Information Technology

1
Chapter 2

• Information Technologys Strategic Importance

2
Introduction

• IT is changing the fabric of our society
• Shifts power from governments to citizens
• Flow of intellectual property is no longer
  constrained by national boundaries
• IT is changing business
• Senior executives expect IT to play a central
  role in streamlining operations and to link
  customers, suppliers, and employees more closely

3
Strategic Issues for Senior Executives

• Obtain or maintain competitive advantage
• Use the Web to facilitate intra- and
  inter-organizational linking
• Enable decentralized operations with effective
  central coordination
• Develop flexible and responsive infrastructures
  for the firm
• Capitalize on fleeting but critical business
  information

4
Time Criticality of Information

• Modern IT enables the creation of highly
  decentralized operations that can rapidly respond
  and exploit high value information that is short
  lived
• These decentralized structures must be quickly
  adaptable to shifting opportunities in a highly
  competitive environment
• By enabling these agile operations, IT can be
  expected to directly contribute to the bottom line

5
Strategic Information Systems

• These are information systems whose unique
  functions or specific applications shape an
  organizations competitive strategy and provide
  it with competitive advantage
• These are internal or external systems
• These systems provide a firm with competitive
  advantage
• Systems range from transaction processing systems
  to decision-support systems

6
Visualizing Competitive Forces

• Michael Porter developed a model to help
  visualize competition
• To gain a competitive edge within an existing
  industry competitors must
• Diminish customer and supplier leverage
• Lower the possibility of substitute products
  entering the marketplace
• Discourage new market entrants

7
(No Transcript)
8
Strategic Thrusts

• In 1988, Charles Wiseman created a detailed
  addition to the general framework of strategy
  development
• He created a theory based on five thrusts
• Differentiation
• Cost
• Innovation
• Growth
• Alliances

9
Differentiation

• The firms products or services are distinguished
  from competitors products or services, or
  conversely a rivals differentiation is reduced
• For example, Automated Teller Machines (ATMs)
  distinguish the services of some financial
  institutions from others

10
Cost

• Advantage is attained either by reducing costs to
  the firm, to its suppliers, or customers, or by
  increasing costs incurred by competing firms
• For example, advanced order-entry systems or
  business-to-business e-commerce systems reduce
  both suppliers and customers business costs

11
Innovation

• Introducing changes to the product or process
  causes fundamental shifts in the way the industry
  conducts its business
• Web-based trading was introduced by some
  brokerage firms, and became widely offered by
  others as the standard level of service expected
  by customers began to include Web-based access

12
Growth

• Advantage is secured by expansion, forward or
  backward innovation, or by diversification in
  product or services
• The Wall Street Journal and other national
  newspapers used electronic transmission and
  remote printing facilities to create a national
  distribution, thus expanding the potential market

13
Alliance

• Firms achieve advantage by establishing
  agreements, forming joint ventures, or making
  acquisitions
• Many national companies use joint ventures for
  strategic thrusts. Even rivals join together
  such as Microsoft and IBM when it serves a mutual
  purpose

14
Time

• Competitive advantage is secured by rapid
  response to changing market conditions or by
  supplying a more timely flow of products or
  services
• Electronic design automation tools, CAD/CAM
  systems, and production logistics systems are
  thrusts that increase manufacturings response to
  the marketplace

15
New Economy Paradigms

• The Internet and the World Wide Web have enabled
  firms to capture the advantages of all six
  thrusts quickly
• The Internet has reshaped the competitive
  landscape for business and industry
• The Internet has created a global marketplace
  with increasing international trade

16
Strategic Systems in Action

• Over the past two decades, information systems
  have been used to create value in business. Two
  industries, airlines and financial services,
  created systems that have resulted in significant
  competitive advantage to their owners.
• These systems have not been static, and their
  evolution is impressive given the dramatic
  changes in technology and the business
  environment over time.
• Boring -Lets talk about something fun.

17
Differentiation

• January 9, 2001 - Apple introduces iTunes for the
  Macintosh, a program that converts audio CDs into
  compressed digital audio files, organizes digital
  music collections, and plays Internet radio.
• October 23, 2001 - Apple unexpectedly announces
  the first iPod at a price of 399. Unlike most
  competing digital audio players, Apple relies on
  a hard disk for storage instead of flash memory
  or interchangeable CD-ROMs, and uniquely focuses
  on promoting the small size, power, and ease of
  use of its device. Did Apple release iTunes with
  the iPod in mind? According to an official Apple
  timeline, development of the iPod began only six
  months earlier.

18

19
Cost

• Mid-November, 2001 - Third-party developers begin
  to write workaround software that lets the iPod
  work with PCs.
• July 17, 2002 - Apple makes four major
  announcements. First, PC versions of the iPods
  are unveiled, including MusicMatch software
  instead of iTunes. Second, a 20GB iPod is
  introduced. Third, 10GB and 20GB models now sport
  a new touch-sensitive Scroll Wheel instead of an
  actual moving wheel, which was easier to damage.
  And finally, iPod prices are lowered 5GB drops
  to 299, 10GB drops to 399, and the 20GB model
  sits at 499.
• October, 2002 - By this point, retailers Best
  Buy, Dell, and Target have all started to sell
  iPods.

20
Innovation

• April 28, 2003 - Big news Apple unveils the
  updated "third-generation" iPod and the iTunes
  Music Store for Mac users. The new iPods are
  thinner and smaller than before, feature a bottom
  Dock Connector port rather than a top-mounted
  FireWire port, and have entirely touch sensitive
  controls.
• Apple's iTunes Music Store launches with 99 cent
  per track / 9.99 per album pricing and a library
  of 200,000 songs, but isn't yet available for PC
  users.
• October 16, 2003 - Apple releases both iTunes and
  the iTunes Music Store for U.S.-based PC users,
  phasing out support for MusicMatch PC software in
  the process. Apple also announces total sales of
  13,000,000 songs via iTunes since launch.

21
(No Transcript)
22
Growth
23
Alliance

• January 8, 2004 - In an entirely unexpected move,
  personal computer heavyweight Hewlett-Packard
  announces at the Las Vegas Consumer Electronics
  Show that it will license the iPod from Apple
  rather than develop a competing product. HP CEO
  Carly Fiorina promises to release and sell a "HP
  blue"-colored iPod by Summer, and agrees to
  market iTunes to its PC customers almost
  immediately.
• August 27, 2004 - Hewlett-Packard announces the
  Apple iPod from HP (or iPodhp), a repackaged
  version of the 4G iPod with new manuals and
  HP-supplied technical support.

24
Time

• October 12-14, 2004 - Analysts report that iPod
  sales are 82 of all digital music players and
  92 of all hard-drive based players nearest hard
  drive competitor Creative has 3.7. Over
  2,000,000 iPods were shipped in the prior 3
  months alone, and iTunes downloads hit
  150,000,000, a rate of 4 million downloads per
  week.
• January 11, 2005 - Apple announces the iPod
  Shuffle for 99.00 to capture the remaining
  market of solid state mp3 players

25
(No Transcript)
26
Where are the Opportunities

• Most commonly, opportunities present themselves
  as product or service offerings that
  differentiate themselves from others through the
  application of IT
• Innovative use of technology in the right
  application
• Lowers business costs
• Reduces time barriers

27
Importance of Technology

• Advanced technology shapes the products and
  services of the future
• IT offers opportunities for innovative
  organizations to increase their value
• Information is so fundamental to business today,
  that small advances in information management are
  magnified as these increases are amplified across
  business processes

28
The Time Dimension

• Time is an irreplaceable asset and source of
  competitive advantage
• Information Technology and modern
  telecommunications systems are well suited to
  leveraging time as a strategic thrust
• Just-in-time manufacturing (JIT) is a common
  example

29
McDonnell Douglas Corp

• Implemented a JIT system for coordination of work
  flow. The resulting system required
• 111 new programs
• Modifications to 97 other programs
• 1900 person hours of programming labor
• Meetings for project planning and execution

30
JIT Benefits at McDonnell Douglas
31
Media Breaks

• Media breaks occur when information goes from
  voice to paper, paper to digital or other like
  transitions
• Media breaks require human intervention, incur
  costs, risk errors, and take time
• Unified information systems eliminate media
  breaks, decreasing cost in time and money

32
Strategic Value of Networks

• Offers significant reductions in time and
  distance barriers
• Enhances business processes and improve business
  efficiency
• Digital business information reduces errors,
  lowers costs, and improves control
• Innovative applications of telecom and IT can
  create new markets and expand customer demand

33
Networkings Strategic Value
34
The Strategist Looks Inward

• Strategic systems are conceived by first
  analyzing the firms internal functions
• 85 of all e-business infrastructures are
  patterned after non online legacies
• Firms commonly have a portfolio of hundreds to
  thousands of applications
• Deciding which ones to automate requires a keen
  understanding of the firms strategy,
  competitors, and culture

35
External Strategic Thrusts

• How external factors create strategic
  opportunities
• A more complicated set of questions
• Requires a more global view of the company and
  its place in the industry (upper management)
• Requires a well-grounded understanding of
  technology and its strengths and limitations
  (Information Technologists)

36
Integrating the Strategic Vision

• Using a three dimensional model, all three groups
  of strategic influences can be represented
• Strategic Thrusts (Differentiation, Cost,
  Innovation, Growth, Alliance, and Time)
• Competitive Groups (Suppliers, Competitors, and
  Customers)
• Strategic Focus (Internal and External)

37
Integrated Model of Strategic Influences
38
Value Chains for E-Business

• Modern e-business models operate in nearly all
  the dimensions of the figure
• Use internal (example ERP) and external
  (Web-based B2C and B2B)
• Exploit the six strategic thrusts
• Firms adopting e-business models reconstruct
  their value chains around powerful new
  information technology

39
Other Considerations

• Strategic information systems have several common
  characteristics worth noting
• Organization and Environment
• Financial Implications
• Legal Considerations

40
Organization and Environment

• Strategic information systems alter the market
  environment and create fundamental changes in the
  field of competition
• Competitors must adapt to the new landscape or
  face disadvantage
• Survivors of this process re-establish an
  equilibrium

41
Financial Implications

• Strategic information systems require continued
  investments to sustain their advantages
• First movers capture time at expense of cost and
  potential failure
• Even established firms can be beaten when
  technology appears that is so disruptive, like
  the Internet, that no advantage exists for the
  incumbents

42
Legal Considerations

• Resort to the courts can be a tool for
  competitors to blunt the advantages gained by
  technology
• Protection of intellectual property by patents
  can also be a powerful tool to further the
  advantages of an innovator by denying the
  competition access to a newly created market

43
Cautions

• Most strategic information systems are
  evolutionary. They are based on pre-existing
  systems within the firm
• Successful firms focus on the details of success
  instead of a grand scheme. Lasting competitive
  advantage is not found in a few grand strokes
• The entire firm must be competitive across all
  areas. IS alone can not deliver a killer app
  that eliminates the competition

44
Summary

• Information technology is vital to the continued
  success of modern firms
• Senior leadership understands that IT is a potent
  source of competitive advantage
• They are prepared to invest in needed
  applications and hardware, but expect a
  substantial return on that investment