Strategic Information Technology Using IT for Competitive Advantage

Some Useful Frameworks Porter model Strategic grid Venkatraman framework Critical success factors framework (Rockart)

The Porter Model Threat of New Entrants Industry competitors Bargaining Power of Suppliers Bargaining Power of Buyers Intensity of competition Threat of Substitutes

IT and Competitive Forces Potential Uses of IT to Combat Force Force Threat of New Entrants Switching costs Product differentiation Economies of scale Buyers Bargaining Power Buyer selection Differentiation Suppliers Bargaining Power Selection Threat of backward integration Substitutes Improve price/perf. Redefine prod & ser

IT Strategic Grid Factory Strategic Support Turnaround High Low High existing operating systems Strategic impact of Support Turnaround Low Efficiency focus Effectiveness focus High Low Strategic impact of application development portfolio

IT Strategic Grid (A different view) High Factory Turn around existing operating systems Strategic impact of Strategic Support Low High Low Strategic impact of application development portfolio

Venkatraman Framework Business Capability Investment Center Service Center Value Center Purpose Cost Center Profit Center Operational Efficiency Minimize Risk Maximize Opportunity Risk Propensity

IT Management Approaches for Realizing Value Operational focus that minimizes risk with emphasis on efficiency Cost Center: While still minimizing risks, aims to create IT-enabled business capability to support current strategies Service Center: Has a long-term focus and aims to create new IT-based business capabilities Investment Center: Designed to deliver IT services to the external marketplace for revenue Profit Center:

Cost Center Service Center Investment Center Profit Center Objectives Deliver IT products and services at the lowest cost levels relative to an external referent Deliver IT-enabled business capabilities to support current business strategy Proactively create IT- enabled business capabilities that shape new business strategies Deliver IT products and services in the external markets to realize marketplace knowledge, credibility, and additional profits Objectives Key Capabilities Managing scale and scope for operational efficiency Understanding technolo- gy’s role in the business strategy Identifying and nurturing a portfolio of technology- enabled new business capabilities Ability to compete successfully against best-in-class vendors Performance Metrics (illustrative) Client satisfaction; internal service guarantee levels Investment payoff reflected in business capability creation Realized profit levels market experience, and credibility Cost/MIPS Role of Exter- nal Alliances and Partners Relationships with best-in-class outsourcers to improve cost levels Alliances for key capabil- ities such as help desk, customer service, and market intelligence Support for technology scanning, technology licensing, joint R&D, beta tests, and joint ventures Partnering to combine complementary skills to serve the IT marketplace

Example: Service Center: Bank of America’s development of its customer targeting system to give its sales and services managers better predictive models on likely customer response behavior than available to its competitors

Example: Investment Center: CIGNA creates a forty-person IT R & D organization with a focus on “looking at technologies” that are ripe for development Note: FedEx, American Express, Wal-Mart, Johnson & Johnson, Citibank, Texaco all have similar units

Example: Profit Center: Liberty National Bank and Trust creates a subsidiary along with UPS Worldwide Logistics to provide an overnight check- processing capability offering lower cost and faster service than the Fed Swiss Bank Corporation, along with Perot Systems has formed a unit to market IT products and services to the global financial community

Criteria for Go/No-Go Decisions Cost Center--cost metrics, efficiency enhancements, external benchmarks Service Center--indices specified by business managers compared to peer groups Investment Center-a mix of strategic and quantitative indices reflecting the creation of new business functionality

A Question: Is it the fundamental business purpose of the IT organization to deploy IT capabilities to rectify current weaknesses or is it to create future business capabilities? Asked by Venkatraman

A Summary Position to Think About “If the information revolution destroys traditional sources of advantage while creating new sources, companies need to do more than rectify current weaknesses. This requires a value center profile that goes beyond cost and service centers and includes an investment center- -especially for leveraging newly emerging technologies. So, both business and IT management need to articulate the raison d'être for IT operations.” Venkatraman

Critical Success Factors The 5 to 9 things that are critical to the success of an organization, activity, or endeavor Or, the things that, if you fail on these, you fail overall Watch out for mixing up: -objectives with CSFs -performance measures with CSFs

CSF Examples Product design (not market share) Delivery performance (not customer satisfaction) Location of retail facilities

Uses of the CSF Framework Application of IT Basis for Requirements Determination -e.g. JAD or Technically supported JAD sessions What to measure