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06/16/22 06/16/22 1 Using IT as a Competitive Using IT as a Competitive Weapon Weapon November 5, 2004 November 5, 2004 Mohammed Haque Mohammed Haque Kirk Garten Kirk Garten Tom Webb Tom Webb

Using IT as a Competitive Weapon

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November 5, 2004 Mohammed Haque Kirk Garten Tom Webb. Using IT as a Competitive Weapon. Using IT as a Competitive Weapon Agenda. Theories of the tools or “Levers for Competitive Advantage” that are afforded by IT Case Studies of IT Applications – Weapons that hit - PowerPoint PPT Presentation

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Using IT as a Competitive WeaponUsing IT as a Competitive Weapon

November 5, 2004November 5, 2004Mohammed HaqueMohammed Haque

Kirk GartenKirk GartenTom WebbTom Webb

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Using IT as a Competitive Weapon Using IT as a Competitive Weapon AgendaAgenda

Theories of the tools or “Levers for Competitive Theories of the tools or “Levers for Competitive Advantage” that are afforded by ITAdvantage” that are afforded by IT Case Studies of IT Applications – Weapons that hitCase Studies of IT Applications – Weapons that hit their targets!their targets!

How is the “weapon” transformed? Are siliconHow is the “weapon” transformed? Are silicon chips and system analysts sufficient as weapons?chips and system analysts sufficient as weapons?

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Weapons are tools for winning wars. Weapons are tools for winning wars.

Business is a war. Business is a war.

Therefore, Therefore, business needs weapons to business needs weapons to WIN.WIN.

(With sincere apologies to Plato and his theory of logic.)(With sincere apologies to Plato and his theory of logic.)

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Is it fair to compare warriors to managers?Is it fair to compare warriors to managers?

Terminology of War: Battles, strategies, tactics,Terminology of War: Battles, strategies, tactics,resources, alliances, costs, and weaponry.resources, alliances, costs, and weaponry.

Winning or Losing: Outcomes matter, with Winning or Losing: Outcomes matter, with terminology measuring the escalation to victory, terminology measuring the escalation to victory, defeat, destruction, dynasty, even failure or death. defeat, destruction, dynasty, even failure or death.

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We have two purposes:We have two purposes:

Review theories of IT that bear on its important role in Review theories of IT that bear on its important role in business to help create competitive advantage, perhaps business to help create competitive advantage, perhaps even even sustained CAsustained CA. We will support these with four case . We will support these with four case studies from recent publications.studies from recent publications.

Analyze more fully how IT actually becomes a weapon. Analyze more fully how IT actually becomes a weapon. That is, what must happen to transform the resources That is, what must happen to transform the resources into weapons? Under what circumstances can into weapons? Under what circumstances can competitive advantages be gained by the use of IT? competitive advantages be gained by the use of IT?

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Theories of ITTheories of IT

The Resource Based ViewThe Resource Based View1

Attributes:Attributes:ValueValue ImitabilityImitabilityRarityRarity SubstitutabilitySubstitutabilityAppropriabilityAppropriability MobilityMobility

1 Wade, Michael, and Hulland, J., “The Resource Based View and IS Systems Research: Review, Extension, and Suggestions,” MIS Quarterly, Vol. 28, 1, March 2004.

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Theories of ITTheories of IT2

Transaction Cost TheoryTransaction Cost Theory

Economic model that assists managers in determining Economic model that assists managers in determining the most effective strategies for maximizing profits. the most effective strategies for maximizing profits. What should we make? vs. What should we buy?What should we make? vs. What should we buy?

2 Williamson, O., “Comparative economic organization: The analysis of discrete structural alternatives,” Williamson, O., “Comparative economic organization: The analysis of discrete structural alternatives,” Administrative Administrative Science QuarterlyScience Quarterly, 36: 1991, pp. 269-296., 36: 1991, pp. 269-296.

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Theories of ITTheories of IT

Core IS Capabilities for Exploiting ITCore IS Capabilities for Exploiting IT3

FlexibleFlexible Arrangements are Key: Arrangements are Key:IS functions best “when a relatively small number of IS functions best “when a relatively small number of people with core capabilities protect and maintain the people with core capabilities protect and maintain the business’s ability to exploit new developments in IT.”business’s ability to exploit new developments in IT.”

3 Feeny, D. and Willcocks, L., “Core IS Capabilities for Exploiting Information Technology,” Feeny, D. and Willcocks, L., “Core IS Capabilities for Exploiting Information Technology,” Sloan Management ReviewSloan Management Review, , Vol. 39, Spring, 1998, p. 20.Vol. 39, Spring, 1998, p. 20.

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Theories of ITTheories of IT

Porter’s Theory of Competitive AdvantagePorter’s Theory of Competitive Advantage4

Information technology affects competition when it:Information technology affects competition when it:

Changes industry structure and alters the rules of competition.Changes industry structure and alters the rules of competition.

Creates competitive advantage by creating new ways to Creates competitive advantage by creating new ways to outperform outperform rivals.rivals.

Generates whole new businesses often from within a firm’sGenerates whole new businesses often from within a firm’s existing operations.existing operations.

4 Porter, Michael E. and Millar, Victor E., “How Information Gives You Competitive Advantage,” Porter, Michael E. and Millar, Victor E., “How Information Gives You Competitive Advantage,” Harvard Business Harvard Business ReviewReview, July-August, 1985, pp. 1-3. , July-August, 1985, pp. 1-3.

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Theories of ITTheories of IT

Porter’s Key Concepts - IT Leading to CAPorter’s Key Concepts - IT Leading to CA5

First, Porter identifies “value activities,” the distinct elements of First, Porter identifies “value activities,” the distinct elements of work involved that are either technologically or economically work involved that are either technologically or economically distinctive in performing its business activities.distinctive in performing its business activities.

Then he shows that Information Technology can lower the Then he shows that Information Technology can lower the costs in every one of the nine Primary and Support Activities of costs in every one of the nine Primary and Support Activities of the “value chain.”the “value chain.”

5 Porter, Michael E. and Millar, Victor E., “How Information Gives You Competitive Advantage,” Porter, Michael E. and Millar, Victor E., “How Information Gives You Competitive Advantage,” Harvard Business Harvard Business ReviewReview, July-August, 1985, pp. 3-6. , July-August, 1985, pp. 3-6.

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Theories of ITTheories of IT

Porter’s Theory of Competitive AdvantagePorter’s Theory of Competitive Advantage6

Information technology affects competitive advantage:Information technology affects competitive advantage:

By lowering costs within the “value chain,” thereby enhancing By lowering costs within the “value chain,” thereby enhancing the company’s competitive position within its the company’s competitive position within its

industry, andindustry, and

By expanding the company’s ability to differentiate its products By expanding the company’s ability to differentiate its products or services from its rivals.or services from its rivals.

6 Porter, Michael E. and Millar, Victor E., “How Information Gives You Competitive Advantage,” Porter, Michael E. and Millar, Victor E., “How Information Gives You Competitive Advantage,” Harvard BusinessHarvard Business ReviewReview, July-August, 1985, pp. 9-10. , July-August, 1985, pp. 9-10.

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Four Recent Case StudiesFour Recent Case Studiesin which IT has produced competitive advantagesin which IT has produced competitive advantages..

Avnet Corp.Avnet Corp. Vanguard GroupVanguard Group

Smurfit-StoneSmurfit-Stone Walgreens Corp.Walgreens Corp.

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Critical DifferentiationCritical DifferentiationThe defining characteristic of a competitive weapon

In each case study, the company uses IT to provide a distinct advantage that appeals to its customers.

By applying IT solutions to its business processes, each company separates itself from its rivals.

Target hit! Advantage “our side!”

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Avnet is a distributor of electronic components and computer products to industrial customers worldwide. The Company also distributes a variety of computer products to both end users & resellers. For the FY ended 7/03/04, sales were $10.24B.7

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Erased multiple ERP systems within its divisions, ridding itself of “an information-management and –propagation Erased multiple ERP systems within its divisions, ridding itself of “an information-management and –propagation problem,” said Bill Chapman (CTO). New software layer allows supply chain management to flow at a pace that problem,” said Bill Chapman (CTO). New software layer allows supply chain management to flow at a pace that gives customers order pricing within 20 minutes instead of up to half a day. Linking its ERP to the ERPs of key gives customers order pricing within 20 minutes instead of up to half a day. Linking its ERP to the ERPs of key business partners, especially some smaller players without internal IT resources, increased transaction speeds to business partners, especially some smaller players without internal IT resources, increased transaction speeds to long dreamed-of levels.long dreamed-of levels.

7 http://personal.fidelity.com/research/stocks/content/stocksindex.shtml, viewed November 1, 2004. http://personal.fidelity.com/research/stocks/content/stocksindex.shtml, viewed November 1, 2004.

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AvnetAvnet

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CRITICAL DIFFERENTIATOR/BENEFIT TO CUSTOMERS: CRITICAL DIFFERENTIATOR/BENEFIT TO CUSTOMERS:

Contribution is CRITICAL because the painstakingly redesigned Contribution is CRITICAL because the painstakingly redesigned IT architecture allows faster business processes that enable IT architecture allows faster business processes that enable collaboration with customers. Additionally, by providing entrée collaboration with customers. Additionally, by providing entrée to Avnet’s own ERP, its “customers don’t have to change their to Avnet’s own ERP, its “customers don’t have to change their business processes and systems to communicate with us,” says business processes and systems to communicate with us,” says Bill Chapman. Bill Chapman. “It’s about doing business their way.”“It’s about doing business their way.”8

8 Foley, John, “Avnet Greases Supply Chain,” Foley, John, “Avnet Greases Supply Chain,” Information WeekInformation Week, September 20,, September 20, 2004, p. 38, p. 90.2004, p. 38, p. 90.

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VanguardVanguard is the number two mutual fund company behind Fidelity, but is closing the gap, claiming over $725 billion in assets under management. Vanguard’s fund options include over 100 stock, bond, mixed and international offerings. Its 2003 sales are estimated at $2.044 billion, a growth of over 30% from the year before. 9

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Innovative Vanguard uses IT to stay one step ahead of the competition by: Innovative Vanguard uses IT to stay one step ahead of the competition by:

Making the jump years ago to herd inquiries to its strengthened Web site and awayMaking the jump years ago to herd inquiries to its strengthened Web site and away from its call centers. A large IT investment in from its call centers. A large IT investment in Wave client-service desktopWave client-service desktop, allows, allows customer-service associates to quickly assist phone-in clients.customer-service associates to quickly assist phone-in clients. Creating the on-line Creating the on-line One Step One Step program, which promotes increasing additionalprogram, which promotes increasing additional contributions by individuals as long as possible. Vanguard has enrolled nearly 11,000contributions by individuals as long as possible. Vanguard has enrolled nearly 11,000 new clients in the past 6 months. new clients in the past 6 months. IT brought deeper assistance to Vanguard’s business processes by enabling changesIT brought deeper assistance to Vanguard’s business processes by enabling changes to applications in Web access, financial advising, CRM, and payroll software.to applications in Web access, financial advising, CRM, and payroll software.9 http://www.hoovers.com/vanguard-group/--ID__43321--/free-co-factsheet.xhtml, viewed November 19, 2004.

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VanguardVanguard

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CRITICAL DIFFERENTIATOR/BENEFIT TO CUSTOMERS:CRITICAL DIFFERENTIATOR/BENEFIT TO CUSTOMERS: Vanguard’s IT investments have helped create a most user-friendly website with notable Vanguard’s IT investments have helped create a most user-friendly website with notable revenue-enhancing capabilities. Putting easy-to-use tools in the hands of its customers revenue-enhancing capabilities. Putting easy-to-use tools in the hands of its customers helps them analyze their own needs and risk-tolerance, shift funds to more appropriate helps them analyze their own needs and risk-tolerance, shift funds to more appropriate categories, and convert non-Vanguard 401-K funds into Vanguard IRAs. These unique categories, and convert non-Vanguard 401-K funds into Vanguard IRAs. These unique customer-focused approaches are all IT-driven and support the company’s basic success customer-focused approaches are all IT-driven and support the company’s basic success strategy: Low cost funds, high customer satisfaction, revenue-enhancing products all strategy: Low cost funds, high customer satisfaction, revenue-enhancing products all aimed at the retirement goals of Americans.aimed at the retirement goals of Americans. 10

10 “Information Week 500, Banking & Financial Services,” “Information Week 500, Banking & Financial Services,” Information WeekInformation Week, September 20, 2004, pp. 67-68., September 20, 2004, pp. 67-68.

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Smurfit-Stone Container CorpSmurfit-Stone Container Corp. . is the industry's is the industry's leading integrated manufacturer of paperboard and paper-based packaging. Smurfit-leading integrated manufacturer of paperboard and paper-based packaging. Smurfit-Stone is the leading producer of containerboard, including white top linerboard; Stone is the leading producer of containerboard, including white top linerboard; corrugated containers and more. Annual sales are $7.7 billion.corrugated containers and more. Annual sales are $7.7 billion. 11

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Among many IT driven innovations, SSCC broke a century old hindrance, the “plant-centric” Among many IT driven innovations, SSCC broke a century old hindrance, the “plant-centric” model of operating. This meant that the sales force and plant manager/capabilities determined model of operating. This meant that the sales force and plant manager/capabilities determined how the market was served. Plants never shared jobs. Now they work as a network to produce how the market was served. Plants never shared jobs. Now they work as a network to produce the variety and quality and volume of items needed by a larger purchaser. The CIO showed the variety and quality and volume of items needed by a larger purchaser. The CIO showed how IT could allow plants in a region, or a “metroplex,” to share major jobs. Data management how IT could allow plants in a region, or a “metroplex,” to share major jobs. Data management and new programs were required to allow inter-plant information to be shared, allowing sales and new programs were required to allow inter-plant information to be shared, allowing sales reps to make the output potential of all plants in one region appear to be one single source to reps to make the output potential of all plants in one region appear to be one single source to help the client. Smoothed and sped customer ordering, thus benefiting SSCC.help the client. Smoothed and sped customer ordering, thus benefiting SSCC.

11 http://personal.fidelity.com/research/stocks/content/stocksindex.shtml, viewed October 29, 2004. http://personal.fidelity.com/research/stocks/content/stocksindex.shtml, viewed October 29, 2004.

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Smurfit-Stone Container Corp.Smurfit-Stone Container Corp.

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CRITICAL DIFFERENTIATOR/BENEFIT TO CUSTOMERS: CRITICAL DIFFERENTIATOR/BENEFIT TO CUSTOMERS:

““IT helps Smurfit build a better relationship with its clients,” says CIO Burdiss. By pioneering a IT helps Smurfit build a better relationship with its clients,” says CIO Burdiss. By pioneering a regional approach to the sales/production process, Smurfit was able to satisfy large customers’ regional approach to the sales/production process, Smurfit was able to satisfy large customers’ orders with one sales call. For over a century prior to this IT-enabled breakthrough, the “Plant-orders with one sales call. For over a century prior to this IT-enabled breakthrough, the “Plant-centric” model dominated the packaging materials industry. That is, each separate factory had centric” model dominated the packaging materials industry. That is, each separate factory had its own sales force, specialty lines, and production schedules. IT demonstrated innovative its own sales force, specialty lines, and production schedules. IT demonstrated innovative capabilities that permitted data management coordinate inter-plant information to be shared, capabilities that permitted data management coordinate inter-plant information to be shared, thus enabling SSCC to be seen as critically different and more appealing to large clients.thus enabling SSCC to be seen as critically different and more appealing to large clients. 12

12 Jim Burdiss, CIO, Smurfit-Stone Container Corporation, interviewed by phone by Thomas Webb, October 28, 2004. Jim Burdiss, CIO, Smurfit-Stone Container Corporation, interviewed by phone by Thomas Webb, October 28, 2004.

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WalgreensWalgreens is principally engaged in the retail drug-is principally engaged in the retail drug-

store business. As of 8/03, Walgreens operated 4,224 retail drug-store business. As of 8/03, Walgreens operated 4,224 retail drug-stores and three mail service facilities in 44 states & Puerto Rico. stores and three mail service facilities in 44 states & Puerto Rico. For the FY ended 8/31/04, net sales were $37.51B.For the FY ended 8/31/04, net sales were $37.51B.13 ________________________________________________________________________________________________________________________________________________

Walgreens identified convenience and high profit per customer transaction as its core strategy for Walgreens identified convenience and high profit per customer transaction as its core strategy for success in the early 1970’s. With a substantial investment of over $400 million for a satellite success in the early 1970’s. With a substantial investment of over $400 million for a satellite communication system, called “Intercom,” it built a true “corner drugstore” that is still unique.communication system, called “Intercom,” it built a true “corner drugstore” that is still unique. 14 When When confronted with the opportunity to compete with Drugstore.com via internet sales, Walgreens sat back confronted with the opportunity to compete with Drugstore.com via internet sales, Walgreens sat back and did nothing… Until it could do it better. The result: even more convenience for customers with no and did nothing… Until it could do it better. The result: even more convenience for customers with no loss of professional service. loss of professional service.

13 http://personal.fidelity.com/research/stocks/content/stocksindex.shtml, viewed October 29, 2004.

14 Collins, Jim, Collins, Jim, Good to Great,Good to Great, HarperCollins, New York, 2001. HarperCollins, New York, 2001.

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WalgreensWalgreens ____________________________________________________________________________________________________________________________________________

CRITICAL DIFFERENTIATOR/BENEFIT TO CUSTOMERS:CRITICAL DIFFERENTIATOR/BENEFIT TO CUSTOMERS: By investing heavily in IT, Walgreens became even more convenient to its customers. If, while By investing heavily in IT, Walgreens became even more convenient to its customers. If, while on vacation in Boise, you need your prescription refilled, the corner Walgreens there will have on vacation in Boise, you need your prescription refilled, the corner Walgreens there will have your records from Sheboygan in seconds. How? By using the power of its enormous your records from Sheboygan in seconds. How? By using the power of its enormous database together with the speed of its sophisticated satellite data delivery system, working database together with the speed of its sophisticated satellite data delivery system, working together as “Intercom Plus.” This customer-focused differentiator is unmatched by any other together as “Intercom Plus.” This customer-focused differentiator is unmatched by any other company of its kind in the world.company of its kind in the world.15

15 Collins, Jim, Collins, Jim, Good to Great,Good to Great, HarperCollins, New York, 2001. HarperCollins, New York, 2001.

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Allowing for the probability that Porter, Willcocks, Allowing for the probability that Porter, Willcocks, Wade, et. al. provide well-conceived analyses that Wade, et. al. provide well-conceived analyses that describe IT’s basis as a Competitive Weapon,describe IT’s basis as a Competitive Weapon,

We nevertheless conclude that…We nevertheless conclude that…

Information Technology is NOT a Information Technology is NOT a competitive weapon.competitive weapon.

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Let us quickly add some definitions and Let us quickly add some definitions and some qualifiers to that!some qualifiers to that!

What is a What is a weaponweapon??

Definition: 1. device designed to injure or kill, 2. Definition: 1. device designed to injure or kill, 2. something something used as a way of getting an advantage in a situationused as a way of getting an advantage in a situation16

16 http://encarta.msn.com/dictionary_/weapon.html, viewed October 27, 2004.

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Is a 50 caliber machine gun a weapon?Is a 50 caliber machine gun a weapon?

Under the first definition it is, however:Under the first definition it is, however:

It is merely an asset of questionable value if it is It is merely an asset of questionable value if it is lying in the mud, sitting broken on a shelf, or put lying in the mud, sitting broken on a shelf, or put

into the wrong hands.into the wrong hands.

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Q: How does that gun become a weapon? Q: How does that gun become a weapon? A: When it is used in combination with…A: When it is used in combination with…

Skilled human talent, trained to use itSkilled human talent, trained to use it Proper maintenanceProper maintenance A well-conceived strategy, one aimed at successA well-conceived strategy, one aimed at success

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IT, by itself, is like that machine gun…IT, by itself, is like that machine gun…

It is an asset. Granted, it is an elegant, It is an asset. Granted, it is an elegant, complex network of silicon, software and complex network of silicon, software and

wiring, supported by professionals… wiring, supported by professionals… But IT alone is not a weapon! But IT alone is not a weapon!

Unless it is…Unless it is…

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……used precisely and intelligently in support used precisely and intelligently in support of an enterprise’s strategy of successful of an enterprise’s strategy of successful business processes.business processes.

We believe Information Technology arguably can be We believe Information Technology arguably can be the most effective modern business weapon, when the most effective modern business weapon, when used to support well-executed business processes.used to support well-executed business processes.

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Today… IT is an indispensable element of Today… IT is an indispensable element of business weaponry.business weaponry.

CEOs (Generals) direct the business and employ: CEOs (Generals) direct the business and employ:

Strategy – the broad set of plans and directions that guide the businessStrategy – the broad set of plans and directions that guide the business toward its goals.toward its goals.

Creativity – the ability to innovate and willingness to commit to finding newCreativity – the ability to innovate and willingness to commit to finding new ways of achieving advantages over competitors.ways of achieving advantages over competitors.

Discipline – The strength to stick to rational methods, to conserve resources,Discipline – The strength to stick to rational methods, to conserve resources, and to enforce the execution of these concepts. and to enforce the execution of these concepts.

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The CIO, the chief IT strategist, must manage, train, The CIO, the chief IT strategist, must manage, train, and motivate the human talent - the troops – using:and motivate the human talent - the troops – using:

Training – The right knowledge imparted to the right people in theTraining – The right knowledge imparted to the right people in the right roles.right roles.

Intelligent Innovation – A culture of continual process innovation andIntelligent Innovation – A culture of continual process innovation and strategic creativity. strategic creativity.

Resource deployment – Efficient use of the right resources put intoResource deployment – Efficient use of the right resources put into play in support of the fundamental business processes.play in support of the fundamental business processes.

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Whether resources are examined using the Whether resources are examined using the Resource Based View, the Transaction Cost Resource Based View, the Transaction Cost Theory, or any other framework of IT analysis,Theory, or any other framework of IT analysis,the key to gaining competitive advantage usingthe key to gaining competitive advantage usingIT resources is simply this:IT resources is simply this:

Put them to effective use in supportPut them to effective use in supportof the business’s strategy for success.of the business’s strategy for success.

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KEY SUCCESS FACTORSKEY SUCCESS FACTORS17

Top Executive Engagement Top Executive Engagement IT and Business Strategy AlignmentIT and Business Strategy Alignment IT Governance IT Governance Application Delivery and ManagementApplication Delivery and Management Selective OutsourcingSelective Outsourcing Vendor ManagementVendor Management Talent ManagementTalent Management Business EnablementBusiness Enablement

17

”Key Attributes of the World-Class Information Technology Organization, A Competency ”Key Attributes of the World-Class Information Technology Organization, A Competency Diagnostic Tool,” from the Working Council for Chief Information Officers, of the Corporate Diagnostic Tool,” from the Working Council for Chief Information Officers, of the Corporate Executive Board, distributed by Jim Burdiss of Smurfit-Stone Container Corporaton.Executive Board, distributed by Jim Burdiss of Smurfit-Stone Container Corporaton.

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Top Executive EnthusiasmTop Executive Enthusiasm

Studies show that unless the leadership of the organization are fully committed, Studies show that unless the leadership of the organization are fully committed, enthusiastic, and engaged in the IT process, and especially in major projects, the enthusiastic, and engaged in the IT process, and especially in major projects, the organization will likely not benefit from the investment in IT. The commitment has to be organization will likely not benefit from the investment in IT. The commitment has to be seen by the entire organization as important and worthy of the extra effort and sacrifice to seen by the entire organization as important and worthy of the extra effort and sacrifice to make it work.make it work.

““Support from senior non-IT Executives,” third in 2003, was ranked number one by both Support from senior non-IT Executives,” third in 2003, was ranked number one by both IT and non-IT executives in 1993-1997.IT and non-IT executives in 1993-1997.18 This highlights the need for business executives This highlights the need for business executives to be aware of, and supportive of, technology innovations. Support means that business to be aware of, and supportive of, technology innovations. Support means that business executives:executives:

Recognize the value of information technology,Recognize the value of information technology, Define and communicate the vision and strategies that include a role for IT, andDefine and communicate the vision and strategies that include a role for IT, and Serve as active sponsors and champions for IT projects (provide leadership and funding).Serve as active sponsors and champions for IT projects (provide leadership and funding).

18 Luftman, J., and McLean, E., “Key Issues for Executives,” MIS Quarterly Executive, Vol. 3, 2, 2004, pp. 99-100.

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Top Executive CommitmentTop Executive Commitment

““Clearly, the CIO needs to seek solid support from Clearly, the CIO needs to seek solid support from the CEO and others in the C-suite. More and the CEO and others in the C-suite. More and more, business executives recognize that they more, business executives recognize that they need to be more engaged in IT projects. It’s the need to be more engaged in IT projects. It’s the only way that IT can be taken seriously, from top to only way that IT can be taken seriously, from top to bottom.” bottom.” 19

19 Jim Burdiss, CIO, Smurfit-Stone Container Corporation, interviewed by phone by Thomas Webb, October 28, 2004. Jim Burdiss, CIO, Smurfit-Stone Container Corporation, interviewed by phone by Thomas Webb, October 28, 2004.

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Top Executive EngagementTop Executive Engagement

Clear indication that the elite performing companies in the Clear indication that the elite performing companies in the good-to-great study attach the highest priority to top good-to-great study attach the highest priority to top executive engagement in support of initiatives:executive engagement in support of initiatives:

““Indeed, one of the crucial elements in taking a company from Indeed, one of the crucial elements in taking a company from good to great is somewhat paradoxical. You need executives, on good to great is somewhat paradoxical. You need executives, on the one hand, who argue and debate – sometimes violently – in the one hand, who argue and debate – sometimes violently – in pursuit of the best answers, yet, on the other hand, who unify fully pursuit of the best answers, yet, on the other hand, who unify fully behind a decision, regardless of parochial interests.”behind a decision, regardless of parochial interests.”20

20 Collins, Jim, Collins, Jim, Good to Great,Good to Great, HarperCollins, New York, 2001. HarperCollins, New York, 2001.

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Collins’ research into good-to-great companies reveals what high Collins’ research into good-to-great companies reveals what high performers think about technology in general and about IT specifically...performers think about technology in general and about IT specifically...

Technology used as accelerator of momentumTechnology used as accelerator of momentumA core finding was that the Good to Great companies used technology as an A core finding was that the Good to Great companies used technology as an accelerator, or enabler, of momentum, of increasing performance. While all of the accelerator, or enabler, of momentum, of increasing performance. While all of the good-to-great companies possessed technological sophistication, it was never any good-to-great companies possessed technological sophistication, it was never any technology per se, that was responsible for their excellent performance. Rather, it technology per se, that was responsible for their excellent performance. Rather, it was “the pioneering application of carefully selected technologies” that made the was “the pioneering application of carefully selected technologies” that made the difference.difference.

Use of Technology, specifically IT, useful only when strategically usedUse of Technology, specifically IT, useful only when strategically used A fundamental concept discovered in all eleven companies was called “the Hedgehog A fundamental concept discovered in all eleven companies was called “the Hedgehog

Concept” by Collins and his researchers. By this, they mean a “single organizing idea, Concept” by Collins and his researchers. By this, they mean a “single organizing idea, a basic principle or concept that unifies and guides everything.” By taking one simple a basic principle or concept that unifies and guides everything.” By taking one simple concept and doing it with excellence and imagination, these companies succeeded concept and doing it with excellence and imagination, these companies succeeded brilliantly in a world made far too complex by faddists, futurists, and fear mongers.brilliantly in a world made far too complex by faddists, futurists, and fear mongers.

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IT as Enabler via IT/Business Strategy AlignmentIT as Enabler via IT/Business Strategy Alignment

The 3rd-ranked of the eleven Good To Great companies is Walgreens, whichThe 3rd-ranked of the eleven Good To Great companies is Walgreens, which

developed SCA and maintained from 1975 through today. How did it proceed?developed SCA and maintained from 1975 through today. How did it proceed?

1.1. First, re-defined business success strategy. “Most convenient drugstore in its First, re-defined business success strategy. “Most convenient drugstore in its markets with high profit per customer visit: Simple concept and doable.”markets with high profit per customer visit: Simple concept and doable.”

2.2. With fanatical consistency it set about to put stores in every conceivable With fanatical consistency it set about to put stores in every conceivable convenient location, sometimes moving stores a half-block to get a corner lot, convenient location, sometimes moving stores a half-block to get a corner lot, other times, putting in up to six stores in a square mile in a downtown population other times, putting in up to six stores in a square mile in a downtown population center.center.

3.3. Walgreens also went about revamping its product lines to provide high-Walgreens also went about revamping its product lines to provide high-convenience/high-profit services (one-hour photos) and products (food items, convenience/high-profit services (one-hour photos) and products (food items, cosmetics).cosmetics).

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IT and Business Strategy AlignmentIT and Business Strategy Alignment

““The most important element in the transformation The most important element in the transformation of IT into a competitive weapon is the alignment of of IT into a competitive weapon is the alignment of IT with the business’ strategy. While simple in IT with the business’ strategy. While simple in concept, it is really very hard to accomplish.”concept, it is really very hard to accomplish.” 21

21 Jim Burdiss, CIO, Smurfit-Stone Container Corporation, interviewed by phone by Thomas Webb, October 28, 2004. Jim Burdiss, CIO, Smurfit-Stone Container Corporation, interviewed by phone by Thomas Webb, October 28, 2004.

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IT and Business Strategy AlignmentIT and Business Strategy Alignment

““IT plans linked to business plans,” ranked fourth [in importance in a major study of IT/business IT plans linked to business plans,” ranked fourth [in importance in a major study of IT/business alignment enablers and inhibitors]. This finding “demands that IT participate in creating alignment enablers and inhibitors]. This finding “demands that IT participate in creating business strategies and that the business participate in creating IT strategies. Both IT and business strategies and that the business participate in creating IT strategies. Both IT and non-IT executives need to see the benefits of mutual cooperation and of a close working non-IT executives need to see the benefits of mutual cooperation and of a close working relationship in the strategy formulation process… But the participation needs to be frequent relationship in the strategy formulation process… But the participation needs to be frequent and both IT and the business need to listen to each other, communicate clearly, and learn to and both IT and the business need to listen to each other, communicate clearly, and learn to leverage IT resources to build competitive advantage.leverage IT resources to build competitive advantage.22 Having linked plans include: Having linked plans include:

Defining and supporting an effective IT governance process,Defining and supporting an effective IT governance process, Establishing binding IT-business partnership, relationship & trust, Establishing binding IT-business partnership, relationship & trust, Effective marketing of the value of IT, Effective marketing of the value of IT, Sharing of knowledge to get the job done, Sharing of knowledge to get the job done, Having access to appropriate people, andHaving access to appropriate people, and Effective use of IT to business liaisons.”Effective use of IT to business liaisons.”

22 Luftman, J., and McLean, E., “Key Issues for Executives,” MIS Quarterly Executive, Vol. 3, 2, 2004, p. 100.

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IT GovernanceIT Governance

How does Governance enforce alignment with strategy?How does Governance enforce alignment with strategy?

IT Governance establishes basic ground rules:IT Governance establishes basic ground rules:

Who provides input regarding decision-making?Who provides input regarding decision-making? Who makes the decision?Who makes the decision? Who pays for the project?Who pays for the project? Who does the implementation?Who does the implementation?

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IT GovernanceIT Governance

How does Governance impact an organization?How does Governance impact an organization?

IT Governance is the responsibility of senior management and business unit leaders to IT Governance is the responsibility of senior management and business unit leaders to insure that:insure that:

IT’s projects and investments are aligned with the business strategy; that IT delivers the IT’s projects and investments are aligned with the business strategy; that IT delivers the functionality and services in line with the organization’s needs.functionality and services in line with the organization’s needs.

IT brings new technologies that will enable the organization to do new things that were neverIT brings new technologies that will enable the organization to do new things that were never before possible.before possible.

IT-related services and functionality are delivered at the maximum economical value and inIT-related services and functionality are delivered at the maximum economical value and in the most efficient manner. In short, the firm’s resources are used responsibly.the most efficient manner. In short, the firm’s resources are used responsibly.

All risks related to IT are known and managed, and that IT’s core resources are secured.All risks related to IT are known and managed, and that IT’s core resources are secured.

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Using IT as a Competitive WeaponUsing IT as a Competitive WeaponIT GovernanceIT Governance

Critical Success Factors from Control Objectives for IT (COBIT) from the IT Governance Institute Critical Success Factors from Control Objectives for IT (COBIT) from the IT Governance Institute illustrates how governance provides discipline and supports business/IT alignment…illustrates how governance provides discipline and supports business/IT alignment…23

IT governance activities are integrated into the enterprise governance process and leadershipIT governance activities are integrated into the enterprise governance process and leadershipbehaviorsbehaviors IT governance focuses on the enterprise goals, strategic initiatives, the use of technology toIT governance focuses on the enterprise goals, strategic initiatives, the use of technology to enhance the business, and on the availability of sufficient resources and capabilities to enhance the business, and on the availability of sufficient resources and capabilities to keepkeep up with the business demandsup with the business demands IT governance activities are defined with a clear purpose, documented, and implemented,IT governance activities are defined with a clear purpose, documented, and implemented,based on enterprise needs and with unambiguous accountabilitiesbased on enterprise needs and with unambiguous accountabilities Management practices are implemented to increase efficient and optimal use of resources andManagement practices are implemented to increase efficient and optimal use of resources and increase the effectiveness of IT processesincrease the effectiveness of IT processes Organizational practices are established to enable: sound oversight; a control environment/Organizational practices are established to enable: sound oversight; a control environment/ culture; risk assessment as a standard practice; degree of adherence to establishedculture; risk assessment as a standard practice; degree of adherence to established standards; monitoring and follow up of control deficiencies and risksstandards; monitoring and follow up of control deficiencies and risks Control practices are defined to avoid breakdown in internal control and oversightControl practices are defined to avoid breakdown in internal control and oversight There is integration and smooth interoperability of the more complex IT processes as problem,There is integration and smooth interoperability of the more complex IT processes as problem, change, and configuration managementchange, and configuration management An audit committee is established to appoint and oversee an independent auditor focusing onAn audit committee is established to appoint and oversee an independent auditor focusing on IT when driving audit plans. and review the results of audits and third-party reviews.IT when driving audit plans. and review the results of audits and third-party reviews.

23 http://www.itgi.org/template_ITGI.cfm?template=/ContentManagement/ContentDisplay.cfm&ContentID= 5557#499,45,ITGovernance Guideline, http://www.itgi.org/template_ITGI.cfm?template=/ContentManagement/ContentDisplay.cfm&ContentID= 5557#499,45,ITGovernance Guideline, viewed October 23, 2004.viewed October 23, 2004.

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Application Delivery & ManagementApplication Delivery & Management

IT organizations benefit by basing project management and application IT organizations benefit by basing project management and application delivery/management processes on delivery/management processes on best in classbest in class standards. High standards. High quality, cost-effective applications result when standards are based quality, cost-effective applications result when standards are based upon:upon:

Software Engineering Institute’s Capability Maturity Model (CMM)Software Engineering Institute’s Capability Maturity Model (CMM) Project Management Institute’s Project Management Book ofProject Management Institute’s Project Management Book of Knowledge (PMBOK)Knowledge (PMBOK) ISO 900X processes and other quality management methodologiesISO 900X processes and other quality management methodologies

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IT as a Competitive WeaponIT as a Competitive Weapon Application Delivery & ManagementApplication Delivery & Management

Process improvements will result from use of SEI CMM standards.Process improvements will result from use of SEI CMM standards.24

24 Rifkin, Stan, Founder and Principal, Master Systems, Inc., “Climbing the SEI maturity model makes a difference on software Rifkin, Stan, Founder and Principal, Master Systems, Inc., “Climbing the SEI maturity model makes a difference on software projects,” presented at theprojects,” presented at the International Conference of the Israel Society for Quality, Jerusalem, November 1996.

Project Results by SEI LevelCalendar Effort Total cost ($ 000)

SEIlevel

time(months)

(Personmonths) (median) (lowest) (highest)

I 29.8 593.5 5,440 1,786 101,721II 18.5 143.0 1,311 962 1,732III 15.2 79.5 728 518 933IV 12.5 42.8 392 279 502V 9.0 16.0 146 15 271

For the code and test phases onlyof a typical 200,000-line business application.

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IT as a Competitive Weapon IT as a Competitive Weapon Application Delivery & ManagementApplication Delivery & Management

Process improvements will result from use of SEI CMM standards.Process improvements will result from use of SEI CMM standards.25

Project Results by SEI Level(cont.)

Calendar Effort Defects Total costSEIlevel

time(months)

(Personmonths) Discovered Shipped

$ 000(median)

I 29.8 593.5 1,348 61 5,440II 18.5 143.0 328 12 1,311III 15.2 79.5 182 7 728IV 12.5 42.8 97 5 392V 9.0 16.0 37 1 146

Defect counts include all phases up to final customer shipment.

25 Rifkin, Stan, Founder and Principal, Master Systems, Inc., “Climbing the SEI maturity model makes a difference on software Rifkin, Stan, Founder and Principal, Master Systems, Inc., “Climbing the SEI maturity model makes a difference on software projects,” presented at theprojects,” presented at the International Conference of the Israel Society for Quality, Jerusalem, November 1996.

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IT as a Competitive Weapon IT as a Competitive Weapon Selective OutsourcingSelective Outsourcing

A competitive, effective IT organization:A competitive, effective IT organization:

knows its strengths and weaknesses,knows its strengths and weaknesses, plays them to its advantage through selective outsourcing. plays them to its advantage through selective outsourcing.

Leadership must identify its core IT capabilities, which include:Leadership must identify its core IT capabilities, which include:

* IS/IT leadership* IS/IT leadership * business systems thinking* business systems thinking * relationship building* relationship building * architecture planning* architecture planning * informed buying* informed buying * vendor management* vendor management

* contract facilitation * contract facilitation * contract monitoring * contract monitoring * ability to “make it work” * ability to “make it work”

These nine core IS Capabilities “are required to underpin the pursuit of high-value-added applications of IT and toThese nine core IS Capabilities “are required to underpin the pursuit of high-value-added applications of IT and to capitalize on the external market’s ability to deliver cost-effective IT services.”capitalize on the external market’s ability to deliver cost-effective IT services.” 2626

Once an IT organization has determined its core IT capabilities, its leadership must face the challenges of deciding whatOnce an IT organization has determined its core IT capabilities, its leadership must face the challenges of deciding what to outsource and what to keep in-house. These decisions are based on proprietary business and/or technicalto outsource and what to keep in-house. These decisions are based on proprietary business and/or technical knowledge, the current IT organization’s business and technical knowledge, and total cost of the project.knowledge, the current IT organization’s business and technical knowledge, and total cost of the project.

26 Feeney, D., and Willcocks, L., “Core IS Capabilities for Exploiting Information Technology Feeney, D., and Willcocks, L., “Core IS Capabilities for Exploiting Information Technology ,”,” Sloan Business ReviewSloan Business Review, Vol. , Vol. 39, Spring 1998, p. 11-15.39, Spring 1998, p. 11-15.

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Selective OutsourcingSelective Outsourcing

The analysis of whether to outsource is about The analysis of whether to outsource is about valuevalue. Will . Will the company realize significant value from the decision to the company realize significant value from the decision to outsource? And will it be able to manage and leverage that outsource? And will it be able to manage and leverage that value to maintain or improve its competitive position?value to maintain or improve its competitive position? If the decision will not result in increased value or cost If the decision will not result in increased value or cost reductions, or if it will not provide some other significant reductions, or if it will not provide some other significant benefit, then outsourcing is not a good choice.benefit, then outsourcing is not a good choice.

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Vendor ManagementVendor Management

When an IT organization decides to outsource, it must effectively manage the When an IT organization decides to outsource, it must effectively manage the vendor relationship to insure it receives value for its investment. It is through:vendor relationship to insure it receives value for its investment. It is through:

Informed BuyingInformed Buying Contract FacilitationContract Facilitation Contract MonitoringContract Monitoring Service Level Agreements andService Level Agreements and Vendor DevelopmentVendor Development

that the IT organization holds its vendors accountable, and assures that it will that the IT organization holds its vendors accountable, and assures that it will receive value from the outsourcing agreement.receive value from the outsourcing agreement.27

27 Feeny, D. and Willcocks, L., “Core IS Capabilities for Exploiting Information Technology, Feeny, D. and Willcocks, L., “Core IS Capabilities for Exploiting Information Technology, Sloan Management ReviewSloan Management Review, , Vol. 39, Spring, 1998, pp. 14-15.Vol. 39, Spring, 1998, pp. 14-15.

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Talent ManagementTalent Management

Retention of its core IT knowledge base is critical, in the long run, for Retention of its core IT knowledge base is critical, in the long run, for the business; it must protect its assets first, and then build upon the the business; it must protect its assets first, and then build upon the business’ core IT capabilities.business’ core IT capabilities.

IT Staff Development (IDPs, PIPs, training)IT Staff Development (IDPs, PIPs, training) IT Leadership DevelopmentIT Leadership Development IT Performance Management (incentives tied toIT Performance Management (incentives tied to

fulfillment of strategic goals)fulfillment of strategic goals) Selective use of vendor expertise to sharpenSelective use of vendor expertise to sharpen

existing staff’s skills and to obtain new skill setsexisting staff’s skills and to obtain new skill sets

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Business EnablementBusiness Enablement

The fundamental role of IT is to efficiently provide the business The fundamental role of IT is to efficiently provide the business with required information that is both accurate and timely. with required information that is both accurate and timely. Further, Further, well managed and designed ITwell managed and designed IT should: should:

Facilitate collaboration among distributed staff, acrossFacilitate collaboration among distributed staff, across geographical or business unitsgeographical or business units Enable improvements to enhance and/or automate businessEnable improvements to enhance and/or automate business processesprocesses Proactively scan for and exploit new technologies in supportProactively scan for and exploit new technologies in support of the businessof the business

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Using IT as a Competitive WeaponUsing IT as a Competitive WeaponBusiness Innovation to Aim forBusiness Innovation to Aim for

Sustained Competitive AdvantageSustained Competitive Advantage

Erik Brynjolfsson of MIT’s Sloan School of Management, says that the roots of America’s Erik Brynjolfsson of MIT’s Sloan School of Management, says that the roots of America’s productivity surge lie in a “genuine revolution in how American companies are using productivity surge lie in a “genuine revolution in how American companies are using information technology.”information technology.”28 Good companies are using IT “to reinvent their business processes Good companies are using IT “to reinvent their business processes from top to bottom.”from top to bottom.”

To firms that reinvent, or even simply try to improve, their business processes, there are To firms that reinvent, or even simply try to improve, their business processes, there are surprising benefits. “The software that runs many business processes has become an surprising benefits. “The software that runs many business processes has become an important competitive weapon.”important competitive weapon.”

Strategic innovation may not require any new products or new technologies. “Operational Strategic innovation may not require any new products or new technologies. “Operational innovation,” in Michael Hammer’s words from the April 2004 HBR, can add to shareholder innovation,” in Michael Hammer’s words from the April 2004 HBR, can add to shareholder value, meaning competitive weaponry focused on producing competitive advantage. Both value, meaning competitive weaponry focused on producing competitive advantage. Both process innovation and strategic innovation will often account for more competitive advantages process innovation and strategic innovation will often account for more competitive advantages than entirely new products or technologies.than entirely new products or technologies.

Innovation and invention have to take place continually and systematically. No single Innovation and invention have to take place continually and systematically. No single innovation can convey lasting competitive advantage.innovation can convey lasting competitive advantage.

28 “Special Report on Business Innovation,” “Special Report on Business Innovation,” The EconomistThe Economist, April 24-30, 2004., April 24-30, 2004.

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Using IT as a Competitive WeaponUsing IT as a Competitive WeaponConclusionConclusion

Businesses succeed only to the extent that they fill customers’ needs Businesses succeed only to the extent that they fill customers’ needs better than their competitors. The success of a business enterprise better than their competitors. The success of a business enterprise does not hinge on any one leader, any single product, or any unique does not hinge on any one leader, any single product, or any unique process. It is primarily the result of an unwavering attention to the process. It is primarily the result of an unwavering attention to the execution of its core success strategy. Everything that the leadership execution of its core success strategy. Everything that the leadership directs must be aimed at fulfilling that strategy.directs must be aimed at fulfilling that strategy.

Therefore, to claim that IT by itself is a weapon, is false.Therefore, to claim that IT by itself is a weapon, is false.

IT, when used in support of a business’ core strategies for success, IT, when used in support of a business’ core strategies for success, can be the enabler, the accelerator of momentum to achieve can be the enabler, the accelerator of momentum to achieve competitive advantage. IT provides the critical spark that transforms competitive advantage. IT provides the critical spark that transforms business processes into competitive weapons. Innovation, invention, business processes into competitive weapons. Innovation, invention, and re-invention must take place continually and systematically to and re-invention must take place continually and systematically to enable competitive advantage to endure.enable competitive advantage to endure.

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Using IT as a Competitive WeaponUsing IT as a Competitive WeaponConclusionConclusion