Matakuliah
Tahun
: M0624/Information Technology Valuation
: 2008
THE LINK BETWEEN IT PLANNING AND IT VALUATION:
THE BTRIPLEE FRAME WORK
MODUL 3. SESSION 8 – 12
INTRODUCTION
• THE APPLICATION OF IT HAS A COST AND A
BENEFIT SIDE, AND BUSINESS MANAGERS ARE IN
SEARCH OF THE IT WITH GREATER BENEFITS THAN
COSTS.
• THE COST SIDE MAY BE DIFFICULT TO PLAN AND
MANAGE, THE BENEFIT SIDE IS EVEN TOUGHER TO
MANAGE AND MEASURE.
• IDENTIFYING AND OBTAINING EXTERNAL AND
INTERNAL PERFORMANCE DATA TO MEASURE AND
VALUATE IT APPEARS TO BE VERY DIFFICULT IN
PRACTICE.
• IT VALUE MEASUREMENT MUST BE AIMED AT
MULTIPLE STAKEHOLDERS.
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INTRODUCTION
• THE COMMON DENOMINATOR OF SHORTFALL OF
EVIDENCE OF THE VALUE OF IT ARE:
1. IN SUFFICIENT MANAGEMENT OF IT AND THE
VALUE OF IT
2. DEFICIENCES IN FRAMEWORKS TO MEASURE
THE VALUE OF IT
3. DEFICIENCES IN APPROPRIATE MESURES TO
DETERMINE THE VALUE OF IT
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INTRODUCTION
• THIS MODUL AIMS TO PROVIDE A CURRENTLY
LACKING, COMPREHENSIVE MEASUREMENT
FRAMEWORK, ANSWERING THE BASIC QUESTIONS:
A. WHAT AND HOW TO MEASURE
B. COMPARE RESULT FROM IT INVESTMENTS WITH
PERFORMANCE IMPROVEMENT IN THE BUSINESS
C. COMPARE RESULT FROM IN THE APPLICATIONS
AND SUPPLY OF IT.
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MEASURING THE VALUE OF IT
• ORGANIZATIONS NEED TO BULID A THOROUGH OF
THE CONNECTION BETWEEN BUSINESS
STRATEGY, BUSINESS PROCESSES AND BUSINESS
ACTIVITIES, (IM)POSSIBILITIES, AND CURRENT
APPLICATION AND SUPPLY OF IT ON THE OTHER.
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MEASURING THE VALUE OF IT
• A SYSTEMATIC AND CONSISTENT MEASUREMENT
OF IT VALUE MUST BE BASED ON 2 KEY
ATTRIBUTES:
1. AN OVERALL MANAGEMENT FRAMEWORK:
BECAUSE THE REALITIES OF IT APPLICATION IN
ORGANIZ-ATIONS ARE SO COMPLEX, A
CONCEPTUAL SCHEME FOR SIMPLIFYING AND
ORDERING THEM IS DESIREABLE.
2. A SET OF KEY MEASURES FOR VALUE: THESE
ALLOW THE MANAGEMENT OF IT, VARYING
ACCORDING TO THE OBJECTIVES OF THE
ORGANIZATION AND THE LEVEL OF THE
FRAMEWORK FOR WHICH THE MEASURES ARE
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THE BTRIPLEE FRAMEWORK
• IT VALUE QUESTIONS
A. IS THE PIECE OF FABRIC ITSELF IMPORTANT
WITHIN THE WHOLE COLLECTION OF FABRICS
THAT MAKE UP THE BUSINESS?
B. IS THE THREAD IMPORTANT TO THE FABRIC?
C. IS GIVEN THREAD STRONG?
D. HOW WELL ARE THREADS PRODUCED AND
INTERWOVEN?
LET SEE THE ANIMATION FEATURE
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THE BTRIPLEE FRAMEWORK
• IT SHOULD BE NOTED THAT THE VALUE OF
MANDATORY IT, IT INFRASTRUCTURE, AND IT
RESEARCH CANNOT TO BE MEASURED BY A
POSSIBLE DIRECT CONTRIBUTION TO THE
PERFORMANCE OF IT BASED PRODUCTS AND
SERVICES, NOR BY POSSIBLE DIRECT
CONTRIBUTION TO THE PERFORMANCE OF
BUSINESS PROCESS.
• IT MEANS THESE QUESTIONS CANNOT BE
ANSWERED DIRECTLY: WHAT THE VALUE OF A
GIVEN INDIVIDUAL THREAD (AN IT APPLICATION OR
IT SERVICE)? OR, WHAT IS THE VALUE OF THE
COLLECTION OF THREADS KNOWN AS IT?
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THE BTRIPLEE FRAMEWORK
• LINKING VALUE TO PLANNING LEVELS
THE DIFFERENT VALUE QUESTIONS CAN BE
LINKED TO THE DIFFERENT PLANNING
LEVELS DEFINED IN THE PREVIOUS MODUL:
BUSINESS PLANNING, IT PLANNING AND IT
SUPPLY PLANNING.
LET SEE THE ANIMATION
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THE BTRIPLEE FRAMEWORK
• REPLACING “CONTROL” WITH “VALUE
MEASUREMENT”
THE TERM OF CONTROL IS TOO BROAD AND NOT
SPECIFIC ENOUGH TO EXPRESS WHAT HAS TO BE
MEASURED AT THAT 3 LEVELS.
THE VALUE OF IT RELATES TO IT (PARKER, ET AL):
VALUES IS ASSESED BY ADDING ORGANIZATIONAL
PERFORMANCE FACTORS TO DISCRETE BENEFITS.
SO, BUSINESS CONTROL SHOULD BE REPLACE BY
BUSINESS VALUE OF IT
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THE BTRIPLEE FRAMEWORK
• EFFECTIVENESS VS EFFICIENCY
A. EFFECTIVENESS: PRODUCING THE DESIRED
EFFECT, IT’S MEAN DOING THE RIGHT THING.
B. EFFICIENCY: PRODUCING THE DESIRED RESULT
WITH A MINIMUM EFFORT, EXPENSE OR WASTE.
IT’S MEAN DOING THE RIGHT THINGS RIGHT.
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MEASURING THE BUSINESS VALUE OF
IT
• STRASSMANN, INVESTIGATED MANY POSSIBLE
CORRELAT-IONS BETWEEN LEVELS OF IT COST
AND BUSINESS, EXPRESS-ED IN FINANCIAL RATIOS
SUCH AS RETURNS ON ASSETS OR SHAREHOLDERS’ INVESTMENTS WITHOUT RESULT.
• HARRIS AND KATZ PROVED, THAT HIGH
PERFORMED FIRMS SPEND A SIGNIFICANTLY
HIGHER PROPORTION OF REVENUES ON IT THAN
LOW PERFORMANCE FIRMS DO; IT IS UNLIKELY
THAT IT EXPENDITURE ALONE ENSURES A FIRM’S
SUPERIOR PERFORMANCE.
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MEASURING THE BUSINESS VALUE OF
IT
• THE MAIN CONCLUSION FROM THIS RESEARCH IS
THAT NO SINGLE PERFORMANCE MEASURE AT THE
ORGANIZATION, BUSINESS OR SBU LEVEL IS
AVAILABLE TO DETERMINE THAT VALUE OF IT,
THEREFORE MULTIPLE MEASURES TO REFLECT
DIFFERENT RELATIONSHIPS AT DIFFERENT LEVELS
ARE NEEDED.
• THE BUSINESS VALUE OF IT IS LIKELY TO BE
THOUGHT OF IN TERMS OF IMPROVING THE
ORGANIZATION’S FINANCIAL PERFORMANCE,
BECAUSE “THE LANGUAGE OF UPPER
MANAGEMENT IS MONEY.
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Figure 3.5: Languages in an Organization
Upper Management:
Language of Money
Middle Management:
Must be Bilingual
Lower Management and Non-superior:
Language of Things
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MEASURING THE BUSINESS VALUE OF IT
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3 ARE IMPORTANT IN RELATION TO THE
APPLICATION OF IT:
1. REDUCING OR AVOIDING OPERATIONAL AND
LABOR COSTS, INCREASING BUSINESS
PRODUCTIVITY AND REVENUE THROUGH THE
TRADITIONAL APPLICATION OF IT TO IMPROVE THE
EFFECTIVENESS AND EFFICIENCY OF THE
ORGANIZATION.
2. ENLARGING MARKET SHARE, IMPROVING
CUSTOMER SATISFACTION, SHORTENING ORDER
FULFILLMENT TIMES, THROUGH THE INNOVATIVE
APPLICATION OF IT (THROUGH INTERNET,
INTRANET, EXTRANET)
MEASURING THE BUSINESS VALUE OF IT
3. ENHANCING STRATEGIC PERFORMANCE BY
RECONFIGUR-ING THE NETWORK OF BUSINESSES
IN THE CREATION AND DELIVERY OF PRODUCTS
AND SERVICES, AND BY INCORPORATING IT IN
PRODUCTS AND SERVICES, OR EVEN COMPLETELY
REPLACE THEM BY IT, THUS RECONFIGURING THE
BUSINESS SCOPE.
SO, THERE ARE 3 RELATED DIMENSIONS:
1. FINANCIAL PERFORMANCE
2. BUSINESS PERFORMANCE
3. STRATEGIC PERFORMANCE
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Figure 3.6: IT Spending as a percentage of Revenue
IT Spending as % of Revenue
Industry Group
1991
1993
1995
1997
1999
Communications
(Telcos)
4,7
5,8
4,1
6,7
13,9
Electric/ Water/ Gas/
Sanitary Services
1,6
1,6
1,8
2,8
3,4
Finance, Insurance,
Banking
3,6
2,6
2,5
6,5
8,6
Hospitals and Health
Care
2,3
2,5
2,3
3,9
5,3
Manufacturing
1,9
2,0
1,8
1,8
3,0
3,0
2,5
2,6
4,1
5,5
All Industries
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MEASURING THE EFFECTIVENESS OF IT
• THE NEXT LEVEL OF THE BTRIPLEE FRAMEWORK
DEALS WITH THE VALUE OF IT MEASURED BY ITS
CONTRIBUTION TO IMPROVEMENT IN THE
PERFORMANCE OF BUSINESS PROCESSES,
ACTIVITIES AND EMPLOYEES.
• LET SEE FIG 3.7
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Figure 3.7: Effectiveness Factors for IT
Accuracy
Operability
Availability
Portability
Connectivity
Reliability
Comprehensibility
Reparability
Coverage
Flexibility
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Responsiveness
Reusability
Installability
Robustness
Integrity
Security
Learnability
Testability
Maintainability
Understandability
Manageability
User-friendliness
MEASURING THE EFFECTIVENESS OF IT
• MEASUREMENT OF THE EFFECTIVENESS OF IT IS
THUS RELATED TO THE:
1. SUPPORT AND ENABLING OF BUSINESS
PRODUCTS, SERVIC-ES, PROCESSES AND
ACITVITIES, AND ITS AVAILABILITY TO BUSINESS
EMPLOYEE.
2. EFFECTIVENESS AS PERCEIVED BY THE PEOPLE
WHO USE IT.
3. TECHNICAL ASPECTS THAT STEM FROM
ARCHITECTURAL AND INFRASTRUCTURE
REQUIREMENTS EXPRESSES BY IT SUPPLYING
FUNCTIONS.
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MEASURING THE EFFECTIVENESS AND
THE EFFICIENCY OF IT
• MEASURING AND EVALUATING THE PERFORMANCE
OF IT SUPPLY HAS ALWAYS BEEN A SENSITIVE
ISSUE.
• MANY OF TODAY’S IT ORGANIZATIONS HAVE A VERY
POOR IMAGE. MEASURING THE PERFORMANCE OF
IT SUPPLY IS THEREFORE VERY IMPORTANT, YET
DIFFICULT, TO ACCOMPLISH.
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MEASURING THE EFFECTIVENESS AND
THE
EFFICIENCY
OFSAME
IT SORT OF
• MEASURING
IT SUPPLY
POSES THE
PROBLEMS, NOT ONLY IN THE 1990S BUT ALSO
TODAY.
THE PROBLEMS INCLUDE:
A. LACK OF DEFINITION
B. LACK OF FORMAL OBJECTIVES AND
PERFORMANCE STANDARDS
C. INEXACT MEASUREMENT
D. DIFFERENCE IN SCOPE.
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Figure 3.8: Effectives Versus Efficiency of IT Supply
Cost – Driven
High
Effeciency
(Low cost
per function
performed)
Corporate Asset :
Change Agent
Cost-efficient but
doing too little or
doing the wrong
things
Doing the right things,
users are pleased, and
costs are reasonable
Technology –
Driven
Warrior Users:
Users are Kings
Technology overkill
or ineffectual
performance
Fulfills user desires,
and costs is not an
issue
Low
Low
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High
Effectiveness
(Performing the Right
functions to support the
business)
Figure 3.73.9: Factors of Effectiveness and Efficiency of IT Supply
&
Organization
Culture
Skills
Management
Controls
Efficiency &
Effectiveness of IT
Delivery Processes
Methods
Techniques
Tools
Systems
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IT Supply
Infrastructur
e
Cost Structure
MEASURING THE EFFECTIVENESS AND
THE EFFICIENCY OF IT
• A PROCESS VIEW OF IT SUPPLY IS OFTEN
MODELLED ON PORTER’S VALUE CHAIN:
INBOUND LOGISTICS: DEVELOPMENT OF IT
APPLICATIONS
OPERATIONS: OPERATIONS OF IT
OUTBOUND LOGISTISTICS: COMMUNICATIONS
MANAGEMENT
MARKETING & SALES: ACCOUNT MANAGEMENT
SERVICE: CLIENT SUPPORT
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MEASURING THE EFFECTIVENESS AND
• THIS LEADS
TO 5
SCORECARDS, OF
COVERING
THE
EFFICIENCY
IT
PERFORMANCE MEASURES FOR EACH PROCESS:
1. IT SUPPLY MANAGEMENT: OFTEN NAMED
MANAGEMENT OF THE IT ORGANIZATION
2. IT DEVELOPMENT MANAGEMENT: OFTEN NAMED
SYSTEM DEVELOPMENT AND SYSTEM
MAINTAINANCE
3. IT INFRASTRUCTURE MANAGEMENT: OFTEN
NAMED DATA CENTER MANAGEMENT AND DATA
COMMUNICATION MANAGEMENT
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MEASURING THE EFFECTIVENESS AND
THE EFFICIENCY OF IT
4. ACCOUNT MANAGEMENT
5. CLIENT SUPPORT: OFTEN NAMED END USER
COMPUTING SUPPORT AND HELP DESK SUPPORT.
FOR FURTHER DISCUSSION, LET SEE MODUL 6.
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CONCLUSION
• THE BUSINESS MANAGER NEEDS TO KNOW HOW
TO MEASURE THE VALUE OF IT. THE BTRIPLEE
FRAMEWORK HAS BEEN DEVELOPED TO MEET
THIS NEED.
• THE BTRIPLEE FRAMEWORK DOES NOT PROVIDE A
DIRECT “YES” OR “NO” ANSWER THE QUESTION:
DO WE GET VALUE FOR MONEY FROM OUR IT
EXPENDITURES?
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CONCLUSION
•
1.
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THESE QUESTIONS, EXPLORE THE EXTENT TO
WHICH IT:
CONTRIBUTES TO BUSINESS OBJECTIVES AND
TO BUSINESS STRATEGY, CALLED BUSINESS
VALUE OF IT. BUSINESS VALUE MEASUREMENT:
A. FINANCIAL PERFORMANCE
B. BUSINESS PERFORMANCE, APPLYING THE
BALANCED SCORECARD CONCEPT
C. STRATEGIC PERFORMANCE, APPLYING THE
CONCEPT OF CSF.
CONCLUSION
2. EFFECTIVENESS OF IT:
A. BUSINESS PROCESSES AND ACTIVITIES
B. EMPLOYEES, RELATED TO THE AVAILABILITY OF
IT AND TO ITS TO USE
C. IT SUPPLY, RELATED TO IT APPLICATIONS AND
TO IT INFRASTRUCTURE
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CONCLUSION
3. SUPPLY ALIGNS WITH BUSINESS REQUIREMENTS,
CALLED EFFECTIVENESS OF SUPPLY, AND
CARRIED OUT EFFICIENTLY, CALLED THE
EFFICIENCY OF IT SUPPLY. IT CAN BE DETERMINED FOR THE MAIN SUPPLY PROCESSES:
A. IT SUPPLY MANAGEMENT
B. ACCOUNT MANAGEMENT
C. IT DEVELOPMENT MANAGEMENT
D. IT INFRASTRUCTURE MANAGEMENT
E. CLIENT SUPPORT
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• THE END OF SESSION 8 - 12
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