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INFORMATION TECHNOLOGY

INFORMATION TECHNOLOGY. AS A WEAPON FOR COMPETITIVE ADVANTAGE. IT’s Influence Within An Organization. IT effects revenues and profits in terms of: Helps market segmentation Helpful in increasing market share Allows fast design of new products Better Management Control

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INFORMATION TECHNOLOGY

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  1. INFORMATION TECHNOLOGY AS A WEAPON FOR COMPETITIVE ADVANTAGE

  2. IT’s Influence Within An Organization • IT effects revenues and profits in terms of: • Helps market segmentation • Helpful in increasing market share • Allows fast design of new products • Better Management Control • Better Asset & Liability Management OR Don’t forget IT is also expensive

  3. Information Technology as Competitive Advantage Concept Emerged in 1980. Slowly been accepted as valid. Research has shown that very few companies are able to generate a competitive advantage through information technology Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive advantage” in Managing IT as a Strategic Resource, Willcocks, Leslie, Feeny, David (eds). McGraw-Hill Education-Europe, 1997, pp. 43-61

  4. Studies Involving IT as CA How a number of companies successfully deployed their IT weapon for strategic advantage • Ex. Eric K. Clemons , Michael Row, “McKesson Drug Company: a case study of Economist—a strategic information system”, Journal of Management Information Systems, v.5 n.1, p.36-50, July 1988 Which are the frameworks that can help managers identify applications that can bring competitive advantage to their own business and the use of such frameworks within the organization • Ex. Ives, Blake, Learmonth, Gordon, "The Information System as a Competitive Weapon," Communications of the ACM, Vol. 27, No. 12, December 1984, pp. 1193-1201

  5. Prime question of using IT as CA Can pioneers achieve rewards substantial enough to justify the costs and risks of being prime mover? Subsequent entrants come at much lower costs. This is why you must create switching costs. Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive advantage” in Managing IT as a Strategic Resource, Willcocks, Leslie, Feeny, David (eds). McGraw-Hill Education-Europe, 1997, pp. 43-61

  6. Information Technology as CA • Study of Thirty Major Companies • Including GE, Xerox, FedEx, P&G • 15 firms were able to sustain a competitive advantage in terms of market share or profitability • Only 6 were able to sustain both • Companies are more likely to fail Kettinger, William, “Strategic Information Systems Revisited: A study in Sustainability and Performance”, MIS Quarterly, vol.18 n.1, pg 31-58, 1994

  7. Examples of Firms That Successfully Used IT • American Airlines: SABRE System • Baxter: Hospital Supply Systems • Mitek: Roofing System • UK Telecom: Detailed Customer Billing • Fed Ex: Real Time Package Tracking

  8. Aligning IT With Business Strategy

  9. The Framework From Feeny And Ives “IT as a Basis for Sustainable C.A.” Sustainable advantage Third Pillar How effective will response Be? First Pillar How long until Response? Second Pillar Who can Respond? Project Life Cycle Analysis Competitor Analysis Supply Chain Analysis

  10. Pioneer Followers First Pillar Project Life Cycle Vision/idea • Awakening • Awareness • Perceive • significance • Accept/assign • responsibility Win approval • Built • Technology • Application • Database • Knowledge base Discovery Win approval Project launch • Build • Technology • Applications • Database • Knowledge base • Enhance • Vision/idea • Win approval • Build • etc. Project launch Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive advantage” in Managing IT as a Strategic Resource, Willcocks, Leslie, Feeny, David (eds). McGraw-Hill Education-Europe, 1997, pp. 43-61

  11. First PillarProject Development Life Cycle Can also be viewed as a sustainability analysis • For sustainability, an expensive hard to duplicate system can provide uneven playing field for years of profitability and market growth. Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive advantage” in Managing IT as a Strategic Resource, Willcocks, Leslie, Feeny, David (eds). McGraw-Hill Education-Europe, 1997, pp. 43-61

  12. First PillarProject Life Cycle • Deals with the concept of lead time (Time from launch until substantive response). • Anytime you use IT to generate CA, you can expect a response. Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive advantage” in Managing IT as a Strategic Resource, Willcocks, Leslie, Feeny, David (eds). McGraw-Hill Education-Europe, 1997, pp. 43-61

  13. First PillarProject Life Cycle • Four variables of lead time: • Awakening • Larger the CA, quicker the awakening • Win Approval • Followers easier to win approval • Project Build • Does not require vision of prime mover • Project launch Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive advantage” in Managing IT as a Strategic Resource, Willcocks, Leslie, Feeny, David (eds). McGraw-Hill Education-Europe, 1997, pp. 43-61

  14. Second Pillar: Competitor Analysis Who Can Respond? • Generic lead-time can be made up easily. May even leap frog original system. • Therefore a new application that leverages dissimilarities between the prime mover and followers makes it more difficult to mount a response. Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive advantage” in Managing IT as a Strategic Resource, Willcocks, Leslie, Feeny, David (eds). McGraw-Hill Education-Europe, 1997, pp. 43-61

  15. Three Major Areas of Second Pillar • Competitive Scope Geographical scope The geographical area that a firm chooses to compete in or locate particular types of work. Segment Scope The breadth of products sold and the buyers served Vertical scope The extend to which the firm has elected to pursue backwards or forward integration strategies Industry scope The range of related industries in which the firm competes with a coordinated strategy. Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive advantage” in Managing IT as a Strategic Resource, Willcocks, Leslie, Feeny, David (eds). McGraw-Hill Education-Europe, 1997, pp. 43-61

  16. Three Major Areas Of Second Pillar 2. Organizational Base • Structure • Culture • Physical Assets Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive advantage” in Managing IT as a Strategic Resource, Willcocks, Leslie, Feeny, David (eds). McGraw-Hill Education-Europe, 1997, pp. 43-61

  17. 3. Information Resources Technological infrastructure Application inventory Databases Knowledge bases Three Major areas of Second Pillar Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive advantage” in Managing IT as a Strategic Resource, Willcocks, Leslie, Feeny, David (eds). McGraw-Hill Education-Europe, 1997, pp. 43-61

  18. Third Pillar: Supply Chain AnalysisWill A Response Be Effective? 1.)Find exploitable link- Find point in chain where resources are finite and a limited number of participants control the link. 2.)Capture Pole Position- Create unique relationships • Seek out applications which create unique relationships with that group • In return for benefits, user will put mover in position of preferred partner • Movers continued position is secured against any equivalent offering only superior will justify switching costs. Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive advantage” in Managing IT as a Strategic Resource, Willcocks, Leslie, Feeny, David (eds). McGraw-Hill Education-Europe, 1997, pp. 43-61

  19. Third Pillar: Supply Chain Analysis 3. Keep the gate Closed- Users perceive a significant tangible/intangible cost of switching systems. This is the base for maintaining an advantage • Applications- people have to learn interface • Database- switching can cause loss of all data gathered and learning of new system • Community- A community may form that leads IT to be a part of infrastructure, switching loses this advantage Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive advantage” in Managing IT as a Strategic Resource, Willcocks, Leslie, Feeny, David (eds). McGraw-Hill Education-Europe, 1997, pp. 43-61

  20. Case Studies 1. Celera Genomics Group Presented by: Matt Brickel 2. Dell Computer Corporation Presented by: Kevin Shipley

  21. Celera Genomics Group Achievement of Sustainable Competitive Advantage Through the Use of IT?

  22. Why Choose Celera Genomics AS A Case Study? • In 1998 the principles of the Applera Corporation decided to sequence the Human Genome. • At that time the Scientific Community thought it would take 3,000 scientists 15 to 20 years. • Celera Genomics did it in 2 years using IT. www.pbs.org/wgbh/nova/genome/deco_venter.html Viewed September 11, 2002

  23. Company Background • Established in May 1998 by the PE Corporation and J. Craig Venter, Ph.D • Formed to generate and commercialize genomic information. • Celera Genomics Group is an operating company of the Applera Corporation, F.K.A. the PE Corp. Dr. Craig Venter Ph.D www.celera.com/company/home.cfm?ppage=overview&cpage=background Viewed October 12, 1992

  24. Size of CeleraIn Terms of Sales and Profits • Celera Genomics Group: • Net Revenue 2001: $ 89,385,000 • Loss Before Taxes 2001: $232,662,000 • Net Loss: $186,229,000 • Source: Applera Corporation Annual Report 2001 http://media.corporate-ir.net/media_files/NYS/CRA/reports/2001report.pdf Viewed September23, 2002

  25. Major Products Sold by Celera • Celera Discovery System (CDS) CDS is a subscription based web enabled system that allows users access to Celera databases and applications • Moving Into Therapeutics Celera plans to begin developing and marketing novel therapeutic drugs identified through its genomic research. www.findarticles.com/cf_bzwr/m0EIN/2000_April_6/61343200/print.jhtml Viewed October 12, 2002

  26. Major Characteristics of Celera Customers • 250 International Academic and Commercial Customers Now Use Celera’s Celera Discovery System • Some Notable Customers: • Pfizer • Yamanouchi Pharmaceuticals • National Cancer Institute • Harvard University • University of California System www.celera.com/genomics/home.cfm?ppage=overview&cpage=customers Viewed September23, 2002

  27. Who Does the CIO Report To? Tony White Chairman, President and CEO of Applera Corporation Tama Oliver CIO of Applera Corporation John Reynders, Ph.D Vice President, Information Systems, Celera Corp. Jamie Lacey, Celera Genomics Corporate Communications, interviewed via e-mail by Matt Brickel, September 24, 2002.

  28. Celera Executive Management Kathy Ordoñez President, Celera Genomics Mark Adams, Ph.D. Vice President, Genome Programs Werten Bellamy, Jr., J.D. Group Counsel David Block, M.D. Executive Vice President, Celera and Chief Operating Officer, Celera Therapeutics Robert Booth, Ph.D. Senior Vice President, Research & Development Samuel Broder, M.D.   Chief Medical Officer Ugo DeBlasi, CPA Vice President, Finance Jason Mollé Senior Vice President, General Manager, Online Business Gene Myers, Ph.D. Vice President, Informatics Research Scott Patterson, Ph.D. Vice President, Proteomics John Reynders, Ph.D. Vice President, Information Systems Bridgette Robinson, A.B.D. Vice President, Human Resources Michael Venuti, Ph.D. Senior Vice President, Research and General Manager http://media.corporate-ir.net/media_files/NYS/CRA/reports/2001report.pdf Viewed September23, 2002

  29. How Many IT Personnel? The most recent count shows that 50 people are employed in an IT capacity at Celera. Jamie Lacey, Celera Genomics Corporate Communications, interviewed via e-mail by Matt Brickel, September 24, 2002.

  30. What is Celera’s Annual IT Budget? • Celera does not disclose information pertaining to IT budget. • In 2001 Celera Spent $164,693,000 on research and development. http://media.corporate-ir.net/media_files/NYS/CRA/reports/2001report.pdf Viewed September23, 2002

  31. Description of the Critical Differentiator Celera’s process uses robots that conduct polymerase chain reaction PCR processes to magnify and read DNA chains. http://allserv.rug.ac.be/~avierstr/principles/pcrani.html • 300 robots @ $300,000 each = $90,000,000 • Each rung on the DNA chain contains 2 out of 4 possible letters; A, G, C or T • Human Genome is 3 billion letters www.pbs.org/wgbh/nova/genome/deco_venter.html Viewed September 11, 2002

  32. Description of the Critical Differentiator • Celera’s computer’s hard drive has 100 terabytes of data • 1 terabyte = 1,000 gigabytes • 1 gigabyte = 1,000 megabytes • Perspective, my new Dell computer has a 40 gigabyte hard drive X 2,500 = Celera Hard Drive Capacity www.pbs.org/wgbh/nova/genome/deco_venter.html Viewed September 11, 2002

  33. Description of the Critical Differentiator • Celera uses a network of computers to process the data from the hard drive • Each computer has 4 alpha chips in it • 20,000 CPU hours to decode the Human Genome • One CPU hour = Use of 1 Alpha Chip for 1 Hour • Celera decoded Human Genome in one shift! www.pbs.org/wgbh/nova/genome/deco_venter.html Viewed September 11, 2002

  34. Celera Discovery System Overview “The Celera Discovery System is an integrated, easy to use, web-based discovery platform that combines the most comprehensive set of genomic and biological data along with powerful visualization and analysis tools. It allows researchers to search, analyze, interpret and manage their genomic information in one place thus saving valuable time, reducing costs and accelerating their research.” www.celera.com/genomics/academic/home.cfm?ppage=cds&cpage=default Viewed October 12, 2002

  35. History of the system: • In 1998 the principals of Applera Corporation decided to sequence the human genome. • The thinking at the time, by people outside of Applera Corp., was that it would take 3,000 scientists 15 to 20 years to sequence the human genome. • The people at Applera thought that it could be done by 2002 using information technology. • They formed Celera Genomics group to begin the process. • They had an idea that they could use Robots to automatically conduct PCR processes but they had to build them first. • Applied Biosystems, Celera’s sister company, built the robots from scratch. www.pbs.org/wgbh/nova/genome/deco_venter.html Viewed September 11, 2002

  36. History of the system: • The building of these robots was the impetus for the genome race. • Once the robots were built to perform and read the information derived from the PCR processes, Celera had to find computers to store the data and then process it (sequence the Genome). • Once the system was assembled Celera started out by sequencing the genome of simple organisms that had already been sequenced so that they could verify that it worked. • They then sequenced the mouse genome, and then they sequenced the human genome in 2000. • Shortly thereafter the Celera Discovery System was launched and in 2001 the current advanced version was launched. www.pbs.org/wgbh/nova/genome/deco_venter.html Viewed September 11, 2002

  37. Was the System Designed for Competitive Advantage Or Was It a Surprise? The people at Celera had the idea that they could sequence the human genome faster than was thought possible at the time. Nobody new for certain that it was going to work. Dr. Craig Venter was quoted as saying: “I am not afraid to take risks. I mean I said at the beginning that either this would be one of the most spectacular success stories in history or the biggest flame-out in history. There was clearly a risk element to this. In fact, when I look at all the things that could have failed and could have gone wrong, its stunning perhaps that it did work as well as it did.” www.pbs.org/wgbh/nova/genome/deco_venter.html Viewed September 11, 2002

  38. Was the System Designed for Competitive Advantage Or Was It a Surprise? Essentially Celera is not worried about others replicating what they have done because there is really no need to do so. Celera willingly shares the information that they have for a subscription fee. In the case of Pharmaceutical companies the fee is negotiated and is in the millions of dollars. For academic researchers there is a pricing schedule: www.pbs.org/wgbh/nova/genome/deco_venter.html Viewed September 11, 2002

  39. Was the System Designed for Competitive Advantage Or Was It a Surprise? CDS pricing schedule: www.celera.com/genomics/academic/home.cfm?ppage=pricelist&cpage=default, Viewed Oct. 12, 2002

  40. How Do Customers Interact With the System? The Celera Discovery System (CDS) is a web based tool that is accessed through www.celera.com. They can use the information available there to conduct their own research which can be saved on the customers computers behind their own firewall.

  41. Does Celera’s Use of IT Give Them a Sustainable Competitive Advantage? • Pillar 1: Project Life Cycle analysis: How long until a response? • Awakening • Approval • Building the System • Project Launch • The time it would take the government to respond would likely be substantial and its effectiveness uncertain. Celera’s competitive advantage is supported by the first pillar.

  42. Does Celera’s Use of IT Give Them a Sustainable Competitive Advantage? • Pillar 2: Competitor Analysis: Who can respond? • Competitive Scope • Organizational Base • Information Resources • As stated previously the most likely competitive response would come from the US Government. The government does not have the competitive scope that Celera has. They do not have the necessary organizational base. They do not have the necessary information resources assembled. Celera’s competitive advantage is supported by the second pillar.

  43. Does Celera’s Use of IT Give Them a Sustainable Competitive Advantage? • Pillar 3: Supply Chain Analysis: Will Copying Help? • Supply Chain Analysis: Will Copying Help? • Find Exploitable Link • Capture Pole Position • Keep the Gate Closed • Even if the government copies what Celera has done it is unlikely that Celera’s customer base will switch.

  44. Overall Conclusion Celera’s systems provide a sustainable competitive advantage that is supported by the three pillar model.

  45. Dell Computer CorporationEnabling business processes through information technology?

  46. Company Background • Founded in 1984 by Michael Dell • Started selling computers out of his dorm room • Started by building computers with components made by other companies to meet customers needs. • This became the basis for Dell’s direct-model • Today, Dell is valued at over 26 billion dollars

  47. Size of DellIn terms of Sales and Profits Dell Computer Company: Net Revenue February 2002 $31,168 2001 $31,888 2000 $25,265 Net Income February 2002 $1,246 2001 $1,777 2000 $1,666 Dell Annual Report February 2002

  48. Major Products Sold by Dell Enterprise Systems servers and storage Network switches and workstations Notebook and Desktop computers Peripheral Products Various services and technical support

  49. Major Characteristics of Dell’s Customers The companies customer’s range from large corporations, government agencies, healthcare institutions, small businesses, and individual consumers No customer represents more than 10% of business Range from relational to transactional • More than $3 million a day in internet sales • Most sales to business or government(>70%) • Shell, Exxon, MCI, Ford, Toyota, Boeing • Greater than 30% of sales from foreign customers www.mhhe.com/business/management/thompson/11e/case/dell5.html

  50. Dell’s Chief Information Officer • Randy Mott, former CIO of Wal-Mart • Reports To Michael Dell • Oversees more than 20 strategic and over 100 other major projects at any given time • Consults with executive team and oversees eight direct subordinates • Constantly meets with customers to understand customer and sales force needs • Challenge is to make sure department uses the right systems to support Dell’s model. Worthen, Ben.: “Travelin’ Man.” CIO Magazine. Mar1, 2002

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