Strategic Uses of Information Technology

1. Strategic Uses of Information Technology Lecture 18

2. Summary of Previous Lecture • In the previous lecture we have learnt about, • Information System Job Concepts • Old role versus new role • IT head responsibilities • Information System management Framework • Terminologies • Escalating benefits of IT • Waves of innovation • SABRE system international, a case study • Traditions functions of IS

3. Summary of Previous Lecture • IS LITE, a new concept • CIO responsibilities • CIO roles • Leading • Governing • Investing • Managing • CIO Office

4. Today’s Lecture • Strategic uses of IT, Historical overview • Whither the internet revolution? • Cheap Revolution • Profitability of IT revolution • GRAINGER Case Study • Definitions review • E-Business Drivers • Does IT Still Matter? Nicholas Carr

5. Today’s Lecture • How IT still matters • Working inward • Working outward • Working Across • Working Inward • B2E, Intranet • Intranet Applications • General Electric Case Study

6. Today’s Lecture • Fostering a sense of belonging • Working Outward • B2C • Electronic Tenders • Getting closer to customers • Amazon.com web example • Problems and Advantages of Working outward • The E-Business Model

7. Today’s Lecture • Working Across • B2B model • Coordinating with co-suppliers • Levels of system integration • What is a Value chain? • DELL Computer case Example • Summary

8. Introduction • Use of the Internet by businesses in mid/late ’90s set off a revolution in the use of IT • Utilizing the Internet to conduct business became the strategic use of IT • Strategic = having a significant, long-term impact on a firm’s growth, industry and $$

9. IntroductionStrategic Uses of IT -- Short History • 1st edition • Mid 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.

10. IntroductionStrategic Uses of IT -- Short History • 2nd edition • Late ’80s strategic use focused outward to gain competitive advantage • PC has became a common among organizations. • Organizations worked to improve their customer relationship using a computer.

11. IntroductionStrategic Uses of IT -- Short History • 3rd & 4th editions (1990s) • Strategic use attention turned inward to reengineering business processes • Intent = not to automate existing processes but to totally redesign how the enterprise operated • Good idea but many failed as they were not working plans. • Enterprise Resource Planning (ERP) systems were introduced.

12. IntroductionStrategic Uses of IT -- Short History • 3rd & 4th editions (1990s) cont. • Internet’s potential becoming obvious • Dot-coms = looked at its outward use to gain a competitive advantage • Most established firms initially used the Internet technology internally, building intranets to improve company processes • Publishing e-forms • Accompanying workflow processes

13. IntroductionStrategic Uses of IT -- Short History • 5th edition (late ’90s) • Use of the Internet for business underway • Organizations invested too much in WEB based stock market, which later crashed, this resulted Bursting of the dot com bubble • E-Business has become more reality based • Integration of the Internet with the working of companies started.

14. IntroductionStrategic Uses of IT -- Short History • 6th edition (early ’00s) • Theme = leveraging traditional operations by using the Internet to work more closely with others • Innovations of the dot-coms created competitive challenges for ‘bricks and mortar’ firms • A type of business model that includes both online and offline operations, which typically include a website and a physical store are bricks and mortar.

15. IntroductionStrategic Uses of IT -- Short History • 7th edition (2005) • IT has become absolutely necessary for competitive parity. • Being used strategically: • Inward • Outward • Across

16. Strategic uses of Information Systems Figure 3-1 Strategic Uses of Information Systems

17. IntroductionWhither the Internet Revolution? • Internet frenzy peaked in 2000 • By the burst of dot com bubble we can not say that information revolution is dead. • Not if history is any guide • British Railway Revolution – mid 1800s • 10 fold increase after the boom • During boom = great excitement and small companies flourished • After = glamour gone. Business became serious and full of hard work • Industry became orderly and profits began to reflect real returns • Connecting industries • Race for space followed by the ‘real deal’

18. IntroductionWhither the Internet Revolution? cont. • We are now in a period where organizations are re-architecting themselves around Internet technologies • Tearing down old structures as they go • Real gains will come when Internet technology adapts to organizations and people • When the technology disappears and becomes part of life.

19. IntroductionThe Cheap Revolution • CIOs are shifting from buying expensive proprietary products to buying cheap generic products • “Cheap Tech” • Cost savings are compelling • Google = runs on 100,000 cheap servers • One breaks = discards • Avoids 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 countries • Film production – camcorders etc. • Software – Linux Vs. Microsoft • Telecommunications – Voice-over-IP…

20. IntroductionEpisode Two: Profitability Strikes Back • Dot-coms became dot-bombs because they couldn’t generate profits • Episode One: The Dot-Com Menace • Episode Two: Profitability Strikes Back • Whilst 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 manner • Use the Internet to complement your strategy, not replace your past way of serving customers nor disintermediate your channels

21. GRAINGERCase example: Using the Internet to complement your strategy • Distributes non-production products to companies through stocking locations all over the U.S. • Customers who purchase on their website also purchase through traditional channels • Physical sites make its online presence more valuable • Customers who want fast delivery • Ordering is less expensive and shipping is cheaper in bulk to stocking locations Vs. individual small shipments • Continue publishing its paper catalogs • It receives a surge of online orders every time it issues its paper catalog

22. GRAINGER: Web Portal

23. Definitions - Review • ‘e’ = electronic • e-business • Conducting business using telecommunications networks esp. Internet • Involves more than buying and selling • e-commerce • Conducting commerce (buying and selling) electronically using the Internet • Note: IT definitions ‘evolve’

24. E-Business Drivers • Key Components that have accelerated the rapid growth and acceptance of e-business: • Wide access to a public network • Standard communication protocol • Standard user interface

25. E-Business drivers • E-business applications run over the Internet, drastically reducing access and communications costs • With standardized communication protocols and user interfaces, implementation and training costs are far lower • As a result, a much broader set of users and firms has access to the systems, allowing rapid growth

26. Does IT Still Matter? • “IT Doesn’t Matter” – article by Nicholas Carr in Harvard Business Review May 2003 • Controversial topic and now available in book form. • Bottom line = IT doesn’t matter anymore, at least not strategically

27. Nicholas Carr – Harvard Business Review • IT 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 risky • Carr 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

28. Does IT Still Matter? Nicholas Carr • Reached the end of its build out: • Power of IT now outstrips the needs of business • IT prices have dropped = now affordable • Capacity of Internet has caught up with demand (fibre surplus) • Many vendors want to be seen as utilities • Investment bubble has burst • When an infrastructure technology reaches the end of its buildout, it simply becomes a cost of doing business • Although IT is necessary for competitiveness, Competitive advantage comes from the firm’s business model

29. Does IT Still Matter? Nicholas Carr . • Management of IT should become “boring” focussing on: • Manage the risks • Focus on vulnerabilities (which are more common with open systems) rather than opportunities • Keep costs down • Overspending is the greatest risk, so only pay for use and limit upgrading • Don’t update PCs when not needed

30. Does IT Still Matter? Nicholas Carr . • Stay behind the technology leaders • But not too far behind! • Delay investments until there are standards and best practices and prices drop • Only innovate when risks are low

31. Working Inward How IT still Matter?

32. Working Inward: Business-to-EmployeeBuilding an Intranet • The 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 itself

33. Working inward • Benefits of using intranets: • Wider access to company information • More 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 connectivity

34. Working 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 products • Companies 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 located

35. WORKING INWARD: Business to Employee

36. Intranet Applications • Organizations can create a corporate portal to act as the gateway to the firm’s internal resources, information, and Internet services Examples: 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 portal

37. General Electric POWER SYSTEMSCase example: Building an Intranet • Chairman surveyed sales force (2001) • Found they were spending more time in the office searching for information than they were out with their customers • GE Power Systems answered the challenge by building a Web-based sales portal for its sales-people • Main data feeds from existing Oracle etc. systems • Sales, parts, pricing, inventory, customers etc. • Also had a news feed from outside • Flexible to include more types of information and access to more applications • Single point of entry

38. Working Inward: Business-to-EmployeeFostering a Sense of Belonging • Intranets are evolving into very important enterprise structures • In some enterprises, the intranet is seen as the enterprise • Videos of executives – vision and mission • Internal forms, rules and processes • Need to file an expense report? • Can provide the foundation for creating a sense of belonging by giving a means of communicating and creating communities • Care of employees is one of the most important things enterprises do!

39. Working Outward

40. Working Outward: Business-to-Customer • In most industries companies need sophisticated computer systems to compete • For example, in Airlines, hotels, rental car companies, a sophisticated reservation system is a must • Similar ‘musts’ in other industries • In wholesale business automated order entry and distribution • In Finance, ATMs., trading and settlement… • As industry leaders increase the sophistication of their systems to improve • Quality, service innovation and speed • Competitors must do the same or find themselves at a disadvantage

41. Working Outward: Business-to-CustomerThe Emergence of “Electronic Tenders” • Initially IT has been embedded in products and services for its computational capabilities • e.g. in cars and elevators to make them operate more efficiently

42. The Emergence of “Electronic Tenders” • Now IT allows product/service to be “tended” i.e. cared for, attended to, or kept track of by another computer • e.g. vehicle diagnostics monitored by car dealer • Packages / luggage etc. with bar codes = able to be tracked • Potential uses are endless and we are just at the beginning • Options are endless but the goal is still to get closer to the customer

43. Working Outward: Business-to-CustomerGetting Closer to Customers • Business-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 time

44. Amazon.com– Working Outward

45. WORKING OUTWARD: Business to Customer Advantages

46. WORKING OUTWARD: Business to Customer Problems

47. Working Outward: Business-to-CustomerGetting Closer to Customers cont. • Use of the Internet has grown more sophisticated • Customer 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.

48. Know Your Customers 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 orders • It involves organizing the entire value chain around the Internet

49. Getting Closer to Customers • The E-Business Model • Redefining Customer Value • “On-demand”: reduces the time it takes to respond to customer requests • Convenience: 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 products • Note: as in the ‘real world’; the highest volume sellers do not always have the lowest price: • Prices are offset by branding, awareness and customer trust

50. Working 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 companies • Sometimes it is can be difficult to know which is more valuable – the product or the service • The current focus is on staying in closer contact with customers, understanding them better, and eventually, becoming customer driven by delivering personalized products and service