Boise State University, Executive MBA, 2013 IT Competitive Advantage, Rob Anson Slide 1 Creating...

Boise State University, Executive MBA, 2013 IT Competitive Advantage, Rob Anson Slide 1

Creating Competitive Advantage with IT:

A Business Value PerspectiveEMBA 514

Rob Anson, Ken WileyMarch 15, 2013

Readings• IT Doesn’t Matter? Nicholas Carr, HBR, 2003• IT Does So Matter! Kathleen Melymuka,

Computerworld, 7/7/2003• The Grill: Nicholas Carr Joyce Carpenter,

Computerworld, 3/3/2008• A Simple Framework to Translate IT Benefits

Into Business Value Impact Richard Hunter, et. al., Gartner, 2008

• Defining the Business Value of Cloud Computing Tyson Hartman and Larry Beck, 2009 White paper from Avanade consulting

Pre Session Assignment: (Individual) One-Minute BriefTake a stand on whether or not IT matters in your organization (where you currently or recently worked) by recommending a new information technology or a new approach to IT.

Briefly identify the technology or approach, and position it within the Gartner investment framework.

Then argue for its adoption. In your argument, draw upon the discussions for or against Carr’s position, and the framework from the Gartner report.


Agenda Does IT Matter?

◦ In PrincipleDiscussion

Strategic and Business Value Views of IT◦ In OrganizationsStories--In your organization

Obtaining Business Value From IT◦ Investments in IT Investment Competition

Business Value Considerations in Cloud Computing◦ Guest Speaker: Ken Wiley,

Managing Principal, Wiley & Associates, LLCQ & A

DOES IT MATTER?


IT Doesn’t Matter. Does so!Competitive Advantage at

best fleeting IT ubiquitous,

standardized, commoditized—opposite of scarce

IT is a utility, an infrastructure, not a differentiator

Firms should:◦ Spend less◦ Follow, don’t lead◦ Focus on vulnerabilities, not

opportunities

IT is inherently strategic because it enables new things, which enables differentiation

Computers are ubiquitous, but insight to use them is scarce

IT enables incremental (not big bang) improvements business change advantage

IT co-creates capacity

STRATEGIC AND BUSINESS VALUE VIEWS OF IT

“Conventional IT strategic planning is similar to a funeral for a head of state. It is infrequent, requires very powerful people to come together and be miserable, and the end result is buried and quickly forgotten.” (Anonymous)


Business Value for IT Equation

BV(IT) =

Business performance IT Spending

Business performance: The ability of the enterprise to achieve or exceed its objectives.

(Hunter, 2007)

Mathematically, there are two ways to increase BV(IT)


BV(IT) =


Option OneIT Spending is a cost to minimize in order to improve the business value of IT

How can you improve the Business Value of IT spending?

“IT Doesn’t Matter” Interpretation

“Most strategies focus on providing efficient and effective IT services...”


BV(IT) =


Option TwoIT Spending is a critical factor in achieving Business Performance.

“IT Does Matter” Interpretation

How can you improve the Business Value of each IT dollar spent?

“IT spend that improves business performance is the cost of doing business in a particular way—not the cost of IT.”


How can IT spending help achieve Business Performance—create Business Value?


Porter Generic Strategies Framework

Differentiation

Overall Cost Leadership

Uniqueness Perceived by

Customer

Focus

Low Cost Position

Industry wide

Particular Segment Only Cost

FocusDifferentiation

Focus

(Pearlson & Saunders, 2010)

Porter identifies three primary strategies for achieving sustained competitive advantage that derive from the company’s relative position in the marketplace.


Disruption and the 7 S’sVision for Disruption

Identifying and creating opportunities for temporary advantage through understanding

• Stakeholder Satisfaction• Strategic Soothsaying

Directed at identifying new ways to serve existing customers better or new customers that are not currently served by others

Tactics for DisruptionSeizing the initiative to gain advantage by

• Shifting the rules• Signaling• Simultaneous and

sequential strategic thrusts

With actions that shape, mold, or influence the direction or nature of the competitors response

Capability for DisruptionSustaining momentum by developing flexible capacities for

• Speed• Surprise

That can be applied across actions to build temporary advantages

MarketDisruptio

n



7 S’sApproach Definition

Superior Stakeholder Satisfaction

Understanding how to maximize customer satisfaction by adding value strategically

Strategic Soothsaying

Seeking out new knowledge that can predict or create new windows of opportunity

Positioning for Speed

Preparing the organization to react as quickly as possible

Positioning for Surprise

Preparing the organization to respond to the marketplace in a manner that will surprise competitors

Shifting the rules of competition

Finding new ways to serve customers which transform the industry

Signaling strategic intent

Communicating the intended actions of a company, in order to stall responses by competitors

Simultaneous and sequential strategic thrusts

Taking a services of steps designed to stun and confuse competitors in order to disrupt or block their efforts



Organizational Views of IT

Low

High

Bu

sin

ess

Perc

ep

tion

of

IT

valu

e

IT delivers technology

IT doesn’t deliver

• IT perceived as cost, not an investment in business performance

• CIO and IT team talk technology performance, not business performance

• IT performance metrics are technically-oriented

• IT follows business lead

• IT perceived as expensive and unresponsive

• Prelude to IT turnaround situation

IT spend perceived as investment in business performance

All IT + business conversations conducted in business terms

IT performance metrics reflect business priorities

All initiatives are business initiatives

CIO leads business initiatives

(Hunter, 2007)

IT delivers business performance


Perceptions of IT in your organization

How is IT perceived in your organization? Doesn’t Deliver….Delivers Technology…. Delivers Business Performance ◦Evidence? How is IT involved in the business? How is IT measured? How is IT managed? How is IT discussed?

OBTAINING BUSINESS VALUE FROM IT


Specific Governance Practices for IT Investments Can Help Achieve Strategic Goals (CIO, 2003)

Market Leaders, relative to other companies have greater alignment of IT with Business◦IT – Business management

collaboration◦BU participation in IT Budget

◦Cross-functional governance teams direct resources and adjust priorities

◦Use business performance-based metrics for IT investments


Specific Areas of IT Investment Can Help Achieve Strategic Goals

Market Leaders, relative to other companies…◦ Larger proportional investment in automation

higher business performance◦ More investment in decision support

applications improved decision making◦ More investment in supplier-collaboration

applications efficient response to customer needs

◦ More IT investment on business agility to respond to demand fluctuations (vs. forecasting customer demand) improve responsiveness

◦ More focus on customer self-service applications improve service quality, speed, control, reduced costs

(CIO Magazine, 2003)

The most effective companies at managing their IT investments generate 40% higher returns than their competitors(Ross & Weill, 2002)


Business Context-Appropriate Metrics Can Improve IT Investment Decision MakingMeasure business value of IT in

improved business performance as perceived by business stakeholder

Use appropriate business metrics to build value proposition:◦ Run-the-Business◦ Grow-the-Business◦ Transform-the-Business

(Hunter et al, 2008)


Determining the Business Context(Hunter et al, 2008)


Apply Business Context-Appropriate Metrics for IT Investments

Investment Category

Value Definition Example Process Areas

Example Metrics

Run-the-business

Operating essential business processes atReduced cost, Improve price/performance, Reduced risk

Procurement, Manufacturing/service delivery, HR, IT, Finance, Regulatory

Price/performance ratio, Asset utilization, Sales costs, COGS

Grow-the-business

Visible operational improvements to whole value chain within current business models

Marketing, CRM, Sales, Product development, Customer service

Market Share, Time to Market, Sales cycle time, Customer retention

Transform-the-business

Creating new opportunities that transform the industry, market or enterprise

Strategic planning, Marketing, Product development

None

(Hunter et al, 2008)


SummaryBusiness value is obtained from IT investments when…IT is closely aligned with businessBusiness & IT leaders are collaboratorsROI is measured in terms of business

performance The value metrics are appropriate to

the purpose of the investment


Forming a Compelling Business Value Statement for an IT Investment

IT Capabilities

Changes to Business-- processes,

capabilities, etc.

Business and Operational Measures

Business Context for Proposal

• Run, Grow, Transform• Business Goals• Competitive Strategies


Example: Compelling Business Value Statement for an IT Investment

We need the ability to

integrate our data on sales transactions from each

store,

so that we can centralize our ordering and

distribution, to gain economies

of scale, and quantity

discounts.

Our target is to cut vendor costs by 5% and reduce distribution costs by 10% within six months.

Our Business needs to run its operations more

efficiently in order to reduce prices relative to

our competitors.

Business Context for Proposal

IT Capabilities Changes to BusinessBusiness Measures


IT Investment Competition

1. Develop (in groups)◦ Select one OMB proposal◦ Strengthen its compelling value statement

(One flipchart)A. Business ContextB. IT CapabilitiesC. Business changes to enableD. Measurable business effects

2. Presentations (Elevator Pitch)◦ Each team: 5 min presentation, 2 min Q&A

3. Decide◦ Class is the Board of Directors

Goal: Select the best IT Investment for the Firm

KEN WILEYMANAGING PRINCIPAL, WILEY & ASSOCIATESMANAGING MEMBER, COMMAND TRENDS

INTERNATIONAL

What’s up with that Cloud thing?

Guest

Speaker

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