ISM 50 - Business Information SystemsLecture 4Instructors: Mary Doyle, Geoff RyderUC Santa CruzApril 8, 2009AnnouncementsDue today: Resume and Cover LetterRead Frito Lay case for MondayHomework assignment 2 is posted on web (due on April 15th)posted to web site soon:Group/Company AssignmentsPresentation/News Folio AssignmentsAnnouncementsMonday’s Presentations:Student PresentationsRobert CulpiGeary GaoNews Folio PresentationISM 50Robert Culpi4/08/2009Oyster CardsOyster Card Quick Facts First issued in 2003 By 2007 ten million Oyster Cards had been used with about five million in active use. 80% of all journeys using London public transportation used the Oyster card. Can store up to 90 pounds of credit. Fares using the Oyster card are cheaper than using cash.Oyster Cards Increased Efficiency  Increased Effectiveness Public Transportation System Increased Customer SatisfactionIncrease in EfficiencyThe use of Oyster Cards has eliminated the need for ticket booths to sell various public transport tickets.Decreases the number of theft from fake tickets.Decreased the amount of time it takes a passenger to board a bus or underground rail.These changes have allowed for a reduction in the operation cost of the public transportation system in London and can pass the savings to the customer. Increase in Effectiveness The Oyster card works all over Greater London on the London Underground, London buses, the Docklands Light Railway (DLR), London Overground, trams, and some of the National Rail.The use of the Oyster card unifies the public transportation systemThe Oyster card increases the public transportation’s effectiveness of assisting the public with traveling from one destination to another.Increase in Customer Satisfaction The Oyster card increases the ease at which the public can travel. Saves the public time because they no longer have to go to ticket booths to buy their tickets Oyster card reduces the operating costs of public transportation and the reduction of cost leads to a reduction ticket prices for the customers.Summary of How Article Relates to ISM 50 ConceptsCompetitive AdvantageEffectivenessEfficiencyInformation System RolesCompetitive AdvantageEffectivenessEfficiencyA GEARY GAO PRESENTATIONARTICLES:Blockbuster to Stream via TiVo, Push its DVRs in Storeshttp://www.wired.com/techbiz/media/news/2009/03/reuters_us_tivo_blockbusterBlockbuster: may not be able to stay in businesshttp://finance.yahoo.com/news/Blockbuster-may-not-be-able-apf-14864522.htmlNetflix To Stream South Park, Nickelodeon Showshttp://finance.yahoo.com/news/Netflix-To-Stream-South-Park-paidcontent-14865693.htmlGet free movies from Redbox in March on Wednesdayshttp://www.gadgetell.com/tech/comment/get-free-movies-from-redbox-in-march-on-wednesdays/ BLOCKBUSTER:Alliance with TiVo-Let TiVo Subscribers download and stream movies from their home-In exchange, Blockbuster will sell TiVo's Digital Video Recorders.“For Blockbuster, the deal responds to the growing appeal of movie and video watching on computers, handheld devices, or in home living rooms via set-top boxes or video game consoles.”Also plans to make movies available on Apple Inc ProductsAdvantages:Movies more available: Online, in stores, and now, downloadable thru TiVo DVR'sMore recent movies will be available compared to competitorsCOMPETITORSNetflix: order movies online and get them in the mail.Redbox: $1/night DVD Rentals.Free movie codes.blog.redbox.comTHE ENDToday’s discussion Review of net present value Review of business processes Business process reengineering More on Porter’s models Other concepts from O’Brien Chapter 2Definitions: Net Present Value Finding the value of an IT Projecthttp://www.soe.ucsc.edu/classes/ism050/Spring09/Cash_Flow.pdf Insight: $1 tomorrow is worth less than $1 today! Say the interest rate i = 10% per year The discount factor d = 1 / (1+i) = 1/1.1 = 0.91 Now suppose we have a stream of payments X0, X1, X2, X3, …. Then the net present value NPV of this stream of payments is computed asNPV = X0+ d*X1+ (d^2)*X2 + (d^3)*X3+ …Net Present Value Example 11Blue: i = 0210.240 1 2 30.24Purple: i = 0.1Green: annual paymentsRed: NPVYears$MROI = 0.24/3 = 0.08Review: Net Present ValueNPV Business RulesIf NPV > 0, we choose to do the projectIf NPV = 0, we are neutral (interest rate i for that case is theinternal rate of return)If NPV < 0, we choose NOT to do the projectTo get better at math, gorge on chocolatehttp://news.cnet.com/8301-17852_3-10212170-71.htmlKnow these terms:NPV, and the discount factor (defined 3pp back)ROR = the rate of return (just interest rate i in the example). Also the internal rate of returndefined aboveROI = return on investment = (NPV – Cost) /CostBig Productivity/Financial Gains from Network Era IT Deployments Clariant Case, p. 66“If any details were skipped, the $2 million project might not have met its 30 to 40 percent internal rate of return.” Assume even payments over years 1 – 4, and zero afterward. How large are these payments?  WESCO Case, p. 71“The company could save $12M annually... Considering that it cost $400K to implement…”Assume even payments over years 1 – 4, and zero afterward. What is the internal ROR?Big Productivity/Financial Gains from Network Era IT Deployments Siemens AG Case, p. 90“The tool, which cost only $7.8M, has added $122M in sales.” Assume even payments over years 1 – 4, and zero afterward. What is the internal rate of return? 2009 Counterexample: Doctor’s Office Doctors, Dentists, Hospitals...In the U.S. (and other countries) IT deployments in health care fields lag deployments in other industries.Doctors have computers, but prefer not to use email.Hospitals exchange patient information on paper.Patients often must call in to make appointments.Much insurance and billing traffic is sent through regular paper mailA Modest ProposalAdministration’s Budget ProposalThe federal stimulus package contains $19 B to fund health care IT initiativesOf that, $1 B to be allocated early to study approaches and design information-sharing standardsRand study: the U.S. could save $81 B annually from Electronic Medical Records (EMR) and other health IT projectsLess than 20% of U.S. Doctors use EMRs!Furukawa, M. F., Raghu, T. S., Spaulding, T. J., &