Creating Business Advantage with IT

Vision and business models Demonstration of the telephone in the late 1800s While it is a wonderful invention, businessmen will never use it. Rutherford B. Hayes 19 th President of the USA

Technological innovations Internet and broadband networks WWW and high performance servers  Flexible, standardized, powerful platform for creating and storing information in all its forms URL Uniform Resource locator and Browser  Common approach for identifying and locating information anywhere on the internet Multimedia digital devices  Portable internet access devices that provide internet access to voice, television and information  Laptops, palm pilots, cell phones, … Wireless networks and protocols JAVA, XML and other OO languages and database technologies

Economies Economy of scale  When a participant or network of participants is able to leverage capabilities and infrastructure to increase its revenues and profitability within a single product line or market. Economy of scope  When a participant or network of participants is able to leverage capabilities and infrastructure to launch new product lines or enter new markets.

Porter’s Value Chain (well suited for analyzing product/manufacturing firms)

Value Chain Applied to Airlines Identifies uses of IT for each element of the value chain

Market Roles Source: Applegate, Lynda M., Robert D. Austin, and F. WarrenMcFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, Chapter 1 Figure 1-4

Industrial vs. Network Economy CharacteristicsIndustrial EconomyNetwork economy Criteria for economic success Internal, proprietary and specialized economies, limited by level of infrastructure required External, networked and shared economies of scale and scope are increased by internet infrastructure Technological innovations Production, communication and distribution technologies Distribution, communication and information technologies; The ability to assemble component pieces Operating innovations Standardization of work; Job specialization; assembly lines; Value chain industry structure. Knowledge work; job expansion; Work teams; extended enterprise; Outsourcing and partnerships; Value networks. Management innovations Hierarchical coordination; Compliance-based control; Centralized planning and control. Network coordinating and supervision; ownership incentives; Information-based models of control Societal/regulatory innovations Urban growth; mass transportation; social security and welfare; unions, regulations; domestic economy Work at home; self-employment; global economy Length of time to achieve economies of scale or scope DecadesUncertain Dominant industry power ProducersSolution assemblers and channel managers

Forces Influencing Industry and Competitive Advantage Source: Applegate, Lynda M., Robert D. Austin, and F. WarrenMcFarland, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, Chapter 1 Figure 1-5

Impact of IT: questions 1 of 5. Can IT be used to reengineer core value acti-vities and change the basis of competition?  Uses IT not just to automate but also to transform and to inform  Benefits of conducting business online  AHSC American Hospital Supply Corporation  American Airlines  Internet to reengineer value chain and the basis of competition

Impact of IT: questions 2 of 5. Can IT change the nature of relationships and the balance of power among buyers and suppliers?  AHSC  Customers recognized the value of a multivendor marketplace but were unwilling to put up with the problems of using multiple different supplier systems  AHSC became channel manager  Electronic market places: Oracle, CommerceOne, Ariba, …

Impact of IT: questions 3 of 5. Can IT build or reduce barriers to entry?  Consultancy companies: knowledge technology  Technology based advantage: AHSC, AA, …  The internet can decrease the impact: low cost, ease of penetration  Knowledge and community barriers are more sustainable  Proprietary infrastructure and channels to market are at a particular disadvantage relative to new entrants when they attempt to create second-order barriers to entry (Amazon.com as new entrant with transaction, information and community infrastructures)

Impact of IT: questions 4 of 5. Can IT increase or decrease switching costs?  Switching to another system might become difficult and costly in proprietary systems  With the internet switching costs are substantially reduced  difficult to achieve customer loyalty  Intuit increased the switching cost Provided easy to use inexpensive financial service software Won users via ease-of-use Hooked via simple ways of storing the information that should be reentered if the customer switches to a different product

Impact of IT: questions 5 of 5. Can IT add value to existing products and services or create new ones?  Grocery stores are also in the business of selling information (client profiles)  Information content of existing products (cars)  Digital distribution of books, music, and video will dramatically alter existing publishing and entertainment industries.  Manure and fertilizer company provides information.

Summary Exploiting the opportunities afforded by IT, while avoiding the pitfalls requires vision, sound execution, and the ability to respond quickly Risks increase when executives  Have poor understanding of sources of competitive dynamics  Fail to understand the long-term implications of a strategic system (their own or a competitor)  Launch a system that brings on litigation or regulation to the detriment of the innovator  Fail to account for the time, effort, and cost required to ensure user adoption, assimilation and effective utilization

Summary (cont) Investments should be examined on sustainable advantage Movement of IT-personnel results in rapid proliferation of strategic ideas Questions  What business are we in? Who are our customers, suppliers, partners?  Who are our biggest competitors, today and in the future?  How effective are our core operating activities and processes?  Are there big changes looming at the horizon and what can we do?  Will changes in related industries influence our industry?  Did we identified the strategic risks today and in the future?  Have we appropriately prioritized our business investments?