1. Chapter 4 Making the Case for IT

2. Overview  We spend a lot of Money on IT – Why?  How do we defend IT spending.  What are the benefits

3. IT Spending  We spend over $2 trillion annually on IT  Seek a competitive advantage  Was once Proprietary software, but was there an advantage?  Infrastructure has value when shared  What is the value of proprietary email systems  What would be the value of a proprietary web format  How would Carr’s argument hold up in the AHS case?

4.  People and the culture are the key to obtaining benefit from IT  IT management skills are still in short supply  Most executives view IT as a budget expense item  To be minimized  Managed on a budget-cycle basis The Scarce Resource

5.  Evolution of the InternetInternet  Open standards allow for easy creation of new applications  Until1993 the internet was restricted to government and educational uses  Internet based electronic commerce began to take of in 1997  Business-to-business commerce is also a large part of ecommerce The Internet

6.  Keys to Internet adoption  It is global and utilizes open standards  Will work with any computer, operating system or compatible application software  No government or organization “owns” it  Does not limit the type of information which can travel in a packet  Widespread expertise for connecting to the network Internet

7. Value from the Internet  Reusable  infrastructure  Data/information  standardized  Infrastructure  IT operations (data center, network, call centers)  Supporting enterprise processes (procurement, HR, finance, enterprise resource planning)

8. IT Infrastructure  Most was assembled over time and piecemeal  Legacy systems were inefficient and incompatible  In 2000, at the height of the economic recession, firms continued to spend over 50% of their capital budgets on IT equipment and projects  Global IT expenses in 2002 were over $2 trillion  Maintenance can be over 80% of the yearly IT budget  Some IT infrastructure is outsourced or offshored while other firms seek to improve their IT infrastructure in-house  Are there other benefits to in-house vs. sending infrastructure outside of the firm?

9. Options Value  Views IT investment as a purely financial transaction  Security Option – the right, but not the obligation to buy or sell at a given price  IT Option – the right to pursue IT-enabled business opportunities  Given the cost reduction from offshoring and outsourcing  Why not offshore or outsource all IT functions?  What is the value of in-house IT  What is the risk of offshoring or outsourcing  How do you insource once your outsource?

10. Financial Analysis  What are the risks of a purely financial evaluation of the costs/benefits of II  How do you value spin-off applications  How do you capture all of the benefits  What is customer/supplier service worth  How do you value goodwill  How do you value costs not encountered

11. Proprietary Assets  Give advantages which are difficult to replicate  Can provide IT options  Often not integrated with the rest of the industry  May not follow industry standards  May not be acceptable to some firms or governments

12. Chapter 4

13. Questions on Chapter 4?