Strategic Uses of Information Technology - Lecture 18

Strategic Uses of Information TechnologyLecture 18Summary of Previous LectureIn the previous lecture we have learnt about,Information System Job ConceptsOld role versus new roleIT head responsibilitiesInformation System management FrameworkTerminologiesEscalating benefits of ITWaves of innovationSABRE system international, a case studyTraditions functions of ISSummary of Previous LectureIS LITE, a new conceptCIO responsibilitiesCIO roles LeadingGoverningInvestingManagingCIO OfficeToday’s LectureStrategic uses of IT, Historical overviewWhither the internet revolution?Cheap RevolutionProfitability of IT revolutionGRAINGER Case StudyDefinitions review E-Business DriversDoes IT Still Matter? Nicholas Carr Today’s LectureHow IT still mattersWorking inwardWorking outwardWorking AcrossWorking InwardB2E, IntranetIntranet ApplicationsGeneral Electric Case StudyToday’s LectureFostering a sense of belongingWorking OutwardB2CElectronic TendersGetting closer to customersAmazon.com web exampleProblems and Advantages of Working outwardThe E-Business ModelToday’s LectureWorking AcrossB2B modelCoordinating with co-suppliersLevels of system integrationWhat is a Value chain?DELL Computer case Example SummaryIntroductionUse of the Internet by businesses in mid/late ’90s set off a revolution in the use of ITUtilizing the Internet to conduct business became the strategic use of ITStrategic = having a significant, long-term impact on a firm’s growth, industry and $$IntroductionStrategic Uses of IT -- Short History1st editionMid 1980s, hot topic = end user computing (working inward)Personal computers were invented.Organizations were helping employees learn about PCs.In this sense they were “Working Inward” to gain advantages.IntroductionStrategic Uses of IT -- Short History2nd editionLate ’80s strategic use focused outward to gain competitive advantagePC has became a common among organizations.Organizations worked to improve their customer relationship using a computer.IntroductionStrategic Uses of IT -- Short History3rd & 4th editions (1990s)Strategic use attention turned inward to reengineering business processesIntent = not to automate existing processes but to totally redesign how the enterprise operatedGood idea but many failed as they were not working plans.Enterprise Resource Planning (ERP) systems were introduced.IntroductionStrategic Uses of IT -- Short History3rd & 4th editions (1990s) cont.Internet’s potential becoming obviousDot-coms = looked at its outward use to gain a competitive advantageMost established firms initially used the Internet technology internally, building intranets to improve company processesPublishing e-formsAccompanying workflow processes IntroductionStrategic Uses of IT -- Short History5th edition (late ’90s)Use of the Internet for business underwayOrganizations invested too much in WEB based stock market, which later crashed, this resulted Bursting of the dot com bubbleE-Business has become more reality basedIntegration of the Internet with the working of companies started.IntroductionStrategic Uses of IT -- Short History6th edition (early ’00s)Theme = leveraging traditional operations by using the Internet to work more closely with othersInnovations of the dot-coms created competitive challenges for ‘bricks and mortar’ firmsA type of business model that includes both online and offline operations, which typically include a website and a physical store are bricks and mortar.IntroductionStrategic Uses of IT -- Short History7th edition (2005)IT has become absolutely necessary for competitive parity.Being used strategically:InwardOutwardAcross Strategic uses of Information SystemsFigure 3-1 Strategic Uses of Information SystemsIntroductionWhither the Internet Revolution?Internet frenzy peaked in 2000By the burst of dot com bubble we can not say that information revolution is dead.Not if history is any guideBritish Railway Revolution – mid 1800s10 fold increase after the boomDuring boom = great excitement and small companies flourishedAfter = glamour gone. Business became serious and full of hard workIndustry became orderly and profits began to reflect real returnsConnecting industriesRace for space followed by the ‘real deal’IntroductionWhither the Internet Revolution? cont.We are now in a period where organizations are re-architecting themselves around Internet technologiesTearing down old structures as they goReal gains will come when Internet technology adapts to organizations and peopleWhen the technology disappears and becomes part of life.IntroductionThe Cheap RevolutionCIOs are shifting from buying expensive proprietary products to buying cheap generic products“Cheap Tech”Cost savings are compellingGoogle = runs on 100,000 cheap serversOne breaks = discardsAvoids expensive service contracts and in-house staff“Dellification”Moved from selling PCs to also selling servers, printers, storage devices.“Cheap” is also occurring elsewhere:Labor – outsourcing to other countriesFilm production – camcorders etc.Software – Linux Vs. MicrosoftTelecommunications – Voice-over-IPIntroductionEpisode Two: Profitability Strikes BackDot-coms became dot-bombs because they couldn’t generate profitsEpisode One: The Dot-Com MenaceEpisode Two: Profitability Strikes BackWhilst it has taken these so-called “old economy firms” longer to utilize the Web they realize that they must do so in a profit-making mannerUse the Internet to complement your strategy, not replace your past way of serving customers nor disintermediate your channelsGRAINGERCase example: Using the Internet to complement your strategyDistributes non-production products to companies through stocking locations all over the U.S.Customers who purchase on their website also purchase through traditional channelsPhysical sites make its online presence more valuableCustomers who want fast deliveryOrdering is less expensive and shipping is cheaper in bulk to stocking locations Vs. individual small shipmentsContinue publishing its paper catalogsIt receives a surge of online orders every time it issues its paper catalogGRAINGER: Web PortalDefinitions - Review‘e’ = electronice-businessConducting business using telecommunications networks esp. InternetInvolves more than buying and sellinge-commerceConducting commerce (buying and selling) electronically using the InternetNote: IT definitions ‘evolve’ E-Business DriversKey Components that have accelerated the rapid growth and acceptance of e-business: Wide access to a public network Standard communication protocol Standard user interfaceE-Business driversE-business applications run over the Internet, drastically reducing access and communications costsWith standardized communication protocols and user interfaces, implementation and training costs are far lowerAs a result, a much broader set of users and firms has access to the systems, allowing rapid growthDoes IT Still Matter?“IT Doesn’t Matter” – article by Nicholas Carr in Harvard Business Review May 2003Controversial topic and now available in book form.Bottom line = IT doesn’t matter anymore, at least not strategicallyNicholas Carr – Harvard Business ReviewIT is an infrastructure technology, like rail, electricity, telephone etc.Such technology can create a strategic advantage for an individual firm at the beginning of its life cycle when it is expensive and riskyCarr writes, IT is now at the end of build out and is neither proprietary or expensive= A commodity which is available to anyone and won’t give any individual firm a competitive advantage Does IT Still Matter? Nicholas Carr Reached the end of its build out:Power of IT now outstrips the needs of businessIT prices have dropped = now affordableCapacity of Internet has caught up with demand (fibre surplus)Many vendors want to be seen as utilitiesInvestment bubble has burstWhen an infrastructure technology reaches the end of its buildout, it simply becomes a cost of doing businessAlthough IT is necessary for competitiveness, Competitive advantage comes from the firm’s business modelDoes IT Still Matter? Nicholas Carr .Management of IT should become “boring” focussing on:Manage the risksFocus on vulnerabilities (which are more common with open systems) rather than opportunitiesKeep costs downOverspending is the greatest risk, so only pay for use and limit upgradingDon’t update PCs when not neededDoes IT Still Matter? Nicholas Carr .Stay behind the technology leadersBut not too far behind!Delay investments until there are standards and best practices and prices dropOnly innovate when risks are lowWorking InwardHow IT still Matter?Working Inward: Business-to-EmployeeBuilding an IntranetThe primary e-business way to reach employees is via ‘Intranets’Remember: Intranets are private company networks that use Internet technologies and protocols, and possibly the Internet itselfWorking inwardBenefits of using intranets:Wider access to company informationMore efficient and less expensive systems development Decreased training (due to browser interface)By using an intranet’s open-system architecture, companies can significantly decrease the cost of providing companywide information and connectivityWorking Inward: Business-to-EmployeeBuilding an Intranet cont.Benefits cont.Because an intranet uses the browser interface (and internet ‘protocols’ /technology), users do not need extensive training on different productsCompanies only need to record information in one place, where it can be kept up-to-date for access by all employees no matter where in the world they are locatedWORKING INWARD: Business to EmployeeIntranet ApplicationsOrganizations can create a corporate portal to act as the gateway to the firm’s internal resources, information, and Internet servicesExamples: Microsoft, Dell etc.Develop separate departmental or divisional portals, such as sales, Human Resource, operations, and finance portals which are linked to form a corporate portalGeneral Electric POWER SYSTEMS Case example: Building an IntranetChairman surveyed sales force (2001)Found they were spending more time in the office searching for information than they were out with their customersGE Power Systems answered the challenge by building a Web-based sales portal for its sales-peopleMain data feeds from existing Oracle etc. systemsSales, parts, pricing, inventory, customers etc.Also had a news feed from outsideFlexible to include more types of information and access to more applicationsSingle point of entryWorking Inward: Business-to-EmployeeFostering a Sense of BelongingIntranets are evolving into very important enterprise structuresIn some enterprises, the intranet is seen as the enterpriseVideos of executives – vision and missionInternal forms, rules and processesNeed to file an expense report?Can provide the foundation for creating a sense of belonging by giving a means of communicating and creating communitiesCare of employees is one of the most important things enterprises do! Working OutwardWorking Outward: Business-to-CustomerIn most industries companies need sophisticated computer systems to competeFor example, in Airlines, hotels, rental car companies, a sophisticated reservation system is a mustSimilar ‘musts’ in other industriesIn wholesale business automated order entry and distributionIn Finance, ATMs., trading and settlementAs industry leaders increase the sophistication of their systems to improveQuality, service innovation and speedCompetitors must do the same or find themselves at a disadvantageWorking Outward: Business-to-CustomerThe Emergence of “Electronic Tenders”Initially IT has been embedded in products and services for its computational capabilitiese.g. in cars and elevators to make them operate more efficientlyThe Emergence of “Electronic Tenders”Now IT allows product/service to be “tended” i.e. cared for, attended to, or kept track of by another computere.g. vehicle diagnostics monitored by car dealerPackages / luggage etc. with bar codes = able to be trackedPotential uses are endless and we are just at the beginningOptions are endless but the goal is still to get closer to the customerWorking Outward: Business-to-CustomerGetting Closer to CustomersBusiness-to-consumer e-business is the most widely reported form of business.Nearly every type of product can now be purchased online: books, CDs, flowers etc.Success is not easily achieved:Amazon.com had its business viability questioned for a long timeAmazon.com– Working OutwardWORKING OUTWARD: Business to CustomerAdvantagesProblemsWORKING OUTWARD: Business to CustomerWorking Outward: Business-to-CustomerGetting Closer to Customers cont.Use of the Internet has grown more sophisticatedCustomer Relationship Management (CRM)Involves using IT to know more about customers (and non-customers?)Whether you visit their website, call them (home, office, mobile) or buy something – the firm is often keeping track and combining that information to create a profile of you.Working Outward: Business-to-CustomerGetting Closer to Customers cont.Successful selling over the Internet entails much more than just setting up a Web site and taking ordersIt involves organizing the entire value chain around the InternetKnow Your CustomersGetting Closer to CustomersThe E-Business ModelRedefining Customer Value“On-demand”: reduces the time it takes to respond to customer requestsConvenience: one stop shopping plus single point of contact. Online business allows gathering and managing customer information (to serve the customer)Access to a wide range of competitive prices and sellers for productsNote: as in the ‘real world’; the highest volume sellers do not always have the lowest price:Prices are offset by branding, awareness and customer trustWorking Outward: Business-to-CustomerGetting Closer to Customers cont.The Internet is not only used to sell to customers online. It is also used to provide services to companiesSometimes it is can be difficult to know which is more valuable – the product or the serviceThe current focus is on staying in closer contact with customers, understanding them better, and eventually, becoming customer driven by delivering personalized products and service Working AcrossWorking Across: Business-to-BusinessStreamlining processes that cross company boundaries is the next big management challengeCompanies have spent a lot of time and effort streamlining their internal processes, but their efficiencies often stop at their corporate wallsWorking AcrossWorking across business takes many forms including:Working with ‘co-suppliers’Working with customers in a close mutually dependent relationshipBuilding a virtual enterprise, in fact, one that might evolve into an e-marketplaceWorking Across: Business-to-BusinessBusinesses have long used IT to reduce costs and time of inter-organizational transactions, for example:Inter-organizational Systems (IOS)Reservation systemsSabre (American Airlines) Electronic funds transfer systemsOnline transaction from one bank to anotherElectronic Data Interchange Systems (EDI)Transmission, in standard syntax, of data for business transactions between computers of independent organizationsWorking Across: Business-to-BusinessCoordinating with Co-suppliersCollaborating with non-competitors is a type of working acrossExample – two food manufacturers might have the same customers (supermarkets and other retailers) but do not compete with each other Lack of convenient ways to share information quickly and easily has prevented co-suppliers from working togetherInternet solve this problemWorking Across: Business-to-BusinessEstablishing Close and Tight RelationshipsStrategic use of IT and the Internet has moved to the most difficult area = working across companiesHaving relationships with various players in one’s business ecosystemBanks, advertising agencies, suppliers, distributors, retailers, even competitorsSuch relationships often have accompanying linking information systemsWorking Across: Business-to-BusinessEstablishing Close and Tight Relationships cont.Need to determine what level of systems integration they want:Loose = provide ad hoc access to internal informationBusiness processes remain distinctSuch limited integration requires little risk or costLevels of System IntegrationClose = two parties exchange information in a formal mannerLeads to greater benefits, so there is greater force to make the relationship workRisks increase because confidentialities are sharedCosts are also higherTight = two parties share at least one business processMost risky – business critical and the most costly to integrateCritical question is, “Where does one organizational boundary begin and the other end”? WORKING OUTWARD: Business to BusinessWorking Across: Business-to-BusinessBecoming a Customer-Centric Value ChainA company’s value chain consists of:Upstream supply chainWorking with its suppliers of raw materials and partsDownstream demand chainWorking with its distributors and retailers to sell its products and services to end customersValue ChainTraditionally most companies make-to-stock.build products / create services and then “push” them to customersThis is called Supply-Push worldToday, we are seeing the rise of the reversea demand-pull world where a customer’s order triggers the creation of a customized product or service the customer has definedDELL COMPUTERCase Example: Demand - Pull Dell is the foremost example of the demand-pull business modelCustomers configure their PCs on Dell’s Website, and once an order is initiated, Dell’s suppliers can see the ordering information and production schedule on Dell’s extranetIn fact, their production systems grab this information automatically; as a result, Dell’s extranet has become a private exchangeDell is even working to give suppliers two tiers down access to customer order information, so they can react to changes even fasterDELL Computer PortalSummaryOver the years a few innovative companies have used IT for strategic advantageTheir exists ‘Models’ but many companies did not have the resources or skills to follow their exampleWith the growth of the Internet and development of e-business, IT has become a strategic tool in every industrySummaryOrganizational information and resources can be structured and shared using Intranet and Portals.Increasingly customer centric approach has been adopted in Working AcrossValue chains are looking to shift from supply-push to demand-pullAs IT continues to evolve, so do its strategic uses.