Read the Project Management at MM Case Study on pages 324-327 in the textbook. Answer the Discussion Questions at the end of the Case Study.
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IT Strategy: Issues and Practices This page intentionally left blank Third Edition IT Strategy: Issues and Practices James D. McKeen Queen’s University Heather A. Smith Queen’s University Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Editor in Chief: Stephanie Wall Acquisitions Editor: Nicole Sam Program Manager Team Lead: Ashley Santora Program Manager: Denise Vaughn Editorial Assistant: Kaylee Rotella Executive Marketing Manager: Anne K. Fahlgren Project Manager Team Lead: Judy Leale Project Manager: Thomas Benfatti Procurement Specialist: Diane Peirano Cover Designer: Lumina Datamantics Full Service Project Management: Abinaya Rajendran at Integra Software Services, Pvt. Ltd. Cover Printer: Courier/Westford Composition: Integra Software Services, Pvt. Ltd. Printer/Binder: Courier/Westford Text Font: 10/12 Palatino LT Std Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on appropriate page within text. Copyright © 2015, 2012 and 2009 by Pearson Education, Inc., Upper Saddle River, New Jersey, 07458. Pearson Prentice Hall. All rights reserved. Printed in the United States of America. This publication is protected by Copyright and permission should be obtained from the publisher prior to any prohibited reproduction, s torage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. For information regarding permission(s), write to: Rights and Permissions Department. Library of Congress Cataloging-in-Publication Data McKeen, James D. IT strategy: issues and practices/James D. McKeen, Queen’s University, Heather A. Smith, Queen’s University.—Third edition. pages cm ISBN 978-0-13-354424-4 (alk. paper) ISBN 0-13-354424-9 (alk. paper) 1. Information technology—Management. I. Smith, Heather A. II. Title. HD30.2.M3987 2015 004.068—dc23 2014017950 10 9 8 7 6 5 4 3 2 1 ISBN–10: 0-13-354424-9 ISBN–13: 978-0-13-354424-4 Contents Preface xiii About the Authors xxi Acknowledgments xxii Section I Delivering Value with IT 1 Chapter 1 Developing and Delivering on the IT Value Proposition 2 Peeling the Onion: Understanding IT Value 3 What Is IT Value? 3 Where Is IT Value? 4 Who Delivers IT Value? 5 When Is IT Value Realized? 5 The Three Components of the IT Value Proposition 6 Identification of Potential Value 7 Effective Conversion 8 Realizing Value 9 Five Principles for Delivering Value 10 Principle 1. Have a Clearly Defined Portfolio Value Management Process 11 Principle 2. Aim for Chunks of Value 11 Principle 3. Adopt a Holistic Orientation to Technology Value 11 Principle 4. Aim for Joint Ownership of Technology Initiatives 12 Principle 5. Experiment More Often 12 Conclusion 12 • References 13 Chapter 2 Developing IT Strategy for Business Value 15 Business and IT Strategies: Past, Present, and Future 16 Four Critical Success Factors 18 The Many Dimensions of IT Strategy 20 Toward an IT Strategy-Development Process 22 Challenges for CIOs 23 Conclusion 25 • References 25 Chapter 3 Linking IT to Business Metrics 27 Business Measurement: An Overview 28 Key Business Metrics for IT 30 v vi Contents Designing Business Metrics for IT 31 Advice to Managers 35 Conclusion 36 • References 36 Chapter 4 Building a Strong Relationship with the Business 38 The Nature of the Business–IT Relationship 39 The Foundation of a Strong Business–IT Relationship 41 Building Block #1: Competence 42 Building Block #2: Credibility 43 Building Block #3: Interpersonal Interaction 44 Building Block #4: Trust 46 Conclusion 48 • References 48 Appendix A The Five IT Value Profiles 50 Appendix B Guidelines for Building a Strong Business–IT Relationship 51 Chapter 5 Communicating with Business Managers 52 Communication in the Business–IT Relationship 53 What Is “Good” Communication? 54 Obstacles to Effective Communication 56 “T-Level” Communication Skills for IT Staff 58 Improving Business–IT Communication 60 Conclusion 61 • References 61 Appendix A IT Communication Competencies 63 Chapter 6 Building Better IT Leaders from the Bottom Up 64 The Changing Role of the IT Leader 65 What Makes a Good IT Leader? 67 How to Build Better IT Leaders 70 Investing in Leadership Development: Articulating the Value Proposition 73 Conclusion 74 • References 75 Mini Cases Delivering Business Value with IT at Hefty Hardware 76 Investing in TUFS 80 IT Planning at ModMeters 82 Contents Section II IT Governance 87 Chapter 7 Creating IT Shared Services 88 IT Shared Services: An Overview 89 IT Shared Services: Pros and Cons 92 IT Shared Services: Key Organizational Success Factors 93 Identifying Candidate Services 94 An Integrated Model of IT Shared Services 95 Recommmendations for Creating Effective IT Shared Services 96 Conclusion 99 • References 99 Chapter 8 A Management Framework for IT Sourcing 100 A Maturity Model for IT Functions 101 IT Sourcing Options: Theory Versus Practice 105 The “Real” Decision Criteria 109 Decision Criterion #1: Flexibility 109 Decision Criterion #2: Control 109 Decision Criterion #3: Knowledge Enhancement 110 Decision Criterion #4: Business Exigency 110 A Decision Framework for Sourcing IT Functions 111 Identify Your Core IT Functions 111 Create a “Function Sourcing” Profile 111 Evolve Full-Time IT Personnel 113 Encourage Exploration of the Whole Range of Sourcing Options 114 Combine Sourcing Options Strategically 114 A Management Framework for Successful Sourcing 115 Develop a Sourcing Strategy 115 Develop a Risk Mitigation Strategy 115 Develop a Governance Strategy 116 Understand the Cost Structures 116 Conclusion 117 • References 117 Chapter 9 The IT Budgeting Process 118 Key Concepts in IT Budgeting 119 The Importance of Budgets 121 The IT Planning and Budget Process 123 vii viii Contents Corporate Processes 123 IT Processes 125 Assess Actual IT Spending 126 IT Budgeting Practices That Deliver Value 127 Conclusion 128 • References 129 Chapter 10 Managing IT- Based Risk 130 A Holistic View of IT-Based Risk 131 Holistic Risk Management: A Portrait 134 Developing a Risk Management Framework 135 Improving Risk Management Capabilities 138 Conclusion 139 • References 140 Appendix A A Selection of Risk Classification Schemes 141 Chapter 11 Information Management: The Nexus of Business and IT 142 Information Management: How Does It Fit? 143 A Framework For IM 145 Stage One: Develop an IM Policy 145 Stage Two: Articulate the Operational Components 145 Stage Three: Establish Information Stewardship 146 Stage Four: Build Information Standards 147 Issues In IM 148 Culture and Behavior 148 Information Risk Management 149 Information Value 150 Privacy 150 Knowledge Management 151 The Knowing–Doing Gap 151 Getting Started in IM 151 Conclusion 153 • References 154 Appendix A Elements of IM Operations 155 Mini Cases Building Shared Services at RR Communications 156 Enterprise Architecture at Nationstate Insurance 160 IT Investment at North American Financial 165 Contents Section III IT-Enabled Innovation 169 Chapter 12 Innovation with IT 170 The Need for Innovation: An Historical Perspective 171 The Need for Innovation Now 171 Understanding Innovation 172 The Value of Innovation 174 Innovation Essentials: Motivation, Support, and Direction 175 Challenges for IT leaders 177 Facilitating Innovation 179 Conclusion 180 • References 181 Chapter 13 Big Data and Social Computing 182 The Social Media/Big Data Opportunity 183 Delivering Business Value with Big Data 185 Innovating with Big Data 189 Pulling in Two Different Directions: The Challenge for IT Managers 190 First Steps for IT Leaders 192 Conclusion 193 • References 194 Chapter 14 Improving the Customer Experience: An IT Perspective 195 Customer Experience and Business value 196 Many Dimensions of Customer Experience 197 The Role of Technology in Customer Experience 199 Customer Experience Essentials for IT 200 First Steps to Improving Customer Experience 203 Conclusion 204 • References 204 Chapter 15 Building Business Intelligence 206 Understanding Business Intelligence 207 The Need for Business Intelligence 208 The Challenge of Business Intelligence 209 The Role of IT in Business Intelligence 211 Improving Business Intelligence 213 Conclusion 216 • References 216 ix x Contents Chapter 16 Enabling Collaboration with IT 218 Why Collaborate? 219 Characteristics of Collaboration 222 Components of Successful Collaboration 225 The Role of IT in Collaboration 227 First Steps for Facilitating Effective Collaboration 229 Conclusion 231 • References 232 Mini Cases Innovation at International Foods 234 Consumerization of Technology at IFG 239 CRM at Minitrex 243 Customer Service at Datatronics 246 Section IV IT Portfolio Development and Management 251 Chapter 17 Application Portfolio Management 252 The Applications Quagmire 253 The Benefits of a Portfolio Perspective 254 Making APM Happen 256 Capability 1: Strategy and Governance 258 Capability 2: Inventory Management 262 Capability 3: Reporting and Rationalization 263 Key Lessons Learned 264 Conclusion 265 • References 265 Appendix A Application Information 266 Chapter 18 Managing IT Demand 270 Understanding IT Demand 271 The Economics of Demand Management 273 Three Tools for Demand management 273 Key Organizational Enablers for Effective Demand Management 274 Strategic Initiative Management 275 Application Portfolio Management 276 Enterprise Architecture 276 Business–IT Partnership 277 Governance and Transparency 279 Conclusion 281 • References 281 Contents Chapter 19 Creating and Evolving a Technology Roadmap 283 What is a Technology Roadmap? 284 The Benefits of a Technology Roadmap 285 External Benefits (Effectiveness) 285 Internal Benefits (Efficiency) 286 Elements of the Technology Roadmap 286 Activity #1: Guiding Principles 287 Activity #2: Assess Current Technology 288 Activity #3: Analyze Gaps 289 Activity #4: Evaluate Technology Landscape 290 Activity #5: Describe Future Technology 291 Activity #6: Outline Migration Strategy 292 Activity #7: Establish Governance 292 Practical Steps for Developing a Technology Roadmap 294 Conclusion 295 • References 295 Appendix A Principles to Guide a Migration Strategy 296 Chapter 20 Enhancing Development Productivity 297 The Problem with System Development 298 Trends in System Development 299 Obstacles to Improving System Development Productivity 302 Improving System Development Productivity: What we know that Works 304 Next Steps to Improving System Development Productivity 306 Conclusion 308 • References 308 Chapter 21 Information Delivery: IT’s Evolving Role 310 Information and IT: Why Now? 311 Delivering Value Through Information 312 Effective Information Delivery 316 New Information Skills 316 New Information Roles 317 New Information Practices 317 xi xii Contents New Information Strategies 318 The Future of Information Delivery 319 Conclusion 321 • References 322 Mini Cases Project Management at MM 324 Working Smarter at Continental Furniture International 328 Managing Technology at Genex Fuels 333 Index 336 Preface Today, with information technology (IT) driving constant business transformation, overwhelming organizations with information, enabling 24/7 global operations, and undermining traditional business models, the challenge for business leaders is not simply to manage IT, it is to use IT to deliver business value. Whereas until fairly recently, decisions about IT could be safely delegated to technology specialists after a business strategy had been developed, IT is now so closely integrated with business that, as one CIO explained to us, “We can no longer deliver business solutions in our company without using technology so IT and business strategy must constantly interact with each other.” What’s New in This Third Edition? • Six new chapters focusing on current critical issues in IT management, including IT shared services; big data and social computing; business intelligence; managing IT demand; improving the customer experience; and enhancing development productivity. • Two significantly revised chapters: on delivering IT functions through different resourcing options; and innovating with IT. • Two new mini cases based on real companies and real IT management situations: Working Smarter at Continental Furniture and Enterprise Architecture at Nationstate Insurance. • A revised structure based on reader feedback with six chapters and two mini cases from the second edition being moved to the Web site. All too often, in our efforts to prepare future executives to deal effectively with the issues of IT strategy and management, we lead them into a foreign country where they encounter a different language, different culture, and different customs. Acronyms (e.g., SOA, FTP/IP, SDLC, ITIL, ERP), buzzwords (e.g., asymmetric encryption, proxy servers, agile, enterprise service bus), and the widely adopted practice of abstraction (e.g., Is a software monitor a person, place, or thing?) present formidable “barriers to entry” to the technologically uninitiated, but more important, they obscure the importance of teaching students how to make business decisions about a key organizational resource. By taking a critical issues perspective, IT Strategy: Issues and Practices treats IT as a tool to be leveraged to save and/or make money or transform an organization—not as a study by itself. As in the first two editions of this book, this third edition combines the experiences and insights of many senior IT managers from leading-edge organizations with thorough academic research to bring important issues in IT management to life and demonstrate how IT strategy is put into action in contemporary businesses. This new edition has been designed around an enhanced set of critical real-world issues in IT management today, such as innovating with IT, working with big data and social media, xiii xiv Preface enhancing customer experience, and designing for business intelligence and introduces students to the challenges of making IT decisions that will have significant impacts on how businesses function and deliver value to stakeholders. IT Strategy: Issues and Practices focuses on how IT is changing and will continue to change organizations as we now know them. However, rather than learning concepts “free of context,” students are introduced to the complex decisions facing real organizations by means of a number of mini cases. These provide an opportunity to apply the models/theories/frameworks presented and help students integrate and assimilate this material. By the end of the book, students will have the confidence and ability to tackle the tough issues regarding IT management and strategy and a clear understanding of their importance in delivering business value. Key Features of This Book • A focus on IT management issues as opposed to technology issues • Critical IT issues explored within their organizational contexts • Readily applicable models and frameworks for implementing IT strategies • Mini cases to animate issues and focus classroom discussions on real-world decisions, enabling problem-based learning • Proven strategies and best practices from leading-edge organizations • Useful and practical advice and guidelines for delivering value with IT • Extensive teaching notes for all mini cases A Different Approach to Teaching IT Strategy The real world of IT is one of issues—critical issues—such as the following: • • • • • • • • How do we know if we are getting value from our IT investment? How can we innovate with IT? What specific IT functions should we seek from external providers? How do we build an IT leadership team that is a trusted partner with the business? How do we enhance IT capabilities? What is IT’s role in creating an intelligent business? How can we best take advantage of new technologies, such as big data and social media, in our business? How can we manage IT risk? However, the majority of management information systems (MIS) textbooks are organized by system category (e.g., supply chain, customer relationship m anagement, enterprise resource planning), by system component (e.g., hardware, software, networks), by system function (e.g., marketing, financial, human resources), by system type (e.g., transactional, decisional, strategic), or by a combination of these. Unfortunately, such an organization does not promote an understanding of IT management in practice. IT Strategy: Issues and Practices tackles the real-world challenges of IT management. First, it explores a set of the most important issues facing IT managers today, and second, it provides a series of mini cases that present these critical IT issues within the context of real organizations. By focusing the text as well as the mini cases on today’s critical issues, the book naturally reinforces problem-based learning. Preface IT Strategy: Issues and Practices includes thirteen mini cases—each based on a real company presented anonymously.1 Mini cases are not simply abbreviated versions of standard, full-length business cases. They differ in two significant ways: 1. A horizontal perspective. Unlike standard cases that develop a single issue within an organizational setting (i.e., a “vertical” slice of organizational life), mini cases take a “horizontal” slice through a number of coexistent issues. Rather than looking for a solution to a specific problem, as in a standard case, students analyzing a mini case must first identify and prioritize the issues embedded within the case. This mimics real life in organizations where the challenge lies in “knowing where to start” as opposed to “solving a predefined problem.” 2. Highly relevant information. Mini cases are densely written. Unlike standard cases, which intermix irrelevant information, in a mini case, each sentence exists for a reason and reflects relevant information. As a result, students must analyze each case very carefully so as not to miss critical aspects of the situation. Teaching with mini cases is, thus, very different than teaching with standard cases. With mini cases, students must determine what is really going on within the organization. What first appears as a straightforward “technology” problem may in fact be a political problem or one of five other “technology” problems. Detective work is, therefore, required. The problem identification and prioritization skills needed are essential skills for future managers to learn for the simple reason that it is not possible for organizations to tackle all of their problems concurrently. Mini cases help teach these skills to students and can balance the problem-solving skills learned in other classes. Best of all, detective work is fun and promotes lively classroom discussion. To assist instructors, extensive teaching notes are available for all mini cases. Developed by the authors and based on “tried and true” in-class experience, these notes include case summaries, identify the key issues within each case, present ancillary i nformation about the company/industry represented in the case, and offer guidelines for organizing the classroom discussion. Because of the structure of these mini cases and their embedded issues, it is common for teaching notes to exceed the length of the actual mini case! This book is most appropriate for MIS courses where the goal is to understand how IT delivers organizational value. These courses are frequently …