The Strategic Role of Information Technology

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The Strategic Role of Information Technology
Pascal Grant
Enterprise Management
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Lecture 2- Agenda

• 6.10- 8.00 pm - Revisiting business Strategy
• 8.00 - 8.30 pm - break
• 8.10 9.10 pm -Examination of case studies
• 9.10 9.45 pm Student presentations and
  debriefing

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Learning Objectives

• Define Strategy and the concept of a value chain
• Identify the competitive forces that firms face
  today
• Identify the components which create value
• Identify the importance and essentials of
  business strategies and subsequent alignment with
  IT strategies
• Identify frameworks for the use of Information
  Technology as a strategic asset
• Understand the strategy formulation process
• Understand how EC applications are discovered and
  prioritized

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Definitions

• Strategy
• a search for revolutionary actions that will
  significantly change
• the current position of a company, shaping its
  future-Turban p677
• Strategic
• having a significant, long-term impact on
  growth rate, industry, and revenue.
• B.Mcnurlin et al. p61.
• How are actions defined? Strategic positioning
  means performing
• different activities from rivals or performing
  similar activities in different
• ways, according to Porter. He adds, activities
  must be unique and deliver
• a unique mix of value.

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Essentials of a Business Strategy-Revisited

• Porters view on Strategy
• Having a strategy is a matter of discipline. It
  requires a strong focus
• on profitability rather than just growth, an
  ability to define a unique
• value proposition, and a willingness to make
  tough trade-offs in
• choosing what not to do. It involves configuring
  a tailored value
• chain the series of activities required to
  produce and deliver a
• product or service that enables a company to
  offer unique value.
• To be defensible, moreover, the value chain must
  be highly
• integrated.
• Note unique value proposition to customers,
  value chain is a set of activities which must be
  tightly integrated

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A Value Chain
Firm Infrastructure
Human resource management
Margin
Support Activities
Technology development
Procurement
Marketing and sales
Inbound logistics
Operations
Outbound logistics
Service
Margin
Primary Activities
2-6
Source Michael E. Porter
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A Value System- A set of activities that deliver
value (margin) in the delivery of goods and
services
Identify the value chains
Channel value chains
Supplier value chains
Buyer value chains
Firm value chain
Activities- Primary and Support (interdependent)-
technology can act play a role in both as both
primary in delivering products and services.
Online banking may be a new product (primary
activity supported by internet/call centre. Each
activity must add value or margin.
Source Michael E. Porter
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Value Analysis and Proposition

• A Value Analysis Approach
• Value chaina series of activities a company
  performs to achieve its goal(s)
• Value added
• Contributes to profit and enhances the asset
  value as well as the competitive position of the
  company in the market
• To create additional value using EC channels, a
  company should consider the competitive market
  and rivalry in order to best leverage its EC
  assets
• (Customers value proposition)

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Value Analysis and Proposition (cont.)

• Value Analysis Questions
• Representative Questions for Clarifying Value
  Chain Statements
• Can I realize significant margins by
  consolidating parts of the value chain to my
  customers?
• Can I create significant value for customers by
  reducing the number of entities they have to deal
  with in the value chain?

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Value Analysis and Proposition (cont.)

• Value Analysis Questions (cont.)
• Representative question for creating new values
• Can I offer additional information of transaction
  services to my existing customer base?
• Can I use my ability to attract customers to
  generate new sources of revenue, such as
  advertising or sales of complementary products?

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barriers to entry of new players Internet
technology reduces the need for sales force,
established channels, physical assets which all
lower entry barriers a flood of new entrants have
come into many industries
intensity of rivalry amongst existing
competitors proprietary differentiation is
reduced reach is wider enabling more competitors
in so far, has migrated competition towards price
threat / likelihood of substitutes new
innovations might produce new substitution
threats or the industry market size might expand
industry attractiveness
bargaining power of suppliers digital markets
open-up access and reduce differentiation or suppl
iers may go direct and/or disintermediate others
bargaining power of buyers buyers may aggregate /
leverage their power and switching costs
reduce or traditional channels may be eroded /
bypassed
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Impact of IT on Strategy-Discussion

• Can IT Build barriers to entry?
• Can IT Build in Switching Costs?
• Can IT Change the Basis of Competition?
• Can IT Change the Balance of Power in Supplier
  Relationships?
• Can IT generate New Products

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Digital StrategyDoes the activity define the
technology or does technology define value?

• IT should be viewed as an enabler, not as a key
  driver, state Bashein, Markus, and
• Riley, in contrast
• According to Larry Downes et al, Business change
  originates with digital technology, it is
• not merely an enabler of activites in a value
  chain, but rather a disrupter of current
• operating models.
• New forces including Globalisation, deregulation
  and digitisation supercede Porters
• traditional sources of competitive leverage.
• New forces are also creating havoc to value
  chains - information becomes a key asset
• and physical distribution channels may become
  redundant.
• Unleashing the Killer App-Digital Strategies
  for market dominance-, L. Downes and C. Mui HBR
• 1998

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Digital Strategy-12 principles of strategy
designnot dissimilar to Keens prognosis-1990s

• Larry Downes et al, propose 12 principles of
  killer app design
• Reshaping the landscape
• Outsource to the customer-customer
  enquiries/account transactions/order
  entry/tracking/RD
• Cannibalise your markets-Charles Schwab,WSJ -49
  online instead of 150 offline
• Treat each customer as a market segment of
  one-bits can be customised-personalisation
• Create communities of value- The value is in the
  community Amazons other readers-eBay
• Building New Connections
• 5. Replace rude interfaces with learning
  interfaces-customer intimacy/learning with each
  interaction.
• Ensure continuity for the customer, not
  yourself-Does the experience enhance the
  transaction
• Give away as much information as you can-richness
  and reach
• Structure every transaction as a joint
  venture-collaboration and standards among
  traders.
• Redifining the Interior
• 9. Treat your assets as liabilities-the virtual
  store/no inventory/no physical shopfront
• Destroy your value chain-break down distribution
  channels/reinvent the set of activities
• Manage innovation as a portfolio of
  options-managing by risk/return/abandon or expand
• Hire the children-the digital generation is not
  constrained to develop new ways to interact.

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Digital Information Properties that influence
its Economic Value

• Reusable Can be sold without transferring
  ownership
• Can be consumed without being depleted
• Customisable Can be presented in different forms
  (video, audio)
• Can be broken up and reconfigured
• Time-valued The inherent time value of
  information can be exploited-value can degrade
  (or increase) over time.
• Productised Can be used to create new products
  and services or enhance the value of existing
  ones

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Essentials of a Business Strategy (cont.)

• Types of strategy
• Strategic planning-long term
• Strategic response-what if
• Strategic innovation-proactive

• Levels of strategy
• Corporate (or organizational) strategy
• IT strategy
• EC strategy
• EC functional strategies
• These are interrelated

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Figure 16-1EC Strategy Alignment
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Essentials of a Business Strategy

• According to Eisenmann
• 4 decision areas for developing a strategy are
• Breadth of target segments, (the more targeted,
  more brand recognition)
• Product line diversification/differentiation/custo
  misation (easier online than for bricks and
  mortar)
• Vertical integration (AOL-defensive or offensive
  to ward off competitors)
• The hybridization of multiple business models -
  evolving the value chain by offering multiple
  business models can increase revenues but also
  risk. The risk is that the firm may not benefit
  by having to introduce multiple sets of
  infrastructure and therefore incur costs.
• Internet business models-text and cases, Thomas
  r. Eisenmann, McGraw-Hill 2002

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Clarifying Your Strategic Objectives (Kalakota)

• Objective Characteristics
• Process improvement Reducing costs
• Decreasing rework
• Shortening processes
• Fixing specific errors
• Strategic improvement Enhancing supply chain
• Web-enabling operations
• Decreasing time to market
• Improved customer sat.
• Business transformation Changing the rules of
  the game
• Creating a customer focus
• Abandoning old ways
• Major culture change

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The Digital Economy- effect on the Enterprise

• immediacy faster-cycle times-time to market
• rationalisation Increased productivity
• innovation encourages new ideas-collaboration
• transformation promotes working dramatically
  smarter
• virtualisation replaces physical presence
• globalisation ubiquitous cyberspace never
  closes-reach/rich
• disintermediation or reintermediation also known
  as infomediation
• mass customisation differentiating on the basis
  of one-to-one-services

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How does IT play a strategic role

• 3 strategic roles of IT in business today
• To improve company processes and structure
  internal focused
• Incorporated in products and services
  externally focused
• Inter-organisational, collaboration supply
  chain, cross linkages

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Redesigining Business Processes or
activities-Internal focus

• Redesign or re-engineering has had a mixedSuccess
  is based on
• Top management involvement
• Projects that are framed in terms of growth have
  a higher success rate than cost cutting or
  downsizing.
• Team approach involving all functional areas and
  suppliers and customers.
• Case-study -Prudential Insurance-redesiging the
  sales function
• from supply (product based to demand
  pull)-customise the product
• or service according to the customers profile.

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Options for Restructuring
Broad
Restructure or Outsource
Reengineer
Type of Change
Process Improvement
Focused Restructuring
Narrow
Time to Make Change
Long
Short
Adapted from Ernst and Young
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Selecting and Designing an e-strategy

• Category killer - defining a new market by
  identifying a unique customer requirement.
• Channel reconfiguration supplementing existing
  channels to directly access customers
• Transaction intermediary Processing purchases
  using the net- Expedia, Priceline, ebay
• Infomediary- search costs reduction-intranets
• Self-service innovator- a direct personalised
  relationship with a company-webMD
• Supply chain innovator internet to streamline
  interactions of a supply chain.
• Channel mastery Sales and service channel to
  supplement call centres

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Examples of Internal Strategic uses of
IT-Intranets-Knowledge Management- A way to
redesign processes based knowledge and expertise

• Providing information on demand over a
  company-wide electronic infrastructure has
  created a strategic way to link functional units
  within an organisation and reduce time, avoid
  bottlenecks.
• Creation of the Virtual Team time and space no
  longer matter-24/7 teams can interact globally
  and mirror capabilites (activities), creating a
  parallel virtual chain.

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Knowledge Management An internal focus in
establishing competitive advantage

• Effective Knowledge Management, harnessing the
  intellectual capital of
• an enterprises ecosystem to deliver
  ever-increasing value, will be the
• true differentiator that enables an organisation
  to achieve dominance. The
• ecosystem includes employees, customers,
  prospects, suppliers, other
• strategic alliance partners, stockholders, board,
  and competitors.

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Information-knowledge flows are critical for
Market Leaders

• HOW LONG WOULD DOES IT TAKE TO GET THE INFO?
• Customer relationship needs information on its
  customers to retain them, to adapt its customer
  facing practices and mechanisms, to drive return
  business, and to win new business. (Customer
  intimacy)
• The sales department needs information on which
  products are selling to which demographic
  population in which markets, by which channel to
  accelerate cycle time to market.(Operational
  excellence)
• The product planning department needs information
  on sales rates in order to optimally plan for
  production and to negotiate the most advantageous
  contracts with suppliers. (Product leadership)
• The HR department needs current headcount, roles,
  skill set by location and business unit.
  (Operational efficiencies)

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Intranets Towards the networked intelligent
enterprise

• Availability and transparency of information
  within organisations and with partners and
  members of supply chain is now an imperative.
  (Collaboration is key in SCM-Dells ability to
  link orders to suppliers electronically)
• What are a companys real assets? Can knowledge
  portals convert intangible value to real value?
  (The Value Net integrator-knowledge and
  information are the key assets)
• Company Portals present a single web-based access
  point for corporate data and ensured Business
  continuity-Post Sept 11th.

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Intranets- the infrastructure for KM
WHAT IS IT? An intranet is an internal company
network that takes advantage of the Internets
infrastructure, telecommunication protocols, and
browsers. Benefits- Companies can significantly
decrease the cost of providing company-wide
information and connectivity. Supporting multiple
makes of user devices, databases, and software
applications (flexibility). Companies need only
publish once and allow distribution to anywhere
in the world (reusability)
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intranets

• WHAT IS IT?
• Intranet is corporate LAN and/or Wide Area
  Network (WAN), secured behind companys firewalls
  and using Internet technologies.
• developed using same protocol as the Internet -
  operate as private networks with limited access.
  
• Security based on physical location inside
  company
• intranets are limited to company information
  pertinent - often exclusive, proprietary and
  sensitive
• firewalls protect intranets from unauthorised
  outside access.

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intranet
ERP
Servers
Clients
Legacy systems
Public/External Internet Users
Intranet
E-mail servers
Web servers
Firewalls
Databases
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Uses of intranets

• Product catalogues (49 of companies surveyed)
• Corporate policies and procedures (35)
• Purchase ordering (42)
• Document distribution, information sharing (39)
• Corporate phone directories (40)
• Human resource forms (35)
• enables Workflow - planned document flow with
  security, authorisation and control
• Integrate many applications into the same browser
  interface
• Information Week Survey 98 Chabrow.

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Figure 11-5Corporate Portal Framework
Source Compiled by N. Bolloju, City University
of Hong Kong, from Aneja et al. (2000) and from
Kounadis (2000)
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a stylised look at

• internal systems
• intranets
• extranets
• the integration challenge

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shopfront (front-end engagement)
your customers
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shopfront (front-end engagement)
your business is deep - extends a long way back
from the front door - national and international
components - external / partner relationships
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internal business processes ( silos?)
shopfront (front-end engagement)
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internal business processes ( silos?)
shopfront (front-end engagement)
backend systems / processes
39
internal business processes ( silos?)
shopfront (front-end engagement)
backend systems / processes
supply chain
40
internal business processes ( silos?)
shopfront (front-end engagement)
backend systems / processes
supply chain
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internal business processes ( silos?)
shopfront (front-end engagement)
backend systems / processes
supply chain
42
are these all integrated, or dis-integrated?
internal business processes ( silos?)
shopfront (front-end engagement)
backend systems / processes
supply chain
43
B2B trading
internal business processes ( silos?)
shopfront (front-end engagement)
backend systems / processes
supply chain
B2B trading
44
B2B trading
internal business processes ( silos?)
shopfront (front-end engagement)
backend systems / processes
supply chain
or
B2B trading
additional interaction channel
45
B2B trading
internal business processes ( silos?)
shopfront (front-end engagement)
backend systems / processes
supply chain
?
?
?
or
web services
And this. Is it a bolt-on? how far back does it
reach?
B2B trading
46
B2B trading
shopfront (front-end engagement)
internal business processes
integrated systems / processes
supply chain
extranet
intranet
or
web services
B2B trading
secure zone
47
file server/s
webserver
private secure
firewall
PCs
public insecure
intranet
public
48
data files extranet access
file server/s
webserver
websites public, or secured
private secure
firewall
PCs
public insecure
intranet
public
49
data files extranet access
file server/s
webserver
websites public, or secured
private secure
firewall
PCs
public insecure
intranet
what can they see?
Extranet technology can allow external access to
private side. Not always essential. Always
carefully planned.
Alternative, replicates to the public side.
public
50
data files extranet access
file server/s
webserver
websites public, or secured
private secure
firewall
PCs
public insecure
intranet
another enterprise
public
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Case Studies- Group Discussions
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Experience Curves

• The ability to create new industry segments by
  identifying a new market and the technologies to
  exploit it.
• Can technology enhance or alter the competitive
  landscape by offering a different set of
  operating procedures?
• The case of shipping.-UPS-FEDex, Airborne Express

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Marketplace to Marketspace

• Value is created by 3 components, in either the
  marketplace or the
• Marketspace. Strategic uses of IT in the
  marketspace means finding new
• combinations of content, context and
  infrastruture.

Content (What is offered)
Context (How is it offered)
Infrastructure (What enables the transaction to
occur)
Rayport and Svioka
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Marketspace- Looking to external value chains

• Electronic Markets
• A computerised marketplace with several buyers
  and sellers.
• Its goals are
• To reduce search costs of buyers-comparisons/infor
  mation (reach and richness)
• Create critical mass-Metcalfs law- The value of
  the network is proportional to users squared.
  (Community gains value by increasing transactions

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Discussion-Questions-Cases

• Knowledge management to gain strategic
  advantage-Examination of case studies
• In addition-3 different online business models.
• www.ninemsn.com.au - infomediary-portal
• www.cisco.com One of the leading B2C sites
  direct model
• www.Alibaba.cm - Largest B2B site in Asia