Strategic Uses of Information Technology

1. Strategic Uses of Information Technology • IT in the value chain • Business change models • BPR versus continuous improvement • Seeking and gaining competitive advantage • Drivers of IT investments • Measuring the value of IT investments • Justifying IT investments MIS 221 - Rick Eaton

2. IT in the Value Chain • Old view: IT was external to the value chain • Used to monitor and control processes • Current view: IT is integral to the value chain • IT is a major component of the value chain MIS 221 - Rick Eaton

3. Business Change Models • Continuous improvement • Incremental, gradual change to existing processes and business models • Business Process Redesign/Reengineering • More radical and rapid change MIS 221 - Rick Eaton

4. Continuous Improvement • Implies incremental changes to information systems in a business • Problem: IT-inhibited change • Problem: The cost of “minor” changes versus the benefits MIS 221 - Rick Eaton

5. Business Process Redesign/Reengineering • Use IT as well as other tools • Organization redesign • Alliances • Aim is to radically improve results • Quality • Speed • Cost MIS 221 - Rick Eaton

6. Business Change Model • In stable industry, both will be used • In unstable industry, what will we see? • Mergers and acquisitions • Financial distress MIS 221 - Rick Eaton

7. Competitive Advantage • The best companies strive to achieve a competitive advantage in the market place • A long-term advantage • A significant advantage • Can only be achieved through the successful execution of a strategy MIS 221 - Rick Eaton

8. Seeking Competitive Advantage • Porter’s Five-Force Model • Rivalry among existing competitors • Threat of new entrants • Threat of substitute products and services • Bargaining power of buyers • Bargaining power of suppliers MIS 221 - Rick Eaton

9. How Can Companies Achieve Competitive Advantage? • Reduce costs • Enables products to be sold for less or • Provides higher profit margins • Create barriers to entry • Expensive equipment or software • Intellectual property MIS 221 - Rick Eaton

10. How Can Companies Achieve Competitive Advantage? (2) • Create high switching cost • Cost to implement competitor’s product or service • Create new products or services • Advantage won’t last • Differentiation and Branding • Distinguish your products from your competitors MIS 221 - Rick Eaton

11. How Can Companies Achieve Competitive Advantage? (3) • Product or service enhancement • Offer something competitors can’t (or don’t) • EMC drives • Extended auto warranties • Strategic alliances • Long term, close relations with business partners • Buyer or supplier lock-in • Provide a way of interacting which is hard to replicate • Volume purchases MIS 221 - Rick Eaton

12. Using IT for Competitive Advantage • Reduce cost • Create barriers to entry • Create high switching costs • Create new product or service MIS 221 - Rick Eaton

13. Using IT for Competitive Advantage • Enhance a product or service • Form strategic alliances • Differentiation and branding • Buyer or supplier lock-in MIS 221 - Rick Eaton

14. How Are Information Systems Used to Achieve Competitive Advantage? • Reduce costs • Use systems for automation • Use systems to increase inventory turns, lower labor content, increase customer service • Create barriers to entry • Invest early and innovatively in software • E.g. Sabre MIS 221 - Rick Eaton

15. How Are Information Systems Used to Achieve Competitive Advantage? • Create high switching cost • Create new products or services • E.g. Web based ordering • Differentiation and Branding • Customer knowledge can enhance purchase experience and service • E.g. customer recognition, communication MIS 221 - Rick Eaton

16. How Are Information Systems Used to Achieve Competitive Advantage? • Product or service enhancement • E.g. custom reporting • Strategic alliances • IS investments can make the partnership “real” • Buyer or supplier lock-in • Proprietary communication methods with suppliers or customers • E.g. McKesson, Baxter MIS 221 - Rick Eaton

17. Decision Considerations • What kind of competitive advantage are we going to seek? • What is the most effective means of gaining this advantage? • Would better information help to establish this advantage? • Can an information system be developed to provide better information or otherwise help create the advantage? MIS 221 - Rick Eaton

18. Decision Considerations (2) • Is the development economically justified? • How much will it cost to develop? How long will it take? • Can we successfully implement it? • Can competitors match this investment? • Will the effort have a sufficiently high ROI? • What are the risks of not doing this? • What are the alternatives? • There are always alternatives! MIS 221 - Rick Eaton

19. IT Investment Drivers • Earlier: Cost reduction and productivity • Later: Strategic considerations • Today: Combination – strategic with cost focus • Tomorrow: security and continuity? MIS 221 - Rick Eaton

20. Determining Investment Value • ROI or NPV • Attempt to quantify incremental profit versus cost • Market share • Brand equity • Customer retention and satisfaction • Total cost of ownership (cost side) MIS 221 - Rick Eaton

21. Justifying IT Investments • Hard savings • Soft savings • Legal requirement • Modernization • Pilot project • The best investments can be justified by a combination of the above MIS 221 - Rick Eaton

22. Other Considerations • Some systems are enhanced from non-strategic systems into strategic systems • Competitive advantage is always a moving target! • Yesterday’s competitive advantage is today’s basic business requirement • E.g. doing business on the web MIS 221 - Rick Eaton

23. Why Failures Occur • The strategy was wrong • Failure move to quickly • Reengineering proved to be very difficult • Requires lots of time, money and management commitment • Lots of internal resistance • Big efforts are much harder than smaller ones • “Boiling the ocean” • Technological problems MIS 221 - Rick Eaton