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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.

Mc nurlin 03 Mc nurlin 03 Presentation Transcript

  • 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
  • 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?
  • 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
  • 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
  • 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
  • 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)
  • Introduction Figure 3-1 Strategic Uses of Information Systems
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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’
  • 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
  • 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…
  • 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
  • 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
  • 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’
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • WORKING INWARD: Business to Employee
  • 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
  • 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
  • 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!
      • 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
  • 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
  • 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
  • THE SHIPPING INDUSTRY Case Example: Jumping to a New Experience Curve
  • 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
  • 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
  • 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)
  • WORKING OUTWARD: Business to Customer
  • WORKING OUTWARD: Business to Customer
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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!
  • WORKING OUTWARD: Business to Business
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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