Chapter 4 Making the case for IT

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Chapter 4 Making the case for IT

• Chaoyang University of Technology
• Ying Chieh Liu

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Before the class

• IT can bring competitive advantage?
• If no, why do you spend a lot in IT?
• If yes, how? Can it last long?

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Arguments

• IT no longer conferred proprietary advantage.
  Instead, IT should be considered a commodity-part
  of the infrastructure upon which a firm does
  business (Carr, 2003)
• Proprietary technology is more valuable when they
  are owned and exploited by a single company
  Infrastructure is more valuable when shared.

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Key premises of Nicholas Carrs argument
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Carrs concludes that executives should

• Spend as little as possible on IT
• Concentrate IT investments on driving cost
  savings
• Follow father than lead when adopting new IT,
  allowing others to bear the risk and cost of
  testing new technologies
• Concentrate on managing risk, rather than
  searching for IT opportunities.

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Some arguments

• Such ideas are not inconsistent with the view
  that IT remains a profound catalyst for the
  creation of strategic differentiationIT may be
  ubiquitous but the insight required to harness
  its potential.. The gap between IT potential and
  business realization of that potential has not
  narrowed. Instead it has steadily widened over
  the past several decades. This gap creates
  enormous instability in the business world.
  Wherever there is so much potential for
  instability, there is also fertile ground for new
  strategies (Seely Brown and Hagel, 2003).(p.117)

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Traditional value-creating IT

• Traditional IT Large stand-alone computers, data
  center, managed by a centralized group of IT
  professionalscapital budgeting request, instead
  of creating value
• Value-creating IT Also built to run on
  traditional mainframe infrastructures, performs a
  specific task and delivered well-specified
  benefits- cost savings come from increasing the
  efficiency, paperless process.
• Example American Airlines legendary computer
  reservation system (SABRE) was used by agents to
  increase win-win, which was used for internal
  only.

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IT value framework
Value sustaining
Value creating
Value enabling
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Investments in IT infrastructure-cash flow view
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Driving profitable growth

• The purpose is to increase profits
• (1)Revenue-generating capabilities can be
  enhanced provide timely, actionable information
  (marketing or sales analytics, competitor), CRM
  systems.
• (2) IT-enabled product/service or business
  offerings can be launched.(SABRE)

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Achieving proprietary advantage

• Successful entry into a large and growing market
  or exit from a shrinking one
• Achieving the number one or number two position
  in an attractive industry and providing evidence
  that the company can sustain that position over
  time
• Attracting loyal investors that pay a premium, as
  measured in price/earnings and other capital
  market measures, over other players in a
  companys industry or even across industries.

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IBM case study

• P126134

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Revisited Carrs viewpoints