The Generic IS/IT Bussiness Value Category : Cases In Indonesia

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The Generic IS/IT Bussiness Value Category : Cases In Indonesia

  1. 1. The Generic IS/IT Business Value Category: Cases in Indonesia Ir. Benny Ranti, MSc. Graduate Program in Information Technology University of Indonesia ranti@infosolusi.co.id AbstractFor years, many researchers and practitioners have been debating about the worth or business value of IS/IT investment. Bytaking into account the positive impact of IS/IT investment, a research has been done to explore the identification of IS/ITbusiness values resulting from the implementation of various IS/IT projects in various industries in Indonesia by using acollection of documents as the key data source. Each document contains valuation report of IS/IT project investments inorganizations collected using Information Economics methodology. The focus of this study is in identifying the IS/IT businessvalues with hermeneutics as the method to interpret the meaning of the document. In the identification process, IS/IT is seenfrom the tool and ensemble views, i.e., how people develop and use IS/IT as a tool to generate value to increase organizationalperformance. This paper discusses the research result called the Generic IS/IT Business Value Category which consists of 13categories and 74 sub-categories. They have been compared against 190 sub-categories from the 4 previous studies builtbased on the developed countries case to find out values which might be unique to the Indonesian case.Keywords: IS/IT investment, organizational performance, IS/IT business value, Information Economics, hermeneutics, toolview, and ensemble view1. INTRODUCTION business values properly, the CIO in particular not only can miss the potential values but also misjudge the totalInformation systems/information technology (IS/IT) economic value of the IS/IT investment. This less accuratebusiness value can be commonly defined as the IS/IT judgement might lower down the feasibility level of thecontributions to improve business performance of the IS/IT project or initiative which might cause the initiative toorganization. Topics related to IS/IT business value be turned down or delayed. Consequently, the companymeasurement or IS/IT investment management have been might loss the opportunity to increase business performanceamong the key issues in IT Governance and gained through the implementation of the IS/IT initiative.Management/CIO Forum discussions in the last decade. Thus, identifying IS/IT business values becomes the basicLuftman, based on his research published in MIS Quaterly necessity to increase the success rate of IS/ITExecutive 2006 (Luftman 2006), found that “Measuring the implementation.Value of IT Investments” and “True Return on ITInvestments” were in the Top 10 Management Concerns in 2. RESEARCH FOCUS AND SCOPE2005. The IT Governance Framework produced by MITSloan School of Management’s Center for Information The focus of the research is in identifying IS/IT businessSystems Research (CISR) put “IT Investment and values resulting from the implementation of various IS/ITPrioritization” as one of the 5 domains or pillars of IT projects in various organizations in Indonesia withGovernance (Weill 2002). Peterson also put “IT hermeneutics as the method to interpret the meaning of thePropositions and IT Investments” as one of the key data sources in the form of text/document. In thedimensions in his IT Governance Model (Peterson 2004). identification process, IS/IT is seen from the tool and ensemble views, i.e., how people develop and use IS/IT as aAccording to survey done by IDC, the worldwide IS/IT tool to generate value to increase organizationalspending covering hardware, software, and services, reached performance.nearly USD 1 trillion in 2004 and is on the way to reachUSD 1.2 trillion by 2008. It is no surprise that an The research was conducted using data sources (in the forminvestment of that magnitude will attract the attention of top of research reports using Information Economics method toexecutives everywhere. Without analyzing the IS/IT measure IS/IT project) from 60 cases of various IS/ITe-Indonesia Initiative 2008 (eII2008) 1Konferensi dan Temu Nasional Teknologi Informasi dan Komunikasi untuk Indonesia21-23 Mei 2008, Jakarta
  2. 2. project implementations in various organizations in 2. Increasing Productivity caused by (restructuring jobIndonesia with the following spread of data: function, accelerating mastering product knowledge, ease of analysis, increasing employee satisfaction).1. The projects or cases vary including Management 3. Accelerating Process of (production process, stock Information Systems (20 cases), Enterprise Resource procurement process, report making process, data Planning (10), Banking System (7), Customer preparation process, order checking process, debt Relationship Management (5), Data Warehouse (3), payment process, transaction process, decision making Electronic Procurement (3), Intranet (3), Electronic process). Learning (3), Billing System (2), Executive Information 4. Reducing Risk of (price miscalculation, unrecoverable Systems (2), and Human Resources Management claim, inventory lost, rejected goods, data lost, incorrect System (2). data, penalty, losing potential employee, forgery,2. The organizations vary representing Services (12 administration fraud, incorrect payment, asset institutions), Banking (7), Manufacturers (7), mismanagement). Government (7), Telecommunications (6), Insurance 5. Increasing Revenue caused by (increasing business (5), Distributors (3), Oil and Gas (3), Contractors (2), capacity, increasing report quality, increasing customer Universities (2), and Airlines (2). Each company can be trust, widening market segment, increasing other counted more than one as long as the projects are incomes). distinct. 6. Increasing Accuracy of (billing, analysis, data, planning, decision).The choice of the variety of IS/IT projects as well as 7. Accelerating Cash-in caused by (accelerating billingorganizations where the projects were implemented is by dispatching).purpose (purposive sampling). Purposefully picking a wide 8. Increasing External Services of (reducing orderrange of variation on dimensions of interest or maximum cancellation, knowing customer’s problems, addingvariation sample to identify important common patterns that point of services, personalized services, customercut across variations was used by the research. The research satisfaction).follows the understanding that the implementation of IS/IT 9. Increasing Image caused by (increasing servicebrings in values or benefits to any type of organization. The quality, offering substantial discounts, complying withpremise is that any organization or firm has the same regulations, using branded systems).opportunity to use IS/IT optimally in order to get the most 10. Increasing Quality of (better supplier/vendorvalues out of it. It is strengthened by the findings of (Shang management, work result, services, products).2002) that include there are no apparent differences in types 11. Increasing Internal Services of (shared services,of benefits across industries and benefits gained by large matching employee’s right and responsibility, employeeand small organizations seemed to be similar. services, proper schedule and training material). 12. Increasing Competitive Advantage caused by3. THE GENERIC IS/IT BUSINESS VALUE (forming business alliances, accelerating the execution CATEGORY of new business opportunities, increasing switching cost).Based on the findings, as a tool (tool view), in general IS/IT 13. Avoiding Cost (ACO) of (reserved fund, maintenanceprovides 3 functions to generate values, i.e., online or cost, lost and delay cost).remote connection, process automation, and process anddata integration. These functions help people (ensemble The above sub-categories are then compared against 190view) generate IS/IT business values that can increase sub-categories from the 4 previous studies (Parker 1988,organizational performance. The research result called the Remenyi 1995, Tallon 2000, Shang 2002) built based on theGeneric IS/IT Business Value Category consists of 13 developed countries cases. Based on the comparison, therecategories (and 74 sub-categories) is as follows: are 4 IS/IT business values unique to the Indonesian case, i.e., “reducing application development cost”, “reducing1. Reducing Cost of (travelling cost, subscription cost”, “increasing image caused by complying staff/operator/employee cost, meeting cost, service with regulations”, and “increasing image caused by using failure cost, application development cost, delivery branded systems”. cost, training cost per employee, returning cost for incorrect delivery, cost of money, office supplies and 4. THE INDONESIAN CASE printing cost, subscription cost of certain reading materials or subscription cost per employee, space 4.1. Reducing Application Development Cost rental cost, device rental cost, inventory cost, research failure cost). The implementation of medium to large scale or enterprise wide systems such as Core Banking, Customer Relationshipe-Indonesia Initiative 2008 (eII2008) 2Konferensi dan Temu Nasional Teknologi Informasi dan Komunikasi untuk Indonesia21-23 Mei 2008, Jakarta
  3. 3. Management, Supply Chain Management, and in particular 4.3. Increasing Image caused by Complying withEnterprise Resource Planning (ERP), has 2 approaches, i.e., Regulationsa “big bang” or all modules and a phased module by module.Common ERP modules mimic major functional areas of an A Core Banking System for example is a system equippedorganization including production planning, parts and with facilities to support policies regulated by the Centralmaterial purchasing, inventory control, finance, cost Bank including the application of accrual basis, “know youraccounting, marketing, sales and distribution, and human customer” system, and money laundering protection. Byresources. In general, the reasons for choosing a phased supporting these Central Bank’s regulations, the system canapproached are cost, risk, and in particular company’s increase the company’s compliance level so reducingunwillingness to adopt the whole best practice business unnecessary penalties. Increasing company’s complianceprocesses built in the package mostly based on the level will eventually increase company image. In general, atAmerican and Western European cases. The latter reason least there are 4 achievement criteria to measure company’scan be said as unique to Indonesia. It is because most of the performance, i.e., financial, operational, good corporateorganizations/employees here are reluctant to change their governance (GCG), and corporate social responsibility“working philosophy and procedures” which has gone on (CSR). In this research IS/IT is seen from the angle tofor years. support GCG.It is predicted that only around 40-60% of the best practice IS/IT is part of the initiatives used to enforce company tobusiness processes will be adopted, the remaining will be comply with certain regulations issued by the regulatorycustomized to follow the old (existing) business processes of agency. In our case example, the Core Banking System isthe company. Customization will take longer time, so it is such an enforcement tool that increases company’sunlikely that a company will implement all ERP using a big compliance level. Increasing compliance level will increasebang approach. Knowing this client’s behavior and to lock GCG and definitely increase company image. This sub-in the client, ERP vendors keep selling all ERP modules; category is not the concern of the previous studies probablymodules which will not be customized and implemented in because it is only relevant for the developing countries likethe first phase will be put as ready-to-use modules. These Indonesia where compliance publicity is still one of theready-to-use modules are normally inactive or active but most effective marketing weapons. In Indonesia, the successwith single license only. Whenever needed, these modules of an organization to get certified by the Internationalcan be activated, customized, and implemented as usual so Standards Organization (ISO) is widely publicized forreducing application development cost. increasing image in particular. The certification ceremony is valid and probably a common practice everywhere including4.2. Reducing Subscription Cost in the developed countries. However, whether or not the international compliance standards are implemented by theThe availability of online newspaper and business and organization properly is another side of the coin as long astechnical journals might reduce the paper-based reading the certification has already increased the organizationmaterial subscription cost. By using electronic means the image in the first place.reading materials can also be accessed by more people soreducing the subscription cost per employee. This sub- It is believed that in the developed countries like the USAcategory is not the concern of the previous studies probably compliance is already built in both people andbecause the subscription cost is affordable by organizations organization’s way of life. It is mandatory andin the developed countries. In Indonesia, because the disobediences will be punished severely. A well-knownmajority of business and technical journals, reports, example is the Enron case in 2001 affecting the dismissal ofmagazines, etc., still come from abroad, the cost becomes one of the big international consulting firms. Quickly insubstantial especially because of the currency exchange. response to the need for stronger compliance regulations for publicly listed companies, the Sarbanse-Oxley Act wasFor example, IDC charges USD 1,500 (~ Rp. 14,000,000) issued in 2002 which shows how importance this way of lifefor a 38-page report on ASEAN Online Gaming 2006-2010 for the USA.Forecast and Analysis and charges USD 3,500 (~ Rp.32,000,000) “just” for a 2-page report on Asia/Pacific 4.4. Increasing Image caused by Using BrandedEnterprise Mobility Technology Spending 2006-2010 Systems(http://www.idc.com/). With that scale amount of money, itis believed that only upper middle and large companies The brand value of already proven system and used by well-especially multinational companies in Indonesia which can known corporations can be used to increase company imageafford to pay for it. and it is a common practice everywhere and this is a case especially happened in immature and inefficient market like Indonesia where unbranded systems are available in thee-Indonesia Initiative 2008 (eII2008) 3Konferensi dan Temu Nasional Teknologi Informasi dan Komunikasi untuk Indonesia21-23 Mei 2008, Jakarta
  4. 4. market and a brand is still a strong marketing hype. Branded [5].Parker, M.M., Benson, R.J., and Trainor, H.E.system might increase company image although it might not Information Economics - Linking Business Performancebe the correct solution. The latter case is common in to Information Technology Prentice-Hall, 1988.Indonesia. [6].Remenyi, D. The Effective Measurement and Management of IT Costs and Benefits Butterworth-It is possible that the costs of failures due to incorrect Heinemann, 1995.solution is offset by the benefits or values gained due to [7].Tallon, P.P., Kraemer, K.L., and Gurbaxani, V.increased image. So leveraging the brand value of the "Executives Perceptions of the Business Value ofsystem, regardless of whether the system gives correct Information Technology: A Process-Orientedsolutions or not, is a strategic step to increase company Approach," Journal of Management Information Systemsimage which in return might increase revenue. This sub- (16:4) 2000, pp 145-173.category probably is not relevant for mature markets foundin the developed countries. ABOUT THE AUTHOR5. CLOSING REMARKS Benny holds Bachelor Degree in Electrical Engineering from the University of Indonesia and Master of ScienceThe construction of the Generic IS/IT Business Value Degree in Computer Science from Michigan StateCategory has shown the role of IS/IT as a tool whose University, USA. He is a doctoral candidate of Faculty ofintended purpose is to generate values especially for the Computer Science, University of Indonesia, with researchcustomers, employees, and organization including area in IT investment valuation, especially in identifying ITstakeholders. All the identified IS/IT business values from business values resulting from various IT implementationsas simple as reducing meeting cost and increasing in various institutions in Indonesia.productivity, to more complex ones such as increasingimage and increasing quality of products, have contributed Benny is Vice Chairman of Permanent Committee of IT –to the increasing level of organizational performance. the Indonesian Chamber of Commerce and Industry (KADIN) Indonesia, Director/Founder of PT. InforindoThe presence of IS/IT is not meant to substitute the people’s Intersolusi – IS/IT Consulting Firm, Presidentrole in managing and running the organization. In reality, Director/Founder of PT. Ayola Cybernet – Online Gamethe fundamental management functions such as planning, Center, and Lecturer/Thesis Advisor at the Graduateorganizing, executing, and controlling, are still under the Program in IT, University of Indonesia.people’s command. The role of IS/IT is to help people dotheir functions more efficiently and effectively.The Generic IS/IT Business Value Category has enrichedthe classification/categorization of IS/IT business values ofwell-known IS/IT valuation methods including InformationEconomics, Economic Value Added, and Real Options,which might be very helpful in the process of measuringIS/IT business values especially for the Indonesian cases.6. REFERENCES[1].Luftman, J., Kempaiah, R., and Nash, E. "Key Issues for IT Executives 2005," MIS Quarterly Executive (5:2), June 2006, pp 27-46.[2].Weill, P., and Woodham, R. "Dont Just Lead, Govern: Implementing Effective IT Governance," in: Center for Information Systems Reseach Working Paper No. 326, MIT Sloan School of Management, 2002.[3].Peterson, R. "Crafting Information Technology Governance," Information Systems Management (21:4) 2004, pp 7-22.[4].Shang, S., and Seddon, P.B. "Assessing and Managing the Benefits of Enterprise Systems: the Business Managers Perspective," Information Systems Journal (12:4), November 2002, pp 271-299.e-Indonesia Initiative 2008 (eII2008) 4Konferensi dan Temu Nasional Teknologi Informasi dan Komunikasi untuk Indonesia21-23 Mei 2008, Jakarta
  5. 5. e-Indonesia Initiative 2008 (eII2008) 5Konferensi dan Temu Nasional Teknologi Informasi dan Komunikasi untuk Indonesia21-23 Mei 2008, Jakarta
  6. 6. e-Indonesia Initiative 2008 (eII2008) 6Konferensi dan Temu Nasional Teknologi Informasi dan Komunikasi untuk Indonesia21-23 Mei 2008, Jakarta

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