MIS 6413 Chapter 1

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MIS 6413 Chapter 1
IT and Strategy

• Dr. Richard Segall
• Spring 2006

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Teaching Notes for Module 1 Overview
Module
1

• Business Impacts

• 2.5 trillion spent on technology 1997-2001
• Nearly double amount for previous five years
• Why so much?
• Internet buzz and experimentation
• Overhaul of aging IT infrastructure
• This module discusses how to leverage IT to
  create business advantage.

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Case 1-1 Charles Schwab in 2002

• Case traces firm history
• From founding in mid-1970s
• Through sustained growth in 1980s
• Through meteoric rise in 1990s
• To struggle to reinvent company and industry in
  2002
• What can we learn from this case?
• Fundamental principles and frameworks that guide
  strategic decision making and action
• How to leverage IT to create sustainable
  advantage

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Case 1-2 LeapFrog

• Founded in 1995
• On basis of innovative technology and sound
  educational principles, reached 3 in global toy
  industry
• Mattel (1) and Hasbro (2)
• 2003 Struggle between growth and creative spirit
• Difficulties in preserving creative spirit as
  company challenged the industry giants
• What can we learn from this case?
• Excitement, energy and spontaneity vs. rigor,
  accountability, and formal structure

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Case 1-3Wyndham International

• Founded in 1999
• Consolidated core assets of Patriot American
  Hospitality
• Wyndham Hotels Resorts, Wyndham Luxury Resorts,
  Summerfield Suites by Wyndham
• 2000 Hired Chief Technology Officer
• Tasked with insourcing IT, prioritizing
  investments
• What can we learn from this case?
• Business impact of IT
• Results of IT-enabled customer loyalty
  initiatives

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Case 14 Global Healthcare Exchange

• Founded in 2000, height of bubble
• One of 90 online marketplaces in health care
  industry
• Founders some of largest suppliers in industry
• 2003 (time of case) GHX largest of three
  remaining online health care supply chain
  marketplaces
• Expanded leadership leading players across value
  chain
• What can we learn from this case?
• Summary of strategic and operational decisions
  that executives of small, resource-constrained
  businesses make as they leverage emerging
  technologies

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Reading 1-5 IT Doesnt Matter

• 2003 article in Harvard Business Review
• Passionate response by business leaders
• What can we learn from this article and selected
  letters to the Editor of HBR?
• IT does, in fact, matter
• A lean, yet agile, IT platform provides benefits
  described in chapters and discussed in cases

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Understanding the Forces That Shape Strategy

• See pages 26-27.
• Figure 1.1 on page 27 is on next slide.

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Chapter 1 IT and Strategy Figure 1.1 page 27
Components of a Business Model
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I. Business Models

• I sell cars
• I sell cars and books and CDs and airline
  tickets and pharmaceuticals and fine china and
  toys and telephones and coffee machines and .

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What is a Business Model?

• A business model is what a business does and how
  it makes money.

As quoted in Boar, Bernard H. The art of
strategic planning for information technology
,2nd Edition, John Wiley, 2000
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What is a Business Model? (continued)

• Composite and coordinated answer to four broad
  questions
• 1. What forces are driving the marketplace and
  industry in which the business is competing?
• 2. How has the business defined itself?
• 3. What are the competitive advantages that
  enable the business to prevail in a competitive
  marketplace?
• 4. How does the business make money?

Boar, Bernard H. The art of strategic planning
for information technology ,2nd Edition, John
Wiley, 2000
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What is a Business Model? (continued)

• A value chain that connects participants
• The path of goods in a supply chain
• The path of transactions in an exchange
• The path of information in a value chain
• Interdependencies / paths in a value web
• Ultimately, how you expect to make money.

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What is a Business Model? (continued)

Valuemeasures the benefit to investors and
other stakeholders
Capabilitiesdefine resourcesneeded to
execute strategy
Adapted from Applegate et al, Corporate
Information Strategy and Management,
McGraw-Hill/Irwin 2003
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• Business Models have to evolve
• Let me tell you a story

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II. Frameworks for Analyzing IT

• Many perspectives can be used to view
  organizational competition and strategy
• 1. Value Chain Analysis (p.27)
• Value chain/Value network
• 2. Industry and Competitive Analysis (p.29-30)
• Table 1.2 The Competitor Audit Approach p.30
• 3. Strategic Grid Analysis (p.35-38)

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1. Value Chain Analysis

• A value chain is the series of activities
  performed to create the value for which customers
  pay.
• Initially looked at only internal operations of
  firm.
• Analysis now includes whole industry, industry
  value chain.

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1. Value Chain Analysis

• Supply Chain Management (SCM) addresses the
  linkages along the firms value chain.
• Ensures accurate and timely information.
• Reduces time needed to process orders.
• Reduces inventory carrying costs.

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2. Industry Competitive Analysis ICA (pp.
32-33)

• Porters ICA framework postulates that ECONOMIC
  COMPETITIVE FORCES in an INDUSTRY are the result
  of FIVE (5) basic forces. See next slide!
• Porters 3 generic strategies for achieving
  proprietary advantage within an industry
• 1. Cost leadership (Should we lower cost?)
• 2. Differentiation (Should we differentiate our
  products services?)
• 3. Focus.(Should we target a broad or narrow
  market?)

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3. Porters Five-Forces Model (p.27,29)

• Suppliers bargaining Power
• Buyers bargaining power
• Threat of new entrants
• Threat of substitute products
• Positioning of traditional intra-industry rivals

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Chapter 1 IT and Strategy Figure 1.2 page
28Analyzing Competitive Forces and Strategic
Positioning
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Chapter 1 IT and Strategy Figure 1.3, page 30
Product/Marketing Positioning in the U.S. Retail
Financial Services Industry, 1990.
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Strategic Shifts Evolution Revolution

• Pages 32-34.

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Business Model Evolution

Adapted from Applegate et al, Corporate
Information Strategy and Management,
McGraw-Hill/Irwin 2003
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Easy Example of Evolution

• Mail-order Direct Marketer ? B2C
• Lands End
• Near-term GoalMake it easier for business
  customers to purchase products from Lands' End
  over the Web.
• Long-term GoalProvide business customers with
  a flexible, highly customized e-commerce
  environment.

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Lands End

• Logical transition from mail-order to online
  ordering.
• Among the first to make the leap (1995), also
  among most successful.
• Enhance and expand strategy
• Enhance Improved performance, improved
  functionality
• Expand New markets (worldwide, includes everyone
  not on the mailing list)

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So Why Do We Care?

• Large percentage of managers/ employees in
  eBusiness are technical
• Promotion and success requires clear
  understanding of business models
• Understanding the business model allows IT
  management
• To be proactive in management of IT
• To seek solutions to problems before enterprise
  management has defined the problem (or perhaps
  even noticed it!)

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Chapter 1 IT and Strategy Figure 1.4 Options
for Evolving Strategy p. 33
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Chapter 1 IT and Strategy Figure 1.5, page
34Categories of Strategic Risk
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IV. Assessing IT Impact and Alignment p.34-40

• The Strategic Grid p.35-38
• Look at Figure 1.6 on page 37
• The Strategic Alignment Model p.38-40
• Look at Figure 1.7 on page 39.

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4. Strategic Grid Analysis (p.33)

• McFarland Strategic Grid of Figure 1.6 on page
  37
• Vertical axis The impact of IT on OPERATIONS.
• Horizontal axis The impact of IT on STRATEGY.

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Chapter 1 IT and Strategy Figure 1.6, page
37McFarlans Strategic Grid
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Chapter 1 IT and Strategy Figure 1.7 page
39Strategic Alignment Model
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V. Opportunities and Risk p.40-55

• The Search for Opportunities p.40-48
• Strategic Risk p.48-54

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Questions for Assessing Potential Impact of I/T
on Strategy p.41

• 1. Can I/T change the basis of competition?
• P.41-43
• 2. Can I/T change the balance of power in
  supplier relationship?
• P.43-44
• 3. Can I/T build or reduce barriers to entry?
• p.44-47
• 4. Can I/T change switching costs?p.47-48
• 5. Can I/T generate new products?p.48

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Strategic Risk p.48-54

• Can Emerging Technologies Disrupt Current
  Business Models? p.49-52
• Are We Too Early or Too Late to Exploit an IT
  Opportunity? p.52-53
• Does IT Lower Early Barriers? p.53-54
• Does IT Trigger Regulatory Actions? p.54

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Chapter 1 IT and Strategy Figure 1.8,page
50Analyzing Disruptive Technologies
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Chapter 1 IT and Strategy Figure
1.9(a)Analyzing the Cash Flow Curve,
p.53Figure 1.9(b) Comparing Cash Flow Curves
and Windows of Opportunity (As Represented by
Ovals) page 53
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MIS 6413 Chapter 1
IT and Strategy

• Dr. Richard Segall
• Spring 2006