Strategic Information Technology

1. Strategic Information Technology Using IT for Competitive Advantage

2. Some Useful Frameworks • Porter model • Strategic grid • Venkatraman framework • Critical success factors framework (Rockart)

3. The Porter Model Threat of New Entrants Industry competitors Bargaining Power of Suppliers Bargaining Power of Buyers Intensity of competition Threat of Substitutes

4. IT and Competitive Forces Potential Uses of IT to Combat Force Force Threat of New Entrants Switching costs Product differentiation Economies of scale Buyers Bargaining Power Buyer selection Differentiation Suppliers Bargaining Power Selection Threat of backward integration Substitutes Improve price/perf. Redefine prod & ser

5. IT Strategic Grid High Factory Strategic Strategic impact of existing operating systems Support Turnaround Low Efficiency focus Effectiveness focus High Low Strategic impact of application development portfolio

6. IT Strategic Grid (A different view) High Factory Turn around Strategic impact of existing operating systems Strategic Support Low High Low Strategic impact of application development portfolio

7. Venkatraman Framework Investment Center Business Capability Service Center Value Center Purpose Cost Center Profit Center Operational Efficiency Minimize Risk Maximize Opportunity Risk Propensity

8. IT Management Approaches for Realizing Value Operational focus that minimizes risk with emphasis on efficiency Cost Center: While still minimizing risks, aims to create IT-enabled business capability to support current strategies Service Center: Has a long-term focus and aims to create new IT-based business capabilities Investment Center: Designed to deliver IT services to the external marketplace for revenue Profit Center:

9. Cost Center Service Center Investment Center Profit Center Deliver IT products and services at the lowest cost levels relative to an external referent Deliver IT-enabled business capabilities to support current business strategy Proactively create IT- enabled business capabilities that shape new business strategies Deliver IT products and services in the external markets to realize marketplace knowledge, credibility, and additional profits Objectives Key Capabilities Managing scale and scope for operational efficiency Understanding technolo- gy’s role in the business strategy Identifying and nurturing a portfolio of technology- enabled new business capabilities Ability to compete successfully against best-in-class vendors Client satisfaction; internal service guarantee levels Investment payoff reflected in business capability creation Realized profit levels market experience, and credibility Performance Metrics (illustrative) Cost/MIPS Relationships with best-in-class outsourcers to improve cost levels Alliances for key capabil- ities such as help desk, customer service, and market intelligence Support for technology scanning, technology licensing, joint R&D, beta tests, and joint ventures Partnering to combine complementary skills to serve the IT marketplace Role of Exter- nal Alliances and Partners

10. Example: Service Center: Bank of America’s development of its customer targeting system to give its sales and services managers better predictive models on likely customer response behavior than available to its competitors

11. Example: Investment Center: CIGNA creates a forty-person IT R & D organization with a focus on “looking at technologies” that are ripe for development Note: FedEx, American Express, Wal-Mart, Johnson & Johnson, Citibank, Texaco all have similar units

12. Example: Profit Center: Liberty National Bank and Trust creates a subsidiary along with UPS Worldwide Logistics to provide an overnight check- processing capability offering lower cost and faster service than the Fed Swiss Bank Corporation, along with Perot Systems has formed a unit to market IT products and services to the global financial community

13. Criteria for Go/No-Go Decisions • Cost Center--cost metrics, efficiency enhancements, external benchmarks • Service Center--indices specified by business managers compared to peer groups • Investment Center-a mix of strategic and quantitative indices reflecting the creation of new business functionality

14. A Question: Is it the fundamental business purpose of the IT organization to deploy IT capabilities to rectify current weaknesses or is it to create future business capabilities? Asked by Venkatraman

15. A Summary Position to Think About “If the information revolution destroys traditional sources of advantage while creating new sources, companies need to do more than rectify current weaknesses. This requires a value center profile that goes beyond cost and service centers and includes an investment center- -especially for leveraging newly emerging technologies. So, both business and IT management need to articulate the raison d'être for IT operations.” Venkatraman

16. Critical Success Factors • The 5 to 9 things that are critical to the success of an organization, activity, or endeavor • Or, the things that, if you fail on these, you fail overall • Watch out for mixing up:-objectives with CSFs-performance measures with CSFs

17. CSF Examples • Product design (not market share) • Delivery performance (not customer satisfaction) • Location of retail facilities

18. Uses of the CSF Framework • Application of IT • Basis for Requirements Determination-e.g. JAD or Technically supported JAD sessions • What to measure