R. Ching, Ph.D. MIS Area California State University, Sacramento 1 Week 4 Monday, February 13 Business Networks Leveraging IT

R. Ching, Ph.D. MIS Area California State University, Sacramento 2 Inputs ProcessesOutputs What does it take to get groceries into a home?

R. Ching, Ph.D. MIS Area California State University, Sacramento 3 Business Network How does IT provide a competitive advantage? Manufacturers Distributors Delivery Consumer Peapod

R. Ching, Ph.D. MIS Area California State University, Sacramento 4 From Last Week… Networks for Competitive Advantage Low number of suppliers means they have higher bargaining powerLow number of suppliers means they have higher bargaining power New entrants due to market potential with a quick ROINew entrants due to market potential with a quick ROI High cost of IT capital (barrier to entry)High cost of IT capital (barrier to entry) Rivalry high in industryRivalry high in industry

R. Ching, Ph.D. MIS Area California State University, Sacramento 5

6 How should a business invest in IT? Long-term vs. ‘Low-Hanging Fruit’

R. Ching, Ph.D. MIS Area California State University, Sacramento 7 Value-enabling infrastructure Value-creating IT applications Value-sustaining IT applications IT Value Framework Lower costs, improve asset efficiency, and create strategic options for future growth Profitable growth through further cost reductions and revenue generation Strategic differentiation and proprietary advantage that can be measured in terms of increased market share, improved brand value, increased market capitalization Initiatives How will the business achieve this?

R. Ching, Ph.D. MIS Area California State University, Sacramento 8 IT to differentiate the organization from others IT Infrastructure Reengineering Business Processes Strategic Application of IT Basic IT to remain competitive in industry Basic IT to do business IT Application Framework

R. Ching, Ph.D. MIS Area California State University, Sacramento 9 Leveraging the IT Infrastructure Two key infrastructure components:Two key infrastructure components: –IT operations (data center, network, call centers, etc.) –Supporting enterprise processes (procurement, enterprise resource planning, finance, human resources) Flexibility and efficiency in the IT infrastructure to drive down costs, and increase IT asset productivity and future options valuesFlexibility and efficiency in the IT infrastructure to drive down costs, and increase IT asset productivity and future options values IT Business process

R. Ching, Ph.D. MIS Area California State University, Sacramento 10 Global IT Infrastructure Shared common infrastructureShared common infrastructure –IBM’s Business On Demand Exploits immediate cost savings and asset productivityExploits immediate cost savings and asset productivity An on demand enterprise leverages standards- based, componentized technology to support integrated and flexible business processesAn on demand enterprise leverages standards- based, componentized technology to support integrated and flexible business processes –Opens a range of business opportunities Supports collaboration among business partnersSupports collaboration among business partners

R. Ching, Ph.D. MIS Area California State University, Sacramento 11 Leveraging IT and Reengineering Processes Cost reductionsCost reductions Revenue generation: Introduction of new services through product developmentRevenue generation: Introduction of new services through product development Proprietary advantageProprietary advantage

R. Ching, Ph.D. MIS Area California State University, Sacramento 12 StrategyStrategyManagementProcessesManagementProcesses StructureStructure Individuals and Roles Individuals TechnologyTechnology IT Infrastructure and Processes Reengineering: Reengineering to Leverage IT Dynamic Equilibrium: Any change to a component requires an adjustment to the others Organization and coordination Information Technology Vision and direction Human resources Planning and control

R. Ching, Ph.D. MIS Area California State University, Sacramento 13 In a Nutshell… BusinessIT StrategyStrategy Capabilities Capabilities Alignment Alignment IT infrastructure Process Reengineering (Control, enhancing, leveraging) Business networks (Competitive Advantage) Value Vision

R. Ching, Ph.D. MIS Area California State University, Sacramento 14 Aloha Airlines One of two major inter-island airlines in HawaiiOne of two major inter-island airlines in Hawaii –Smaller of the two In December 2004, filed for Chapter 11 reorganizationIn December 2004, filed for Chapter 11 reorganization

R. Ching, Ph.D. MIS Area California State University, Sacramento 15 e-Commerce

R. Ching, Ph.D. MIS Area California State University, Sacramento 16 Receives direct non-stop flights from US mainland

R. Ching, Ph.D. MIS Area California State University, Sacramento 17 Threat: Hawaiian Airlines

R. Ching, Ph.D. MIS Area California State University, Sacramento 18

R. Ching, Ph.D. MIS Area California State University, Sacramento 19 Online Reservations

R. Ching, Ph.D. MIS Area California State University, Sacramento 20 Customer Loyalty Programs

R. Ching, Ph.D. MIS Area California State University, Sacramento 21 Leveraging IT BusinessIT StrategyStrategy Capabilities Capabilities Alignment Alignment IT infrastructure Process Reengineering (Control, enhancing, leveraging) Business networks (Competitive Advantage) Value Vision

R. Ching, Ph.D. MIS Area California State University, Sacramento 22 Porter’s Five Forces Model Forces that Shape Strategy Industry Competitors Rivalry among existing firms SuppliersSuppliers Customers and Buyers Potential Entrants SubstitutesSubstitutes Bargaining power of buyers Threat of substitute products or services Bargaining power of suppliers Threat of new entrants      How will the business react to threats (and opportunities)?