Mgt 20600: IT Management & Applications Catalysts for IT Investment Thursday January 26, 2006

Reminders  Reading –For today  Fundamentals text, Chapter One  HBR article, “Why IT Doesn’t Matter Anymore” –For next week  Fundamentals text, Chapter Two, Hardware section  Next week’s class session: Hardware

“Why IT Doesn’t Matter Anymore” Discussion  Does the provocative title of the article accurately match the content?  Can you think of ways to counter the author’s argument?  Can you think of examples that run counter to the author’s argument?

“Why IT Doesn’t Matter Anymore”  Major points –Core functions of IT available to all  Can no longer provide a competitive advantage  Are now commodity factors of production  Need to turn focus to risks of disruption of IT infrastructure  Should eliminate wasteful spending on IT

“Why IT Doesn’t Matter Anymore”  Video: McNealy defends value of IT in business Video: McNealy defends value of IT in business Video: McNealy defends value of IT in business

“Why IT Doesn’t Matter Anymore”  Counterarguments –Some technologies may have become commodities but what really matters is how they are used  Example: Organizations use commodity wireless devices differently and those differences may provide competitive advantage –It’s not the technology itself that’s important, it’s thinking up and implementing new tech-enabled business processes that improve organizational performance –Organizations differ with respect to the efficiency and effectiveness with which they deploy and use technology, ultimately affecting organizational performance –Technology continues to evolve – yesterday’s invention is today’s commodity but the inventions keep on coming  Incorporating the inventions will continue to confer competitive advantage  Example: Radio frequency id tags (RFID)

Reasons for Adoption of Business Information Systems  Gives firm a competitive advantage –Significant, long-term benefit to a company over its competition –Ability to establish and maintain a competitive advantage is vital to a company’s success  Improves firm performance –Cuts costs –Higher productivity –Earnings growth –Market share –Customer awareness and satisfaction

Strategic Use of Business Information Systems  Change the structure of the industry  Create new products or services  Improve existing products or services

Strategic Use of Business Information Systems  Radio –Catalyst for change? –Change the structure of the industry –Create new products or services –Improve existing products or services  Phone Service –Catalyst for change? –Change the structure of the industry –Create new products or services –Improve existing products or services

Performance Improvement: Insurance Carrier IT Spending  Conservative spending on IT –Low proportion of revenues spent on IT compared to financial services firms –1% IT budget increases in 2005  Plan to increase spending on –Internet initiatives –Storage servers –PCs –Application development  Strategic goals for IT expenditures –Reduce operating costs –Acquire customers –Improve quality and employee efficiency

Performance Improvement: Home Depot  Has been relying on in-house developed systems that have become too costly to maintain  Now want new technology to support –Company’s expansion –Improved store operations –Improved customer service

Performance Improvement: Home Depot  Undertaking a $1 billion overhaul of its IT infrastructure –Replace old Point-of-Sale systems –Install self-checkout counters –Local area network upgrades –Data warehousing for sales and labor scheduling data –Price optimization software –SAP financial software –PeopleSoft ERP (enterprise resource planning) software –New software applications to streamline price check and receipt lookup services

IT Impact  Innovation on the Rise –Almost three-fourth’s of CIO’s surveyed think IT should lead the business rather than just support it. But they predicted that lowering costs will continue to be IT’s number-one contribution to the enterprise. However, they said that IT- enabled business innovation will increase in 2006, while compliance concerns will lessen.

IT Impact  CIO’s view of IT’s impact on the enterprise in order of amount of impact –Reduce costs through efficiency/productivity –Enable/drive business innovation –Create or enable competitive advantage –Improve external customer satisfaction –Grow existing revenue streams –Generate/enable new revenue streams –Enable regulatory compliance –Enable global operations –Streamline the supply chain

IT Impact  Business Processes improved with IT –Accounting and finance77% –Customer service and support70% –Human resources59% –Asset management and maintenance44% –Sales42% –Inventory management41% –Marketing41% –Order and invoice processing41% –Supply chain/Logistics34% –Order fulfillment31% –R&D/Product development26% –Manufacturing20% –Other17%

IT Impact  CIO’s view of IT’s role in the organization –73%: IT should proactively envision business possibilities and initiate with technology –27%: IT should support and enable predefined business initiatives

Technology Priorities  Top 10 CIO Technology Priorities –Integrate/enhance systems and processes –Ensure data security and integrity –Enable business intelligence –External customer service/relationship management –Redesign or rationalize the IT architecture –Enable or enhance e-commerce –Enable mobile/wireless –Deploy web services –Automate or optimize the supply chain –Scale IT globally

Top Management Priorities  Top 10 CIO Management Priorities –Align IT and business goals –Business continuity/risk management –Control IT costs –IT-enabled process improvement –Improve internal user satisfaction –Develop IT staff leadership/business skills –Improve project management discipline –Ensure privacy of customer and employee data –Enable or enhance knowledge management and leverage intellectual assets –Ensure regulatory compliance

Responsibility for IT  The majority of CIO’s say that IT and business leadership share accountability for ROI from IT investments. But nearly two-thirds of CIO’s say that the IT organization controls IT spending rather than sharing it with business.

Reminders  Reading –For today  Fundamentals text, Chapter One  HBR article, “Why IT Doesn’t Matter Anymore” –For next week  Fundamentals text, Chapter Two, Hardware section  Next week’s class session: Hardware