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Lecture 6 ( February 22, 2003)


Lecture 6 ( February 22, 2003) Designing and Organizing Information Systems Resources Case Analysis Banking industry: American National Bank strategic analysis IS not ... – PowerPoint PPT presentation

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Title: Lecture 6 ( February 22, 2003)

Lecture 6( February 22, 2003)
  • Designing and Organizing Information Systems
  • Case Analysis
  • Banking industry American National Bank

strategic analysis
  • IS not only help to cut costs, but to gain
    competitive advantage, e.g. control over
    distribution channels linked electronically to
    suppliers and customers
  • On the other hand, strategic IS can be expensive,
    difficult to build and easily imitated.
    Government regulations can also impact strategic
  • The application of strategic systems requires a
    thorough understanding of the organization,
    including its internal and external environment.
    The most difficult aspect is the decision to
    pursue ideas that will give the firm a
    competitive advantage, especially those with a
    reasonable cost
  • Michael Porters five external forces model can
    help identify competitive advantages for the

Michael Porters five competitive forces
potential entrants

bargaining power of suppliers
bargaining power of buyers
rivalry among existing firms
substitutes of products/services
some considerations
  • Competitive advantage conferred by IS are
    generally short-term. However, the impact are
    normally very significant.
  • Strategic applications of IS lock-in customers
    and suppliers by raising the cost of switching.
  • Level of acceptance by users/customers is
    critical to the success.
  • The various risks associated with new technology
    are always high.
  • The decision whether and when to invest in new
    technology is critical

Systems Development
  • Systems development are typically difficult,
    especially for large projects.
  • Most projects that are deemed failures either
    cost too much or did not produce useful systems.
  • Project overruns and huge backlogs are common in
    all industries.
  • To deal with all these difficulties, various
    methodologies and approaches are used to provide
    some control over the process.
  • One of the most formalized techniques used is
    SDLC (Systems Development Life Cycle)
  • Other methods include prototyping, end-user
    development, joint application development and
    object-oriented development.

Systems Development Life Cycle
  • Feasibility study
  • Examine, analyze and evaluate the benefits,
    goals, costs, problems and implications of the
    proposed system solution.
  • The objective is to determine whether a system is
    the right procedure to solve the situation
  • Planning
  • Developing a schedule for the project
  • Appointing team leaders
  • Laying out a plan
  • System analysis
  • Determine the present system procedures and
  • Breaks the current system into smaller, more
    manageable pieces.

(contd. 1)
  • System design
  • Describes the system on paper, including a
    detailed description of its modules and
  • Define program specifications
  • Programming
  • Coding of the program specifications into
    computer readable language programs.
  • Testing of the individual programs.
  • System testing
  • Also known as string test or final test.
  • Testing to uncover interlink, multiple and
    concurrent access and stress problems.
  • Sign off
  • Acceptance tests
  • All documentations completed
  • A common requirement by organizations such as
    audit requirements
  • By regulatory requirement for some sensitive

(contd. 2)
  • System implementation
  • Installing the new system
  • Training end-users
  • Making work adjustments
  • Conversions (from old systems or from manual)
  • Temporary human resources requirement
  • Maintenance
  • Working systems must be maintained and modified
    as business needs arise.
  • Fix problems not found during testing and
  • Address changes required due to changing
    hardware, software or other operating environment
    such as keeping up with the industry and
    regulatory bodies.
  • Evaluation
  • Post-implementation reviews
  • Effectiveness, reliability, stability, speed,
    ease of use etc
  • Other criteria to judge the new system for future
    project reference

Systems not considered as successful
  • Systems developed which did not support business
    strategies and objectives.
  • Poor systems planning and inadequate project
  • Failure to define or understand user
  • Negligence in estimating costs and benefits of
    the systems project.
  • Creation of a myriad of design defects and
  • Acquisition of computers and software that no one
    needs or knows how to use.
  • Installation of incompatible or inadequate
  • Negligence in implementing adequate controls.
  • Development of unstructured, unmaintainable
  • Inadequate implementation tasks.

Centralization vs Decentralization
  • The never-ending struggle between centralization
    and decentralization has not bypassed MIS.
  • Since the advancement of technology into PCs, the
    trend towards decentralization has been more
    pronounced. Distributed processing have been
    giving way and there were even talks on the dying
    of mainframes. However, mainframes are still
    here to stay with even more increasing usage.
  • The client/server approach has bridge the gap
    between centralization and decentralization while
    capturing the benefits of both.
  • Centralization or decentralization not only
    affects hardware and software, but areas such as
    data and human resources are also affected.

advantage comparison
  • centralization
  • economies of scale
  • easier upgrades and compatibility
  • increase control over access and sharing
  • easier training and hiring of specialists
  • decentralization
  • lower prices of PCs
  • increased flexibility
  • easier access and personal control
  • faster and more personal response time for users

their advantages
centralized Although PCs may cost substantially less than mainframes at about 1000 times less per processing second, economies of scale can still be achieved due to other associated peripherals, software and the total number required.
de- centralized Diminishes the chance for a total breakdown. Equipment can be personalized and the hardware is usually cheaper.
client / server The benefits of the extremes can be realized. Centralized concurrency and security controls of data. Peripherals can be more personalized by residing in the client or PC
their advantages
centralized Lower cost on a per-user basis. Fewer compatibility problems
de- centralized More flexibility for end-users in what software they use and faster access to software residing on the individual workstation. Support and configuration software applications can still be integrated.
client / server This arrangement can provide advantages by maintaining some software on the server and some on the individual clients or PCs
their advantages
centralized Easier to share data with all users. Easier to control access to the data. Easier to do backup and recovery.
de- centralized Users have better and faster access to the data. Users know where and how their data are organized. Users control their own data, having more privacy than sharing.
client / server Shared data resides on the server while more personalized or departmental data such as electronic mails and confidential documents can be sent to the client or PCs.
their advantages
centralized Working together with other MIS workers can lead to team efforts and faster solutions to complicated problems. More diversified career path opportunities.
de- centralized The MIS worker is closer to the end users and more familiar with users particular needs
client / server MIS staff take care of the servers and the issues that surround them. Other IT personnel scattered throughout the organization to assist client end-users. Or using Help Desk approach. Users call a central number and IT personnel dispatched to the location if the problem cannot be resolved over the phone.
Training and Education
  • Traditionally, IS and IT training and education
    has been focused on training the IT
    professionals. As technology advances at a
    faster and faster speed, training and re-training
    become more prominent.
  • However, IS and IT training and education has
    been more and more important for users. Anyone
    except aggressive risk takers will be nervous
    about a new system or new technology to be
    implemented if they know nothing about it.
  • Training on new systems or tools to be used for
    the mass workers are vital to a successful
    implementation strategy.
  • Companies nowadays not only provide IS training
    to all affected workers, they even subsidized
    general IS or IT related education.
  • As an incentive, government has the Skills
    Development Fund for companies to tap on for a
    vast variety of courses.

End-user computing
  • Involving end-users in the design, education and
    training is important because it programs system
    flexibility, recognizes the impact of the new
    system on the business and reduces the resistance
    to change from the end-users to the new system.
  • The slow response to user requirements and the
    huge backlog of projects and maintenance in most
    corporate IT departments prompted for end-user
  • End-users could use their own computing resources
    to support their job requirements instead of
    waiting for the indirect support of corporate IT
  • The other reason for end-user development is the
    proliferation of more powerful and user-friendly
    software tools coupled with the increased IT
    knowledge of users.
  • One clear advantage of user development is less
    communication is required which in turn speeds up
    the process and avoids possible misunderstanding
    the requirements.


End-user computing (contd. 1)
  • However, end-user development is not without its
  • Most of these problems arise from the fact that
    users generally lack the training and experience
    of MIS professionals.
  • Systems produced by end-users tend to be written
    for only one person to use and hence oriented for
    working only on a stand-alone PC.
  • Lack of documentation creating problems for
    others to use the product.
  • Due to lack of training, users rarely perform as
    much testing as they should.
  • Lack of security control and audit trails.
  • Poor maintenance.
  • Data integrity problems often occurs.

computing (contd. 2)
  • Duplication of resources as different people in
    different parts of an organization could be
    working on the same type of problem which the IT
    department could solve it once for all.
  • Lack of standard generates incompatibilities
    making it difficult to combine systems created by
    different departments when the need arises.
  • End-user development takes time away from the
    users job. Some users spend months creating and
    modifying systems that might have been created by
    MIS professionals in a fraction of the time.

  • Outsourcing is a new term for an old concept in
    MIS. To outsource is nothing more than to
    contract or sub-contract part or all of an
    organizations IS operations out.
  • Typically companies outsource software
    development, procurement and support to
    application service providers (ASPs). These ASPs
    provide and support business application and
    other software directly or via internet and
    intranets to all of a companys employee
  • However, many companies choose to let a
    specialized firm run the entire computer
    operations for them. This could be anything from
    machine operation and maintenance to development
    of new systems and maintenance of existing
    systems to telecommunciation services.

outsourcing (contd. 1)
  • Some companies outsource their whole IS
    operations by selling their entire computer
    installation and operations and transfer their
    existing staff to the service company.
  • Some leading outsourcing companies include EDS
    and IBM.
  • There are others who spin off their IS
    operations into IS subsidiaries that offer IS
    services back to their parent company as well as
    to external organizations. Typical of this are
    .com companies or business units of an
    organization taking care of the e-commerce and
    internet-related businesses.


outsourcing (contd. 2)
  • Outsourcing has primarily been used to decrease
    operating costs or to get the initial money from
    the sale of the installation. There are other
    companies who outsource to focus on their core
    business and not to worry about other areas
    especially the technologies.
  • However, on examining and studying those
    companies who outsource, the benefits and cost
    savings are not always clear.
  • The debate is still continuing on the
    controversial subject of outsourcing
  • Complex markets that benefit from strategic
    applications require the experience and knowledge
    of employees who work for the company.
  • Situations requiring tight security are easier to
    control if they remain in-house.
  • The outsourcing firm have to pay the same costs
    that a company face plus an additional profit

The trade-offs
  • Outsourcing is not a simple decision. The scope
    of the outsource can make the issue more complex.
    It must be carefully and fully analyzed, both
    financially, managerially and strategically.
  • If the focus is on development of strategic
    applications and leading-edge applications, it is
    usually better to use an internal development
    team and if necessary, get outside assistance as
    consultancy services for the latest technology.
  • If the main job is still dealing with older
    technology used mostly for transaction
    processing, it may be cheaper to hire an outside
    firm to maintain the applications.

Case analysis American National Bank
  • In 1933, American National Bank (ANB) opened for
    business in Chicago with capital funds of
    1,400,000 and deposits totaling approximately
    13,000,000. ANB showed a consistent growth in
    deposits and capital funds at a time when the US
    was recovering from the great depression and the
    people were actively involved in the war raging
    in Western Europe.
  • In 1945, deposits were already over 200 m. Post
    war conditions brought ANB to look bravely toward
    a future world where trade between nations would
    once again be possible. An International Banking
    Department was formed.
  • During World War II, savings were high because
    few consumer goods were available. As
    individuals spent accumulated savings during the
    post war years, there was no growth for the next
    three years in accordance with the banking
    industry as a whole.
  • Since then, ANB continued to grow tremendously in
    every area of operations. Along the growth in
    customers, employees, services offered, income
    and deposits, came the development of new
    departments and procedures to support the

The use of information technology
  • The superb location helped ANBs growth in its
    services to midsize corporations in a wide range
    of industries.
  • In 1961, an electronic data processing center was
    developed and the entire cheque handling
    operations was converted to an automated
    electronic system the following year.
  • The conversion was not without its problems.
    Although no staff were terminated because of this
    conversion, a number of individuals were
    transferred to other departments and still more
    were extensively retrained to operate effectively
    in the data processing field.
  • In 1963, an additional computer was ordered to
    handle the increase in cheque volume.
  • In 1966, ANB purchased Tel-A-Data Corpn, a data
    processing center providing modern online
    customer account service for correspondent banks
    and savings and loans associations.
  • In 1968, ANB joined the growing network of bank
    credit card issuers through its entry into the
    MasterCharge system.

some technology stories
  • ANB implemented Vector digitized systems to
    improve its ability to detect and address
    customer fraud
  • Vector-Kite system the hope was that the kite
    system would enable the bank to pinpoint
    customers with the full intent to defraud the
    bank. However, the system shows that most
    customers of the bank are kiting suspects. This
    is because the system is limited in its ability
    to evaluate the float period.
  • Vector-Signature system intent to decrease the
    time required to verify cheques and detect
    fraudulent activity. However, the goal was not
    achieved completely. Staff no longer required to
    flip through signature cards as signatures are
    now captured as images in the system, much time
    and effort have been saved. The system was not
    stable and the application shuts down frequently
    when making the transition from one signature
    image to another.
  • Other projects were initiated, such as CIS,
    intranet applications and Y2K compliance.

Into mergers and acquisitions
  • In the mid-1970s, ANB expanded with branches
    overseas including Hongkong and Singapore.
  • The banks Trust Department commanded worldwide
    attention and recognition, with its innovative
    investment strategy techniques, its pioneering
    concept of indexing and its practical use of
    modern investment portfolio theory.
  • Critical to ANBs success has been the
    knowledgeable personalized service. Offering most
    services customers need when and where they need
  • The bank allocates certain officers for
    customers. The officers deal with customers on
    an individual basis to meet specific needs.
  • First Chicago Corpn, the 12th largest bank
    holding company in the US acquired ANB in 1984.
    ANB has been able to distinguish itself by
    focusing on its customers better than its
    competitors which include Bank of America.
    Smaller banks do not have the capital resources
    to penetrate the market as easily as larger banks
    which have capital resources to spend on

merger, acquisition and technology
  • The acquisition by First Chicago gave ANB
    additional expertise to tap for technological
    solutions. New mainframe applications were
    adopted with information distribution across the
    bank through LAN.
  • In 1996 after the merger of National Bank of
    Detroit, the new corporation (First Chicago NBD)
    studied the implementation of a customer
    information system (CIS) and a consolidated
    deposits application. They determined that a
    relationship-based CIS was critical to maximizing
    market penetration and customer profitability.
    Moreover, most of the existing deposit systems
    within the merged corporation were not Y2K
  • Hogan DB2 CIS was selected for enterprise-wide
    use and Hogan Demand Deposit Accounting System
    for use in the Corporate and Institutional
    Banking Area and at ANB.

merger, acquisition and
technology (contd.)
  • Systems Application Products (SAP) were purchased
    for used in general ledger reconciliation
  • Windows-based standard were established to obtain
    the most benefit from its applications.
  • The merger has resulted in increase of staff
    rather than decreases in the Information Systems
    Department due mainly to two reasons
  • Working on program integration to facilitate
    lines of communications across the merged
  • To tackle the Y2K problem
  • The sheer size of the systems has resulted in
    outsourcing not being embraced by either ANB or
    the parent corporation. However, in order to ease
    the manpower resources shortage, some projects
    were still outsourced.

Performance after merger
  • In a ranking of 37 Midwest banks in 1995, First
    Chicago ranks highest in revenues, deposits and
    assets. It also ranks very high in net income
    and net loans. However, it does not rank high in
    return on assets, profit margin and
    price-to-earnings ratio.
  • First Chicagos high ranking in revenue, deposits
    and assets is due to the mergers, including ANB
    and National Bank of Detroit. The low ranking in
    return on assets and profit margin indicates that
    while the corporation has substantial assets at
    its disposal, it is not utilizing its resources
    to their fullest potential to generate income.
    Compare to other banks in the same region, the
    corporation is not profiting from its operations.

Into the future
  • Financial services industry is further limited
    when it comes to making investments in
    technology. Technology investments need to be
    supported by high margin products. However, for
    the most part, the products from financial
    institutions have low margin returns compared to
    other industries.
  • Based on the changing nature of the banking
    industry, the driving force in the near future
    will be the convenience that a particular bank
  • Through acquisition and merger, integration of
    operations must focus on cutting costs and
    efficiently serving the customers in all core and
    noncore functions.
  • Choosing the technologies that will allow the
    bank to cut costs is the way to go.
  • Consider to outsource more of its information
    systems functions.

www.bankone.com after mergers
  • American National Bank
  • First Chicago Corporation National Bank of
  • First Chicago NBD Banc One
  • Bank One

resources reading materials
  • Chapters 11, 12 and 13 of textbooks
  • Michael Porter, Competitive Advantage
  • www.bankone.com
  • www.mas.gov.sg
  • www.sdf.gov.sg
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