Presentation on theme: "Strategic Uses of Information Technology"— Presentation transcript:
1 Strategic Uses of Information Technology Lecture 18
2 Summary of Previous Lecture In the previous lecture we have learnt about,Information System Job ConceptsOld role versus new roleIT head responsibilitiesInformation System management FrameworkTerminologiesEscalating benefits of ITWaves of innovationSABRE system international, a case studyTraditions functions of IS
3 Summary of Previous Lecture IS LITE, a new conceptCIO responsibilitiesCIO rolesLeadingGoverningInvestingManagingCIO Office
4 Today’s Lecture Strategic uses of IT, Historical overview Whither the internet revolution?Cheap RevolutionProfitability of IT revolutionGRAINGER Case StudyDefinitions reviewE-Business DriversDoes IT Still Matter? Nicholas Carr
5 Today’s Lecture How IT still matters Working Inward Working inward Working outwardWorking AcrossWorking InwardB2E, IntranetIntranet ApplicationsGeneral Electric Case Study
6 Today’s Lecture Working Outward Fostering a sense of belonging B2C Electronic TendersGetting closer to customersAmazon.com web exampleProblems and Advantages of Working outwardThe E-Business Model
7 Today’s Lecture Working Across B2B model Coordinating with co-suppliersLevels of system integrationWhat is a Value chain?DELL Computer case ExampleSummary
8 IntroductionUse of the Internet by businesses in mid/late ’90s set off a revolution in the use of ITUtilizing the Internet to conduct business became the strategic use of ITStrategic = having a significant, long-term impact on a firm’s growth, industry and $$
9 Introduction Strategic Uses of IT -- Short History 1st editionMid 1980s, hot topic = end user computing (working inward)Personal computers were invented.Organizations were helping employees learn about PCs.In this sense they were “Working Inward” to gain advantages.
10 Introduction Strategic Uses of IT -- Short History 2nd editionLate ’80s strategic use focused outward to gain competitive advantagePC has became a common among organizations.Organizations worked to improve their customer relationship using a computer.
11 Introduction Strategic Uses of IT -- Short History 3rd & 4th editions (1990s)Strategic use attention turned inward to reengineering business processesIntent = not to automate existing processes but to totally redesign how the enterprise operatedGood idea but many failed as they were not working plans.Enterprise Resource Planning (ERP) systems were introduced.
12 Introduction Strategic Uses of IT -- Short History 3rd & 4th editions (1990s) cont.Internet’s potential becoming obviousDot-coms = looked at its outward use to gain a competitive advantageMost established firms initially used the Internet technology internally, building intranets to improve company processesPublishing e-formsAccompanying workflow processes
13 Introduction Strategic Uses of IT -- Short History 5th edition (late ’90s)Use of the Internet for business underwayOrganizations invested too much in WEB based stock market, which later crashed, this resulted Bursting of the dot com bubbleE-Business has become more reality basedIntegration of the Internet with the working of companies started.
14 Introduction Strategic Uses of IT -- Short History 6th edition (early ’00s)Theme = leveraging traditional operations by using the Internet to work more closely with othersInnovations of the dot-coms created competitive challenges for ‘bricks and mortar’ firmsA type of business model that includes both online and offline operations, which typically include a website and a physical store are bricks and mortar.
15 Introduction Strategic Uses of IT -- Short History 7th edition (2005)IT has become absolutely necessary for competitive parity.Being used strategically:InwardOutwardAcross
16 Strategic uses of Information Systems INTRODUCTIONHistory of Strategic Uses of IT —Since the mid-1980s, strategic uses of IT have bounded amongWorking inward,Working outward, andWorking across.The current main focus is working across.Figure 3-1 Strategic Uses of Information Systems
17 Introduction Whither the Internet Revolution? Internet frenzy peaked in 2000By the burst of dot com bubble we can not say that information revolution is dead.Not if history is any guideBritish Railway Revolution – mid 1800s10 fold increase after the boomDuring boom = great excitement and small companies flourishedAfter = glamour gone. Business became serious and full of hard workIndustry became orderly and profits began to reflect real returnsConnecting industriesRace for space followed by the ‘real deal’
18 Introduction Whither the Internet Revolution? cont. We are now in a period where organizations are re-architecting themselves around Internet technologiesTearing down old structures as they goReal gains will come when Internet technology adapts to organizations and peopleWhen the technology disappears and becomes part of life.
19 Introduction The Cheap Revolution CIOs are shifting from buying expensive proprietary products to buying cheap generic products“Cheap Tech”Cost savings are compellingGoogle = runs on 100,000 cheap serversOne breaks = discardsAvoids expensive service contracts and in-house staff“Dellification”Moved from selling PCs to also selling servers, printers, storage devices….“Cheap” is also occurring elsewhere:Labor – outsourcing to other countriesFilm production – camcorders etc.Software – Linux Vs. MicrosoftTelecommunications – Voice-over-IP…
20 Introduction Episode Two: Profitability Strikes Back Dot-coms became dot-bombs because they couldn’t generate profitsEpisode One: The Dot-Com MenaceEpisode Two: Profitability Strikes BackWhilst 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 mannerUse the Internet to complement your strategy, not replace your past way of serving customers nor disintermediate your channelsMenace= Trouble Maker
21 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 channelsPhysical sites make its online presence more valuableCustomers who want fast deliveryOrdering is less expensive and shipping is cheaper in bulk to stocking locations Vs. individual small shipmentsContinue publishing its paper catalogsIt receives a surge of online orders every time it issues its paper catalog
23 Definitions - Review ‘e’ = electronic e-business e-commerce Conducting business using telecommunications networks esp. InternetInvolves more than buying and sellinge-commerceConducting commerce (buying and selling) electronically using the InternetNote: IT definitions ‘evolve’
24 E-Business DriversKey Components that have accelerated the rapid growth and acceptance of e-business:Wide access to a public networkStandard communication protocolStandard user interface
25 E-Business driversE-business applications run over the Internet, drastically reducing access and communications costsWith standardized communication protocols and user interfaces, implementation and training costs are far lowerAs a result, a much broader set of users and firms has access to the systems, allowing rapid growthFortune 500 Companies:: TOP 500 Companies ranked world wide according to their Finaincial Positions.
26 Does IT Still Matter?“IT Doesn’t Matter” – article by Nicholas Carr in Harvard Business Review May 2003Controversial topic and now available in book form.Bottom line = IT doesn’t matter anymore, at least not strategically
27 Nicholas Carr – Harvard Business Review 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 riskyCarr writes, IT is now at the end of build out and is neither proprietary or expensive= A commodity which is available to anyone and won’t give any individual firm a competitive advantage
28 Does IT Still Matter? Nicholas Carr Reached the end of its build out:Power of IT now outstrips the needs of businessIT prices have dropped = now affordableCapacity of Internet has caught up with demand (fibre surplus)Many vendors want to be seen as utilitiesInvestment bubble has burstWhen an infrastructure technology reaches the end of its buildout, it simply becomes a cost of doing businessAlthough IT is necessary for competitiveness, Competitive advantage comes from the firm’s business model
29 Does IT Still Matter? Nicholas Carr . Management of IT should become “boring” focussing on:Manage the risksFocus on vulnerabilities (which are more common with open systems) rather than opportunitiesKeep costs downOverspending is the greatest risk, so only pay for use and limit upgradingDon’t update PCs when not needed
30 Does IT Still Matter? Nicholas Carr . Stay behind the technology leadersBut not too far behind!Delay investments until there are standards and best practices and prices dropOnly innovate when risks are low
32 Working Inward: Business-to-Employee Building an Intranet The primary e-business way to reach employees is via ‘Intranets’Remember: Intranets are private company networks that use Internet technologies and protocols, and possibly the Internet itself
33 Working inward Benefits of using intranets: Wider access to company informationMore efficient and less expensive systems developmentDecreased 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
34 Working Inward: Business-to-Employee Building an Intranet cont. Benefits cont.Because an intranet uses the browser interface (and internet ‘protocols’ /technology), users do not need extensive training on different productsCompanies 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
36 Intranet Applications Organizations can create a corporate portal to act as the gateway to the firm’s internal resources, information, and Internet servicesExamples: Microsoft, Dell etc.Develop separate departmental or divisional portals, such as sales, Human Resource, operations, and finance portals which are linked to form a corporate portal
37 General Electric 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 customersGE Power Systems answered the challenge by building a Web-based sales portal for its sales-peopleMain data feeds from existing Oracle etc. systemsSales, parts, pricing, inventory, customers etc.Also had a news feed from outsideFlexible to include more types of information and access to more applicationsSingle point of entry
38 Working Inward: Business-to-Employee Fostering a Sense of Belonging Intranets are evolving into very important enterprise structuresIn some enterprises, the intranet is seen as the enterpriseVideos of executives – vision and missionInternal forms, rules and processesNeed to file an expense report?Can provide the foundation for creating a sense of belonging by giving a means of communicating and creating communitiesCare of employees is one of the most important things enterprises do!
40 Working Outward: Business-to-Customer In most industries companies need sophisticated computer systems to competeFor example, in Airlines, hotels, rental car companies, a sophisticated reservation system is a mustSimilar ‘musts’ in other industriesIn wholesale business automated order entry and distributionIn Finance, ATMs., trading and settlement…As industry leaders increase the sophistication of their systems to improveQuality, service innovation and speedCompetitors must do the same or find themselves at a disadvantage
41 Working Outward: Business-to-Customer The Emergence of “Electronic Tenders” Initially IT has been embedded in products and services for its computational capabilitiese.g. in cars and elevators to make them operate more efficiently
42 The Emergence of “Electronic Tenders” Now IT allows product/service to be “tended” i.e. cared for, attended to, or kept track of by another computere.g. vehicle diagnostics monitored by car dealerPackages / luggage etc. with bar codes = able to be trackedPotential uses are endless and we are just at the beginningOptions are endless but the goal is still to get closer to the customer
43 Working Outward: Business-to-Customer Getting Closer to Customers Business-to-consumer e-business is the most widely reported form of business.Nearly every type of product can now be purchased online: books, CDs, flowers etc.Success is not easily achieved:Amazon.com had its business viability questioned for a long time
47 Use of the Internet has grown more sophisticated Working Outward: Business-to-Customer Getting Closer to Customers cont.Use of the Internet has grown more sophisticatedCustomer 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.
48 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 ordersIt involves organizing the entire value chain around the InternetKnow Your Customers
49 Getting Closer to Customers The E-Business ModelRedefining Customer Value“On-demand”: reduces the time it takes to respond to customer requestsConvenience: 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 productsNote: 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
50 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 companiesSometimes it is can be difficult to know which is more valuable – the product or the serviceThe current focus is on staying in closer contact with customers, understanding them better, and eventually, becoming customer driven by delivering personalized products and service
52 Working Across: Business-to-Business Streamlining processes that cross company boundaries is the next big management challengeCompanies have spent a lot of time and effort streamlining their internal processes, but their efficiencies often stop at their corporate walls
53 Working Across Working across business takes many forms including: Working with ‘co-suppliers’Working with customers in a close mutually dependent relationshipBuilding a virtual enterprise, in fact, one that might evolve into an e-marketplace
54 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 systemsSabre (American Airlines)Electronic funds transfer systemsOnline transaction from one bank to anotherElectronic Data Interchange Systems (EDI)Transmission, in standard syntax, of data for business transactions between computers of independent organizations
55 Working Across: Business-to-Business Coordinating with Co-suppliers Collaborating with non-competitors is a type of working acrossExample – two food manufacturers might have the same customers (supermarkets and other retailers) but do not compete with each otherLack of convenient ways to share information quickly and easily has prevented co-suppliers from working togetherInternet solve this problem
56 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 companiesHaving relationships with various players in one’s business ecosystemBanks, advertising agencies, suppliers, distributors, retailers, even competitorsSuch relationships often have accompanying linking information systems
57 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 informationBusiness processes remain distinctSuch limited integration requires little risk or cost
58 Levels of System Integration… Close = two parties exchange information in a formal mannerLeads to greater benefits, so there is greater force to make the relationship workRisks increase because confidentialities are sharedCosts are also higherTight = two parties share at least one business processMost risky – business critical and the most costly to integrateCritical question is, “Where does one organizational boundary begin and the other end”?
60 Working Across: Business-to-Business Becoming a Customer-Centric Value Chain A company’s value chain consists of:Upstream supply chainWorking with its suppliers of raw materials and partsDownstream demand chainWorking with its distributors and retailers to sell its products and services to end customers
61 Value Chain Traditionally most companies make-to-stock. build products / create services and then “push” them to customersThis is called Supply-Push worldToday, we are seeing the rise of the reversea demand-pull world where a customer’s order triggers the creation of a customized product or service the customer has defined
62 DELL COMPUTER Case Example: Demand - Pull Dell is the foremost example of the demand-pull business modelCustomers configure their 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 extranetIn fact, their production systems grab this information automatically; as a result, Dell’s extranet has become a private exchangeDell is even working to give suppliers two tiers down access to customer order information, so they can react to changes even faster
64 SummaryOver the years a few innovative companies have used IT for strategic advantageTheir exists ‘Models’ but many companies did not have the resources or skills to follow their exampleWith the growth of the Internet and development of e-business, IT has become a strategic tool in every industry
65 SummaryOrganizational information and resources can be structured and shared using Intranet and Portals.Increasingly customer centric approach has been adopted in Working AcrossValue chains are looking to shift from supply-push to demand-pullAs IT continues to evolve, so do its strategic uses.