Chapter 5 Creating Business Value © John Wiley & Sons Canada, Ltd.5-1

WHAT WE WILL COVER Business Organization and Business Processes Applying IT to Create Business Value Corporate, IT, and Project Governance © John Wiley & Sons Canada, Ltd.5-2

BUSINESS ORGANIZATION AND BUSINESS PROCESSES Organizations need a business strategy to deliver their end product or service. Strategy becomes a road map for what needs to be done to create high business value and lower costs to create competitive advantages. © John Wiley & Sons Canada, Ltd.5-3

MISSION, VISION, AND VALUES An organization’s mission is why it exists. The vision is what it does. And the values represent statements about how they achieve © John Wiley & Sons Canada, Ltd.5-4

BUSINESS STRATEGY INFLUENCES © John Wiley & Sons Canada, Ltd.5-5

BUSINESS AS OPEN SYSTEMS An organization as a system helps you see how organizations use various resources, processes, and structures to create business value. The open systems model indicates that a business operates by transforming inputs into outputs and by constantly interacting with its environment. Organizational boundary is an important aspect of the open system as it allows a business to receive inputs and to produce outputs. © John Wiley & Sons Canada, Ltd.5-6

OPEN SYSTEM MODEL © John Wiley & Sons Canada, Ltd.5-7

HOW BUSINESSES ORGANIZE TO CREATE VALUE To get something done in an organization, you need to know where to go for the information and how to get to the authority required to accomplish your task. All business organizations possess structures that organize information, responsibility, and authority. © John Wiley & Sons Canada, Ltd.5-8

ORGANIZATIONAL FORM © John Wiley & Sons Canada, Ltd.5-9

ADVANTAGES AND DISADVANTAGES OF FUNCTIONAL, DECENTRALIZED, AND MATRIX FORM Organizational Form AdvantagesDisadvantages Functional Economies of scale through efficient use of resources Poor communication and coordination between functional areas Clear chain of authority and communications within a function Employees may focus on functional area goals rather than organizational goals Decentralized Faster response and greater flexibility Duplication of resources and efforts across organizational units Greater communication and coordination between organizational units Technical knowledge not as in-depth relative to functional organizational form Matrix Increased flexibility and responsiveness to business needs and environmental changes Frustration due to dual lines of authority and responsibility Decision making occurs lower in organization and closer to customer Potential for goal conflict between functional and decentralized components of matrix (e.g., marketing manager vs. product A manager) © John Wiley & Sons Canada, Ltd.5-10

BUSINESS PROCESS Business process is defined by Michael Hammer and James Champy in their influential book Reengineering the Corporation: “a collection of activities that takes one or more kinds of input and creates an output that is of value to the customer.” * There are typically hundreds of processes involved in running a business. These processes link together and interact with one another to achieve the various goals of the business. *Michael Hammer and James Champy, Reengineering the Corporation: A Manifesto for Business Revolution, Harper Business, © John Wiley & Sons Canada, Ltd. 5-11

APPLYING IT TO CREATE BUSINESS VALUE One of the first ways that a business seeks to apply IT is through automating tasks. By automating, a business can also complete tasks with more speed, economy, consistency, and business value © John Wiley & Sons Canada, Ltd.5-12

INFORMATING TO DO THINGS BETTER Informating is recognizing that executing processes (e.g., customers accessing their bank accounts to make deposits or withdraw funds) also creates new data and information. An organization may then process the new data to improve its decision making and to change or improve the process itself. © John Wiley & Sons Canada, Ltd.5-13

TRANSFORMING TO GAIN COMPETITIVE ADVANTAGE * The transformative view of IT is one where they use IT to help them acquire or maintain a competitive advantage. Transformative changes are not incremental improvements usually; rather they are extraordinary leaps of competitive prowess. The benefit of this approach is that a company then possesses a competitive advantage that sustains higher-than-average profits within its industry. *The two types of competitive advantage were first identified by Michael Porter in his book, Competitive Advantage: Creating and Sustaining Superior Performance, 1985, which is considered a classic text on organizational strategy. “Transforming” is a term suggested by Professor Richard T. Watson to complement and extend the concepts of automating and informating. © John Wiley & Sons Canada, Ltd.5-14

CORPORATE, IT, AND PROJECT GOVERNANCE CORPORATE, IT, AND PROJECT GOVERNANCE Corporate governance can be simply defined as the highest level of decision making, involving basic questions of status, financial viability, strategy, and compliance within an organization. ◦ Governance can only be considered effective when the leadership of a business are directly accountable to its owners for proper operation and financial control of the organization. ◦ Effective governance is a critical enabler for success in the global economy, for securing the enterprise’s information resources, and for creating competitive advantage. © John Wiley & Sons Canada, Ltd.5-15

IT governance is the “distribution of IT decision-making rights and responsibilities among enterprise stakeholders, and the procedures and mechanisms for making and monitoring strategic decisions regarding IT.”* ◦ Organizations need to remain internally compliant with their own IT standards and practices in addition to those imposed upon it by the law or regulations locally. Project governance is the selection and management of projects that align with the organization’s strategy. *Ryan Peterson, “Crafting Information Technology Governance,” Information Systems Management, Fall © John Wiley & Sons Canada, Ltd.5-16

PROFESSIONAL CODES OF CONDUCT AND PRACTICE A major part of good governance is understanding what ethical and appropriate governance practices need to be applied. Industry associations, professional bodies, and industry think-tanks, as well as IT, often develop, publish, and promote codes of conduct. © John Wiley & Sons Canada, Ltd.5-17

RECAP 1. What is competitive advantage, and how do businesses achieve it? 2. How do automating, informating, and transforming create business value? 3. What are the various types of organizational governance? © John Wiley & Sons Canada, Ltd.5-18