2. IMPLEMENTING IT PAYOFF INITIATIVES : A FRAMEWORK Pertemuan 17-20 Matakuliah: A0814/Investment Analysis Tahun: 2009

3. Bina Nusantara University 3 Identify Investment Stage Plan Approach and Technique Ensure Customer Involvement Identify Tangible and Intagible Metrics Make Business Case for IT Payoff Measurement Conduct Analyses Interpret Data for Constituents Provide Feedback and Actionable Steps Institutionalize Bias for IT Payoff Measurement Feedback Exploration Involvement Analysis Communication The 4-phase EIAC model for intituting IT payoff initiatives

4. Phase 1 : Exploration The exploration phase has two purposes : (1)To develop a basic understanding of what is to be measured depending upon the company’s stage of investment (2)The approach taken to analyze the data matched with the analytical technique Bina Nusantara University 4

5. Identify investment stage –An example of the stage of IT lifecycle in the organization is its investment in the infrastructure –The infrastructure investment of a new organization is likely to be measured differently than an investmen in upgrading legacy system to web-based technologies. Intrastructure investments payoff, over a longer term, generally manifest through other IT investments and therefore is difficult to measure. –It is important to assess the stage because it points us to the relevan metrics. Bina Nusantara University 5

6. Plan approach and techniques –An investment in an upgrade of the existing infrastructure can be measured through net present value of the total investment. –NPV can be utilized to calculate the real cost in today’s dollars after the implementation is complete. –Infrastructure, investment can be in high risk opportunites. Bina Nusantara University 6

7. Examples (1): Implementation of an integrated ERP system by a pharmaceutical manufacturer in preparation for the impeding expansion of a retail pharmacy chain customer. In the event that the retail drug chain fails in implementing the enterprise-wied ERP system, it constitutes a high risk. Yet, there are other opportunities the manufacturer can seek to collaborate with other retail chains or its own suppliers. In doing so, it can improve its own operations through better forecasting and opportunities (or risks) of the investment stage can be explored and exploited at each stage of the investment as the project proceeds from year 1 to year 2, from year 2 to year 3, and so on, by matching it with an appropriate technique. Bina Nusantara University 7

8. Examples (2): Frito Lay Inc., the leading snack foods manufacturer, implemented a handheld computer system that initially saved several hours a week of delivery persons’ time in completing paperwork. However, as the implementation progressed, additional advantages of continued investment became clear and the company began to use daily sales data to plan production, forecast sales, track the effects of promotional campaigns, and eventually plan organizational redesign. Bina Nusantara University 8

9. Phase 2 : Involvement This phase addresses organizational issues more than the technical or analytical aspects of IT payoff. More precisely, it has to do with involving the stakeholders in an attempt to thwart what could become a political issue. Bina Nusantara University 9

10. Ensure customer involvement –If going to measure the business value of IT investment, it is critical to involve the businesspeople in agreeing upon what is to be measured. –Jim Elert, CIO for Trinity Health : “IT shoud enter into a negotiation with the business side of the company on what constitutes value and how it will measured.” Bina Nusantara University 10

11. Identify tangible and intangible metrics –Metrics can take the shape of measring something as straightforward as the time it takes to execute a customer service call or to fill an order. –Intangible metrics can be hard to identify, let alone measure. Incrasing market share : company is getting customers that the competition does not want Reduction in customer complaints : dissatisfied customers are not speaking up because they chose not to come back. Reduced reject rate : more defectve parts are getting through. Bina Nusantara University 11

12. Make the business case for IT payoff measurement –One of the most challenging issues in IT payoff is demonstrating to the organization that it is worth the company’s time and expense to conduct the analysis. –“the company is doing well financially so we must be doing something right. Why waste time in measuring IT payoff? –Why take away resources from doing the work when there are no problems? Bina Nusantara University 12

13. The payoff measurement areas should be clearly outlined, the measures agreed upon, and the actions expected as a result of the findings should be understood. Management should clearly state how actions taken would result in organizational improvements such as better working conditions, increased competitiveness, further investment, or redesigned processe. Bina Nusantara University 13

14. The business case for IT payoff measurement is easier to make if the company is feeling the “pain”, such as in a general dissatisfaction with information systems, threat of loss of market share, customer complaints, or a difficult choice of investing in IT or other initiatives. Relating payoff measurement to these reasons can help employees understand and subsequently offer buy-in to the project. Bina Nusantara University 14

15. Phase 3 : Analysis In the analysis phase data are collected, analyzed, and interpreted for meaningful action. IT payoff analysts leaping to data collection and analysis without spending adequate time in the exploration and involvement phase. The analysis phase is preceded by significant preparation, careful attention to which is likely to be rewarded by accurate results that customers will accept and act upon. Bina Nusantara University 15

16. Conduct analysis –The analyst should choose from the various techniques mentioned in the earlier chapters and find one or more that are suitable to the objectives of the customers. –The prevailing issues in conducting IT payoff analysis are lag affects, control variables, and adjustment factor. Bina Nusantara University 16

17. Interpret data for constituents –The result of a statistical analysis have little meaning if they are not translated into business terms. –A regression equation with a set of coefficient values has turned off many customers who believe that the complex analysis is an academic exercise. –The results of the analysis should be validated for reasonableness and translated into business terms. Bina Nusantara University 17

18. The reason : the results of the analysis were common knowledge and therefore the business case for the analysis could not be made. Typically, the results of the analyses are first presented to the sponsors of the IT payoff initiative in a report or a presentation prior to dissemination to the entire end- customer base. Bina Nusantara University 18

19. Some questions the data interpretation should address are: 1.Is IT investment paying off? 2.If so, what is the extent of the payoff? If none, why? 3.How much increased revenue or profit can be attributed to a unit amount invested, for example, in the ERP system? 4.Are some investments paying off more than other investments? Why or why not? 5.What are the factores that facilitate/inhibit payoff? 6.Is continued IT investment recommended? Bina Nusantara University 19

20. Phase IV : Communication The communication phase can appear to some as intuitive or even redundant. An indicator of good communication is when constituents see the value of measurement of IT payoff and make it a part of the work plans Bina Nusantara University 20

21. Provide feedback and actionable steps –The communication of the findings should be useful to the customer. –Analysts find this transition form results to actionable steps as the most challenging. It requires customization for each fnctional area and a deep understanding of the nature of the business, as well as some creativity in suggesting innovative ways to exploit payoff. Bina Nusantara University 21

22. Institutionalize bias for IT payoff measurement –Performance measurement is critical to organization success because of the reasoning that what you cannot measure, you cannot improve. –Payoff measurement should become a bias within the organization. The payoff exercise should lead people to think of their work in measurement terms and encourage them to aks questions such as : Do we have the data to know that the technology investment does what it is supposed to do ? How do we collect this data? What can it inform us? Bina Nusantara University 22