Development Strategies Development Strategies Dr. Yan Xiong College of Business CSU Sacramento 10/12/03

Agenda t Software Packages t In-house Development t Outsourcing t Business Process Reengineering (BPR) t Prototyping

Purchase Software t Canned software: written by computer manufacturers or software development companies t Sold on open market to broad range of users with similar requirements t Turnkey systems: combination of software and hardware sold as a package

Purchasing Software t Companies that buy rather than develop AIS software still go through systems development life cycle (SDLC) t Implementation phase is reduced: u less coding u less testing t This is most costly

Purchasing Software t Companies that buy rather than develop AIS software still go through systems development life cycle (SDLC) t Implementation phase is reduced: u less coding u less testing t This is most costly SDLC phase

Systems Acquisition Process Will package meet needs ? Develop software internally Send RFP for hardware, if necessary Evaluate proposal No Yes Investigate software packages Can package be modified ? Send RFP for software and hardware No Yes Select best combination

Alternative Screening Matrix t Use for screening, not selection t Beware of implying too much accuracy

Alternative Screening Matrix t Example: u Vendor A score 4.35 u Vendor B score 4.25 u Vendor C score 3.25 t Vendor C out; Vendors A and B too close to call

Alternative Screening Matrix Evaluation Criteria Crit. Weight Alternatives to be Compared A1A2An TotalT1T2Tn C1 C2 Cm M Evaluation Criteria N Alternatives Wc1 Wc2 Wcm

Determining Weights t Rank factors in importance with most important receiving highest number t Total the ranks t Divide each factor weight by the total t Make individual weight adjustments if necessary

Weighting Example CRITERIA CRITERIARANKCALCULATIONWEIGHT Cost 4 4/15 4/ Scalability 2 2/15 2/ Ease of Use 5 5/15 5/ Service 3 3/15 3/ Upgrades 1 1/15 1/ TOTAL 15 TOTAL 15 TOTAL 1.00 TOTAL 1.00 Most important criterion gets highest rank

Agenda t Software Packages t In-house Development t Outsourcing t Business Process Reengineering (BPR) t Prototyping

In-house Development t In the past, most organizations had information system departments develop custom software, because canned software fitting specific needs not available t Developing custom software difficult and error-prone t Also consumes a great deal of time and resources

In-house Development t Custom software usually developed and written in house t Alternatively, can engage outside company to develop package or assemble it from their inventory of program modules ( objects ) u called “ outsourcing ” t When contracting with outside organization, must maintain control over the development process

In-house Development t Outsourcing management: – carefully select developer – Vendor Screening Matrix – sign contract – plan and monitor each step – maintain effective communication – control all costs

Agenda t Software Packages t In-house Development t Outsourcing t Business Process Reengineering (BPR) t Prototyping

Outsourcing t Hiring outside company to handle all or part of an organization’s IT activities t In mainframe outsourcing agreement, outsourcers buy client’s computers and hire all or most of client’s employees u Electronic Data Services (EDS)

Outsourcing t In client/server (PC) outsourcing agreement, firm contracts for: u particular service u segment of its business u particular function u PC support

Outsourcing Types t Professional services ( consulting) t Services ( training / data entry ) t Temporary employees u contract programmers t Transactions ( credit reports ) t Systems integrators

Outsourcing Benefits of Outsourcing A business solution Asset utilization Access to greater expertise and more advanced technology Lower costs Improved development time Elimination of peaks and valleys usage Facilitation of downsizing

Outsourcing Risks of Outsourcing Inflexibility Loss of control Reduced competitive advantage Locked-in system Not tied to corporate goals

When to Outsource When to Outsource t Activity not strategic t Save at least 15% t Need technology specialists t Increase financial flexibility u capital to operating expenses t Free personnel for development t Acquire new technologies quicker

Outsource Failures t DT Study, 1997 t Vendor expertise and sophistication t Improved delivery quality t Cost reduction t Increased focus on core competencies t Transition to new technologies

Raleys t Prefer to acquire talented, retail-oriented staff t Augments IT projects with consultants, contractors t Outsource professional services such as training and data entry

Agenda t Software Packages t In-house Development t Outsourcing t Business Process Reengineering (BPR) t Prototyping

Reengineering Hammer / Champy “... fundamental rethinking and radical redesign of business processes and radical redesign of business processes to achieve dramatic improvements...” to achieve dramatic improvements...”

BPR t Reduces company to essential processes t Focuses on why they are done rather than on the details of how they are done t Completely reshapes organizational work practices and information flows to take advantage of technological advancements

Business Process “…set of tasks that directly support the achievement of business objectives by providing a product or service for a customer who is outside the organization or in a different organizational unit” A merican Management Systems A merican Management Systems

Core Processes t 4 or 5 in any organization t Can be broken down into sub-processes t Critical to organization’s success t Focus redesign on these processes

Financial Core Processes Product New loan, savings Development checking plan Sales and New accounts, Marketing acquisitions Order Deposits, loans, Fulfillment withdrawals Customer Financial planning, Service inquiries

Pharmaceuticals Core Processes Product R & D testing Development Sales and Market segmenta- Marketing tion, contracts Order Contract manage- Fulfillment ment, shipping Customer Claims analysis Service

BPR Examples t From Martin, Analysis and Design of Business Information Systems, (Prentice Hall, 1995) t All focused on Data Flow Diagrams (DFDs)

Outsourcing A. GM Process Flows Before B. Outsourcing Delivery to Contrail ProduceProduceDeliverDeliver Delivery Vendor ProduceProduce Conrail Delivery

Customer Focus Before: After:Cust.Cust.P1P1Cust.Cust.P3P3P2P2 Cust.Cust.Cust.Cust.P1P1P2P2P3P3 Case Mgr.

Buffering 3.5 Edit Order Ship Product Pending Order File After: Before: 3.6 Ship Product Order

3.1 VerifyOrder 3.2 CreditCheck 3.2 CreditCheck Order (Copy 2) CustomerCustomer 3.1 VerifyOrder Order (Copy 1) CustomerCustomer Before: After: OrderOrder Parallel Processing

Geographic Balancing Building A Building B Before:

Geographic Balancing Building A Building B After:

BPR Challenges Tradition Tradition Resistance Resistance e.g., seniority e.g., seniority Time requirements Time requirements Lack of management support Lack of management support Risk Risk most crucial processes most crucial processes on-going organization on-going organization

BPR Challenges Controls Controls often sacrificed for sake of efficiency often sacrificed for sake of efficiency e.g., eliminating verification process e.g., eliminating verification process Accountants must ensure that what is gained by BPR is not lost through fraud, errors, etc. Accountants must ensure that what is gained by BPR is not lost through fraud, errors, etc.

Controls Example t BPR expert recommends that you consolidate two sequential processes u reduce personnel u reduce handoffs (errors) u increase job satisfaction t But you will lose separation of duties

Controls Example t Calculate BPR consolidation savings t Calculate probable fraud costs u Likelihood of threat (risk) times exposure $ t Compare

Consolidate, Transfer Internally Improve, Leverage OutsourceOutsource Redesign (Reengineer) “Best- of- Breed” Needs Improve- ment QualityQuality Non - Critical CriticalCriticalImportanceImportance State of California Guidelines

Agenda t Software Packages t In-house Development t Outsourcing t Business Process Reengineering (BPR) t Prototyping

Prototyping Approach to systems development in which simplified working model of system developed Approach to systems development in which simplified working model of system developed Prototype (“first draft”) quickly and inexpensively built Prototype (“first draft”) quickly and inexpensively built Provided to users for testing and training Provided to users for testing and training

Why Prototyping “When you’re working with new system ideas with your users, you don’t want to go through the cost of developing a gigantic system which might take years; you’ll build a mock-up of it, which might take weeks.” Brian Kilcourse, CIO Longs Drug Stores

Why Prototyping t Experience at AT&T, TRW, and IBM u 30% of system requirements will change BEFORE initial system delivery t Production error correction model

Error Correction Prototyping

Prototype Life Cycle Analyze problem Develop Prototype Operationalize Prototype Complete System Refine Prototype

Prototype Types t Iterative : Make series of changes until prototype becomes the final system u e.g., writing a poem t Throw-away : Once user approves, then abandon for construction purposes u e.g., architect’s drawing of new house

Prototype Language 4 GL 3 GL SDLC Stage Operations Language 4 GL 3 GL IterativeIterative IterativeIterative AADD ThrowawayThrowaway Prototype Models

Prototyping Advantages of Prototyping Better definition of user needs Higher user involvement and satisfaction Faster development time Fewer errors More opportunity for changes Less costly Better user/analyst communication

Prototyping Disadvantages of Prototyping Significant user time Bypass Analysis Phase Incomplete systems development Inadequately tested and documented systems Negative behavioral reactions Unending development

Topics Covered t Software Packages t In-house Development t Outsourcing t Business Process Reengineering (BPR) t Prototyping