Strategic Uses of

Information Technology

© 2009 Pearson Education, Inc. Publishing as Prentice Hall

 The Internet provides a better
technological platform than previous
generations of IT (Porter, 2001, 2008).
 Questions that remain:
 Has the Internet or more generally, the IT
revolution ended? Does IT still matter?
 Is there an even larger revolution looming?
 Is Web 2.0 really something new or just another fad?
 What sorts of strategic uses of IT are companies
making?

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-2

Introduction
 Use of the Internet by businesses in mid/late
1990s set off a revolution in the use of IT
 No successful modern organization can
separate IT from its business strategy?
 After dot com bust, Moore’s Law, declining
price of computing…
 Does IT still matter?
 If yes, what are the strategic uses of IT
(particularly Internet) today?

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-3

History of Strategic Uses of IT
 Mid 1980s: End-user computing
 Working inward (adoption of PCs and software)
 Late 1980s: Transactional efficiency
 Working outward (gain competitive advantage)
 Merrill Lynch’s CMA system, which combined stock
account with savings and checking accounts
 1990s: Re-engineering
 Working inward (business process re-engineering)

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-4

Strategic Uses of Information
Systems

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-5

History of Strategic Uses of IT
cont’d
 Mid to late 1990s: Internet
 Integration of Internet into e-business models
 Dotcom downward spiral began in 1999
 E-business skepticism
 Early 2000s: Back to business basics
 Leverage traditional operations by using Internet to work
more closely with others (working across)
 2005 onwards:
 Working inwards, outwards and across to achieve
competitive advantage
 2008: Putting IT in the forefront of business strategy

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-6

Whither the Internet
Revolution?
 Despite dot com bust in 2001, Internet
technology is more pervasive
 Wikis, blogs, instant messaging
 Arrangements of Internet use is key
 Internet-driven business innovations
 Interconnection of businesses will be the revolution?

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-7

The Cheap and Disruptive
Revolution
 CIOs are shifting from buying expensive
proprietary hardware to cheap generic
products
 Google runs on 100,000 cheap servers
 Use it till it breaks and then discard (no maintenance)
 Other aspects of “cheap”
 Labor outsourcing
 Free open-source software vs. expensive
proprietary products
 Telecommunications (e.g., VoIP)

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Profitability Strikes Back
 Never ignore business strategy
 Leveraging Internet to increase business value
proposition
 Use Internet to complement business strategy (core
competencies) and not replace it (Michael Porter,
Strategy and the Internet)
 Focus on building profitability instead of pursuing
market share (customers) indiscriminately
 [Link] still figuring out how to make money from
60 million plus members worldwide (Businessweek,
March 10, 2008)

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-9

Internet-Enabled Mass
Customization
 Internet has changed the nature of
consumerism (“long-tail” phenomenon)
 Shift from concentration of small number of
mainstream products and markets to large
number of previously unattended niches
 Less need to offer one-size-fits-all products and
services
 Mass-customization and even personalization is
the future
 e.g., Apple iTunes, mobile phone applets, YouTube
videos

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-10

Episode One Revisited:

 Is rapid growth strategy of dot coms during 1993-

2000 period necessarily a bad one?
 First-mover advantage crucial since IT innovation is short-
lived (Carr, 2004) to achieve other sources of competitive
advantage
 Internet facilitates accelerated online business
growth
 Wide access to a public network
 Standard communication protocol
 Standard user interface
 Achieve growth and market share then seek
profitability or vice versa (traditional)?

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-11

Does IT Still Matter?
 Nicholas Carr: IT a utility (like electricity)
 Ubiquitous
 No sustainable competitive advantage
 Proponents: IT enables innovation,
segmentation and differentiation
 IT systems (software) infinitely configurable
 Creativity
 Management quality

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-12

Working Inward: Business-to-
Employee
 Building an Intranet
 Intranets are private company networks that use
Internet technologies and protocols to reach
employees
 Benefits of Intranet
 More efficient and cost-effective way to provide
access to company information
 24/7 availability, dummy-proof browser interface, easier
development and less maintenance ($), faster updates,
information integrity

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-13

Intranet Architecture

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Working Inward: Business to
Employee cont’d
 Fostering a sense of belonging
 Intranets evolving into very important enterprise
structure
 Corporate mission and values
 Internal forms, rules, processes
 Internal news (can be interactive, e.g. comments)
 Intranets can provide the foundation for creating
corporate culture and climate by giving a means
for communication and creating communities

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-15

Working Outward: Business-
To-Customer
 Modern enterprises today need sophisticated
computer systems to compete
 Quality, service, innovation, speed
 Competitors must do the same or find
themselves at a disadvantage
 Two Business-to-Customer strategic IT uses:
 Jumping to a New Experience Curve
 The Emergence of Electronic Tenders

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-16

Jumping To A New Experience
Curve
 Using IT (or any technology) as the basis for a
product or service can be viewed as moving across
a series of experience curves
 More experience leads to a set of connected curves
 Each curve represents a new technology or
combination thereof in a product or service as well
as in its manufacture or support
 Moving to a new curve requires substantial
investment in a new technology

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-17

The Emergence of “Electronic
Tenders”
 An electronic tender is the capability to
monitor a product or service using
computers.
 e.g. car diagnostics, package tracking, customer
interactions
 The options for electronic tenders are
endless, but the main objective is to get
closer to the customer.

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-18

Getting Closer to Customers
 Many types of products can be purchased on the
Internet today.
 Advantages to selling online are numerous
 Track, analyze and act on customer data (CRM)
 Access to global markets
 Many corresponding problems at the same time
 Customer privacy issues
 Customers demand “now” and personalized services
 Information (company, product, price), order processing,
single point of contact, customization
 Reduction in search costs puts burden on profit margins

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-19

Advantages to Business-to-
Customer System

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Problems to Business-to-
Customer Systems

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Working Across: Business-to-
Business
 Streamlining processes that span across company
boundaries is the next big management challenge
 Taking efficiency to the inter-organizational level
 Numerous forms of working across businesses
 Coordinating with co-suppliers
 Working with customers in close mutually dependent
relationship
 Building a virtual enterprise that might evolve into an e-
marketplace

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-22

Coordinating With Co-Suppliers
 Collaborating with non-competitors is a type
of working across
 E.g. Two manufacturers might have the same
customers but supply different products
 Internet-based systems enable co-suppliers
to share information and work together
 Collaborate on new joint processes
 Eliminate duplicate activities
 Optimize work allocation (who can do it best)
 Focus on customers

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-23

Establishing Close and Tight
Relationships
 Building relationships with various players in
one’s business ecosystem is the current
strategic objective for use of IT and the
Internet
 Banks, advertising agencies, suppliers,
distributors, retailers, competitors
 Relationships as a function of linking information
systems

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-24

Establishing Close and Tight
Relationships
 Need to determine what level of systems integration
 Loose: Provide ad hoc and limited access to internal
information
 Business processes remain distinct
 Low risks and costs
 Close: Two parties exchange information in a formal
manner
 More incentives and thus impetus to ensure success
 Moderate risks (sharing confidentialities) and costs
 Tight: Tow parties share at least one business process
 Business critical
 High risks and costs (requires integration)
 Boundaries become blurred

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-25

Linking Chains: Emerging
Interbusiness Processes

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Becoming a Customer-Centric
Value Chain
 Value chain (manufacturing-based model)
 Upstream supply chain
 Suppliers of raw materials
 Downstream demand chain
 Distributors, retailers, customers

 Push (supply) and pull (demand) marketing

strategies
 Demand-pull model favored today—value chain
starts from the customer
 Benefits and drawbacks
 Efficiency, customer satisfaction, trust, infrastructure

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-27

Getting Back-End Systems in
Shape
 B2B systems must integrate with existing back-end
systems
 Challenge
 Wide variety of functions and platforms
 Incompatibility
 Approach
 Purchase new systems that facilitate integration
 DBMS, ERP
 Extranet
 Goal
 Extend company’s back systems to re-engineer business
processes external to the company

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-28

Conclusion
 Many “best practices” evolved over the years, with
respect to strategic use of IT
 Each required right resources and skills
 Intranets and Web portals are ways to bring
cohesion within “flatter” organizations
 Customer-centric business strategy leads to use of
IT across organizational boundaries (supply chain)
 As IT continues to evolve, so does its strategic uses

© 2009 Pearson Education, Inc. Publishing as Prentice Hall 3-29