We started our course with the discussion about a firm (WHR) that wants to perform capital budgeting analysis of a major information technology investment. An investment in an enterprise system. Our objective has been on how to approach this evaluation from a strategic standpoint. We started by looking at technology innovation adoption and how the position that a firm takes will affect the expected payoffs (chapter 1). We combined Rogers’ innovation adoption theory with Gartner’s Hype cycle to estimate expected payoffs and duration of competitive advantage (chapter 2).
We learned that technological innovations have the potential to disrupt the competitive landscape and it is important for a firm to consider its technology related investments in the context of its strategic priorities (chapter 3). We used information generated in financial reports to make sense of business strategy and industry structure, and looked at how technology adoption (such as data analytics) can shape the competitive position of adopting firms (chapter 2, 3, and 4).
For firms to leverage data analytics they must have access to data, and this justified the need to have at a minimum a basic understanding of database theory (chapter 5). We used the examples of database schemas capturing business processes of different firms as a way of envisioning the foundation of an enterprise system (chapter 6). This brought the realization that even though enterprise systems constitute a mature technology today, they are critical for any firm that wants to leverage data analytics, because they are the source of all internal data (chapter 6).
Understanding the importance of implementing or upgrading a firm’s enterprise systems, brought us back to the place we started, i.e., perform the capital budgeting analysis for WHR (chapter 7), which is the topic of Week 11.
Topics and Readings for Week 11
Theory: We will focus on Chapter 7 (evaluation of IT investments). The primary focus of this chapter is on the expected benefits from IT investments and use of Real Options in assessing the value of multistage projects.
Seminar: We will use the mini-case of BlueBikes in order to understand the foundation of the capital budgeting setting used in the WHR case. Read carefully the part of the chapter that will help you understand the BlueBikes case so you can replicate the WHR case. While we will spend most of our time doing the capital budgeting analysis, I will reserve some of the seminar time to show you how to leverage some of the advanced functionality in R (e.g., neural networks) to forecast sales based on Compustat data.
Assignments for Week 11
The online quiz will be a based on chapters 7, the WHR case, and material covered in the seminar. The quiz will be available on Friday at 12:30 pm.
