Transcript Document 7641839

Lecture 6
( February 22, 2003)
Designing and
Organizing Information
Systems Resources
Case Analysis
Banking industry: American National Bank
strategic analysis
• IS not only help to cut costs, but to gain competitive
advantage, e.g. control over distribution channels linked
electronically to suppliers and customers
• On the other hand, strategic IS can be expensive,
difficult to build and easily imitated. Government
regulations can also impact strategic initiatives
• The application of strategic systems requires a thorough
understanding of the organization, including its internal
and external environment. The most difficult aspect is the
decision to pursue ideas that will give the firm a
competitive advantage, especially those with a
reasonable cost
• Michael Porter’s five external forces model can help
identify competitive advantages for the business
Michael Porter’s five competitive forces
potential
entrants
competitors
bargaining power
of suppliers
bargaining power
of buyers
rivalry among
existing firms
substitutes of
products/services
some considerations
• Competitive advantage conferred by IS are
generally short-term. However, the impact are
normally very significant.
• Strategic applications of IS “lock-in” customers
and suppliers by raising the cost of switching.
• Level of acceptance by users/customers is
critical to the success.
• The various risks associated with new
technology are always high.
• The decision whether and when to invest in new
technology is critical
Systems Development
• Systems development are typically difficult, especially for
large projects.
• Most projects that are deemed failures either cost too
much or did not produce useful systems.
• Project overruns and huge backlogs are common in all
industries.
• To deal with all these difficulties, various methodologies
and approaches are used to provide some control over
the process.
• One of the most formalized techniques used is SDLC
(Systems Development Life Cycle)
• Other methods include prototyping, end-user
development, joint application development and objectoriented development.
Systems Development Life Cycle
• Feasibility study:
– Examine, analyze and evaluate the benefits, goals, costs,
problems and implications of the proposed system solution.
– The objective is to determine whether a system is the right
procedure to solve the situation
• Planning:
– Developing a schedule for the project
– Appointing team leaders
– Laying out a plan
• System analysis:
– Determine the present system procedures and problems
– Breaks the current system into smaller, more manageable
pieces.
SDLC (contd. 1)
• System design:
– Describes the system on paper, including a detailed description
of its modules and inter-relationships.
– Define program specifications
• Programming:
– Coding of the program specifications into computer readable
language programs.
– Testing of the individual programs.
• System testing:
– Also known as string test or final test.
– Testing to uncover interlink, multiple and concurrent access and
stress problems.
• Sign off:
– Acceptance tests
– All documentations completed
– A common requirement by organizations such as audit
requirements
– By regulatory requirement for some sensitive systems
SDLC (contd. 2)
• System implementation:
–
–
–
–
–
Installing the new system
Training end-users
Making work adjustments
Conversions (from old systems or from manual)
Temporary human resources requirement
• Maintenance:
– Working systems must be maintained and modified as business
needs arise.
– Fix problems not found during testing and implementation.
– Address changes required due to changing hardware, software or
other operating environment such as keeping up with the industry
and regulatory bodies.
• Evaluation:
– Post-implementation reviews
– Effectiveness, reliability, stability, speed, ease of use etc
– Other criteria to judge the new system for future project reference
Systems not considered as successful
• Systems developed which did not support business
strategies and objectives.
• Poor systems planning and inadequate project
management.
• Failure to define or understand user requirements.
• Negligence in estimating costs and benefits of the systems
project.
• Creation of a myriad of design defects and errors.
• Acquisition of computers and software that no one needs or
knows how to use.
• Installation of incompatible or inadequate technology.
• Negligence in implementing adequate controls.
• Development of unstructured, unmaintainable software.
• Inadequate implementation tasks.
Centralization vs Decentralization
• The never-ending struggle between centralization and
decentralization has not bypassed MIS.
• Since the advancement of technology into PCs, the trend
towards decentralization has been more pronounced.
Distributed processing have been giving way and there
were even talks on the dying of mainframes. However,
mainframes are still here to stay with even more
increasing usage.
• The client/server approach has bridge the gap between
centralization and decentralization while capturing the
benefits of both.
• Centralization or decentralization not only affects
hardware and software, but areas such as data and
human resources are also affected.
advantage comparison
centralization
• economies of scale
• easier upgrades and
compatibility
• increase control over
access and sharing
• easier training and
hiring of specialists
decentralization
• lower prices of PCs
• increased flexibility
• easier access and
personal control
• faster and more
personal response
time for users
hardware
their advantages
Although PCs may cost substantially less than
centralized mainframes at about 1000 times less per processing
second, economies of scale can still be achieved due to
other associated peripherals, software and the total
number required.
Diminishes the chance for a total breakdown.
centralized Equipment can be personalized and the hardware is
usually cheaper.
de-
client /
server
The benefits of the extremes can be realized.
Centralized concurrency and security controls of data.
Peripherals can be more personalized by residing in the
“client” or PC
software
their advantages
Lower cost on a per-user basis.
centralized Fewer compatibility problems
More flexibility for end-users in what software they use
and faster access to software residing on the individual
centralized workstation.
Support and configuration software applications can still
be integrated.
de-
client /
server
This arrangement can provide advantages by maintaining
some software on the server and some on the individual
“clients” or PCs
data
their advantages
Easier to share data with all users.
centralized Easier to control access to the data.
Easier to do backup and recovery.
Users have better and faster access to the data.
centralized Users know where and how their data are organized.
Users control their own data, having more privacy than
sharing.
de-
client /
server
Shared data resides on the server while more
personalized or departmental data such as electronic
mails and confidential documents can be sent to the
“client” or PCs.
personnel
their advantages
Working together with other MIS workers can lead to
centralized team efforts and faster solutions to complicated problems.
More diversified career path opportunities.
decentralized
client /
server
The MIS worker is closer to the end users and more
familiar with users’ particular needs
MIS staff take care of the servers and the issues that
surround them. Other IT personnel scattered throughout
the organization to assist “client” end-users. Or using
Help Desk approach.
Users call a central number and IT personnel dispatched
to the location if the problem cannot be resolved over the
phone.
Training and Education
• Traditionally, IS and IT training and education has been
focused on training the IT professionals. As technology
advances at a faster and faster speed, training and retraining become more prominent.
• However, IS and IT training and education has been more
and more important for users. Anyone except aggressive
risk takers will be nervous about a new system or new
technology to be implemented if they know nothing about
it.
• Training on new systems or tools to be used for the mass
workers are vital to a successful implementation strategy.
• Companies nowadays not only provide IS training to all
affected workers, they even subsidized general IS or IT
related education.
• As an incentive, government has the Skills Development
Fund for companies to tap on for a vast variety of courses.
End-user computing
• Involving end-users in the design, education and training
is important because it programs system flexibility,
recognizes the impact of the new system on the business
and reduces the resistance to change from the end-users
to the new system.
• The slow response to user requirements and the huge
backlog of projects and maintenance in most corporate IT
departments prompted for end-user development.
• End-users could use their own computing resources to
support their job requirements instead of waiting for the
indirect support of corporate IT departments.
• The other reason for end-user development is the
proliferation of more powerful and user-friendly software
tools coupled with the increased IT knowledge of users.
• One clear advantage of user development is less
communication is required which in turn speeds up the
process and avoids possible misunderstanding the
requirements.
End-user computing (contd. 1)
• However, end-user development is not without
its problems.
• Most of these problems arise from the fact that
users generally lack the training and experience
of MIS professionals.
– Systems produced by end-users tend to be written for only one
person to use and hence oriented for working only on a standalone PC.
– Lack of documentation creating problems for others to use the
product.
– Due to lack of training, users rarely perform as much testing as
they should.
– Lack of security control and audit trails.
– Poor maintenance.
– Data integrity problems often occurs.
End-user computing (contd. 2)
• Duplication of resources as different people in
different parts of an organization could be
working on the same type of problem which the
IT department could solve it once for all.
• Lack of standard generates incompatibilities
making it difficult to combine systems created by
different departments when the need arises.
• End-user development takes time away from the
user’s job. Some users spend months creating
and modifying systems that might have been
created by MIS professionals in a fraction of the
time.
outsourcing
• Outsourcing is a new term for an old concept in MIS. To
outsource is nothing more than to contract or subcontract part or all of an organization’s IS operations out.
• Typically companies outsource software development,
procurement and support to application service providers
(ASPs). These ASPs provide and support business
application and other software directly or via internet and
intranets to all of a company’s employee workstations.
• However, many companies choose to let a specialized
firm run the entire computer operations for them. This
could be anything from machine operation and
maintenance to development of new systems and
maintenance of existing systems to telecommunciation
services.
outsourcing (contd. 1)
• Some companies outsource their whole IS operations
by selling their entire computer installation and
operations and transfer their existing staff to the service
company.
• Some leading outsourcing companies include EDS and
IBM.
• There are others who spin off their IS operations into
IS subsidiaries that offer IS services back to their parent
company as well as to external organizations. Typical
of this are “.com” companies or business units of an
organization taking care of the e-commerce and
internet-related businesses.
outsourcing (contd. 2)
• Outsourcing has primarily been used to decrease
operating costs or to get the initial money from the sale of
the installation. There are other companies who
outsource to focus on their core business and not to
worry about other areas especially the technologies.
• However, on examining and studying those companies
who outsource, the benefits and cost savings are not
always clear.
• The debate is still continuing on the controversial subject
of outsourcing:
– Complex markets that benefit from strategic applications require
the experience and knowledge of employees who work for the
company.
– Situations requiring tight security are easier to control if they
remain in-house.
– The outsourcing firm have to pay the same costs that a company
face plus an additional profit margin.
The trade-offs
• Outsourcing is not a simple decision. The scope of the
outsource can make the issue more complex. It must be
carefully and fully analyzed, both financially,
managerially and strategically.
• If the focus is on development of strategic applications
and leading-edge applications, it is usually better to use
an internal development team and if necessary, get
outside assistance as consultancy services for the latest
technology.
• If the main job is still dealing with older technology used
mostly for transaction processing, it may be cheaper to
hire an outside firm to maintain the applications.
Case analysis: American National Bank
• In 1933, American National Bank (ANB) opened for business in
Chicago with capital funds of $1,400,000 and deposits totaling
approximately $13,000,000. ANB showed a consistent growth in
deposits and capital funds at a time when the US was recovering
from the great depression and the people were actively involved in
the war raging in Western Europe.
• In 1945, deposits were already over $200 m. Post war conditions
brought ANB to look bravely toward a future world where trade
between nations would once again be possible. An International
Banking Department was formed.
• During World War II, savings were high because few consumer
goods were available. As individuals spent accumulated savings
during the post war years, there was no growth for the next three
years in accordance with the banking industry as a whole.
• Since then, ANB continued to grow tremendously in every area of
operations. Along the growth in customers, employees, services
offered, income and deposits, came the development of new
departments and procedures to support the organizations.
The use of information technology
• The superb location helped ANB’s growth in its services to midsize
corporations in a wide range of industries.
• In 1961, an electronic data processing center was developed and the
entire cheque handling operations was converted to an automated
electronic system the following year.
• The conversion was not without its problems. Although no staff were
terminated because of this conversion, a number of individuals were
transferred to other departments and still more were extensively
retrained to operate effectively in the data processing field.
• In 1963, an additional computer was ordered to handle the increase
in cheque volume.
• In 1966, ANB purchased Tel-A-Data Corpn, a data processing center
providing modern online customer account service for correspondent
banks and savings and loans associations.
• In 1968, ANB joined the growing network of bank credit card issuers
through its entry into the MasterCharge system.
some technology stories
• ANB implemented Vector digitized systems to improve
its ability to detect and address customer fraud:
– Vector-Kite system: the hope was that the kite system would
enable the bank to pinpoint customers with the full intent to
defraud the bank. However, the system shows that most
customers of the bank are kiting suspects. This is because the
system is limited in its ability to evaluate the float period.
– Vector-Signature system: intent to decrease the time required to
verify cheques and detect fraudulent activity. However, the goal
was not achieved completely. Staff no longer required to flip
through signature cards as signatures are now captured as
images in the system, much time and effort have been saved.
The system was not stable and the application shuts down
frequently when making the transition from one signature image
to another.
• Other projects were initiated, such as CIS, intranet
applications and Y2K compliance.
Into mergers and acquisitions
• In the mid-1970s, ANB expanded with branches overseas including
Hongkong and Singapore.
• The bank’s Trust Department commanded worldwide attention and
recognition, with its innovative investment strategy techniques, its
pioneering concept of indexing and its practical use of modern
investment portfolio theory.
• Critical to ANB’s success has been the knowledgeable personalized
service. Offering most services customers need when and where
they need them.
• The bank allocates certain officers for customers. The officers deal
with customers on an individual basis to meet specific needs.
• First Chicago Corpn, the 12th largest bank holding company in the
US acquired ANB in 1984. ANB has been able to distinguish itself
by focusing on its customers better than its competitors which
include Bank of America. Smaller banks do not have the capital
resources to penetrate the market as easily as larger banks which
have capital resources to spend on technology.
merger, acquisition and technology
• The acquisition by First Chicago gave ANB additional
expertise to tap for technological solutions. New
mainframe applications were adopted with information
distribution across the bank through LAN.
• In 1996 after the merger of National Bank of Detroit, the
new corporation (First Chicago NBD) studied the
implementation of a customer information system (CIS)
and a consolidated deposits application. They
determined that a relationship-based CIS was critical to
maximizing market penetration and customer profitability.
Moreover, most of the existing deposit systems within the
merged corporation were not Y2K compliance.
• Hogan DB2 CIS was selected for enterprise-wide use
and Hogan Demand Deposit Accounting System for use
in the Corporate and Institutional Banking Area and at
ANB.
merger, acquisition and technology (contd.)
• Systems Application Products (SAP) were purchased for
used in general ledger reconciliation processes.
• Windows-based standard were established to obtain the
most benefit from its applications.
• The merger has resulted in increase of staff rather than
decreases in the Information Systems Department due
mainly to two reasons:
– Working on program integration to facilitate lines of
communications across the merged corporation
– To tackle the Y2K problem
• The sheer size of the systems has resulted in outsourcing
not being embraced by either ANB or the parent
corporation. However, in order to ease the manpower
resources shortage, some projects were still outsourced.
Performance after merger
• In a ranking of 37 Midwest banks in 1995, First Chicago
ranks highest in revenues, deposits and assets. It also
ranks very high in net income and net loans. However, it
does not rank high in return on assets, profit margin and
price-to-earnings ratio.
• First Chicago’s high ranking in revenue, deposits and
assets is due to the mergers, including ANB and National
Bank of Detroit. The low ranking in return on assets and
profit margin indicates that while the corporation has
substantial assets at its disposal, it is not utilizing its
resources to their fullest potential to generate income.
Compare to other banks in the same region, the
corporation is not profiting from its operations.
Into the future
• Financial services industry is further limited when it
comes to making investments in technology. Technology
investments need to be supported by high margin
products. However, for the most part, the products from
financial institutions have low margin returns compared to
other industries.
• Based on the changing nature of the banking industry,
the driving force in the near future will be the
convenience that a particular bank offers.
• Through acquisition and merger, integration of operations
must focus on cutting costs and efficiently serving the
customers in all core and noncore functions.
• Choosing the technologies that will allow the bank to cut
costs is the way to go.
• Consider to outsource more of its information systems
functions.
www.bankone.com after mergers
American National Bank
First Chicago Corporation
First Chicago NBD
Bank One
National Bank of Detroit
Banc One
resources & reading materials
Chapters 11, 12 and 13 of textbooks
Michael Porter, Competitive Advantage
www.bankone.com
www.mas.gov.sg
www.sdf.gov.sg