6. Information System Acquisition
6. Information System Acquisition
IT1106
Level I - Semester 1
6. Information System Acquisition
6.1 IS Acquisition Process
6.2 Valuing Information Systems Acquisition
6.2.1 How information systems enable organizational processes
6.2.2 Making a business case for information systems
6.2.3 Productivity paradox of information systems
6.2.4 Investment evaluation (Multi-criteria analysis and Cost-benefit
analysis)
6.2.5 Identifying and implementing innovations
6.3 IS Acquisition Options
6.4 Sourcing Methods
6.4.1 In-Sourcing
6.4.2 Outsourcing and Offshoring
6.4.3 Co-Sourcing
6.1 IS Acquisition Process
System Acquisition: The process used to obtain the information
system resources needed to provide the services necessary to meet
a specific set of needs.
Fundamental Strategies for System Acquisition: Buy off-the-shelf
software or build a custom application based on the needs which
may be very broad & encompass many users, or very narrow in
scope, affecting just a single user.
IS Acquisition Process
•Buying off-the-shelf software is less risky & leads to quicker
deployment; however, maintenance & support costs may become
expensive with this approach, & the software may not be an exact
match to the needs & work processes of the organization.
•Building custom software can provide a better match to the current
work processes & provide a potential competitive advantage;
however, software development can be extremely costly, & it can
take months or even years to develop custom software.
Basic Approaches for System Acquisition
6.2 Valuing Information Systems Acquisition
Information systems can be used in three ways to add value to an
organization:
1. Automating – Doing things faster, cheaper, & more accurately with more
consistency
2. Informating - Doing things better
• Learn about & improve processes
• Support organizational learning
3. Strategizing – Doing things smarter
• Gain or sustain a competitive advantage over rivals
• Turning benefits of automating & informating into strategic advantage
6.2.1 How Information Systems Enable
Organizational Processes
Five Types of Organizational Strategies
1. Overall Low Cost Leadership Strategy
• Offer best prices in the industry or product/service category
2.Focused Low-Cost Strategy
• Offer best prices in the industry or product/service category
3.Broad Differentiation Strategy
• Offer better products/services than competitors
4.Focused Differentiation Strategy
• Offer better products/services than competitors
5.Best Cost Provider Strategy
• Provide products of reasonably good quality at competitive prices
6.2.2 Making A Business Case for Information Systems
• Want systems that match organizational strategy
• Business process management – improved business function
• Identification of IS benefits
• Automating, Informating, and Strategic benefits
• Identification of Costs
• Identification of Productivity Gains
• Productivity Paradox – Unintended consequences
• Web surfing, junk mail, games
• Difficult to measure & quantify
• Effectiveness vs. Efficiency
6.2.3 Productivity Paradox of Information Systems
• Difficult to measure and quantify
• May measure wrong thing
• Effectiveness vs. Efficiency
• Time Lags
• Benefits do not always occur at the same time as implementation
• Some IT implementations require people to gain experience
• System must be integrated with existing systems
• Redistribution
• IS may redistribute the pieces of the pie rather than grow
• Increases in market share come at the expense of the competitors’
market share
• Mismanagement - Bad business model not overcome by good IS
• IS implementation as temporary fix
• Creation of unanticipated bottlenecks
6.2.4 Investment Evaluation (Multi-criteria Analysis & Cost-benefit Analysis)
• Cost-Benefit Analysis
• Deciding, Quantitatively, Whether to Go Ahead
• Multi-criteria Analysis
• A complementary approach to cost-benefit analysis (CBA).
Cost-Benefit Analysis
Cost Benefit Analysis: A systematic approach to quantify the costs & benefits
of a decision or a project.
• A systematic measurement way to calculate the cost to manufacture the product or
produce the service & then compare it with the cost of the benefits to be obtained.
Basically, Cost Benefit Analysis calculates;
• Profit to be gained from the alternative
• Costs to be spent to build up the alternative
• Time Value of costs, incomes, and profits
Performing a Cost Benefit Analysis:
Step One: Brainstorm Costs and Benefits
Step Two: Assign a Monetary Value to
the Costs
Step Three: Assign a Monetary Value to
the Benefits
Step Four: Compare Costs and Benefits
Scenarios Utilizing Cost Benefit Analysis
Cost Benefit Analysis offers unique and valuable insight when:
• Developing benchmarks for comparing projects
• Deciding whether to pursue a proposed project
• Evaluating new hires
• Weighing investment opportunities
• Measuring social benefits
• Appraising the desirability of suggested policies
• Assessing change initiatives
• Quantifying effects on stakeholders and participants
Multi-Criteria Analysis
Multi-Criteria Analysis: A two-stage decision procedure.
• Stage 01: identifies a set of goals or objectives and then seeks
to identify the trade-offs between those objectives for different
policies or for different ways of achieving a given policy.
• Stage 02: seeks to identify the “best” policy by attaching weights
(scores) to the various objectives.
Weighted Multi-criteria Analysis:
Method used for deciding between
alternative IS investments or alternatives of the same system
6.2.5 Identifying and Implementing Innovations
Successful Innovation is Difficult
• Innovation is often fleeting
• Advantages gained are often short lived
• Innovation is often risky
• Superior products may not win race
• Innovation choices are often difficult
Cannot foresee the future
The Innovator’s Dilemma
• New technologies, products, or services that eventually surpass dominant technologies
• Undermine effective management practices
• Solution– Disruptive growth engine - Helps organizations respond to disruptive
innovations more effectively
1.Start early
2. Educate organization
3. Build a team of expert innovators
4. Executive leadership
Organizational Requirements for Innovation
• Process requirements - The organization has to be willing to do whatever it takes to implement the
change.
• Resource requirements - The need to have the human capital necessary for successful deployment
of the system
• Risk tolerance requirements - The organizational members must have appropriate tolerance of risk and
uncertainty.
E-Business Innovation Cycle
• The key to success is the extent of IS use in timely and innovative ways.
• Choosing Enabling/Emerging Technologies
• Group/ process devoted to looking for emerging IT
• Matching Technologies to Opportunities
• Most promising new technology matched with current economic
opportunities
•Executing Business Innovation for Growth
• Stage at which the change is actually implemented
•Assessing Value
• Assess value created for customers and internal operations
6.3 IS Acquisition Options
System Acquisition: The process used to obtain the information system
resources needed to provide the services necessary to meet a specific set of
needs.
System Development: The process of defining, designing, testing, and
implementing a software application or program in building an information
systems to meet end-users’ needs.
Buy off-the-shelf software: Buying existing software developed by a
software manufacturer enables an organization to test drive and evaluate it
before making a major commitment to purchase it and install it.
System Development Processes
Waterfall System
Development Process
A sequential, multistage
system development
process in which work on
the next stage cannot begin
until the results of the
current stage is reviewed
and approved or modified
as necessary
Waterfall System Development
• The development process moves from one phase to the next. At
the end of each phase, a review is conducted to ensure that all
tasks & deliverables associated with that phase were produced and
to ensure that the project is on track and worth completing. As a
result, the waterfall approach allows for a high degree of
management control.
• However, a major problem with the approach is that users do not
interact with the solution until the integration and testing phase.
This can lead to a mismatch between system capabilities, users’
expectations, organizational needs.
System Investigation
The initial phase in the development of a new or modified business
information system whose purpose is to gain a clear understanding
of the specifics of the problem to solve or the opportunity to address.
The steps of the investigation phase:
1. Review system investigation request
2. Identify and recruit team leader and team members
3. Develop budget and schedule for investigation
4. Perform investigation
5. Perform preliminary feasibility analysis
6. Prepare draft of investigation report
7. Review results of investigation with steering team.
System Analysis
The steps in the system analysis phase:
1. Identify and recruit team leader and team members
2. Develop budget and schedule for system analysis activities
3. Study existing system
4. Develop prioritized set of requirements
5. Identify and evaluate alternative solutions
6. Perform feasibility analysis
7. Prepare draft of system analysis report
8. Review results of system analysis with steering team
System Design
System design creates a complete set of technical specifications that
can be used to construct the information system.
•The primary result of the design phase is a technical design that
details;
• system outputs, inputs, controls, and user interfaces;
• specifies hardware, software, databases, telecommunications,
personnel, and procedures;
• shows how these components are interrelated
The steps in the system design phase:
1. Identify and recruit team leader and team members.
2. Develop schedule and budget for system design activities.
3. Design user interface.
4. Design system security and controls.
5. Design disaster recovery plan.
6. Design database.
7. Perform feasibility analysis.
8. Prepare draft of system design report.
9. Review results of system design with steering team.
System Development
The system development phase follows the completion of the system
design phase when the project steering team approves of
proceeding with the project. System development converts the
system design into an operational system by coding and testing
software programs, creating and loading data into databases, and
performing initial program testing.
The steps in the system development phase:
1. Code software components
2. Create and load data
3. Perform unit testing
Integration and Testing
Several types of testing must be conducted before a new or modified
information system is ready to be put into production.
These tests are outlined in the testing phases:
1. Integration testing
2. System testing
3. Volume testing
4. User acceptance testing
Tests Conducted on an Information System
Implementation
The steps in the system development phase:
1. User preparation
2. Site preparation
3. Installation
4. Cutover
Implementation
• User preparation: The process of readying managers, decision
makers, employees, other users, and stakeholders to accept and
use the new system.
•Site preparation: Preparation of the location of a new system.
•Installation: The process of physically placing the computer
equipment on the site and making it operational.
• Cutover: The process of switching from an old information system
to a replacement system.
System Operation and Maintenance
The steps in the system operation and maintenance phase:
1. Operation
2. Maintenance
3. Disposal
• System operation: Involves the use of a new or modified system
under all kinds of operating conditions.
• System maintenance: A stage of system development that involves
changing and enhancing the system to make it more useful in
achieving user and organizational goals.
• System disposal: A stage of system development that involves
those activities that ensure the orderly dissolution of the system,
including disposing of all equipment in an environmentally friendly
manner, closing out contracts, and safely migrating information
from the system to another system or archiving it in accordance
with applicable records management policies.
Advantages & Disadvantages of Waterfall System Development Process
Agile Development
Agile development: An iterative system development process that
develops the system in "sprint“ increments lasting from two weeks to two months.
• Scrum: An agile development framework that emphasizes a team
based approach in order to keep the development effort focused and moving quickly.
• Scrum master: The person who coordinates all the scrum activities of a
team.
• EXtreme Programming (XP): A form of agile software development that
promotes incremental development of a system using short
development cycles to improve productivity and to accommodate new
customer requirements.
The Scrum Agile Software Development Process
Advantages and Disadvantages of Agile Development
Comparison of Approaches to System Development
Buying Off-the-Shelf Software
•Buying existing software developed by a software manufacturer
enables an organization to test drive and evaluate it before making
a major commitment to purchase it and install it.
•The effort required to modify the software package, as well as
existing software, must be taken into account as a major factor in
selecting the final vendor and software.
•Once purchased, the existing software can be installed with
minimal disruption, so that user requirements can be quickly met &
the organization can obtain the benefits from the system.
Software Package Implementation Process
Software package implementation eliminates several of the phases of
the waterfall approach.
Investigation & System Analysis
•One question that must be answered during System Analysis
phase is :
•Which approach is the best solution for the system?
(buying off-the-shelf software or build a custom application)
The decision is often called ‘make-or-buy’ decision.
Package Evaluation Phase
Purchasing an off-the-shelf software requires that, an
organization to go through several steps to ensure it purchases
the software that best meets its needs.
These steps are a part of
the Package Evaluation phase which comes after the System
Analysis phase.
1. Identify potential solutions.
2. Select top contenders.
3. Research top contenders.
4. Perform final evaluation of leading solutions.
5. Make selection.
6. Finalize contract.
Integration and Testing
Testing must be conducted before the software package is ready to
be put into the workspace, if the software package has been
modified to meet the needs of the organization or the software
package must integrate with the existing information systems.
1. Integration testing
2. System testing
3. Volume testing
4. User Acceptance testing
Implementation
Key Implementation Tasks:
• Use data-flow diagrams to map current business processes and requirements
to the software, and identify any gaps that must be filled by changing current
processes or by modifying the software.
• Install the software and configure all of its capabilities and options to meet the
project requirements.
• Customize any aspects of the solution needed for the organization.
• Integrate existing software with the new software.
• Train end users.
• Test the software to ensure that it meets all processes and requirements.
• Convert historical data from the old software so that it can be used by the new
software.
• Roll out the new software to users in a live work environment.
• Provide for ongoing end-user support and training.
6.4 Sourcing Methods
An increasingly popular approach to manage the IS and IT functions
of an organization is to adopt a sourcing method.
•In-Sourcing
•Outsourcing and Offshoring
• Co-Sourcing
6.4.1 In-Sourcing
In-sourcing: the organization performs an activity internally, thereby
using internal resources and governance. i.e. the activity is governed
and performed by internal resources.
6.4.2 Outsourcing
Outsourcing: A long-term business arrangement in which a company
contracts for services with an outside organization that has expertise
in providing a specific function.
Main reasons behind a decision to outsourcing:
•Save Money—Achieve Greater Return on Investment (ROI)
•Focus on Core Competencies
•Achieve Flexible Staffing Levels
•Gain Access to Global Resources
• Decrease Time to Market
6.4.3 Offshoring
Offshore outsourcing: An outsourcing arrangement in which the
organization providing the service is located in a country different
from the firm obtaining the services.
•Offshoring can be defined as a relocation of an organization’s
business processes to a lower-cost location, usually overseas.
(Offshoring can be considered in the context of either production
offshoring or services offshoring.)
6.4.4 Co-Sourcing
Co-sourcing combines the advantages of outsourcing and insourcing
as it provides access to external expertise without having to
completely give up internal control over processes. (Gross, 2006)
• Co-sourcing is advisable for processes that an organization does
not want to completely allocate to an external provider. It reviews
the main characteristics, benefits and pitfalls of the type of
co-outsourcing, along with some case evidence showing how some
organizations had approached it.