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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