Strategic issues of Information Technology & Competitive advantage

Hergovind Singh

Information Technology

Increased importance of IT Most general managers know... that the technology can no longer be the exclusive territory of IS departments
Information as a key resource for business Today, information technology must be conceived of broadly to encompass the information that businesses create and use as well as a wide spectrum of increasingly convergent and linked technologies that process information

Technology impact on competition

Three ways IT changes the game

It changes industry structure and therefore the rules of competition

It creates competitive advantage by giving companies new ways

to outperform their rivals

It spawns whole new businesses

Often within a companys existing operations

The Value Chain

Support activities

Primary activities
Inbound logistics Operations Outbound logistics Marketing and Sales Service Corporate infrastructure Human resources management Technology Development Procurement Materials receiving, storing, and distribution to manufacturing premises Transforming inputs into finished products. Storing and distributing products Promotions and sales force Service to maintain or enhance product value Support of entire value chain, e.g. general management planning, financing, accounting, legal services, government affairs, and QM Recruiting, hiring, training, and development Improving product and manufacturing process Purchasing input

Technology and the Value Chain

Every value activity has both a physical and an information-processing component

IS

component encompasses the steps required to capture, manipulate and channel the data necessary to perform the activity

The Value Chain Defines Indust ry Str ucture a nd Relationships

Source: Applegate, Lynd a M., Rober t D. Austi n, and F. War r en McFarla n, Corporate I nfor mation Strategy and Management . Bur r Ridge, IL: McGr aw-Hill/Irwin, 2002.

Chapter 1 Figur e 1-3

How Technology Permeates the Value Chain

Inbound Logistics Operations Outbound Logistics

Marketing & Sales

Service

Automated warehouse Flexible Manufacturing Automated order processing Telemarketing, remote terminals for sales staff Remote servicing of equipment, computer scheduling & routing of repair trucks

Transforming the Value Chain

IT is advancing faster than technologies for physical processing

This expands the limits of what companies can do faster than managers can explore the opportunities

IT is generating more data about activities and products, information that was not available before

There is a higher information content in products

IT enhances the ability to exploit linkages between activities both inside and outside the company IT allows companies to coordinate activities in widely dispersed geographic locations Often there is too much information, but IT can store and help analyze the flood of information

IT Impacts on the five forces model

Large IT investments provide barriers to entry

Systems to connect suppliers and buyers

Potential new entrants

Increased rivalry among existing competitors

Bargaining power of suppliers

Strategic Business Unit

Bargaining power of buyers

Automated quotes for easier comparisons

Threat of substitute products or services

CAD makes it easier to change product offerings

Creates Competitive Advantage

Lowering cost

Automated parts inventory, new sales process

Enhancing differentiation

Customizing products and greater selection

Changes company scope

IT increases ability to coordinate activities within a company Also allows interrelationships between companies and among industries

Spawning New Businesses

Makes new businesses technologically feasible.

Creates derived demand for new businesses Creates new businesses within old ones (may give a company excess capacity or skills Sears providing credit services to other companies)

Steps for competitive advantage

Assess information intensity

Evaluate intensity on value chain or product

Determine the role of IT in industry structure

Predict the impact of IT on the industry

Identify and rank the ways in which IT might create competitive

advantage

IT impacts every activity on the value chain

Investigate how It might spawn new businesses

What information could the company sell, etc

Develop a plan for taking advantage of IT

Rank strategic IT investments, look at info components for products

The Information Resources

Software

Hardware

Database

Information Specialists Users

Information

Facilities

The Information Resource Manager -- the CIO

Chief Information Officer (CIO) is not simply a title, but an attitude Titles used: CIO Director of MIS V.P. of Information Systems Other

The CIO

The business is what counts Build partnerships/ties with the rest of the firm Improve basic business processes Communicate in business terms, not IS jargon Provide reliable IS services

Be positive, not defensive

The Interlinking of Functional Areas in Developing - Strategic Plans

Strategic planning for information resources Strategic planning for marketing resources Strategic planning for manufacturing resources Strategic planning for financial resources

Strategic planning for human resources

Strategic planning for information resources

Strategy set transformation; support the firms objectives Strategic planning for information resources (SPIR) develops firm and IS strategic plans concurrently

SPIR content

1. What is to be achieved 2. What will be required

Strategic Planning for Information Resources

Business Strategy/ competitive Advantage

Influence on Information Resources

Information Resources and IS strategy

Influence on Business Strategy

The Strategic Implications of End-User Computing

Levels of end users in terms of capabilities

menu-level end users command-level end users end-user programmers functional support personnel shifts workload so that end-users and information specialists talents are better used reduces communications gap

EUC application considerations

Information and Competitive advantage

A recognition that competitive advantage can be achieved by means of superior information resources

A recognition that information services is a major

functional area

A recognition that the CIO is a top-level executive

(cont.)

A consideration of the firms information resources when engaging in strategic planning

A formal strategic plan for information resources A strategy for stimulating and managing enduser computing

The environment of the firm

ENVIRONMENTAL INFLUENCES

The Model

The firms executives

CIO
Internal influences
Information services Finance Human resources

Other executives
Firms strategic plan
Manufacturing Marketing

FUNCTIONAL AREAS

STRATEGIC PLAN FOR INFORMATION RESOURCES

Central computing resources Disbursed computing resources

DATA AND INFORMATION

Users engaged in end-user computing Other users

Technological Advancement

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, 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.

Porters Value Chain

(well suited for analyzing product/manufacturing firms)

Exa-Value Chain Applied to Airlines

Identifies uses of IT for each element of the value chain

Industrial vs. Network Economy

Characteristics Criteria for economic success Technological innovations Industrial Economy
Internal, proprietary and specialized economies, limited by level of infrastructure required Production, communication and distribution technologies

Network economy
External, networked and shared economies of scale and scope are increased by internet infrastructure Distribution, communication and information technologies; The ability to assemble component pieces Knowledge work; job expansion; Work teams; extended enterprise; Outsourcing and partnerships; Value networks. Network coordinating and supervision; ownership incentives; Information-based models of control

Operating innovations

Standardization of work; Job specialization; assembly lines; Value chain industry structure. Hierarchical coordination; Compliance-based control; Centralized planning and control.

Management innovations

Societal/regulatory innovations

Urban growth; mass transportation; social security and welfare; unions, regulations; domestic economy

Work at home; self-employment; global economy

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 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?
- Customers recognized the value of a multivendor marketplace but were unwilling to put up with the problems of using multiple different supplier systems Electronic market places.

Impact of IT: questions 3 of 5.

Can IT build or reduce barriers to entry?

Consultancy companies: knowledge technology Technology based advantage. 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.

Remember

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

(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?