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IT Strategy


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IT creates applications that provide strategic advantages to companies

IT is a competitive weapon

IT supports strategic change, e.g, re-engineering

IT networks with business partners

IT provides cost reduction

IT provides competitive business intelligence

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IT Strategy

  1. 1. IT Strategy
  2. 2. Today <ul><ul><li>Three eras of IT/IS revolution </li></ul></ul><ul><ul><li>Strategic Information Systems </li></ul></ul><ul><ul><li>The role of IT/IS in competition </li></ul></ul><ul><ul><li>Porter’s 5 competitive forces </li></ul></ul><ul><ul><li>Porter’s value chain </li></ul></ul><ul><ul><li>Some other academic views </li></ul></ul><ul><ul><li>Cases </li></ul></ul><ul><ul><li>Managerial issues </li></ul></ul>
  3. 3. Three eras of I.T. evolution <ul><li>Mainframe Era </li></ul><ul><ul><li>(1950’s-1970’s) </li></ul></ul><ul><li>Microcomputer Era </li></ul><ul><ul><li>(late 1970’s to 1980’s) </li></ul></ul><ul><li>Network Era </li></ul><ul><ul><li>(late 1980’s to present) </li></ul></ul><ul><li>Ubiquitous computing (wireless) </li></ul>
  4. 4. Strategic Information Systems (SISs) <ul><li>SISs provide strategic solutions to the 5 Business Pressures: </li></ul>
  5. 5. The Role of IT in Business Innovation <ul><li>IT creates applications that provide strategic advantages to companies </li></ul><ul><li>IT is a competitive weapon </li></ul><ul><li>IT supports strategic change , e.g, re-engineering </li></ul><ul><li>IT networks with business partners </li></ul><ul><li>IT provides cost reduction </li></ul><ul><li>IT provides competitive business intelligence </li></ul>
  6. 6. Competitive Intelligence The Internet is central to supporting competitive intelligence <ul><li>Such activities drive business </li></ul><ul><li>performance by : </li></ul><ul><li>Increasing market knowledge </li></ul><ul><li>Improving internal relationships </li></ul><ul><li>Raising the quality of strategic planning </li></ul>Many companies monitor the activities of competitors
  7. 7. <ul><li>It changes industry structure and alters the rules of competition... </li></ul><ul><ul><li>by increasing the power of buyers, </li></ul></ul><ul><ul><li>raising barriers to entry and </li></ul></ul><ul><ul><li>influencing the threat of substitution </li></ul></ul><ul><li>It creates competitive advantage by giving companies new ways to out-perform their rivals... </li></ul><ul><ul><li>lowering costs, </li></ul></ul><ul><ul><li>enhancing differentiation and </li></ul></ul><ul><ul><li>changing competitive scope </li></ul></ul>HOW IT/IS AFFECTS THE NATURE OF COMPETITION
  8. 8. <ul><li>It spawns whole new businesses, often from within a company's own operations... by making </li></ul><ul><ul><li>new businesses technologically feasible </li></ul></ul><ul><ul><li>creating derived demand for new products and </li></ul></ul><ul><ul><li>creating new businesses within old ones. </li></ul></ul>HOW IT/IS AFFECTS THE NATURE OF COMPETITION
  9. 9. Technology versus Management of technology <ul><li>I.T. is so accessible today that organisations cannot compete on technology alone. </li></ul><ul><li>The competitive advantage is derived from how the technology is used. </li></ul><ul><li>Today the management of technology has become a critical issue in competing more effectively. </li></ul><ul><li>The issue is not whether to invest in I.T. but where and how. </li></ul>
  10. 10. <ul><li>What can help us: </li></ul><ul><ul><li>think and </li></ul></ul><ul><ul><li>analyse situations </li></ul></ul>
  11. 11. <ul><li>Porter’s 5 Competitive Forces (1985) </li></ul><ul><li>The threat of entry of new competitors. </li></ul><ul><li>The bargaining power of suppliers. </li></ul><ul><li>The bargaining power of customers (buyers). </li></ul><ul><li>The threat of substitute products or services. </li></ul><ul><li>The rivalry among existing firms in the industry. </li></ul>
  12. 12. Porter’s 5 Competitive Forces (1985)
  13. 13. Porter’s Model in Action
  14. 14. Response Strategies ( Porter , 1985) FOCUS Selecting a niche market and achieving cost leadership and/or differentation. DIFFERENTATION Being unique in the industry COST LEADERSHIP Providing products and/or services at the lowest cost in the industry.
  15. 15. More Response Strategies (added by Porter and others) INNOVATION Developing new products & services <ul><li>GROWTH </li></ul><ul><ul><li>Increasing market share, acquiring more customers or selling more products </li></ul></ul><ul><li>IMPROVE INTERNAL EFFICIENCY </li></ul><ul><ul><li>To improve employee and customer satisfaction </li></ul></ul><ul><li>ALLIANCES </li></ul><ul><ul><li>Working with business partners to create synergy & provide opportunities for growth </li></ul></ul><ul><li>CRM </li></ul><ul><ul><li>Customer-oriented approaches, e.g. the customer is king (queen) </li></ul></ul>
  16. 16. Porter’s Value Chain Model - Graphically
  17. 17. Porter’s Value Chain Model (1985) <ul><li>PRIMARY ACTIVITIES </li></ul><ul><ul><li>Inbound logistics (inputs) </li></ul></ul><ul><ul><li>Operations (manufacturing & testing) </li></ul></ul><ul><ul><li>Outbound logistics (storage & distribution) </li></ul></ul><ul><ul><li>Marketing & sales </li></ul></ul><ul><ul><li>Service </li></ul></ul>Supply Chain
  18. 18. Porter’s Value Chain Model <ul><li>SUPPORT ACTIVITIES </li></ul><ul><ul><li>Firm Infrastructure </li></ul></ul><ul><ul><li>Human Resources Management </li></ul></ul><ul><ul><li>Technology Development </li></ul></ul><ul><ul><li>Procurement </li></ul></ul>
  19. 19. VALUE SYSTEM <ul><li>A firm’s value chain is part of a larger stream of activities, which Porter calls a “Value System ” </li></ul><ul><ul><li>Includes the suppliers that provide the necessary inputs AND their value chains </li></ul></ul><ul><ul><li>Applies to both products & services, for any organization, PUBLIC or PRIVATE </li></ul></ul><ul><ul><li>The basis for the Supply Chain Management </li></ul></ul><ul><li>Think about UPSTREAM and DOWNSTREAM </li></ul>
  20. 20. Integrated Value System
  21. 21. The Value Chain Model <ul><li>The Value System Model is used to: </li></ul><ul><ul><li>Evaluate a company’s process and competencies </li></ul></ul><ul><ul><li>Investigate whether adding IT supports the value chain </li></ul></ul><ul><ul><li>Enable managers to assess the information intensity and the role of IT </li></ul></ul>
  22. 22. McFarlan’s Portfolion Framework (1984) High Current Low Low High Future High Potential Applications that may be important in achieving future business success Support Applications that are currently valuable and desirable but not critical for future business success Strategic Applications that are critical for future business strategy Key Operational Applications upon which the organisation currently depends for success
  23. 23. McFarlan’s Portfolion Framework (1984) High Current Low Low High Future High Potential Intelligent data mining e-mail direct marketing Support frequent flyer account tracking Training on-line Wireless SMS info Strategic e-procurement Electronic ticketing Agent’s management Key Operational Scheduling on-line Online parts ordering Maintenance online
  24. 24. CASE: Mobile Oil Moves to Web-based System <ul><li>Problem: </li></ul><ul><li>Largest marketer of lubricants in the USA </li></ul><ul><li>In 1995, introduced EDI system </li></ul><ul><ul><li>Used to place orders, submit invoices & exchange business documents </li></ul></ul><ul><ul><li>It was too expensive, too complex to use </li></ul></ul><ul><li>Solution: </li></ul><ul><li>In 1997, moved to web-based extranet-supported B2B system </li></ul><ul><li>Results: </li></ul><ul><li>Reduced transaction cost from $45/order to $1.25 </li></ul><ul><li>Fewer shortages, better customer service </li></ul><ul><li>decline in distributor administration costs </li></ul>
  25. 25. Examples of EDI/Internet-based SIS (for individual Companies) <ul><li>Electronic Auctions </li></ul><ul><li>Electronic Biddings </li></ul><ul><li>Buyer-Driven Commerce </li></ul><ul><li>Single Company Exchange </li></ul><ul><li>Direct Sales </li></ul>
  26. 26. CASE: Total Quality Management at FPL <ul><li>Florida Power & Light  largest US utility company </li></ul><ul><li>Leader in implementing total quality management </li></ul><ul><li>Several successful SIS programs: </li></ul><ul><ul><li>Generation Equipment Management System (GEMS) </li></ul></ul><ul><ul><ul><li>Tracks electrical generators, saving $5 million/ yr. </li></ul></ul></ul><ul><ul><li>20 different quality control applications </li></ul></ul><ul><ul><ul><li>Reduced customer complaints by 50% </li></ul></ul></ul><ul><ul><li>Trouble Call Management System </li></ul></ul><ul><ul><ul><li>Reduced black out time from 70 to 48 min. </li></ul></ul></ul>
  27. 27. CASE: Geisinger Implements an Intranet <ul><li>Problem: </li></ul><ul><ul><li>As a result of mergers & acquisitions, Geisinger (a health maintenance organization) had 40 different IT legacy systems in need of an upgrade & integration. </li></ul></ul><ul><li>Solution : </li></ul><ul><ul><li>In 1993, Geisinger implemented an innovative Intranet: with the following features: </li></ul></ul><ul><ul><ul><li>“ Tel-a-Nurse” </li></ul></ul></ul><ul><ul><ul><li>Clinical Management System </li></ul></ul></ul><ul><ul><ul><li>Human Resource Management </li></ul></ul></ul><ul><li>Results: </li></ul><ul><ul><li>Geisinger reduced costs and unnecessary medical work. </li></ul></ul>
  28. 28. CASE: Caltex Corporation <ul><li>Major multinational company selling gasoline & petrol products. </li></ul><ul><li>In 2000, created a centralized e-purchasing corporate exchange ( </li></ul><ul><ul><li>Suppliers build electronic catalogues with Ariba’s software. </li></ul></ul><ul><ul><li>Many benefits to buyers and suppliers, particularly in Asia, Africa & the Middle East. </li></ul></ul><ul><ul><li>System enables Caltex to successfully handle complex multinational business environments. </li></ul></ul>
  29. 29. CASE : Port of Singapore <ul><li>Problem : </li></ul><ul><ul><li>The Port of Singapore, the world’s largest international port, faced increased global competition. </li></ul></ul><ul><li>Solution : </li></ul><ul><ul><li>Implementation of Intelligent Systems </li></ul></ul><ul><li>Results: </li></ul><ul><ul><li>Reduction in Cycle Time </li></ul></ul><ul><ul><ul><li>4 hours versus 16 - 20 hours in neighboring ports </li></ul></ul></ul><ul><ul><li>Reduction in uploading/ loading time </li></ul></ul><ul><ul><ul><li>30 sec. versus 4-5 min./ truck in neighboring ports </li></ul></ul></ul>
  30. 30. SIS Implementation <ul><li>Major Issues to be Considered: </li></ul><ul><ul><li>Justification </li></ul></ul><ul><ul><ul><li>Justifying SIS may be difficult due to the intengible nature of their benefits. </li></ul></ul></ul><ul><ul><li>Risks & Failures </li></ul></ul><ul><ul><ul><li>The magnitude, complexity, continuous changes in technology and business environment may result in failures. </li></ul></ul></ul><ul><ul><li>Finding appropriate SIS </li></ul></ul><ul><ul><ul><li>Identifying appropriate SIS is not a simple task. </li></ul></ul></ul>
  31. 31. Managerial Issues (cont.) <ul><li>Sustaining Competitive Advantage Is Challenging </li></ul><ul><li>As companies become larger and more sophisticated, they develop resources to duplicate the systems of their competitors quickly </li></ul><ul><li>Ethical Issues </li></ul><ul><li>Gaining competitive advantage through the use of IT may involve unethical or even illegal actions </li></ul><ul><li>Companies can use IT to monitor the activities of other companies and may invade the privacy of individuals working there </li></ul>
  32. 32. Suggested Reading <ul><li>Information Technology for Management </li></ul><ul><li>Old Book </li></ul><ul><ul><li>Chapter 3 – Information Systems for Competitive Advantage pp 80 to 119 </li></ul></ul><ul><li>New Book </li></ul><ul><ul><li>Chapter 12 – Information Systems for Competitive Advantage pp 505 to 518 </li></ul></ul><ul><li>Computing Press – read it </li></ul>
  33. 33. <ul><li>Q & A </li></ul>