Strategic Uses of Information Technology

1. Strategic Uses of Information Technology Chapter 3 Information Systems Management In Practice 7E McNurlin & Sprague PowerPoints prepared by Michael Matthew Visiting Lecturer, GACC, Macquarie University – Sydney Australia

2. Chapter 3 • Use of the Internet by businesses set off a revolution in the use of IT, so that utilizing the Internet to conduct business became the strategic use of information technology. • The questions that remain are: • Has the revolution ended, or • Does an even larger revolution loom? • Does IT still matter?, and • What sorts of strategic uses are companies making?

3. Chapter 3 cont. • Strategic roles of IT fall into one of three categories: • “working inward” (improving a firm’s internal processes and structure) • “working outward” (improving the firm’s products and relationships with customers) and • “working across” (improving its processes and relationships with its business partners) • Grainger, GE Power Systems, Wire Nova Scotia, The Shipping Industry, Cisco Systems and UPS Supply Chain Solutions, Semco, S. A., A Day in the Life of an E-lancer, General Mills and Land O’ Lakes, Sara Lee Bakery Group, and Dell Computer serve as examples of how companies are using information systems in strategic roles

4. Today’s Lecture • Introduction • History of Strategic Uses of IT • Whither the Internet Revolution? • The Cheap Revolution • Episode Two: Profitability Strikes Back • Does IT Still Matter? • Working Inward: Business-to-Employee • Building an Intranet • Fostering a Sense of Belonging

5. Today’s Lecture cont. • Working Outward: Business-to-Consumer • Jumping to a New Experience Curve • The Emergence of Electronic Tenders • Getting Closer to Customers • Being an Online Customer • Working Across: Business-to-Business • Coordinating with Co-suppliers • Establishing Close and Tight Relationships • Becoming a Customer-Centric Value Chain • Getting Back-End Systems into Shape

6. 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 $$ • What now? • Dot-com crash • A larger revolution to come? • Does IT still matter? • What strategic uses are companies making of IT (esp. the Internet)

7. Introduction Figure 3-1 Strategic Uses of Information Systems

8. IntroductionLast 20 Years – Strategic Uses of IT • 1st edition • Mid 1980s, hot topic = end user computing (working inward) • Help employees learn about PCs • 2nd edition • Late ’80s strategic use focused outward to gain competitive advantage • e.g. Merrill Lynch cash management account • Now considered ‘normal’ = competitive necessity Vs. competitive advantage

9. IntroductionLast 20 Years – Strategic Uses of IT cont. • 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 ‘lay-off’ plans • Introduction of ERP systems was also aimed at internal operations, specifically providing single sources of data enterprise-wide

10. IntroductionLast 20 Years – Strategic Uses of IT cont. • 3rd & 4th editions (1990s) cont. • Internet’s potential becoming evident • 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

11. IntroductionLast 20 Years – Strategic Uses of IT cont. • 5th edition (late ’90s) • Use of the Internet for business underway • Bursting of the dot com bubble • E-Business has become more reality based • Integration of the Internet into how companies work has proceeded • 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 • Their ‘strike back’ is essentially the theme for this 6th edition

12. IntroductionLast 20 Years – Strategic Uses of IT cont. • 7th edition (2005) • “Something has changed” • Especially with regards to the use of IT for competitive advantage • Some may question IT’s ability to give companies a competitive edge but it is absolutely necessary for competitive parity (necessity?) • Being used strategically: • Inward • Outward • Across

13. IntroductionWhither the Internet Revolution? • Internet frenzy peaked in 2000 • Is the Information Revolution 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’

14. 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 • It will be ‘quiet’ compared to frenzy of ’99/00 but many think it will be a giant revolution

15. 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 occurring elsewhere: • Labor – outsourcing to other countries • Film production – camcorders etc. • Software – Linux Vs. Microsoft • Telecommunications – Voice-over-IP…

16. IntroductionEpisode Two: Profitability Strikes Back • Dot-coms became dot-bombs (dot-cons?) 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 • Michael Porter, Harvard Business School

17. 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

18. IntroductionDefinitions • ‘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’

19. 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 • E-business applications run over the Internet, drastically reducing access and communications costs • Pre Internet – 95% of Fortune 500 used EDI Vs. 2% of all U.S. companies • 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

20. Does IT Still Matter? • “IT Doesn’t Matter” – article by Nicholas Carr in Harvard Business Review May 2003 • Controversial and now a book • Bottom line = IT doesn’t matter anymore, at least not strategically • 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 = IT is now at the end of buildout and is neither proprietary or expensive • = A commodity which is available to anyone and won’t give any individual firm a competitive advantage

21. Does IT Still Matter? cont. • Reached the end of its buildout: • 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

22. Does IT Still Matter? cont. • 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 • Greatest risk = overspending, so only pay for use and limit upgrading • Don’t update PCs when not needed • 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

23. Does IT Still Matter? cont. • This ‘negative’ view deals with individual firms = losing competitive advantage • Infrastructure technology brings its greatest economic and social benefits to all once it has become a shared infrastructure • = what IT is becoming • The debate is on • Many other views • Is he right? Regardless = has prompted some important discussions in Board Rooms etc. because executives need to understand the underpinnings of IT to know how to guide it • IT is one of their strategic resources, besides people and $ for working inward, outward and across

24. Working Inward: Business-to-EmployeeBuilding an Intranet • The primary e-business way to reach employees is via ‘Intranets’ • Intranets are private company networks that use Internet technologies and protocols, and possibly the Internet itself • 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

25. Working Inward: Business-to-EmployeeBuilding an Intranet cont. • Benefits cont. • Investments in a intranet (open) = significantly less $$ than a proprietary network • The link to the Internet allows companies to expand intranets worldwide easily and cheaply • Significant Benefit = unthinkable before the Internet! • Because an intranet uses the browser interface (and internet ‘protocols’ /technology) = users do not need extensive training on different products • To a certain extent = applies to ‘all’ products today • 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

26. WORKING INWARD: Business to Employee

27. Working Inward: Business-to-EmployeeBuilding an Intranet • Due to the ease with which Web sites can be created, many employees have (did?) build their own, leading to a proliferation of sites with company information • Deciding how much control of the systems should be decentralized • Proposed solutions • Create a corporate portal to act as the gateway to the firm’s internal resources, information, and Internet services • Microsoft, KPMG, Dell etc. • Develop separate departmental or divisional portals, such as sales, HR, operations, and finance portals which are linked to form a corporate portal

28. GE 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

29. 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 also be seen as ‘cold’ • Can provide the foundation for creating a sense of belonging by giving a means of communicating and creating communities • Care of employees = one of the most important things enterprises do!

30. WIRE NOVA SCOTIA Case example: Fostering a Sense of Belonging • Use of Internet to help an impoverished province of Canada • Traditional industries ‘gone’ • The Challenge • The Solution • Wire Nova Scotia (WiNS) • Co-ordinate 67 community access sites • Building an Online Community • General Conferences • Personal Conferences • Regional Conferences • Coordinator Conferences

31. Working Outward: Business-to-Customer • In most industries companies need sophisticated computer systems to compete • Airlines, hotels, rental car companies = a sophisticated reservation system (theirs or someone else’s) is a must • Similar ‘musts’ in other industries • Wholesale = automated order entry and distribution • 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

32. Working Outward: Business-to-CustomerJumping to a New Experience Curve • Using IT (or any technology) as the basis for a product or service can, in some cases, be viewed as moving up a series of experience curves • More experience leads to a set of connected curves Vs. one continuous learning curve • Each curve represents a new technology or combination thereof in a product or service as well as in its manufacture and/or support • Moving to a new curve requires substantial investment in a new technology

33. THE SHIPPING INDUSTRYCase Example: Jumping to a New Experience Curve

34. CISCO SYSTEMS and UPSCase Example: Jumping to a New Experience Curve • In the late 1990s Cisco committed itself to manufacturing products within 2 weeks of order • BUT = could not guarantee delivery • Turned over its European supply chain to UPS Supply Chain Solutions (UPS SCS) • Uses UPS system to find the best shipper to move the package from the Netherlands centre to the customer • The systems of the two companies have become increasingly linked • Each movement of product is recorded in both systems • Handles over 1m boxes a year • Because UPS can ensure reliable transit times, Cisco is able to now promise delivery times for its European customers

35. 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 • Now = 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

36. Working Outward: Business-to-CustomerGetting Closer to Customers • Business-to-consumer e-business is the most widely reported form of e-business. • Nearly every type of product can now be purchased online: books, CDs, flowers etc. • Many success stories – Dell, Cheap Tickets, ETrade …. • Success is not easily achieved: • Amazon.com had its business viability questioned for a long time • Levi Strauss, despite encouraging figures, quit selling jeans over the Internet “…complex proposition and management had better uses for company funds” • Advantages are numerous and seem obvious (Figure 3-4) • Potential problems are also numerous but not so obvious (Figure 3-5)

37. WORKING OUTWARD: Business to Customer

38. WORKING OUTWARD: Business to Customer

39. 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 • Followed on from ERP • ERP focussed on internal data • CRM focuses on customer data • Boon or bane = depends on how intrusive you think they are • Great useful information Vs. • Invasion of privacy • Privacy – protection laws in many countries

40. 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 • 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

41. 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

42. SEMCOCase Example – Using the Internet to get Closer to Customers • Brazilian heavy equipment manufacturer with an ‘interesting’ management attitude/structure • Letting employees ‘self manage’ and following their ideas with $ • First = moved into services and more recently into the marketspace of e-business services over the Internet • Now = even teaming with a virtual trade show company to host virtual trade fairs for companies too small to have one on their own • All of this change has occurred by following the employees • When they have a good idea = Semco management is likely to provide the funding to test it out • Unusual company, however its forays into using the Internet to expand its business provide lessons for others

43. Working Outward: Business-to-CustomerBeing an Online Customer • Companies large and small are transacting business via the Internet • Some (still?) use it as their main means of business, even after the dot-com crash

44. TerenceNetCase Example – A Day in the Life of an E-Lancer • E-business consulting, development, and research firm for small/medium businesses • Much of its work is procured from www.elance.com • Website that puts e-business freelancers in contact with clients • Charges 10% commission • Bid on projects • Have private conversations with potential clients • Even able to sub-contract to others (become a client!) • Trust involved on both sides • When you sign up on Elance, it’s like joining a community

45. Working Across: Business-to-Business • Streamlining processes that cross company boundaries is the next big management challenge • Companies have spent a lot of time and effort streamlining their internal processes, but their efficiencies often stop at their corporate walls • Working across business takes many forms including: • Working with ‘co-suppliers’ • Working with customers in a close mutually dependent relationship • Building a virtual enterprise, in fact, one that might evolve into an e-marketplace

46. Working Across: Business-to-Business • Businesses have long used IT to reduce costs and time of inter-organizational transactions, for example: • Inter-organizational Systems (IOS) • Reservation systems • Sabre (AA) • Electronic funds transfer systems • Cirrus (Green Machine) • Electronic Data Interchange Systems (EDI) • Transmission, in standard syntax, of data for business transactions between computers of independent organizations

47. Working Across: Business-to-BusinessCoordinating with Co-suppliers • Collaborating with non-competitors is a type of working across • Example – 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 deterred co-suppliers from working together • Internet takes away this deterrent

48. GENERAL MILLS & LAND OF LAKESCase Example – Coordinating with Co-suppliers • Seven largest US food companies supply about 40% of supermarket shelf space for dry goods • Use own trucks etc. • Only supply 15% of refrigerated • One truck for several supermarkets • Less efficient, delays etc. = unhappy clients • Combine their deliveries on General Mills trucks • Now = looking into integrating their order taking and billing processes

49. Working Across: Business-to-BusinessEstablishing Close and Tight Relationships • Strategic use of IT and the Internet has moved to the most difficult area = working across companies • Having relationships with various players in one’s business ecosystem • Banks, advertising agencies, suppliers, distributors, retailers, even competitors • Such relationships often have accompanying linking information systems

50. Working 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 information • Business processes remain distinct • Such limited integration requires little risk or cost • Close = two parties exchange information in a formal manner • Leads to greater benefits, so there is greater impetus to make the relationship work • Risks increase because confidentialities are shared • Costs are also higher • Tight = two parties share at least one business process • Most risky – business critical and the most costly to integrate • Due to high costs and risks = can only have a few!! • Where does one organizational boundary begin and the other end? = Intermeshed!