LO 1: explain the concept Business Strategy to IT Action as basis for IT Valuation
Session 1 Define the Goals Benson et al; Chapter 1 pp. 1 - 16
Learning Outcome
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IT Valuation• What it is ?• Why enterprise needs to know The Value of it’s IT ?• Why students studying IT Valuation ?
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Session 1 Introduction to IT Valuation
Learning Outcome
LO 1: Explain how the right questions focus on affordability and impact
Session 1 Define the Goals Benson et al; Chapter 1 pp. 1 - 16
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Session 1 Define the goals
Topics to be discussed • Today’s reality • The Entire IT Spend: Reducing Cost and Improving Bottom-
Line Impact• The Strategy-to-Bottom-Line Value Chain• Disconnects• Critical Success Factors• Completing the Picture: The New Information Economics
Practices• Summary of the Book
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Right Results and Right Decisions• A Company should :
– spend money on IT that directly support its BUSINESS STRATEGY and OPERATIONAL EFFECTIVENESS.
– Not spend money on IT that does’nt– Able to Control IT budgets and investments, improve IT’s bottom-line impack by selecting
the best IT invesments, and eliminating under performing IT activities. projects• Right results:
– controlled IT cost and at the same time improved bottom line impact• Right Decisions:
– lead to the management actions needed to produce the right results– The right decisions lead to:
• Creating better investment alternatives, or creating better ideas for development projects
• Choosing the right investment and projects• Eliminating nonperforming and poor IT resources• Improving performances of the remaining IT resources• Implementing the right investments and performance improvements
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Define the Goals• Our goal is the IT Improvement Zone
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HigherCost
Cost
LowerCost
LowerImpack
Higher ImpackBottom-Line
Impack
TodaysCost andImpack
Impack Increase from New Projects
CostReduction
FromOperational
(light-on)Improvement
Goals
Achievable
Cost and Impack
Today’s reality • IT Cost ( spend )
– Operational Existing IT – LIGHTS ON– Development and Enhancement IT - PROJECTS
• With the right management frameworks and management practices, companies can successfully control the growth of IT costs and the same time improve the business bottom line impact.
• 3 Scenarios :– Lower lights-on and reduced bottom line impack– Higher lights-on cost combined with no improvement in bottom line
impack– Higher lights-on cost and higher bottom-line impack
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Define the Goals• Current Patterns for Many Companies
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HigherCost
Cost
LowerCost
LowerImpack
Higher Impack
Bottom-LineImpack
TodaysSituation
All to Common :Higher CostNo Change of Impack
Higher Growth: Higher CostHigher Impack
IT Improvement
Zone
Typicaly Undesirable :Lower CostLower Impack
The Entire IT Spend:
Reducing Cost and Improving Bottom-Line Impact
Three posible Objectives : 1.A Reduced Cost Objectives2. A Stable Cost Objectives3. A “Sweet Spot” objectives
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Define the Goals• Posible Outcamess for Companies
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HigherCost
Cost
LowerCost
LowerImpack
Higher ImpackBottom-Line
Impack
Today’sSituation
Stable Cost :Same CostHigher Impack
Higher Growth: Higher CostHigher Impack
IT Improvement
Zone
Reduced Cost :Lower CostSame Impack
Sweet Spot :Lower CostHigherImpack
The ‘Strategy-to-Bottom-Line ‘ Value ChainExhibit 1.4.
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Effective Planning Process
Appropriate Resource Decision
Workable Budgets, Projects, and Operational Plan
BusinessStrategies
Performance Measurement Metrics
ITActions
Bottom-Line
Results
Disconnects
• IT Plan does’nt connect to Business Plan :– Business plan do not drive IT plans– IT plans focus on technology rather than directly addressing business
strategies– B.Mgrs do not see IT as supporting strategies– IT projects do not support b. Strategies. Operation and maintenance
does not support strategy– Company budgets do not reflect the results of IT Planning– IT Planns are shelfware that does not guide mgt decisions, projects
or budgets– IT governance practices do not direct IT from a business perspective.
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8 Critical Success Factors for getting Right IT Actions
• Business and IT planning processes are fully connected and integrated• IT-enabled innovations impact business planning and results in new business
strategies and improved ways to implement current business strategies• IT Investments are prioritized against business strategy• The enire IT spend including development, operations, maintenance and services is
aligned with business strategy• IT Business and technical performance is tracked• Business and IT management teams consistently execute the management
processes that improveIT’s constribution to the business’s bottom—line performance
• Planning and management process focus on the entire IT investment, including both Light-on and Projects
• IT and business managers partisipate effectively in these management processes
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The New Information Economics Practices
• 5 Management Practices that flesh out : STRATEGY - To-Bottom-Line Value Chain, are the basis for connecting strategy and results
• Tools for IT and Business Managers to use to translate a compani’s BUSINESS STRATEGIES into PROGRAMS and INITIATIVES that IT can Implement
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NIE PracticesExhibit 1.5.
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Plans : Establish Business Requirements and IT Solutions based on Business Strategy
Resource Decision :Justify and proritize programs and projects based on business strategy
Opreationalizing : Stablish Budgets, Plans, and Metrics based on busniness strategy
Portfolio Management
ITActions
Business Results
IT Impact Management
BusinessStrategies
Culture Management
1. Demand/Supply Planning
2. Innovation
4. Alignment
3. Prioritization
5. Performance Measurement
Supporting Practices
The New Information Economics Practices
• NIE Practice 1: Strategic Demand/Supply Planning• NIE Practice 2: Innovation• NIE Practice 3: Prioritization• NIE Practice 4: Alignment• NIE Practice 5: Performance Measurement
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NIE Practices 1:
Strategic Demand/Supply Planning
• Translates business strategies into direction on what the company intends to do( strategic intention )
• Business and IT managers achieve a concensus on where the company is going and what IT can do to help
• Establishing the business drivers, as the Strategic IT Requirements translated from Management’s straqtegic intention
• Strategic IT Requirements establish Business strategic DEMAND for IT and IT Strategic planning deliver technology solutions as strategic IT SUPPLAY
• The result is a strategic AGENDA for the use of IT, translate into IT Plans and Actions
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NIE Practice 2:
Innovation• Changes the business strategies through IT capabilities • IT usually respons to business needs• Drives business management to uncover the business
opportunities that IT makes posible and provides a way to feed those opportunities into business strateic and tactical planning.
• The result is competitive set of business opportunities
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NIE Practice 3:
Prioritization
• Assesses the business impact of proposed IT initiatives , prioritizes of projects, assigns resources to highest value projects that support strategic intentions, ranking by future impact
• The result, money is spent in the right places, for the right reasons, with business and IT managres agreeing on the decisions.
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NIE Practice 4: Alignment
• Assesses the business impact of existing IT activities.• Business and IT managers decide which existing IT initiatives
should get resources, not all existing IT will be support • The result, is a reasoned approach to spending money for
existing activities, which often results in money made available for new development
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NIE Practise-5 : Performance Measurement
• Measures IT Performance in ways relate to the business– Easy to measures IT performance in operational and tactical terms– Hard to measure IT’s impact on the business
• Allows IT to ditermine what to measure how to manage IT based on those measures and how to communicate its performance
• The result is improved IT performace and imprpved communication with business managements.
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Practice support • IT Impact Management
– Deals with part of management culture and offers a framework and focabulary to state what is important to the company
• Portfolio Management– Makes IT posible to consider the intire IT spend, profiding holistic
framework for making priority and invesment management decisions• Culture Management
– Enables teh company to deal with its existing culture in the company in order to remove barriers to management process cahange
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Strategy to Bottom-line Value Chain
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BusinessStrategic
Intentions
AsessedPortfolio
(Alignment,Service/quality
Technology The IT Enterprise : Four “Light-On” Asset Pools
Performance Measurement Metrics
Strategic IT Plan Annual IT Plan
The Business Enterprise : Lines of Business, Departments
Strategic ITAgenda
Strategic ITPlan
Strategic ITRequirements
ProjectsBudget
Light-OnBudget
ProjectsProjects
Plan(annual)
Effective Planning
Appropriate Resource Decisions
Workable Budgets, Projects, and Organization Plan
Deliverables in the
Strategy-to-Bottom-line Value Chain
Action
IT Plan(Annual)
Business Plan(Annual)
BusinessStrategyBusinessStrategy
ITAction
ITAction
Bottom line
Results
Bottom line
Results
Performance Measurement MetricsPerformance Measurement Metrics
Summary• Controlling spending, means controlling the total IT cost, the aggregate of all total IT
Spending for a company, the goal is to understand what the company spends and than keep that total spend within company budget.
• Right Decisions on IT spending or IT cost are made by selecting the best choises about the detailed expenditur on IT resources focuses on items which gains maximum contribution to bottom-line
• IT should produce greater value and have a greater impact on organizational performance through it’s benefits
• NIE principles and management pratices guiding us to make the best and right decision on which
• Using a Business Value maturity model framework to assess an organization’s readiness for aplying the NIE principles
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