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Mc nurlin 03

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  • INTRODUCTION History of Strategic Uses of IT — Since the mid-1980s, strategic uses of IT have bounded among Working inward, Working outward, and Working across. The current main focus is working across.
  • Transcript

    • 1. Strategic Uses of Information Technology Chapter 3 Information Systems Management In Practice 7E McNurlin & Sprague PowerPoints prepared by Michael Matthew Visiting Lecturer, GACC, Macquarie University – Sydney Australia
    • 2. Chapter 3
      • Use of the Internet by businesses set off a revolution in the use of IT, so that utilizing the Internet to conduct business became the strategic use of information technology.
      • The questions that remain are:
        • Has the revolution ended, or
        • Does an even larger revolution loom?
        • Does IT still matter?, and
        • What sorts of strategic uses are companies making?
    • 3. Chapter 3 cont.
      • Strategic roles of IT fall into one of three categories:
        • “ working inward” (improving a firm’s internal processes and structure)
        • “ working outward” (improving the firm’s products and relationships with customers) and
        • “ working across” (improving its processes and relationships with its business partners)
      • Grainger, GE Power Systems, Wire Nova Scotia, The Shipping Industry, Cisco Systems and UPS Supply Chain Solutions, Semco, S. A., A Day in the Life of an E-lancer, General Mills and Land O’ Lakes, Sara Lee Bakery Group, and Dell Computer serve as examples of how companies are using information systems in strategic roles
    • 4. Today’s Lecture
      • Introduction
        • History of Strategic Uses of IT
        • Whither the Internet Revolution?
        • The Cheap Revolution
        • Episode Two: Profitability Strikes Back
        • Does IT Still Matter?
      • Working Inward: Business-to-Employee
        • Building an Intranet
        • Fostering a Sense of Belonging
    • 5. Today’s Lecture cont.
      • Working Outward: Business-to-Consumer
        • Jumping to a New Experience Curve
        • The Emergence of Electronic Tenders
        • Getting Closer to Customers
        • Being an Online Customer
      • Working Across: Business-to-Business
        • Coordinating with Co-suppliers
        • Establishing Close and Tight Relationships
        • Becoming a Customer-Centric Value Chain
        • Getting Back-End Systems into Shape
    • 6. Introduction
      • Use of the Internet by businesses in mid/late ’90s set off a revolution in the use of IT
        • Utilizing the Internet to conduct business became the strategic use of IT
          • Strategic = having a significant, long-term impact on a firm’s growth, industry and $$
      • What now?
        • Dot-com crash
        • A larger revolution to come?
        • Does IT still matter?
        • What strategic uses are companies making of IT (esp. the Internet)
    • 7. Introduction Figure 3-1 Strategic Uses of Information Systems
    • 8. Introduction Last 20 Years – Strategic Uses of IT
      • 1 st edition
        • Mid 1980s, hot topic = end user computing (working inward)
          • Help employees learn about PCs
      • 2 nd edition
        • Late ’80s strategic use focused outward to gain competitive advantage
          • e.g. Merrill Lynch cash management account
            • Now considered ‘normal’ = competitive necessity Vs. competitive advantage
    • 9. Introduction Last 20 Years – Strategic Uses of IT cont.
      • 3 rd & 4 th editions (1990s)
        • Strategic use attention turned inward to reengineering business processes
          • Intent = not to automate existing processes but to totally redesign how the enterprise operated
            • Good idea but many failed as they were ‘lay-off’ plans
          • Introduction of ERP systems was also aimed at internal operations, specifically providing single sources of data enterprise-wide
    • 10. Introduction Last 20 Years – Strategic Uses of IT cont.
      • 3 rd & 4 th editions (1990s) cont.
        • Internet’s potential becoming evident
          • Dot-coms = looked at its outward use to gain a competitive advantage
          • Most established firms initially used the Internet technology internally, building intranets to improve company processes
            • Publishing e-forms
            • Accompanying workflow processes
    • 11. Introduction Last 20 Years – Strategic Uses of IT cont.
      • 5 th edition (late ’90s)
        • Use of the Internet for business underway
          • Bursting of the dot com bubble
          • E-Business has become more reality based
          • Integration of the Internet into how companies work has proceeded
      • 6 th edition (early ’00s)
        • Theme = leveraging traditional operations by using the Internet to work more closely with others
          • Innovations of the dot-coms created competitive challenges for ‘bricks and mortar’ firms
            • Their ‘strike back’ is essentially the theme for this 6 th edition
    • 12. Introduction Last 20 Years – Strategic Uses of IT cont.
      • 7 th edition (2005)
        • “ Something has changed”
          • Especially with regards to the use of IT for competitive advantage
        • Some may question IT’s ability to give companies a competitive edge but it is absolutely necessary for competitive parity (necessity?)
          • Being used strategically:
            • Inward
            • Outward
            • Across
    • 13. Introduction Whither the Internet Revolution?
      • Internet frenzy peaked in 2000
      • Is the Information Revolution dead?
        • Not if history is any guide
          • British Railway Revolution – mid 1800s
          • 10 fold increase after the boom
            • During boom = great excitement and small companies flourished
            • After = glamour gone. Business became serious and full of hard work
            • Industry became orderly and profits began to reflect real returns
          • Connecting industries
            • Race for space followed by the ‘real deal’
    • 14. Introduction Whither the Internet Revolution? cont.
      • We are now in a period where organizations are re-architecting themselves around Internet technologies
        • Tearing down old structures as they go
      • Real gains will come when Internet technology adapts to organizations and people
        • When the technology disappears and becomes part of life
      • It will be ‘quiet’ compared to frenzy of ’99/00 but many think it will be a giant revolution
    • 15. Introduction The Cheap Revolution
      • CIOs are shifting from buying expensive proprietary products to buying cheap generic products
        • “ Cheap Tech”
      • Cost savings are compelling
        • Google = runs on 100,000 cheap servers
          • One breaks = discards
            • Avoids expensive service contracts and in-house staff
        • “ Dellification”
          • Moved from selling PCs to also selling servers, printers, storage devices….
        • “ Cheap” is occurring elsewhere:
          • Labor – outsourcing to other countries
          • Film production – camcorders etc.
          • Software – Linux Vs. Microsoft
          • Telecommunications – Voice-over-IP…
    • 16. Introduction Episode Two: Profitability Strikes Back
      • Dot-coms became dot-bombs (dot-cons?) because they couldn’t generate profits
      • Episode One: The Dot-Com Menace
      • Episode Two: Profitability Strikes Back
        • Whilst it has taken these so-called “old economy firms” longer to utilize the Web they realize that they must do so in a profit-making manner
      • Use the Internet to complement your strategy, not replace your past way of serving customers nor disintermediate your channels
        • Michael Porter, Harvard Business School
    • 17. GRAINGER Case example: Using the Internet to complement your strategy
      • Distributes non-production products to companies through stocking locations all over the U.S.
        • Customers who purchase on their website also purchase through traditional channels
          • Physical sites make its online presence more valuable
            • Customers who want fast delivery
          • Ordering is less expensive and shipping is cheaper in bulk to stocking locations Vs. individual small shipments
        • Continue publishing its paper catalogs
          • It receives a surge of online orders every time it issues its paper catalog
    • 18. Introduction Definitions
      • ‘ e’ = electronic
      • e-business
        • Conducting business using telecommunications networks esp. Internet
        • Involves more than buying and selling
      • e-commerce
        • Conducting commerce (buying and selling) electronically using the Internet
      • Note: IT definitions ‘evolve’
    • 19. E-Business Drivers
      • Key Components that have accelerated the rapid growth and acceptance of e-business:
        • Wide access to a public network
        • Standard communication protocol
        • Standard user interface
      • E-business applications run over the Internet, drastically reducing access and communications costs
        • Pre Internet – 95% of Fortune 500 used EDI Vs. 2% of all U.S. companies
      • With standardized communication protocols and user interfaces, implementation and training costs are far lower
      • As a result, a much broader set of users and firms has access to the systems, allowing rapid growth
    • 20. Does IT Still Matter?
      • “ IT Doesn’t Matter” – article by Nicholas Carr in Harvard Business Review May 2003
        • Controversial and now a book
        • Bottom line = IT doesn’t matter anymore, at least not strategically
          • IT is an infrastructure technology, like rail, electricity, telephone etc.
            • Such technology can create a strategic advantage for an individual firm at the beginning of its life cycle when it is expensive and risky
          • Carr = IT is now at the end of buildout and is neither proprietary or expensive
            • = A commodity which is available to anyone and won’t give any individual firm a competitive advantage
    • 21. Does IT Still Matter? cont.
      • Reached the end of its buildout:
        • Power of IT now outstrips the needs of business
        • IT prices have dropped = now affordable
        • Capacity of Internet has caught up with demand (fibre surplus)
        • Many vendors want to be seen as utilities
        • Investment bubble has burst
      • When an infrastructure technology reaches the end of its buildout, it simply becomes a cost of doing business
      • Although IT is necessary for competitiveness, Competitive advantage comes from the firm’s business model
    • 22. Does IT Still Matter? cont.
      • Management of IT should become “boring” focussing on:
        • Manage the risks
          • Focus on vulnerabilities (which are more common with open systems) rather than opportunities
        • Keep costs down
          • Greatest risk = overspending, so only pay for use and limit upgrading
            • Don’t update PCs when not needed
        • Stay behind the technology leaders
          • But not too far behind!
            • Delay investments until there are standards and best practices and prices drop
            • Only innovate when risks are low
    • 23. Does IT Still Matter? cont.
      • This ‘negative’ view deals with individual firms = losing competitive advantage
      • Infrastructure technology brings its greatest economic and social benefits to all once it has become a shared infrastructure
        • = what IT is becoming
      • The debate is on
        • Many other views
        • Is he right? Regardless = has prompted some important discussions in Board Rooms etc. because executives need to understand the underpinnings of IT to know how to guide it
          • IT is one of their strategic resources, besides people and $ for working inward, outward and across
    • 24. Working Inward: Business-to-Employee Building an Intranet
      • The primary e-business way to reach employees is via ‘Intranets’
        • Intranets are private company networks that use Internet technologies and protocols, and possibly the Internet itself
      • Benefits of using intranets:
        • Wider access to company information
        • More efficient and less expensive systems development
        • Decreased training (due to browser interface)
        • By using an intranet’s open-system architecture, companies can significantly decrease the cost of providing companywide information and connectivity
    • 25. Working Inward: Business-to-Employee Building an Intranet cont.
      • Benefits cont.
        • Investments in a intranet (open) = significantly less $$ than a proprietary network
        • The link to the Internet allows companies to expand intranets worldwide easily and cheaply
          • Significant Benefit = unthinkable before the Internet!
        • Because an intranet uses the browser interface (and internet ‘protocols’ /technology) = users do not need extensive training on different products
          • To a certain extent = applies to ‘all’ products today
        • Companies only need to record information in one place, where it can be kept up-to-date for access by all employees no matter where in the world they are located
    • 26. WORKING INWARD: Business to Employee
    • 27. Working Inward: Business-to-Employee Building an Intranet
      • Due to the ease with which Web sites can be created, many employees have (did?) build their own, leading to a proliferation of sites with company information
        • Deciding how much control of the systems should be decentralized
      • Proposed solutions
        • Create a corporate portal to act as the gateway to the firm’s internal resources, information, and Internet services
          • Microsoft, KPMG, Dell etc.
        • Develop separate departmental or divisional portals, such as sales, HR, operations, and finance portals which are linked to form a corporate portal
    • 28. GE POWER SYSTEMS Case example: Building an Intranet
      • Chairman surveyed sales force (2001)
        • Found they were spending more time in the office searching for information than they were out with their customers
      • GE Power Systems answered the challenge by building a Web-based sales portal for its sales-people
        • Main data feeds from existing Oracle etc. systems
          • Sales, parts, pricing, inventory, customers etc.
        • Also had a news feed from outside
        • Flexible to include more types of information and access to more applications
      • Single point of entry
    • 29. Working Inward: Business-to-Employee Fostering a Sense of Belonging
      • Intranets are evolving into very important enterprise structures
        • In some enterprises, the intranet is seen as the enterprise
          • Videos of executives – vision and mission
          • Internal forms, rules and processes
          • Need to file an expense report?
      • Can also be seen as ‘cold’
      • Can provide the foundation for creating a sense of belonging by giving a means of communicating and creating communities
        • Care of employees = one of the most important things enterprises do!
    • 30.
        • Use of Internet to help an impoverished province of Canada
          • Traditional industries ‘gone’
        • The Challenge
        • The Solution
          • Wire Nova Scotia (WiNS)
            • Co-ordinate 67 community access sites
        • Building an Online Community
          • General Conferences
          • Personal Conferences
          • Regional Conferences
          • Coordinator Conferences
      WIRE NOVA SCOTIA Case example: Fostering a Sense of Belonging
    • 31. Working Outward: Business-to-Customer
      • In most industries companies need sophisticated computer systems to compete
        • Airlines, hotels, rental car companies = a sophisticated reservation system (theirs or someone else’s) is a must
        • Similar ‘musts’ in other industries
          • Wholesale = automated order entry and distribution
          • Finance = ATMs., trading and settlement…
      • As industry leaders increase the sophistication of their systems to improve
        • Quality, service innovation and speed
      • Competitors must do the same or find themselves at a disadvantage
    • 32. Working Outward: Business-to-Customer Jumping to a New Experience Curve
      • Using IT (or any technology) as the basis for a product or service can, in some cases, be viewed as moving up a series of experience curves
      • More experience leads to a set of connected curves Vs. one continuous learning curve
      • Each curve represents a new technology or combination thereof in a product or service as well as in its manufacture and/or support
      • Moving to a new curve requires substantial investment in a new technology
    • 33. THE SHIPPING INDUSTRY Case Example: Jumping to a New Experience Curve
    • 34. CISCO SYSTEMS and UPS Case Example: Jumping to a New Experience Curve
      • In the late 1990s Cisco committed itself to manufacturing products within 2 weeks of order
        • BUT = could not guarantee delivery
      • Turned over its European supply chain to UPS Supply Chain Solutions (UPS SCS)
        • Uses UPS system to find the best shipper to move the package from the Netherlands centre to the customer
        • The systems of the two companies have become increasingly linked
          • Each movement of product is recorded in both systems
      • Handles over 1m boxes a year
        • Because UPS can ensure reliable transit times, Cisco is able to now promise delivery times for its European customers
    • 35. Working Outward: Business-to-Customer The Emergence of “Electronic Tenders”
      • Initially IT has been embedded in products and services for its computational capabilities
        • e.g. in cars and elevators to make them operate more efficiently
      • Now = allows product/service to be “tended” i.e. cared for, attended to, or kept track of by another computer
        • e.g. vehicle diagnostics monitored by car dealer
        • Packages / luggage etc. with bar codes = able to be tracked
        • Potential uses are endless and we are just at the beginning
      • Options are endless but the goal is still to get closer to the customer
    • 36. Working Outward: Business-to-Customer Getting Closer to Customers
      • Business-to-consumer e-business is the most widely reported form of e-business.
      • Nearly every type of product can now be purchased online: books, CDs, flowers etc.
        • Many success stories – Dell, Cheap Tickets, ETrade ….
      • Success is not easily achieved:
        • Amazon.com had its business viability questioned for a long time
        • Levi Strauss, despite encouraging figures, quit selling jeans over the Internet “…complex proposition and management had better uses for company funds”
      • Advantages are numerous and seem obvious (Figure 3-4)
      • Potential problems are also numerous but not so obvious (Figure 3-5)
    • 37. WORKING OUTWARD: Business to Customer
    • 38. WORKING OUTWARD: Business to Customer
    • 39. Working Outward: Business-to-Customer Getting Closer to Customers cont.
      • Use of the Internet has grown more sophisticated
      • Customer Relationship Management (CRM)
        • Involves using IT to know more about customers (and non-customers?)
          • Whether you visit their website, call them (home, office, mobile) or buy something – the firm is often keeping track and combining that information to create a profile of you
          • Followed on from ERP
            • ERP focussed on internal data
            • CRM focuses on customer data
        • Boon or bane = depends on how intrusive you think they are
          • Great useful information Vs.
          • Invasion of privacy
            • Privacy – protection laws in many countries
    • 40. Working Outward: Business-to-Customer Getting Closer to Customers cont.
      • Successful selling over the Internet entails much more than just setting up a Web site and taking orders
        • It involves organizing the entire value chain around the Internet
      • The E-Business Model
        • Redefining Customer Value
          • “ On-demand”: reduces the time it takes to respond to customer requests
          • Convenience: one stop shopping plus single point of contact. Online business allows gathering and managing customer information (to serve the customer)
          • Access to a wide range of competitive prices and sellers for products
          • Note: as in the ‘real world’; the highest volume sellers do not always have the lowest price:
            • Prices are offset by branding, awareness and customer trust
    • 41. Working Outward: Business-to-Customer Getting Closer to Customers cont.
      • The Internet is not only used to sell to customers online. It is also used to provide services to companies
        • Sometimes it is can be difficult to know which is more valuable – the product or the service
      • The current focus is on staying in closer contact with customers, understanding them better, and eventually, becoming customer driven by delivering personalized products and service
    • 42. SEMCO Case Example – Using the Internet to get Closer to Customers
      • Brazilian heavy equipment manufacturer with an ‘interesting’ management attitude/structure
        • Letting employees ‘self manage’ and following their ideas with $
      • First = moved into services and more recently into the marketspace of e-business services over the Internet
        • Now = even teaming with a virtual trade show company to host virtual trade fairs for companies too small to have one on their own
      • All of this change has occurred by following the employees
        • When they have a good idea = Semco management is likely to provide the funding to test it out
      • Unusual company, however its forays into using the Internet to expand its business provide lessons for others
    • 43. Working Outward: Business-to-Customer Being an Online Customer
      • Companies large and small are transacting business via the Internet
      • Some (still?) use it as their main means of business, even after the dot-com crash
    • 44. TerenceNet Case Example – A Day in the Life of an E-Lancer
      • E-business consulting, development, and research firm for small/medium businesses
      • Much of its work is procured from www.elance.com
        • Website that puts e-business freelancers in contact with clients
          • Charges 10% commission
          • Bid on projects
          • Have private conversations with potential clients
          • Even able to sub-contract to others (become a client!)
        • Trust involved on both sides
      • When you sign up on Elance, it’s like joining a community
    • 45. Working Across: Business-to-Business
      • Streamlining processes that cross company boundaries is the next big management challenge
        • Companies have spent a lot of time and effort streamlining their internal processes, but their efficiencies often stop at their corporate walls
      • Working across business takes many forms including:
        • Working with ‘co-suppliers’
        • Working with customers in a close mutually dependent relationship
        • Building a virtual enterprise, in fact, one that might evolve into an e-marketplace
    • 46. Working Across: Business-to-Business
      • Businesses have long used IT to reduce costs and time of inter-organizational transactions, for example:
        • Inter-organizational Systems (IOS)
          • Reservation systems
            • Sabre (AA)
          • Electronic funds transfer systems
            • Cirrus (Green Machine)
        • Electronic Data Interchange Systems (EDI)
          • Transmission, in standard syntax, of data for business transactions between computers of independent organizations
    • 47. Working Across: Business-to-Business Coordinating with Co-suppliers
      • Collaborating with non-competitors is a type of working across
      • Example – two food manufacturers might have the same customers (supermarkets and other retailers) but do not compete with each other
      • Lack of convenient ways to share information quickly and easily has deterred co-suppliers from working together
        • Internet takes away this deterrent
    • 48. GENERAL MILLS & LAND OF LAKES Case Example – Coordinating with Co-suppliers
      • Seven largest US food companies supply about 40% of supermarket shelf space for dry goods
        • Use own trucks etc.
      • Only supply 15% of refrigerated
        • One truck for several supermarkets
          • Less efficient, delays etc. = unhappy clients
      • Combine their deliveries on General Mills trucks
        • Now = looking into integrating their order taking and billing processes
    • 49. Working Across: Business-to-Business Establishing Close and Tight Relationships
      • Strategic use of IT and the Internet has moved to the most difficult area = working across companies
        • Having relationships with various players in one’s business ecosystem
          • Banks, advertising agencies, suppliers, distributors, retailers, even competitors
          • Such relationships often have accompanying linking information systems
    • 50. Working Across: Business-to-Business Establishing Close and Tight Relationships cont.
      • Need to determine what level of systems integration they want:
        • Loose = provide ad hoc access to internal information
          • Business processes remain distinct
          • Such limited integration requires little risk or cost
        • Close = two parties exchange information in a formal manner
          • Leads to greater benefits, so there is greater impetus to make the relationship work
          • Risks increase because confidentialities are shared
          • Costs are also higher
        • Tight = two parties share at least one business process
          • Most risky – business critical and the most costly to integrate
            • Due to high costs and risks = can only have a few!!
          • Where does one organizational boundary begin and the other end? = Intermeshed!
    • 51. WORKING OUTWARD: Business to Business
    • 52. SARA LEE Case Example: Close relationship becoming a tight one
      • Sara Lee was one of the first to initiate scan-based trading with large retailers that sell its baked goods
      • Using this technology, Sara Lee does not get paid until a loaf of bread is sold and passes through the point-of-sale scanner
      • The technology requires drawing from a single database hosted by a third party
      • Its use has improved the quality of delivery people, lowered costs, and increased revenues
      • Note: Sara Lee requires retailers to adhere to a number of prerequisites – to demonstrate that they are good trading partners
      • Look at how it is administered:
        • ‘ Seven prerequisites for SBT’
        • Management structure to support
    • 53. Working Across: Business-to-Business Becoming a Customer-Centric Value Chain
      • A company’s value chain consists of:
        • Upstream supply chain
          • Working with its suppliers of raw materials and parts
        • Downstream demand chain
          • Working with its distributors and retailers to sell its products and services to end customers
      • Traditionally most companies make-to-stock = build products / create services and then “push” them to customers
        • Supply-Push world
      • Today, we are seeing the rise of the reverse – a demand-pull world where a customer’s order triggers the creation of a customized product or service the customer has defined
    • 54. DELL COMPUTER Case Example: Demand - Pull
      • Dell is the foremost example of the demand-pull business model
      • Customers configure their on PCs on Dell’s Website, and once an order is initiated, Dell’s suppliers can see the ordering information and production schedule on Dell’s extranet
      • In fact, their production systems grab this information automatically; as a result, Dell’s extranet has become a private exchange
      • Dell is even working to give suppliers two tiers down access to customer order information, so they can react to changes even faster
    • 55. Working Across: Business-to-Business Becoming a Customer-Centric Value Chain cont.
      • Pros and Cons of Demand-Pull
        • Value-chain transparency = should reduce the number of duplicate orders
          • 10,000 memory chips Vs. 30,000 ‘ordered’ due to shortage
        • Creating private exchanges such as Dell changes the level of co-operation among firms
        • Con = infrastructure
          • Manufacturer’s becomes its suppliers – binding them even tighter
          • Requires TRUST
        • Becoming customer centric is not easy, especially for supply-push companies
      • The promise of CRM is alluring
        • Aims to help companies shift their attention from managing their operations to satisfying their customers
    • 56. Working Across: Business-to-Business Getting Back-End Systems in Shape
      • Most, if not all, B2B systems must integrate with existing back-end systems which has proved to be particularly difficult
      • Challenge
        • Variety of platforms
        • Incompatible
      • Approach
        • Purchase ‘new’ systems
          • Database Management Systems (DBMS)
          • ERP Systems
        • Extranet = securely share with suppliers, partners etc.
      • Goal = extend the company’s back-end systems to reengineer business processes external to the company
    • 57. Conclusion
      • Over the years a few innovative companies have used IT for strategic advantage
        • ‘ Models’ but many companies did not have the resources or skills to follow their example
        • With the growth of the Internet and development of e-business, IT has become a strategic tool in every industry
      • Looking for cohesion of often dispersed employees?
        • Intranets and Portals
      • Increasingly customer centric view has many using IT in working across
        • Value chains are looking to shift from supply-push to demand-pull
      • As IT continues to evolve, so do its strategic uses