) – a traditional tool for
developing IS or implementing software developed by an outsourcing
provider or software developer.
•
Other development approaches:
–
Agileprogramming.
–
Prototyping.
(c) 2013 John Wiley &
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Systems Development Life Cycle
•
Systems Development: a set of activities used to create an
IS.

•
Systems Development Life Cycle (SDLC): the process of
designing and delivering the entire system.
•
The SDLC generally is used in one of two distinct ways:
–
as a general project planof all activities required for the entire
system to operate.
• Plan includes the analysis and feasibility study, the development or
acquisition of components, the implementation activities, the maintenance
activities, and the retirement activities.
–
as a process to designand develop system software.
•
Process is highly structured, disciplined, and formal. (c) 2013 John Wiley &
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SDLC Phases
•
Seven phases(Figure 10.8):
1. Project initiation.
2. Requirements definition.
3. Functional design.
4. Construction.
5. Verification.
6. “Cut over.”
7. Maintenance and review.
•
Each phase is carefully planned and documented.
(c) 2013 John Wiley &
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Figure 10.8 Systems development life cycle (SDLC) phases.
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ons, Inc.
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Traditional SDLC Methodology Issues
•
Several problems arise with using traditional SDLC
methodology:
–
Many systems projects fail to meet objectives.
•
The skillsneeded to estimate costs and schedules are difficult to
obtain.
•
Each project is unique.
–
The objectives may reflect a scope that is too broad or too narrow.
•
The problem the system was designed to solve may still exist.
–
Organizations need to respond quickly.
•
Not enough time available to adequately do each step of the SDLC
for each IT project.
–
Newer methodologies designed to address these concerns use an
iterative approach(Figure 10.9).
(c) 2013 John Wiley &
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Figure 10.9 Iterative approach to systems development.
(c) 2013 John Wiley &
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Agile Development
•
Agile development methodologies were developed for situations where a
predictable development process cannotbe followed.
–
E.g., XP (Extreme Programming), Crystal, Scrum, FeatureDriven Development, and Dynamic System Development
Method (DSDM).
•
Agile development is people-orientedrather than process
oriented.
–
Adapts to changing requirements by iteratively developing
systems in small stages and then testing the new code
extensively.
–
The mantra for agile programming is “Code a little; test a little.”
• DSDM is an extension of Rapid Application Development (RAD) used in the
UK and is based on the underlying principles of active user interaction,
frequent deliveries, and empowered teams.
(c) 2013 John Wiley &
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Agile Development
•
DSDM:
–
incorporates a project planning technique that divides the schedule into a number of
separate time periods (timeboxes) with each part having its own deliverables, deadline,
and budget.
–
is based on four types of iterations:
•
Study (business and feasibility).
•
Functional model.
•
Design and build.
•
Implementation.
•
XP is a more prescriptive agile methodology.
–
XP revolves around 12 practices, including pair programming, test-driven
development, simple design, and small releases.
•
Some disadvantages include difficulty estimating the required effort easily
getting off track if the customer is unclear about final outcomes.
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Prototyping
•
Prototyping:
–
is a type of evolutionary development.
–
builds a fast, high-level version of the system at the beginning of the project.
•
User involvement.
–
Users see the day-to-day growth of the system and contribute frequently to
the development process.
•
Prototyping can be used as a phase in the SDLC to capture project requirements.
•
Drawbacks to prototyping:
–
Documentation may be difficult to write.
–
Users may not understand the realistic scope of the system.
•
The final prototype may not be scalable to an operational version.
–
An operational version may be difficult to complete.
–
The process can be difficult to manage. (c) 2013 John Wiley &
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Figure 10.10 Comparison of IT development methodologies.
(c) 2013 John Wiley &
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Other Development Methodologies
and Approaches
•
Rapid applications development (RAD), joint applications development
(JAD), Object-oriented analysis, design and development, and the open
sourcing approach.
•
RADis similar to prototyping in that it is an interactive process in which tools
are used to drastically speed up the development process.
–
Has tools for developing the user interface, graphical user interface (GUI),
reusable code, code generation, and programming language testing and
debugging.
–
Enables the developer to build a library of standard sets of code—or objects
—used and reused in multiple applications.
–
“Drags and drops” objects into the design.
•
Automatically writes the code necessary to include that functionality.
(c) 2013 John Wiley &
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Other Development Methodologies
and Approaches
•
Joint applications development (JAD):
–
Is a version of RAD or prototyping.
–
Has users that are more integrally involved.
–
Uses a group approach to elicit requirements by interviewing groups of
users.
–
Is expensive due to travel and living expenses needed to coordinate
participants.
•
Object-oriented development:
–
Is a way to avoid the pitfalls of procedural methodologies.
–
Builds on the concept of objects—or reusable components.
•
An object encapsulates both the data stored about an entity and the
operations that manipulate that data.
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Open Sourcing Approach
•
Linux:
–
Was created by Linus Torvalds and several thousand hackers around the
world.
–
Is a world-class OS—a clone of Unix.
–
Was built using a development approach called open sourcing, which is the
process of building and improving “free” software via an Internet
community.
•
Eric Raymond suggests that the Linux community resembles a great
bazaar of differing agendas and approaches (with submissions from
anyone) out of which a coherent and stable system emerged.
•
Software is open source software (OSS) if it is released under a license
approved by the Open Source Initiative (OSI).
–
The most widely used OSI license is the general public license (GPL), which
is based on the concept of free software.
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Free Software
•
Free software offers the following freedomsfor the software users:
–
The freedom to run the program for any purpose.
–
The freedom to study how the program works and adapt it to your needs.
Access to the source code is a precondition for this.
–
The freedom to distribute copies so that you can help your neighbor.
–
The freedom to improve and release your improvements to the public so
that the whole community benefits. Access to source code is a precondition
for this.
•
A user who modifies the software must observe the rule of copyleft.
–
Copyleft – a user cannot add restrictions to deny others their central
freedoms regarding the free software.
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Open Sourcing Movement
•
The Open Sourcing Movement.
–
Offers a speedyway to develop software that:
•
is available to a whole community.
•
uses widespread testing.
•
is free.
•
A number of managerial issues are associated with its use in a business
organization.
–
Preservation of intellectual property.
–
Updating and maintaining open source code.
–
Competitive advantage.
–
Tech support.
–
Standards.
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Popular Open Source Software
•
Examples of popular open source:
–
Software Mozilla (a popular web browser core).
–
Apache (web server).
–
PERL (web scripting language).
–
OpenOffice (a Sun Microsystems-originated set of office
applications that support the Microsoft Office suite formats).
–
PNG (graphics file format).
•
Open source applications available on the Internet,
including Web 2.0 applications, are becoming part of
the corporate infrastructure.
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Managing IT Project Risk
•
IT projects are often distinguished from many non-IT projects on the
basis of their high levels of risk.
•
Risk is the possibility of additional cost or loss due to the choice of
alternative.
–
Some alternatives have a lower associated risk than others.
–
Risk can be quantified by assigning a probabilityof occurrence
and a financial consequence to each alternative.
•
Project risk is a function of:
1. complexity.
2. clarity.
3. size.
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Complexity
•
The complexity levelis the extent of difficulty and
interdependent components of the project.
•
Several factors contribute to greater complexity in IT
projects:
–
The sheer pace of technological change.
–
The degree of uncertainty in identifying and agreeing on
common goals.
•
Complexity can be determined once the contextof the
project has been established.
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Clarity
•
Clarity is concerned with the ability to define the
requirementsof the system.
–
A project has low clarity if the users cannot easily state their
needs or define what they want from the system.
–
A project with high clarity is one in which the systems
requirements can be easily documented and do not change.
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Size
•
Size plays a big role in project risk.
•
A project can be considered big if it has:
–
a large budget relative to other budgets in the organization.
–
a large number of teammembers or number of man-months.
–
a large number of organizational units involved in the project.
–
a large number of programs/components.
–
a large number of function points or lines of code.
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Managing Project Risk Level
•
The project’s complexity, clarity, and size determine its risk.
–
Varying levels of these three determinants affect the amount of project risk.
–
Large, highly complex projects that are low in clarity are extremely risky.
–
Small projects that are low in complexity and high in clarity are usually low risk.
–
Everything else is somewhere in between.
•
The level of risk determines how formal and detailed the project management
system and planning should be.
•
When it is difficult to estimate duration or expense of a project because it is
complex or has low clarity, formal management practices or planning may be
inappropriate.
•
Formal planning tools may be useful in low-risk projects.
(c) 2013 John Wiley &
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Managing the Complexity Aspects
of Project Risk
•
Strategies that may be adopted in dealing with
complexity are:
–
Leveragingthe technical skillsof the team.
•
Having a leader or team members who have had significant work experience.
–
Relying on consultants and vendors.
•
Their work is primarily project-based and they usually possess the crucial IT
knowledge and skills.
–
Integrating within the organization.
•
Having frequent team meetings, documenting critical project decisions, and
holding regular technical status reviews.
•
Requires good communication among team members.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
10-49
Managing Clarity Aspects of Project
Risk
•
When a project has low clarity, project managers need to:
–
rely more heavily upon the users to define system requirements.
–
manage stakeholders.
•
Managers must balance the goals of the various stakeholders to achieve
desired project outcomes.
•
Often involves both the project manager and the general manager.
–
Sustain project commitment(Figure 10.11).
•
Four primary types of determinants of project commitment:
–
Project determinants.
–
Psychological determinants.
–
Social determinants.
–
Organizational determinants.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
10-50
Figure 10.11 Determinants of commitment for IT projects.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
10-51
Gauging Success
•
At the start of the project, the general managershould:
–
consider several aspects based on achieving the business goals.
•
The goals be measurable and should be used throughout the project to
provide the project manager with feedback.
–
assess if the system meets the specifications and project requirementslaid out
in the project scope.
•
Metricsmay be derived specifically from the requirements and business
needs.
•
Four dimensions that are useful in determining if a project is successful or
not (Figure 10.12):
–
Resource constraints.
–
Impact on customers.
–
Business success.
–
Prepare the future.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
10-52
Figure 10.12 Success dimensions for various project types.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
10-53
Chapter 10 – Key Terms
Agile development (p. 306) – a group of software development methodologies
based on iteratively developing systems in small stages and then testing the new
code extensively.
Direct cutover (p. 304) – conversion in which the old system stops running as
soon as the new system is installed.
Joint applications development (JAD) (p. 309) – a version of RAD or
prototyping in which users are more integrally involved with the entire
development process.
Mashups (p. 311) – web apps that combine other apps to create a new app.
Object(p. 309) – encapsulates both the data stored about an entity and the
operations that manipulate that data.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
10-54
Chapter 10 – Key Terms (Cont.)
Open sourcing (p. 310) – the process of building and improving “free”
software via an Internet community.
Open source software (OSS) (p. 310) – software released under a license
approved by the Open Source Initiative (OSI).
Parallel conversion (p. 304) – conversion where the old system runs alongside
the new system.
Project(p. 290) – a temporary endeavor undertaken to create a unique
product, service, or result.
Project manager (p. 295) – ensures the entire project is executed
appropriately and coordinated properly.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
10-55
Chapter 10 – Key Terms (Cont.)
Project management (p. 292) – applying knowledge, skills, tools, and techniques
to project activities in order to meet project requirements.
Project management office (PMO) (p. 294) – a department responsible for
boosting efficiency, gathering expertise, and improving project delivery.
Project stakeholder (p. 290) – the individuals and organizations that are either
involved in the project or whose interests may be affected as a result of project.
Prototyping(p. 307) – a type of evolutionary development for of building systems
where developers get the general idea of what is needed by the users and then build
a fast, high-level version of the system at the beginning of the project.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
10-56
Chapter 10 – Key Terms (Cont.)
Rapid applications development (RAD) (p. 308) – an interactive
process in which tools are used to drastically speed up the
development process.
Systems development life cycle (SDLC) (p. 303) – a traditional tool
for developing information systems or for implementing software
developed by an outsourcing provider or software developer.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 10
10-57
Copyright 2013 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this
work beyond that named in Section 117 of the 1976 United
States Copyright Act without the express written consent of
the copyright owner is unlawful. Request for further
information should be addressed to the Permissions
Department, John Wiley & Sons, Inc. The purchaser may
make back-up copies for his/her own use only and not for
distribution or resale. The Publisher assumes no
responsibility for errors, omissions, or damages, caused by
the use of these programs or from the use of the
information contained herein.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
Managing and Using Information Systems:
A Strategic Approach – Fifth Edition
Governance of the
Information Systems Organization
Keri Pearlson and Carol Saunders
Chapter 8
PowerPoint® files by Michelle M. Ramim
Huizenga School of Business and Entrepreneurship
Nova Southeastern University
(c) 2013 John Wiley & Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-2
Learning Objectives
•
Understand how governance structures define the way
decisions are made in an organization.
•
Describe the three models of governance based on
organization structure (centralized, decentralized, and
federal), decision rights, and control (e.g., COSO, COBIT,
ITIL).
•
Discuss examples and strategies for implementation.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-3
Real World Example
•
In April 2011, Sony was hit by one of the biggest data breaches in
history when PlayStation was hacked.
•
Compromised the personal information of potentially 100 million users.
•
Sony took the on-line platform offline for weeks.
•
To woo back its customers, it offered a “welcome back package.”
–
Free games, movies, and $1 million identity theft insurance
policy per customer.
•
Estimated cost of the breach was 104 million British pounds—not counting
reputational damage.
•
A U.S. Congressional Committee, the U.K. Minister of Culture, and the city of
Taipei were among those demanding more information about the breach.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-4
Real World Example (Cont.)
•
In September 2011, Sony posted its new security policy and
standards on its website.
•
Appointed a former official at the U.S. Department of Homeland Security as
its first Chief Information Security Officer.
–
Responsible for assuring the security of Sony’s information
assets and services.
–
Oversees corporate information security, privacy, and Internet
safety.
–
Coordinates closely with key headquarters groups on security
issues.
•
A governance structure helps Sony’s security professionals, IS organization,
and business units work toward achieving corporate goals, which now
include information security.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-5
IT Governance
•
Governancein the context of business enterprises is all
about making decisions that define expectations, grant
authority, or ensure performance.
–
Aligning behavior with business goals through empowerment
and monitoring.
•
Empowermentcomes from granting the right to make
decisions.
•
Monitoring comes from evaluating performance.
•
IT governance focuses on how decision rights can be
distributed differently to facilitate centralized,
decentralized, or hybrid modes of decision making.
•
The organizational structure plays a major role.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-6
Centralized versus Decentralized
Organizational Structures
•
Centralized– brings together all staff, hardware,
software, data, and processing into a single location.
•
Decentralized– the components (e.g., staff, hardware,
etc.) are scattered in different locations to address local
business needs.
• Federalism– a combination of centralized and
decentralized structures.
•
Figure 8.1 shows the organizational structure continuum.
•
Companies with higher levels of governance maturity
have a need for control that is made possible in the
centralized structure.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-7
Figure 8.1 Organizational continuum.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-8
Organizational Structural Approaches
•
Figure 8.2 shows advantages and disadvantages of each
organizational approach.
•
Most companies want to achieve the advantages derived
from both organizational paradigms.
•
Federalismis a structuring approach that distributes
power, hardware, software, data, and personnel between
a central IS group and IS in business units.
•
A hybridapproach enables organizations to benefit from
both structural approaches.
•
Figure 8.3 shows how these approaches interrelate.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-9
Figure 8.2 Advantages and disadvantages of organizational approaches.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-10
Figure 8.3 Federal IT.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-11
Another Perspective on IT Governance
•
Peter Weill and his colleagues define IT governance as
“specifying the decision rightsand accountability
framework to encourage desirable behavior in using IT.”
•
IT governance is not about what decisions are actually
made.
–
Who is making the decisions (i.e., who holds the decision rights)
and how the decision makers are held accountable for them.
•
Match the manager’s decision rights with his or her
accountability for a decision.

•
Figure 8.4 indicates what happens when there is a
mismatch.
•
Mismatchesresult in either an oversupply of IT
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-12
Figure 8.4 IS decision rights-accountability gap.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-13
Another Perspective on IT Governance
(Cont.)
•
Good IT governance provides a structure to make good decisions.
•
IT governance has two major components:
1. The assignment of decision-making authorityand
responsibility.
2. The decision-making mechanisms (e.g., steering committees, review boards,
policies).
•.
Weill and his colleagues proposed five generally applicable categories of IT
decisions:
–
IT principles, IT architecture, IT infrastructure strategies, business application needs,
and IT investment and prioritization.
–
Figure 8.5 provides a description of these decision categories with an example of major
IS activities affected by them.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-14
Figure 8.5 Five major categories of IT decisions.
Category Description Examples of Effected IS
Activities
IT Principles High-level statements about how IT is used in
the business.
Participating in setting
strategic direction.
IT Architecture An integrated set of technical choices to guide
the organization in satisfying business needs.
The architecture is a set of policies and rules
for the use of IT and plots a migration path to
the way business will be done.
Establishing architecture and
standards.
IT Infrastructure
Strategies
Strategies for the base foundation of
budgeted-for IT capability (both technical and
human) shared throughout the firm as reliable
services and centrally coordinated.
Managing Internet and
network services, providing
general support, managing
data, managing human
resources.
Business Application
Needs
Specification of the business need for
purchased or internally-developed IT
applications.
Developing and maintaining
IS.
IT Investment &
Prioritization
Decision about how much and where to invest
in IT, including project approvals and
justification techniques.
Anticipating new technologies.
(c) 2013 John Wiley &
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Political Archetypes
•
Weill and Ross propose archetypeslabeling the combinations of people
who either input information or have decision rights for key IT decisions.
–
Business monarchy, IT monarchy, feudal, federal, IT duopoly, and anarchy.
•
An archetypeis a pattern for decision rights allocation.
•
Decisions can be made at several levels in the organization (Figure 8.6).
–
Enterprise-wide, business unit, and region/group within a business unit.
•
There is significant variation across organizations in terms of archetypes
selected for decision right allocation.
–
The duopoly is used by the largest portion (36%) of organizations for IT
principles decisions.
–
IT monarchy is the most popular for IT architecture (73%) and
infrastructure decisions (59%).
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-16
Figure 8.6 IT governance archetypes.
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 8
8-17
IT Governance and Security
•
Weill and Ross Framework for IT governance offers a
new perspective for assigning responsibility for key
security decisions.
•
Figure 8.7 shows an appropriate governance pattern for
each decision.
1. Information Security Strategy
2. Information Security Policies
3. Information Security Infrastructure
4. Information Security Education/Training/Awareness
5. Information Security Investments
•
The archetypes clearly define the responsibilitiesof the
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-18
Figure 8.7 Matching information security decisions and archetypes.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-19
Decision Making Mechanisms
•
Policiesare useful for the decision making process in certain situations.
•
A review board—or committee formally designated to approve, monitor, and
review specific topics—can be an effective governance mechanism.
•
IT steering committee—an advisory committee of key
stakeholders or experts—can provide guidance on important IT issues.
–
Works well with federal archetypes, which call for joint
participation of IT and business leaders.
•
IT Governance Council- a steering committee at the highest
level.
–
Reports to the board of the directors or the CEO.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-20
Governance Frameworks for Control
Decisions
•
Governance frameworks have been employed recently to
define responsibilityfor controldecisions.
•
These frameworks focus on processesand risks
associated with them.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-21
Sarbanes–Oxley Act of 2002
•
The Sarbanes-Oxley (SoX) Act of 2002 was enacted to
increase regulatory visibilityand accountabilityof
public companies and their financial health.
•
All corporations under the SEC are subject to SoX
requirements.
–
Includes:
•
U.S. and foreign companies that are traded on U.S. exchanges.
•
companies that make up a significant part of a U.S. company’s financial
reporting.
•
CEOsand CFOsmust personally certify and be
accountable for their firm’s financial records and
accounting.
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 8
8-22
SoX – Financial Controls
•
Auditorsmust certify the underlying controls and
processes that are used to compile a company’s financial
results.
•
Companies must provide real-time disclosures of any
events that may affect a firm’s stock price or financial
performance within a 48-hour period.
•
Penalties for failing to comply range from fines to a 20-year jail term.
•
ITplays a major role in ensuring the accuracyof
financial data.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-23
SoX – IT Controls
Five IT control weaknesses are repeatedly uncovered by auditors:
1. Failureto segregate duties within applications as well as failure
to set up new accounts and terminate old ones in a timely
manner.
2. Lackof proper oversight for making application changes,
including appointing a person to make a change and another to
perform quality assurance on it.
3. Inadequate review of audit logs to ensure that systems were
running smoothly and that there was an audit log of the audit log.
4. Failure to identify abnormal transactions in a timely manner.
5. Lack of understanding of key system configurations.
•
IT managers must assess the level of controls needed to mitigate potential
risks in organizational business processes.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-24
Frameworks for Implementing SoX –
COSO
•
Treadway Commission (National Commission on Fraudulent Financial
Reporting) was created as a result of financial scandals in the 1980s.
–
Members came from five highly esteemed accounting organizations.
–
These organizations became known as the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
•
They created three control objectivesfor management and auditors
that focused on dealing with risksto internal control:
–
Operations.
–
Compliance.
–
Financial reporting.
•
SoX is focused on this control objective.
(c) 2013 John Wiley &
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COSO Business Framework
•
COSO established five essential controlcomponents for managers and
auditors.
1. Control environment—addresses the overall culture of the company.
2. Risk assessment—most critical risks to internal controls.
3. Control processes—outline important processes and guidelines.
4. Information and communication of the procedures.
5. Monitoring—by management of the internal controls.
•
SoX:
–.
requires public companies to define their control framework.
–.
recommends COSO as the business framework for general accounting controls.
–.
is not IT-specific.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-26
COBIT – Control Objectives for
Information and Related Technology
•
COBIT is an IT governance framework that is consistent with COSOcontrols
that:
–
focus on making sure that IT provides the systematic rigor needed for SoX
compliance.
–
provide a framework for linking IT processes, IT resources, and IT information to a
company’s strategies and objectives.
•
Information Systems Audit & Control Association (ISACA) issued COBIT in 1996.
•
COBIT provides a set of process goals, metrics, and practices (Figure 8.8).
–
Risk categorized into four major domains: planning and organization, acquisition and
implementation, delivery and support, or monitoring.
–
The company determines the processes that are the most susceptible to the risksthat
it chooses to manage.
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 8
8-27
Figure 8.8 Components of COBIT and their examples.
(c) 2013 John Wiley &
Pearlson and Saunders – 5th Ed. – Chapter 8
8-28
COBIT – a Governance Framework
•
The company identifies processesthat it is going to manage.
•
Sets up a controlobjective and more specific key goal indicators.
•
Advantages:
–
Well-suited to organizations focused on risk management and
mitigation.
–
designates clear ownership and responsibility for key processes
in such a way that is understood by all organizational
stakeholders.
–
COBIT provides a formal framework for aligningIS strategy
with the business strategy.
•
Disadvantages:
–
Very detailed.
–
Costly and time-consuming.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-29
Other Control Frameworks for SoX
•
The International Standards Organization (ISO).
–
The world’s largest developer and publisher of International Standards.
•
Information Technology Infrastructure Library (ITIL).
–
A set of concepts and techniques for managing IT infrastructure,
development, and operations.
–
Offers 8 sets of management procedures:
•
Service delivery, service support, service management, ICT
infrastructure management, software asset management, business
perspective, security management, and application management.
–
A widely recognizedframework for IT service management and operations
management that has been adopted around the globe.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-30
IS and the Implementation of SoX Act
Compliance
•
The IS department and CIOare involved with the implementation of SoX.
•
Section 404 deals with management’s assessment of internal
controls.
•
Braganza and Franken provide six tactics that CIOs can use in working with
auditors, CFOs, and CEOs (Figure 8.9):
–
Knowledge building.
–
Knowledge deployment.
–
Innovation directive.
–
Mobilization.
–
Standardization.
–
Subsidy.
•
The extent to which a CIO could employ these various tactics depends upon the
his/her power relating to the SoX implementation.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-31
Figure 8.9 CIO Tactics for implementing SoX compliance.
(c) 2013 John Wiley &
Pearlson and Saunders – 5th Ed. – Chapter 8
8-32
Chapter 8 – Key Terms
Archetype(p. 242) – a pattern from decision rights allocation.
Business continuity plan (BCP) (p. 250) – an approved set of
preparations and sufficient procedures for responding to a variety of
disaster events.
Centralized IS organizations (p. 238) – bring together all staff,
hardware, software, data, and processing into a single location.
COBIT(Control Objectives for Information and Related Technology)
(p. 253) – an IT governance framework that is consistent with COSO
controls.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-33
Chapter 8 – Key Terms (Cont.)
Decentralized IS organizations (p. 238) – scatter components in
different locations to address local business needs.
Federalism(p. 240) – a structuring approach that distributes power,
hardware, software, data, and personnel between a central IS group
and IS in business units.
Governance(p. 237) – making decisions that define expectations, grant
authority, or ensure performance.
IT governance (p. 241) – specifying the decision rights and accountability
framework to encourage desirable behavior in using IT.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-34
Chapter 8 – Key Terms (Cont.)
ITIL (Information Technology Infrastructure Library) (p. 255) – a
set of concepts and techniques for managing IT infrastructure, development, and
operations that was developed in the United Kingdom.
Review board (p. 249) – a committee formally designated to approve, monitor,
and review specific topics; can be an effective governance mechanism.
Sarbanes–Oxley Act (SoX) (p. 251) – enacted in the U.S. in 2002 to
increase regulatory visibility and accountability of public companies and their
financial health.
Steering committee (p. 249) – an advisory committee of key
stakeholders or experts that provides guidance on important IT issues.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 8
8-35
Copyright 2013 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this
work beyond that named in Section 117 of the 1976 United
States Copyright Act without the express written consent of
the copyright owner is unlawful. Request for further
information should be addressed to the Permissions
Department, John Wiley & Sons, Inc. The purchaser may
make back-up copies for his/her own use only and not for
distribution or resale. The Publisher assumes no
responsibility for errors, omissions, or damages, caused by
the use of these programs or from the use of the
information contained herein.
(c) 2013 John Wiley &
Sons, Inc.

Pearlson and Saunders – 5th Ed. – Chapter 11
Managing and Using Information Systems:
A Strategic Approach – Fifth Edition
Knowledge Management, Business
Intelligence, and Analytics
Keri Pearlson and Carol Saunders
Chapter 11
PowerPoint® files by Michelle M. Ramim
Huizenga School of Business and Entrepreneurship
Nova Southeastern University
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-2
Learning Objectives
•
Understand the difference between data, information,
and knowledge.
•
Define how tacit knowledge differs from explicit
knowledge.
•
Describe why knowledge management is so important.
•
Understand how knowledge is generated and captured.
•
Describe a knowledge map.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-3
Real World Example
•
Harrah’s found a way to double revenues by collecting
and then analyzing customer data.
•
They mine their customer data completely.
•
They use loyalty cards to track customer behavior and to
identify high-revenue customers.
•
Harrah’s determined that these customers were
motivated by reduced hotel room rates and wanted quick
service.
•
They found ways to reduce lines and wait time.
•
High-revenue customers rarely waited in any line.
•
They found ways to keep customers coming back.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-4
Knowledge Management, Business
Intelligence, and Business Analytics
•
Knowledge management has been invigorated and
enabled by:
–
new technologies for collaborative systems.
–
the emergence of the Internet and intranets.
–
large, geographically-distributed knowledge repositories.
–
well-publicized successes of companies using business analytics
(e.g., Caesars).
–
Established sources.
•
Anthropology, cognitive psychology, management, sociology,
artificial intelligence, IT, and library science.
•
Knowledge management is an emerging discipline.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-5
Knowledge Management
•
Knowledge management includes the processes necessary to generate, capture,
codify, and transfer knowledge across the organization to achieve competitive
advantage.
•
Individualsare the ultimate source of organizational knowledge.
•
To obtain the full value of knowledge, it must be captured and transferred across
the organization.
•
Business intelligence (BI):
–
is a set of technologies and processes that use data to understand and analyze business
performance.
–
is a management strategy used to create a more structured approach to decision
making.
–
analyzes information collected in company databases, extracting knowledge from data.
(c) 2013 John Wiley &
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11-6
Business Intelligence
• Business intelligence can be considered a component of knowledge
management.
•
Davenport and Harris suggest that business analyticsrefers to the use of
quantitative and predictive models as well as fact-based management to drive
decisions.
•
A sustainable competitive advantage lies in what employeesknow and how
they apply that knowledge to business problems.
•
Knowledge must serve the broader goals of the organization.
– How the information is used and how the knowledge is linked back to
business processes are important components of knowledge management.
(c) 2013 John Wiley &
Sons, Inc.
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11-7
Intellectual Property
•
Intellectual capitalis knowledge that has been identified, captured, and
leveraged to produce higher-value goods or services or some other competitive
advantage for the firm.
–
Knowledge management and intellectual capital are often used imprecisely and
interchangeably.
•
Information technology (IT):
–
provides an infrastructure for capturing and transferring knowledge.
–
does not create knowledge.
–
cannot guarantee knowledge sharing or use.
•
Intellectual propertyallows individuals to own their creativity and
innovation in the same way that they can own physical property.
(c) 2013 John Wiley &
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11-8
Intellectual Property (Cont.)
•
Information-based property differs from physical
property in two ways:
–
It is non-exclusive.
•
When one person uses it, it can be used again by another person.
–
The marginal cost of producing additional copies of informationbased property is negligible compared with the cost of original
production.
•
These characteristics create differences in the ethical
treatment of physical and information-based intellectual
property.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-9
Intellectual Property (Cont.)
•
Intellectual property enables ownersto be rewarded for
the use of their ideas.
–
It allows them to have a say in how their ideas are used.
•
Owners are granted intellectual property rights.
•
Some protection such as copyrightarises automatically.
•
Types of intellectual property:
–
Patents for inventions.
–
Trademarks for brand identity.
–
Designs for product appearance.
–
Copyrights. (c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-10
Copyright Act
•
The Digital Millennium Copyright Act (DCMA) makes it a crime to
circumvent copy protection—even if that copy protection impairs rights
established by the Audio Home Recording Act.
•
The Digital Tech Corps Act of 2002 bans employees from revealing trade
secrets during their lifetime and imposes a criminal penalty of up to five years in
prison and a $50,000 fine.
•
The Coordinator for International Intellectual Property Enforcement in the U.S.
Department of Commerce coordinates the battle against global piracy of
intellectual property.
•
The Stop Online Piracy Act (SOPA) and the Protect IP Act (PIPA)
were introduced to protect intellectual property.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-11
Data, Information, and Knowledge
•
The terms data, information, and knowledge are often used interchangeably
(Figure 11.1).
•
Dataare specific, objective facts or observations.
–
Facts have no intrinsic meaning but can be easily captured, transmitted, and
stored electronically.
•
Informationis defined by Peter Drucker as “data endowed with relevance
and purpose.”
•
People turn data into information by organizing them into some unit of analysis.
–
This involves interpreting the context of the data and summarizing it into a more
condensed form.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-12
Figure 11.1 The relationships between data, information, and knowledge.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-13
Components of Knowledge
•
Knowledge is:
–
a mixof contextual information, experiences, rules, and values (Figure 12.2).
–
both richer and deeper than information.
–
more valuable because it includes someone’s unique experience, judgment,
and wisdom.
•
Three different types of knowing:
–
Knowing what:
•
based on assembling information and applying it.
–
Knowing how:
•
focuses on applying knowledge.
–
Knowing why:
•
is synthesized through a reasoning process.
•
is the casual knowledge of why something occurs.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-14
Figure 11.2 Taxonomy of knowledge.
(c) 2013 John Wiley &
Sons, Inc.
Know -Why
Know -What Know -How
Application
Experience
Information Procedure
Reasoning
Pearlson and Saunders – 5th Ed. – Chapter 11
11-15
Components of Knowledge (Cont.)
•
Valuesand beliefs determine the interpretation and the organization of
knowledge.
•
Davenport and Prusak say:
–
“The power of knowledge to organize, select, learn, and judge comes from values and
beliefs as much as, and probably more than, from information and logic.”
•
Computers work well for managing data but are less efficient at managing
information.
•
Managing knowledge has become far more complex because of:
–
a greater amount of knowledge to manage.
–
more powerful tools available to manage knowledge.
•
Managing knowledge provides valueto organizations in many ways (Figure
11.3).
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-16
Figure 11.3 The value of managing knowledge.
(c) 2013 John Wiley &
Pearlson and Saunders – 5th Ed. – Chapter 11
11-17
Tacit Versus Explicit Knowledge
•
Tacitknowledge:
–
was first described by Michael Polyani:
•
“We can know more than we can tell.”
–
is personal, context-specific, and hard to formalize and communicate.
–
consists of experiences, beliefs, and skills.
–
is entirely subjective.
–
is acquired through physically practicing a skill or activity.
•
Explicitknowledge:
–
is the focus of IT.
–
is knowledge that can be easily collected, organized, and transferred through
digital means such as a memorandum or financial report.
–
gained from reading this textbook is objective, theoretical, and codified for
transmission in a formal, systematic method using grammar, syntax, and the
printed word.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-18
Figure 11.4 Examples of explicit and tacit knowledge.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-19
Knowledge Conversion
•
Knowledge conversionstrategies are often of interest in the business
environment.
•
Companies want to:
–
take an expert’s tacit knowledge and make it explicit.
–
take a new hire’s explicit book-learning and make it tacit.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-20
Modes of Knowledge Conversion
•
Ikujiro Nonaka and Hirotaka Takeuchi developed four different modes of
knowledge conversion (Figure 11.5):
–
Socialization- from tacit knowledge to tacit knowledge.
•
Socialization is the process of sharing experiences.
–
It occurs through observation, imitation, and practice.
–
Common examples include sharing war stories, apprenticeships,
conferences, and casual, unstructured discussions in the office or
“at the water cooler.”
–
Externalization – from tacit knowledge to explicit knowledge.
–
Combination- from explicit knowledge to explicit knowledge.
–
Internalization- from explicit knowledge to tacit knowledge.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-21
Figure 11.5 The four modes of knowledge conversion.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-22
Knowledge Management Processes
•
Four main knowledge management processes:
–
Knowledge generation:
•
Includes all activities that discover “new” knowledge—whether such
knowledge is new to the individual, the firm, or the entire discipline.
–
Knowledge capture:
•
Involves continuous processes of scanning, organizing, and packaging
knowledge after it has been generated.
–
Knowledge codification:
•
The representation of knowledge in a manner that can be easily
accessed and transferred.
–
Knowledge transfer:
•
Involves transmitting knowledge from one person or group to another
and the absorption of that knowledge. (c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-23
Knowledge Management Processes
(Cont.)
•
Without absorption, a transfer of knowledge does not
occur.
•
Generation, codification, and transfer generally take
place constantly without management intervention.
•
Knowledge management systems:
–
seek to enhance the efficiency and effectiveness of these
activities and leverage their value for the firm and the individual.
–
continually evolve into new and more robust systems for
managing and using knowledge.
•
Knowledge management processes are different in the
age of Web 2.0 and robust search toolssuch as Google.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-24
Modern Knowledge Management
Systems
•
Traditional knowledge management systems had well-defined processes for
generation, capture, codification, and transfer.
•
Large data warehouses, ubiquitous websites, search tools, and tagging make it
possible to capture and find information without the formal processes.
•
Tagging is:
–
when users list key words that codify the information or document at hand, creating an
ad-hoc codification system.
–
sometimes referred to as a folksonomy.
•
Modern technologies have replaced traditional knowledge management
systems.
•
Individuals have the ability to find information that traditionally was locked
within structures that had to be designed, managed, and then taught to users.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-25
Business Intelligence
•
Traditional business intelligence(BI) provides dashboardsand reports
to assist managers in monitoring key performance metrics.
•
BI systems include reporting, querying, dashboards, and scorecards.
–
Dashboards:
•
are simple online displays of key metrics often graphically displayed in
pie charts, bar charts, red-yellow-green coded data, and other images.
•
easily convey both the value of the metric and—via the color coding—if
the metric is within acceptable parameters.
•
BI is useful for strategic, tactical, and operational decisions.
•
BI 2.0, or collaborative BI:
–
is the next generation of business intelligence.
–
incorporates a more proactive perspective.
–
provides for querying of real-time data.
–
provides visualizationand analytics tools.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-26
Competing with Business Analytics
•
Many companies in many industries offer similar
products and use comparable technologies.
•
Business processesare among the last remaining points of
differentiation.
•
Davenport and Harris suggest companies that
successfully compete using their business analytics skills
have five capabilities:
–
Hard to duplicate.
–
Uniqueness.
–
Adaptability.
–
Better than the competition.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-27
Components of Business Analytics
•
Companies make a significant investment in their
technologies, their people, and their strategic decisionmaking processes.
•
Four components of business analytics (Figure 11.6):
–
A data repository.
–
Software tools.
–
An analytics environment.
–
A skilled workforce.
•
Data Repositories.
–
Data used in the analytical processes must be gathered, cleaned
up, common, integrated, and stored for easy access.
•
Data warehouses:
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-28
Figure 11.6 Components of business analytics.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-29
Software Tools
•
Data mining:
–
is the process of analyzing data warehouses for “gems” that can be used in
management decision making.
–
identifies previously unknown relationships among data.
–
refers to combing through massive amounts of customer data to understand buying
habits and to identify new products, features, and enhancements.
•
The analysismay help a business better understand its customers.
•
There are four categories of tools:
–
Statistical analysis.
–
Forecasting/extrapolation.
–
Predictive modeling.
–
Optimization.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-30
Analytics Environment
•
Building an environment that supports and encourages analytics is a critical
component.
–
IS strategy and organizational strategy must be aligned with the business
strategy.
–
Corporate culture, incentive systems, metrics used to measure success of
initiatives, and processes for using analytics must be aligned with the
objective of building competitive advantage through analytics.
•
Leadershipplays a big role in creating a strong analytics environment.
–
Leaders must move the company’s culture toward an evidence-based
management approach in which evidence and facts are analyzed as the first
step in decision making.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-31
Skilled Workforce
•
It is clear that to be successful with analytics, data and
technology must be used.
–
Peoplemust be involved.
•
Managers must have enough knowledge of analytics to
use them in their decision making.
•
Leadersmust set an example for the organization.
•
Some hire expertsto use analytics software.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-32
BI Competitive Advantage
•
Companies tend to fall into one of 5 levels of maturity with analytical
capabilities (Figure 11.7).
•
There is a very large amount of data amassing in databases.
•
Big data:techniques and technologies that make it economical to deal
with very large datasets at the extreme end of the scale.
–
Large datasets are desirable because of the potential trends and
analytics that can be extracted.
–
Specialized computers and tools are needed to mine the data.
–
Big data is more common because of the rich, unstructured data
streams that are created by social IT.
–
Big data problems occur in simulations, scientific research,
Internet searches, customer data management, and financial
market analytics.(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-33
Figure 11.7 Analytical capabilities maturity levels.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-34
Social Analytics or Social Media
Analytics
•
Social analytics:
–
Is a set of tools developed to measure the impact of the social ITinvestments on
the business.
–
analyzes conversations, tweets, blogs, and other social IT data to create
meaningful, actionable facts.
•
Social analytics vendors include Google Analytics and Radian6 (Salesforce.com).
–
Radian6’s platform tools enable:
•
listening to the community.
•
learning who is in the community.
•
engaging people in the community.
•
tracking what is being said.
–
Google Analyticsis a set of social analytics tools that enables organizations to
analyze their website and include:
•
website testing and optimizing. (c) 2013 John Wiley &
Pearlson and Saunders – 5th Ed. – Chapter 11
11-35
Caveats for Managing Knowledge and
Business Intelligence
•
Knowledge managementand business intelligence continue to be
emerging disciplines.
•
Knowledge is not always visible or available.
•
Nurturing a culture that values learning and sharing of knowledge enables
effective and efficient knowledge management.
•
The success of knowledge management ultimately depends on a personal and
organizational willingness to learn.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-36
Chapter 11 – Key Terms
Big data (p. 341) – techniques and technologies that make it
economical to deal with very large datasets at the extreme end of the scale.
Business analytics (p. 327) – the use of quantitative and predictive
models as well as fact-based management to drive decisions.
Business intelligence (p. 327) – a set of technologies and processes that
use data to understand and analyze business performance.
Data(p. 330) – specific, objective facts or observations.
Data mining (p. 339) – the process of analyzing data warehouses for
“gems” that can be used in management decision making.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-37
Chapter 11 – Key Terms(Cont.)
Data warehouses (p. 338) – collections of data designed to support
management decision making; sometimes serve as repositories of
organizational knowledge.
Explicit knowledge (p. 334) – knowledge that can be easily collected,
organized, and transferred through digital means such as a memorandum
or financial report.
Externalization (p. 334) – articulating and thereby capturing tacit knowledge
through use of metaphors, analogies, and models.
Evidence-based management (p. 341) – an approach in which evidence and
facts are analyzed as the first step in decision making.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-38
Chapter 11 – Key Terms(Cont.)
Folksonomy(p. 335) – an ad-hoc codification system created by users.
Information (p. 330) – data with a context.
Intellectual capital (p. 328) – knowledge that has been identified,
captured, and leveraged to produce higher-value goods or services or
some other competitive advantage for the firm.
Intellectual property (p. 328) – allows individuals to own their creativity
and innovation in the same way that they can own physical property.
Knowledge(p. 331) – mix of contextual information, experiences, rules, and
values. It is richer and deeper than information and more valuable because
someone has thought deeply about that information and added his or her own
unique experience, judgment, and wisdom.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-39
Chapter 11 – Key Terms(Cont.)
Knowledge capture (p. 335) – the continuous processes of
scanning,
organizing, and packaging knowledge after it has been
generated.
Knowledge codification(p. 335) – the representation of
knowledge in
a manner that can be easily accessed and transferred.
Knowledge generation (p. 335) – all activities that discover
“new” knowledge—whether such knowledge is new to the
individual, the firm, or the entire discipline.
Knowledge management (p. 327) – the processes necessary to
generate, capture, codify, and transfer knowledge across
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-40
Chapter 11 – Key Terms (Cont.)
Knowledge transfer (p. 335) – involves transmitting knowledge from
one person or group to another and the absorption of that knowledge.
Social analytics (p. 342) – a set of tools developed to measure the
impact of the social IT investments on the business.
Socialization (p. 335) – the process of sharing experiences; occurs
through observation, imitation, and practice.
Tacit knowledge (p. 332) – knowledge that is personal, contextspecific, and hard to formalize and communicate; consists of
experiences, beliefs, and skills.
Tagging (p. 335) – users list key words that codify the information or
document at hand, creating an ad-hoc codification system.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 11
11-41
Copyright 2013 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this
work beyond that named in Section 117 of the 1976 United
States Copyright Act without the express written consent of
the copyright owner is unlawful. Request for further
information should be addressed to the Permissions
Department, John Wiley & Sons, Inc. The purchaser may
make back-up copies for his/her own use only and not for
distribution or resale. The Publisher assumes no
responsibility for errors, omissions, or damages, caused by
the use of these programs or from the use of the
information contained herein.
(c) 2013 John Wiley &
Sons, Inc.

Pearlson and Saunders – 5th Ed. – Chapter 9
Managing and Using Information Systems:
A Strategic Approach – Fifth Edition
Information Systems
Sourcing
Keri Pearlson and Carol Saunders
Chapter 9
PowerPoint® files by Michelle M. Ramim
Huizenga School of Business and Entrepreneurship

Nova Southeastern University
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 9
9-2
Learning Objectives
•
Describe the Sourcing Decision Cycle Framework.
•
Explain the differences between insourcing and
outsourcing, inshoring and offshoring, and nearshoring
and farshoring.
•
Describe how offshoring must be managed.
•
Define the different ways of outsourcing including ASPs.
•
Understand the difference between full and selective
outsourcing.
•
Describe the risks and strategies utilized to mitigate
risks.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 9
9-3
Real World Example
•
Kellwood, an American apparel maker, ended its soup-to-nuts IS
outsourcing arrangement with EDS after 13 years.
•
The original outsourcing contract integrated 12 individual acquired units with
different systems into one system.
•
In 2008, Sun Capital Partners purchased Kellwood and made it private.
•
The COO was facing a mountain of debt and possibly bankruptcy and wanted to:
–
bring the IS operations back in-house.
–
reduce costs.
–
overcome the lack of IS standardization.
•
The CIO was concerned that the transition from outsourcing to insourcing
would cause serious disruption to IS service levels and project deadlines.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 9
9-4
Real World Example (Cont.)
•
Kellwood hired a third-party consultant.
•
Backsourcing would help save money and respond to changes caused by
both the market and internal forces.
•
The transition and the implementation went smoothly.
•
By performing streamlined operations in-house, it was able to report an
impressive 17% savings in annual IS expenses after the first year.
•
Companies adopt outsourcing as means of controlling IS costs and
acquiring “best of breed” capabilities.
•
IS departments must maximize the benefit of these relationships to the
enterprise and preempt problems that might occur.
•
Failure could result in deteriorating quality of service, loss of competitive
advantage, costly contract disputes, low morale, and loss of key personnel.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 9
9-5
Sourcing Decision Cycle Framework
•
Sourcinginvolves many decisions (Figure 9.1).
•
The first step is the makeor buydecision.
–
If the “buy” option is selected, the company outsources.
–
The company must decide on “how” and “where.”
–
Is the outsourcing provider in its own country, offshore, or in the
cloud?
–
If the company decides to offshore, it must decide whether to
offshore nearby or far away.
•
Periodically must evaluate the arrangement and adjust it.
•
Continual evaluation is needed to determine if the arrangement is
satisfactory or not—either for outsourcing or insourcing.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 9
9-6
Figure 9.1 Sourcing Decision Cycle Framework.
Make or Buy?
In or Out of
Country?
Where?
Status Quo or
Change?
INSOURCING
INSHORING
OUTSOURCING
CAPTIVE CENTER
FARSHORING
NEARSHORING
OFFSHORING
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 9
9-7
Starting the Cycle:
Make or Buy Decision
•
Managers decide whether to “make” or “buy”
information services.
–
A “make” decision involves insourcingsome or all of the
infrastructure.
–
A “buy” decision involves outsourcing.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 9
9-8
Insourcing
•
Insourcing is when a firm provides IS services or develops IS in its own inhouse IS organization.
•
This is the “make” decision.
•
Drivers that favor this decision:
–
Keeping core competencies in-house.
–
IS service or product requires considerable security or confidentiality.
–
Time available in-house to complete IS projects.
–
In-house IT personnel.
•
Challenges to insourcing(Figure 9.2):
–
Getting needed IT resources from management.
–
Finding a reliable, competent outsource provider.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 9
9-9
Figure 9.2 Make or buy? Questions and risks.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 9
9-10
Outsourcing
•
Outsourcing is the purchase of a good or service that previously was (or could
be) provided internally but is now provided by outside vendors.
•
The “Kodak effect.”
–
Kodak outsourced its data center operations to IBM and its desktop supply
and support operations to Businessland.
–
Kodak retained a skeleton IS staff.
–
Kodak’s approach to supplier management became a model emulated by
Continental Bank, General Dynamics, Continental Airlines, National Car
Rental, etc.
•
Outsourcing has expanded to include essential functions such as customer
service and other aspects that provide competitive advantage.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 9
9-11
Factors in the Outsourcing Decision
•
Factors that lead to the decision to outsource:
–
Cost reduction achieved through economies of scale.
•
Achieved through centralized “greener” data centers, preferential contracts
with suppliers, and large pools of technical expertise.
–
Need for help transitioning to new technologies through access
to larger IT talent pools.
–
Ability to handle peaks in processing.
–
Consolidating data centers (e.g., following a merger or
acquisition).
–
An infusion of cash from the sale of its equipment to the
outsourcing vendor.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 9
9-12
Additional Advantages for Outsourcing
•
Distinct advantagesfor a product or service that is considered to be a
commodity instead of a core competency:
–
Focusing management’s attention on core activities.
–
Helping a company transition to new technologies.
–
Gaining access to larger pools of talent with more current
knowledge of advancing technologies.
–
Helping implement technologies such as Enterprise 2.0, Web 2.0
tools, and ERP systems.
–
Knowing how to hire, manage, and retain IT staff.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 9
9-13
Outsourcing Risks
•
Opponents of outsourcing cite a considerable number of risks(Figure
9.2).
•
A manager should consider each of these before making a decision about
outsourcing.
•
Each risk can be mitigated with effective planning and ongoing
management.
•
The client surrenders control over critical aspects of the enterprise.
–
Control of the project.
–
Scope creep.
–
Technologies.
–
Costs.
–
Financial controls.
–
Accuracy and clarity of financial reports.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 9
9-14
Additional Outsourcing Risks
•
Additional outsourcing risks are:
–
Lack of adequate anticipation of new technological capabilities and their development
potential when negotiating outsourcing contracts.
–
Contract terms may leave clients highly dependent on their providers.
–
Competitive secrets may be harder to keep.
–
Savings may never be realized.
–
Provider’s culture or operations may be incompatible with the client’s.
•
Conflicts between the client’s staff and provider’s staff may delay
progress or hurt the quality of the service or product delivered.
–
Working with multiple vendors distributes to “best of breed” but requires more
coordination efforts. May be a tendency to “finger-point.”
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 9
9-15
Decisions about How to Outsource
Successfully
•
The decision about whether or not to outsource must be made with adequate
care and deliberation.
•
Requires numerous other decisions about mitigating outsourcing risks.
–
Three major decision areas: selection, contracting, and scope.
1. Selection
•
Focuses on finding compatible providers whose capabilities, managers,
internal operations, and culture complement those of the client.
–
Compatibility and cultural fit may trump price.
2. Contracting
•
Many “how” decisions center around the outsourcing contract.
–
Ensure that contract terms allow flexibility to manage and, if necessary,
sever supplier relationships.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 9
9-16
Decisions about How to Outsource
Successfully (Cont.)
2. Contracting (cont.)
•
Shorter duration contracts.
–
Between three to five years.
–
Full life-cycle service contracts are broken up into stages.
•
Service Level Agreements (SLAs) define the level of service between
the clients and providers such as:
–
delivery time and expected performance of the service.
–
actions to be taken in the event of a deterioration in quality of service or
non-compliance to service-level agreements.
–
service levels, baseline period measurements, growth rates, and service
volume fluctuations.
•
Research demonstrates that tighter contracts tend to lead to more
successful outsourcing arrangements.
4. Scope
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 9
9-17
Full versus Selective Outsourcing
•
Full outsourcing implies that an enterprise outsources allits IS
functions from desktop services to software development.
•
Selectiveoutsourcing—or strategic sourcing—an enterprise chooses
which IT capabilities to retain in-house and which to give to an outsider.
•
In a “best-of-breed” approach, suppliers are chosen for their expertise
in specific technology areas such as:
–
Website hosting, Web 2.0 applications, business process application
development, help desk support, networking and communications,
social IT services, and data center operations.
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Pearlson and Saunders – 5th Ed. – Chapter 9
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Deciding Where -Onshore, Offshore, or in the Cloud?
•
Previously outsourcing options were either to use
services onshore(same country as the client) or
offshore(a distant country).
•
New sourcing option: cloud computing.
•
Comparison of the three sourcing options (Figure 9.3).
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 9
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Figure 9.3 Trade-offs between outsourcing options.
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 9
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Figure 9.3 (Cont.)
(c) 2013 John Wiley &
Pearlson and Saunders – 5th Ed. – Chapter 9
9-21
Cloud Computing
•
Cloud computing:
–
A third party provides IT services over the Internet.
–
Provides an entire data center’s worth of servers, networking devices,
systems management, security, storage, and other infrastructure.
•
Clients buy the exact amount of storage, computing power, security, or
other IT functions they need, when they need it, and pay only for what
they use.
–
Cost saving.
•
24/7 access from multiple mobile devices.
–
High availability for large backup data storage.
–
Ease of use.
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 9
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Cloud Computing Options
•
Cloud computing options:
–
On-premise.
–
Private clouds.
•
Data is managed by the company and remains within the company’s existing
infrastructure, or it is managed offsite by a third party.
–
Community clouds.
•
The cloud infrastructure is shared by several organizations and supports the
shared concerns of a specific community.
–
Public clouds.
•
Data is stored outside of the corporate data centers in the cloud provider’s
environment.
–
Hybrid clouds.
–
Combination of two or more other clouds.
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Pearlson and Saunders – 5th Ed. – Chapter 9
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Public Clouds Characteristics
•
Infrastructure as a Service (IaaS).
–
Provides infrastructure through grids or clusters or virtualized servers,
networks, storage, and systems software.
–
Designed to augment or replace the functions of an entire data center.
–
The customer may have full control of the actual server configuration.
•
More risk management control over the data and environment.
•
Platform as a Service (PaaS).
–
Provides services using virtualized servers on which clients can run existing
applications or develop new ones without having to worry about maintaining
the operating systems, server hardware, load balancing, or computing
capacity.
–
Provider manages the hardware and underlying operating system.
–
Limits the enterprise risk management capabilities.
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 9
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Public Clouds Characteristics
•
Software as a Service (SaaS) or Application Service Provider (ASP).
–
Software application functionality through a web browser.
–
The platform and infrastructure are fully managed by the cloud
provider.
–
If the operating system or underlying service isn’t configured
correctly, the data at the higher application layer may be at risk.
–
The most widely known and used form of cloud computing.
•
Some managers shy away from cloud computing because they are concerned
about:
–
security—specifically about external threats from remote hackers
and security breaches as the data travels to and from the cloud.
–
data privacy.
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Pearlson and Saunders – 5th Ed. – Chapter 9
9-25
Onshoring
•
Onshoring, or inshoring, is performing outsourcing work
domestically.
•
Onshoringmay be considered the opposite of offshoring.
•
Rural sourcing, hiring outsourcing providers with operations in rural
parts of America, is a growing trend.
–
Lower salaries and living costs.
–
A closer time zone, similar culture, and fewer hassles that crop up
when dealing with foreign outsourcing providers.
–
Too small to handle large-scale projects.
–
May not have the most technologically advanced employees (Figure
9.4).
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Pearlson and Saunders – 5th Ed. – Chapter 9
9-26
Figure 9.4 Government involvement with offshoring.
(c) 2013 John Wiley &
Pearlson and Saunders – 5th Ed. – Chapter 9
9-27
Offshoring
•
Offshoring (or outsourcing offshore) – the IS organization uses
contractor services or even builds its own data center in a distant land.
•
Functions range from routine IT transactions to increasingly higher-end,
knowledge-based business processes.
•
Programmer salaries can be a fraction of those in the home country.
–
Other costs increase due to additional technology,
telecommunications, travel, process changes, and management
overhead.
•
Other reasons to offshore:
–
Employees in many offshore companies are well-educated (have
master’s degrees) and are proud to work for an international
company.
–
Offshore providers are often “profit centers” and have
established Six Sigma, ISO 9001, or another certification
program.
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Deciding Where Abroad: Nearshoring,
Farshoring, or Captive Center?
•
Offshoringcan be either relatively proximate (nearshoring) or in a distant
land (farshoring).
•
An alternative to offshoring is a captive center.
•
Farshoringis a form of offshoring that involves sourcing service work to a
foreign, lower-wage country that is relatively far away in distance or time zone
(or both).
–
India and China are the most popular farshoring destinations.
•
Nearshoringis when work is sourced to a foreign, lower-wage country that is
relatively close in distance or time zone.
•
The client hopes to benefit from one or more ways of being close—
geographically, temporally, culturally, linguistically, economically, politically, or
from historical linkages.
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Pearlson and Saunders – 5th Ed. – Chapter 9
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Captive Centers
•
A captive center is an overseas subsidiary that is set up to serve the parent
company.
•
These subsidiaries operate like an outsourcing provider but are owned by
the firm.
•
Hybridand shared.
–
The hybrid captive center performs the more expensive, higherprofile or mission-critical work for the parent company.
•
Outsources the more commoditized work that is more cheaply provided by
an offshore provider.
–
The shared captive center performs work for both a parent
company and external customers.
•
Nearshoreor farshore.
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Selecting an Offshore Destination:
Answering the “Where Abroad?”
Question
•
Deciding where to offshore is a difficult decision that many companies face.
•
Companies must consider attractiveness, level of development, and cultural
differences.
–
Approximately 100 countries export software services and products.
–
Factors affecting a country’s attractiveness:
•
high English proficiency.
•
on the verge of war.
•
high rates of crime.
•
friendly relationships with the home country.
•
regulatory restrictions.
•
trade issues.
•
data security.
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Offshore DestinationDevelopment Tiers
Carmel and Tjia suggest that there are three tiers of software exporting nations:
•
Tier 1: Mature.
–
United Kingdom, United States, Japan, Germany, France, Canada, the
Netherlands, Sweden, Finland, India, Ireland, Israel, China, and Russia.
•
Tier 2: Emerging.
–
Brazil, Costa Rica, South Korea, and many Eastern European countries.
•
Tier 3: Infant.
–
Cuba, Vietnam, Jordan, and 15 to 25 others.
•
Tiers were determined based on industrial maturity, the extent of clustering of
some critical mass of software enterprises, and export revenues.
•
The higher tiered countries have higher levels of skills and higher costs.
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Cultural Differences
•
Misunderstandings arise because of differences in culture, language, and
perceptions about time.
•
Carmel and Tjia outlined some examples of communication failures
with Indian developers:
–
Indians are less likely than Westerners to engage in small talk.
–
Indians often are not concerned with deadlines.
–
Indians, like Malaysians and other cultures, are hesitant about
saying no.
–
What is funny in one culture is not necessarily funny in another
culture.
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Reevaluation—Status Quo or Change?
•
Backsourcingis a business practice in which a company takes back in-house
assets, activities, and skills that were part of its IS operations and were
previously outsourced to one or more outside IS providers.
•
Companies backsource after terminating, renegotiating, or letting their contracts
expire.
•
The reasons given for backsourcing often mirror the reasons for outsourcing.
•
Outsourcing decisions can be difficult and expensive to reverse.
–
Requires the enterprise to acquire the necessary infrastructure and staff.
•
Backsourcing is followed by another cycle of decisions as the company responds
to its dynamic environment.
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Pearlson and Saunders – 5th Ed. – Chapter 9
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Outsourcing and Strategic Networks
•
Many issues and risksare involved with outsourcing.
•
A strategic network is a long-term, purposeful arrangement by which
companies set up a web of close relationships that provide a product or
service in a coordinated fashion.
•
The client becomes a hub with suppliers as part of its network.
•
Lowers the cost of working with others in the network.
•
Company can become more efficient than its competitors (and very flexible).
•
The Japanese keiretsu is similar to a strategic network.
–
The Japanese companies manage their outsourcing activities based on the types
of inputs from different types of suppliers.
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Pearlson and Saunders – 5th Ed. – Chapter 9
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Additional Strategic Networks
•
Another type of strategic network is one with a parent
organization or multinational and a number of their
subsidiaries.
•
Often one subsidiaryperforms outsourcing services for
another subsidiary in the network.
•
Given the increasingly complex structure of today’s
multinationals, the role of strategic networks in
outsourcing arrangements is likely to grow (Figure 9.5).
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 9
9-36
Figure 9.5 Sourcing options.
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 9
9-37
Chapter 9 – Key Terms
Application service provider (ASP) (p. 273) – provides software
application functionality through a web browser.
Backsourcing(p. 281) – a business practice in which a company takes
back in-house assets, activities, and skills that were part of its IS operations
and were previously outsourced to one or more outside IS providers.
Captive center (p. 278) – an overseas subsidiary that is set up to serve the
parent company.
Cloud computing (p. 272) – the dynamic provisioning of third partyprovided IT services over the Internet.
(c) 2013 John Wiley &
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Pearlson and Saunders – 5th Ed. – Chapter 9
9-38
Chapter 9 – Key Terms (Cont.)
Farshoring(p. 277) – a form of offshoring that involves sourcing service
work to a foreign, lower-wage country that is relatively far away in distance
or time zone (or both).
Full outsourcing (p. 270) – implies that an enterprise outsources all its IS
functions from desktop services to software development.
Insourcing(p. 264) – a firm provides IS services or develops IS in its own
in-house IS organization.
Onshoring(p. 274) – also called inshoring, is performing outsourcing
work domestically.
Nearshoring(p. 278) – work is sourced to a foreign, lower-wage country
that is relatively close in distance or time zones.
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 9
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Chapter 9 – Key Terms (Cont.)
Offshoring(outsourcing offshore) (p. 275) – the IS
organization uses contractor services or even builds its own
data center in a distant land.
Outsourcing(p. 264) – the purchase of a good or service
that previously was (or could be) provided internally but is
now provided by outside vendors.
Selective outsourcing (p. 270) – an enterprise chooses
which IT
capabilities to retain in house and which to give to an
outsider.
Service level agreement (p. 264) – formal service
contract between clients and outsourcing providers that
describes the level of service including uptime, response
(c) 2013 John Wiley &
Sons, Inc.
Pearlson and Saunders – 5th Ed. – Chapter 9
9-40
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All rights reserved. Reproduction or translation of this
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the use of these programs or from the use of the
information contained herein.
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