Strategic Information Technology

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Strategic Information Technology

• Using IT for Competitive Advantage

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Some Useful Frameworks

• Porter model
• Strategic grid
• Venkatraman framework
• Critical success factors framework (Rockart)

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The Porter Model
Threat of New Entrants
Industry competitors
Bargaining Power of Suppliers
Bargaining Power of Buyers
Intensity of competition
Threat of Substitutes
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IT and Competitive Forces
Potential Uses of IT to Combat Force
Force
Threat of New Entrants
Switching costs Product differentiation Economies
of scale
Buyer selection Differentiation
Buyers Bargaining Power
Suppliers Bargaining Power
Selection Threat of backward integration
Substitutes
Improve price/perf. Redefine prod ser
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IT Strategic Grid
High
Factory
Strategic
Strategic impact of existing operating systems
Support
Turnaround
Low
Efficiency focus
Effectiveness focus
High
Low
Strategic impact of application development
portfolio
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IT Strategic Grid (A different view)
High
Factory
Turn around
Strategic impact of existing operating systems
Strategic
Support
Low
High
Low
Strategic impact of application development
portfolio
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Venkatraman Framework
Investment Center
Business Capability
Service Center
Value Center
Purpose
Cost Center
Profit Center
Operational Efficiency
Minimize Risk
Maximize Opportunity
Risk Propensity
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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
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Cost Center
Service Center
Investment Center
Profit Center
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 capabiliti
es 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 efficienc
y
Understanding technolo- gys 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
Client satisfaction internal service guarantee
levels
Investment payoff reflected in business capability
creation
Realized profit levels market experience,
and credibility
Performance Metrics (illustrative)
Cost/MIPS
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 RD, beta tests, and
joint ventures
Partnering to combine complementary skills to
serve the IT marketplace
Role of Exter- nal Alliances and Partners
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Example
Service Center
Bank of Americas 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
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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
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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
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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

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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
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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
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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

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CSF Examples

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

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Uses of the CSF Framework

• Application of IT
• Basis for Requirements Determination-e.g. JAD
  or Technically supported JAD sessions
• What to measure

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The Role of IT in Business Operations
We view IT as a fundamental driver of future
business activity
We deploy IT to overcome weaknesses in our
current operations
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The Role of IT in Business Operations
We see IT as an expense to be managed
We see IT as a resource to be leveraged
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The Role of IT in Business Operations
Our outsourcing strategy balances insourcing with
outsourcing
We view IT outsourcing as a threat to our
operations
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The Role of IT in Business Operations
We use one rigid criterion for assessing
value from IT
We adopt multiple criteria for measuring IT value
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The Role of IT in Business Operations
Our IT operations act as a solutions integrator
to business operations
Our IT operations reflects a captive, internal
monopoly