Chapter 13

The Role of Information Systems in Business Reengineering

The role of information systems in business reengineering aims at major gains by lowering costs, raising quality of products, and cutting the time-to-market for new goods and services.

A business process is a set of related tasks performed to provide a defined work output, such as a newly designed product, a customized order delivered to the buyer, or a business plan. This outcome of a business process should deliver a well-defined value to a customer. The customers of many processes are external to the firm, but customers of other processes are internal.

To identify the processes through which a firm delivers value to customers, you may use the value-chain analysis. It is vital in such an analysis not to be hamstrung by the existing departmental divisions within a firm, but too concentrated instead on the content of the process.

Today, information systems are the enabler of virtually all business processes. Beyond that, information systems enable coordination of multiple processes in the enterprise. They also make it possible to coordinate the firm's processes with those of its business partners, such as customers and suppliers.

The scope of IS-Enabled Business Reengineering

Business reengineering cuts time-to-market for new products. Business reengineering can be realized with the deployment of computer-aided design (CAD) and computer-aided engineering (CAE) systems. Beyond that, the functioning of entire business networks consisting of multiple supplier and customer firms can be reengineered by cooperating firms.

Radical process innovation through business reengineering differs from the continual quality improvements of business processes under a program such as TQM, in which information systems also play a major role. Through business reengineering, firms seek to raise productivity by factors of two or more in their key business processes. Quality improvement programs, on the other hand, generally aim for a steady improvement of 5 to 10 percent annually in the performance of business processes.

Business reengineering is an extensive process of planned organizational change, generally led by top corporate executives. Information systems specialists must be partners with business experts on the reengineering team. All organizations must plan and develop a flexible information technology platform from which new information services can be offered to support operations and management.

Whether to support a business reengineering effort or to provide a platform for delivery of their information services in the future, many organizations find it necessary to develop a long-term master IS plan for their information systems architecture - high-level model of the organizations information system. The master IS plan has to be linked to the firm's long-term (strategic) business plan.

Contents of a Master Plan for Information Systems [Figure 13.2]

The IS master plan, a formal document should be drawn up for three to five years. It should assess the current state of organizational information systems and make a projection for the future. A master plan for organizational information systems includes:

1. A statement of objectives

2. Projections of the future information technology environment

3. Projection of the future user environment

4. Projection of the future industry environment

5. Definition and evaluation of strategic IS alternatives in relationship to the organizations strategic plan and selection of the preferred alternatives

6. If appropriate, a plan for outsourcing a well-defined part of the IS function.

7. A general plan for the portfolio of the firm's IS applications

8. Infrastructure plan, outlining the general design of the firm's computer systems, telecommunications, and databases

9. A human resources plan for IS specialists

10. A plan for the organizational structure of the IS function

11. A financial plan

12. An action plan for the implementation of the strategic plan, possibly including the budget for the next year.

To be effective, a long-term IS plan has to be aligned or coordinated with the corporate long-term business plan. The coordination of IS plans with business plans should take place along three dimensions:

1. Content

2. Timing

3. People involved in the planning process

The information systems architecture and the long-term IS requirements of a firm can be established with one of three methodologies.

1. Deriving information systems requirements from long-term organizational objectives and plans

- Long-term IS plans may be derived directly from a strategic business plan by analyzing all goals, strategies, and objectives.

2. Enterprise analysis with business systems planning (BSP) [Figure 13.3]

- BSP can be conducted to establish business processes, the data needed to support them, and the information systems architecture necessary to create the data and to process the data in order to obtain information.

Key components of BSP are:

1. Defining business processes

2. Defining business data

3. Defining information system architecture

3. Critical success factors (CSF) methodology [Figure 13.5]

- CSF can be used to derive organizational information requirements from the key information needs of individual executives. The CSF methodology is oriented toward supporting a companys strategic direction. Generally, only the CSFs of the top executives are considered during the process, which limits the amount of information produced as compared to BSP methodology. The needs for operational information are much more broadly covered by the BSP methodology. CSF are time-dependent and must therefore be reviewed periodically, with informational support adjusted accordingly.

There are four sources of CSFs:

1. The industry that the firm is a part of

2. The enterprise itself

3. The business environment

4. The firm's current situation

13.3 Assessing the Business Value of Information Systems

The following techniques may be used to assess the business value of information system:

1. Cost-benefit analysis

2. Portfolio approach

Cost-Benefit Analysis of Information Systems

Cost-benefit analysis is a technique that is often applied to estimate the expected payoff from an information system. Cost-benefit analysis helps to establish whether the benefits to be received from a proposed information system will outweigh its expected cost. The figures employed in this analysis are estimates and should be carefully seen in that light.

The basic stages of cost-benefit analysis as applied to information systems acquisition are as follows:

1. Identification of the costs of the acquisition and operation of the proposed system

2. Identification of benefits that will be derived from the use of the system

3. Comparison of costs with benefits

Fixed costs - one-time costs of acquiring systems resources, including the costs of systems development or customization. Generally, these expenditures need to be made before the system becomes operational - and thus, before any benefits can be derived from it.

Operating costs - are costs that will be steadily borne after system implementation.

Identification of benefits that will be derived from the use of the system

Benefits fall into two categories:

1. Tangible benefits - that are easy to express in dollars. Tangible benefits include savings and revenue increases.

2. Intangible benefits - that are difficulty to quantity. Intangible benefits, which are often of overriding importance in the case of information systems, by definition cannot be readily expressed in dollars. Examples include timeliness and relevance

3. Comparison of costs with benefits - after the costs, tangible benefits, and those aspects of intangible benefits that can be Adollarized@ are quantified, a cost-benefit evaluation technique is applied. The time frame in which a cost is incurred or a benefit is obtained needs to be kept in mind. Information systems are frequently considered to offer benefits for five years after their implementation, under the assumption that they will be replaced or significantly modified after this period.

The most commonly used cost-benefit analysis technique is the net present value approach. Using this method, the NPV of a system is computed by subtracting the PV of the costs from the PV of the benefits over the lifetime of the system. If a positive value is obtained, the project has merit.

An alternative cost-benefit analysis technique is the break-even method (also known as the payback method) to establish when the use of the system will pay for its acquisition. When this is done, the graphs for annual benefits and costs are charted for the lifetime of the project. The point where they intersect shows when the system becomes profitable. The organization would establish a threshold known as hurdle of, say, two years. If the system can pay back the original investment within this period, the project has merit.

13.4 Avenues of Information Systems Acquisition [Figure 13.7]

There are several avenues for acquiring application software that make up the specialized components of an organization's information systems. Alternative avenues to IS acquisition include:

1. Internal development by IS professionals

2. End-user development

3. Outsourcing

4. Purchase (licensing) and customization of a software package

13.5 Information Systems Development: Life Cycle versus Prototyping

The traditional methodology of developing large information systems relies on a life-cycle organization of the development process - a sequence of development stages that ultimately produce an operational system. More and more frequently, life-cycle development is replaced by rapid system development that relies on prototyping. By developing and redefining the system prototype as a preliminary working version of the system, it is possible to better establish the user requirements.

Developing Large Organizational Systems with Life-Cycle Methodologies [Figure 13.8]

Large organizational systems come into being through a systematic process. The responsibility of the process rests with the IS planners, and ultimately with the top IS management of the firm. In many firms, the IS steering committee plays a significant role in channelling organizational resources toward the strategically vital or highest payoff information system.

Consistent with the long-term objectives of the IS strategic plan, and in response to requests for systems, the applications to be acquired are identified and their relative priorities are established. Many firms set these priorities for shorter terms with tactical and operational planning. Based on this lower-level planning, projects may be initiated in order to develop individual organizational systems.

Systems development life cycle - The idea of a development life cycle is to match the complexity of a large information system to be developed with a development process containing well-defined stages, deliverables, and quality controls. SDLC consists of four stages:

1. Systems analysis - principal objective is to provide a detailed answer to the question Awhat will the system do?@

2. System design - answers the question AHow will the new system be organized?@

3. Programming (coding and testing) - the individual software modules of the system are coded and tested, and then integrated into an operational system as further levels of testing proceed to ensure continuing quality control. System documentation is produced as the project progresses.

4. Installation - includes final testing of the system in the actual environment where it will be deployed and conversion of operations to fit the new system.

Systems maintenance - an implemented system is handed over to the end users and the operations personnel. It will be extensively modified over its useful life. The primary objective of maintenance is to adjust the system to the organization's changing informational requirements, and to the new hardware and software platforms on which the system will run. Another objective is the removal of development errors.

Systems termination - after the useful life of the system comes to an end, the system should be terminated and replaced.

Prototyping and Rapid Applications Development [Figure 13.9]

Systems development life cycle has been frequently faulted for its:

1. Long term development times

2. Voluminous documentation requirements

3. Failing to meet the actual user requirements at the end of the long development road.

Companies seek faster development techniques for systems that lend themselves to less cumbersome approaches than a life-cycle based development. These techniques rely on prototyping the system to be developed.

A prototype - is a preliminary working version of an application (or one of its parts) that is built quickly and inexpensively, with the intention of modifying it. Characteristics of prototypes included:

1. The capabilities of the initial prototype are limited as compared to those intended for the final system

2. Development of a prototype is particularly helpful in the development of the user interface of an information system

3. The prototype is turned over to the users, who work with it and make suggestions and modifications.

4. During the learning process, both users and developers discover the actual user requirements.

The objective of prototyping is to successfully develop more complete prototypes and thus obtain a functional specification of what the intended system is supposed to do and, possibly, evolve the prototype into the system to be delivered to the users.

Rapid applications development is a methodology of evolving a prototype into an operational system. This methodology relies on Joint Application Development (JAD) to bring together users and developers in a series of workshops.

Benefits of prototyping include:

1. Faster development

2. Flexibility in making changes to the system under development

3. Ability to establish the real user requirements owing to an extensive user involvement throughout the development process

4. Prototype makes the future system more real to all involved

5. Easier to determine the organizational changes that will be necessary for successful system implementation, and an early start in these directions can be made

6. Users are trained and learn as they work with the prototype

Problems emerge when prototyping is used for unsuitable purposes or when it is used inappropriately. Typical problem areas include:

1. Inappropriate evolutionary development via prototyping in the case of large organizational systems

- large systems that are to serve major organizational units and perhaps cross a number of organizational boundaries are not good candidates for evolutionary development.

2. Prototyping as a AQuick-and-Dirty@ development

- before SDLC was introduced, systems had been developed largely by programming and testing, with not enough attention paid to analysis and design

3. Behavioural problems

- when the scope and purposes of prototyping are not made clear to the users, behavioural problems may emerge. Developers should be careful to limit the number of prototype versions.

13.6 End-User Development of Information Systems

With appropriate software tools at their disposal and with training, some end users are able to develop their own systems. Applications development by end users has become an increasingly important part of end-user computing.

End-user computing has three dimensions:

1. Sophisticated use of information technology by end users

2. End-user control of systems (that is, authority to acquire and operate information systems resources)

3. End-user development of certain applications.

End-User development - is often highly productive and can place systems into the users' hands more quickly than an IS department can. By developing their own systems, end users can avoid the multi-year backlogs of systems development projects awaiting the attention of IS units in many firms.

Managing Risks of End-User Development

End-user development has limitations and carries certain risks. The following organizational risks should be counteracted by appropriate management controls:

1. Ineffective use of financial resources

2. Inappropriate selection of hardware and software

3. Threats to data integrity, security, and privacy

4. Errors in systems analysis

5. Lack of quality assurance in systems development and operation

6. Proliferation of private systems

7. Undesirable information-related behaviour

Information Centers and Help Desks

A frequent source of support for end-user computing is an information center - an organizational unit that provides training, consulting, and other assistance to end users. Information centers:

1. Assist end users with selecting, installing, and maintaining PC hardware and software

2. Help users with accessing the corporate databases

3. Responsible for local area networking

4. Provide assistance with the use of the resources of the Internet

5. Develop complete applications with end-user facilities

6. Lend consulting assistance to end-user developers

7. Training novice end-users and assisting them with acquiring microcomputers and personal productivity software

8. Assisting sophisticated users with developing, maintaining, controlling, and integrating their information systems

The Amake or buy@ decision increasingly results in organizations buying some of their information systems and services. The more radical form of this trend is outsourcing - contracting a significant part of a firm's IS operations and development to external vendors. Outsourcing may involve contracting out the operation of a firm's data centers, telecommunications networks, or applications development to external vendors. Some firms elect to outsource only some of these assets and services; others outsource all of them. In many outsourcing arrangements, the information systems resources, including personnel, are transferred to the vendor under a contract that typically runs for 10 years.

Benefits of outsourcing include:

1. Enables the firm access to experienced IS specialists working for the vendor

2. Vendor may be able to deliver services of higher quality and at a lower cost than can be done internally by the client firm

3. Enables the firm to invest its resources more productively elsewhere

4. Firm is able to pay only for the IS services it actually uses

Drawbacks of outsourcing include:

1. Loss of control due to a dependency on the outsourcing vendor

2. Lack of expected access to the technological talent

3. Unrealized savings

Purchase of a Package

To select a package that best meets the firm's needs, a firm may use different evaluation criteria and selection methods. A request for proposal (RFPs) are sent to the potential package vendors, following an initial study of user requirements. An RFP outlines the requirements of the organization and asks questions about how the vendor's systems may satisfy them. A thorough investigation of needs, expectations, performance benchmarks, and other aspects of the intended package use has to precede sending out an RFP. A study of independent package evaluations and interviews and visits with the vendor's clients who are currently using the package are the primary means of information gathering.

Scores-and-weights method [Figure 13.10] - is a package selection process that allows individuals to score the attributes of a package and assign their own weights to those attributes, in order to arrive at a comparative figure of merit.

In the process of selecting application packages, the sources of information may be:

1. Demonstrations

2. Reports from companies specializing in software evaluation

3. On-line databases

4. User groups or consultants

The principal advantage of package purchase over internal development is that the purchase is generally far less expensive. Among its disadvantages is loss of flexibility in adapting the software to the evolving needs of the enterprise.

13.8 Implementation of Information Systems [Figure 13.12]

In order to introduce an information system into the organization and prepare people for using it, an implementation process is necessary. Implementation is an ongoing process that should start early during system development and result in the intended use of the new system and its continuing modification to meet new requirements.

Introduction of a major system is a process of organizational change that involves three key agents:

1. Intended users of the system

- principal interests of the users lie in the satisfaction of their job-oriented requirements and the provision of a proper work environment

2. Developers of the system

- need the resources, such as the adequate budget and time, to develop a quality system

3. Corporate management

- primarily interested in the organizational impact of the system

Implementation Success and Failure [Figure 13.13]

The implementation of an information system is considered successful if most of the following results are obtained:

1. High level of system use - most of the expected users do indeed use the system

2. The system is used to its full potential rather than superficially

3. Users are highly satisfied

4. The original objectives of the system are achieved

5. The system is institutionalized

The failure of information systems projects may include the following situations:

1. Owing to political opposition, resources are diverted from a system development project, which is never completed

2. Development costs and time wildly exceed original estimates

3. The intended users ignore the operational system and do their job the old way

4. The system produces disappointing business results

5. The system falls into disuse as soon as its original users are transferred elsewhere

How to Achieve Successful IS Implementation [Figure 13.14]

Factors in successful system implementation include:

1. Organizational fit

- planning processes need to ensure that the information system's objectives are in line with organizational objectives.

2. Management support

- corporate management has to make appropriate resources available to the project, including qualified personnel, funds, computer resources, and sufficient time for system development

3. The process of change management

- the introduction of a new system is an organizational change. Most people resist change, which brings uncertainty, and perhaps threatens their positions and roles.

4. Sufficient interaction between users and developers

- the involvement of intended users in system development is important to ensure that the system will appropriately solve the user's problem and that it will be successfully implemented with the users' full commitment.

5. Motivated and trained users

- users should have a clear picture of how the new system will help them do their jobs. User training is an important factor in allying user fears of the unknown caused by the new system.

6. Proper management of a system development project

- project management tools should be used to control a project. The more ambitious the scope of a project and the newer the technologies to the organization, the more likely the project will fail. To lower the project risk, a complex undertaking should be broken down into stages to be implemented step by step.

7. System quality

- a Aworking@ system often falls into disuse because of its low quality. Some quality problems are: poor usability, poor data quality, poor quality of information provided, operating cost overruns, and operational problems.