Supplement 4 Reliability © McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. 1 Learning Objectives You should be able to: 4S.1 Define reliability 4S.2 Perform simple reliability computations 4S.3 Explain the term availability and perform simple calculations 4S-‹#› © McGraw-Hill Education. Learning Objective 4S.1 Reliability Reliability The ability of a product, part, or system to perform its intended function under a prescribed set of conditions Reliability is expressed as a probability: The probability that the product or system will function when activated The probability that the product or system will function for a given length of time 4S-‹#› © McGraw-Hill Education. Learning Objective 4S.2 Reliability – When Activated (1 of 5) Finding the probability under the assumption that the system consists of a number of independent components Requires the use of probabilities for independent events Independent event Events whose occurrence or non-occurrence do not influence one another 4S-‹#› © McGraw-Hill Education. Learning Objective 4S.2 Reliability – When Activated (2 of 5) Rule 1 If two or more events are independent and success is defined as the probability that all of the events occur, then the probability of success is equal to the product of the probabilities of the events 4S-‹#› © McGraw-Hill Education. Learning Objective 4S.2 Reliability – When Activated (3 of 5) Though individual system components may have high reliabilities, the system’s reliability may be considerably lower because all components that are in series must function One way to enhance reliability is to utilize redundancy Redundancy The use of backup components to increase reliability 4S-‹#› © McGraw-Hill Education. 6 Learning Objective 4S.2 Reliability - When Activated (4 of 5) Rule 2 If two events are independent and success is defined as the probability that at least one of the events will occur, the probability of success is equal to the probability of either one plus 1.00 minus that probability multiplied by the other probability 4S-‹#› © McGraw-Hill Education. Learning Objective 4S.2 Reliability – When Activated (5 of 5) Rule 3 If two or more events are involved and success is defined as the probability that at least one of them occurs, the probability of success is 1 - P(all fail) 4S-‹#› © McGraw-Hill Education. Learning Objective 4S.2 Example – Rule 1 A machine has two buttons. In order for the machine to function, both buttons must work. One button has a probability of working of .95, and the second button has a probability of working of .88. →Button 1 (.95)→Button 2 (.88) 4S-‹#› © McGraw-Hill Education. Learning Objective 4S.2 Example – Rule 2 (1 of 2) A restaurant located in area that has frequent power outages has a generator to run its refrigeration equipm.

1. Supplement 4
Reliability
© McGraw-Hill Education. All rights reserved. Authorized only
for instructor use in the classroom. No reproduction or further
distribution permitted without the prior written consent of
McGraw-Hill Education.
1
Learning Objectives
You should be able to:
4S.1 Define reliability
4S.2 Perform simple reliability computations
4S.3 Explain the term availability and perform simple
calculations
4S-‹#›
© McGraw-Hill Education.
Learning Objective 4S.1
Reliability
Reliability
The ability of a product, part, or system to perform its intended
function under a prescribed set of conditions
Reliability is expressed as a probability:
The probability that the product or system will function when

2. activated
The probability that the product or system will function for a
given length of time
4S-‹#›
© McGraw-Hill Education.
Learning Objective 4S.2
Reliability – When Activated (1 of 5)
Finding the probability under the assumption that the system
consists of a number of independent components
Requires the use of probabilities for independent events
Independent event
Events whose occurrence or non-occurrence do not influence
one another
4S-‹#›
© McGraw-Hill Education.
Learning Objective 4S.2
Reliability – When Activated (2 of 5)
Rule 1
If two or more events are independent and success is defined as
the probability that all of the events occur, then the probability
of success is equal to the product of the probabilities of the
events
4S-‹#›
© McGraw-Hill Education.

3. Learning Objective 4S.2
Reliability – When Activated (3 of 5)
Though individual system components may have high
reliabilities, the system’s reliability may be considerably lower
because all components that are in series must function
One way to enhance reliability is to utilize redundancy
Redundancy
The use of backup components to increase reliability
4S-‹#›
© McGraw-Hill Education.
6
Learning Objective 4S.2
Reliability - When Activated (4 of 5)
Rule 2
If two events are independent and success is defined as the
probability that at least one of the events will occur, the
probability of success is equal to the probability of either one
plus 1.00 minus that probability multiplied by the other
probability
4S-‹#›
© McGraw-Hill Education.
Learning Objective 4S.2
Reliability – When Activated (5 of 5)
Rule 3
If two or more events are involved and success is defined as the
probability that at least one of them occurs, the probability of

4. success is 1 - P(all fail)
4S-‹#›
© McGraw-Hill Education.
Learning Objective 4S.2
Example – Rule 1
A machine has two buttons. In order for the machine to
function, both buttons must work. One button has a probability
of working of .95, and the second button has a probability of
working of .88.
→Button 1 (.95)→Button 2 (.88)
4S-‹#›
© McGraw-Hill Education.
Learning Objective 4S.2
Example – Rule 2 (1 of 2)
A restaurant located in area that has frequent power outages has
a generator to run its refrigeration equipment in case of a power
failure. The local power company has a reliability of .97, and
the generator has a reliability of .90. The probability that the
restaurant will have power is
4S-‹#›
© McGraw-Hill Education.
Learning Objective 4S.2

5. Example – Rule 2 (2 of 2)
Generator (.90)→Power Co. (.97)→
4S-‹#›
© McGraw-Hill Education.
Learning Objective 4S.2
Example – Rule 3 (1 of 2)
A student takes three calculators (with reliabilities of .85, .80,
and .75) to her exam. Only one of them needs to function for
her to be able to finish the exam. What is the probability that
she will have a functioning calculator to use when taking her
exam?
4S-‹#›
© McGraw-Hill Education.
Learning Objective 4S.2
Example – Rule 3 (2 of 2)
Calc. 3 (.75)
Calc. 2 (.80)
Calc. 1 (.85)
4S-‹#›
© McGraw-Hill Education.

6. Learning Objective 4S.2
What Is This System’s Reliability?
4S-‹#›
© McGraw-Hill Education.
Learning Objective 4S.2
Reliability – Over Time
In this case, reliabilities are determined relative to a specified
length of time
This is a common approach to viewing reliability when
establishing warranty periods
4S-‹#›
© McGraw-Hill Education.
Learning Objective 4S.2
The Bathtub Curve
4S-‹#›
© McGraw-Hill Education.
Learning Objective 4S.2
Distribution and Length of Phase
To properly identify the distribution and length of each phase
requires collecting and analyzing historical data
The mean time between failures (MTBF) in the infant mortality
phase can often be modeled using the negative exponential

7. distribution
4S-‹#›
© McGraw-Hill Education.
Learning Objective 4S.2
Exponential Distribution
4S-‹#›
© McGraw-Hill Education.
Learning Objective 4S.2
Exponential Distribution - Formulae
4S-‹#›
© McGraw-Hill Education.
Learning Objective 4S.2
Example – Exponential Distribution (1 of 2)
A light bulb manufacturer has determined that its 150 watt
bulbs have an exponentially distributed mean time between
failures of 2,000 hours. What is the probability that one of these
bulbs will fail before 2,000 hours have passed?
4S-‹#›

8. © McGraw-Hill Education.
Learning Objective 4S.2
Example – Exponential Distribution (2 of 2)
So, the probability one of these bulbs will fail before 2,000
hours is 1 - .3679 = .6321
4S-‹#›
© McGraw-Hill Education.
21
Learning Objective 4S.2
Normal Distribution
Sometimes, failures due to wear-out can be modeled using the
normal distribution
4S-‹#›
© McGraw-Hill Education.
Learning Objective 4S.3
Availability
Availability
The fraction of time a piece of equipment is expected to be

9. available for operation
4S-‹#›
© McGraw-Hill Education.
Learning Objective 4S.3
Example – Availability
John Q. Student uses a laptop at school. His laptop operates 30
weeks on average between failures. It takes 1.5 weeks, on
average, to put his laptop back into service. What is the
laptop’s availability?
4S-‹#›
© McGraw-Hill Education.
End of Presentation
© McGraw-Hill Education. All rights reserved. Authorized only
for instructor use in the classroom. No reproduction or further
distribution permitted without the prior written consent of
McGraw-Hill Education.
4S-‹#›
.836

10. .88
.95
Works)
2
Button
(
Works)
1
Button
(
Works)
Machine
(
=
´
=
´
=
P
P
P
.997
.97)(.90)

11. -
(1
.97
)
(Generator
Co.))
(Power
-
(1
Co.)
(Power
(Power)
=
+
=
´
+
=
P
P
P
P
.9925
.75)]
.80)(1
-
(1.85)(1
1

12. 3)]
(Calc.
(1
2)
(Calc.
(1
1)
(Calc.
-
1(1
Calc.)
(any
=
-
=
-
´
-
´
=
-
[
P
P
P
P
failures
between
time

13. Mean
MTBF
failure
before
service
of
Length
2.7183...
where
)
before
failure
(no
=
=
=
-
=
T
e
T/MTBF
e
T
P
2000/2000

14. 1
2,000)
before
P(failure
-
-
=
e
3.679
e
=
-
-
=
-
1
1
e
2000/2000
e
4S.1,
Table
From
time
out
-
wear
of
deviation

15. Standard
time
out
-
wear
Mean
-
=
T
z
repair
to
time
Mean
MTR
failures
between
time
Mean
MTBF
where
MTR
MTBF
MTBF
ty
Availabili

16. =
=
+
=
.9524
1.5
30
30
MTR
MTBF
MTBF
ty
Availabili
=
+
=
+
=
IT STraTegy:
ISSueS and PracTIceS
This page intentionally left blank

17. IT STraTegy:
ISSueS and PracTIceS
T h i r d E d i t i o n
James D. McKeen
Queen’s University
Heather A. Smith
Queen’s University
Boston Columbus Indianapolis New York San Francisco Upper
Saddle River
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Copyright © 2015, 2012 and 2009 by Pearson Education, Inc.,
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of America. This publication is protected by
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permission(s), write to: Rights and Permissions Department.
Library of Congress Cataloging-in-Publication Data
McKeen, James D.
IT strategy: issues and practices/James D. McKeen, Queen’s
University, Heather A. Smith,
Queen’s University.—Third edition.
pages cm
ISBN 978-0-13-354424-4 (alk. paper)
ISBN 0-13-354424-9 (alk. paper)
1. Information technology—Management. I. Smith, Heather A.
II. Title.
HD30.2.M3987 2015
004.068—dc23
2014017950
ISBN–10: 0-13-354424-9
ISBN–13: 978-0-13-354424-4

19. 10 9 8 7 6 5 4 3 2 1
CoNTENTS
Preface xiii
About the Authors xxi
Acknowledgments xxii
Section I Delivering Value with IT 1
Chapter 1 DeVelopIng anD DelIVerIng on The IT Value
propoSITIon 2
Peeling the Onion: Understanding IT Value 3
What Is IT Value? 3
Where Is IT Value? 4
Who Delivers IT Value? 5
When Is IT Value Realized? 5
The Three Components of the IT Value Proposition 6
Identification of Potential Value 7
Effective Conversion 8
Realizing Value 9
Five Principles for Delivering Value 10
Principle 1. Have a Clearly Defined Portfolio Value
Management
Process 11

20. Principle 2. Aim for Chunks of Value 11
Principle 3. Adopt a Holistic Orientation to Technology Value
11
Principle 4. Aim for Joint Ownership of Technology Initiatives
12
Principle 5. Experiment More Often 12
Conclusion 12 • References 13
Chapter 2 DeVelopIng IT STraTegy for BuSIneSS Value 15
Business and IT Strategies: Past, Present, and Future 16
Four Critical Success Factors 18
The Many Dimensions of IT Strategy 20
Toward an IT Strategy-Development Process 22
Challenges for CIOs 23
Conclusion 25 • References 25
Chapter 3 lInkIng IT To BuSIneSS MeTrICS 27
Business Measurement: An Overview 28
Key Business Metrics for IT 30
v
vi Contents
Designing Business Metrics for IT 31

21. Advice to Managers 35
Conclusion 36 • References 36
Chapter 4 BuIlDIng a STrong relaTIonShIp
wITh The BuSIneSS 38
The Nature of the Business–IT Relationship 39
The Foundation of a Strong Business–IT
Relationship 41
Building Block #1: Competence 42
Building Block #2: Credibility 43
Building Block #3: Interpersonal Interaction 44
Building Block #4: Trust 46
Conclusion 48 • References 48
Appendix A The Five IT Value Profiles 50
Appendix B Guidelines for Building a Strong Business–IT
Relationship 51
Chapter 5 CoMMunICaTIng wITh BuSIneSS ManagerS 52
Communication in the Business–IT Relationship 53
What Is “Good” Communication? 54
Obstacles to Effective Communication 56
“T-Level” Communication Skills for IT Staff 58
Improving Business–IT Communication 60
Conclusion 61 • References 61

22. Appendix A IT Communication Competencies 63
Chapter 6 BuIlDIng BeTTer IT leaDerS froM
The BoTToM up 64
The Changing Role of the IT Leader 65
What Makes a Good IT Leader? 67
How to Build Better IT Leaders 70
Investing in Leadership Development: Articulating the Value
Proposition 73
Conclusion 74 • References 75
MInI CaSeS
Delivering Business Value with IT at Hefty Hardware 76
Investing in TUFS 80
IT Planning at ModMeters 82
Contents vii
Section II IT governance 87
Chapter 7 CreaTIng IT ShareD SerVICeS 88
IT Shared Services: An Overview 89
IT Shared Services: Pros and Cons 92
IT Shared Services: Key Organizational Success Factors 93

23. Identifying Candidate Services 94
An Integrated Model of IT Shared Services 95
Recommmendations for Creating Effective IT
Shared Services 96
Conclusion 99 • References 99
Chapter 8 a ManageMenT fraMework for
IT SourCIng 100
A Maturity Model for IT Functions 101
IT Sourcing Options: Theory Versus Practice 105
The “Real” Decision Criteria 109
Decision Criterion #1: Flexibility 109
Decision Criterion #2: Control 109
Decision Criterion #3: Knowledge Enhancement 110
Decision Criterion #4: Business Exigency 110
A Decision Framework for Sourcing IT Functions 111
Identify Your Core IT Functions 111
Create a “Function Sourcing” Profile 111
Evolve Full-Time IT Personnel 113
Encourage Exploration of the Whole Range
of Sourcing Options 114

24. Combine Sourcing Options Strategically 114
A Management Framework for Successful
Sourcing 115
Develop a Sourcing Strategy 115
Develop a Risk Mitigation Strategy 115
Develop a Governance Strategy 116
Understand the Cost Structures 116
Conclusion 117 • References 117
Chapter 9 The IT BuDgeTIng proCeSS 118
Key Concepts in IT Budgeting 119
The Importance of Budgets 121
The IT Planning and Budget Process 123
viii Contents
Corporate Processes 123
IT Processes 125
Assess Actual IT Spending 126
IT Budgeting Practices That Deliver Value 127
Conclusion 128 • References 129
Chapter 10 ManagIng IT- BaSeD rISk 130
A Holistic View of IT-Based Risk 131

25. Holistic Risk Management: A Portrait 134
Developing a Risk Management Framework 135
Improving Risk Management Capabilities 138
Conclusion 139 • References 140
Appendix A A Selection of Risk Classification
Schemes 141
Chapter 11 InforMaTIon ManageMenT: The nexuS
of BuSIneSS anD IT 142
Information Management: How Does IT Fit? 143
A Framework For IM 145
Stage One: Develop an IM Policy 145
Stage Two: Articulate the Operational
Components 145
Stage Three: Establish Information Stewardship 146
Stage Four: Build Information Standards 147
Issues In IM 148
Culture and Behavior 148
Information Risk Management 149
Information Value 150
Privacy 150

26. Knowledge Management 151
The Knowing–Doing Gap 151
Getting Started in IM 151
Conclusion 153 • References 154
Appendix A Elements of IM Operations 155
MInI CaSeS
Building Shared Services at RR Communications 156
Enterprise Architecture at Nationstate Insurance 160
IT Investment at North American Financial 165
Contents ix
Section III IT-enabled Innovation 169
Chapter 12 InnoVaTIon wITh IT 170
The Need for Innovation: An Historical
Perspective 171
The Need for Innovation Now 171
Understanding Innovation 172
The Value of Innovation 174
Innovation Essentials: Motivation, Support,
and Direction 175

27. Challenges for IT leaders 177
Facilitating Innovation 179
Conclusion 180 • References 181
Chapter 13 BIg DaTa anD SoCIal CoMpuTIng 182
The Social Media/Big Data Opportunity 183
Delivering Business Value with Big Data 185
Innovating with Big Data 189
Pulling in Two Different Directions: The Challenge
for IT Managers 190
First Steps for IT Leaders 192
Conclusion 193 • References 194
Chapter 14 IMproVIng The CuSToMer experIenCe:
an IT perSpeCTIVe 195
Customer Experience and Business value 196
Many Dimensions of Customer Experience 197
The Role of Technology in Customer Experience 199
Customer Experience Essentials for IT 200
First Steps to Improving Customer Experience 203
Conclusion 204 • References 204
Chapter 15 BuIlDIng BuSIneSS InTellIgenCe 206
Understanding Business Intelligence 207
The Need for Business Intelligence 208

28. The Challenge of Business Intelligence 209
The Role of IT in Business Intelligence 211
Improving Business Intelligence 213
Conclusion 216 • References 216
x Contents
Chapter 16 enaBlIng CollaBoraTIon wITh IT 218
Why Collaborate? 219
Characteristics of Collaboration 222
Components of Successful Collaboration 225
The Role of IT in Collaboration 227
First Steps for Facilitating Effective Collaboration 229
Conclusion 231 • References 232
MInI CaSeS
Innovation at International Foods 234
Consumerization of Technology at IFG 239
CRM at Minitrex 243
Customer Service at Datatronics 246
Section IV IT portfolio Development and Management 251
Chapter 17 applICaTIon porTfolIo ManageMenT 252

29. The Applications Quagmire 253
The Benefits of a Portfolio Perspective 254
Making APM Happen 256
Capability 1: Strategy and Governance 258
Capability 2: Inventory Management 262
Capability 3: Reporting and Rationalization 263
Key Lessons Learned 264
Conclusion 265 • References 265
Appendix A Application Information 266
Chapter 18 ManagIng IT DeManD 270
Understanding IT Demand 271
The Economics of Demand Management 273
Three Tools for Demand management 273
Key Organizational Enablers for Effective Demand
Management 274
Strategic Initiative Management 275
Application Portfolio Management 276
Enterprise Architecture 276
Business–IT Partnership 277
Governance and Transparency 279

30. Conclusion 281 • References 281
Contents xi
Chapter 19 CreaTIng anD eVolVIng a TeChnology
roaDMap 283
What is a Technology Roadmap? 284
The Benefits of a Technology Roadmap 285
External Benefits (Effectiveness) 285
Internal Benefits (Efficiency) 286
Elements of the Technology Roadmap 286
Activity #1: Guiding Principles 287
Activity #2: Assess Current Technology 288
Activity #3: Analyze Gaps 289
Activity #4: Evaluate Technology
Landscape 290
Activity #5: Describe Future Technology 291
Activity #6: Outline Migration Strategy 292
Activity #7: Establish Governance 292
Practical Steps for Developing a Technology
Roadmap 294

31. Conclusion 295 • References 295
Appendix A Principles to Guide a Migration
Strategy 296
Chapter 20 enhanCIng DeVelopMenT
proDuCTIVITy 297
The Problem with System Development 298
Trends in System Development 299
Obstacles to Improving System Development
Productivity 302
Improving System Development Productivity: What we
know that Works 304
Next Steps to Improving System Development
Productivity 306
Conclusion 308 • References 308
Chapter 21 InforMaTIon DelIVery: IT’S eVolVIng role 310
Information and IT: Why Now? 311
Delivering Value Through Information 312
Effective Information Delivery 316
New Information Skills 316
New Information Roles 317
New Information Practices 317

32. xii Contents
New Information Strategies 318
The Future of Information Delivery 319
Conclusion 321 • References 322
MInI CaSeS
Project Management at MM 324
Working Smarter at Continental Furniture International 328
Managing Technology at Genex Fuels 333
Index 336
PREFACE
Today, with information technology (IT) driving constant
business transformation,
overwhelming organizations with information, enabling 24/7
global operations, and
undermining traditional business models, the challenge for
business leaders is not
simply to manage IT, it is to use IT to deliver business value.
Whereas until fairly recently,
decisions about IT could be safely delegated to technology
specialists after a business
strategy had been developed, IT is now so closely integrated
with business that, as one
CIO explained to us, “We can no longer deliver business
solutions in our company
without using technology so IT and business strategy must
constantly interact with
each other.”

33. What’s New in This Third Edition?
• Six new chapters focusing on current critical
issues in IT management, including
IT shared services; big data and social computing; business
intelligence; manag-
ing IT demand; improving the customer experience; and
enhancing development
productivity.
• Two significantly revised chapters: on delivering
IT functions through different
resourcing options; and innovating with IT.
• Twonew mini cases based on real companies
and real IT management situations:
Working Smarter at Continental Furniture and Enterprise
Architecture at Nationstate
Insurance.
• A revised structure based on reader
feedback with six chapters and two mini cases
from the second edition being moved to the Web site.
All too often, in our efforts to prepare future executives to deal
effectively with
the issues of IT strategy and management, we lead them into a
foreign country where
they encounter a different language, different culture, and
different customs. Acronyms
(e.g., SOA, FTP/IP, SDLC, ITIL, ERP), buzzwords (e.g.,
asymmetric encryption, proxy
servers, agile, enterprise service bus), and the widely adopted
practice of abstraction
(e.g., Is a software monitor a person, place, or thing?) present

34. formidable “barriers to
entry” to the technologically uninitiated, but more important,
they obscure the impor-
tance of teaching students how to make business decisions about
a key organizational
resource. By taking a critical issues perspective, IT Strategy:
Issues and Practices treats IT
as a tool to be leveraged to save and/or make money or
transform an organization—not
as a study by itself.
As in the first two editions of this book, this third edition
combines the experi-
ences and insights of many senior IT managers from leading-
edge organizations with
thorough academic research to bring important issues in IT
management to life and
demonstrate how IT strategy is put into action in contemporary
businesses. This new
edition has been designed around an enhanced set of critical
real-world issues in IT
management today, such as innovating with IT, working with
big data and social media,
xiii
xiv Preface
enhancing customer experience, and designing for business
intelligence and introduces
students to the challenges of making IT decisions that will have
significant impacts on
how businesses function and deliver value to stakeholders.

35. IT Strategy: Issues and Practices focuses on how IT is changing
and will continue to
change organizations as we now know them. However, rather
than learning concepts
“free of context,” students are introduced to the complex
decisions facing real organi-
zations by means of a number of mini cases. These provide an
opportunity to apply
the models/theories/frameworks presented and help students
integrate and assimilate
this material. By the end of the book, students will have the
confidence and ability to
tackle the tough issues regarding IT management and strategy
and a clear understand-
ing of their importance in delivering business value.
Key Features of This Book
• A focus on IT management issues as opposed to
technology issues
• Critical IT issues explored within their
organizational contexts
• Readily applicablemodels and frameworks for
implementing IT strategies
• Mini cases to animate issues and focus
classroom discussions on real-world deci-
sions, enabling problem-based learning
• Proven strategies and best practices from leading-edge
organizations
• Useful and practical advice and guidelinesfor
delivering value with IT
• Extensive teaching notes for all mini cases
A Different ApproAch to teAching it StrAtegy

36. The real world of IT is one of issues—critical issues—such as
the following:
• How do we know if we are getting
value from our IT investment?
• How can we innovate with IT?
• What specific IT functions should we seek
from external providers?
• How do we buildan IT leadershipteam that is
a trusted partner with the business?
• How do we enhance IT capabilities?
• What is IT’s role in creating an intelligent
business?
• How can we best take advantage of new
technologies, such as big data and social
media, in our business?
• How can we manage IT risk?
However, the majority of management information systems
(MIS) textbooks are orga-
nized by system category (e.g., supply chain, customer
relationship management, enterprise
resource planning), by system component (e.g., hardware,
software, networks), by system
function (e.g., marketing, financial, human resources), by
system type (e.g., transactional,
decisional, strategic), or by a combination of these.
Unfortunately, such an organization
does not promote an understanding of IT management in
practice.
IT Strategy: Issues and Practices tackles the real-world
challenges of IT manage-
ment. First, it explores a set of the most important issues facing
IT managers today, and

37. second, it provides a series of mini cases that present these
critical IT issues within the
context of real organizations. By focusing the text as well as the
mini cases on today’s
critical issues, the book naturally reinforces problem-based
learning.
Preface xv
IT Strategy: Issues and Practices includes thirteen mini cases—
each based on a real
company presented anonymously.1 Mini cases are not simply
abbreviated versions of
standard, full-length business cases. They differ in two
significant ways:
1. A horizontal perspective. Unlike standard cases that develop
a single issue within
an organizational setting (i.e., a “vertical” slice of
organizational life), mini cases
take a “horizontal” slice through a number of coexistent issues.
Rather than looking
for a solution to a specific problem, as in a standard case,
students analyzing a mini
case must first identify and prioritize the issues embedded
within the case. This mim-
ics real life in organizations where the challenge lies in
“knowing where to start” as
opposed to “solving a predefined problem.”
2. Highly relevant information. Mini cases are densely written.
Unlike standard
cases, which intermix irrelevant information, in a mini case,
each sentence exists for

38. a reason and reflects relevant information. As a result, students
must analyze each
case very carefully so as not to miss critical aspects of the
situation.
Teaching with mini cases is, thus, very different than teaching
with standard cases.
With mini cases, students must determine what is really going
on within the organiza-
tion. What first appears as a straightforward “technology”
problem may in fact be a
political problem or one of five other “technology” problems.
Detective work is, there-
fore, required. The problem identification and prioritization
skills needed are essential
skills for future managers to learn for the simple reason that it
is not possible for organi-
zations to tackle all of their problems concurrently. Mini cases
help teach these skills to
students and can balance the problem-solving skills learned in
other classes. Best of all,
detective work is fun and promotes lively classroom discussion.
To assist instructors, extensive teaching notes are available for
all mini cases. Developed
by the authors and based on “tried and true” in-class experience,
these notes include case
summaries, identify the key issues within each case, present
ancillary information about the
company/industry represented in the case, and offer guidelines
for organizing the class-
room discussion. Because of the structure of these mini cases
and their embedded issues, it
is common for teaching notes to exceed the length of the actual
mini case!

39. This book is most appropriate for MIS courses where the goal is
to understand how
IT delivers organizational value. These courses are frequently
labeled “IT Strategy” or
“IT Management” and are offered within undergraduate as well
as MBA programs. For
undergraduate juniors and seniors in business and commerce
programs, this is usually
the “capstone” MIS course. For MBA students, this course may
be the compulsory core
course in MIS, or it may be an elective course.
Each chapter and mini case in this book has been thoroughly
tested in a variety
of undergraduate, graduate, and executive programs at Queen’s
School of Business.2
1 We are unable to identify these leading-edge companies by
agreements established as part of our overall
research program (described later).
2 Queen’s School of Business is one of the world’s premier
business schools, with a faculty team renowned
for its business experience and academic credentials. The
School has earned international recognition for
its innovative approaches to team-based and experiential
learning. In addition to its highly acclaimed MBA
programs, Queen’s School of Business is also home to Canada’s
most prestigious undergraduate business
program and several outstanding graduate programs. As well,
the School is one of the world’s largest and
most respected providers of executive education.
xvi Preface

40. These materials have proven highly successful within all
programs because we adapt
how the material is presented according to the level of the
students. Whereas under-
graduate students “learn” about critical business issues from the
book and mini cases
for the first time, graduate students are able to “relate” to these
same critical issues
based on their previous business experience. As a result,
graduate students are able to
introduce personal experiences into the discussion of these
critical IT issues.
orgAnizAtion of thiS Book
One of the advantages of an issues-focused structure is that
chapters can be approached
in any order because they do not build on one another. Chapter
order is immaterial; that
is, one does not need to read the first three chapters to
understand the fourth. This pro-
vides an instructor with maximum flexibility to organize a
course as he or she sees fit.
Thus, within different courses/programs, the order of topics can
be changed to focus on
different IT concepts.
Furthermore, because each mini case includes multiple issues,
they, too, can be
used to serve different purposes. For example, the mini case
“Building Shared Services
at RR Communications” can be used to focus on issues of
governance, organizational
structure, and/or change management just as easily as shared
services. The result is a
rich set of instructional materials that lends itself well to a

41. variety of pedagogical appli-
cations, particularly problem-based learning, and that clearly
illustrates the reality of IT
strategy in action.
The book is organized into four sections, each emphasizing a
key component of
developing and delivering effective IT strategy:
• Section I: Delivering Value with IT is designed to
examine the complex ways that
IT and business value are related. Over the past twenty years,
researchers and prac-
titioners have come to understand that “business value” can
mean many different
things when applied to IT. Chapter 1 (Developing and
Delivering on the IT Value
Proposition) explores these concepts in depth. Unlike the
simplistic value propo-
sitions often used when implementing IT in organizations, this
chapter presents
“value” as a multilayered business construct that must be
effectively managed at
several levels if technology is to achieve the benefits expected.
Chapter 2 (Developing
IT Strategy for Business Value) examines the dynamic
interrelationship between
business and IT strategy and looks at the processes and critical
success factors
used by organizations to ensure that both are well aligned.
Chapter 3 (Linking IT
to Business Metrics) discusses new ways of measuring IT’s
effectiveness that pro-
mote closer business–IT alignment and help drive greater
business value. Chapter
4 (Building a Strong Relationship with the Business) examines

42. the nature of the
business–IT relationship and the characteristics of an effective
relationship that
delivers real value to the enterprise. Chapter 5 (Communicating
with Business
Managers) explores the business and interpersonal competencies
that IT staff will
need in order to do their jobs effectively over the next five to
seven years and what
companies should be doing to develop them. Finally, Chapter 6
(Building Better IT
Leaders from the Bottom Up) tackles the increasing need for
improved leadership
skills in all IT staff and examines the expectations of the
business for strategic and
innovative guidance from IT.
Preface xvii
In the mini cases associated with this section, the concepts of
delivering
value with IT are explored in a number of different ways. We
see business and
IT executives at Hefty Hardware grappling with conflicting
priorities and per-
spectives and how best to work together to achieve the
company’s strategy. In
“Investing in TUFS,” CIO Martin Drysdale watches as all of the
work his IT depart-
ment has put into a major new system fails to deliver value. And
the “IT Planning
at ModMeters” mini case follows CIO Brian Smith’s efforts to
create a strategic
IT plan that will align with business strategy, keep IT running,

43. and not increase
IT’s budget.
• Section II: IT Governance explores key concepts in how
the IT organization is
structured and managed to effectively deliver IT products and
services to the orga-
nization. Chapter 7 (IT Shared Services) discusses how IT
shared services should be
selected, organized, managed, and governed to achieve
improved organizational
performance. Chapter 8 (A Management Framework for IT
Sourcing) examines
how organizations are choosing to source and deliver different
types of IT functions
and presents a framework to guide sourcing decisions. Chapter 9
(The IT Budgeting
Process) describes the “evil twin” of IT strategy, discussing
how budgeting mecha-
nisms can significantly undermine effective business strategies
and suggesting
practices for addressing this problem while maintaining
traditional fiscal account-
ability. Chapter 10 (Managing IT-based Risk) describes how
many IT organizations
have been given the responsibility of not only managing risk in
their own activities
(i.e., project development, operations, and delivering business
strategy) but also
of managing IT-based risk in all company activities (e.g.,
mobile computing, file
sharing, and online access to information and software) and the
need for a holistic
framework to understand and deal with risk effectively. Chapter
11 (Information
Management: The Nexus of Business and IT) describes how new

44. organizational
needs for more useful and integrated information are driving the
development of
business-oriented functions within IT that focus specifically on
information and
knowledge, as opposed to applications and data.
The mini cases in this section examine the difficulties of
managing com-
plex IT issues when they intersect substantially with important
business issues.
In “Building Shared Services at RR Communications,” we see
an IT organiza-
tion in transition from a traditional divisional structure and
governance model
to a more centralized enterprise model, and the long-term
challenges experi-
enced by CIO Vince Patton in changing both business and IT
practices, includ-
ing information management and delivery, to support this new
approach. In
“Enterprise Architecture at Nationstate Insurance,” CIO Jane
Denton endeavors
to make IT more flexible and agile, while incorporating new and
emerging tech-
nologies into its strategy. In “IT Investment at North American
Financial,” we
show the opportunities and challenges involved in prioritizing
and resourcing
enterprisewide IT projects and monitoring that anticipated
benefits are being
achieved.
• Section III: IT-Enabled Innovation discusses some of the
ways technology is
being used to transform organizations. Chapter 12 (Innovation

45. with IT) examines
the nature and importance of innovation with IT and describes a
typical inno-
vation life cycle. Chapter 13 (Big Data and Social Computing)
discusses how IT
leaders are incorporating big data and social media concepts and
technologies
xviii Preface
to successfully deliver business value in new ways. Chapter 14
(Improving the
Customer Experience: An IT Perspective) explores the IT
function’s role in creating
and improving an …
Chapter 4
Product & Service Design
© McGraw-Hill Education. All rights reserved. Authorized only
for instructor use in the classroom. No reproduction or further
distribution permitted without the prior written consent of
McGraw-Hill Education.
1
Learning Objectives (1 of 2)
You should be able to:

46. 4.1 Explain the strategic importance of product and service
design
4.2 Describe what product and service design does
4.3 Name the key questions of product and service design
4.4 Identify some reasons for design or redesign
4.5 List some of the main sources of design ideas
4.6 Discuss the importance of legal, ethical, and sustainability
considerations in product and service design
4.7 Explain the purpose and goal of life assessment
4-‹#›
© McGraw-Hill Education.
Learning Objectives (2 of 2)
4.8 Explain the phrase “the 3 Rs”
4.9 Discuss several key issues in product or service design
4.10 Discuss the two key issues in service design
4.11 Name the phases in service design
4.12 List the characteristics of well-designed service systems
4.13 List some guidelines for successful service design
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.1
Strategic Product and Service Design
The essence of an organization is the goods and services it
offers
Every aspect of the organization is structured around them
Product and service design – or redesign - should be closely
tied to an organization’s strategy

47. 4-‹#›
© McGraw-Hill Education.
Learning Objective 4.2
What Does Product & Service Design Do?
Translate customer wants and needs into product and service
requirements
Refine existing products and services
Develop new products and services
Formulate quality goals
Formulate cost targets
Construct and test prototypes
Document specifications
Translate product and service specifications into process
specifications
9. Involve inter-functional collaboration
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.3
Key Questions (1 of 2)
Is there a demand for it?
Market size
Demand profile
Can we do it?
Manufacturability - the capability of an organization to produce
an item at an acceptable profit
Serviceability - the capability of an organization to provide a
service at an acceptable cost or profit

48. 4-‹#›
© McGraw-Hill Education.
Learning Objective 4.3
Key Questions (2 of 2)
What level of quality is appropriate?
Customer expectations
Competitor quality
Fit with current offering
Does it make sense from an economic standpoint?
Liability issues, ethical considerations, sustainability issues,
costs and profits
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.4
Reasons to Design or Re-Design
The driving forces for product and service design or redesign
are market opportunities or threats:
Economic
Social and demographic
Political, liability, or legal
Competitive
Cost or availability
Technological
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.5

49. Idea Generation
Supply-chain based
Competitor based
Research based
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.5
Supply-Chain Based
Ideas can come from anywhere in the supply chain:
Customers
Suppliers
Distributors
Employees
Maintenance and repair personnel
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.5
Competitor Based
By studying how a competitor operates and its products and
services, many useful ideas can be generated
Reverse engineering
Dismantling and inspecting a competitor’s product to discover
product improvements
4-‹#›
© McGraw-Hill Education.

50. Learning Objective 4.5
Research Based
Research and development (R&D)
Organized efforts to increase scientific knowledge or product
innovation
Basic research
Has the objective of advancing the state of knowledge about a
subject without any near-term expectation of commercial
applications
Applied research
Has the objective of achieving commercial applications
Development
Converts the results of applied research into useful commercial
applications
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.6
Legal Considerations
Legal considerations
Product liability
The responsibility a manufacturer has for any injuries or
damages caused by as faulty product
Some of the concomitant costs
Litigation
Legal and insurance costs
Settlement costs
Costly product recalls
Reputation effects
Uniform Commercial Code
Under the UCC, products carry an implication of
merchantability and fitness

51. 4-‹#›
© McGraw-Hill Education.
Learning Objective 4.6
Ethical Considerations
Designers are often under pressure to
Speed up the design process
Cut costs
These pressures force trade-off decisions
What if a product has bugs?
Release the product and risk damage to your reputation
Work out the bugs and forego revenue
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.6
Sustainability
Sustainability
Using resources in ways that do not harm ecological systems
that support human existence
Key aspects of designing for sustainability
Cradle-to-grave assessment (Life-Cycle assessment)
End-of-life programs
The 3-Rs
Reduction of costs and materials used
Re-using parts of returned products
Recycling

52. 4-‹#›
© McGraw-Hill Education.
Learning Objective 4.7
Cradle-to-Grave Assessment
Cradle-to-Grave Assessment
aka Life-Cycle Assessment (LCA)
The assessment of the environmental impact of a product or
service throughout its useful life
Focuses on such factors as
Global warming
Smog formation
Oxygen depletion
Solid waste generation
LCA procedures are part of the ISO 14000 environmental
management procedures
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.8
Reduce: Costs and Materials (1 of 2)
Value analysis
Examination of the function of parts and materials in an effort
to reduce the cost and/or improve the performance of a product
Common questions used in value analysis
Is the item necessary; does it have value; could it be
eliminated?
Are there alternative sources for the item?
Could another material, part, or service be used instead?
Can two or more parts be combined?

53. 4-‹#›
© McGraw-Hill Education.
Learning Objective 4.8
Reduce: Costs and Materials (2 of 2)
Can specifications be less stringent to save time or money?
Do suppliers/providers have suggestions for improvements?
Can packaging be improved or made less costly?
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.8
Re-Use: Remanufacturing (1 of 2)
Remanufacturing
Refurbishing used products by replacing worn-out or defective
components
Can be performed by the original manufacturer or another
company
Reasons to remanufacture:
Remanufactured products can be sold for about 50% of the cost
of a new product
The process requires mostly unskilled and semi-skilled workers
In the global market, European lawmakers are increasingly
requiring manufacturers to take back used products
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.8
Re-Use: Remanufacturing (2 of 2)
Design for disassembly (DFD)

54. Designing a product to that used products can be easily taken
apart
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.8
Recycle (1 of 2)
Recycling
Recovering materials for future use
Applies to manufactured parts
Also applies to materials used during production
Why recycle?
Cost savings
Environmental concerns
Environmental regulations
Companies doing business in the EU must show that a specified
proportion of their products are recyclable
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.8
Recycle (2 of 2)
Design for recycling (DFR)
Product design that takes into account the ability to disassemble
a used product to recover the recyclable parts
4-‹#›
© McGraw-Hill Education.

55. Learning Objective 4.9
Product or Service Life Stages
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.10
Standardization
Standardization
Extent to which there is an absence of variety in a product,
service, or process
Products are made in large quantities of identical items
Every customer or item processed receives essentially the same
service
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.10
Designing for Mass Customization
Mass customization
A strategy of producing basically standardized goods or
services, but incorporating some degree of customization in the
final product or service
Facilitating techniques
Delayed differentiation
Modular design

56. 4-‹#›
© McGraw-Hill Education.
Learning Objective 4.10
Delayed Differentiation
Delayed differentiation
The process of producing, but not quite completing, a product
or service until customer preferences are known
It is a postponement tactic
Produce a piece of furniture, but do not stain it; the customer
chooses the stain
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.10
Modular Design
Modular design
A form of standardization in which component parts are
grouped into modules that are easily replaced or interchanged
Advantages
Easier diagnosis and remedy of failures
Easier repair and replacement
Simplification of manufacturing and assembly
Training costs are relatively low
Disadvantages
Limited number of possible product configurations
Limited ability to repair a faulty module; the entire module
must often be scrapped
4-‹#›
© McGraw-Hill Education.

57. Learning Objective 4.10
Reliability
Reliability
The ability of a product, part, or system to perform its intended
function under a prescribed set of conditions
Failure
Situation in which a product, part, or system does not perform
as intended
Reliabilities are always specified with respect to certain
conditions
Normal operating conditions
The set of conditions under which an item’s reliability is
specified
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.10
Robust Design
Robust design
A design that results in products or services that can function
over a broad range of conditions
The more robust a product or service, the less likely it will fail
due to a change in the environment in which it is used or in
which it is performed
Pertains to product as well as process design
Consider the following automobiles:
Ferrari Enzo
Toyota Avalon
Which is design is more robust?

58. 4-‹#›
© McGraw-Hill Education.
Learning Objective 4.10
Degree of Newness
Product or service design changes:
Modification of an existing product or service
Expansion of an existing product line or service offering
Clone of a competitor’s product or service
New product or service
The degree of change affects the newness of the product or
service to the market and to the organization
Risks and benefits?
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.10
Quality Function Deployment
Quality Function Deployment (QFD)
An approach that integrates the “voice of the customer” into
both product and service development
The purpose is to ensure that customer requirements are
factored into every aspect of the process
Listening to and understanding the customer is the central
feature of QFD
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.10
The House of Quality Sequence

59. 4-‹#›
© McGraw-Hill Education.
Learning Objective 4.10
Kano Model
Basic quality
Refers to customer requirements that have only limited effect on
customer satisfaction if present, but lead to dissatisfaction if
absent
Performance quality
Refers to customer requirements that generate satisfaction or
dissatisfaction in proportion to their level of functionality and
appeal
Excitement quality
Refers to a feature or attribute that was unexpected by the
customer and causes excitement
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.10
The Kano Model – As Time Passes
4-‹#›
© McGraw-Hill Education.

60. Learning Objective 4.10
Concurrent Engineering
Concurrent engineering
Bringing engineering design and manufacturing personnel
together early in the design phase
Also may involve manufacturing, marketing and purchasing
personnel in loosely integrated cross-functional teams
Views of suppliers and customers may also be sought
The purpose is to achieve product designs that reflect customer
wants as well as manufacturing capabilities
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.10
Computer-Aided Design (CAD)
CAD
Product design using computer graphics
Advantages
Increases productivity of designers, 3 to 10 times
Creates a database for manufacturing information and product
specifications
Provides possibility of engineering and cost analysis on
proposed designs
CAD that includes finite element analysis (FEA) can
significantly reduce time to market
Enables developers to perform simulations that aid in the
design, analysis, and commercialization of new products
4-‹#›
© McGraw-Hill Education.

61. Learning Objective 4.10
Production Requirements
Designers must take into account production capabilities
Equipment
Skills
Types of materials
Schedules
Technologies
Special abilities
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.10
Manufacturability
Manufacturability
Ease of fabrication and/or assembly
It has important implications for
Cost
Productivity
Quality
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.10
Component Commonality
When products have a high degree of similarity in features and
components, a part can be used in multiple products
Benefits:
Savings in design time
Standard training for assembly and installation

62. Opportunities to buy in bulk from suppliers
Commonality of parts for repair
Fewer inventory items must be handled
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.11
Service Design
Begins with a choice of service strategy, which determines the
nature and focus of the service, and the target market
Key issues in service design
Degree of variation in service requirements
Degree of customer contact and involvement
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.11
Differences between Service and Product Design
Products are generally tangible, services intangible
Services are created and delivered at the same time
Services cannot be inventoried
Services are highly visible to consumers
Some services have low barriers to entry and exit
Location is often important to service design, with convenience
as a major factor
Service systems range from those with little or no customer
contact to those that have a very high degree of customer
contact
Demand variability alternately creates waiting lines or idle
service resource

63. 4-‹#›
© McGraw-Hill Education.
Learning Objective 4.12
The Well-Designed Service System
Characteristics
Being consistent with the organization mission
Being user-friendly
Being robust if variability is a factor
Being easy to sustain
Being cost-effective
Having value that is obvious to the customer
Having effective linkages between back- and front-of-the-house
operations
Having a single, unifying theme
Having design features and checks that will ensure service that
is reliable and of high quality
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.13
Successful Service Design (1 of 2)
Define the service package in detail
Focus on the operation from the customer’s perspective
Consider the image that the service package will present both to
customers and to prospective customers
Recognize that designers’ familiarity with the system may give
them a quite different perspective than that of the customer, and
take steps to overcome this
Make sure that managers are involved and will support the

64. design once it is implemented
4-‹#›
© McGraw-Hill Education.
Learning Objective 4.13
Successful Service Design (2 of 2)
Define quality for both tangibles and intangibles
Make sure that recruitment, training, and reward policies are
consistent with service expectations
Establish procedures to handle both predictable and
unpredictable events
Establish system to monitor, maintain,
and improve service
4-‹#›
© McGraw-Hill Education.
Operations Strategy
Effective product and service design can help the organization
achieve competitive advantage:
Packaging products and ancillary services to increase sales
Using multiple-use platforms
Implementing tactics that will achieve the benefits of high
volume while satisfying customer needs for variety
Continually monitoring products and services for small
improvement opportunities
Reducing the time it takes to get a new or redesigned product or
service to the market

65. 4-‹#›
© McGraw-Hill Education.
End of Presentation
© McGraw-Hill Education. All rights reserved. Authorized only
for instructor use in the classroom. No reproduction or further
distribution permitted without the prior written consent of
McGraw-Hill Education.
4-‹#›