Download Lecture 18

Managing Operations
Lecture 18
Managing Operations

The three major operational issues discussed are:
 Outsourcing information systems functions
 Information security, and
 Planning for business continuity

Due to mergers, the Internet, e-commerce, and the 9/11
attacks, the subject of computer operations has been
receiving a lot of attention
Managing Operations

Systems operations are important because, if they are
not professionally run (and backed up properly), a
computer or network crash could shut down a company’s
business for some period of time

Case examples include Microsoft, ANZ Banking
Corporation, Mobil Travel Guide, Eastman Kodak,
Honda Motor Company, Exult, Credit Card Fraud,
Plymouth Rock Assurance, and Household International
Today’s Lecture

Introduction

What are Operations
 Why Talk About Operations?
 Solving Operational Problems
 Operational Measures
 The Importance of Good Management
 What’s New in Operations
Today’s Lecture

Outsourcing Information Systems Functions
 The Driving Forces Behind Outsourcing
 Changing Customer-Vendor Relationships
 Outsourcing’s History
 Managing Outsourcing
 Offshoring
Introduction

Due to mergers, the Internet, e-commerce, and the
September 11 terrorist attacks, the subject of computer
operations has been receiving a lot of attention

Systems operations are important because:
 If
they are not professionally run:
Introduction..


A company could suffer a computer or network
crash that could shut down their business for some
period of time
It is not a trivial area, especially as companies become
increasingly reliant on networks and computers to run
their business
Industrial System Operation Management
Introduction…

Poorly run IS shops cause IS executives to end up
‘fighting fires’ instead of setting policy
OR

They find themselves looking for a job!
Introduction…
The main change in operations is the shift in viewpoint
towards managing operations (Figure 8-1):

Traditionally – managing inward, i.e.: managing one’s
own operations staff

Today – just as likely to mean managing outward =
managing relationships with (external) service providers
Introduction..
 Outsourced
IT service providers who have taken over
the day-to-day operational work


In some instances
Back to the future?
 Benefits
not realised
 Unexpected costs - $ and otherwise
What Are Operations?
Why Talk About Operations?

A Typical MIS Department Budget:
 33%
Systems and Programming

70% Maintenance

30% New Development
What Are Operations?
Why Talk About Operations?
 10%
Administration and Training
 57%
Operations

Involve more $$$ than any other part of the IS
department

Very involved (difficult), challenging and rewarding
area
What Are Operations?
Solving Operational Problems
Operational problems are obvious to the entire company:
•
Response times are slow
•
Networks are down
•
Data isn’t available
•
Data is wrong
Slow Response Time

Slow Response time may be due to
A virus infection
 Some conflicting software programs that loads at
the startup
 Multiple security programs
 Recently installed software updates or drivers
 Third-party browser plug-ins
 Cluttered files over years
 A lot of items loading at the startup

Networks are Down

Networks are down because of
 Slow
bandwidth
 Heavy volume of data being transferred
 Power failures
 Improper
hardware
Data is not available because of..
Database server is slow
 Supporting network not working
 Too many requests for data on the
network.
 Improper design/requirement analysis of
database designs.

Data is wrong
Not a reliable data storage mechanism.
 Data without proper database formats.
 Confusing data

What Are Operations?
Solving Operational Problems cont.

Three strategies to improve operations:
1.
Buy more equipment
2.
Continuously fight fires and rearrange priorities,
getting people to solve the problems at hand
What Are Operations?
Solving Operational Problems cont.
3.
Continually document and measure what you are
doing, to find out the real problems, not just the
apparent ones.
Then set standards and manage to them = the
preferred solution
What Are Operations?
Operational Measures

External: What the customer sees:
 System uptime
 Response
time
 Turnaround
 Program

time
failures
= Customer Satisfaction
What Are Operations?
Operational Measures

Internal: Of interest to systems people:
 Computer
 Disk
 Job

usage as % of capacity
storage used
queue length etc.
Problems reported by external measures can be
explained by deviations in internal measures
What Are Operations?
The Importance of Good Management

The corporate culture created by IS management must
recognize and value good operations

Skills of an Operations manager = similar to that needed
in e.g. a factory
 Manager
must schedule work to
 meet delivery dates,
 monitor performance
 respond quickly to problems
What Are Operations?
The Importance of Good Management

The key to managing operations is the same as in any
management job:
 Set
standards
 Then
manage to those standards
 By finding an outstanding operations manager
What Are Operations?
What’s New in Operations?


Companies have ‘cleaned their operational house’
 Y2K
and the Internet forced this
 Now
= most in relatively good shape
More Operations managers are Managing outward –
BUT CIOs must not relinquish responsibility for
Operations
 Ensure
their people are properly managing
relationships
What Are Operations?
What’s New in Operations?

Operations are being ‘simplified’
 Centralizing
applications in one place rather than
distribute them on PCs


Server based computing (Chapter 5)
Certain operations are being offloaded
 e.g.
webcasts
MICROSOFT
Case Example: Offloading of Operations
(Webcast)

The launch of a new version of Windows operating
system was done via
 Personal
 Public
and
Internet broadcast
webcast – 6,000 OEM system builders in 83
countries
 Private
MICROSOFT
Case Example: Offloading of Operations
(Webcast)

Webcast by Akamai – >12,000 servers in 66 countries
 Specializes
 Giving
in hosting corporate Websites
users in far-flung locations fast downloads of
Web content and streaming media
MICROSOFT
Case Example: Offloading of Operations
(Webcast)

Private webcast which set a record for:
 Attendance
 Global
reach
 Audience
participation
What Are Operations?
The Focus of CIOs in Operations is
Changing

Their attention used to be focused on ensuring they had
the in-house expertise to keep systems and networks up
and tuning

Their attention is now toward determining where best to
perform the various kinds of operations:
 In house or with a third party (or permutations and/or
combinations thereof)
 Then manage it accordingly
OUTSOURCING INFORMATION
SYSTEMS (IS) FUNCTIONS

Outsourcing means turning over a firm’s
computer operations, network operations, or
other IT function to a vendor for a specified time

CIOs are expected to at least to ‘prove’ that their
in-house operations are as efficient and effective
as if they were outsourced
 Shared
Services concept
 Should outsource what they do not do well
Outsourcing IS Functions:
Driving Forces Behind Outsourcing

Focus on core businesses: In the 1980s, this led to huge
amount of merger and acquisition activity

Shareholder value: Companies were “priced” based
on their shareholder value, that is, their discounted cash
flow, as a result of high-yield bonds that allowed a few
people to buy a company and leverage it with debt
Outsourcing IS Functions:
Driving Forces Behind Outsourcing
 Management
must stress value, they must consider
outsourcing in all their nonstrategic functions
driven – other countries have variations on this
pricing (share market) model but the drivers = still $$$
 U.S.

And ‘follow the leader’ / trend?
Outsourcing IS Functions:
Changing Customer-Vendor Relationships

Relationships have expanded from buying professional
services, to buying products and transactions, to
integrating systems, to outsourcing – the most bundled
approach to contracting

In this evolution:
 CIOs
have increasingly lost control
 More activities turned over to outsiders
 Providers
take on more risks
 As they move to (options on) the right of Figure 8-2
Outsourcing IS Functions:
Changing Customer-Vendor Relationships
 Provider’s
margins increase

Again = to the right

Risks also improve: Don’t get “Nothing for
nothing!”, and
 Importance
of choosing the right provider becomes
more important
Outsourcing IS Functions:
Outsourcing’s History

In 1989 only (full) IT outsourcing was available
 Essentially
 The
goal was purely financial.
 Problems

began with ‘big-bang’ deals.
occurred – ‘us VS them’ and culture clash
Note: ‘Outsourcing’ existed in many other areas and had
for years e.g. trucking
Outsourcing IS Functions:
Outsourcing’s History

Early 1990s: Transitional outsourcing
 Two
routes outsourcing legacy systems
Maintenance of their legacy systems – hence –
staff concentrate on building new client server
systems
 Client server development to specialists & keep
maintenance in-house

Outsourcing IS Functions:
Outsourcing’s History

Mid to late ’90s = Best-of-breed outsourcing
 Selective
outsourcing began
 ‘Collaborative
outsourcing’ – one company prime
contractor and secondary external service providers
Outsourcing IS Functions:
Outsourcing’s History cont.


Shared services
 “in-sourcing” to shared service group Improved efficiencies &
 Saved money
Business process outsourcing
 As IT Outsourcing ‘matured’ it became a commodity
service
Outsourcing IS Functions:
Outsourcing’s History cont.
Profit margins dropped
 Competitors rose
 Quality Vs. Cost Vs. $$$ Vs. Pressure – not all
was ‘happy’

 Higher
margins in specialized specific areas
 Business process of which IT was a significant
component
ANZ
Case Example: Business Process
Outsourcing


Australia’s third largest bank has outsourced its
procurement function, not to reduce costs, but to gain
greater quality purchases and lower ANZ’s annual
purchasing spend
The bank has learned numerous lessons in this worldleading outsourcing deal:
1. Be prepared to change the contract as your
environment changes
2. Make step changes in technology and processes to
save time and money, focus on having an effective
ANZ
Case Example: Business Process
Outsourcing
3.
4.
5.
6.
transition
Do your best to make the outsourced group appear
seamless to your employees
Focus early on what you want and don’t get
sidetracked
Keep incentive mechanism simple and transparent
Be able to benchmark performance, and
Understand, to a fair degree of detail, the value
chain you plan to embrace
Outsourcing IS Functions:
Outsourcing’s History cont.

E-business outsourcing
 With
the arrival of business use of the Internet,
outsourcing has been one way that companies can
quickly get Websites up and handling business
 In
dot-coms and Internet- based operations
 Preferred mode of operation
Outsourcing IS Functions:
Outsourcing’s History cont.
 Even
with the dot-com crash = still a legitimate way to
mobilize for e-business
Allows a company to move fast
 Companies can remain flexible
 Does not tie up $$$ in computer and networking
equipment
 Obsolete?

Outsourcing IS Functions:
Outsourcing’s History cont.

Utility Computing
 Also
known as on-demand computing, virtual data
centers and grid computing
 Idea = computing power can be treated like
electricity: You plug in and only pay for what you
use
 Numerous
vendors, especially IBM, HP and Sun are
promoting access rather than ownership
 Selling the idea of turning clients’ fixed IT costs
into variable costs
Outsourcing IS Functions:
Outsourcing’s History cont.
 Important
to understand:

The amount of consulting required

The chargeback mechanism (for only paying for
use)
Outsourcing IS Functions:
Outsourcing’s History cont.


The contract terms

Where it could provide benefits etc.
In 15 years, IT outsourcing has expanded (and changed)
significantly
MOBIL TRAVEL GUIDE
Case Example: Utility Computing

Illustrates the convergence of e-business and IT
outsourcing into utility computing in a high-need area: its
Web site

Travel guide for North America
 Information
static and site couldn’t handle the spikes
in demand during e.g. holidays
MOBIL TRAVEL GUIDE
Case Example: Utility Computing

Wanted to upgrade site but rather than making the large
investment to upgrade its own IT resources = turned to
IBM to host and manage the site
 No need for upfront investments
 No concern re handling peaks

Saving 35% in maintenance and software costs

Only paying for what it uses of IBM’s world-class, highly
scalable e-business infrastructure
Summary

What are Operations
 Why Talk About Operations?
 Solving Operational Problems
 Operational Measures
 The Importance of Good Management
 What’s New in Operations
Summary….

Outsourcing Information Systems Functions
 The Driving Forces Behind Outsourcing
 Changing Customer-Vendor Relationships
 Outsourcing’s History
 Managing Outsourcing