Managing Operations Lecture 18. Managing Operations The three major operational issues discussed...

Managing OperationsLecture 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 bandwidthHeavy volume of data being transferredPower 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 time

Program failures

= Customer Satisfaction

What Are Operations? Operational Measures

Internal: Of interest to systems people:

Computer usage as % of capacity

Disk storage used

Job 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

MICROSOFTCase Example: Offloading of Operations

(Webcast)

The launch of a new version of Windows operating system was done via

Personal and

Public Internet broadcast

Private webcast – 6,000 OEM system builders in 83 countries


(Webcast)

Webcast by Akamai – >12,000 servers in 66 countries

Specializes in hosting corporate Websites

Giving users in far-flung locations fast downloads of Web content and streaming media


(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

U.S. driven – other countries have variations on this pricing (share market) model but the drivers = still $$$

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 began with ‘big-bang’ deals.

The goal was purely financial.

Problems occurred – ‘us VS them’ and culture clash

Note: ‘Outsourcing’ existed in many other areas and had for years e.g. trucking


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


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


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

ANZCase 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 world-leading 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

ANZCase Example: Business Process

Outsourcing

transition3. Do your best to make the outsourced group appear

seamless to your employees4. Focus early on what you want and don’t get

sidetracked5. Keep incentive mechanism simple and transparent Be able to benchmark performance, and 6. Understand, to a fair degree of detail, the value

chain you plan to embrace


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


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

equipmentObsolete?


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


Important to understand:

The amount of consulting required

The chargeback mechanism (for only paying for use)


The contract terms

Where it could provide benefits etc.

In 15 years, IT outsourcing has expanded (and changed) significantly

MOBIL TRAVEL GUIDECase 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 GUIDECase 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

Managing Operations Lecture 18. Managing Operations The three major operational issues discussed...

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