16788 Session 1&2 IT Strategy

8/3/2019 16788 Session 1&2 IT Strategy

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Information Technology and Systems


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This course proposes to dwell on

Information Technology andits role and deployment

in organizations


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Agenda

Module I:

Role and deployment of Information Technology

14 sessions by SB and UKS

Module II:

Decision modeling using Excel

6 sessions by RR

You need to bring your laptop to the class


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Your Tutors

TTA for the course

Victor Chakraborty, [email protected]

Section A

Kuril Umeshkumar Motilal (161/46)

Sudheshna Dey (313/46)Section B

Swamy Saran Atul (327/46)

Harshvardhan Ketkar (152/46)

Section C

Sudipt Agarwal (314/46)Vikas Dosala (351/46)

Section DAmit Gupta (032/46)

Saurabh Sharma (276/46)


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But why, in the first place, ?

Some factsAccording to a study over 265 companies in 23 countries,most IT decisions are taken by technologists

According to Forrester Research study of relationship between

IT budget and financial results over 268 American firms,highest spenders are not always the best performers

High tech consultancies estimate that more than half of ITprojects go wrong

Technology investments often exceeds half of capital spending

But why?Investment decisions are guided by gut feelings

Business units request projects without taking responsibility

System planned does not match with the current priority


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What the management wants to know

How do organizations discover the next informationsystem to be deployed?


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What forces drive competition?Economies of scale

Proprietary product differences

Switching cost

Capital requirements

Access to distribution

Differentiation of inputs

Presence of substitute inputs

Supplier concentrationImportance of volume to supplier

Relative price/performance of

substitutes

Switching costs

Buyer propensity to substitute

Buyer versus firm concentration

Information availability to buyer

Brand loyalty

Price differences

Product differences

Industry growth

Cost versus value added

Product differentiation

Brand identity

Concentration and balance


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How can I remain competitive?Bargaining power of buyers

Lower cost, improve quality

Threat of new entrants

Raise the entry barrier

Threat of substitutes

Innovate, think of the substitute yourself

Bargaining power of suppliers

Increase your bargaining power as a buyer

Rivalry among competitors

Differentiate your product

Do things in a visibly different way than your competitors


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Source of Competitive Advantage

The concept of Value Chain

The framework helps to identify and analyze thestreams of activities through which products and

services are created and delivered to customerCompany performs its business by splitting the jobinto technologically and economically distinctactivities linked together in a chain

Each of these value activities adds value for theconsumer

Company is profitable only when the value createdby the chain is more than the cost for performingthe value activities


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Generic Value Activities

Primary activities

Inbound logistics

Operations

Outbound logisticsMarketing and sales

Service

Support activities

Firm infrastructure

Human resource management

Technology development

Procurement


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Company Value Chain


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An ExampleRobert Talbott: the premier necktie manufacturer

Creates four neckwear lines with 300 designs per line

Customer wants drive their demands

Has traditionally been away from technology

Identified processes that add valueInfrastructure (3.1%), HRM (7.1%), R&D (4.2%), Procurement(27%), Inbound logistics (5.2%), Manufacturing (40.3%), outboundlogistics (6.6%), Sales (4.3%), Service (2.2%)

Introduced IT for design and vendor management

Identified processes that reduce valueSales process reduced value most by promising out-of-stock items,thus losing customer faith

Introduced IT to deliver inventory updates to sales team


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How do organizations discover the next information

system to be deployed?

What would the information system interact with?


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The IT Interaction Model


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The External Environment

External environment is defined by factors like:

Competitive structure of the industry

Relative power of buyers and sellers

Basis of competitionGrowing, shrinking or stable industry

Regulation

Technological deployment

The external environment and the firms position in it

influence decisions like:Which Information Systems to be implemented

The design features of those systems

The impact on the firm and the industry


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Firm Strategy

Business strategies may have IT implicationslike:

Differentiation

Low-cost productionFocus on quality and service

Going global

Right sizing

Customer/Supplier intimacyJust-in-time inventory/manufacturing


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Organizational Structure & Culture

Firms structure and culture can influence IS designand IS success

Firms structure and culture can be influenced by

introduction of Information systemsSome decision factors may be:

Centralized versus decentralizedFunctional, divisional, matrix or networked organizationReporting hierarchy

Risk averting or risk takingValues individuality or teamwork


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Business Processes

Business processes are the set of activities, oftencutting across major functional boundaries withinorganizations, by which organizations accomplish their

missionInformation Systems have been traditionally used toautomate business processes

Automation becomes more effective when planned in

the context of larger organizational reengineeringefforts

Information System is influenced by businessprocesses and business processes, in its turn, getinfluenced by Information Systems


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IT Infrastructure

IT infrastructure represents the organizationalresources that give the firm the capacity to generatenew IT applications. It includes:

The physical components or the hardwareSoftware development tools and methodsThe Data and document repositoriesTelecommunications networksTraining materials and facilitiesUsers skills with IT

Compatibility, connectivity, reach and range

Management of IT environment


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How do organizations discover the next information

system to be deployed?

What would the information system interact with?

How do organizations decide the IS portfolio?


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Where IT can have an impact?

Impact on core operationsDoing things more efficiently

Inventory management system, Production schedulingsystem, Demand forecasting system, Sales forcemanagement system,

IT development priorities are targeted toward incremental,operational improvements that may improve companys costprofile but do little to change its position or power in theindustry

Impact on core strategiesDoing things differently

Going global, decentralizing, right sizing, being morecustomer oriented, diversifying,

If this works, it would change ; impacts companys

position or power


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Impact of IT: McFarlans Strategic Grid

Factory

Goal: Improve performance of

core process

Leadership: Business unit

executives

Project Management: Process

reengineering

Goal: Improve local

performance

Leadership: Local level

oversight

Project Management:

Grassroots experimentation

Support

ITimpactoncoreoperations Strategic

Goal: Transform organization

or industry

Leadership: Senior executives

and Board

Project Management: Change

Management

Goal: Identify and launch new

ventures

Leadership: Venture

incubation unit

Project Management: New

venture development

Turnaround

IT impact on core strategy

Low High

High


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An example: Cisco

Engaged in the business of manufacturing items thatprovide infrastructure for the Internet

Ciscos portfolio management approach is called E-Business Value Matrix

Every IT project must belong to one of the four categoriesto assess its value to the company.

New Fundamentals: low risk, increases productivity, in overheadareas, little user involvement, 3-6 months

Operational Excellence: medium risk, involves reengineering, highlyvisible, provides faster access to information, 12 month

Rational Experimentation: experiments with new technologies andideas, low criticality, incremental funding

Breakthrough Strategy: high risk, huge impact on company andindustry, managed like startups, venture capital like funding


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E-Business Value Matrix

New Fundamentals Low Low

OperationalExcellence

High Low

RationalExperimentation

Low High

BreakthroughStrategy

High High

Criticality toBusiness

Newness ofIdea


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Enters internet

(+) Eliminates intermediatechannels(-) Buyer has moreinformation about competitors& products(-) Switching cost is low

(-) Reduces barriers such asneed for sales force, physicalassets, access to channels(-) Initiatives are easilyimitated by the new entrants

(+) Network effect (value ofproduct increases as thenumber of users increases)thwarts substitutes(-) Opens up entirely newways to meet customer need

(+) More options are availableto choose supplier from(-) Suppliers, too, have moreoptions for customers

(-) Reduces difference amongcompetitors as offerings aredifficult to keep proprietary(-) Widens the geographicmarket increasing the numberof competitors(+) Widens the geographicmarket increasing the numberof buyers On the whole,

Porter says,

internet reducesyour profitability


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But what makes the impact so

revolutionary?Value chain or value system also includes all theinformation that flows within a company, between acompany and its suppliers, its distributors and its existingor potential customers.

Earlier information used to move along with the product.

Now information can be unbundled from its physicalcarrier and made to travel by itself.

Information and the mechanism for delivering it shapeindustry structure and underlie competitive advantage.

Information is now a commodity and a business by itself.


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Now your profitability depends on,

Leveraging IT towards

Commerce: to improve internal and external operations

Content: to provide richness of information

Community: to increase commitment and loyalty ofstakeholders

Judicious balance between

Reach: defined by the number of suppliers, distributors andcustomers you can access; and

Richness of content: defined byBandwidth, amount of information that can be moved

Customization, tailored for individual recipients

Interactivity, allowing dialogue


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Strategic Positioning in the Internet: Factors

Internal Drivers

Degree of collaboration

Information & System requirements

Cost containment

External Drivers

Competition

Customer connectivity

Technology


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Strategic Positioning in the Internet:

OptionsCost/Efficiency

Internet acts as a low-cost substitute for othercommunication channels. EDI links

Performance ImprovementWeb tools used to integrate resources, support virtual teamsand distributed decision making. Intranets, Groupware

Market Penetration

Public websites allowing for on-line customer interaction,support, and value-added services. Fedex

Product Transformation

Unique internet-based products.Amazon, electronic banking


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Cronins Internet Strategic Grid

Market

Penetration

Product

Transformation

Cost/Efficiency PerformanceImprovement

ExternalDrivers

Internal Drivers

Low

Low

High

High


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Competing in the age of information

Assess information intensity

High information intensity in the value chain

High information intensity in the product

Determine role of information in the industry structure

How each of the five competitive forces may be affected

Identify and rank the ways in which information technologymight create competitive advantage

Cost, quality, differentiation, service, reach, customization

Investigate how information technology might spawn newbusinesses

Information that can be sold, idle information processing capacity

Develop a plan for taking advantage of information technology

Balance among investment, expected advantage and risk

Your coordinates in the strategic grid


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Implications

Value chain may get deconstructedITC e-Choupal

Fragments of value chain can give rise to separate businessesAll the BPOs

Businesses can benefit from network economies of scaleWalmart

New businesses will be spawned to help navigate throughinformation

Navigators, search engines, portals

Bargaining power will shift to customer as no one will havemonopoly over information

BanksCustomer loyalty will be difficult to retain as switching costsreduce

Amazon.com

Assets of legacy business may become a liabilityEncyclopedia Britannica


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In summary

Information Technology is affecting competition inthree vital ways:

It creates competitive advantage by giving companies new

ways to outperform their rivals

It changes industry structure and, in so doing, alters therules of competition

It spawns whole new businesses, often from within acompanys existing operations

16788 Session 1&2 IT Strategy

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Transcript of 16788 Session 1&2 IT Strategy