1. 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 Rick Eaton

2. 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 Rick Eaton

3. 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 Rick Eaton

4. 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 Rick Eaton

5. 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 Rick Eaton

6. 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 Rick Eaton

7. 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 Rick Eaton

8. 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 Rick Eaton

9. 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 Rick Eaton

10. 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 Rick Eaton

11. 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 Rick Eaton

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

13. 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 Rick Eaton

14. 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 Rick Eaton

15. 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 Rick Eaton

16. 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 Rick Eaton

17. 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 Rick Eaton

18. 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 Rick Eaton

19. 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 Rick Eaton

20. 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)
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MIS Rick Eaton

21. 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 Rick Eaton

22. 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 Rick Eaton

23. 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 Rick Eaton