Unit VIII Research Paper

DBA 8671, Technology and Innovation Management 1

Course Learning Outcomes for Unit VIII Upon completion of this unit, students should be able to:

4. Summarize the challenges faced by information technology (IT) departments when managing security and service delivery for organizations. 4.1 Discuss the role of internal and external management of demand for technology.

5. Evaluate the importance of developing competent, professional, and ethical information technology

(IT) leadership. 5.1 Explain the challenges of preparing leadership to manage emerging technologies.

Course/Unit Learning Outcomes

Learning Activity

4.1

Unit Lesson Chapter 20 Chapter 21 Unit VIII Research Paper

5.1 Unit VIII Research Paper

Reading Assignment Chapter 20: Managing IT Demand Chapter 21: Application Portfolio Management

Unit Lesson Managing Internal Demand for Information Technology Hardware and Services The possibilities for new applications, increased bandwidth, and more powerful bandwidth are nearly endless. Not a day goes by without some request for a new laptop or access to the perceived latest and greatest application. Why is there so much demand for something new? How do technology managers deal with the constant demand? To begin with, it should be understood by managers that basic economics are at work within the walls of the organization just as much as they are outside of the operation within the marketplace. Economics informs us that the price mechanism provides signals that have the tendency to modify behavior. Because of this, humans will often buy more of something that is priced lower and tend to ration goods and services that are priced at a higher level. It could be further inferred that a high demand may be created in the presence of a perceived low cost or in the absence of the signaling effect of prices. This is a fundamental concept for managing demand internally and one that may easily be overlooked by technology managers. When the aforementioned is recognized, managers may consider embedding price signaling methods for helping individuals and departments better understand the cost in addition to the benefits of information systems. The course textbook refers to chargeback systems. This is at its heart a price signaling method. Assume, for example, a department manager requests bandwidth upgrades for the department and notebook personal computers (PCs) for all traveling salespeople. The information technology (IT) department using a chargeback system could easily reply to the request by providing the costs for the requested hardware and services and then bill the department budget. Instead of asking permission for information system products and services, the manager negotiates a budget and is presented with pricing in the form of internal costs to be billed to the respective manager’s budget; then, the manager modifies his or her behavior according to the

UNIT VIII STUDY GUIDE

Managing Demand Today and Tomorrow

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signaling effect of the price mechanism. It is interesting to observe how easily demand for an internal good or service can decline when the true costs of the requests are understood. It should also be mentioned that price is only one of many elements of demand management that are less visible but could be made to become more visible by employing improved processes and reporting. As an example, it is not uncommon for departments and sometimes entire operations to submit a request for additional Internet bandwidth. A typical reason cited for a request such as this would be based on the day-to- day requirement of searching for information, collaborating with suppliers of clients over Skype, or delivering or receiving software downloads. At face value, this is a reasonable request, but is this really the reason that existing bandwidth is being consumed? Tracking the day-to-day use of the Internet can explicitly reveal on- the-job Internet usage patterns as well as which uses are driving the need for bandwidth. It is not uncommon to find personal use of the Internet at work to be a significant component of bandwidth usage. Visibility makes the difference in judging the true needs of the organization as opposed to wants as expressed by demand requests to managers. Shining light on or making visible that which was previously not-so-visible creates feedback loops within the organization that allow for ongoing self-correction. Evaluating Requests for New Investments In addition to day-to-day budget management in the context of the chargeback process, there are also times when major investments are considered (e.g., large-scale systems, hardware purchases). These are also considered in terms of managing demand, and they often present difficulties for IT managers. A good approach to take is to attempt to quantify the need in terms of balancing costs as well as benefits. Consider, for example, a request for a fault-tolerant backup server to support the existing development environment. The rationale for a request such as this is to avoid the possible outage at a critical stage of system development. Viewed in this context and thinking about the impact to customers as well as to the business model of the company, the proposal would appear to be a reasonable idea. However, funding is always limited; therefore, this demand should be managed in some way. How would a manager evaluate such a request for IT services and equipment? The manager could ask how much the new server will cost. As an example, a large-scale backup server may cost $150,000.00. This is a large number, but the impact of a system outage could also be high. The next step for the manager would be to determine the likelihood of an outage as well as the cost of an outage. This is the fundamental probability-impact equation used to value and rank risks. Assume, for example, that the employee requesting the new equipment states that the existing system went down for 3 days and that this happened once within a 3-year period. Furthermore, the cost per day of idled employees is estimated to be approximately $20,000.00 per day.

Calculation illustrated on a whiteboard

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A simple whiteboard exercise, as shown in the image provided, could illustrate that the likelihood: 3 days out of 3 times 365 days or 3/(3 X 365) or 1/365 = .003%. This is a very low probability. Multiply this number times the cost per day for each day, and the result is 3 x $20,000.00 X .003 = $180.00. The whiteboard clearly reveals that $180 is much less than $150,000.00, thereby “pouring cold water” on the demand for this new information system component. The only caveat to consider in this type of analysis is the possible impact from customers or the marketplace in general because of a system outage. Even in this case, the impact would need to be considered as extremely high to make the case for the system. Each possible impact could be modeled one by one in terms of future cash flow impact. Once again, cost versus benefit is made clear, and behavior is adjusted accordingly. Managing Development Demand Internal requests are only one part of the information system demand equation. The market presents demand on the organization as do specific customers. The dilemma often faced by managers is that there are more opportunities available than there are hours in the day, staff to execute them, or funding to pay for them. In light of this, organizations must incorporate formal processes for deciding what to do and what not to do in terms of product, service, and system development for the external market. The phrase what to do and what not to do is often referred to as portfolio management or governance (Marion, 2018). The process and structure associated with portfolio management are important for the long-term success of the operation. Although many apparently attractive opportunities exist in the market, deciphering which have the greatest potential and which do not is rarely obvious up front. Some opportunities that are very attractive based upon a given set of assumptions may become less so over the duration of the development effort. There must be some systematic method of gauging opportunities, not only at the beginning stage of development but throughout life of the development effort. One way to accomplish this is to think of development investments in a manner similar to any financial investment. Some investments that a company may undertake are high- risk, high-return, whereas others might tend to produce lower, yet stable returns. Technology managers carefully consider the strategy of the company when deciding which development efforts to undertake and which to avoid. Also, grouping together similar projects, somewhat like the Boston Consulting Group’s (BCG) growth-share matrix, could prove useful (Stern & Stalk, 1998). Employing such a portfolio management system can aid a company in determining which development efforts will require the most funding and which could be lowered in priority and put on the back burner. This approach to management of system development is reminiscent of selective inventory management systems, such as the ABC categorization of SKUs (Muller, 2011). Some projects require more management attention than others do, so grouping like-projects together simplifies the job of matching the demand of deliverables from the outside world with the investment and internal effort of the technology operation. It is also important to remember that some projects classified in one category may well shift over time as the development effort progresses. Assumptions about markets and technologies change. In addition, disruptions in the marketplace occur that could dislodge a low-investment/high-return project from its perch and transfer it overnight to an effort that requires significant funding. Since movements in the market happen quickly, it is important for technology managers to track projects, the macro environment, and strategic assumptions and include these in a dashboard view of the portfolio for executive decision-making.

References Marion, J. (2018). Project management: A common-sense guide to the PMBOK. New York, NY: Momentum. Muller, M. (2011). Essentials of inventory management (2nd ed.). New York, NY: AMACOM. Stern, C. W., & Stalk, G., Jr. (1998). Perspectives on strategy from the Boston Consulting Group. New York,

NY: Wiley.