Creating Business Advantage with IT

Vision and business models

Demonstration of the telephone in the late 1800s

While it is a wonderful invention, businessmen will never use it.

Rutherford B. Hayes 19th President of the USA

The Impact of Technology on Business and Society DuringThe Industrial Evolution

Chapter 1 Figure 1-1

Figure reprinted with permission from Duke University Rare Book,Manuscript, and Special Collections Library

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan., Corporate I nformation Strategy and Management. Burr Ridge, IL: McGraw-Hill/I rwin, 2002.

Technological innovations

Internet and broadband networksWWW and high performance servers Flexible, standardized, powerful platform for

creating and storing information in all its forms

URL Uniform Resource locator and Browser Common approach for identifying and locating

information anywhere on the internet

Multimedia digital devices Portable internet access devices that provide

internet access to voice, television and information

Laptops, palm pilots, cell phones, …

Wireless networks and protocolsJAVA, XML and other OO languages and database technologies

EconomiesEconomy of scale When a participant or network of

participants is able to leverage capabilities and infrastructure to increase its revenues and profitability within a single product line or market.

Economy of scope When a participant or network of

participants is able to leverage capabilities and infrastructure to launch new product lines or enter new markets.

Porter’s Value Chain(well suited for analyzing product/manufacturing firms)

Value Chain Applied to AirlinesIdentifies uses of IT for each element of the value chain

Market Roles

Source: 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 1-4

Industrial vs. Network Economy

Characteristics Industrial Economy Network economy

Criteria for economic success

Internal, proprietary and specialized economies, limited by level of infrastructure required

External, networked and shared economies of scale and scope are increased by internet infrastructure

Technological innovations

Production, communication and distribution technologies

Distribution, communication and information technologies;The ability to assemble component pieces

Operating innovations Standardization of work;Job specialization; assembly lines;Value chain industry structure.

Knowledge work; job expansion;Work teams; extended enterprise;Outsourcing and partnerships;Value networks.

Management innovations

Hierarchical coordination;Compliance-based control;Centralized planning and control.

Network coordinating and supervision; ownership incentives;Information-based models of control

Societal/regulatory innovations

Urban growth; mass transportation; social security and welfare; unions, regulations; domestic economy

Work at home; self-employment; global economy

Length of time to achieve economies of scale or scope

Decades Uncertain

Dominant industry power

Producers Solution assemblers and channel managers

Forces Influencing Industry and Competitive Advantage

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarland, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Chapter 1 Figure 1-5

Impact of IT: questions 1 of 5.

Can IT be used to reengineer core value acti-vities and change the basis of competition?

Uses IT not just to automate but also to transform and to inform

Benefits of conducting business online AHSC American Hospital Supply

Corporation American Airlines Internet to reengineer value chain and the

basis of competition

Impact of IT: questions 2 of 5.

Can IT change the nature of relationships and the balance of power among buyers and suppliers?

AHSC Customers recognized the value of a

multivendor marketplace but were unwilling to put up with the problems of using multiple different supplier systems

AHSC became channel manager Electronic market places: Oracle,

CommerceOne, Ariba, …

Impact of IT: questions 3 of 5.

Can IT build or reduce barriers to entry?

Consultancy companies: knowledge technology Technology based advantage: AHSC, AA, … The internet can decrease the impact: low

cost, ease of penetration Knowledge and community barriers are more

sustainable Proprietary infrastructure and channels to

market are at a particular disadvantage relative to new entrants when they attempt to create second-order barriers to entry (Amazon.com as new entrant with transaction, information and community infrastructures)

Impact of IT: questions 4 of 5.

Can IT increase or decrease switching costs?

Switching to another system might become difficult and costly in proprietary systems

With the internet switching costs are substantially reduced difficult to achieve customer loyalty

Intuit increased the switching costProvided easy to use inexpensive financial service softwareWon users via ease-of-use Hooked via simple ways of storing the information that should be reentered if the customer switches to a different product

Impact of IT: questions 5 of 5.

Can IT add value to existing products and services or create new ones?

Grocery stores are also in the business of selling information (client profiles)

Information content of existing products (cars)

Digital distribution of books, music, and video will dramatically alter existing publishing and entertainment industries.

Manure and fertilizer company provides information.

Summary

Exploiting the opportunities afforded by IT, while avoiding the pitfalls requires vision, sound execution, and the ability to respond quickly Risks increase when executives Have poor understanding of sources of

competitive dynamics Fail to understand the long-term implications of

a strategic system (their own or a competitor) Launch a system that brings on litigation or

regulation to the detriment of the innovator Fail to account for the time, effort, and cost

required to ensure user adoption, assimilation and effective utilization

Summary (cont)Investments should be examined on sustainable advantage Movement of IT-personnel results in rapid proliferation of strategic ideasQuestions What business are we in? Who are our customers,

suppliers, partners? Who are our biggest competitors, today and in the

future? How effective are our core operating activities and

processes? Are there big changes looming at the horizon and what

can we do? Will changes in related industries influence our industry? Did we identified the strategic risks today and in the

future? Have we appropriately prioritized our business

investments?