1. copyright Mary C. Lacity 20041 IS 3060 Global Information Systems Management Course Introduction Dr. Mary C. Lacity

2. copyright Mary C. Lacity 20042 Magnitude of dollars spent on IT If general managers are involved in IT, IT enables: Gaining a competitive advantage Streamlining business processes Expanding markets If General Managers are not involved in IT, problems emerge: Dollars wasted on IT In the extreme, businesses can fail Intro to Global IS Management

3. copyright Mary C. Lacity 20043 Magnitude of Dollars Spent on IT: Spend by Country US I.T. Spend: ~ $1 trillion Global I.T. spend: ~ $2.1 Trillion Dollars Currently 6.6% of world’s gross domestic product IDC found major spenders: IT Spend Population IT spend/person United States:$762 billion272,639,608 $2,795 Japan:$362 billion126,549,976 $2,861 Germany:$139 billion 82,797,408 $1,679 Others in top 10: BritainFranceItalyCanada ChinaBrazilAustralia IT spend Study conducted by IDC, reported by Reuters on digitalmass.boston.com; Carr, N., Why IT Doesn’t Matter, HBR, 2003, pp. 41-49; Population demographics: US Census; World Fact Book

4. copyright Mary C. Lacity 20044 Magnitude of Dollars Spent on IT: Spend by Industry Per Employee IT spend per employee (all industries) $6,918 2003 Banking industry $14,764 Insurance $13,564 Tcom $11,983 Utilities $10,388 Chemicals $ 6,736 Manufacturing $ 4,541 Heath Care $ 3,038 Food Processing $ 1,349 IT spend Study conducted by Information Week, downloaded on 8/4/04 from www.itmweb.com

5. copyright Mary C. Lacity 20045 Magnitude of Dollars Spent on IT: Annual IT Budgets On average, a company’s annual IT operating budget represents ~5% of annual revenues: $1 billion company, on average, spends $50 million per year on IT Marchand, Davenport, Dickson, Mastering Information Management, Financial Times/Prentice Hall, 2000; Minoli, D., Analyzing Outsourcing, McGraw Hill, 1994; Carr (2003)

6. copyright Mary C. Lacity 20046 Education 1.9% Finance 4.9% Government 9.7% Health Care 4.8% Manufacturing3.3% Retail/Wholesale 2.4% Services/Consulting 4.5% Telecommunications 8.4% Transportation 3.8% Utilities 3.0% % of Revenue Spent on IT by Industry in 2003 2003 spend reports from multiple sources complied on http://www.itmweb.com/blbenchbgt.htm

7. copyright Mary C. Lacity 20047 Minoli, D., Analyzing Outsourcing, McGraw Hill, 1994 % of Revenue Spent on IT by Industry in 1993

8. copyright Mary C. Lacity 20048 Annual IT Budget as % Revenue by Size of Company Source: Spending: How Bad is the Bite in Your Budget by Allan E. Alter, January 14, 2003.

9. copyright Mary C. Lacity 20049 Magnitude of Dollars Spent on IT: Capital Expenditures (Warning: large variance in data) On average, capital IT assets are worth about twice the IT operating budget: $1 billion company typically carries $100 million in IT assets (this is diminishing rapidly due to outsourcing) Marchand, Davenport, Dickson, Mastering Information Management, Financial Times/Prentice Hall, 2000; Minoli, D., Analyzing Outsourcing, McGraw Hill, 1994; Carr (2003) Reports vary from a low of under 5% to highs reported by Davenport & Carr reports that close to half of all capital budgets are spent on IT

10. copyright Mary C. Lacity 200410 IT Salary and Wage:45% Hardware:25% Software:20% Administration:10% 100% Outsourcing:30-85% Insource Core IS Capabilities:70-15% What are the major IT cost drivers? OLD MODEL: NEW MODEL:

11. copyright Mary C. Lacity 200411 Ensuring Value for IT Spend General managers must manage IT to ensure value for money: Understand the nature of IT Strategic Alignment: Help set IT strategy to support business strategy: KM, BI, CRM, ERP, B2C, B2B, SCM Empower CIO to ensure core IT capabilities Business runs on information, information runs on IT

12. copyright Mary C. Lacity 200412 IT can Create Competitive Advantage IT can differentiate a product or service (Federal Express vs.. USPS) IT can streamline business processes: Dell computer hooks 90% of suppliers to factory floors via web to reduce inventory to 5 days. Compaq had 3 weeks of inventory. IT can spawn new businesses (Frequent Flyer; SABRE) IT can change entire industry structures Disintermediate: Napster; Amazon, Dell-direct marketing to consumers From Products to Services: Software products to ASP Porter, Michael, Competitive Strategy, Free Press, 1998; “25 Leaders From a Dangerous Time, Business Week, May 14, 2001, pp. 24-59

13. copyright Mary C. Lacity 200413 Examples of IT-Enabled Business Initiatives IT can be used to redesign business processes: Purchase Order / Receipt / Invoice Process eliminated the purchase order by giving preferred suppliers access to their inventory control databases. eliminated the invoice with computerized matching of PO and receipt

14. copyright Mary C. Lacity 200414 Examples of IT-Enabled Business Initiatives IT can be used to improve customer service: IT can be used to leverage suppliers, such as B2B exchanges:

15. copyright Mary C. Lacity 200415 Value for Money? In 1985 to 1995, net average return on IT was 1% according to Gartner Group. In 2002, A study of 7,000 large U.S. companies by Alinean and another by Forrester Research showed that most lavish spenders on IT had the poorest Financial Performance. Reasons for low return: Project changes Cannot measure intangible benefits Failing to reinvest in applications “Without proactive management of existing IT cost base, enterprises will continue to spend too much on the wrong kinds of IT.” Gartner Group Strategic Planning Assumption, Enterprise Performance Through IT, 1996; Carr(2003)

16. copyright Mary C. Lacity 200416 Examples of IT management failure creating business failure Branson’s Airline (Virgin Atlantic) Information Technology is too important to leave to the technologists!!!

17. copyright Mary C. Lacity 200417 Key Issues for IT Executives Source: Luftman, J., and McLean, E., “Key Issues for IT Executives,” MISQ Executive, Vol. 3, 2, 2004, pp. 89-104. CIOs as key management concerns:2003 Rank 1990 Rank 1980 Rank IT & business alignment17- IT strategic planning231 Security & privacy31912 Attracting, developing & retaining IT professionals447 Measuring the value of IT investments5-- Measuring performance of the IT organization6-2 Creating an information architecture71- IT governance10-- CIO leadership role13-- Managing Outsourcing Relationships15-- Offshore Outsourcing19--