Strategic Uses of Information Technology IT in the value chain Business change models BPR versus continuous improvement Seeking and gaining competitive advantage Drivers of IT investments Measuring the value of IT investments Justifying IT investments 1/13/2019 MIS 221 - Rick Eaton

IT in the Value Chain Old view: IT was external to the value chain Used to monitor and control processes Current view: IT is integral to the value chain IT is a major component of the value chain 1/13/2019 MIS 221 - Rick Eaton

Business Change Models Continuous improvement Incremental, gradual change to existing processes and business models Business Process Redesign/Reengineering More radical and rapid change 1/13/2019 MIS 221 - Rick Eaton

Continuous Improvement Implies incremental changes to information systems in a business Problem: IT-inhibited change Problem: The cost of “minor” changes versus the benefits 1/13/2019 MIS 221 - Rick Eaton

Business Process Redesign/Reengineering Use IT as well as other tools Organization redesign Alliances Aim is to radically improve results Quality Speed Cost 1/13/2019 MIS 221 - Rick Eaton

Business Change Model In stable industry, both will be used In unstable industry, what will we see? Mergers and acquisitions Financial distress 1/13/2019 MIS 221 - Rick Eaton

Competitive Advantage The best companies strive to achieve a competitive advantage in the market place A long-term advantage A significant advantage Can only be achieved through the successful execution of a strategy 1/13/2019 MIS 221 - Rick Eaton

Seeking Competitive Advantage Porter’s Five-Force Model Rivalry among existing competitors Threat of new entrants Threat of substitute products and services Bargaining power of buyers Bargaining power of suppliers 1/13/2019 MIS 221 - Rick Eaton

How Can Companies Achieve Competitive Advantage? Reduce costs Enables products to be sold for less or Provides higher profit margins Create barriers to entry Expensive equipment or software Intellectual property 1/13/2019 MIS 221 - Rick Eaton

How Can Companies Achieve Competitive Advantage? (2) Create high switching cost Cost to implement competitor’s product or service Create new products or services Advantage won’t last Differentiation and Branding Distinguish your products from your competitors 1/13/2019 MIS 221 - Rick Eaton

How Can Companies Achieve Competitive Advantage? (3) Product or service enhancement Offer something competitors can’t (or don’t) EMC drives Extended auto warranties Strategic alliances Long term, close relations with business partners Buyer or supplier lock-in Provide a way of interacting which is hard to replicate Volume purchases 1/13/2019 MIS 221 - Rick Eaton

Using IT for Competitive Advantage Reduce cost Create barriers to entry Create high switching costs Create new product or service 1/13/2019 MIS 221 - Rick Eaton

Using IT for Competitive Advantage Enhance a product or service Form strategic alliances Differentiation and branding Buyer or supplier lock-in 1/13/2019 MIS 221 - Rick Eaton

How Are Information Systems Used to Achieve Competitive Advantage? Reduce costs Use systems for automation Use systems to increase inventory turns, lower labor content, increase customer service Create barriers to entry Invest early and innovatively in software E.g. Sabre 1/13/2019 MIS 221 - Rick Eaton

How Are Information Systems Used to Achieve Competitive Advantage? Create high switching cost Create new products or services E.g. Web based ordering Differentiation and Branding Customer knowledge can enhance purchase experience and service E.g. customer recognition, communication 1/13/2019 MIS 221 - Rick Eaton

How Are Information Systems Used to Achieve Competitive Advantage? Product or service enhancement E.g. custom reporting Strategic alliances IS investments can make the partnership “real” Buyer or supplier lock-in Proprietary communication methods with suppliers or customers E.g. McKesson, Baxter 1/13/2019 MIS 221 - Rick Eaton

Decision Considerations What kind of competitive advantage are we going to seek? What is the most effective means of gaining this advantage? Would better information help to establish this advantage? Can an information system be developed to provide better information or otherwise help create the advantage? 1/13/2019 MIS 221 - Rick Eaton

Decision Considerations (2) Is the development economically justified? How much will it cost to develop? How long will it take? Can we successfully implement it? Can competitors match this investment? Will the effort have a sufficiently high ROI? What are the risks of not doing this? What are the alternatives? There are always alternatives! 1/13/2019 MIS 221 - Rick Eaton

IT Investment Drivers Earlier: Cost reduction and productivity Later: Strategic considerations Today: Combination – strategic with cost focus Tomorrow: security and continuity? 1/13/2019 MIS 221 - Rick Eaton

Determining Investment Value ROI or NPV Attempt to quantify incremental profit versus cost Market share Brand equity Customer retention and satisfaction Total cost of ownership (cost side) 1/13/2019 MIS 221 - Rick Eaton

Justifying IT Investments Hard savings Soft savings Legal requirement Modernization Pilot project The best investments can be justified by a combination of the above 1/13/2019 MIS 221 - Rick Eaton

Other Considerations Some systems are enhanced from non-strategic systems into strategic systems Competitive advantage is always a moving target! Yesterday’s competitive advantage is today’s basic business requirement E.g. doing business on the web 1/13/2019 MIS 221 - Rick Eaton

Why Failures Occur The strategy was wrong Failure move to quickly Reengineering proved to be very difficult Requires lots of time, money and management commitment Lots of internal resistance Big efforts are much harder than smaller ones “Boiling the ocean” Technological problems 1/13/2019 MIS 221 - Rick Eaton