IT and Business Advantage > US$ 2 trillion spent on IT worldwide in 2007 Continued rapid spending growth Truly global spending distribution Ever increasing dependence on and impact of IT Search for opportunity Avoidance of operational risk Module 1 discusses how to leverage IT to create business advantage. Information technology (IT) spending worldwide exceeded US$ 2 trillion in 2007—a substantial increase over the preceding year and, despite a struggling economy, analysts projected that worldwide IT spending would grow eight percent in 2008.[1] One third of IT spending now comes from developing and newly-developed countries (outside of N. America, Western Europe and Japan). This spending includes both the search for opportunity and the avoidance of operational risk that accompanies our ever-increasing dependence on and the impact of IT. Exploiting opportunities while avoiding risk requires vision, sound execution, and the ability to respond quickly. It also requires a deep understanding of how industries, markets, and organizations are built and managed for optimal performance. The chapters in this module enable discussion of approaches executives use, decisions they make, and issues they face as they attempt to leverage IT to create business advantage. [1] Barrels, A., “Global IT Market Outlook,” Forrester Research Services, March 6, 2006

Overview of Chapters Chapter 1 Chapters 2 Chapter 3 Chapter 4 Introduces the organizing framework for the module Defines a business model Explores evaluation of business models Chapters 2 Examines the impact of IT on business models Chapter 3 Examines the impact of IT on organizational capabilities Chapter 4 Examines the impact of IT on business value The module includes four chapters. Chapter 1 introduces the basic organizing framework for the module. It begins with a short overview that provides the definition of a business model; it then identifies an approach to conducting a business model audit. Chapters 2, 3, and 4 provide a detailed examination of the impact of IT on the three key components of a business model—strategy, capabilities, and value.

The Five Competitive Forces that Shape Strategy Michael Porter’s classical theory of strategy formulation Original HBR article in 1979 Simple, powerful description of five forces Five forces analysis in practice Five forces distinguished from contemporary “factors” (e.g. the internet) What can we learn from this article? How economic value is created and claimed by participants in a business network or industry How IT might change the relative strength of each force In 1979, Michael Porter published his classic HBR article, "How Competitive Forces Shape Strategy." In the years that followed, his simple, yet powerful, description of the five forces that determine the long-run profitability of any industry has shaped a generation of academic research and business practice. In this article, published in 2008, Porter undertakes a thorough reaffirmation and extension of his classic work of strategy formulation, which includes substantial new sections showing how to put the five forces analysis into practice. The five forces analysis differs from a business model audit in that it describes the mechanisms through which economic value is created and claimed by participants in a business network or industry. This value may be “drained away” by the rivalry among existing competitors or it can be “bargained away” through the power of suppliers or customers. It can also be constrained by the threat of new entrants or the threat of substitutes. It is recommended that this article be read prior to reading Chapter 2.

Amazon.com: The Brink of Bankruptcy Traces evolution of Amazon.com from founding in 1994 to 2001 The case ends with the company poised at the “brink of bankruptcy” What can we learn from this case? Apply business model thinking Demonstrate how IT can be used as a key driver of business value through its impact on strategy and organizational capabilities Identify how to identify IT-enabled proprietary assets that can serve as a platform to exploit disruptive change The Amazon.com case traces the evolution of Amazon.com’s business model from its founding in 1994 to early 2001. The case ends as the company stands poised on the “brink of bankruptcy.” Jeff Bezos, founder and CEO, is convinced that the company will be able to leverage its strategic position, within a network of customers, suppliers, and partners, and the capabilities it built, to achieve profitability by year-end 2001. Do you agree? And, if so, how will he achieve this seemingly insurmountable goal? While all are familiar with the outcome of this case, the story of how Bezos achieved his goals provides powerful insights on the impact of IT on business model performance.

Canyon Ranch Founded in 1979 Leader in health resort and spa industry Facing increasing competitive pressure Goal: leverage customer information to increase customer loyalty and cross-selling opportunities Role of IT in building CRM capabilities What can we learn from this case? How to use information assets to drive business value How IT can shape strategy and capabilities Founded in 1979, Canyon Ranch had become a leader in the health resort and spa industry. At the time of the case in 2004, however, the company was facing increased competitive pressure and had turned to its 20-person IT department to provide the information needed to better understand its customers, create loyalty, and cross sell its offerings. Less than eight years before, the company’s IT function had consisted of a single programmer who maintained a single dominant IT system—the company’s Property Management System. While IT capabilities had increased, integration and information access remained a challenge. The case enables discussion of opportunities to use IT to drive business strategy and specifically addresses the role of customer relationship information and business intelligence as proprietary assets that drive business value.

Boeing’s e-Enabled Advantage Until late 1990s, largest commercial airplane company Airline industry faces multiple challenges Customers face increased cost pressure Fragmented suppliers Boeing drops to #2 behind government-subsidized rival, Airbus Strategic goal: use IT to regain market dominance More information-driven product and service offerings Improved IT-enabled efficiency What can we learn from this case? How to use IT to differentiate a product and create new revenue streams by selling packaging and selling information and by creating new service offerings For decades, Boeing, a large aerospace company, had dominated the world’s commercial aviation market. But the airline industry was reeling from simultaneous blows, including terrorist attacks, rising fuel prices, consolidation, cost pressure and increasing competitive intensity. Every player in the industry was struggling to survive. Boeing’s main rival, European based Airbus, responded to these pressures through massive investments from its European government owners that enabled it to build planes to compete head-on with Boeing and then to sell them at lower prices. In 1999, Airbus outsold Boeing for the first time in history and Standard & Poor’s analysts stated that there was no clear differentiation between Airbus and Boeing planes. While airplanes had long depended on embedded IT for flight controls and operations, it was in 1995, that a Boeing plane had an installed local area network inside the aircraft that could provide real-time information to flight crews, ground personnel, airline executives, and passengers. By 2004, Boeing executives believed that its “e-Enabled Advantage” would be the source of differentiation and leadership for decades to come. The case examines Boeing's new strategy of offering services to regain market dominance and help its struggling airline customers improve efficiency and profitability.

Royal DSM N.V.: IT enabling Business Transformation Diversified Netherlands-based company Coal mining, industrial chemicals, life science products, etc. Strategic shift from highly cyclical businesses to high growth businesses Rapid divestitures and acquisitions Use IT to enable rapid growth and acquisition integration Standardization of IT infrastructure and applications IT function shifts from support to strategic What can we learn from this case? How to leverage IT in support of organizational flexibility and agility How to use IT to build an organizational platform for business transformation In 2000, Royal DSM N.V. (DSM), a Netherlands-based company, that had its origins in coal mining but had expanded into industrial chemicals, performance materials, and life sciences products, was poised for change. In an effort to move away from the mature, highly cyclical petrochemicals business and into the more stable and high growth life sciences and performance materials businesses, DSM planned to radically alter its portfolio through divestitures and acquisitions. The corporate strategy, termed “Vision 2005: Focus and Value,” called for the company to divest a significant part of its core petrochemicals business and to make acquisitions in areas in which the company had relatively little experience. DSM executives anticipated that the transition would be complex yet wanted to move quickly. One of the biggest challenges would be upgrading the company’s Information and Communication Technology (ICT) to enable execution of the company’s strategy of aggressive growth through mergers and acquisitions. This case enables examination of the impact of IT on the rapidly-changing business model of the company while also enabling a thorough exploration of how to build IT capabilities to transition the role of IT from one of support to one of strategic importance.