IT as a Strategic Resource: Tactical or Sinkhole?

1. IS605/606: Information SystemsInstructor: Dr. Boris Jukic Introduction

2. Issues in IT/IS Discussions Today • Is IT a tactical or strategic resource? • IT Productivity Paradox: “IT: Transformer or a Sink Hole” (Wilcocks and Lester, 1998) • Software or Service? WebSphere vs. Amazon.com • Does IT matter at all? (N. Carr, HBR, 2003)

3. IT: Tactical or Strategic Resource • 60 yd Touchdown or a 4 yd run? • Answer always depends on the context and industry • Discussion Examples: • Airplane Manufacturer • Pharmaceutical Company • An Airline • Provide your own example • Health Care Provide

4. IT as a Strategic Resource • Unique and non-replicable in a short time frame • It fundamentally changes industries • Telecommunications • Web • Sometimes, the level of skill and expertise in using a widely available IT resource can be a source of strategic advantage (Wal Mart) • Its supply chain system features no significant technological breakthrough that can not be imitated by competitors • Yet, the way it is managed and utilized is probably the main source of Wal Mart’s competitive advantage in the retailing industry

5. IT as a Tactical Resource • Improvement in day-to day operations • Cost reduction typically the main driver • It may result in business process transformation over a period of time • Examples: • Transactional Data Management • Reduction in operation completion time • Reduction of error rates and redundant steps • Promoting self-service

6. IT Productivity Paradox • IT spending in developed economies (as a percentage of total business costs) has skyrocketed over the last 20 years • 1980’s: 1-3 % • 1990’s: 7-8% with some industries in 20% range (financial services) • Y2K resulted in an additional surge in IT spending • Recently the pace has slowed down or receded slightly but IT remains one of the main items in corporate budgets • Some economists (Roach, 1997) claim that these enormous spending increases have not been matched by the increases in productivity as measured by standard methods (i.e. output per unit of labor and/or capital) • Annual productivity gains in US service industries (main users of IT) in the 1990’s are around 1% as compared to 3% in manufacturing sector • Are companies simply wasting their money by spending heavily on IT resources?

7. IT Productivity Paradox: rebuttal • As other technological innovations, IT takes time to master and utilize in an efficient manner • Early LAN’s have appeared in 1960’s • The Internet has been around since early 1980’s • IT contribution is very hard to measure • PC’s, servers and networks are not the same as machine tools or trucks • IT resources often constitute organic elements of management processes rather than direct production resources • When IT is used as a production resource (typically in services), the result is often an improvement in the quality rather than quantity of the offering • Faster service • Less errors • More flexibility

8. IT Productivity Paradox: rebuttal continued • IT is unable to provide value by itself but does so only in interaction with other factors (Van Nievelt, 1999) • Organizational structure • Organizational culture and climate • Quality of leadership • Internal expertise and capabilities • Strategic fit

9. Software vs. Service Dilemma • Should organizations own and run their own software (networks, and other IT resources) or should the treat it as a service to be outsourced ? • WebSphere model: • IBM creates and sells business solutions as a software package to organizations and service providers • Amazon.com model: • Offers the software based service (on-line retailing) as a fully outsourced service to other organizations

10. Software vs. Service Dilemma • In late 1990’s a wave of ASP’s (application Service Providers) appeared • Network infrastructure availability, price and quality is in place to provide IT service remotely • Business plan: offer and charge for IS service rather than software itself • Pay recurring charges for service offered rather than installation, management and upgrade costs • The movement fizzled • Too hard to outsource many diverse components • Every organization has very unique set of needs • IT too closely interwoven in core processes that are hard to standardize (ERP implementation issue as well, TBD later)

11. Software vs. Service Dilemma • Web Services: a brand new development • A completely new paradigm • “Single Virtual Computer” • Web as a galaxy of microscopic software components that can be blended in infinite number of highly specialized combinations suited for even the most unique organizational needs • Each component (i.e. “web service”) is uniquely described, registered and accessible through a standard set of web protocols • Each component can interact and work with other components as long as they are too described , registered and accessible in the standard way • Web services can be created by anyone and posted on the publicly accessible network (Internet) or on a corporate or proprietary network as free or for-fee component • large software companies (Microsoft, IBM), • smaller shops • individuals