Introduction to Information Technology

Turban, Rainer and Potter

John Wiley & Sons, Inc.
Copyright 2005

Chapter 11
 ACQUIRING AND
IMPLEMENTING SYSTEMS

Chapter 11
Acquiring IT Applications and
Infrastructure

Chapter 11 3
 Chapter Outline
The landscape and framework of IT application
acquisition.
Planning for and justifying information system
applications.
Strategies for acquiring IT applications: available
options.
Outsourcing and application service providers.
Criteria for selecting an acquisition approach.
Vendor and software selection and other
implementation issues.
Connecting to databases and business partners.

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 Learning Objectives
Describe the progress of IT acquisition or development.
Describe the IT planning process.
Describe the IT justification process and methods.
List the major IT acquisition options and the criteria for options
selection.
Describe the use of criteria for selecting an acquisition
approach.
Describe the role of ASPs.
Describe the process of vendor and software selection.
Understand some major implementation issues .
Understand the issue of connecting IT applications to
databases, other applications, networks, and business partners.

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 11.1The Landscape and Framework
of IT Application Acquisition
 We include in “acquisition” all approach to
obtaining systems: buying, leasing or
building.

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 The Acquisition Process
 Step 1: planning for and justifying information
systems.
 Step 2: IT architecture creation-A systems
analysis approach.
 Step 3: select a development option and
acquire the application.
 Step 4: installing, connecting, and more.
 Step 5: operation and maintenance.

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 The progress of application acquisition

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 11.2 Planning for and Justifying
Information System Applications
First, It is necessary to explore the need for
each systems.
Second , it is necessary to justify it from a
cost- benefit point of view.
Application portfolio: The set of
recommended applications resulting from the
application development.

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The IS Planning Process

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The IT Strategic Plan
A set of long range goals that describe the IT
infrastructure and major IS initiatives needed
to achieve the goals of the organization.
The IT plan must meet three objectives::
It must be aligned with the organization’s
strategic plan
It must provide for an IT architecture
It must efficiently allocate IS development
resources among competing projects

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 Three Major Issues of IT Strategic
Planning
 Efficiency
 Effectiveness
 Competitiveness

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 IT alignment with organizational
plans and IT strategy
The IT strategic plan must be aligned with overall
organizational planning, whenever relevant, so
that the IT unit and other organizational
personnel are working toword the same goals,
using their respective competencies.

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 The alignment among business and IT
strategies and IS operational plan

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 The IS Operational Plan
The IS operational plan is a clear set of projects that
will be executed by the IS department and by
functional area managers in support of the IT
strategic plan
 Mission
 IS environment
 Objectives of the IS function
 Constraints on the IS function
 The application portfolio
 Resource allocation and project management

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 Evaluating and justifying IT investment
Justifying IT investment includes three aspects:
 assessment of costs,
 assessment of benefits (values), and
 comparison of the two.

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 IT investment categories
Investment in infrastructure and investment in
specific applications:
 The IT infrastructure: Include the physical
facilities, components, services, and
management.
 The IT applications: are computer programs
designed to support a specific task, a
business process or another application
program.

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 A Model for Investment Justification

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 Costing IT Investment
Fixed costs: are those costs that remain the
same regardless of change in the activity
level. For IT, fixed costs include infrastructure
cost of IT services, and IT management cost
Total cost of ownership (TCO): Formula for
calculating the cost of acquiring, operating
and controlling an IT system.

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 Evaluating the Benefits
Intangible benefits. Benefits from IT that may
be very desirable but difficult to place an
accurate monetary value on.

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 Conducting Cost-Benefit Analysis
Using NPV in cost-benefit Analysis. Using the NPV
method, analysts convert future values of benefits to
their present-value equivalent by discounting them at
the organization’s cost of funds.
Return on investment. It measure the effectiveness of
management in generating profits with its available
assets.
The business case approach. A business case is one
or more specific applications or projects. Its major
emphasis is the justification for a specific required
investment, but it also provides the bridge between
the initial plan and its execution.
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 Cost-Benefit Analysis Methods
Method Description
Benchmarks Focuses on objective measures of performance. Metric benchmarks provide
numeric measures of performance, best-practice benchmarks focus on how IS
activities are actually performed by successful organization.
Management by Brings together corporate executives, business-unit managers, and IT executives
maxim to identify IT infrastructure investments that correspond to organizational
strategies and objectives.
Real-option Stems form the field of finance. Looks for projects that create additional
valuation opportunities in the future, even if current costs exceed current benefits.

Balanced Evaluates the overall health of organizations and projects, by looking at the
scorecard method organization’s short- and long-term financial metrics, customers, internal business
processes and learning and growth (Kaplan and Norton, 1996).
Activity- based Applies principles of activity-based costing (ABC)( which allocates costs based on
costing approach each product’s use of company activities in making the product) to IT investment
analysis.
EIAC model Methodology for implementing IT payoff initiatives, composed of 9 phases, divided
into four categories: exploration (E), involvement (I), analysis (A) and
communication (C).

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 11.3 Strategies for Acquiring IT
Applications: Available Options
Buy the applications (off-the-shelf approach)
Lease the applications
Develop the applications in–house
(insourcing)
End-user development
Other acquisition options

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 Advantages and Limitations of the
“Buy” Option
Advantages of the “Buy” option
 Many different types of off-the-shelf software are available

 Much time can saved by buying rather than building

 The company is not the first and only user

 the company can know what it is getting before it invests in the product

 Purchased software may avoid the need to hire personnel specifically dedicated to a project.

Limitation of “ Buy” option

 Software may not exactly meet the company’s need

 Software may be difficult or impossible to modify, or it may require huge business process
change to implement.
 The company will not have control over software improvement and new versions.

 Purchased software can be difficult to integrate with existing systems

 Vendors may drop a product or go out of business

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 Types of Leasing Vendors
to lease the application from an outsourcer
and install it on the company’s premise. The
vendor can help with the installation and
frequency will offer to also contract for the
operation and maintenance of the system.
Many conventional application are leased this
way.
using an application system provider (ASP).

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 Utility Computing
 Unlimited computing power and storage
capacity that can be obtained on demand and
billed on a pay-per use basis.

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 Utility Computing

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 In-House Development Approach
 Build from Scratch: used for applications for
which components are not available
 Build from components. Companies with
experienced IT staff can use standard
components (e.g., secure Web server), some
software languages ( e.g., Java, Visual basic,
or Perl), and third-party subroutines to create
and maintain application on their own.

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Building in-house Methodologies
 System development life Cycle (SDLC)
 Prototyping methodology

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 Other acquisition options
Join an e-marketplace or an E-Exchange
Join a third –party auction or reverse
auction
Engage in joint ventures
Join a public exchange or a consortium
Hybrid approach

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 11.4 Outsourcing and Application
Service Providers
 Outsourcing: use of outside contractors or
external organizations to acquire IT services
 Several type of vendors offer services for
creating and operating IT system including e-
commerce applications:
 Software houses
 Outsourcers and others
 Telecommunications companies

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 Application Service Providers (ASP)
 An agent or vendor who assembles the
software needed by enterprises and
packages them with outsourced development,
operations, maintenance, and other services.

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 Additional criteria for selecting an ASP
vendor
 Database format and portability .
 Application and data storage
 Scope of service
 Support services
 integration

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 Criteria for determining which application
development approach to use
 The functionalities of package  How to measure benefits

 Information requirement  Personnel needed

 User friendless  Forecasting and planning for

technological evolution
 Hardware and software  Scaling
resources
 Installation  Sizing
 Maintenance services  Performance

 Vendor quality and track record  Reliability

 Estimated costs  Security

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 Advantage and disadvantage of various
system acquisition method
Traditional system development (SDLC)  may produce excessive documentation
 force staff to systematically go through  users may be unwilling or unable to study
every step in a structure process the specifications they approve
Enforce quality by maintaining standards  takes too long to go from the original ideas
Has lower probability of missing important to a working system
issues in collecting user requirements. User have trouble describing requirement for
a proposed system.

Prototyping  may encourage inadequate problem

 helps clarify user requirements analysis
 helps verify the feasibility of the design Not paractical with large number of users
 promotes genuine user participation User may not give up the prototype when the
Promotes close working relationship system is complete.
between systems developers and users.  may generate confusion about whether the
Work well for ill-defined problems system is complete and maintainable
May produce part of the final system  system may be built quickly, which may
result in lower quality

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 Advantage and disadvantage of various
system acquisition method cont…
End user development
 bypasses the IS department and avoids  may eventually require maintenance
delays assistance from IT department
User controls the application and can  documentation may be inadequate
change it as needed  poor quality control
 directly meets user requirement System may not have adequate inferences to
increased user acceptance of new system existing systems
Frees up IT resources
May create lower-quality systems.

External acquisition (buy or lease)  controlled by another company with its own
Software can be tried out priorities and business considerations.
Software has been used for similar problem Package’s limitations may prevent desired
in other organizations business processes
Reduces time spent for analysis, design and May be difficult to get needed
programming enhancements.
Has good documentation that will be  lack of intimate knowledge about how the
maintained software work and why it works that way

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 11.6 Vendor and software selection
and other implementation issues
Martin et al. (2000) identified six step in
selecting software vendor and an application
package.
 Step 1 : Identify potential vendors
 Step 2: determine the evaluation criteria
 Step 3: evaluate vendors and packages
 Step 4: choose the vendor and package
 Step 5: negotiate a contract.

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 Criteria for selecting a software
application package
 Cost and financial terms
 Upgrade policy and cost
 vendor’ reputation and availability for help
 System flexibility
ease of Internet interface
 Availability and quantity of documentation
 Necessary hardware and networking resources
 Required training (check if provide be vendor)
 Security
 Learning (speed of) for developers and users
 Graphical presentation
 Data handling
 System- requirement hardware

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 Other Implementation Issues
In-house or outsource Web site
Consider an ASP
Do a detailed IT architecture study
Security and ethics
Evaluate the alternatives to in-house systems
development

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 11.7 Connecting to Databases and
Business Partners
 EC application must be connected to internal
information systems, infrastructure, ERP,
and so on.
 They also must be connected and are
referred to as “integration.”

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 Connecting to database

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