Investments in IT infrastructure

It is necessary that MDCM consider and evaluate different views of spending IT budget on IT
infrastructure and make decisions that fit long term goals of business. A set of 12 options are
available for the discussion ahead.

1. Unify Methodology and Technical standards:

MDMC is experiencing major setbacks in terms of work duplication costs and high project
cycles. The critical bottleneck for a high project cycle is the different set of processes involved
and decision making with respect to each process. Unifying methodology would lead to higher
resource sharing and increased employee collaboration. This increased IT capabilities are
essential for re-designing future cross functional processes and cross utilizing cross selling
opportunities. Since it is the base building block it occupies the bottom layer - Human IT
infrastructure components in the elements of IT infrastructure.

2. Consolidate data centers and networks

MDCM had thirty-seven data centers and nineteen network centers worldwide. This makes the
data access more complex and time consuming. Consolidating the data would not only reduce
time consumption but also cut costs to a larger extent. This follows Unify methodology and
occupies the bottom layer - Human IT infrastructure components in the elements of IT
infrastructure.

3. Outsource non-strategic IT services

Outsourcing non-strategic IT services will reduce high initial costs with respect to hiring and
training employees as well as deploying infrastructure. This occupies the bottom layer - Human
IT infrastructure components in the elements of IT infrastructure.

4. Standardize server hardware problems

Standardization can save costs of maintenance, reduce manpower. This is the base building block
of It infrastructure and falls in the bottom layer - Human IT infrastructure components in the
elements of IT infrastructure.

5. Implement ERP
As it is successfully implemented in the US, implementation at other places will lead to re-
organization of production facilities and reduce manufacturing project cycles. This comes under
shared IT services.
6. Create employee intranet portal

This is one of the main blocks of Shared IT services. The cost of employee benefits and services,
unnecessary head count, increased employee efficiency through increased resource sharing are
the main benefits of Intranet Portal.

7. Manage the supply chain

Identifying key vendors and optimizing the supply chain will cut down costs incurred drastically.
Since full implementation of ERP will consume a lot of time, vendor selection software will
optimize the business process until the full implementation is done. This is also the critical block
of shared It services.

8. Streamline design systems

The benefit of improved design systems comes from reduced project cycles and increased
quality, productivity. Instead of outsourcing them, implementing in house by adding to IT
components infrastructure can complement by increasing the shared services.

9. Improve collaboration system

This improves collaboration systems that can complement shared services to a greater extent by
optimizing the use of discussion boards, knowledge management applications etc.

10. Begin CRM/Create data warehouse

As the data center consolidation is a set of options considered, moving a step ahead and
implementing CRM can help MDCM in the long run by identifying and satisfying customer
needs accurately though increased databases. This is part of IT for business processes.

11. Implement E-Procurement system

MDCM have witnessed duplication in material purchasing and unnecessary materials purchased.
Aggregating the entire process would save time and money.

12. Customer self-service portal

This automation would reduce customer service costs and increase credibility from client
perspective. This is another major block of It for business processes.
This Data triangulation of above 12 set of choices can be visualized as,
The team now has a total budget of $175 million.
● The critical projects that carry low risk fall under the transactional layer and spending the
highest percentage on them will give maximum returns
● The other set of important projects that carry low risk fall under infrastructure layer but
the immediate returns are comparatively less while in long term they align with business
well and comp

Portfolio – Benchmarking framework

Average Firm business strategy:

If MDCM adopts the business strategy for an Average firm, it has to
allocate 16% of its total IT investment into Informational IT, similarly
14% of total to Strategic IT, 12% to Transactional IT and 58% of the
total to Infrastructure IT respectively. By keeping this approach MDMC
will witness a change of 4.1% of Revenues and 7.7% of Expenses.

Cost focused business strategy

If MDCM adopts the Cost focused business strategy, it has to allocate
13% of its total IT investment into Informational IT, similarly 05% of
total to Strategic IT, 40% to Transactional IT and 42% of the total to Infrastructure IT
respectively. By keeping this approach MDMC will have an IT that is 10 to 20% lower than
Industry average.
Balanced cost and agility business strategy
If MDCM goes for the Balanced cost and agility business strategy, it
has to allocate 20% of its total IT investment into Informational IT,
similarly 15% of total to Strategic IT, 15% to Transactional IT and
50% of the total to Infrastructure IT respectively. By keeping this
approach MDMC will have an IT that is around industry average.

Agility focused business strategy

If MDCM goes for Agility focused business strategy, it has to allocate
14% of its total IT investment into Informational IT, similarly 17% of
total to Strategic IT, 11% to Transactional IT and 58% of the total to
Infrastructure IT respectively. By keeping this approach MDMC will
have an IT that is 10% to 25% higher than industry average.

Value Addition and Ease of Implementation

The 12 potential projects and initiatives will have to be analyzed based on the value it adds to the
business and the ability to be successfully executed. There are various constraints that we’ll have
to consider before choosing the initiatives. This simple plot helps us to understand the ability of
the project to succeed and the value it adds to the overall business.The amount of value addition
through each of the projects is marked through the size of the bubble and the ability to succeed is
marked in the X-axis.

Successful implementation:

For an initiative to succeed there are different constraints:

● Time taken to execute the project might be very long and hence difficult to execute
● The amount of investment required to complete the project
● The technology might not be sufficiently advanced or stable to accomplish and initiative

Here the ERP and supply chain have a very low ability to succeed because the ERP
implementation would be high expenditure for the consultants and would take 12 months and $
30 million to complete. The supply chain would also take 9-12 months and the vendor quoted $
12.3 million for a full implementation.

Similarly, the customer self-service portal also has a low success rate because of MDCM’s
antiquated network and data centers, it would also take 6 months to get the portal running. For
the CRM too, consolidation of warehouses was required and would cost $ 15 million and about
9-12 months to set up. Streamlining designs have relatively higher ability to succeed as the
French subsidiary has already proposed to buy the systems outright instead of leasing them, so
can leverage this investment. Improving the collaboration system has a better ability as it uses
only the internal resources and the underutilized systems can be discarded quickly. The
consolidation of data centers had a similar ability to succeed, with consumption of existing
networking staff for 6 months. The 37 data centers have to be consolidated into 3 locations,
through shifting into a company vpn. The outsourcing of nonstrategic services was much easier
as Atkins has already several successful initiatives in the same. The standardization of server
h/ws has a higher success ability as it costs only $ 1.5 million and MDCM Brazil, Argentina, and
Mexico have already started this standardization process. Finally, the unifying methodology and
technical standards have a very high ability to succeed as it is not going to change already
existing systems much, it only involves training the resources to the new methodology. The
employee intranet portal could also be easily implemented as it takes only 3 months effort and
costs only a fraction of overall expense. Implementing E-procurement has also a very high
potential to succeed as MDCM already has all the aggregated data of materials purchasing. So it
will only take 6 months to implement and to consolidate the internal purchasing.

Value to Business:
The value addition can be subjective at times, but IT helps to quantify the value addition through
● Improvement in the quality of service
● Improvement in the time taken to complete a process
● Efficiency in increase of a process
● Reduction of resources required to complete a process

The employee intranet portal has very little value to overall business, though it is easy to
implement, the efficiency in the HR related administration does not have a direct impact in the
business. The customer service portal is also not a great addition to business, though it could
save the administrative expenses associated with customer service, the reliability cannot be
guaranteed on MDCM’s network. The nonstrategic services being outsourced is not much of
value addition to the business, usually value adding services are never outsourced, the services
like help desk support, h/w maintenance are usually low on value addition. The consolidation of
data centers is not a great value addition but can save $ 1.1 million. There will be possible
interruptions to network services too. Streamlining designs can be a mediocre value addition
through reduced product design cycle time and improved quality control. The custom-built CAD
would be of very high value if the efficiency improvements are replicable everywhere. The
standardization of server h/w and platform could be a decent value addition through decrease
in maintenance and support costs. There will be savings from the mainframes through this
standardization process. The CRM adds better value and is already implemented in French
subsidiaries and has been very successful and valued, hence can be rolled out globally. Unifying
methodology can be a good value addition to the business through reduced project cycle times
and encourages knowledge sharing across the IT developmental teams. This will improve the
future systems-developed capability of the IT organization. Improving the collaboration
systems, here quantifying the value directly to business is difficult but it will help in the overall
efficiency improvement of the functioning of the organization through much integrated emails,
discussion boards, calendars, and knowledge management applications. Manage the supply
chain, this is a good example of value addition through integration and connectedness, though
MDCM has reduced the suppliers from thousands to few hundreds, it can still work perfectly
through maintaining a proper connected network of the suppliers. Implementing an E-
procurement system is a great value addition to the business through consolidation of all
internal purchasing thus speeding up, easing the process and saving a lot of costs in phone calls,
emails, and faxes. There could be additional savings if the local managers managed the internal
purchases themselves, this is possible as it is easy to maintain an online procurement system.
ERP would be the best value addition to the business, as resource planning is a key module in
any business, it would be a crucial cornerstone for MDCM and a critical piece in the
reorganization.

Risk Return characteristics of the projects

The risk return is an important aspect that the organization needs to consider before
implementing the initiatives. The details discussed above need to be evaluated based on the value
addition and ability to succeed. Now we consider the risk characteristics of each portfolio.

Strategic: The customer self-service portfolio that comes under the strategic portfolio will have
high risk and huge potential but equal rate of failure too. Proceeding with these initiatives is
based on the risk-taking capability of the organization. If they are risk aversive it is better to
avoid the huge strategic portfolio.

Infrastructural: The outsourcing of nonstrategic IT, unifying methodology and technical

standards, standardizing server hardware, streamlining design, improving collaboration systems,
and consolidating data centers are under the infrastructural portfolio that have a considerable
technical uncertainty and a moderate risk due to the long term in the business operations.

Informational: The CRM/ creating data warehouse has a moderate risk regarding creating a
business value by operating on the available information. The difficulty in processing the
information to extract business value causes the risk in the informational portfolio.

Transactional: Managing supply chain, creating intranet employee portal, Implementing E-

procurement and enterprise resource planning all have a very minimal risk and will also provide
good returns and needs to be considered on priority if adds business value to the operations.

Information Economics Framework

This framework uses two criteria:

1. Business Value Criteria

Under Business Value Criteria, we look at things like if the IT Project will bring Economies of
Scale by allowing the company to take advantage of the huge quantity of production to possibly
bring in efficiencies which will be used to reduce the costs of the products.
Then, we see if the IT capability enables the company to be a global player and enable global
capabilities for the firm and making it a single coordinated unit, by consolidating and enabling
transfer of resources and information across firms in different countries.

Next criterion was to see if the IT capability enables Operational efficiencies, helps the
company produce better quality products, streamline processes like Forecasting, scheduling and
improves the communication in the firm between employees and departments. It could also be
consolidating legacy systems into one updated system.

Finally, we look at if the IT capability improves customer relationships. For example,

providing support, helping customer order through online web portal etc.

2. Likelihood of Success Criteria

Under Likelihood of Success Criteria, we look at the factors like Complexity of the IT project,
and the cost to implement the project and technical capability requirements for the project in
terms of employee’s skills required to implement the project and the organizational capabilities
that are required to enable the IT capability, in terms of employee skills and willingness to use
the IT capability effectively after implementation.
Score Card
Summary

MDMC is trying to shift to IT in the long term, for this they need to evaluate all the available
options and choose the best ones. We have suggested how they can spend their IT budget to
derive the maximum value. Also, we have used the Portfolio – Benchmarking framework to
assess what would be the best strategy to follow for them when it comes to investments. We feel
that the Cost-focused strategy allows us to spend more on transactional IT which MDCM needs
to improve operational efficiencies and essentially profitability.  We also considered the
constraints that need to be addressed while choosing the options for investments. This would be
time taken to execute the project, the amount of investment required, the technology. Next, we
discussed how these options will add value so that the organization will be able to earn
maximum profit. It will help organizations in quality of service, time taken to complete a
process, Efficiency of a process, resources required to complete a process.  These were clubbed
together into specific collections of parameters called Business Value Criteria and Ability to
Succeed Criteria and proceeded to give scores on various sub parameters to arrive at an overall
score.

Recommendations

 First, we feel that the Standardization of Infrastructure and Platforms is the most
important. Hence, we need to go with Unify Methodology and Technical Standards
and Standard Server Hardware and Platforms
 Then, we will be easily able to Implement Enterprise Resource Planning solutions as
we have all the necessary underlying infrastructure in place.
 Then we can improve operational efficiency by Managing the Supply Chain and
Implement E-Procurement Systems
 Finally, we can look at Implementation of CRM and improving collaboration
systems.