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Operations & Digital Business

Nicolas van Zeebroeck


Master in Business Engineering 2014-2015
Nicolas.van.Zeebroeck@ulb.ac.be

Strategic management of IT
cour 7.2

The CIO perspective


Now we have IT in place, but to manage it? In this session we will try to enter in the shoes of the CIO!

IT Management: the role of the CIO


CIO: The most senior
organizational officer who is
responsible for IT from a
general business perspective
Develop IT vision/architecture
Deploy IT resources and
facilitate their use
Maintain control over
information resources
(including data)
Develop partnership with users
to exploit IT
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IT Management: the scope


Responsibilities
Selection

Should I buy SAP? or other?

Which application does the organisation need?


Which solution is best adapted to these needs?
So here we need to check what type of tech does the (c) need

Resources
IT Staff & Skills
System administrators & helpdesk
IT developers & specialists
Organisation & governance

Adoption
Deploying the system
Adapting the organisation
Training the users

Exploitation
Maintaining the systems and data
Ensuring and promoting its optimal use

IT Infrastructure

Technology

Facilities
Hardware
Software
Network
Processes

IT Contracts
Vendors (hardware, software, equipment)
Outsourcing contracts (SLAs)
Cloud computing providers

IT Budget
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Strategic management of IT
The RESOURCES side
What are the challenges behind the ressources and responsibilities?

IT Management: technology challenges


Self referential issues

IT create problems that we would not have without it!

Data explosion? Such asa data explosion!


Interoperatibility? Invest in the system and then having problem
Obsolescence and maintenance?

Technology selection
Which technology?
Emerging technologies & trends? represent new challenges, should
BYOD, Cloud, Mobile, Big Data, etc. the CIO care about it?

Business pressure

but the problem is that there is a pressure because they rely on us.. To do the
accounting, we just need the data and the system..So we put presur on IT because
without it we have nth!

Growing business expectations?


More speed, performance, reliability, availability?

Security and business continuity


Downtime?
Hacking, spamming, phising, viruses, etc.?
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IT Management: IT outsourcing
Ex: P&G decided some years ago to outsource it! They said i make chips, shampoo,. but i dont want to do
computers.. so they paid an entire IT department and just ordered service and charged it! We do it not because
that is a problem internaly and we cant manage it but we do it because we think we can do better thing instead!

IT Outsourcing:
Elimination of part of the internal IT
department by hiring outside vendor to
perform some IT functions

Drivers:
Cost reduction (economies of scale)
Avoid investments to handle peak loads
Focus on what is core
Difficult to keep pace with technology
changes and demand for new IT skill sets
It reduces cost!
Peak loads: moment where we need to change infrastructure, our ptovider will maintain it!

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IT Management: IT outsourcing

Must be viewed as both a remedy


for service failures or cost issues
AND as a strategic choice

Must be done selectively

DO NOT outsource elements of IT


that have STRATEGIC value to the
firm
Never outsource any part of your IT department or function that is really the source of
competitive advantage! Like bank, they cant not outsource it, it is too strategic!

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Imagine we are a CIO and we clearly see thet our business needs a ERP system.. But we
know that it will cost a fortune.. But how sell it internally? how to convience the business that
we should go for it? We need to show the money: it will cost a billion but it will bring back
5billion! How fo we compte the NPV for a IT project?

IT Management: financing IT
Must measure and manage IT costs including comparison with
other firms/industries
Must measure benefits, but the problem of intangible benefits
looms large
User managers, not IS managers, must justify IT investments
Chargeback systems sometimes used to hold IS and line
organizations accountable for the impact of systems on the
organization
Resources should be allocated to the development/training of
both IS personnel and users

GESTS482 Operations and Digital Business N. van Zeebroeck 2014 2015

IT Management: financing IT
Return on Investment?
Can we apply standard valuation methods (ROI, IRR, NPV, Payback period, etc.)
to IT projects?

C = Total project cost


T = Lifetime of IT investment
i = discount rate
A(t) = Project revenues generated in period t

How to asses the cost? full (o) transformation.. But


the problem is that we dont know the scope of the
project.. There is only one way to do it which is by
accounting for the dimension of the IT project
which is the original I (hardware &software), the (o)
transformation required by the ERP system, cost of
train the users and provide support, and maitain the
system..

Requires accurate quantification for C, t, and A(t)

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IT Management: financing IT
Cost assessment?
How to distribute fixed costs shared between different projects (servers,
helpdesk, licenses, etc.)?
Costs do not vanish when implementation is completed
(maintenance, support)
And how to asses the benefice? lets assume we
Total Cost of Ownership (TCO)
have the total cost, how to measure the benefit

Investment (hardware + software)


+ Organisational change
+ Support
+ Maintenance
= TCO (Total Cost of Ownership)

for the (o)? in bombardier, we wanted more


ingertation,. Here we call it the problem of the
intangible benefit! Most of the IT benefits we
dont see them! Problematic for CIO..

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But firms today are going international, in term of IT it is very problematic..


language issue, currency issue.. equipment is not the same.. So there are only 3
ways to manage IT on a international level and (c) have to chose one of them..

IT Management: globalisation

Language, currency
Culture
National infrastructure
Availability of IT staff
Trans border data flows
Regulation
Trade unions
IT costs and availability

1. international model; we have one IT department where we centrelaze all the systems and ressources! and everyone will use this one
with the same stuff,.
2. ultinational: basicly replicate our IT in each country, each brnch has his own IT department.. All the opertaions are local..
3. global:
We need to stick to one of it

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IT Management: globalisation
International IT strategy: tightly controls international
operations, making them extensions of headquarters; IS
management (and planning/funding) centralized, common
architecture for IT, hierarchical IS organization
Multinational IT strategy: Highly decentralized with only
financial ties between subsidiaries and headquarters; IS
management and operations are largely localized
Global IT strategy: both high degree of integration and high
degree of local control; teamwork is key; IS integrates a few key
technologies and resources as part of the architecture but rest
is left to local control
Jelassi (2003)
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Jelassi (2003)

IT Management: globalisation
Factors for centralisation
Avoid duplication of development
bigger the smalest the cost..
efforts & resources the
We decrease the fixed cost
Maintain critical mass of specialists
Provide organization wide, long
range focus
Common telecommunications
Consistent platforms
Global/Standard data definitions

Standardization processes and data,


T share easily,..
Cement strategic alliances (EDI, DB)

Factors for decentralisation


Hardware economics / Reduced
communication costs
Responsiveness to local needs
Empowerment of local units
Corporate decentralization policy
Maintain bottom line perspective
different regulation across countries,.. so we need different
applications,;.

Possibility to build larger alliances (suppliers,)

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IT Management: globalisation
What should always be centralized

IT vision, strategic planning & architecture


Research & development
Corporate data centers & backbones
Corporate wide applications

If you decentralize
To where? to which level?
Region, division, product line, location,
department, users organization?

In what sense?

what are we decentralization?

Management, resource allocation, etc.

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7. 1;26

Weber (2009)

IT Management: globalisation at HSBC


Total IT Budget:
+/ $6 billion
Half of it is just the cost of
running the shop
One third is dedicated to
regional developments
Less than 20% for global
developments (group
systems)

Year 1 - 2005
$4,413M
(Incl WHIRL, P2G)

8%

52%

6%

34%

Year 4 - 2009
$5,800M

Group systems Gold


Group systems *Regional
implementations
Group systems **Regional
modifications
Regional development

10%

6% *
2% **

50%
32%

IT operations

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IT Management: technology risks


One of the key issue is the security, (c) rely on the
abilities of computers.. Bank realy depends on IT,.. but
even less intensive IT industry, if we shut down the IT
the flows will be stopped and we will get in trouble!

Hardware

Natural disasters 9/11 for ex


Power cuts
Theft and vandalism
Breakdowns

Software and data

Theft of information
Data corruption / destruction
Hacking
Virus, worms

Web sites
(Distributed) Denial of Service attacks
Hijacking (remote control over computer)
Spoofing / phising (redirection to
unintended sites)
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Ex of when IT is not managed in a good way

IT Management: business risks


September 26, 2010

all the reservation were


bolcked and also the check
in system was broken.. it
took them 11 days to restore
it

Virgin Blues reservation


system goes down due to
hardware failure
11 days of downtime
WHY? bad luck? bought the wronf
system? it is redundancy.. we need
Crash affects the airline's
more than one computer.. like in fly, we
internet booking, reservations,have to pilot, not one,..
check in and boarding systems
result? reimburse people that were in trouble >
50,000 passengers and 400
20m of cost..
flights affected
Impact on profits: $20 million

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Knight: we trade really fast less tahn 1sec, by making a little plus values! In order to do that we need to be
as close as possible to the market!
Why does the market fail? securities trade in // between NY and Chicago.. If we see a decrease in Chicago,
the people from NY, will use this info in order to trade on thos info and make gain! When kniht wanted to
improve the algorithm, when they uploaded the system, they had a crash in NY;. It takes an hour to
understand where it came from.. They lost a lot with this crash.. and finally they sold the business to the
competitor

IT Management: business risks


August 1st, 2012
Knight Capital is one of the two
leading High Frequency trading
firms
Processes 15% of all operations
on the NYSE: $20 billion/day
New update to the trading
software has a bug
Hundreds of orders
automatically sent
Creates a crash at Wall Street
One hour to identify the origin
of the problem and terminate
the algorithm at Knight Capital

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IT Management: business risks


August 1st, 2012
At the end of the day, Knight
Capital has lost $440 million
Needs cash urgently to survive
Goldman Sachs purchases
assets from Knight Capital at
cheap prices
6 investors, including Getco
(Knight Capitals main
competitor), inject $400 million
to buy 70% of Knight Capital
Who is responible of that crash?

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Strategic management of IT
The RESPONSIBILITIES side

Responsibilities: SELECTION
first to chose the right solution, and before we need to see what kind of tech the (o) needs. (3types)

How to identify the strategic applications of IT?


Look at the tech used by competitors,..
like a e-comm.. if dont do it, we need,
because sometimes market force us to
adopt some tech

It is centred on our value chain.. Where do we


see the info flowing, there the tech can helo..
And also look at the feasibility; the amount of
tech that the (o) can support/absorb.. Where is it
possible to insert more tech?

Consist in monitoring what are the tech


dvlpt that could be good for us? The own IT
people that can do for us? look at the tech
trends (cloud, big data,.. are those tech
relevant for le? any interest for me to look
in social media? those are kind of
perspective we observe and see if they
may be usefull for our tech..

Jelassi (2003)
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Once we observd that, we have a 2 types 2 matrix, where we combine the internal perspective and external
(to what extend it is able to generate comparative advantage?)

Responsibilities: SELECTION
The Strategic Threat/Opportunity Matrix

The prblem, urgnt to react, today a lot of (c)


are here.. IT available but they dont use the
IT ressources..

We have no ressources but in our business


there not really tech available

Once we are here, we may be aggressve


and take as much as possible advantage
from it!

problem: our ressources are high but what


could we do wih that? and the advantage
can we do with it?

Jelassi (2003)
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Responsibilities: SELECTION
A matter of trade offs
need
Make
or Buy?
a tool; buy it or makeN
Proprietary or open source?
Run yourself or outsource?
Real or virtual (=cloud
computing)?
maintaon physical infrastructure? or put everything on cloud?

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once the selection is done, we need to adapt/implement it!

Responsibilities: ADOPTION
Hardware installation
Software implementation
Development
Customization
Installation

things to care when we made


the selection..

Data integration &


standardization
Organisational change
Training
User support

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Responsibilities: EXPLOITATION
Ensure the systems operability
and security
Support the users
Ensure the maintenance and
continuous development to
keep up with user needs
Encourage users to maximize
their use of the systems
Leverage IT

but the most important is to exploite it, it tooks me alot of time to selct,the
adapt it,.. and now we need to make sure the systme is runing/.. We call it
maintaince! But then we also need to maximise the use of IT! Make sure
the users use it at 100%! > make a good leverage!
We need to parnerships with collegues, we need to explain them the
benefit they can get from it and to do so, they need to explain it to their
employee

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Responsibilities: EXPLOITATION
when problem,

System robustness
Data validation
Backups
Access control and security
Physical and logical network
protection (firewalls,
encryption,)
Data Redundancy
Business recovery / continuity
planning

disater recovery plan; how do we recover after disaster! The key is redundancy! HSBC decided to invest in big
data center, it is like a huge warehouse with hardware.. They said we will have one warehouse in each continent..
But next to each center they they had a backups 100km further! SO if one fail, it is not a problem!

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Responsibilities: EXPLOITATION
HSBC
One pair of data centre
on each continent
Automatic failover system
Private network ensures data
availability in microseconds
anywhere in the world

Weber (2009)
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Weber (2009)

Responsibilities: EXPLOITATION
CIO dont control what will happen with the tech!! What
we observe is that when we invest in system and than
after a while in stead of observing creation of value it
does the reverse.. In order to generate value, we need
people use it, but use it at maximum level!

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Responsibilities: EXPLOITATION
After the investment phase, comes the time for exploitation and
benefits
CIO does not control second phase alone
Need to work with Business Units to ensure exploitation
of IT infrastructure and new IT Tools

IT Produces benefits only when it comes with organisational


change and/or business innovation

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Strategic management of IT
Key take-aways
Do the key take aways ourself!

IT has become far too important


to the growth and prosperity of
businesses to leave in the hands of
the technologists
we learn IT because <e dont want it managed by the IT people, because it is a disaster!

Your assignments
Assignments on IT Management
Post your (3 5) personal key take aways on Moodle
Readings
Weber HSBC 2009 (case study)
HBR and ChiefExecutive.net (short) articles

To go further (suggested but not compulsory)


Carr IT doesnt matter (and follow on discussion)

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