e-book Measuring Information Technology Investment Payoff: Contemporary Approaches

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Broadbent , C. Does information technology lead to smaller firms Erik Brynjolfsson , Thomas W. Malone , Vijay Gurbaxani , Ajit Kambil. Information Technology And The Corporation of the s. Gotlieb , Michael Denny. Strategic information technology management: Perspectives on organizational growth and competitive advantage Rajiv D. Banker , Robert J. Kauffman , Mo Adam Mahmood. The Technology Payoff. Organizations may want to develop their own lists of capabilities that are specific to the types of processes they employ.

The point is twofold: IT is so powerful a tool that it deserves its own step in process redesign, and IT can actually create new process design options, rather than simply support them.

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For most firms, the final step is to design the process. This is usually done by the same team that performed the previous steps, getting input from constituencies and using brainstorming workshops. A key point is that the actual design is not the end of the process. Rather, it should be viewed as a prototype, with successive iterations expected and managed. Key factors and tactics to consider in process design and prototype creation include using IT as a design tool, understanding generic design criteria, and creating organizational prototypes.

Designing a business process is largely a matter of diligence and creativity. Emerging IT technologies, however, are beginning to facilitate the "process" of process design. Some computer-aided systems engineering CASE products are designed primarily to draw process models. The ability to draw models rapidly and make changes suggested by process owners speeds redesign and facilitates owner buy-in. Some CASE products can actually generate computer code for the information systems application that will support a modeled business process.

Several Xerox divisions, for example, are moving directly from process modeling to automated generation of computer code for high-priority processes. They report improved productivity and high user satisfaction with the resulting systems.

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A further benefit is that when the business process changes, the IS organization can rapidly modify the affected system. Use of code generation products generally presumes that process designers will use the exhaustive approach to process identification. Companies used various criteria for evaluating alternative designs.

Most important, of course, is the likelihood that a design will satisfy the chosen design objectives. Others mentioned in interviews included the simplicity of the design, the lack of buffers or intermediaries, the degree of control by a single individual or department or an effective, decentralized coordinative mechanism , the balance of process resources, and the generalization of process tasks so that they can be performed by more than one person. Mutual Benefit Life's MBL redesign of its individual life insurance underwriting process illustrates a final, important point about process design.

At MBL, underwriting a life insurance policy involved 40 steps with over people in 12 functional areas and 80 separate jobs. To streamline this lengthy and complex process, MBL undertook a pilot project with the goal of improving productivity by 40 percent. To integrate the process, MBL created a new role, the case manager. This role was designed to perform and coordinate all underwriting tasks centrally, utilizing a workstation-based computer system capable of pulling data from all over the company.

After a brief start-up period, the firm learned that two additional roles were necessary on some underwriting cases: specialists such as lawyers or medical directors in knowledge-intensive fields, and clerical assistance. With the new role and redesigned process, senior managers at MBL are confident of reaching the 40 percent goal in a few months. This example illustrates the value of creating organizational prototypes in IT-driven process redesign. Creating prototypes of IT applications has already gained widespread acceptance.

Advocates argue that building a prototype of an IT change usually achieves results faster than conventional "life cycle" development, and, more important, that the result is much more likely to satisfy the customer. Building prototypes of business process changes and organizational redesign initiatives can yield similar benefits. As the process approached final acceptance, it would be phased into full implementation.

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The five steps described above are sufficiently general to apply to most organizations and processes. Yet the specifics of redesign vary considerably according to the type of process under examination. Different types require different levels of management attention and ownership, need different forms of IT support, and have different business consequences. In this section, we present three different dimensions within which processes vary. Understanding and classifying the different types of processes is important because an organization can appear to be a seamless web of interconnected processes.

With various process types in mind, a manager can begin to isolate particular processes for analysis and redesign, including activities that, without process thinking, might otherwise be overlooked. Three major dimensions can be used to define processes see Figure 3. These are the organizational entities or subunits involved in the process, the type of objects manipulated, and the type of activities taking place.

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We describe each dimension and resulting process type below. Processes take place between types of organizational entities. Each type has different implications for IT benefits. Interorganizational processes are those taking place between two or more business organizations. Increasingly, companies are concerned with coordinating activities that extend into the next or previous company along the value-added chain. When Dillard's department store inventory of a particular pants style falls below a specified level, Haggar apparel manufacturer is notified electronically.

If Haggar does not have the cloth to manufacture the pants, Burlington Industries textile manufacturer is notified electronically. As this example of electronic data interchange EDI illustrates, information technology is the major vehicle by which this interorganizational linkage is executed.

For most companies, simple market relationships are the most common source of interorganizational processes. All the tasks involved in a selling-buying transaction form a critical process for sellers, and an increasingly important one for buyers seeking higher quality, cost efficiency, and responsiveness. Yet much of the focus has been on a simple transaction level, rather than on an interorganizational business process level. Again, how EDI is used illustrates this point. Buyers and sellers have used EDI largely to speed up routine purchasing transactions, such as invoices or bills of materials.

Few companies have attempted to redesign the broader procurement process—from the awareness that a product is needed, to the development of approved vendor lists, or even to the delivery and use of the purchased product. In the future, sellers will need to look at all buyer processes in which their products are involved. Moreover, many firms will need to help the buyer improve those processes. Du Pont's concept of 'effectiveness in use" as the major criterion of customer satisfaction is one leading approach to measuring the effectiveness of interorganizational processes.

Du Pont is motivated not simply to sell a product, but to link its internal processes for creating value in a product, to its customer's processes for using the product.

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Westinghouse used an interorganizational process approach in dealing with Portland General Electric PGE , a major customer of power generation equipment. PGE managers called upon Westinghouse's Productivity and Quality Center, a national leader in process improvement, to help them implement EDI, but the Westinghouse team asked if it could analyze the entire process by which PGE procured equipment from Westinghouse and other suppliers.

They found that, while implementing EDI could yield efficiencies on the order of 10 percent, changing the overall procurement process, including using EDI and bypassing the purchasing department altogether for most routine purchase orders, could lead to much greater savings. A second major type of business process is interfunctional. These processes exist within the organization, but cross several functional or divisional boundaries. Interfunctional processes achieve major operational objectives, such as new product realization, asset management, or production scheduling.

Most management processes—for example, planning, budgeting, and human resource management—are interfunctional. Many manufacturing companies that focused on quality improvement found that producing quality products and services required addressing difficult interfunctional issues. Yet most firms have never even listed their key interfunctional processes, let alone analyzed or redesigned them, with or without the aid of IT. Two companies that recently analyzed their key interfunctional business processes are Baxter Healthcare Corporation and US Sprint Communications Company Baxter's merger with American Hospital Supply provided the context for a major analysis of key business strategies, and the alignment of the IT infrastructure with those strategies.

For example, in the distribution area, the company identified order entry, inventory, warehouse management, purchasing, transportation, and equipment tracking as key processes. The success of this IT planning effort led Baxter to incorporate the process definition approach into its annual corporate planning process.

At US Sprint, well-publicized problems with the customer billing system prompted the company's IT function to develop a model of information flows for the entire business as part of a comprehensive systems improvement program. This model defined the critical information and key interfunctional processes necessary to run the business. Sprint is now assigning ownership to key processes and continuing to identify improvements—and ways to measure them —in each process.

The systems improvement program raised the IT organization's composite internal quality index by more than 50 percent in one year. A major problem in redesigning interfunctional processes is that most information systems of the past were built to automate specific functional areas or parts of functions. Few third-party application software packages have been developed to support a full business process. Very few organizations have modeled existing interfunctional processes or redesigned them, and companies will run into substantial problems in building interfunctional systems without such models.

Interpersonal processes involve tasks within and across small work groups, typically within a function or department. Examples include a commercial loan group approving a loan, or an airline flight crew preparing for takeoff. This type of process is becoming more important as companies shift to self-managing teams as the lowest unit of organization. Information technology is increasingly capable of supporting interpersonal processes; hardware and communications companies have developed new networking-oriented products, and software companies have begun to flesh out the concept of "groupware" e.

Several companies, including GM's Electronic Data Systems EDS , are exploring tools to facilitate the effectiveness of meetings and small group interactions. At EDS, the primary focus is on enhancing the interpersonal processes involved in automobile product development. The company's Center for Machine Intelligence has developed a computer-supported meeting room, and is studying its implications for group decision making and cooperative work.

We should point out that IT can make it possible for employees scattered around the world to work as a team. As an example, Ford now creates new car designs using teams that have members in Europe, Central America, and the United States. Because Ford has standardized computer-aided design systems and created common data structures for the design process, engineers can share complex three-dimensional designs across the Atlantic. Similarly, a small team at Digital Equipment used the company's electronic mail and conferencing capabilities to build the core of a new systems integration business.

The team was scattered around the United States and Europe and only rarely met in person. Processes can also be categorized by the types of objects manipulated. The two primary object types are physical and informational. In physical object processes, real, tangible things are either created or manipulated; manufacturing is the obvious example. Informational object processes create or manipulate information. Processes for making a decision, preparing a marketing plan, or designing a new product are examples.

Many processes involve the combination of physical and informational objects. Indeed, adding information to a physical object as it moves through a process is a common way of adding value. Most logistical activities, for example, combine the movement of physical objects with the manipulation of information concerning their whereabouts. Success in the logistics industry is often dependent on the close integration of physical and informational outcomes; both UPS and Federal Express, for example, track package movement closely.

The potential for using IT to improve physical processes is well known. It allows greater flexibility and variety of outcomes, more precise control of the process itself, reductions in throughput time, and elimination of human labor. These benefits have been pursued for the past three decades. Still, manufacturing process flows are often the result of historical circumstance and should usually be redesigned before further automation is applied.

This is particularly true in low volume, job shop manufacturing environments.


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Strangely, the proportion of informational processes already transformed by IT is probably lower than that of physical processes. True, legions of clerks have become unemployed because of computers. But the majority of information processes to which IT has been applied are those involving high volume and low complexity.

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Now that these processes are well known even if not fully conquered, the emphasis needs to shift to processes that incorporate semistructured and unstructured tasks and are performed by high-skill knowledge workers. Relevant IT capabilities include the storage and retrieval of unstructured and multimedia information, the capturing and routinizing of decision logic, and the application of far-flung and complex data resources. A computer vendor's advertising videotape, for example, illustrates how artificial intelligence and "hypertext," or mixed-media databases, combine to lead a manager through the process of developing a departmental budget.

The IT capabilities in the video are available today, but they are rarely applied to such information-intensive yet unstructured processes. Our examples of business processes have involved two types of activities: operational and managerial. Operational processes involve the day-to-day carrying out of the organization's basic business purpose. Managerial processes help to control, plan, or provide resources for operational processes.

Past uses of IT to improve processes, limited as they are, have been largely operational. We will therefore focus almost entirely on managerial processes in this section. Applying IT to management tasks is not a new idea. The potential of decision support systems, executive support systems, and other managerial tools has been discussed for over twenty years.

We believe, however, that the benefits have not been realized because of the absence of systematic process thinking. Few companies have rigorously analyzed managerial activities as processes subject to redesign. Even the notion of managerial activities involving defined outcomes a central aspect of our definition of business processes is somewhat foreign.

How would such managerial processes as deciding on an acquisition or developing the agenda for the quarterly board meeting be improved if they were treated as processes—in other words, measured, brainstormed, and redesigned with IT capabilities? The generic capabilities of IT for reshaping management processes include improving analytic accuracy, enabling broader management participation across wider geographical boundaries, generating feedback on actions taken the managerial version of "informating" a process , and streamlining the time and resources a specific process consumes.

Texas Instruments and Xerox's corporate headquarters provide excellent examples. Texas Instruments has developed an expert system to facilitate the capital budgeting process. Managers in a fast-growing and capital-intensive TI division were concerned that the time and experience necessary to prepare capital budget request packages would become an obstacle to the divisions growth.

The packages were very complex and time consuming, and few employees had the requisite knowledge to complete them accurately. The expert system was developed by two industrial engineers with expertise in both the technology and the budget process. TI's system has radically improved the capital budget request process. Requests prepared with the system require far less time than the manual approach and conform better to the company's guidelines. One experienced employee reported a reduction in package preparation time from nine hours to forty minutes; of the first fifty packages prepared with the system, only three did not conform to guidelines, compared to an average of ten using a manual approach.

At Xerox Corporation headquarters, IT has been used to improve the review of division strategic plans. Prior to the development of the company's Executive Information System EIS , the planning process was somewhat haphazard; each division prepared its planning documents in a different format and furnished different types of information to corporate headquarters. Plans often came in too late for the corporate management committee to review them before the quarterly or annual review meeting.

The EIS was developed to include standard information formats and a user friendly graphical interface enabling fast comprehension. Divisional plans are now developed on the EIS and delivered instantaneously over Xerox's network to all corporate management committee members.

These members can now read and discuss the plans beforehand and can move directly to decisions at the review meetings. The workstations are even used in the meetings themselves, allowing revisions to be made and agreed upon before adjournment. As one manager put it, ". The persons interviewed were high-level executives working in the IT department in the studied companies. It was observed, in the analyzed cases, that ITPM is used most frequently in IT investment planning, which is the process most discussed and used in analyzed companies. The ITPM technique has received little attention in IT research and research in this area identifying the use and applicability of ITPM in companies is still very limited in the information systems literature.

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The paper presents IT investment management in different Brazilian companies and how ITPM was used to help companies in this process compose by planning, control and evaluation. Cunha Dolci, P. Grant, G.