Making the Case for IT Chapter 4

Objectives Recognize that IT impacts the business model through its effects on sources of business value: costs, revenues, and assets Learn how to analyze and document how IT can potentially impact value sources Understand the importance of effective execution and monitoring in the delivery of IT-enabled business value

A Business Case an argument, usually documented, that is intended to convince a decision maker to approve some kind of action to select the option that best serves the organization (to do and not to do…) articulate a clear path to an attractive return on investment (ROI) if a restaurant’s manager notices that the business doesn’t make enough money on Sunday evenings to cover operational costs, presenting that fact to the owner may be compelling enough to make the business case for closing the restaurant at 5 p.m. on Sunday Including… Business rationale for CRM, including estimated costs and payback Competitors’ usage of CRM CRM software available over the Internet at a monthly fee

IT doesn’t matter!? Nicolas Carr, 2003 1980s: lock in key supplier and customers, and build proprietary capabilities using IT 1990s: IT…a commodity, part of the infrastructure Based on PC, mainframe, early client-server… “the scarce resource never was technology, it was always the set of managerial capabilities needed to create value with that technology” Open standard, networked IT infrastructure has dramatically increased the range of business opportunities that can be pursued Decreased the cost and time required to launch them

Outline “Legacy” mindset limitations The “IT business value” mindset: framing opportunities

“Legacy” Mindset Limitations project-by-project basis within traditional budgeting cycle Stand-alone computers housed within a single data centre Piecemeal, hodgepodge Expensive to keep critical systems up and running 80% yearly IT budget on maintaining and managing IT infrastructure Leaving few resources to be directed towards creating proprietary business value

Using Business Models to Frame the Business Case for IT

The “IT business value” mindset: framing opportunities How executives make decisions about strategies to pursue, capabilities to build, and the investments required to achieve business goals Can IT drive cost savings? IBM case (staggering loss 1991-1993) Reduce number of data centre Reduce number of CIOs Convert to common Internet-standard network Reengineering back-office business processes Centralised shared-services model of IT infrastructure services and corporate back-office functions

Can IT be used to drive revenue growth? Enhance revenue-generating capabilities Revenue-generating processes IBM’s new product development process Online and self-serve customer service centres Business intelligence Provide real-time, relevant and actionable information Launch new products, services, or solutions Embed IT New IT product and service offerings iTunes, MyBoeingFleet.com Add value to existing product and service offering Nike’s ID online service enables customers to design their own shoes

Can IT be used to drive asset efficiency? How many dollars of revenue are generated form every dollar of assets? Financial assets: cash, marketable securities, accounts receivable Tangible: physical inventory, physical facilities, equipment, and software Goodwill: value of intangible asset Value of acquisitions, value of intellectual property and patent Knowledge assets?? (expertise of people, proprietary information) IT assets IT operating infrastructure (people, middleware, call centre, data centres, network centres) Enterprise solutions (ERP, CRM, HR, DBMS, email, tools, people) Specialised business solutions Executive leadership and governance systems Take an underperforming asset off its books shitting it down, writing it off, or outsourcing it E.g. outsourcing legacy IT infrastructure Does outsourcing really lower the cost? (hidden costs)

Can IT be used to create sustainable advantage? Not just take the lead, but also continue to innovate over time Virtuous cycle

Developing the business case for IT Tell a compelling story that answers three questions Why this? Why now? Why you? Should be updated throughout the project

Components of a business case pitch Executive summary Problem/opportunity Why important, to whom Team expertise, benefits Why you, when? User and problem description Project description Project team Project sponsors, partners, vendors Relevant expertise, experience, power, connection Alternatives Why they are not chosen Stakeholders and benefits Potential barriers and how to overcome them Operations Key capabilities and resources needed Financial and metrics Best-case/worst-case scenarios Implementation, status and traction Milestones Risk Closing slide Summarise the business case Open the discussion to answer questions, discuss issues Sources and bibliography appendices https://www.youtube.com/watch?v=1lKZqqSI9-s