Transcript No Slide Title

Creating Business
Advantage with IT
Vision and business models
The Impact of Technology on Business and Society During
The Indust rial Evolution
Demonstration of the
telephone in the late 1800s
While it is a wonderful
invention, businessmen will
never use it.
Rutherford B. Hayes
19th President of the USA
Figure reprinted with permission from Duke University Rare Book,
Manuscript, and Special Collections Library
Source: Applegate, Lynd a M., Rober t D. Austi n, and F. War r en McFarla n., Corporate I nfor mation Strategy and M anagement. Bur r Ridge, IL:
McGr aw-Hill/Irwin, 2002.
Chapter 1 Figur e 1-1
Technological innovations
Internet and broadband networks
WWW and high performance servers
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Flexible, standardized, powerful platform for creating and
storing information in all its forms
URL Uniform Resource locator and Browser
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Common approach for identifying and locating information
anywhere on the internet
Multimedia digital devices
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Portable internet access devices that provide internet access to
voice, television and information
Laptops, palm pilots, cell phones, …
Wireless networks and protocols
JAVA, XML and other OO languages and database
technologies
Economies
Economy of scale
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When a participant or network of participants is able
to leverage capabilities and infrastructure to
increase its revenues and profitability within a single
product line or market.
Economy of scope
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When a participant or network of participants is able
to leverage capabilities and infrastructure to launch
new product lines or enter new markets.
Porter’s Value Chain
(well suited for analyzing product/manufacturing firms)
Value Chain Applied to Airlines
Identifies uses of IT for each element of the value chain
Market Roles
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan , Corporate Information Strategy and Management . Burr Ridge, IL:
McGraw -Hill/Irwin, 2002.
Chapter 1 Figure 1 -4
Industrial vs. Network Economy
Characteristics
Industrial Economy
Network economy
Criteria for economic success
Internal, proprietary and specialized
economies, limited by level of
infrastructure required
External, networked and shared
economies of scale and scope are
increased by internet infrastructure
Technological innovations
Production, communication and
distribution technologies
Distribution, communication and
information technologies;
The ability to assemble component
pieces
Operating innovations
Standardization of work;
Job specialization; assembly lines;
Value chain industry structure.
Knowledge work; job expansion;
Work teams; extended enterprise;
Outsourcing and partnerships;
Value networks.
Management innovations
Hierarchical coordination;
Compliance-based control;
Centralized planning and control.
Network coordinating and supervision;
ownership incentives;
Information-based models of control
Societal/regulatory innovations
Urban growth; mass transportation;
social security and welfare; unions,
regulations; domestic economy
Work at home; self-employment; global
economy
Length of time to achieve
economies of scale or scope
Decades
Uncertain
Dominant industry power
Producers
Solution assemblers and channel
managers
Forces Influencing Industry and Competitive Advantage
Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarland, Corporate Information Strategy and Management . Burr Ridge, IL:
McGraw -Hill/Irwin, 2002.
Chapter 1 Figure 1 -5
Impact of IT: questions 1 of 5.
Can IT be used to reengineer core value acti-vities
and change the basis of competition?
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Uses IT not just to automate but also to transform and
to inform
Benefits of conducting business online
AHSC American Hospital Supply Corporation
American Airlines
Internet to reengineer value chain and the basis of
competition
Impact of IT: questions 2 of 5.
Can IT change the nature of relationships and
the balance of power among buyers and
suppliers?
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AHSC
Customers recognized the value of a multivendor
marketplace but were unwilling to put up with the
problems of using multiple different supplier systems
AHSC became channel manager
Electronic market places: Oracle, CommerceOne,
Ariba, …
Impact of IT: questions 3 of 5.
Can IT build or reduce barriers to entry?
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Consultancy companies: knowledge technology
Technology based advantage: AHSC, AA, …
The internet can decrease the impact: low cost, ease of
penetration
Knowledge and community barriers are more
sustainable
Proprietary infrastructure and channels to market are at
a particular disadvantage relative to new entrants when
they attempt to create second-order barriers to entry
(Amazon.com as new entrant with transaction,
information and community infrastructures)
Impact of IT: questions 4 of 5.
Can IT increase or decrease switching costs?
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Switching to another system might become difficult
and costly in proprietary systems
With the internet switching costs are substantially
reduced  difficult to achieve customer loyalty
Intuit increased the switching cost
Provided easy to use inexpensive financial service
software
Won users via ease-of-use
Hooked via simple ways of storing the information that
should be reentered if the customer switches to a different
product
Impact of IT: questions 5 of 5.
Can IT add value to existing products and
services or create new ones?
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Grocery stores are also in the business of selling
information (client profiles)
Information content of existing products (cars)
Digital distribution of books, music, and video will
dramatically alter existing publishing and
entertainment industries.
Manure and fertilizer company provides information.
Summary
Exploiting the opportunities afforded by IT, while
avoiding the pitfalls requires vision, sound
execution, and the ability to respond quickly
Risks increase when executives
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Have poor understanding of sources of competitive
dynamics
Fail to understand the long-term implications of a
strategic system (their own or a competitor)
Launch a system that brings on litigation or regulation to
the detriment of the innovator
Fail to account for the time, effort, and cost required to
ensure user adoption, assimilation and effective
utilization
Summary (cont)
Investments should be examined on sustainable
advantage
Movement of IT-personnel results in rapid proliferation
of strategic ideas
Questions
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What business are we in? Who are our customers, suppliers,
partners?
Who are our biggest competitors, today and in the future?
How effective are our core operating activities and processes?
Are there big changes looming at the horizon and what can we
do?
Will changes in related industries influence our industry?
Did we identified the strategic risks today and in the future?
Have we appropriately prioritized our business investments?