Chapter 11 Introduction to Information Technology Turban, Rainer and Potter John Wiley & Sons, Inc. Copyright 2005

Chapter 11 ACQUIRING AND IMPLEMENTING SYSTEMS

Chapter 113 Acquiring IT Applications and Infrastructure

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 114 Chapter Outline The landscape and framework of IT application acquisition. Planning for and justifying information system applications. Strategies for acquiring IT applications: available options. Outsourcing and application service providers. Criteria for selecting an acquisition approach. Vendor and software selection and other implementation issues. Connecting to databases and business partners.

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 115 Learning Objectives Describe the progress of IT acquisition or development. Describe the IT planning process. Describe the IT justification process and methods. List the major IT acquisition options and the criteria for options selection. Describe the use of criteria for selecting an acquisition approach. Describe the role of ASPs. Describe the process of vendor and software selection. Understand some major implementation issues. Understand the issue of connecting IT applications to databases, other applications, networks, and business partners.

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 116 We include in “acquisition” all approach to obtaining systems: buying, leasing or building. 11.1The Landscape and Framework of IT Application Acquisition

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 117 The Acquisition Process Step 1: planning for and justifying information systems. Step 2: IT architecture creation-A systems analysis approach. Step 3: select a development option and acquire the application. Step 4: installing, connecting, and more. Step 5: operation and maintenance.

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 118 The progress of application acquisition

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 119 First, It is necessary to explore the need for each systems. Second, it is necessary to justify it from a cost- benefit point of view. Application portfolio: The set of recommended applications resulting from the application development Planning for and Justifying Information System Applications

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1110 The IS Planning Process

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1111 A set of long range goals that describe the IT infrastructure and major IS initiatives needed to achieve the goals of the organization. The IT plan must meet three objectives:: It must be aligned with the organization’s strategic plan It must provide for an IT architecture It must efficiently allocate IS development resources among competing projects The IT Strategic Plan

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1112 Three Major Issues of IT Strategic Planning Efficiency Effectiveness Competitiveness

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1113 The IT strategic plan must be aligned with overall organizational planning, whenever relevant, so that the IT unit and other organizational personnel are working toword the same goals, using their respective competencies. IT alignment with organizational plans and IT strategy

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1114 The alignment among business and IT strategies and IS operational plan

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1115 The IS Operational Plan The IS operational plan is a clear set of projects that will be executed by the IS department and by functional area managers in support of the IT strategic plan Mission IS environment Objectives of the IS function Constraints on the IS function The application portfolio Resource allocation and project management

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1116 Justifying IT investment includes three aspects: assessment of costs, assessment of benefits (values), and comparison of the two. Evaluating and justifying IT investment

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1117 IT investment categories Investment in infrastructure and investment in specific applications: The IT infrastructure: Include the physical facilities, components, services, and management. The IT applications: are computer programs designed to support a specific task, a business process or another application program.

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1118 A Model for Investment Justification

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1119 Costing IT Investment Fixed costs: are those costs that remain the same regardless of change in the activity level. For IT, fixed costs include infrastructure cost of IT services, and IT management cost Total cost of ownership (TCO): Formula for calculating the cost of acquiring, operating and controlling an IT system.

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1120 Intangible benefits. Benefits from IT that may be very desirable but difficult to place an accurate monetary value on. Evaluating the Benefits

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1121 Using NPV in cost-benefit Analysis. Using the NPV method, analysts convert future values of benefits to their present-value equivalent by discounting them at the organization’s cost of funds. Return on investment. It measure the effectiveness of management in generating profits with its available assets. The business case approach. A business case is one or more specific applications or projects. Its major emphasis is the justification for a specific required investment, but it also provides the bridge between the initial plan and its execution. Conducting Cost-Benefit Analysis

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1122 Cost-Benefit Analysis Methods MethodDescription BenchmarksFocuses on objective measures of performance. Metric benchmarks provide numeric measures of performance, best-practice benchmarks focus on how IS activities are actually performed by successful organization. Management by maxim Brings together corporate executives, business-unit managers, and IT executives to identify IT infrastructure investments that correspond to organizational strategies and objectives. Real-option valuation Stems form the field of finance. Looks for projects that create additional opportunities in the future, even if current costs exceed current benefits. Balanced scorecard method Evaluates the overall health of organizations and projects, by looking at the organization’s short- and long-term financial metrics, customers, internal business processes and learning and growth (Kaplan and Norton, 1996). Activity- based costing approach Applies principles of activity-based costing (ABC)( which allocates costs based on each product’s use of company activities in making the product) to IT investment analysis. EIAC modelMethodology for implementing IT payoff initiatives, composed of 9 phases, divided into four categories: exploration (E), involvement (I), analysis (A) and communication (C).

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1123 Buy the applications (off-the-shelf approach) Lease the applications Develop the applications in–house (insourcing) End-user development Other acquisition options 11.3 Strategies for Acquiring IT Applications: Available Options

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1124 Advantages and Limitations of the “Buy” Option Advantages of the “Buy” option  Many different types of off-the-shelf software are available  Much time can saved by buying rather than building  The company is not the first and only user  the company can know what it is getting before it invests in the product  Purchased software may avoid the need to hire personnel specifically dedicated to a project. Limitation of “ Buy” option  Software may not exactly meet the company’s need  Software may be difficult or impossible to modify, or it may require huge business process change to implement.  The company will not have control over software improvement and new versions.  Purchased software can be difficult to integrate with existing systems  Vendors may drop a product or go out of business

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1125 Types of Leasing Vendors to lease the application from an outsourcer and install it on the company’s premise. The vendor can help with the installation and frequency will offer to also contract for the operation and maintenance of the system. Many conventional application are leased this way. using an application system provider (ASP).

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1126 Unlimited computing power and storage capacity that can be obtained on demand and billed on a pay-per use basis. Utility Computing

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1127 Utility Computing

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1128 In-House Development Approach Build from Scratch: used for applications for which components are not available Build from components. Companies with experienced IT staff can use standard components (e.g., secure Web server), some software languages ( e.g., Java, Visual basic, or Perl), and third-party subroutines to create and maintain application on their own.

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1129 Building in-house Methodologies System development life Cycle (SDLC) Prototyping methodology

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1130 Other acquisition options Join an e-marketplace or an E-Exchange Join a third –party auction or reverse auction Engage in joint ventures Join a public exchange or a consortium Hybrid approach

“ Copyright 2005 John Wiley & Sons Inc.” Chapter Outsourcing and Application Service Providers Outsourcing: use of outside contractors or external organizations to acquire IT services Several type of vendors offer services for creating and operating IT system including e- commerce applications: Software houses Outsourcers and others Telecommunications companies

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1132 An agent or vendor who assembles the software needed by enterprises and packages them with outsourced development, operations, maintenance, and other services. Application Service Providers (ASP)

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1133 Database format and portability. Application and data storage Scope of service Support services integration Additional criteria for selecting an ASP vendor

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1134 Criteria for determining which application development approach to use  The functionalities of package  How to measure benefits  Information requirement  Personnel needed  User friendless  Forecasting and planning for technological evolution  Hardware and software resources  Scaling  Installation  Sizing  Maintenance services  Performance  Vendor quality and track record  Reliability  Estimated costs  Security

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1135 Advantage and disadvantage of various system acquisition method Traditional system development (SDLC) force staff to systematically go through every step in a structure process Enforce quality by maintaining standards Has lower probability of missing important issues in collecting user requirements. may produce excessive documentation users may be unwilling or unable to study the specifications they approve takes too long to go from the original ideas to a working system User have trouble describing requirement for a proposed system. Prototyping helps clarify user requirements helps verify the feasibility of the design promotes genuine user participation Promotes close working relationship between systems developers and users. Work well for ill-defined problems May produce part of the final system may encourage inadequate problem analysis Not paractical with large number of users User may not give up the prototype when the system is complete. may generate confusion about whether the system is complete and maintainable system may be built quickly, which may result in lower quality

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1136 Advantage and disadvantage of various system acquisition method cont… End user development bypasses the IS department and avoids delays User controls the application and can change it as needed directly meets user requirement increased user acceptance of new system Frees up IT resources May create lower-quality systems. may eventually require maintenance assistance from IT department documentation may be inadequate poor quality control System may not have adequate inferences to existing systems External acquisition (buy or lease) Software can be tried out Software has been used for similar problem in other organizations Reduces time spent for analysis, design and programming Has good documentation that will be maintained controlled by another company with its own priorities and business considerations. Package’s limitations may prevent desired business processes May be difficult to get needed enhancements. lack of intimate knowledge about how the software work and why it works that way

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1137 Martin et al. (2000) identified six step in selecting software vendor and an application package. Step 1 : Identify potential vendors Step 2: determine the evaluation criteria Step 3: evaluate vendors and packages Step 4: choose the vendor and package Step 5: negotiate a contract Vendor and software selection and other implementation issues

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1138 Criteria for selecting a software application package  Cost and financial terms  Upgrade policy and cost  vendor’ reputation and availability for help  System flexibility  ease of Internet interface  Availability and quantity of documentation  Necessary hardware and networking resources  Required training (check if provide be vendor)  Security  Learning (speed of) for developers and users  Graphical presentation  Data handling  System- requirement hardware

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1139 In-house or outsource Web site Consider an ASP Do a detailed IT architecture study Security and ethics Evaluate the alternatives to in-house systems development Other Implementation Issues

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1140 EC application must be connected to internal information systems, infrastructure, ERP, and so on. They also must be connected and are referred to as “integration.” 11.7 Connecting to Databases and Business Partners

“ Copyright 2005 John Wiley & Sons Inc.” Chapter 1141 Connecting to database

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