Creating Business Advantage With IT[1]

Creating Business Advantage with ITAs the century closed, the world became smaller. The public rapidly gained access to new and dramatically faster communication technologies. Entrepreneurs, able to draw on unprecedented scale economies, built vast empires. Everyday day brought forth new technological advances to which old business models seemed no longer to applyIT Evolution1950 -1960Hardware costs and limitation of capacity and reliability. Limited IT personnelMainframe computer, data processing center.Mid 1960 -Early 1980Difficulty in delivering reliable system on time and within budget, productivity of system developers, tools limitation.Introduction of PCs1980-Early 1990Communication networksPowerful desktops, Laptops, internet etc.Late 1999-Internet, wireless network, etc.Hardware constraintsSoftware constraintsHardware constraintsUser related constraintsOrganization environmentconstraintsData processing Management InformationSystems Strategic InformationSystems Creating Business Advantage with ITNotes:The winners in the world of the information highway and the networked society will not just be the providers of the fibre, the computer terminals devices, and the software packages but….Organizations (large and small) who are able to perceivenew channels for reaching their customers, identifytransformed productsand serviceswhich can be offered, and those who have the courageand will to rapidly reposition their organizations and undertake the risks, turmoil and opprobrium which often accompanies radical change.Forces that Shape Business StrategyThree frameworks that can be used to guide analysis of the impact of IT on strategyValue ChainIndustry and competitive analysisStrategic Grid AnalysisValue Chain FrameworkTool for identifying and analyzing the stream of activities through which products and services are created and delivered to customers.Once activities are defined, it becomes possible to analyze the economics at each step in the chain by identifying both the costs incurred and the value created.These activities can be located inside a firm or across firm boundaries. Accompanying the physical value chain is a related information value chain through which the involved parties coordinate and control activitiesValue chain participants (Market Roles)Value chain participantsValue Chain FrameworkValue Chain AnalysisIndustrial Economy Business ModelFavored productionEconomy of ScaleAre achieved when a market participant or a network of participants is able to leverage capabilities and infrastructure to increase its revenue and profit within a single product lineEconomy of scope… to launch new product line or businesses or enter a new market The point within a value chain where maximum economics of scale and scope are created determines market powerValue Chain FrameworkIndustrial Economy Business ModelThe innovations favored productionPhysical/analog production (machine, telephones, steam engines, etc)Operational modelAssembly line, marketing, salesManagement modelHierarchySocial/regulation systemSpecialized work, pay-for-performance incentives, etcThe Value ChainSupportactivitiesPrimary activitiesInbound logisticsMaterials receiving, storing, and distribution to manufacturing premisesOperations Transforming inputs into finished products.Outbound logisticsStoring and distributing productsMarketing and SalesPromotions and sales forceServiceService to maintain or enhance product valueCorporate infrastructureSupport of entire value chain, e.g. general management planning, financing, accounting, legal services, government affairs, and QMHuman resources managementRecruiting, hiring, training, and developmentTechnology DevelopmentImproving product and manufacturing processProcurementPurchasing inputForces that shape competitionThe Networked Economy Business ModelInnovation modelDigital production and distribution technologies (broadband and wireless, networks, multimedia content creation, etc)Operational modelIntegrated supply chains and buy chainsManagement modelTeam, partnerships, consortiaSocial/regulatory systemsOwnership incentives, virtual work, distance learning, etc)Forces that shape competitionNetwork Economy of Scale Are achieved when a “community” of firms shares its infrastructure, capabilities, and customer base to produce and distribute products faster, better, and cheaper than competitors canNetwork Economy of Scope… when community uses its shared infrastructureto produce and distribute new products and services, enter new market, or lunch new business more quickly, at less cost, and more successfully than competitors canSource: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002.Chapter 1 Figure 1-3The Value Chain Defines Industry Structure and RelationshipsIndustry and Competitive Analysis (ICA)ICA framework postulates that economics and the competitive forces in the industry are the result of five basic forces: Bargaining power of suppliersBargaining power of buyersTreat of new entrantsTreat of substitute products or servicesCompetitive intensity and position among traditional business rivalsSource: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 1 Figure 1-5Forces Influencing Industry and Competitive Advantage The strategic Grid AnalysisThe value chain and the industry analysis help in framing the strategic decisionCategories of Strategic Relevance and ImpactFactorySupport StrategicTurnaround IT Impact on core operationsLowLowHighHighA contingency appropriate to IT management.IT Impact on core strategy Goal: Identify and launch new VenturesLeadership: Venture incubation unitProject Management: New Venture developmentGoal: Improve performance of core processesLeadership: Business unit executivesProject Management: Process engineeringGoal: Improve local performanceLeadership: Local level oversight Project Management: Grassroots experimentationGoal: Transform organization or industryLeadership: Senior executives & boardProject Management: Change managementImpact of IT on Strategic Decision MakingCan IT be used to reengineer core value activities and change the basis of competition?Can IT change the nature of relationship and the balance of power among buyers and suppliers?Can IT build or reduce barriers to entry?Can IT decrease or increase switching costs?Can IT add value to existing products and services to create New OnesAssessing IT-enabled businessOpportunity and RiskRisks increased when executives1. Have poor understanding of sources of competitive dynamics in the industry within which their firm competes2. Fail to fully understand the long-term implications of a strategic system that have been launched or one lunched by a competitor or another industry participant3. Lunch a system that brings litigation or regulation to the detriment of the innovator4. Fail to account for the time, effort, and cost required to ensure user adoption, assimilation, and effective utilization.Assessing IT-enabled businessOpportunities and RisksWhat business are we in? Who are our customers, suppliers, and business partners? What value do we provide to these key constituencies (including employees and owners). What are the competitive dynamics and balance of power within the industry? Can IT be used to create value and change the basis of competitionWho is our biggest competitor today and who will it be in future? How easy is it for new players to enter our market. How easily can customer, suppliers and partners switch How efficient and effective is our core operation activities and processes? How easily or difficult is it to do business with partnersAssessing IT-enabled businessOpportunities and RisksDo we want to be an industry leader or follower?Will changes in related industry (or even unrelated industries) influence our industry?Do we have the required infrastructure to adapted to rapid changes in the industry?Do our planning and budgeting process enable us to identify and effectively respond to strategic opportunities and threats