Creating Competitive Advantage with IT: A Business Value Perspective

1. Creating Competitive Advantage with IT:A Business Value Perspective EMBA 514 Rob Anson, Ken Wiley March 15, 2013 Readings • IT Doesn’t Matter? Nicholas Carr, HBR, 2003 • IT Does So Matter!Kathleen Melymuka, Computerworld, 7/7/2003 • The Grill:Nicholas CarrJoyce Carpenter, Computerworld, 3/3/2008 • A Simple Framework to Translate IT Benefits Into Business Value Impact Richard Hunter, et. al., Gartner, 2008 • Defining the Business Value of Cloud Computing Tyson Hartman and Larry Beck, 2009 White paper from Avanade consulting Pre Session Assignment: (Individual) One-Minute Brief Take a stand on whether or not IT matters in your organization (where you currently or recently worked) by recommending a new information technology or a new approach to IT. Briefly identify the technology or approach, and position it within the Gartner investment framework. Then argue for its adoption. In your argument, draw upon the discussions for or against Carr’s position, and the framework from the Gartner report.

2. Agenda • Does IT Matter? • In Principle • Discussion • Strategic and Business Value Views of IT • In Organizations • Stories--In your organization • Obtaining Business Value From IT • Investments in IT • Investment Competition • Business Value Considerations in Cloud Computing • Guest Speaker: Ken Wiley, Managing Principal, Wiley & Associates, LLC • Q & A

3. Does IT Matter?

4. IT Doesn’t Matter. Does so! • Competitive Advantage at best fleeting • IT ubiquitous, standardized, commoditized—opposite of scarce • IT is a utility, an infrastructure, not a differentiator • Firms should: • Spend less • Follow, don’t lead • Focus on vulnerabilities, not opportunities • IT is inherently strategic because it enables new things, which enables differentiation • Computers are ubiquitous, but insight to use them is scarce • IT enables incremental (not big bang) improvements  business change  advantage • IT co-creates capacity

5. “Conventional IT strategic planning is similar to a funeral for a head of state. It is infrequent, requires very powerful people to come together and be miserable, and the end result is buried and quickly forgotten.” (Anonymous) strategic and Business Value Views of IT

6. Business Value for IT Equation (Hunter, 2007) Business performance: The ability of the enterprise to achieve or exceed its objectives. Business performance BV(IT) = IT Spending Mathematically, there are two ways to increase BV(IT)

7. “IT Doesn’t Matter” Interpretation How can you improve the Business Value of IT spending? Option One IT Spending is a cost to minimize in order to improve the business value of IT Business performance BV(IT) = IT Spending “Most strategies focus on providing efficient and effective IT services...”

8. “IT Does Matter” Interpretation How can you improve the Business Value of each IT dollar spent? Option Two IT Spending is a critical factor in achieving Business Performance. Business performance BV(IT) = IT Spending “IT spend that improves business performance is the cost of doing business in a particular way—not the cost of IT.”

9. How can IT spending help achieve Business Performance—create Business Value?

10. Porter Generic Strategies Framework (Pearlson & Saunders, 2010) Porter identifies three primary strategies for achieving sustained competitive advantage that derive from the company’s relative position in the marketplace. Uniqueness Perceived by Customer Low Cost Position Differentiation Overall Cost Leadership Industry wide Focus Particular Segment Only Differentiation Focus Cost Focus

11. Disruption and the 7 S’s (Pearlson & Saunders, 2010) • Vision for Disruption • Identifying and creating opportunities for temporary advantage through understanding • Stakeholder Satisfaction • Strategic Soothsaying • Directed at identifying new ways to serve existing customers better or new customers that are not currently served by others Market Disruption • Capability for Disruption • Sustaining momentum by developing flexible capacities for • Speed • Surprise • That can be applied across actions to build temporary advantages • Tactics for Disruption • Seizing the initiative to gain advantage by • Shifting the rules • Signaling • Simultaneous and sequential strategic thrusts • With actions that shape, mold, or influence the direction or nature of the competitors response

12. 7 S’s (Pearlson & Saunders, 2010)

13. Organizational Views of IT (Hunter, 2007) High IT delivers business performance IT spend perceived as investment in business performance All IT + businessconversations conducted in business terms IT performance metrics reflect business priorities All initiatives are business initiatives CIO leads business initiatives IT delivers technology Business Perception of IT value • IT perceived as cost, not an investment in business performance • CIO and IT team talk technology performance, not business performance • IT performance metrics are technically-oriented • IT follows business lead IT doesn’t deliver • IT perceived as expensive and unresponsive • Prelude to IT turnaround situation Low

14. Perceptions of IT in your organization • How is IT perceived in your organization? Doesn’t Deliver….Delivers Technology…. Delivers Business Performance • Evidence? • How is IT involved in the business? • How is IT measured? • How is IT managed? • How is IT discussed?

15. Obtaining Business Value From IT

16. Specific Governance Practices for IT Investments Can Help Achieve Strategic Goals (CIO, 2003) • Market Leaders, relative to other companies have greater alignment of IT with Business • IT – Business management collaboration • BU participation in IT Budget • Cross-functional governance teams direct resources and adjust priorities • Use business performance-based metrics for IT investments

17. Specific Areas of IT Investment Can Help Achieve Strategic Goals (CIO Magazine, 2003) The most effective companies at managing their IT investments generate 40% higher returns than their competitors • Market Leaders, relative to other companies… • Larger proportional investment in automation higher business performance • More investment in decision support applications  improved decision making • More investment in supplier-collaboration applications  efficient response to customer needs • More IT investment on business agility to respond to demand fluctuations (vs. forecasting customer demand) improve responsiveness • More focus on customer self-service applications  improve service quality, speed, control, reduced costs (Ross & Weill, 2002)

18. Business Context-Appropriate Metrics Can Improve IT Investment Decision Making (Hunter et al, 2008) • Measure business value of IT in improved business performance as perceived by business stakeholder • Use appropriate business metrics to build value proposition: • Run-the-Business • Grow-the-Business • Transform-the-Business

19. Determining the Business Context (Hunter et al, 2008)

20. Apply Business Context-Appropriate Metrics for IT Investments (Hunter et al, 2008)

21. SummaryBusiness value is obtained from IT investments when… • IT is closely aligned with business • Business & IT leaders are collaborators • ROI is measured in terms of business performance • The value metrics are appropriate to the purpose of the investment

22. Forming a Compelling Business Value Statement for an IT Investment • Business Context for Proposal • Run, Grow, Transform • Business Goals • Competitive Strategies IT Capabilities Changes to Business-- processes, capabilities, etc. Business and Operational Measures

23. Example: Compelling Business Value Statement for an IT Investment Business Context for Proposal Our Business needs to run its operations more efficiently in order to reduce prices relative to our competitors. IT Capabilities Changes to Business Business Measures We need the ability to integrate our data on sales transactions from each store, so that we can centralize our ordering and distribution, to gain economies of scale, and quantity discounts. Our target is to cut vendor costs by 5% and reduce distribution costs by 10% within six months.

24. IT Investment Competition Goal: Select the best IT Investment for the Firm • Develop (in groups) • Select one OMB proposal • Strengthen its compelling value statement (One flipchart) A. Business Context B. IT Capabilities C. Business changes to enable D. Measurable business effects • Presentations (Elevator Pitch) • Each team: 5 min presentation, 2 min Q&A • Decide • Class is the Board of Directors

25. What’s up with that Cloud thing? Guest Speaker Ken WileyManaging Principal, Wiley & AssociatesManaging Member, Command Trends International