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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. Chapter 3.

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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


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?


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


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


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


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)


Introduction

Figure 3-1 Strategic Uses of Information Systems


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


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


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


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


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


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’


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


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…


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


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


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’


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


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


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


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


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


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


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


WORKING INWARD: Business to Employee


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


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


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!


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


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


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


THE SHIPPING INDUSTRYCase Example: Jumping to a New Experience Curve


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


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


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)


WORKING OUTWARD: Business to Customer


WORKING OUTWARD: Business to Customer


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


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


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


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


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


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


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


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


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


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


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


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!


WORKING OUTWARD: Business to Business


SARA LEECase Example: Close relationship becoming a tight one

  • Sara Lee was one of the first to initiate scan-based trading with large retailers that sell its baked goods

  • Using this technology, Sara Lee does not get paid until a loaf of bread is sold and passes through the point-of-sale scanner

  • The technology requires drawing from a single database hosted by a third party

  • Its use has improved the quality of delivery people, lowered costs, and increased revenues

  • Note: Sara Lee requires retailers to adhere to a number of prerequisites – to demonstrate that they are good trading partners

  • Look at how it is administered:

    • ‘Seven prerequisites for SBT’

    • Management structure to support


Working Across: Business-to-BusinessBecoming a Customer-Centric Value Chain

  • A company’s value chain consists of:

    • Upstream supply chain

      • Working with its suppliers of raw materials and parts

    • Downstream demand chain

      • Working with its distributors and retailers to sell its products and services to end customers

  • Traditionally most companies make-to-stock = build products / create services and then “push” them to customers

    • Supply-Push world

  • Today, we are seeing the rise of the reverse – a demand-pull world where a customer’s order triggers the creation of a customized product or service the customer has defined


DELL COMPUTERCase Example: Demand - Pull

  • Dell is the foremost example of the demand-pull business model

  • Customers configure their on PCs on Dell’s Website, and once an order is initiated, Dell’s suppliers can see the ordering information and production schedule on Dell’s extranet

  • In fact, their production systems grab this information automatically; as a result, Dell’s extranet has become a private exchange

  • Dell is even working to give suppliers two tiers down access to customer order information, so they can react to changes even faster


Working Across: Business-to-BusinessBecoming a Customer-Centric Value Chain cont.

  • Pros and Cons of Demand-Pull

    • Value-chain transparency = should reduce the number of duplicate orders

      • 10,000 memory chips Vs. 30,000 ‘ordered’ due to shortage

    • Creating private exchanges such as Dell changes the level of co-operation among firms

    • Con = infrastructure

      • Manufacturer’s becomes its suppliers – binding them even tighter

      • Requires TRUST

    • Becoming customer centric is not easy, especially for supply-push companies

  • The promise of CRM is alluring

    • Aims to help companies shift their attention from managing their operations to satisfying their customers


Working Across: Business-to-BusinessGetting Back-End Systems in Shape

  • Most, if not all, B2B systems must integrate with existing back-end systems which has proved to be particularly difficult

  • Challenge

    • Variety of platforms

    • Incompatible

  • Approach

    • Purchase ‘new’ systems

      • Database Management Systems (DBMS)

      • ERP Systems

    • Extranet = securely share with suppliers, partners etc.

  • Goal = extend the company’s back-end systems to reengineer business processes external to the company


Conclusion

  • Over the years a few innovative companies have used IT for strategic advantage

    • ‘Models’ but many companies did not have the resources or skills to follow their example

    • With the growth of the Internet and development of e-business, IT has become a strategic tool in every industry

  • Looking for cohesion of often dispersed employees?

    • Intranets and Portals

  • Increasingly customer centric view has many using IT in working across

    • Value chains are looking to shift from supply-push to demand-pull

  • As IT continues to evolve, so do its strategic uses


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