1. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Models for Acquiring IS Capabilities 70-451 Management Information Systems Robert Monroe October 4, 2009

2. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Quiz 1.SaaS stands for _____ _____ ______ ________. 2.True or false: there are multiple ways in which a company can go about acquiring information systems. 3.True or false: The primary suggestion that Robert X. Cringely made in his article “What’s Next: Software for Non-Dummies” is that companies should choose to build their own custom software because it is the only way to gain a competitive advantage.

3. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Goals For Today By the end of today's class you should: Be able to explain why the 'buy vs. build' question is better expressed as 'what to buy, what to build?’ Understand the advantages and disadvantages of: –The Software as a Service (SaaS) model –Building a heavily customized, homegrown information system –Hosting and owning your own IT infrastructure, but buying/licensing standard hardware and software wherever possible Be able to evaluate which of these approaches is most appropriate for a given project Understand the strategic implications of pursing any of these approaches as a broad corporate strategy

4. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Big, Difficult Questions: How do I acquire the Information Technology/Systems that my company needs? Should we build, buy, or rent our new system? What should we outsource and to whom? (in 2 weeks)

5. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Acquiring Hardware Infrastructure

6. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Hardware Acquisition: The Basics Hardware is generally purchased or leased Core operating software for the hardware is usually licensed For inexpensive hardware appliances a perpetual software license generally comes with the hardware purchase For more expensive and sophisticated hardware devices operating software may need to be licensed separately –Software licenses may not be perpetual, or limited upgrade period –This can significantly affect the value of your purchase as an asset Useful lifetime of hardware assets varies considerably –But resale value depreciates very rapidly

7. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Typical Hardware Selection Criteria Vendor support and longevity –What support do you need? Can vendor provide it? Cost –Initial acquisition cost and Total Cost of Ownership (TCO) Compatability –Will the new hardware be compatible with existing infrastructure? Capacity and performance –Storage, speed, throughput, processing power, etc. Scalability –Can the system grow to meet future demands? Do you care? Reliability and quality –Is this for a mission critical system? –What level of reliability and quality are you willing/able to pay for?

8. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Decision: Own or Rent Hardware Infrastructure? Own the boxes –Host servers in-house (internal data center) –Outsource hosting to 3 rd party hosting provider –Buying could mean outright purchase or lease Rent dedicated hardware infrastructure –Hosting service provides servers, rack space, power, network feeds, physical security, etc. Rent shared hardware infrastructure – Cloud Computing

9. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Emerging Hardware Model: Cloud Computing Customer contracts with service provider for agreed upon IT infrastructure capacity and capabilities Customer uses (and pays for) computing resources as needed Computing resources are generally accessed over a network Service provider is responsible for: –Providing a robust, highly available, and scalable IT infrastructure Hardware, network, systems software –Managing those resources efficiently –Handling peak loads –Meeting guaranteed service levels (Specified by SLA)

10. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Service Level Agreements (SLA’s) Define an agreed to level of service to be provided by host Typically define the acceptable performance parameters for the hosted information system. These parameters can include: –Downtime (frequency, duration, timing, etc.) –System performance levels (response time, throughput, etc.) SLA’s generally define performance incentives and penalties –Aligning incentives is very important (but it can be difficult and subtle) SLA’s are just contracts. –Most terms are negotiable –Make sure that you get what you need put into the SLA! –Recognize that you generally get what you (a) negotiate and (b) pay for

11. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems On Demand Discussion Questions What are the benefits and drawbacks to this approach? –For an IS project manager? –For the CIO of a large company? –For a hardware vendor? –For a software company? –For the CFO of a company? –For the legal/security/compliance staff of a company?

12. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Acquiring Software

13. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Software Licensing Models Software is generally licensed, not purchased –Software producer owns the software –License allows your organization or employees to use it –This is frequently even true for custom built software (negotiate contract!) Traditional software licensing models –Time-based licensing (e.g. annual or perpetual) –Per desktop, client, server, CPU, or ‘core’ –Per user/employee/etc. Emerging software licensing models –Software as a service accessed over the internet –On demand – “pay by the sip” –Pricing structures and models are still evolving for this approach

14. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Licensing Software Can Be Tricky Licensing costs generally include: –An initial up-front payment –Ongoing maintenance (15-20% annually is typical) –Re-upping for non-perpetual licenses Picking the ‘unit’ of licensing can be tricky –Per named user, employee, customer, etc… –Per server, processor, processor core, ‘power unit’, etc… –Per ??? – this can get pretty creative General rule: the larger, more complex, and more customized the software, the more flexibility you have in licensing

15. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Three Basic Options And Alternatives General approach to acquiring software: –Homegrown – build in-house –Bespoke – pay somebody to build it for you –Pre-packaged – buy or rent a standard package, probably with the ability to customize it to your needs Integration with other systems –Legacy systems in your organization –Other software modules within a suite (think ERP or CRM) Most Information Systems projects use a combination of these approaches

16. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Typical Software Package Selection Criteria Vendor support and longevity –What support do you need? Can vendor provide it? Will vendor be around to support software for the many years it will run in your company? Cost –Initial acquisition cost, integration cost, and ongoing TCO Compatability and flexibility –Will the new software be compatible with existing infrastructure? Performance and scalability –Can the system meet your current and future demands? Reliability and availability –Is this a mission critical system? Can it be configured for high availability? –What level of reliability and quality are you willing/able to pay for? Security

17. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Emerging Software Acquisition Model: SaaS The Software as a Service model provides customers with access to information systems capability over a network SaaS extends the Cloud Computing model –Customer subscribes to application as a service –Vendor provides all hardware, networking, software, etc. –Customer accesses application over the network –Appealing pricing model – generally subscription based SaaS examples –Facebook, Google Apps, Flickr, Amazon.com EC3, Wikispaces, twitter, …

18. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems SaaS Discussion Questions What are the benefits and drawbacks to this approach? –For an IS project manager? –For the CIO of a large company? –For a functional manager in a company, such as a marketing manager or an operations manager? –For a hardware vendor? –For a software company? –For the CFO of a company? –For the legal/security/compliance staff of a company?

19. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Common Quality Attribute Categories What affect do the Cloud and/or SaaS models have on the quality attributes of a system as observed by the system’s stakeholders? –Availability –Performance –Security –Modifiability –Testability –Usability –Fault tolerance –Disaster recoverability

20. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Build, Buy, or Both?

21. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Build, Buy, or Both? Basic question: –Which parts of the system should we buy and use “as-is”? –Which parts of the system should we build custom ourselves?

22. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Reasons to Buy Instead of Build Much quicker to implement (usually) Buying is generally cheaper in the long run –Key idea: amortization Lets your company focus on its core business Somebody else handles upgrades, bug fixes, maintenance, etc. You get the benefits of other customers’ feedback

23. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Reasons to Build Instead of Buy There is no vendor, product, or service that can provide a system that satisfies your business requirements You have a unique way of doing business that your information system needs to support –… and that unique way is key to your organization’s competitive advantage

24. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems A Third Way: Buy Less Remember: build vs. buy is not a binary decision When considering building your own system: –Identify the requirements that are preventing you from buying a commercially available product. –Revisit those requirements and determine whether they are really critical –Consider alternatives where you could purchase a systems that does not meet all of your business requirements, but meets a substantial portion

25. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Another Third Way: Do Both Remember: build vs. buy is not a binary decision In practice, most information systems projects require companies to buy some components of the system and build some custom pieces to integrate the other components Given that, the systems analysis phase should evaluate where the company should buy, and where it should build

26. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Some General Guidance: If you need a system that does something every other business needs to do also, you probably should buy that software If you need a system that your business does differently from most other businesses and that difference is one of your key competitive strengths, then consider building a custom system

27. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Discussion Questions Should organizations use ASPs for all their software needs ? why or why not ? What factors should be considered when making this decision? - student question posted to wiki

28. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Discussion Questions This comes back to the article of IT Doesn't Matter by Carr. If businesses use the same SaaS providers, doesn't this eliminate the chance for these businesses to have competitive advantage from the others? True that it might be cheaper to have an external SaaS provider, however does this outweigh the cost of not being innovative and so having more competitive advantage over the other companies? - student question posted to wiki

29. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Discussion Questions Is the only reason that companies choose not to adopt an SAAS model for their software a fact that they have previously invested in significant amounts of hardware and data center structures. - student question posted to wiki

30. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Discussion Questions Many companies are using ASPs, therefore do companies really still need IT personnel and managers? - student question posted to wiki

31. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems Wrapup: Goals For Today By the end of today's class you should: Be able to explain why the 'buy vs. build' question is better expressed as 'what to buy, what to build?’ Understand the advantages and disadvantages of: –The Software as a Service (SaaS) model –Building a heavily customized, homegrown information system –Hosting and owning your own IT infrastructure, but buying/licensing standard hardware and software wherever possible Be able to evaluate which of these approaches is most appropriate for a given project Understand the strategic implications of pursing any of these approaches as a broad corporate strategy

32. Carnegie Mellon University ©2006 - 2009 Robert T. Monroe 70-451 Management Information Systems References [DWT05] Alan Dennis, Barbara Haley Wixom, and David Tegarden, Systems Analysis and Design with UML Version 2.0, 2 nd edition, John Wiley and Sons, 2005 ISBN: 0-471-34806