Lecture Business management information system - Lecture 18: Managing operations

Lecture Business management information system - Lecture 18: Managing operations. Introduction, what are operations, why talk about operations? solving operational problems, operational measures, the importance of good management, what’s new in operations.

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Managing Operations Lecture 18

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Managing Operations

n The three major operational issues discussed are:

¨ Outsourcing information systems functions

¨ Information security, and

¨ Planning for business continuity

n Due to mergers, the Internet, e-commerce, and the 9/11 attacks, the subject of computer operations has been receiving a lot of attention

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n Case examples include Microsoft, ANZ Banking

Corporation, Mobil Travel Guide, Eastman Kodak, Honda Motor Company, Exult, Credit Card Fraud, Plymouth

Rock Assurance, and Household International

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Today’s Lecture

n Introduction

n What are Operations

¨ Why Talk About Operations?

¨ Solving Operational Problems

¨ Operational Measures

¨ The Importance of Good Management

¨ What’s New in Operations

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Today’s Lecture

n Outsourcing Information Systems Functions

¨ The Driving Forces Behind Outsourcing

¨ Changing Customer-Vendor Relationships

¨ Outsourcing’s History

¨ Managing Outsourcing

¨ Offshoring

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n Due to mergers, the Internet, e-commerce, and the

September 11 terrorist attacks, the subject of computer operations has been receiving a lot of attention

n Systems operations are important because:

¨ If they are not professionally run:

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n A company could suffer a computer or network crash that could shut down their business for some period of time

n It is not a trivial area, especially as companies become increasingly reliant on networks and computers to run

their business

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Industrial System Operation Management

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n Poorly run IS shops cause IS executives to end up

‘fighting fires’ instead of setting policy

OR

n They find themselves looking for a job!

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n Today – just as likely to mean managing outward =

managing relationships with (external) service providers

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¨ Outsourced IT service providers who have taken over the day-to-day operational work

n In some instances

n Back to the future?

¨ Benefits not realised

¨ Unexpected costs - $ and otherwise

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What Are Operations?

Why Talk About Operations?

n A Typical MIS Department Budget:

¨ 33% Systems and Programming

n 70% Maintenance

n 30% New Development

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Why Talk About Operations?

¨ 10% Administration and Training

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Solving Operational Problems

Operational problems are obvious to the entire company:

• Response times are slow

• Networks are down

• Data isn’t available

• Data is wrong

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Slow Response Time

n Slow Response time may be due to

n A virus infection

n Some conflicting software programs that loads at the startup

n Multiple security programs

n Recently installed software updates or drivers

n Third-party browser plug-ins

n Cluttered files over years

n A lot of items loading at the startup

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Networks are Down

n Networks are down because of

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Data is not available because of

n Database server is slow

n Supporting network not working

n Too many requests for data on the

network.

n Improper design/requirement analysis of database designs.

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Data is wrong

n Not a reliable data storage mechanism.

n Data without proper database formats.

n Confusing data

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Solving Operational Problems cont.

n Three strategies to improve operations:

1. Buy more equipment

2. Continuously fight fires and rearrange priorities,

getting people to solve the problems at hand

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Solving Operational Problems cont.

3. Continually document and measure what you are

doing, to find out the real problems, not just the apparent ones

Then set standards and manage to them = the preferred solution

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What Are Operations? Operational Measures

n External: What the customer sees:

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Operational Measures

n Internal: Of interest to systems people:

¨ Computer usage as % of capacity

¨ Disk storage used

¨ Job queue length etc

n Problems reported by external measures can be explained by deviations in internal measures

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The Importance of Good Management

n The corporate culture created by IS management must recognize and value good operations

n Skills of an Operations manager = similar to that needed

in e.g a factory

¨ Manager must schedule work to

n meet delivery dates,

n monitor performance

n respond quickly to problems

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The Importance of Good Management

n The key to managing operations is the same as in any management job:

¨ Set standards

¨ Then manage to those standards

n By finding an outstanding operations manager

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What’s New in Operations?

n Companies have ‘cleaned their operational house’

¨ Y2K and the Internet forced this

¨ Now = most in relatively good shape

n More Operations managers are Managing outward – BUT CIOs must not relinquish responsibility for

Operations

¨ Ensure their people are properly managing

relationships

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What’s New in Operations?

n Operations are being ‘simplified’

¨ Centralizing applications in one place rather than distribute them on PCs

n Server based computing (Chapter 5)

n Certain operations are being offloaded

¨ e.g webcasts

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MICROSOFT Case Example: Offloading of Operations

(Webcast)

n The launch of a new version of Windows operating

system was done via

¨ Personal and

¨ Public Internet broadcast

¨ Private webcast – 6,000 OEM system builders in 83 countries

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(Webcast)

n Webcast by Akamai – >12,000 servers in 66 countries

¨ Specializes in hosting corporate Websites

¨ Giving users in far-flung locations fast downloads of Web content and streaming media

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The Focus of CIOs in Operations is

Changing

n Their attention used to be focused on ensuring they had the in-house expertise to keep systems and networks up and tuning

n Their attention is now toward determining where best to perform the various kinds of operations:

¨ In house or with a third party (or permutations and/or combinations thereof)

¨ Then manage it accordingly

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OUTSOURCING INFORMATION SYSTEMS

(IS) FUNCTIONS

n Outsourcing means turning over a firm’s

computer operations, network operations, or

other IT function to a vendor for a specified time

n CIOs are expected to at least to ‘prove’ that their in-house operations are as efficient and effective

as if they were outsourced

¨ Shared Services concept

¨ Should outsource what they do not do well

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Outsourcing IS Functions:

Driving Forces Behind Outsourcing

n Focus on core businesses: In the 1980s, this led to huge amount of merger and acquisition activity

n Shareholder value: Companies were “priced” based

on their shareholder value, that is, their discounted cash flow, as a result of high-yield bonds that allowed a few people to buy a company and leverage it with debt

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Driving Forces Behind Outsourcing

¨ Management must stress value, they must consider outsourcing in all their nonstrategic functions

¨ U.S driven – other countries have variations on this pricing (share market) model but the drivers = still $$$

n And ‘follow the leader’ / trend?

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Changing Customer-Vendor Relationships

n Relationships have expanded from buying professional services, to buying products and transactions, to

integrating systems, to outsourcing – the most bundled approach to contracting

n In this evolution:

¨ CIOs have increasingly lost control

n More activities turned over to outsiders

¨ Providers take on more risks

n As they move to (options on) the right of Figure 8-2

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Changing Customer-Vendor Relationships

¨ Provider’s margins increase

n Again = to the right

n Risks also improve: Don’t get “Nothing for

nothing!”, and

¨ Importance of choosing the right provider becomes more important

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Outsourcing’s History

n In 1989 only (full) IT outsourcing was available

¨ Essentially began with ‘big-bang’ deals

¨ The goal was purely financial

¨ Problems occurred – ‘us VS them’ and culture clash

n Note: ‘Outsourcing’ existed in many other areas and had for years e.g trucking

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n Early 1990s: Transitional outsourcing

¨ Two routes outsourcing legacy systems

n Maintenance of their legacy systems – hence – staff concentrate on building new client server systems

n Client server development to specialists & keep maintenance in-house

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n Mid to late ’90s = Best-of-breed outsourcing

¨ Selective outsourcing began

¨ ‘Collaborative outsourcing’ – one company prime contractor and secondary external service providers

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Outsourcing’s History cont.

n Shared services

¨ “in-sourcing” to shared service group-

n Improved efficiencies &

n Saved money

n Business process outsourcing

¨ As IT Outsourcing ‘matured’ it became a commodity service

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n Profit margins dropped

n Competitors rose

n Quality Vs Cost Vs $$$ Vs Pressure – not all was ‘happy’

¨ Higher margins in specialized specific areas

n Business process of which IT was a significant component

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ANZ Case Example: Business Process

Outsourcing

n Australia’s third largest bank has outsourced its

procurement function, not to reduce costs, but to gain greater quality purchases and lower ANZ’s annual

purchasing spend

n The bank has learned numerous lessons in this

world-leading outsourcing deal:

1. Be prepared to change the contract as your

environment changes

2. Make step changes in technology and processes to

save time and money, focus on having an effective

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ANZ Case Example: Business Process

Outsourcing

transition

3 Do your best to make the outsourced group appear

seamless to your employees

4 Focus early on what you want and don’t get

sidetracked

5 Keep incentive mechanism simple and transparent

Be able to benchmark performance, and

6 Understand, to a fair degree of detail, the value

chain you plan to embrace

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n E-business outsourcing

¨ With the arrival of business use of the Internet,

outsourcing has been one way that companies can quickly get Websites up and handling business

¨ In dot-coms and Internet- based operations

n Preferred mode of operation

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¨ Even with the dot-com crash = still a legitimate way to mobilize for e-business

n Allows a company to move fast

n Companies can remain flexible

n Does not tie up $$$ in computer and networking equipment

¨Obsolete?

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n Utility Computing

¨ Also known as on-demand computing, virtual data

centers and grid computing

n Idea = computing power can be treated like electricity: You plug in and only pay for what you use

¨ Numerous vendors, especially IBM, HP and Sun are promoting access rather than ownership

n Selling the idea of turning clients’ fixed IT costs into variable costs

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¨ Important to understand:

n The amount of consulting required

n The chargeback mechanism (for only paying for use)

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n The contract terms

n Where it could provide benefits etc

n In 15 years, IT outsourcing has expanded (and changed) significantly

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MOBIL TRAVEL GUIDE Case Example: Utility Computing

n Illustrates the convergence of e-business and IT

outsourcing into utility computing in a high-need area: its Web site

n Travel guide for North America

¨ Information static and site couldn’t handle the spikes

in demand during e.g holidays

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MOBIL TRAVEL GUIDE Case Example: Utility Computing

n Wanted to upgrade site but rather than making the large investment to upgrade its own IT resources = turned to IBM to host and manage the site

¨ No need for upfront investments

¨ No concern re handling peaks

n Saving 35% in maintenance and software costs

n Only paying for what it uses of IBM’s world-class, highly scalable e-business infrastructure

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Summary