4-02-75 INFORMATION MANAGEMENT: STRATEGY, SYSTEMS, AND TECHNOLOGIES SYSTEMS DEVELOPMENT PERFORMANCE IMPROVEMENT Warren Harkness INSIDE Effectiveness; Efficiency; Approaches to Process Improvement; Ad Hoc Approach; Total Quality Management; Structured Intervention; Process Management INTRODUCTION The size, scope, and importance of information systems (IS) initiatives are crucial to an enterprise s success. Needless system development efforts are unacceptable organizational resource drains. System development professionals must focus on fewer projects; spreading themselves thin on too many projects wreaks havoc on the most promising ones. It is crucial that IS managers understand current implementation problems in order to focus their system development efforts on winners. The objectives include freeing up resources, reducing wasteful activities, and dramatically improving business performance. The results are reduced cycle times and improved customer satisfaction the same end results sought by the general business community. This is the first article in a two-part series designed to help senior and mid-level IS executives understand performance improvement within the IS domain. It describes the value chain (or business processes) of information systems within an enterprise. The effectiveness of this value chain is ultimately determined by its ability to deliver the right product or service with appropriate customer value. It is critical to the success of the enterprise that its ability to meet or exceed the needs of the customer is driven by an ability to do so for the PAYOFF IDEA It is crucial that IS managers understand current implementation problems in order to focus their system development efforts on winners. This article promotes that understanding using the value chain concept to explain the IS role within the enterprise. The effectiveness and efficiency of this value chain help determine the organization s success, ultimately resulting in reduced cycle times and improved customer satisfaction.
INFORMATION MANAGEMENT: STRATEGY, SYSTEMS, AND TECHNOLOGIES right expenditure of effort and resources, thereby meeting or exceeding the needs of the enterprise. Background How does the IS function fit into the overall fabric of the enterprise? What is its role? The purpose of the enterprise is to create and deliver goods or services to its customers. IS performance improvement applies whether the enterprise is a public, private, or non-profit institution. One way to describe the role of IS within the enterprise is to utilize the value chain concept. The value chain of an enterprise is the collection of activities that are performed to design, market, deliver, and support its product(s). 1 The value chain includes the flow of information and physical materials through the various processes from beginning to end, converting ideas and raw materials into finished products or services for customers, and adding unique value at specific steps in the process. The value chain is sometimes portrayed graphically as a series of chevrons, as shown in Exhibit 1. Each chevron represents a major process of the enterprise, such as concept-to-market (the activities from conception to bringing it to market through engineering, manufacturing, marketing, etc.), or order-to-collection (the activities from initial customer order to collecting the accounts receivable for the product or service). The value chain can be understood as the interconnection of the key business processes through the enterprise. Many of the steps and the interconnections are conducted informally and are not documented activities. Most processes in today s complex enterprises inevitably end up as the embedded information systems of the enterprise: these are the systems applications implemented within the information technology infrastructure of the enterprise. The effectiveness and efficiencies of this value chain (i.e., the business processes) determine to a large extent the success of the enterprise. Effectiveness means delivering the right product or service with the appropriate customer value meeting or exceeding the needs of the EXHIBIT 1 Enterprise Value Chain and Customers Symbols
SYSTEMS DEVELOPMENT PERFORMANCE IMPROVEMENT EXHIBIT 2 Delivering Business Value customer. Efficiency means delivering that product or service for the right expenditure of effort and resources meeting or exceeding the needs of the enterprise. EFFECTIVENESS Effectiveness has to do with delivering business value through the right set of products or services, at the right time, for the right price (see Exhibit 2). Therefore, the analysis and evaluation of effectiveness have to do with the key relevant factors of the enterprise; these are specific to each firm. Examples include delivering the right product to the right place, such as a package delivery by FedEx, or assembling the required information at the right time for a specific customer in order for Fidelity to execute a mutual fund trade. The key effectiveness questions are: Is the enterprise delivering the right business value? Are the current business processes capable of the performance level required by the enterprise in order to deliver the business value? Are the installed information systems capable of the performance level required by the business processes? Are the installed information systems currently performing at the level required by the business processes? If the business value being delivered by the enterprise itself is insufficient, then some improvement initiatives may be appropriate, such as increasing the availability of products to customers or reducing distribution costs. If the business processes are not sufficiently capable, then the improvement initiatives may take the form of reducing product development cycle times, decreasing billing errors, or decreasing order entry costs. If the information systems are not performing at the level required by the business processes, improvement initiatives might take the form of replacing the functional applications. These could include implementing
INFORMATION MANAGEMENT: STRATEGY, SYSTEMS, AND TECHNOLOGIES EXHIBIT 3 Key Business Processes an enterprise resource planning system, installing a new electronic commerce capability, or implementing a new product data management system. In short, performance improvement effectiveness has to do with initiatives that: change the value proposition to the customer improve the capability of the business processes involved with delivering that value package to customers improve the systems applications involved with the key business processes (see Exhibit 3) EFFICIENCY Efficiency has to do with delivering the product or service for the right expenditure of effort and resources, while meeting a given set of customer requirements. In the IS domain, efficiency means that the system projects are being implemented on time and within budget and, most importantly, that they meet or exceed the needs of the clients. ( Customer here refers to the paying customers of the enterprise, and client refers to the internal customers of the IS organization.) The efficiency focus for performance improvement means ensuring delivery of IS projects in the pipeline by improving the IS processes used to deliver those projects. The key efficiency questions are: Can the projects currently underway be delivered on time? within budget? to the clients requirements?
SYSTEMS DEVELOPMENT PERFORMANCE IMPROVEMENT EXHIBIT 4 IS Value Chain Parallel to the Enterprise Value Chain Can the process by which systems projects are delivered be improved to better meet client needs? to reduce our delivery costs? to meet our delivery schedule? The IS processes can also be thought of as the IS value chain parallel to the value chain of the enterprise (see Exhibit 4). The difference is that the major processes within IS might be concept-to-pilot or systems development-through-implementation. In summary, IS performance improvement can be thought of in two dimensions: effectiveness and efficiency. The key effectiveness issues are: Are the installed information systems capable of the performance level required by the business processes? If so, are the installed information systems currently performing at that level? If the answer to either of these questions is no, then the correct response is to evaluate the systems portfolio and analyze which systems should be enhanced or replaced. The key efficiency issues are: Can the projects currently underway be delivered on time, within budget, and to clients requirements? Can we improve the process by which we deliver our systems projects to better meet client needs, to reduce our delivery costs, or to meet the delivery schedule? If the answer to either of these questions is no, then the correct response is to launch a systems delivery process improvement effort. APPROACHES TO PROCESS IMPROVEMENTS There are numerous approaches to improving the IS process, ranging from a just-in-time method to an explicit, focused management method. Four common IS process improvement approaches are:
INFORMATION MANAGEMENT: STRATEGY, SYSTEMS, AND TECHNOLOGIES 1. ad hoc approach 2. Total Quality Management (TQM) 3. structured intervention 4. process management Ad Hoc Approach The ad hoc approach is characterized by fixing the biggest problem of the moment on the current project. It has a just-in-time orientation (measured in days or weeks), focusing on the critical problems with the latest project. For example, if it is discovered that a current project lacks a project plan, a project planning method would be chosen on-the-fly, to address actual problems with the project at hand. Strengths include: focuses on critical, time-urgent problems not a lot of wasted time spent on fixing irrelevant problems Weaknesses include: little time spent on problem formulation solutions tend to be tactical in nature and not long-term fixes Total Quality Management (TQM) The TQM approach is characterized by creating a capability for the IS organization to identify problems in the current processes, understand the root causes of those problems, formulate solutions, test solutions, and revise the processes. This approach has a long time orientation (measured in years); it focuses on building the capability in the organization to understand the problem-solving approach and successfully apply it. Strengths include: builds organizational improvement capability to find and solve problems involves those who understand processes in fixing them Weaknesses include: takes a long time to see significant results problems addressed tend to be those that the teams want to solve Structured Intervention The structured intervention approach is characterized by assembling a team to measure gaps in performance. The team is charged with:
SYSTEMS DEVELOPMENT PERFORMANCE IMPROVEMENT selecting key areas of the company s system delivery process upon which to focus improvement efforts collecting and analyzing data to determine root causes of shortcomings planning and implementing solutions making one thing work at a time evaluating results through metrics institutionalizing solutions This approach has a medium-range time orientation (measured in months), focused on finding the critical problems of the organization, and then developing and applying solutions. Strengths include: finds key problems in current situation takes a short time to see significant results Weaknesses include: requires active involvement of the IS management group in understanding and selecting key problems can fix only a limited number of problems Process Management Process management is characterized by creating a capability for the IS organization to: deeply understand the processes within the IS organization assign process owners develop process metrics manage processes on a longterm basis The process owners have the responsibility to put in place process metrics, assess the current processes using those metrics, and launch improvement teams to improve the processes. This approach is often a logical evolution of the TQM approach, which tends to focus on fixing problems within processes. Strengths include: focuses on long-term systematic understanding of problem-solving within process framework builds a deep organizational learning of process Weaknesses include:
INFORMATION MANAGEMENT: STRATEGY, SYSTEMS, AND TECHNOLOGIES takes a long time to see significant results difficult to sustain the effort over a long period of time NEXT STEPS The second part of this article will focus on two of the improvement approaches discussed above: process management and structured intervention. The article will examine these process improvement approaches in detail, and provide actual enterprise examples. Notes 1. Porter, M., Competitive Advantage: Creating and Sustaining Superior Performance, The Free Press, 1985. Warren Harkness is a principal consultant with PDC. He has over 30 years of experience in all aspects of information systems (IS) management. His expertise in IS is complemented by strong insights on how to develop and implement continuous improvement systems and how to motivate managers and individual contributors across functional organizations. He can be reached at warren_harkness@pdcinc.com.