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PART V 12. Using IT for Strategic Advantage

Implementing and Managing 13. Information Technology Economics
IT 14. Acquiring IT Applications and Infrastructure
15. Managing Information Resources and Security
16. The Impacts of IT on Organizations, Individuals,
and Society
CHAPTER
Acquiring IT Applications
14 and Infrastructure
14.1 The Landscape and Framework of LEARNING OBJECTIVES

IT Application Acquisition After studying this chapter, you will be able to:
14.2 Identifying, Justifying, and Planning Describe the process of IT acquisition or
Information System Applications development.
14.3 Acquiring IT Applications: Available Describe IT project identification, justification,
Options and planning.
14.4 Outsourcing and Application List the major IT acquisition options and the
Service Providers criteria for option selection.
Describe the use of criteria for selecting an
14.5 Vendor and Software Selection and
acquisition approach.
Other Implementation Issues
Describe the role of ASPs.
14.6 Connecting to Databases and
Business Partners: Integration (Step 4) Describe the process of vendor and software
selection.
14.7 Business Process Redesign
Understand some major implementation issues.
14.8 The Role of IT in Business Process Understand the issue of connecting IT
Redesign applications to databases, other applications,
14.9 Restructuring Processes and networks, and business partners.
Organizations Describe the need for business process redesign
Minicases: and the methodologies for doing it.
1. Pioneer Inc.
Explain the IT support for process redesign and
2. McDonald’s BPR, and describe redesign efforts, successes,
and failures.
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HOW STERNGOLD ACQUIRED AN

E-COMMERCE SYSTEM
Sterngold (sterngold.com), a century-old manufacturer of dental materials, is a

subsidiary of London-based Cookson Group PLC. Sterngold is based in Attleboro,
Massachusetts; it has only 90 employees but has offices in Europe and South
America.
➥ THE PROBLEM
The company sells more than 4,000 products either directly to 350,000–400,000
dental professionals or through distributors to another 5 million dental profes-
sionals. Orders come in small quantities, very frequently from repeat customers,
with a frequent demand for same-day shipment. Sterngold realized that moving
its sales online might create easy ordering for its customers, reduce its own trans-
action costs, and enable customers to get its products faster—all of which could
provide a competitive advantage. The company had a Web site, but without sell-
ing capabilities. Sterngold decided that it had two choices to solve this problem:
(1) to develop an e-commerce application in-house, or (2) to find an outsourcer
to provide the application.
➥ THE SOLUTION
The company wanted a technology solution that allowed it fast time to market,
access to best-of-breed technology and people, high security, superb reliability,
and the ability to focus on core competency. Having only one IT person, the
company knew that the in-house solution required hiring additional personnel,
creating a temporary large IT department. Therefore, Sterngold decided to use
an application outsourcing.
The question then became how to select a trusted business partner who
understood the need to move quickly, but carefully. After long deliberation and
interviews with potential outsourcers, the company selected Surebridge Inc. to
develop and then host the e-commerce application. The selection was “blessed”
by the parent company, Cookson Group.
➥ THE PROCESS
Surebridge followed its own proprietary eMethodology approach. First, a ven-
dor’s implementation team was created. The team started by evaluating
Sterngold’s business needs, using interviews to gather the information. Then
goals and a timetable were created. A major consideration was to finish the proj-
ect before the industry’s annual trade show, so that Sterngold would be able to
demonstrate to its customers how easy is to order products in the online store.
The next step was to create an architecture. This step included a front-end or-
dering system (phase I) and its integration with the back-office systems (phase II).
This was not an easy task, given that there were over 4,000 products whose in-
formation attributes resided in disparate areas of the company. The relevant
information was channeled into a large database. A major task was the creation of
a search engine that would be useful to diverse groups of customers (e.g., dentists,
dental labs). Each group of customers had different knowledge, requirements, and
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596 CHAPTER 14 ACQUIRING IT APPLICATIONS AND INFRASTRUCTURE
buying habits. Working hand-in-hand, Sterngold and Surebridge completed phase

I in less than three months.
To execute phase II there were many challenges to meet. First, expertise was
needed on how financial, inventory, and order fulfillment could best be inte-
grated with the ordering system. This required the services of a consultant and
resulted in redesign of some business processes. For example, several internal
policies were modified to support the Web initiative. For example, a complex
pricing policy was simplified by creating clear rules about discounting.
➥ THE RESULTS
The new system offers a number of major capabilities: Because the ordering sys-
tem was integrated with the back office, the system reduces errors due to man-
ual data entry. Real-time inventory status is given to customers before they place
an order, and a tracking feature provides real-time status of orders. Discounts are
related to specific customers, so they know what they will pay as soon as they
log in. Real-time authorization of customers’ credit cards is provided when orders
are placed. In addition, the company now can offer promotions to its customers
without the need to send letters. The site also offers the ability to track customer
clickstream movements, allowing the company to personalize products and to of-
fer cross-sell and up-sell products and services. Also, the site includes capabilities
for conducting e-mail marketing campaigns using permission marketing.
By 2004, two years after implementation, Sterngold has recorded the fol-
lowing results:
● By offering free shipping, Sterngold has encouraged more and more cus-
tomers to order online, thus increasing the customer base (at the expense of
the competitors).
● More product promotion (which has been easy to do online) has resulted in
more customers and sales.
● Both the company and the customers have experienced increasing efficien-
cies and savings on administrative costs.
● Much fax and snail mail has been eliminated.
● The online presence has resulted in greater exposure to business partners.
● A strong relationship with the technology partners has been created. (Since
Sterngold owns the IT infrastructure and Surebridge just operates it, finger
pointing in case of problems is minimized.)
Use of an outside vendor enabled Phase I to be finished in less than three
months, rather than two to three years if it had been done in-house. This en-
abled Sterngold to be the first mover in its industry. The Web site is now being
translated into several languages for the global market.
Sources: Compiled from Craig (2003) and from sterngold.com (accessed July 2004).
➥ LESSONS LEARNED FROM THIS CASE

First the case demonstrates how an IT application starts. Then it describes how
a company selects an alternative for building an IT application. In this case, an
outsourcer was selected to build a custom-made application. Then, a team is
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14.1 THE LANDSCAPE AND FRAMEWORK OF IT APPLICATION ACQUISITION 597
created to implement the application. The implementation requires a study of

existing processes and redesign of some. Critical to the project is the need to
integrate the ordering system with the back office (order fulfillment, inventory,
accounting, payment). Finally, we learn that being first mover can be advanta-
geous. All these issues and a few related ones are the subject of this chapter.
14.1 THE LANDSCAPE AND FRAMEWORK OF IT APPLICATION ACQUISITION

Our attention in this chapter is focused on information systems acquisition. We
include in “acquisition” all approaches to obtaining systems: buying, leasing, or
building. The acquisition issue is complex for various reasons: There is a
large variety of IT applications, they keep changing over time, and they may
involve several business partners. In addition, there is no single way to acquire
IT applications: They can be developed in-house, outsourced (obtained or
leased from an external organization), or a combination of the two. Another
strategy that is becoming very popular is to build applications from compo-
nents. When components are used, the appropriate ones must be found, and
even a single application may have many components from several different
vendors.
The diversity of IT applications requires a variety of development
approaches. For example, small EC storefronts can be developed with HTML,
Java, or other programming languages. Or they can be quickly implemented
with commercial packages, leased from application service providers (ASP) for
a small monthly fee, or purchased “on demand” as water or electricity are pur-
chased. Larger applications can be outsourced, or developed in-house. Building
medium-to-large applications requires extensive integration with existing infor-
mation systems such as corporate databases, intranets, enterprise resource plan-
ning (ERP), and other application programs. Therefore, developing IT projects
can be rather complex (Xia and Lee, 2004).
The Acquisition The acquisition process of a typical IT application has five major steps, which
Process are shown in Figure 14.1 (page 598). The steps in the acquisition process are
outlined and discussed below.
STEP 1: IDENTIFYING, JUSTIFYING, AND PLANNING INFORMATION SYSTEMS.

Information systems are usually built as enablers of some business process(es).
Therefore, their planning must be aligned with that of the organization’s over-
all business plan and the specific processes involved. Such processes may need
to be restructured to fully reap the benefits of the supporting IT (see Section
14.8). Furthermore, each application must be carefully analyzed, using the
methods described in Chapter 13, to ensure that it will have the needed func-
tionality to meet the requirements of the business processes and the users, and
that its benefits justify its cost. Both of these activities may be complex, but they
are necessary especially for systems that require high investment to acquire,
operate, and maintain. The output of this step is a decision to go with the
specific application, with a timetable, budget, and assigned responsibility. This
step is described in Technology Guide 6 and in Section 14.2. For further details,
see Kendall and Kendall (2005). This step is usually done in-house (with con-
sultants if needed). All other steps can be done in-house or outsourced.
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Project Identification, Justification, and Planning (Step 1)

IT an enabler Identify IT projects
From business goals to information needs Justify IT investment
System-required functionalities
Need to solve problems
IT Architecture (Step 2)
Business
process Information architecture Technical architecture
restructuring, Data architecture Organization architecture IT
redesign Application architecture Feasibility Infrastructure
Development (Acquisition) Options (Step 3) Management
Build How, which methodology Vendor management

Project management
Buy What, from whom Evaluation
Business Lease What, from whom
Partners
Partner Which partner, how to partner
Join an exchange, Business
Which one (ones) Partners
marketplace
Testing, Installation, and Integration (Step 4)

Business Testing, installation, integration, training, security,
Partners conversation, deployment, etc.
Operations, Maintenance and Updating (Step 5)

Operations
Maintenance and updating
Replacement
FIGURE 14.1 The process of application acquisition.
STEP 2: IT ARCHITECTURE CREATION—A SYSTEMS ANALYSIS APPROACH. The

major objective of this step is to create the IT architecture. IT architecture, as
described in Chapters 2 and 12, is the conceptualization of how the organiza-
tion’s information objectives are met by the capabilities of the specific applica-
tions. A detailed description of this step is provided in Technology Guide 6 (see
Section TG6.1).
The results obtained from Step 2 are routed to the strategic planning level
(e.g., to a steering committee). As a result, the application portfolio may be
changed. For example, the steering committee may defer or scale down the spe-
cific project because it is too risky. Once the architecture is compiled and the
project gets a final approval, a decision about how to develop the specific appli-
cation has to be made.
STEP 3: SELECT A DEVELOPMENT OPTION AND ACQUIRE THE APPLICATION.

IT applications can be developed through several alternative approaches that
will be introduced in this chapter and in Technology Guide 6. The major
options are:
● Build the system in-house. (This can be done in several ways.)
● Have a vendor build a custom-made system for you.
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14.1 THE LANDSCAPE AND FRAMEWORK OF IT APPLICATION ACQUISITION 599
● Buy an application and install it (with or without modifications) by yourself

or by a vendor.
● Lease software from an application service provider (ASP) or lease via utility
computing.
● Enter into a partnership or alliance that will enable the company to use
someone else’s application.
● Join a third-party e-marketplace, such as an auction site, a bidding (reverse
auction) site, or an exchange, that provides needed capabilities to participants
(e.g., you may use Yahoo Store).
● Use a combination of these listed approaches.
For further details, see Sections 14.3 and 14.4.
The consideration criteria for selecting among the various options are pre-
sented in Section 14.4. Once an option is decided on, the system is acquired.
At the end of this step, an application is ready to be installed and deployed. See
Technology Guide 6 for procedures.
No matter what option you choose, you most likely will have to select some
vendor(s) and/or software, and then you will need to work with and manage
the vendors (Section 14.5).
STEP 4: INSTALLING, CONNECTING, AND MORE. IT applications need to be

connected to the corporate intranet and/or extranets, to databases, and to other
applications. Connection to business partners or public exchanges may also be
required. Details of the connection process are provided in Section 14.6 under
the topic of integration.
During this step the applications are also tested, and user reactions are
examined. Once the applications pass all of the tests, they can be deployed. In
the deployment process one may deal with issues such as conversion strategies,
training, and resistance to change (see Whitten et al., 2003).
STEP 5: OPERATION AND MAINTENANCE. Operation and maintenance can be

done in-house and/or outsourced (Kendall and Kendall, 2005). Software main-
tenance can be a big problem due to rapid changes in the IT technology field.
MANAGING THE DEVELOPMENT PROCESS. The development process can be

fairly complex, and it must be managed properly. For medium-to-large applica-
tions a project team is usually created to manage the process and the vendors.
Collaboration with business partners is also critical. As shown in various chap-
ters, some IT failures are the result of lack of cooperation by business partners.
For example, you can install a superb e-procurement system, but if your vendors
will not use it properly, the system will collapse. Projects can be managed with
project management software (e.g., office.microsoft.com/project, and primavera.com).
Appropriate management also includes periodic evaluations of system perfor-
mance. Standard project management techniques and tools are useful for this
task.
Finally, implementing an IT project may require restructuring of one or
more business processes. This topic is addressed in Sections 14.7 and 14.8. For
further discussion see Kanter and Walsh (2004).
Let’s now look at some of the steps (1, 3, and 4) in more detail.
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14.2 IDENTIFYING, JUSTIFYING, AND PLANNING INFORMATION SYSTEM

APPLICATIONS (STEP 1)
In Chapter 12 we described the process of IT planning from a macro point of
view, meaning looking at the entire IT resources in the organization. When we
look at a specific application or a specific infrastructure, we need to go through
an application-by-application planning process as well. Note that the need to
acquire an application can be the result of the macro planning, usually due to its
inclusion in the proposed new applications in the application portfolio (Chapter 12).
However, applications can be initiated for other reasons, such as to solve a recur-
rent problem, as illustrated in the Swedish bank case described in IT at Work 14.1.
IT at Work 14.1 FIN

WEB SERVICES GET SWEDISH BANKING
APPLICATIONS TALKING TO EACH OTHER
entrala Studie Stodsnamnden (CSN) is the Swedish
C government’s banking authority responsible for pro-
viding student loans and grants to Swedes who are pursu-
cross-platform, program-to-program communication was
through Web Services built on IBM WebSphere. This archi-
tecture allows CSN’s disparate applications to exchange in-
ing higher education. Each year, CSN loans out SEK$2.5 formation with each other without human intervention.
billion to a half-million people and delivers a host of finan- The team implemented a system that also eliminated the or-
cial services to thousands more. In January 2002, at the ganization’s reliance on an outsourced application service
start of the new school semester, when online traffic to the provider for its voice-response system. The system leverages
organization is typically four to five times greater than in Web Services to enable the Windows NT–based voice-
other months, CSN’s Web site went down. Students were response system to execute transactions that are easily rec-
forced to phone CSN representatives directly to receive ognized by CSN’s back-end (back-office) operations.
help with new loan and grant applications and payback in- The new Web Services–enabled system allows CSN to
formation. The voice-response system, that was designed deliver student account status and transaction information
to meet a much lower demand, had proved inadequate. to phones (voice response) and to CSN’s portal at a signifi-
A group of technicians led by the production team cantly reduced cost. “Web Services are essential for us
worked hard to stabilize the Web site and ease the burden today and in the future,” says Carlsson. According to Carls-
caused by overuse of the voice-response system. “We son, Web Services enable a loosely coupled architecture,
found the load problem and tried to tame it by adding resulting in a highly integrated solution.
servers, but the solution was like patchwork—and in the Reuse of code also gives CSN an advantage. One interface
following weeks we could see the same pattern with insta- can serve several business systems using different channels,
bility occur,” says Orjan Carlsson, Chief Architect of CSN’s making it easy to modify existing channels or add new ones,
information technology department. Consistently poor a feature that significantly reduces total cost of ownership.
Web site performance coupled with long waits on the tele- CSN dramatically saves on developer costs as well as gets
phone was enough to cause a public outcry. new functionality to market faster and with more frequency.
Given CSN’s heterogeneous enterprise environment— The result is a flexible and scalable Web services–enabled ar-
which comprised everything from IBM mainframes to chitecture that is essentially transparent to end users, giving
UNIX-based applications, to systems running Microsoft CSN the cross-platform communication system it needs to
Windows NT—a solution that could support cross-platform operate efficiently, serve its customers, and lower costs.
communication was a necessity. Only a flexible, scalable,
Source: Compiled from http://www-3.ibm.com/software/success/
open-standards–based integration architecture could sup- cssdb.nsf/CS/LEOD-5KKTRX?OpenDocument&Site=admain (accessed
ply the level of interoperability the organization desired, es- November 25, 2003).
pecially for the high volume during the start of a semester.
A locally based IBM team worked closely with CSN to in- For Further Exploration: How did this application
vestigate solution possibilities. Together, the technical teams arise? What does the solution provide? What role does the
decided that the best way for the organization to realize business partner play?
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14.2 IDENTIFYING, JUSTIFYING, AND PLANNING INFORMATION SYSTEM APPLICATIONS (STEP 1) 601
Other sources of IT project applications can be any of the following: requests

an
from user departments (see the R.O.I. Iowa case in Chapter 13); vendors’ rec-
rb
ommendations; need to comply with new government regulations; auditors’
llege/tu
recommendations; recommendation of the steering committee; recommendation
of the IS department; top management requests (orders); or search for high-
co
w
ile
y. c o m /
payoff projects. For more discussion see Carroll (2004).
Identifying High- It is natural that organizations will prefer to search for high-payoff applications,
Payoff Projects especially if they are not difficult to implement. Some organizations use a sys-
tematic approach for such a search, as described in Online File W14.1.
Project Justification Once potential projects are identified, they usually need to be justified. To do
so one can use some of the methods described in Chapter 13. Since organiza-
tions have limited resources, they cannot embark on all projects at once. There-
fore, all proposed projects must be scrutinized. This may not be an easy task
due to the complexity of IT projects (see Xia and Lee, 2004).
Information system applications may be expensive. Therefore, an organiza-
tion must analyze the need for applications and justify it in terms of cost and
benefits. Because most organizations operate with tight budgets, this analysis
must be carefully done. The investigation is usually divided into two parts. First,
it is necessary to explore the need for each system (i.e., find the information
needs of the users and how the application will meet those needs). Second, it
is necessary to justify it from a cost-benefit point of view. The need for
information systems is usually related to organizational planning and to the
analysis of its performance vis-à-vis its competitors (see Chapter 12). The cost-
benefit justification must look at the wisdom of the specific IT investment vis-
à-vis investing in alternative IT or other projects.
Both of these topics are complex, involving many issues. For example, orga-
nizational and IT planning may involve business processes redesign (e.g., see
Sections 14.7 and 14.8, and El Sawy, 2001). Both issues are also related to mar-
keting and corporate strategy. For example, Ward and Peppard (2002) developed
a framework for deciding on what specific IT applications to choose, based on
their strategic versus high potential values. Such investigation is the subject of
special IS courses and will not be dealt with here. However, what is important
to stress is that such an investigation determines the relative importance of each
IT application.
Once justification is done, a plan for the application acquisition can be
made.
Planning for the Before a project is implemented, or even before a company decides how to
Specific Application acquire the software, it is necessary to understand the organization’s current
way of doing business (the business process) in the area the application is going
to be used. For example, if you plan to install an e-procurement application, it
makes sense to study the ins and outs of procurement in your business. This
can be done in a systematic way as part of system analysis, as described in Tech-
nology Guide 6.
The planning process includes documenting system requirements, studying
data and information flows, and studying the users’ community and their spe-
cific objectives. Also included is the risk of failure and how to manage that risk.
This then leads to the creation of a timetable (schedule) and milestones (which
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are needed in order to determine how to acquire the application). For exam-
ple, if you need the system very quickly, you will favor buying or leasing one.
an
The planning process covers resources other than time—specifically, money
rb
(budget), labor, and equipment (if needed). Project planning also examines the
llege/tu
issue of connectivity to databases and to partners’ systems, relevant government

regulations, what to do if some employees lose their jobs as a result of the imple-
co
w
ile
y. c o m /
mentation of the application, and so on. Online File W14.2 describes more about
milestones and about project properties and priorities.
Issues such as connecting to business partners and databases are the foun-
dations for the step 2, the creation of the IT architecture. This step is discussed
in detail in Technology Guide 6.
14.3 ACQUIRING IT APPLICATIONS: AVAILABLE OPTIONS (STEP 3)

There are several options for acquiring IT applications. The major options are:
buy, lease, and develop in-house. Each of these is described in this section, with
some other minor options.
Buy the Standard features required by IT applications can be found in many commer-
Applications (Off- cial packages. Buying an existing package can be a cost-effective and time-saving
the-Shelf Approach) strategy compared with in-house application development. The “buy” option
should be carefully considered and planned for to ensure that all critical fea-
tures for current and future needs are included in the selected package. Other-
wise such packages may quickly become obsolete.
However, organizational needs are rarely fully satisfied by one software
package. It is therefore sometimes necessary to acquire multiple packages to
support even one business process. These packages then need to be integrated
with each other as well as with existing software (See Section 14.5).
The buy option is especially attractive if the software vendor allows for mod-
ifications. However, even this option may not be attractive in cases of high obso-
lescence rates or high software cost. The advantages and limitations of the buy
option are summarized in Table 14.1.
TABLE 14.1 Advantages and Limitations of the “Buy” Option

Advantages of the “Buy” Option Disadvantages of the “Buy” option
● Many different types of off-the-shelf software are ● Software may not exactly meet the company’s
available. needs.
● Much time can be saved by buying rather than ● Software may be difficult or impossible to modify,
building. or it may require huge business process changes to
● The company can know what it is getting before it implement.
invests in the software. ● The company will not have control over software
● The company is not the first and only user. improvements and new versions. (Usually it may
● Purchased software may avoid the need to hire per- only recommend.)
sonnel specifically dedicated to a project. ● Purchased software can be difficult to integrate with
● The vendor updates the software frequently. existing systems.
● Vendors may drop a product or go out of business.
● The price is usually much lower for a buy option.
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14.3 ACQUIRING IT APPLICATIONS: AVAILABLE OPTIONS (STEP 3) 603
Lease the Compared with the buy option and the option to develop applications in-house
Applications (to be discussed soon), the “lease” option can result in substantial cost and time
savings. Leased packages may not always exactly fit the application require-
ments (the same is true with the buy option). But many common features that
are needed by most organizations are usually included in leased packages. (It
usually is more comprehensive than a “buy” package.)
In those cases where extensive software maintenance is required or where
the cost of buying is very high, leasing is more advantageous than buying. Leas-
ing can be especially attractive to SMEs that cannot afford major investments
in IT software. Large companies may also prefer to lease packages in order to
test potential IT solutions before committing to heavy investments. Also, because
there is a shortage of IT personnel with appropriate skills for developing novel
IT applications (such as EC or wireless), many companies choose to lease instead
of develop software in-house. Even those companies that have in-house expert-
ise may not be able to afford the long wait for strategic applications to be devel-
oped in-house. Therefore, they lease (or buy) applications from external
resources to establish a quicker presence in the market.
TYPES OF LEASING VENDORS. Leasing can be done in one of two ways. The first
way is to lease the application from an outsourcer and install it on the company’s
premises. The vendor can help with the installation and frequently will offer to
also contract for the operation and maintenance of the system. Many conventional
applications are leased this way. The second way, using an application system
provider (ASP), is becoming more popular. ASPs are explored in Section 14.4.
UTILITY COMPUTING. Tapping into computing resources with a simplicity equal

to plugging an electrical lamp into an outlet has been a goal of many compa-
nies for years. The approach is known as utility computing (or on-demand com-
puting). See Chapter 2 and A Closer Look 14.1. The idea is to provide unlimited
computing power and storage capacity that can be used and reallocated for any
application—and billed on a pay-per-use basis.
Utility computing consists of a pool of “self-managing” IT resources that can
be continually reallocated to meet the organization’s changing business and
service needs. These resources can be located anywhere and managed by an
organization’s IT staff or a third-party service provider. Equally important, usage
of these resources can be tracked and billed down to the level of an individual
user or group.
As shown in Figure 14.2, utility computing consists of three layers of tools
and two types of value-added services. Each tool must be seamlessly integrated
to create a comprehensive solution, but will usually be implemented separately.
These three tools are:
1. Policy-based service-level-management tools. These coordinate, monitor, and
report on the ways in which multiple infrastructure components come to-
gether to deliver a business service.
2. Policy-based resource-management tools. These automate and standardize all
types of IT management best practices, from initial configuration to ongoing
fault management and asset tracking.
3. Virtualization tools. These allow server, storage, and network resources to be
deployed and managed as giant pools, and seamlessly changed as needs change.
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A CLOSER LOOK SVC

14.1 UTILITY COMPUTING: “THE NEXT BIG THING”
magine this scene. It’s noon on Friday and you just duking it out over how best to meet utility computing
I found out that your relatives are coming to spend the
weekend. It’s time to contact the electric company to let
requirements and command a leadership position.
them know that you will need extra electricity for the IMPLEMENTATION. Already present in a variety of capac-
weekend. You’re told you have to fill out a purchase ity-based pricing models, utility computing is poised to
order and it will be five to seven days before you can get expand throughout the enterprise as various key tech-
extra electricity. Of course, life is not like this, because nologies—such as Web services, grid computing, and pro-
basic utilities have extra capacity built into their delivery visioning—intersect. Growth of utility computing in the
systems. But this would be a likely scenario if you were enterprise will deliver to the industry not only equal
to find out at noon on Friday that you were expecting a access to supercomputing resources, but also new revenue
major spike in usage on your servers. You’d have to call streams for commercial data centers, new application pric-
your provider, do a bunch of paperwork, and maybe in ing models based on metered use, and an open comput-
a few days you could get the extra capacity you need. ing infrastructure for companies with little or no standing
That’s the kind of problem that utility computing aims IT maintenance budget. Utility computing is on track to
to solve. be the “next big thing” for IT vendors and services com-
panies that sell to large enterprises.
THE TECHNOLOGY. Utility computing vendors are looking
CONCLUSION. Utility computing (also called “on-demand
toward a future in which computing capacity is as easy
computing”) has become one of the hot topics in the IT
to acquire as electricity. Rather than having a fixed
community and, increasingly, in larger enterprises that are
amount of computing resources, you would have access
looking for ways to reduce the fixed costs and complex-
to computing resources on an as-needed basis—just like
ity of IT. Utility computing tools provide total flexibility
with electricity. Many IT market leaders are now starting
in information systems development, from in-house and
to catch on to the concept of utility computing as a bul-
self-managed to fully outsourced, with everything in
let-proof utility service that we can virtually take for
between—including a hybrid deployment model in which
granted. IBM announced it is spending $10 billion on its
in-house capacity can be supplemented by third-party
on-demand computing initiatives. HP also announced its
resources to handle peak needs.
Utility Data Center architecture, and Sun has its own N1
data virtualization center plans. Sun, HP, and IBM are Sources: Compiled from Zimmerman (2003) and from Neel (2002).
These tools share multisourcing delivery and framework services (left side of
figure) and provide for customer access and management services (right side of
figure).
Utility computing still faces daunting obstacles. One obstacle is the immaturity
of the tools. Another is the fact that each vendor prefers to tout its own unique
Policy-Based Service-Level-Management Tools

Business and eventually,
and Financing Services
Multisourcing Delivery
Management Services
Customer Access and
ROI- based, management
Policy-Based Resource-Management Tools

Fault, performance,
operations management, etc.
Virtualized Infrastructure Tools

Virtualized server, storage and
FIGURE 14.2 Utility com- networks, and dynamic provisioning
puting. (Source: Here, 2003.)
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variation on the utility-computing vision, with different (often confusing) names

and terminology. However, utility computing will accelerate acceptance of ASPs,
which may distribute it. For more, see utilitycomputing.itworld.com.
Develop the A third development strategy is to develop (“build”) applications in-house.

Applications In- Although this approach is usually more time-consuming and may be more
House (Insourcing) costly than buying or leasing, it often leads to a better fit with the specific orga-
nizational requirements. Companies that have the resources and time to
develop their own IT applications in-house may follow this approach as a strat-
egy to differentiate themselves from the competition, which may be using stan-
dard applications that are bought or leased. In-house development, however,
is a challenging task, as many applications are novel, have users from outside
the organization, and involve multiple organizations. Before selecting a devel-
opment approach, a company needs to complete IT design (see Briggs, 2004).
IN-HOUSE DEVELOPMENT APPROACHES. There are two major approaches to

in-house development: building from scratch or building from components.
1. Build from scratch. This option should be considered only for specialized ap-
plications for which components are not available. It is an expensive and
slow process, but it will provide the best fit.
2. Build from components. Companies with experienced IT staff can use stan-
dard components (e.g., a secure Web server), some software languages (e.g.,
Java, Visual Basic, or Perl), and third-party subroutines to create and main-
tain applications on their own. (Or, companies can outsource the entire de-
velopment process to an integrator that assembles the components.) From a
software standpoint, using components offers the greatest flexibility and can
be the least expensive option in the long run. However, it can also result in
a number of false starts and wasted experimentations. For this reason, even
those companies with experienced staff are frequently better off modifying
and customizing one of the packaged solutions as part of the “buy” option.
For details about using components see Technology Guide 6 and
Ravichandran (2003).
In building in-house one can use various methodologies, described below.
Systems Development Life Cycle (SDLC). Large IT projects, especially ones
that involve infrastructure, are developed according to a systematic set of pro-
cedures known as the systems development life cycle (SDLC) using several tools,
notably CASE tools. Details about this approach are provided in Technology
Guide 6.2.
Prototyping Methodology. With A prototyping methodology, an initial list of
basic system requirements is defined and used to build a prototype, which is
then improved in several iterations based on users’ feedback. This approach can
be very rapid.
Many companies have used this approach to develop their IT and especially
their EC applications mainly for three reasons: (1) Clear-cut information
requirements, which are necessary for SDLC, are not available. For example,
requirements are clear in building a payroll system, but they are not so clear in
building a complex scheduling decision support system. (2) Time is important,
and they want to be the first to market. (3) It is usually beneficial to involve
the users (employees, suppliers, and customers) in the design of the applications.
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By quickly building a prototype instead of a full-fledged application, a company

can, for example, establish an online presence more quickly than its competi-
tors. The initial prototype is then tested and improved, tested again and devel-
oped further, based on the users’ feedback.
The prototyping approach, however, is not without drawbacks. There is a
risk of getting into an endless loop of prototype revisions, as users may never
be fully satisfied. Such a risk should be planned for because of the rapid changes
in IT technology and business models. Another drawback is the risk of idiosyn-
cratic design; the prototype may be revised based on the feedback of only a
small group of users who are not necessarily representative of the entire user
population. Such a risk can be alleviated by embedding a systematic feedback
mechanism in the application itself, such as click trails and online feedback
forms to elicit input from as many users as possible.
In-house development can be done by IS department personnel, by out-
sourcers, or by end users (usually small systems).
End-User In the early days of computing, an organization housed its computer in a climate-
Development controlled room (computer center), with locked doors and restricted access. The
only people who interacted with the computer (most organizations had only one
computer) were specialists: programmers, computer operators, and data entry per-
sonnel. Over the years, computers became cheaper, smaller, and more widely dis-
persed throughout the organization. Now almost everybody who works at a desk
or in the field has a computer in addition to, or instead of, the computer center.
Along with this proliferation of hardware, many computer-related activities
shifted out into the work area. Users now handle most of their own data entry.
They create many of their own reports and print them locally, instead of wait-
an
ing for them to arrive in the interoffice mail after a computer operator has run
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them at a remote computer data center. They provide unofficial training and sup-
llege/tu
port to other workers in their area. Users also design and develop an increasing
proportion of their own applications, sometimes even relatively large and com-
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plex systems. End-user computing is ever-increasing (see Online File W14.3).
Beneficial as this trend is to both workers and the organization as a whole,
an
end-user computing has some limitations. End users may not be skilled enough
rb
in computers, so quality and cost may be jeopardized unless proper controls are
llege/tu
installed. Also, many end users do not take time to document their work and may
neglect proper security measures. For complete coverage, see Regan and O’Connor
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(2002). For the different types of end-user computing, see Online File W14.4.
END-USER COMPUTING AND WEB-BASED SYSTEMS DEVELOPMENT. The devel-

opment of client/server applications in the 1980s and 1990s was characterized
by user-driven systems development. Either directly or indirectly, end users
made decisions for systems designers and developers on how the programs
should operate. Web-based systems development in the twenty-first century,
however, is application driven rather than user driven. The end user can still
determine what the requirements will be and has some input into the design of
the applications. But because of the nature of the technologies used in Web-
based application design, the required functions, not the user, determines what
the application will look like and how it will perform.
An innovative way of managing end-user computing is described in IT at Work
14.2. In this case, an outside vendor helped to manage the end-user computing.
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IT at Work 14.2
ANSETT AUSTRALIA AND IBM COLLABORATE POM
IN END-USER COMPUTING
A nsett Australia, one of Australia’s leading airlines, had

chosen IBM Global Services Australia to manage its
end-user computing support functions. Ansett (ansett.
manage EUC supply and demand; and deliver a more con-
sistent and better quality support service to end users.
“The study highlighted the fact that Ansett had in effect
com.au), based in Melbourne, operates an extensive range ’outgrown’ the level of end-user service provided at that
of domestic airline services and also flies to Japan, Hong time, and that a quantum leap in service was required to
Kong, Taiwan, Bali, and Fiji. ensure a full return on our end-user computing invest-
Ansett Australia’s General Manager for IT Infrastructure ment,” Pringle said.
and Operations, Hal Pringle, said that IBM Global Services “Improving delivery of services to end users and enhanc-
Australia’s appointment significantly improved desktop ing end-user productivity are becoming key focus areas for
services to the airline’s end users while at the same time many Australian corporations. I am very pleased that we
delivering substantial cost savings. Such service was previ- have been chosen to deliver these additional services to
ously delivered by a mixture of external contractors and Ansett,” said Mr. Bligh, General Manager of IBM Global Ser-
in-house staff. vices Australia, Travel and Transportation Services.
Mr. Pringle said the decision to hire an external provider
of end-user computing (EUC) support arose from a bench- Sources: Compiled from Sachdeva (2000) and ansett.com.au
marking study conducted earlier by Ansett. The study (accessed December 2003).
showed that a move to a single external provider of the
caliber of IBM would do the following: achieve a more For Further Exploration: What strategic advantages
consistent end-to-end delivery of applications; assist the can Ansett Australia gain by ensuring consistent and reli-
implementation of best-practice EUC support at the best able support to its end-user computing? Why does a large
cost; deliver substantial cost savings; allow Ansett to better company like Ansett use a vendor to manage EUC?
Other Acquisition A number of other acquisition options are available to IT developers, and in
Options particular for e-commerce applications.
JOIN AN E-MARKETPLACE OR AN E-EXCHANGE. With this option, the com-

pany “plugs” itself into an e-marketplace. For example, a company can place its
catalogs in Yahoo’s marketplace. Visitors to Yahoo’s store will find the company’s
products and will be able to buy them. The company pays Yahoo a monthly fee
for the catalog space (Yahoo is “hosting” the company’s selling portal.)
JOIN A THIRD-PARTY AUCTION OR REVERSE AUCTION. Similar to the previous

option, a company can plug into a third-party auction or reverse auction site
fairly quickly. Many companies use this option for certain e-procurement activ-
ities or to liquidate products. Alternatively, a company can join a B2B exchange
that offers auctions, as described in Chapter 4.
ENGAGE IN JOINT VENTURES. There are several different partnership or joint

venture arrangements that may facilitate EC application development. For
example, four banks in Hong Kong have developed a joint e-banking system.
In some cases, companies can team up with a company that already has the
needed application in place.
JOIN A PUBLIC EXCHANGE OR A CONSORTIUM. Finally, a company can join a

public exchange (Chapter 4), for selling and/or buying, by simply plugging into
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the public exchange. Another option is for a company to join a consortium (a

vertical exchange owned by a group of big players in an industry), which may
have applications developed to fit the needs of companies in the industry.
HYBRID APPROACH. A hybrid approach combines the best of what the com-
pany does internally with an outsourced strategy. Hybrid models work best
when the outsourced partner offers higher security levels, faster time-to-market,
and superb service level agreements.
Criteria for selecting a development strategy are provided in Section 14.4.

However, before proceeding to that topic, let’s look further at the recent trend
of outsourcing and ASPs.
14.4 OUTSOURCING AND APPLICATION SERVICE PROVIDERS

Outsourcing Small or medium-sized companies with few IT staff and smaller budgets are best
served by outside contractors. Outside contractors have also proven to be a good
selection for large companies in certain circumstances. Use of outside contrac-
tors or external organizations to acquire IT services is called outsourcing (Chapter
13). Large companies may choose outsourcing when they want to experiment
an
with new IT technologies without a great deal of up-front investment, to pro-
rb tect their own internal networks, or to rely on experts. Outsourcers can perform
llege/tu
any or all tasks in IT development. For example, they can plan, program, build
applications, integrate, operate, and maintain. The benefits and limitations of
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outsourcing are presented in Online File W14.5. It is useful to develop good
relationships with the outsourcers (see Kishore et al., 2003).
Several types of vendors offer services for creating and operating IT system
including e-commerce applications:
● Software houses. Many software companies, from IBM to Oracle, among
others, offer a range of outsourcing services for developing, operating, and
maintaining IT applications.
● Outsourcers and others. IT outsourcers, such as EDS, offer a variety of serv-
ices. Also, the large CPA companies and management consultants (e.g.,
Accenture) offer some outsourcing services.
● Telecommunications companies. Increasingly, the large telecommunications
companies are expanding their hosting services to include the full range of
IT and EC solutions. MCI, for example, offers Web Commerce services for a
monthly fee.
While the trend to outsource is rising, so is the trend to do it offshore, mainly
in India and China. Offshore outsourcing is certainly less expensive, but it
includes risks as well (see cio.com, “The 10 most important issues in 2003,” and
Overby, 2003).
One of the most common types of IT outsourcing is the use of application
service providers.
Application Service An application service provider (ASP) is an agent or vendor who assembles
Providers the software needed by enterprises and packages them usually with outsourced
development, operations, maintenance, and other services (see Kern and Krei-
jger, 2001). The essential difference between an ASP and an outsourcer is that
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14.4 OUTSOURCING AND APPLICATION SERVICE PROVIDERS 609
an ASP will manage application servers in a centrally controlled location, rather

than on a customer’s site. Applications are then accessed via the Internet or
VANs through a standard Web browser interface. Such an arrangement provides
a full range of services for the company using the ASP: Applications can be
scaled, upgrades and maintenance can be centralized, physical security over the
applications and servers can be guaranteed, and the necessary critical mass of
human resources can be efficiently utilized.
Monthly fees are paid by the end-user businesses to the ASP. In general,
the fees include payment for the application software, hardware, service and
support, maintenance, and upgrades. The fee can be fixed or be based on uti-
lization. According to Scott McNealy, Sun Microsystems’ CEO, by 2005, “if
you’re a CIO with a head for business, you won’t buy software or computers
anymore. You’ll rent all your resources from a service provider” (staff interview,
CIO magazine, November 2000).
ASPs are especially active in enterprise computing and EC applications, which
may be too complex to build and too cumbersome to modify and maintain. There-
fore, the major providers of ERP software, such as SAP and Oracle, are offering
ASP options. IBM, Microsoft, and Computer Associates also offer ASP services.
BENEFITS OF LEASING FROM ASPS. Leasing from an ASP is a particularly

desirable option for SME businesses, for which in-house development and oper-
ation of IT applications can be time-consuming and expensive. Leasing from
ASPs saves various expenses (such as labor costs) in the initial development
stage. It also helps reduce the software maintenance and upgrading and user
training costs in the long run. A company can select other software products
from the same ASP to meet its changing needs and does not have to invest fur-
an
ther in upgrading the existing one. Thus, overall business competitiveness can
rb
be strengthened through reducing the time-to-market and enhancing the abil-
llege/tu
ity to adapt to changing market conditions. ASPs are particularly effective for
IT applications for which timing and flexibility and agility are crucial. For a list
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of benefits and risks, see Online File W14.6.
Leasing from ASPs does have its disadvantages. Many companies are con-
cerned with the adequacy of protection offered by the ASP against hackers, theft
of confidential information, and virus attacks. Also, leased software often does not
provide the perfect fit for the desired application. It is also important to ensure
that the speed of the Internet connection is compatible with that of the applica-
tion, to avoid distortions in its performance. For example, it is not advisable to run
heavy-duty applications on a modem link below a T1 line or a high-speed DSL.
From the ASP vendor’s point of view, the benefits presented by the ASP
model are many. For one, in the long-distance carrier and Internet service
providers (ISP) markets, revenues are squeezed due to heavy competition. These
companies are looking to generate revenues from sources other than connec-
tivity and transport, and ASP services offer a new outlet. An interesting insti-
tution is the ASP Industry Consortium, whose founding members include AT&T,
Cisco, Citrix Systems, Ernst & Young, Verizon, IBM, Marimba, Sharp Electronic,
Sun Microsystems, UUNET, and Verio.
Criteria for Selecting A major issue faced by any company is which method(s) of acquisition to select.
an Acquisition To do so the company must consider many criteria, such as those provided in
Approach Table 14.2. Some criteria may conflict with others, so the company must decide
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TABLE 14.2 Criteria for Determining Which Application Development

Approach to Use
● The functionalities of packages ● Personnel needed for development
● Information requirements ● Forecasting and planning for
● User friendliness of the application technological evolution (what
● Hardware and software resources will come next)
● Installation difficulties; integration ● Scaling (ease, cost, limits)
● Maintenance services requirements ● Sizing requirements
● Vendor quality and track record ● Performance requirements
● Estimated total costs of ownership ● Reliability requirements
● Ability to measure tangible benefits ● Security requirements
TABLE 14.3 Advantages and Disadvantages of Various Systems Acquisition Methods

Advantages Disadvantages
External Acquisition (Buy or Lease)

● Software can be tried out. ● Controlled by another company with its own
● Software has been used for similar problems in priorities and business considerations.
other organizations. ● Package’s limitations may prevent desired business
● Reduces time spent for analysis, design, and processes.
programming. ● May be difficult to get needed enhancements.
● Has good documentation that will be maintained. ● Lack of intimate knowledge in the purchasing
company about how the software works and why it
works that way.
End-User Development
● Bypasses the IS department and avoids delays. ● May eventually require maintenance assistance from
● User controls the application and can change it as IT department.
needed. ● Documentation may be inadequate.
● Directly meets user requirements. ● Poor quality control.
● Increased user acceptance of new system. ● System may not have adequate interfaces to existing
● Frees up IT resources. systems.
● May create lower-quality systems.
Traditional Systems Development (SDLC)
● Forces staff to systematically go through every step ● May produce excessive documentation.
in a structured process. ● Users may be unwilling or unable to study the
● Enforces quality by maintaining standards. specifications they approve.
● Has lower probability of missing important issues ● Takes too long to go from the original ideas to a
in collecting user requirements. working system.
● Users have trouble describing requirements for a
proposed system.
Prototyping
● Helps clarify user requirements. ● May encourage inadequate problem analysis.
● Helps verify the feasibility of the design. ● Not practical with large number of users.
● Promotes genuine user participation. ● User may not give up the prototype when the
● Promotes close working relationship between system is completed.
systems developers and users. ● May generate confusion about whether the system
● Works well for ill-defined problems. is complete and maintainable.
● May produce part of the final system. ● System may be built quickly, which may result in
lower quality.
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14.5 VENDOR AND SOFTWARE SELECTION AND OTHER IMPLEMENTATION ISSUES 611
rb
an which criteria are most important to its needs. For a discussion of the criteria
llege/tu
in the table, see Online File W14.7.
In addition to the
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ADDITIONAL CRITERIA FOR SELECTING AN ASP VENDOR.
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general criteria cited in Table 14.2, see Online File W14.7.
Using all the previous criteria, one can select one or more methods for acquir-
ing systems. Comparison of the various methods is given in Table 14.3. (For
description of additional systems development methods, see Technology Guide 6.)
14.5 VENDOR AND SOFTWARE SELECTION AND

OTHER IMPLEMENTATION ISSUES
Vendor and Few organizations, especially SMEs, have the time, financial resources, or tech-
Software Selection nical expertise required to develop today’s complex IT or e-business systems.
This means that many applications are built with hardware, software, hosting
services, and development expertise provided by outside vendors. Thus, a major
aspect of developing an IT application revolves around the selection and man-
agement of these vendors and their software offerings. Martin et al. (2000) iden-
tified six steps in selecting a software vendor and an application package.
STEP 1: IDENTIFY POTENTIAL VENDORS. Potential software application vendors

can be identified from software catalogs, lists provided by hardware vendors,
technical and trade journals, consultants experienced in the application area,
peers in other companies, and Web searches.
These sources often yield so many vendors and packages that one must use
some preliminary evaluation criteria to eliminate all but a few of the most prom-
ising ones from further consideration. For example, one can eliminate vendors
that are too small or that have no track record or have a questionable reputation.
Also, packages may be eliminated if they do not have the required features or
will not work with available hardware, operating system, communications net-
work, or database management software.
STEP 2: DETERMINE THE EVALUATION CRITERIA. The most difficult and cru-
cial task in evaluating a vendor and a software package is to determine a set
of detailed criteria for choosing the best vendor and package. Some areas in
which detailed criteria should be developed are: characteristics of the vendor,
functional requirements of the system, technical requirements the software
must satisfy, amount and quality of documentation provided, and vendor sup-
port of the package.
These criteria should be set out in a request for proposal (RFP), a doc-
ument that is sent to potential vendors inviting them to submit a proposal
describing their software package and how it would meet the company’s needs.
The RFP provides the vendors with information about the objectives and
requirements of the system: It describes the environment in which the system
will be used, the general criteria that will be used to evaluate the proposals, and
the conditions for submitting proposals. The RFP may also request a list of cur-
rent users of the package who may be contacted, describe in detail the form of
response that is desired, and require that the package be demonstrated at the
company’s facilities using specified inputs and data files.
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STEP 3: EVALUATE VENDORS AND PACKAGES. The multivendor responses to

an RFP generate massive volumes of information that must be evaluated. The
goal of this evaluation is to determine the gaps between the company’s needs
(as specified by the requirements) and the capabilities of the vendors and
their application packages. Often, the vendors and packages are given an
overall score by assigning an importance weight to each of the criteria, rank-
ing the vendors on each of the weighted criteria (say 1 to 10), and then
multiplying the ranks by the associated weights. A short list of potential sup-
pliers can be chosen from those vendors and packages with the highest over-
all scores.
STEP 4: CHOOSE THE VENDOR AND PACKAGE. Once a short list has been pre-
pared, negotiations can begin with vendors to determine how their packages
might be modified to remove any discrepancies with the company’s IT needs.
Thus, one of the most important factors in the decision is the additional devel-
opment effort that may be required to tailor the system to the company’s needs
or to integrate it into the company’s computing environment. Additionally, the
an
opinions of the users who will work with the system and the IT personnel who
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will have to support the system have to be considered.
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Selecting software depends on the nature of the application. Thus, several

selection methods exist. For a list of general criteria, see Table 14.4. Details of
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some of the criteria are provided in Online File W14.8. For an example of select-
ing enterprise systems, see Sarkis and Sundarraj (2003).
Several third-party organizations evaluate software and make their find-
ings public. For example, see eWeekLabs at eweek.com. Many other IT trade
journals provide periodic software evaluation. Also, professional associations
and interest groups provide evaluations and rankings, as do organizations such
as Software Testing Institute (sti.com), metagroup.com, technologyevaluation.com,
and knowledgestorm.com.
TABLE 14.4 Criteria for Selecting a Software Application Package

● Usability and reusability
● Cost and financial terms (cost/benefit ratio)
● Upgrade policy and cost
● Vendor’s reputation and availability for help
● Vendor’s success stories (visit their Web site, contact clients)
● System flexibility and scalability
● Managability, such as ease of Internet interface, and user acceptance
● Availability and quality of documentation
● Necessary hardware and networking resources
● Required training (check if provided by vendor)
● Security
● Required maintenance cost
● Learning (speed of) for developers and users
● Performance
● Interoperability and data handling
● Ease of integration
● Minimal negative cross-impact (on other applications)
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14.5 VENDOR AND SOFTWARE SELECTION AND OTHER IMPLEMENTATION ISSUES 613
STEP 5: NEGOTIATE A CONTRACT. The contract with the software vendor is

very important. It specifies both the price of the software and the type and
amount of support to be provided by the vendor. The contract will be the only
recourse if the system or the vendor does not perform as expected. Further-
more, if the vendor is modifying the software to tailor it to the company’s needs,
the contract must include detailed specifications (essentially the requirements)
of the modifications. Also, the contract should describe in detail the acceptance
tests the software package must pass.
Contracts are legal documents, and they can be quite tricky. Experienced
contract negotiators and legal assistance may be needed. Many organizations
have software-purchasing specialists who assist in negotiations and write or
approve the contract. They should be involved in the selection process from the
start. If an RFP is used, these purchasing specialists may be very helpful in deter-
mining its form and in providing boilerplate sections of the RFP.
STEP 6: ESTABLISH A SERVICE LEVEL AGREEMENT. Service level agreements

(SLAs) are formal agreements regarding the division of work between a com-
pany and its vendors. Such division is based on a set of agreed-upon milestones,
quality checks, and “what-if” situations; they describe how checks will be made
and what is to be done in case of disputes. If the vendor is to meet its objec-
tives of installing IT applications, it must develop and deliver support services
to meet these objectives. An effective approach to managing vendors must
achieve both facilitation and coordination. SLAs do this by (1) defining the part-
ners’ responsibilities, (2) providing a framework for designing support services,
and (3) allowing the company to retain as much control as possible over their
own systems. Such SLAs are similar to what companies use internally, between
the ISD and end users (see Chapter 15).
Other The following implementation issues are related to IT resource acquisition.

Implementation
● In-house or outsource Web site? Many large enterprises are capable of run-
Issues
ning their own publicly accessible Web sites for advertising purposes.
However, Web sites for online selling may involve complex integration,
security, and performance issues. For those companies venturing into such
Web-based selling, a key issue is whether the site should be built in-house,
thus providing more direct control, or outsourced to a more experienced
provider. Outsourcing services, which allow companies to start small and
evolve to full-featured functions, are available through many ISPs, telecom-
munication companies, Internet malls, and software vendors.
● Consider an ASP. The use of ASPs is recommended for SMEs and should be
considered by many large companies as well. However, care must be used in
selecting a vendor due to the newness of the concept.
● Do a detailed IT architecture study. Some companies rush this process, and
this can be a big mistake. If the high-level conceptual planning is wrong, the
entire project is at great risk.
● Security and ethics. During the application development process, pay close
attention to security. It is likely that vendors and business partners will be
involved. Protecting customers’ privacy is a must, and the issue of what and
how to use clickstream and other data is essential.
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● Evaluate the alternatives to in-house systems development. In-house systems

development requires highly skilled employees to undertake a complex
process. Organizations may sometimes find it preferable to acquire IT
resources rather than build in-house. Methods for acquiring IT resources
outside the information systems department include purchase, lease, out-
sourcing, use of ASPs, and end-user development.
14.6 CONNECTING TO DATABASES AND BUSINESS PARTNERS:

INTEGRATION (STEP 4)
EC applications must be connected to internal information systems, infrastruc-
ture (including databases), ERP, and so on (see Coffee, 2004). They also must
be connected to such items as the partners’ systems or to public exchanges.
Such connections are referred to as integration and are the subject of this section.
(See also Chapters 6 and 7 and Rogers, 2003 and Brobst, 2002 for related
discussion.)
Connecting to Many IT applications need to be connected to a database. For example, when

Databases you receive a customer’s order, you want to immediately find out if the item is
in stock. To do so, you need to connect your ordering system to your inven-
tory system. Several possibilities exist regarding such a connection. The con-
nection technology enables customers with a Web browser to access catalogs in
the seller’s database, request specific data, and receive an instant response. Here
the application server manages the client’s requests. The application server also
acts as the front-end to complex databases.
Connecting to Connecting to business partners is critical to the success of IT, especially for B2B
Business Partners e-commerce. As described in Chapter 8, such connection is done via EDI,
EDI/Internet, XML, and extranets.
Connection to business partners is done usually along the supply chain. It
typically involves connecting a company’s front- and back-office e-commerce
applications, as shown in Figure 14.3.
In addition to the networking problem, one must deal with issues of con-
nectivity, compatibility, security, scalability, and more.
Business Business
My Company
Partners Partners
Supplies Manufacturing Sales, Distribution,

and Marketing Customers
Assembly Customer Service Channels
Suppliers
e-Commerce
Production, HRM,
Finance, Accounting,
Engineering
CRM
Back Integration Front
FIGURE 14.3 Connecting Office Office
to databases.
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14.7 BUSINESS PROCESS REDESIGN 615
IT at Work 14.3
LINCOLN FINANCIAL EXCELS BY USING FIN
WEB SERVICES
incoln Financial is a $5 billion provider of life insur-
L ance, retirement products, and wealth management
services. It distributes its offering through financial advi-
The ultimate answer was Service Broker. It took three
developers four months to build the pilot of Service Broker,
which is a Web Services–based application with a front end
sors, banks, and independent brokers. In most of the insur- that the company calls a servlet. When the servlet is in-
ance industry, if consumers want to access their accounts stalled on a partner’s server, it provides a wrapper that can
or download a form from a broker site, they click on a link accept Lincoln’s content and applications and still maintain
that takes them to the insurance provider’s site, where they the partner’s look and feel.
input a separate password or user ID. To become a “partner The servlet manages in a Web Services application many
of choice” on such sites, Lincoln Financial wanted tighter of the functions the partner would have to manage, such as
integration with brokers’ Web sites. But Lincoln also authentication, digital signature, passwords, and page ren-
wanted to go a step further, providing content and account dering. When the partner wants to include Lincoln content
access within its partners’ Web sites, as well as single sign- or an application, it needs to add just one line of code.
on for consumers. In Spring 2004, Lincoln was the only insurer that did
This was not simple. Outlining the Lincoln content in an not require customers to leave a partner’s Web site to ac-
HTML frame would not provide the partner’s look and feel. cess information. This capability provided Lincoln with
A pure Web Services approach was also out, since most of competitive advantage.
Lincoln’s clients could not support that kind of system,
since the partner then had to process the XML/SOAP mes- Source: Compiled from Brandel (2004).
sages. For a short time, Lincoln maintained subsites for its
partners that wanted them, and those sites linked to re- For Further Exploration: What systems were con-
quested content. However, maintenance of the subsites nected between the business partners? Why was it so im-
was burdensome. portant to maintain the partner’s look and feel?
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an Companies are connected to business partners for many reasons. A com-
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mon reason is to better work with vendors’ designers, as in the case of Boeing
described in Online File W14.9. Another example is content visualization from
co
a partner’s Web site; see IT at Work 14.3. Both internal and external connectiv-
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ity can be improved by using Web Services. For details, see Technology Guide 6
and Casati (2003).
14.7 BUSINESS PROCESS REDESIGN

Of the organizational responses to environmental pressures (Chapter 1), busi-
ness process redesign and its variants have received lots of management atten-
tion (e.g., see Evangelista and Burke, 2003, and Rajaram and Corbett, 2002).
(One variant, and predecessor, of business process redesign is business process
reengineering, or BPR.) In this section we will explore the topic of business
process redesign. Let’s begin by looking at some of its drivers.
The Drivers of A business process is a collection of activities that take one or more kinds of
Process Redesign inputs and create an output. Here are some representative drivers behind the
need for business process redesign:
● Fitting commercial software. To reap the best benefit of buying or leasing soft-
ware, it is frequently best to use the software as it is rather than to modify it.
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(Remember the Nike disaster discussed in Chapter 1.) But what if the soft-
ware does not fit your business processes, and it is not possible or advisable
to change the software? The best solution sometimes is to redesign the af-
fected business processes. Typical software in this category are the functional
information systems, ERP, business intelligence, and business performance
management software.
● Streamlining the supply chain. As seen in Chapter 7, it is frequently neces-
sary to change segments in the supply chain to streamline its operations
and to better collaborate with business partners. Redesign is frequently
done on small segments of the chain, but sometimes the entire chain is re-
designed (e.g., the Orbis case of Chapter 1, where a linear chain was changed
to a hub).
● Participating in private or public e-marketplaces. With the increased trend
to use e-marketplaces comes the need to get connected to them, as well as
to the organization’s back-end processes. To enable such integration it is fre-
quently necessary to redesign internal as well as external processes. The
same is true with participation in auction sites. Not changing the processes
results in manual operations (e.g., data entry) which may be expensive,
slow, and error-prone.
● Improving customer service. To properly introduce CRM, it is often neces-
sary to change business processes. As will be seen later in this chapter, cen-
tralizing 800 numbers and empowering frontline employees involve process
restructuring.
● Conducting e-procurement. Introduction of e-procurement methods fre-
quently requires complete redesign of the purchasing process (requisition,
approval, control, and payment for purchases).
● Enabling direct online marketing. Many manufacturers as well as retailers are
using direct marketing to consumers, mostly via the Internet. Moving to
such a business model requires design or redesign of order taking and order
fulfillment.
● Reducing cost and improving productivity. For generations companies have
sought to reduce costs and increase productivity. An example is industrial
engineering methods. Many of these are part of continuous small improve-
ments, while others require radical changes in business processes (e.g., see
Barua et al., 2001, and Salladurai, 2002). This is part of the BPM process
(Chapter 11).
● Restructuring old processes prior to automation. Many organizations believe
that the solution to their problem is to automate business processes. While in
some cases it make sense to do it, in many others it does not. Automating in-
effective processes can result in only small savings, whereas restructuring can
result in a much larger savings.
● Transformation to e-business. When organizations transform themselves to
e-business, usually by automating processes or collaborating electronically, they
frequently need to change their business processes.
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Several other drivers may contribute to the need for redesign. In the follow-
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ing sections we will describe some of them: reducing cycle time, need for cus-
tomization, and empowering employees. Another of these drivers, the problem
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of the stovepipe, is described in Online File W14.10.
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14.8 THE ROLE OF IT IN BUSINESS PROCESS REDESIGN 617
Methodologies As indicated earlier, business process redesign was preceded by business

for Restructuring process reengineering (BPR), a methodology in which an organization fun-
damentally and radically changes its business processes to achieve dramatic
improvement. Initially, attention in BPR was given to complete restructuring of
organizations (Hammer and Champy, 2001). Later on, the concept was changed
to include only one of a few processes (rather than an entire organization) due
to numerous failures of BPR projects (e.g., Sarker and Lee, 1999) and the emer-
gence of Web-based applications that solved many of the problems that BPR
was supposed to solve.
Today, the concept of BPR has been modified to business process redesign, which
can focus on anything from the redesign of an individual process, to redesign of
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a group of processes (e.g., all the processes involved in e-procurement), to
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redesign of the entire enterprise (see El Sawy, 2001). The redesign of several
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processes became a necessity for many companies aspiring to transform them-

selves to e-businesses. For El Sawy’s principles of redesign, see Online File
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W14.11. We will return to BPR in Section 14.9.
BUSINESS PROCESS MANAGEMENT. Business process management is a

new method for restructuring that combines workflow systems (Chapter 3) and
redesign methods. This emerging methodology covers three process categories—
people-to-people, systems-to-systems, and systems-to-people interactions—all
from a process-centered perspective. In other words, BPM is a blending of work-
flow, process management, and applications integration. Le Blond (2003)
describes the use of BPM in McDonald’s Singapore operations. One area of
redesign there was the scheduling of crews at McDonald’s restaurants; several
other successful applications related to performance improvements. (Staffware
Inc., a BPM software vendor and consultant, provides a free online demo as
well as case studies at staffware.com.) For comprehensive coverage see also Smith
and Fingar (2003) and Perry (2004).
The conduct of a comprehensive business process redesign, or even of the
redesign of only one process, is almost always enabled by IT, which we address
in the next section.
14.8 THE ROLE OF IT IN BUSINESS PROCESS REDESIGN

IT has been used for several decades to improve productivity and quality by
automating existing processes. However, when it comes to restructuring or
redesign, the traditional process of looking at problems first and then seeking
technology solutions for them may need to be reversed. A new approach is
first to recognize powerful solutions that make redesign and BPR possible, and
then to seek the processes that can be helped by such solutions. This approach
requires inductive rather than deductive thinking. It also requires innovation,
since a company may be looking for problems it does not even know exist.
Process redesign can break old rules that limit the manner in which work
is performed. Some typical rules are given in Table 14.5 (page 618). IT-supported
redesign and BPR examples can be found in any industry, private or public (e.g.,
MacIntosh, 2003 and Khan, 2000). The role of IT in redesigning business
processes can be very critical and is increasing due to the Internet and intranets
(Salladurai, 2002).
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TABLE 14.5 Changes in Business Processes Brought by IT

Old Rule Intervening Technology New Rule
Information appears in only Shared databases, client/server Information appears simultaneously

one place at one time. architecture, Internet, intranets wherever needed.
Only an expert can perform Expert systems, neural computing Novices can perform complex
complex work. work.
Business must be either Telecommunications and Business can be both
centralized or distributed. networks: client/server, intranet centralized and distributed.
Only managers make Decision support systems, enterprise Decision making is part of
decisions. support systems, expert systems everyone’s job.
Field personnel need offices to Wireless communication and Field personnel can manage
receive, send, store, and portable computers, the Web, information from any location.
process information. electronic mail
The best contact with potential Interactive videodisk, desktop The best contact is the one
buyers is a personal contact. teleconferencing, electronic mail that is most cost-effective.
You have to locate items manually. Tracking technology, groupware, Items are located
workflow software, search engines automatically.
Plans get revised periodically. High-performance computing Plans get revised instantaneously
systems, intelligent agents whenever needed.
People must come to one Groupware and group support People can work together
place to work together. systems, telecommunications, while at different locations.
electronic mail, client/server
Customized products and CAD/CAM, CASE tools, Customized products can be
services are expensive and online systems for JIT decision made quickly and inexpensively
take a long time to develop. making, expert systems (mass customization).
A long period of time is CAD/CAM, electronic data Time-to-market can be
spanned between the inception interchange, groupware, reduced by 90 percent.
of an idea and its implementation imaging (document) processing
(time-to-market).
Organizations and processes Artificial intelligence, expert systems Organizations and processes
are information-based. are knowledge-based.
Move labor to countries where Robots, imaging technologies, Work can be done in countries
labor is inexpensive (off-shore object-oriented programming, with high wages and salaries.
production). expert systems, geographical
information systems (GIS)
Source: Compiled from M. Hammer and J. Champy, Re-engineering the Corporation (New York: Harper Business, 2001).
Need for One objective of redesign is to overcome problems such as that of the
Information stovepipe by integrating the fragmented information systems. Besides creating
Integration inefficient redundancies, information systems developed along departmental
or functional boundaries cause difficulties in generating the information that
is required for effective decision making. For instance, consider a case where
the management of a bank wants to offer more mortgage loans to better uti-
lize large savings deposits. Management decides to send letters encouraging
specific customers to consider buying homes, using convenient financing avail-
able through the bank. Management also decides that the best customers to
whom to send such letters are: customers who do not currently have mort-
gage loans or who have loans for a very small percentage of the value of their
homes; customers who have good checking account records (e.g., few or no
overdrafts); customers with sufficient funds in their savings accounts to make
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14.8 THE ROLE OF IT IN BUSINESS PROCESS REDESIGN 619
IT at Work 14.4 POM

VW OF MEXICO SHIFTED TO E-PROCUREMENT
F acing strong competition and the North American Free

Trade Agreement (NAFTA) environment, Volkswagen
of Mexico (vw.com.mx) turned to IT. In 1996, VW imple-
The R/3 system orchestrates all the different areas of the
manufacturing and parts-ordering tasks, such as supplier
orders, receiving, warehousing, client orders, packing, and
mented an ERP system, using SAP R/3 software. By 1998, billing. By tapping into R/3 modules, the dealers can cut
the company integrated its enterprise system, which was the turnaround time for ordering spare parts from 10 days
used to cut inventory and production costs, with an ex- to fewer than 5—a very important competitive advantage.
tranet, which streamlined spare-parts ordering by its dealers The dealers can check the status of their orders on the
in Mexico. The major reason for the project was the in- computer.
creased demand that resulted from NAFTA and from VW’s One problem with the integrated system is that some of
decision to market the Beetle (called the “New Beetle”) in the dealers in Mexico were not ready to buy, install, and
the United States and Canada. These cars are manufactured use computers. However, the fact that the new system
in Mexico, where labor and services are cheaper. means a low inventory level, which can save the dealers
The integrated system allows people at every level of the considerable money, motivated them to join in. The com-
company, from manufacturing to car servicing at the deal- pany estimated that the application resulted in $50 million
ership, to take advantage of the SAP system. The SAP sys- in cost savings for the dealers over the first three years.
tem integrates the manufacturing, finance, marketing, and
other departments among themselves and, thanks to the Sources: Compiled from PC Week (1998), and from press releases of
extranet, now also links these departments with the deal- vw.com.mx (1999–2002).
ers and business partners. In order to implement SAP, VW
had to redesign many of its production, accounting, and For Further Exploration: Can VW’s suppliers be added
sales processes. This was done using some of the methods to the system? What competitive advantage could be real-
we describe later in this chapter. ized with such an addition?
a down payment on a home; and customers with good payment records on

installment loans with the bank.
Because the data necessary to identify such customers may be available in
different files of different information systems, there may be no convenient or
economical way to integrate them. Using innovations such as data warehouses
and special integrated software can be helpful, but expensive. Therefore, exten-
sive programming and clerical work are required to satisfy such an information
request. The scenario of the bank can be translated into other organizational
settings.
Integration should cross not only departmental boundaries but also organi-
zational ones, reaching suppliers and customers. Namely, it should work along
the extended supply chain. This is especially important in company-centric B2B
e-marketplaces and in B2B exchanges. An example of an internal integration fol-
lowed by integration with dealers is provided in IT at Work 14.4.
The integration of an organization’s information systems enables redesign
innovations such as the introduction of a single point of contact for customers,
called a case manager or a deal structurer. We can see how this single point of
contact works by looking at a credit-approval process at IBM. The old process
took seven days and eight steps. It involved creation of a paper folder that was
routed, sequentially, through four departments (sales, credit check, business
practices, finance, and back to sales). In the redesigned process, one person,
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the deal structurer, conducts all the necessary tasks. This one generalist
replaces four specialists. To enable one person to execute the above steps, an
expert system provides the deal structurer with the guidance needed. The
program guides the generalist in finding information in the databases, plug-
ging numbers into an evaluation model, and pulling standardized clauses—
“boilerplates”—from a file. For difficult situations, the generalist can get help
from a specialist. As a result, the turnaround time has been slashed from seven
days to four hours.
IT Software for CHANGING EXISTING INFORMATION SYSTEMS. Redesign of business processes

Business Process often means a need to change some or all of the organizational information sys-
Redesign tems. The reason for this is that information systems designed along hierarchi-
an cal lines may be ineffective in supporting the redesigned organization. Therefore,
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it is often necessary to redesign the information systems. This process is referred
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to as retooling. See Online File W14.12.

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IT TOOLS FOR BUSINESS PROCESS REDESIGN AND BPR. A large variety of IT
tools can be used to support redesign and BPR. Some of these tools are generic
and can be used for other purposes, while others are specifically designed for
redesign and BPR. Let’s elaborate.
Special BPR and Process Redesign Software. According to El Sawy (2001),
special BPR software enables the capture of the key elements of a business
process in a visual representation made up of interconnected objects on a time
line. The elements of this visual representation usually include activities,
sequencing, resources, times, and rules. BPR software is much more than draw-
ing or flowcharting software in that the objects on the screen are intelligent
and have process and organizational data and rules associated with them. The
software is also interactive, in real time. BPR software may incorporate some
aspects of project management in terms of allocating resources and costs to
work activities and their time sequencing. BPR software also has “what-if”
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capabilities in that it enables process simulation and performance comparison
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of alternative process designs. The better BPR software packages are quite intu-
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itive and relatively easy to learn. The 10 major reasons why special BPR soft-
ware is of value for business process redesign are summarized in Online File
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W14.13.
The most comprehensive special BPR suite, which includes many function-
alities, was BPR Workflow from Holosofx (now a part of IBM’s WebSphere). For
a detailed description of this package and usable software, see El Sawy (2001).
In addition to BPR Workflow one can find integrated BPR tool kits in some ERP
software (e.g., see Oracle 9i and SAP R/3).
Some people believe that BPR can be done with CASE tools (Technology
Guide 6). This is not the case, since CASE tools can be used to execute only a
few BPR activities, and they are difficult to use. Other believe that workflow
tools can be used. Again, this is true only for some redesign activities. Further-
more, the workflow capabilities in custom-designed BPR software are usually
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superior to those of generic tools. However, for many projects there is no need
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for a comprehensive suite; in those situations, generic tools or special tools
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designed to be used for only one or two BPR activities are both efficient and
effective. For a listing of some generic and single-activity tools that may be of
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use in business process redesign, see Online File W14.14.
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14.9 RESTRUCTURING PROCESSES AND ORGANIZATIONS 621
14.9 RESTRUCTURING PROCESSES AND ORGANIZATIONS

Redesign, restructuring, and reengineering efforts involve many activities, three
of which are described in this section: redesign of one or a few processes, cycle
time reduction, and restructuring the entire organization. In this section we also
look at some BPR failures.
Redesign of One Redesign efforts frequently involve only one or a few processes. One of the most
or a Few Processes publicized examples of process redesign is the accounts payable process at Ford
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strates changes in a simple process. Khan (2000) describes the restructure of an

air cargo process that was much more complicated and involved several IT tools.
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CYCLE TIME REDUCTION. Cycle time refers to the time it takes to complete a
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process from beginning to end. As discussed earlier, competition today focuses
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not only on cost and quality, but also on speed. Time is recognized as a major
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element that provides competitive advantage, and therefore cycle time reduc-
tion is a major business objective. For a discussion of how this is done with IT,
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see Online File W14.16.
Restructuring the We’ve seen that one recurrent problem in many organizations is communication
Whole Organization breakdowns in vertical structures. How should a contemporary organization be
organized? There are several alternatives. Let’s look at how it can be done with
business process redesign.
The fundamental problem with the hierarchical organizational structure is
that any time a decision needs to be made, it must climb up and down the hier-
archy. If one person says “no” to a pending decision, everything comes to a
screeching halt. Also, if information is required from several “functional sources,”
getting all the right information coordinated can be a time-consuming and frus-
trating process for employees and customers alike.
So, how is organizational redesign done? It varies, depending on the organ-
ization and the circumstances. For example, providing each customer with a
single point of contact can solve the stovepipe problem described earlier. In the
traditional bank, for example, each department views the same customer as a
separate customer. Figure 14.4 depicts a redesigned bank in which the customer
deals with a single point of contact, the account manager. The account man-
ager is responsible for all bank services and provides all services to the customer,
who receives a single statement for all of his or her accounts and can access all
accounts on the same Web page (“My Accounts”). Notice that the role of IT is
to back up the account manager by providing her with expert advice on spe-
cialized topics, such as loans. Also, by having easy access to the different data-
bases, the account manager can answer queries, plan, and organize the work
with customers.
An alternative to the single-point contact is a networked structure. In this
structure, regardless of where and when a client contacts the company, the
networked agents would have access to all customer data, so that any employee
can provide excellent customer service. Companies such as USAA, Otis Eleva-
tor, and others have all agents located in one city and give customers all over
the country the same toll-free number and a centralized Web address. In this
model, the company also can install a computer-based call-center technology,
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Customer
Account
Call My manager
center accounts supported
(via a portal)
by. . .
Customer
accounts
Databases
Expert system
Checking Installment
accounts loans
Backed up by. . .
Savings Mortgage
accounts loans
Investment Loan
expert expert
Trusts Etc. Statement
Etc.
FIGURE 14.4
Reengineered bank with Consolidated
integrated system. statement
which brings up complete customer information (or information about a cus-

tomer’s elevator in the case of Otis) on the computer screen, whenever a customer
calls. This means that anyone who answers the call would know all the infor-
mation necessary to make a quick, frontline decision (see Chapter 11). There
is no need to ask questions of the customer, and any agent can give personal-
ized and customized service. This is especially important in services such as
reservation systems for hotels or airlines, as well as for utility companies, finan-
cial services, universities, and health care services.
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Reengineering and restructuring is not limited to a specific type of organi-
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zation. Studies indicate that 70 percent of all large U.S. corporations are
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restructuring or considering some major redesign projects. In addition, the pub-

lic sector, including the U.S. federal government, is continuously implementing
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restructuring projects. See Online File W14.17, which describes one such proj-
ect by the U.S. federal government.
BPR Failures During the 1990s, there were many success stories of BPR (Grant, 2002, El
and Successes Sawy, 2001) and just as many cases of failures.
FAILURES. The PROSCI organization conducted a survey of several hundred

companies to learn the best BPR practices and the reasons for BPR failures, which
can be found at the organization’s Web site (prosci.com). Another summary of
research into business process redesign failure is available at managingchange.
com/bpr/bprcult/4bprcult.htm. The summary indicates a failure rate of 50 to 80 per-
cent. According to Grant (2002) at least 70 percent of all BPR projects fail. Some
of the reasons cited for failure are high risk, inappropriate change management,
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MANAGERIAL ISSUES 623
failure to plan, internal politics, high cost of IT retooling, lack of participation

and leadership, insufficient stakeholder involvement, poor analyses of business
processes, inflexible software, lack of motivation, and lack of top management
support. A highly detailed case study on BPR failures is provided by Sarker and
Lee (1999) and by Hengst and Vreede (2004). For more on BPR failures and
suggestions on how to avoid them, see El Sawy (2001).
BPR SUCCESSES. Despite the high failure rate of business process redesign,
there are many cases of success, especially when less than the entire organiza-
tion is restructured. While BPR failures tend to get more widespread publicity,
success stories are published mostly by vendors and in academic and trade jour-
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nals. For example, there is evidence of the success of BPR in the public sector
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(Maclntosh, 2003). Khong and Richardson (2003) report on extensive BPR
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activities and successes in banking and finance companies in Malaysia, and

Mohanty and Deshmukh (2001) found successful BPR initiatives in a large
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cement manufacturing plant in India. (For details, see Online File W14.18.)
Organizations should consider restructuring their business processes or
sometimes the entire business. When successful, redesign has great potential to
improve an organization’s competitive position.
➥ MANAGERIAL ISSUES
1. Importance. Some general and functional managers believe that system
development is a technical topic that should be of interest only to techni-
cal people. This is certainly not the case. Appropriate construction of sys-
tems is necessary for their success. Functional managers must participate
in the development process and should understand all the phases. They
must also participate in the make-or-buy decisions and software selection
decisions. Inappropriate development methodologies can result in the
system’s failure.
2. Ethical and legal issues. Developing systems across organizations and coun-
tries could result in problems in any phase of system development. For
example, in developing the Nagano Olympics system in 1998, IBM found at
the last minute that pro-North-Korea groups in Japan took offense at a ref-
erence to the Korean War written on the Web site. Although the material
was taken from the World Book Encyclopedia, it offended some people. IBM
had to delete the reference and provide an apology. IBM commented, “Next
time we’re going to do a ton of research first versus just do it and find out
the hard way.” A special difficulty exists with Internet-related projects, where
legislation is still evolving.
3. User involvement. The direct and indirect users of a system are likely to be
the most knowledgeable individuals concerning requirements and which al-
ternatives will be the most effective. Users are also the most affected by a
new information system. IS analysts and designers, on the other hand, are
likely to be the most knowledgeable individuals concerning technical and
data-management issues as well as the most experienced in arriving at viable
systems solutions. The right mixture of user involvement and information
systems expertise is crucial.
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4. Tool use by developers. Development tools and techniques can ensure that
developers consider all necessary factors and standardize development,
documentation, and testing. Forcing their use, on the other hand, may
unnecessarily constrain innovation, development efficiency, and personnel
productivity.
5. Quality assurance vs. schedules. Quality counts in the short term and the
long term, but it can lengthen development and increase developmental
costs. Trying to meet tight development schedules can induce poor quality
with even worse schedule, cost, and morale problems. Control is done with
ISO 9000 standards (see Online File W14.18).
6. Behavior problems. People use information systems and often become quite
used to how existing systems work. They may react to new systems in
unexpected ways, making even the best technically designed systems useless.
Changes brought about by information systems need to be managed effectively.
Of special interest is the issue of motivating programmers to increase their pro-
ductivity by learning new tools and reusing preprogrammed modules.
7. Perpetual development. Information systems are designed to meet organiza-
tional needs. When they don’t accurately meet these needs, or these needs
change, information systems need to be redeveloped. Developing a system
can be a major expense, but perpetually developing a system to maintain its
usefulness is usually much more expensive.
8. Risk level. Building information systems involves risk. Systems may not be
completed, completed too late, or require more resources than planned. The
risk is large in enterprise systems. For how to manage such risk, see Scott
and Vessey (2002) and Levine (2004).
9. Business process redesign. Business process redesign can be driven by the
need to prepare for IT or by many other reasons. It can be done by method-
ologies ranging from BPR to BPM.
10. Structural changes. IT helps not only to automate existing processes but also
to introduce innovations that change structure (e.g., create case managers
and interdisciplinary teams), reduce the number of processes, combine tasks,
enable economic customization, and reduce cycle time.
11. Ethical and legal issues. Conducting interviews for finding managers’ needs
and requirements must be done with full cooperation. Measures to protect
privacy must be taken.
In designing systems one should consider the people in the system.
Reengineering IT means that some employees will have to completely reengi-
neer themselves. Some may feel too old to do so. Conducting a supply chain
or business process reorganization may result in the need to lay off, retrain, or
transfer employees. Should management notify the employees in advance
regarding such possibilities? And what about those older employees who may
be difficult to retrain?
Other ethical issues may involve sharing of computing resources or of
personal information, which may be part of the new organizational culture.
Finally, individuals may have to share computer programs that they designed
for their departmental use, and may resist doing so because they consider
such programs their intellectual property. Appropriate planning must take
these and other issues into consideration.
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CHAPTER HIGHLIGHTS 625
12. Integration: The role of IT in redesign and BPR. Almost all major supply
chain management (SCM) and/or BPR projects use IT. However, it is impor-
tant to remember that in most cases the technology plays a supportive role.
The primary role is organizational and managerial in nature. On the other
hand, without IT, most SCM and BPR efforts do not succeed.
KEY TERMS
Application service provider Business process reengineering Request for proposal (RFP) xxx
(ASP) xxx (BPR) xxx Service level agreements
Business process xxx Cycle time reduction xxx (SLAs) xxx
Business process management On-demand computing xxx
(BPM) xxx
CHAPTER HIGHLIGHTS (Numbers Refer to Learning Objectives)

Information systems acquisition includes all ap- same each month or can be based on actual usage
proaches to obtaining systems: buying, leasing, or (like electricity). (This is the basic idea of utility com-
building. The objective of IT application acquisition is puting which will be provided by ASPs or by software
to create (or buy) applications and implement them. vendors.)
The process of acquiring IT applications can be divided The process of vendor and software selection is com-
into five steps: planning and justification; IT architec- posed of six steps: identify potential vendors, deter-
ture creation; selecting development options; testing, mine evaluation criteria, evaluate vendors and pack-
installing, and integrating new applications; and con- ages, choose the vendor and package, negotiate a
ducting operations and maintenance. This process contract, and establish service level agreements.
needs to be managed. Most of the implementation issues are related to deci-
There are several sources of identifying new projects sions regarding selection of development options and
(applications) such as the need to solve a business vendor and software selection. Also, security and
problem. The justification process is basically a com- ethics need to be considered.
parison of the expected costs versus the benefits of New applications need to be connected to existing ap-
each application. While measuring cost may not be plications, databases, and so on inside the organization.
complex, measuring benefits is, due to the many in- They may also be connected to partners’ information
tangible benefits involved. The planning of projects in- systems.
volves schedules, milestones, and resource allocation.
Issues of connectivity, compatibility, and security make
The major options for acquiring applications are buy, connections difficult. Several tools and methods exist
lease, and build (develop in-house). Other options are to alleviate the problem.
joint ventures and use of e-marketplaces or exchanges
(private or public).
Introducing new technology may require restructure
or redesign of processes. Also, processes may need to
Building in-house can be done by using the SDLC, by be redesigned to fit standard software.
using prototyping or other methodologies, and it can
be done by outsourcers, the IS department employees, Several methodologies exist for redesigning processes,
or end users (individually or together). notably BPR, BPM, and work flow.
In deciding how to acquire applications, companies
IT can help in analyzing, combining, improving, and
must consider several, sometimes many, criteria. simplifying business processes.
These criteria may conflict among themselves (e.g.,
Redesign may be a large and complex effort resulting
quality and price). Companies need to make sure that in failure if not planned and managed properly.
all criteria are considered and to evaluate the impor-
One or a few business processes are easier to redesign
tance of each criterion for the company. than redesigning processes on a larger scale. Limiting
ASPs lease software applications, usually via the In- the scale of redesign projects helps ensure successful
ternet. Fees for the leased applications can be the implementation of IT applications.
EQA
VIRTUAL COMPANY ASSIGNMENT
Acquiring Information Systems for The Wireless Café

Go to The Wireless Café’s link on the Student Web Site. There you will
Instructions for accessing The be asked to plan and recommend how to proceed in upgrading and
Wireless Café on the Student adding information systems for the restaurant.
Web Site More Resources
More resources and study tools are located on the Student Web Site.
1. Go to You’ll find additional chapter materials and useful Web links. In addi-
wiley.com/college/turban tion, self-quizzes that provide individualized feedback are available for
2. Select Turban/Leidner/ each chapter.
McLean/Wetherbe’s
Information Technology for
Management, Fifth Edition.
3. Click on Student
Resources site, in the tool-
bar on the left.
4. Click on the link for
Virtual Company Web site
5. Click on Wireless Café.
QUESTIONS FOR REVIEW

1. List and briefly discuss the five steps of the information 16. List five criteria for selecting a development option.
systems acquisition process. 17. List the major steps of selection of a vendor and a soft-
2. List the options of system acquisition. ware package.
3. Describe some implementation and management issues. 18. Describe a request for proposal (RFP).
4. What is involved in identifying IT projects? How is 19. Describe SLAs.
such identification done? 20. List three major implementation issues.
5. What is the basic idea of justifying an application? 21. List some internal systems that usually need to be con-
6. Describe IT project planning. nected to new applications.
7. List the major acquisition and development strategies. 22. Why is it especially important to connect to databases?
8. Compare the buy option against the lease option. 23. What is mainly connected between business partners?
9. List the in-house development approaches. 24. Define business process and BPR.
10. Describe end-user development and cite its advantages 25. List the drivers of process redesign.
and limitations. 26. Describe the stovepipe problem. (See the related on-
11. List other acquisition options. line file.)
12. What type of companies provide outsourcing service? 27. Define BPM.
13. Define ASPs and list their advantages to companies us- 28. Describe the enabling role of IT in BPR.
ing them. 29. Define cycle time and discuss its reduction.
14. List some disadvantages of ASPs. 30. Why do so many BPR projects fail?
15. List five criteria for assessing a buy option.
EQA
INTERNET EXERCISES 627
QUESTIONS FOR DISCUSSION

1. Discuss the advantages of a lease option over a buy 7. Some people say that BPR is a special case of a strategic
option. information system, whereas others say that the oppo-
2. Why is it important for all business managers to un- site is true. Comment.
derstand the issues of IT resource acquisition? 8. What are some of the reasons for maintaining a func-
3. List some of the new options for acquiring IT resources. tional structure in an organization?
(See Table 14.1.) 9. Discuss the relationship between IT planning (Chapter
4. Discuss the role of ASPs. Why is their attractiveness in- 12) and project (application) planning.
creasing? (Hint: Consider utility computing.) 10. Discuss the relationship between system acquisition
5. Review the opening case. What approach was used to and business process restructuring.
develop an information systems plan? 11. Discuss why BPM is useful for restructuring.
6. Explain why IT is an important enabler of business 12. Discuss why IT is an enabler of redesign and restructuring
process redesign. while it also requires retooling for its implementation.
EXERCISES
1. Enter ecommerce.internet.com. Find the product review 3. Examine some business processes in your university
area. Read reviews of three software payment solutions. or company. Identify two processes that need to be
Assess them as possible components. redesigned. Employ some of El Sawy’s 10 principles
2. Prepare a comparison of the following utility computing (see Online File W14.11) to plan the redesign. Be
initiatives: IBM’s On-Demand, H-P’s Adaptive Enter- innovative.
prise, and Fujitsu’s Triole Utility. What is the focus of
each? What are their strategies?
GROUP ASSIGNMENTS
1. Assessment of the functionality of an application is a 3. As a group, design an information system for a startup
part of the planning process (Step 1). Select three to five business of your choice. Describe your chosen IT re-
Web sites catering to the same type of buyer (for in- source acquisition strategy, and justify your choices of
stance, several sites that offer CDs or computer hard- hardware, software, telecommunications support, and
ware), and divide the sites among the teams. Each team other aspects of a proposed system.
will assess the functionality of its assigned Web site by 4. Have teams from the class visit IT project-development
preparing an analysis of the different sorts of functions efforts at local companies. Team members should inter-
provided by the site. In addition, the team should assess view members of the project team to ascertain the fol-
the strong and weak points of its site from the buyer’s lowing information.
perspective. a. How does the project contribute to the goals and ob-
2. Divide into groups, with each group visiting a local com- jectives of the company?
pany (include your university). At each firm, study the b. Is there an information architecture in place? If so,
systems acquisition process. Find out the methodology how does this project fit into that architecture?
or methodologies used by each organization and the c. How was the project justified?
types of application to which each methodology applies. d. What project planning approach, if any, was used?
Prepare a report and present it to the class. e. How is the project being managed?
INTERNET EXERCISES
1. Enter ibm.com/software. Find the WebSphere product. (cio.com). Search for recent material about ASPs and
Read recent customers’ success stories. What makes this outsourcing, and prepare a report on your findings.
software so popular? 3. Enter the Web site of IDC (idc.com) and find out how the
2. Enter the Web sites of the Gartner Group (gartnergroup. company evaluates ROI on portals, supply chain, and
com), the Yankee Group (yankeegroup.com), and CIO other IT projects.
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EQA
4. Visit the Web site of Resource Management Systems c. Does StoreFront 5.0 support larger or smaller stores?
(rms.net) and take the IT investment Management Ap- d. What other products does StoreFront offer for creat-
proach Assessment Self-Test (rms.net/self_test.htm). Com- ing online stores? What types of stores do these
pare your organization’s IT decision-making process products support?
with those of best-practices organizations. 6. Surf the Internet to find some recent material on the
5. StoreFront (storefront.net) is the leading vendor of e- role IT plays in support BPR. Search for products and
business software. At its site, the company provides vendors and download an available demo.
demonstrations illustrating the types of storefronts that 7. Identify some newsgroups that are interested in BPM.
it can create for shoppers. The site also provides demon- Initiate a discussion on the role of IT in BPM.
strations of how the company’s software is used to cre-
8. Enter gensym.com and find their modeling products. Ex-
ate a store.
plain how they support BPR and redesign.
a. Run either the StoreFront 5.0 or StoreFront 6.0
9. Enter xelus.com/index.asp and find how Xelus Corporation
demonstration to see how this is done.
software can facilitate planning (e.g., see the Cisco case).
b. What sorts of features does StoreFront 5.0 provide?
Minicase 1
Enterprise Web at Pioneer Inc.
Pioneer is a large, global oil and gas company that needed Enterprise Web technologies offer an integrated solution of
IT tools to streamline business processes, automate work- portal and collaboration technologies, giving users a uni-
flows, and improve communication internally and with fied, interactive environment and project sponsors a low
business partners. The company also needed IT infrastruc- total cost of ownership.
ture that would be the foundation for building enterprise Enterprise Web applications are hosted on different ap-
Web applications. The employees needed a system that plication servers but managed within one framework. They
would enable them to collaborate and that would give differ from traditional applications in three ways: First,
them an up-to-date view of the company’s finance and Enterprise Web applications combine existing data and
production activities. The company selected a compre- processes from diverse enterprise systems with new shared
hensive software suite, Enterprise Web (from Plumtree. services, providing greater return on assets. Second, Enter-
com). The suite includes a corporate portal, a content prise Web applications are assembled dynamically, incor-
server, and a collaboration server. The suite fulfilled the porating new capabilities on-the-fly, allowing for greater
above requirements, and it also helped to better manage agility in solving business problems. Finally, Enterprise
the oil exploration and extraction processes. All of these Web applications are designed to be integrated into an en-
capabilites resulted in higher productivity and profit. terprisewide environment, providing greater economies of
The portal is bringing fundamental changes to the way scale; users can easily navigate between or search across
Pioneer works, from empowering employees in remote lo- applications, and Web Services developed for one enter-
cations to collaborate on data analysis, to giving executives prise Web application can be reused as-is in other applica-
and key employees the ability to monitor oil and gas field tions. Special functionalities of Enterprise Web applications
production volumes in near real time. The new system are the ability to unlock data hidden in complex systems,
simplifies access to information, freeing Pioneer employees provide real-time production monitoring via dashboards,
from the complexity of underlying systems. capture knowledge in collaborative communities, and pro-
vide balanced-scorecard applications.
Using Open Architecture Pioneer selected Plumtree for the functionalities listed
To integrate information and functionality from systems above, as well as because of its published success with
running on different application servers and coded in dif- other companies in the oil and gas industry. Pioneer leases
ferent languages, Pioneer needed the openness provided the software from Plumtree, paying a monthly fee based on
by Plumtree’s Web Services Architecture. In addition, the the number of users.
EQA
MINICASE 2 629
Source: Compiled from a press release from Plumtree Software Inc. 3. Relate the case to the issue of integration.
(plumtree.com), October 14, 2003.
4. Why did the company need the collaboration server?
Questions for Minicase 1 5. What is the role of Web Services?
1. What acquisition option was selected? Why? 6. Which problems were solved by the use of the software?
2. Why was Plumtree selected?
Minicase 2
McDonald’s Global Network Comes Up Short
The Problem information in every store. Information delivered instantly

McDonald’s (mcdonalds.com), a $15.4 billion company, has would give executives the ability to monitor, and possibly
more than 30,000 restaurants in 121 countries serving to affect in real time, the company’s ability to get a consis-
more than 46 million customers a day. However, the com- tent product to customers as fast as possible. McDonald’s
pany had a number of operational problems. hoped that the new system would let company executives
First and foremost, McDonald’s scores from the Amer- see at any time of day how sales of any product at any store
ican Customer Satisfaction Index (ASCI) were lower than were proceeding, see where backup supplies sat anywhere
those of Wendy’s, Burger King, Pizza Hut, and Kentucky between its stores and its suppliers’ plants, and manage its
Fried Chicken, its major competitors. Customer com- stores accordingly.
plaints centered on slow service and an “old, tired” menu. The hub of Innovate was to be an Oracle ERP system,
McDonald’s wanted to speed up service and develop a which would replace the company’s homegrown IBM
menu offering more “healthy” options. Second, data that mainframe general ledger accounting system and the com-
were batch-processed on the McDonald’s proprietary pany’s finance, supply chain management, and human re-
mainframe system at headquarters every night did not of- sources systems. The network would link all of the com-
fer the details that executives needed, and it took as long pany’s restaurants and all of its more than 300 major
as a week for data to be analyzed and distributed to man- vendors, 24 hours a day, seven days a week, to the back-
agers. Although McDonald’s collects daily sales data, the office system at its headquarters. Also, the system would
company’s decade-old financial reporting systems were simplify the scheduling of crew members because it would
not built with real-time business intelligence in mind. tell managers, for example, exactly how many customers
Third, unskilled workers and employee turnover mandate order Big Macs or Quarter Pounders between noon and
training new employees quickly and making the assem- 2:00 P.M. every day of the week. It would also streamline
bly-line method of food preparation extremely easy to the delivery of employee training and benefits data over
understand. the Web.
McDonald’s also hoped to use Innovate to make life eas-
ier for its franchisees. For example, the system would auto-
The Proposed IT Solution
matically generate historical temperature logs for food-
McDonald’s planned to spend $1 billion over five years to safety reports required by the Food and Drug Admin-
tie all its operations into an Internet-based, global, real- istration. It could also alert owner-operators in the event of
time digital network called Innovate. This system would be an unusually large voided transaction at the drive-through
the most expensive and extensive information technology window point-of-sale system (suggesting that a crew mem-
project in the company’s history. Headquarters wanted to ber might be pocketing money instead of putting it in the
create a means of controlling the key quality that makes a register).
fast-food chain successful: consistency. In addition, execu-
tives needed to know, as soon as possible, what was going
on in its stores. The Results
“Innovate” was designed to be a Web-based network of After just two years, though, McDonald’s wrote off its
computers and monitors connected to every key piece of $170 million investment in the system when the company
EQA
discontinued Innovate even before its development had Questions for Minicase 2
been completed. Because it had never been on the cutting
1. What are the major IOS and global information systems
edge of technology, the company had a lack of experience
that the company needed?
in this area. Though the company had shown little or no
expertise in large-scale information systems implementa- 2. What information requirements were needed by the
tions when Innovate was initiated, its executives thought company?
they could easily and completely revamp their entire core 3. What were the major problems that led to the failure of
technology infrastructure. Further, its executives did not Innovate?
understand technology and made it a low priority for the 4. Relate the case to Figure 14.1. In which of the steps did
company. McDonald’s had fallen victim to some of the clas- the company fail?
sic pitfalls that face corporations trying to justify and im- 5. If McDonald’s were choosing from among today’s tech-
plement information systems projects of this size for the nologies, it probably would have selected Oracle Infor-
first time. mation Architecture (Chapter 2) instead of Oracle ERP.
Examine the new architecture. Speculate on what con-
Source: Compiled from Barrett and Gallagher (2003). tribution it could have provided to McDonald’s.
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Benaroch, M., “Managing Information Technology Investment ociation for Computing Machinery, 45(2) 2002.
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Casati, F., et al., “Business-Oriented Management of Web Ser- 2004.
vices,” Communications of the ACM, October 2003. Kaplan, R. S., and D. P. Norton, The Balanced Scorecard: Translating
CIO.com, cio.com/archive(040103)strategy.html (accessed July 2003). Strategy into Action. Boston: Harvard Business School Press, 1996.
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December 2003). ional Journal of Production Economics, January 2000.
Devaraj, S., and R. Kohli, The IT Payoff: Measuring Business Value of Khong, K. W., and S. Richardson, “BPR in Mayasian Banks and
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El Sawy, O., The BPR Workbook. New York: McGraw-Hill, 1999. Communications of the ACM, December 2003.
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EQA
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qxd 10/4/04 19:26 Page 594 Abhinav-10 Abhinav-10:Desktop Folder:

PART V 12. Using IT for Strategic Advantage

14.1 The Landscape and Framework of LEARNING OBJECTIVES

HOW STERNGOLD ACQUIRED AN

Sterngold (sterngold.com), a century-old manufacturer of dental materials, is a

596 CHAPTER 14 ACQUIRING IT APPLICATIONS AND INFRASTRUCTURE

buying habits. Working hand-in-hand, Sterngold and Surebridge completed phase

➥ LESSONS LEARNED FROM THIS CASE

14.1 THE LANDSCAPE AND FRAMEWORK OF IT APPLICATION ACQUISITION 597

created to implement the application. The implementation requires a study of

14.1 THE LANDSCAPE AND FRAMEWORK OF IT APPLICATION ACQUISITION

STEP 1: IDENTIFYING, JUSTIFYING, AND PLANNING INFORMATION SYSTEMS.

598 CHAPTER 14 ACQUIRING IT APPLICATIONS AND INFRASTRUCTURE

Project Identification, Justification, and Planning (Step 1)

Development (Acquisition) Options (Step 3) Management

Build How, which methodology Vendor management

Testing, Installation, and Integration (Step 4)

Operations, Maintenance and Updating (Step 5)

FIGURE 14.1 The process of application acquisition.

STEP 2: IT ARCHITECTURE CREATION—A SYSTEMS ANALYSIS APPROACH. The

STEP 3: SELECT A DEVELOPMENT OPTION AND ACQUIRE THE APPLICATION.

14.1 THE LANDSCAPE AND FRAMEWORK OF IT APPLICATION ACQUISITION 599

● Buy an application and install it (with or without modifications) by yourself

STEP 4: INSTALLING, CONNECTING, AND MORE. IT applications need to be

STEP 5: OPERATION AND MAINTENANCE. Operation and maintenance can be

MANAGING THE DEVELOPMENT PROCESS. The development process can be

600 CHAPTER 14 ACQUIRING IT APPLICATIONS AND INFRASTRUCTURE

14.2 IDENTIFYING, JUSTIFYING, AND PLANNING INFORMATION SYSTEM

IT at Work 14.1 FIN

Other sources of IT project applications can be any of the following: requests

602 CHAPTER 14 ACQUIRING IT APPLICATIONS AND INFRASTRUCTURE

issue of connectivity to databases and to partners’ systems, relevant government

14.3 ACQUIRING IT APPLICATIONS: AVAILABLE OPTIONS (STEP 3)

TABLE 14.1 Advantages and Limitations of the “Buy” Option

14.3 ACQUIRING IT APPLICATIONS: AVAILABLE OPTIONS (STEP 3) 603

UTILITY COMPUTING. Tapping into computing resources with a simplicity equal

604 CHAPTER 14 ACQUIRING IT APPLICATIONS AND INFRASTRUCTURE

A CLOSER LOOK SVC

Policy-Based Service-Level-Management Tools

ROI- based, management

Policy-Based Resource-Management Tools

Virtualized Infrastructure Tools

14.3 ACQUIRING IT APPLICATIONS: AVAILABLE OPTIONS (STEP 3) 605

variation on the utility-computing vision, with different (often confusing) names

Develop the A third development strategy is to develop (“build”) applications in-house.

IN-HOUSE DEVELOPMENT APPROACHES. There are two major approaches to

606 CHAPTER 14 ACQUIRING IT APPLICATIONS AND INFRASTRUCTURE

By quickly building a prototype instead of a full-fledged application, a company

END-USER COMPUTING AND WEB-BASED SYSTEMS DEVELOPMENT. The devel-

14.3 ACQUIRING IT APPLICATIONS: AVAILABLE OPTIONS (STEP 3) 607

A nsett Australia, one of Australia’s leading airlines, had

JOIN AN E-MARKETPLACE OR AN E-EXCHANGE. With this option, the com-

JOIN A THIRD-PARTY AUCTION OR REVERSE AUCTION. Similar to the previous

ENGAGE IN JOINT VENTURES. There are several different partnership or joint

JOIN A PUBLIC EXCHANGE OR A CONSORTIUM. Finally, a company can join a

608 CHAPTER 14 ACQUIRING IT APPLICATIONS AND INFRASTRUCTURE

the public exchange. Another option is for a company to join a consortium (a

Criteria for selecting a development strategy are provided in Section 14.4.

14.4 OUTSOURCING AND APPLICATION SERVICE PROVIDERS

14.4 OUTSOURCING AND APPLICATION SERVICE PROVIDERS 609

an ASP will manage application servers in a centrally controlled location, rather