Strategic Uses of Information Technology

1. Strategic Uses of Information Technology Strategic uses of IT means ‘having a significant, long-term impact on a firm’s growth rate, industry and revenue’.

2. History of strategic uses of IT Since the mid-1980s, strategic uses of IT have bounded around among: • working inward • working outward • working across. Currently, enterprises are emphasizing all three strategic uses.

3. Whither the Internet revolution -The hypothesis is that the Internet revolution mirrors the British railway build-up in the 1800s—the loud ‘boom’ ended with a loud crash, but they speculate it will mature and build out tremendously through hard work and new inventions. The conjecture is that we are in for the same slow and steady expansion of use of the Internet because both revolutions deal with connection technologies.

4. The cheap and disruptive revolution —It is argued that we have hit an inflection point in IT where CIOs have changed from buying expensive proprietary products to cheap generic products (‘cheap tech’). The low-cost revolution reflects the globalization trend.

5. Episode two: profitability strikes back —Old Economy firms are now integrating the Internet into their operations, striking back at the dot-comes and their pie-in-the-sky business models. The only way to sustain advantage through the Internet is to create a distinct, unique value chain (highly integrated and difficult to replicate). Operating a ‘bricks-and-clicks’ operation may reduce ordering costs, but raises customer support costs.

6. Episode three: Internet-enabled mass customization —It is argued that this is an example of radical changes in our habits and behavior caused by the Internet. The culture of mass consumerism has changed into an increasing trend of mass customization by the explosion of niche markets enabled by Internet capabilities such as search engines and filtering tools.

7. Case example: Grainger Grainger has discovered that its Internet presence makes its physical sites more valuable. It cuts ordering costs and shipments to its stocking locations (where customers pick up items). Furthermore, online customers purchase more and its paper catalogue actually leads to more online orders.

8. Does IT still matter —It is argued that individual firms can no longer use IT to gain competitive advantage because IT has become an infrastructure technology—a commodity. It has become widely available at a reasonable price. Therefore, CIOs must change how they manage IS by managing the risks rather than the competitive opportunities, keeping costs down (such as by limiting upgrading) and staying behind the technology leaders (only innovate when risks are low).

9. Does IT still matter Not everyone agrees with this assessment of the current situation. Some counter that competitive advantage comes from pairing new IT with innovations in business practices (not new IT alone). Furthermore, advantage is not ‘Big Bang,’ it comes from incremental improvements building on one another. So differentiation emerges over time, through continual innovations that take advantage of IT advances.

10. Does IT still matter There is not yet a ‘dominant design’ in IT and IT is not just one technology, therefore IT is not a commodity. While IT may become a commodity, it’s not there yet. Companies can still differentiate themselves. It happens all the time with new technologies. Furthermore, there is no correlation between scarcity and strategic value. Capital is a commodity, but returns on capital vary significantly. Does capital not matter? Of course it does. How a commodity is managed is the important point. IT, capital, talent and management all matter.

11. Working inward: business to employee Working inward focuses on improving business processes within an enterprise. • Building an Intranet—Based on Internet standards, an intranet helps a company keep all employees informed. Intranets become portals when they include information from both inside and outside the company that is needed by a group of employees. • Building a quality web portal—From a users’ perspective, a web portal provides information products or services. Successful portals should therefore be built based on users, not technologies. For example, the design of an Intranet portal must complement the companies’ employees and their everyday work.

12. Case example: GE Energy Power Systems This GE division built a portal for its salespeople, so that they could spend more time with customers and less time looking for the information they need. The data feeds links employees to numerous information sources from inside and outside GE (e.g., databases on sales, parts, pricing, inventory, customers). All the information is managed by a content management product, which creates dynamic personalised ‘portlets’ for salespeople.

13. Fostering a sense of belonging —Intranets are evolving into important enterprise structures. With employees becoming so dispersed, an intranet may be their main connection to the company. Hence, a major role providing the foundation for creating communication, communities and a sense of belonging among employees.

14. Working outward: business-to-customer IT has been embedded in products and services. The importance of the technology is now expanding. • Jump to a new experience curve—An experience curve shows costs going down as a technology matures. Each technology can be thought to have its own experience curve. A company that jumps to a new technology and its experience curve, can gain a first-mover advantage over competitors if it guesses correctly. But each bet generally requires a large investment.

15. Case example: The shipping industry An example of a set of experience curves can be found in the shipping industry where the original curve was trucking, the first new experience curve was package delivery, the second was overnight delivery, the third was advanced logistics, the fourth was supply chain management and the most recent is global positioning. Each has different business models and draws on different technologies.

16. Working outward: business-to-customer • The emergence of electronic tenders—With computers embedded in products, those products and services can now be tended (monitored or cared for) remotely by the manufacturer, service provider or a third party. So the importance IT’s communication role is adding to its computational role. • Getting closer to customers—The first use of the World Wide Web to reach customers was in retailing. Now connections to customers often involves knowing a lot about them and their various interactions with the firm. Overall, the trend is toward staying in closer contact. Such customer-centricity changes company structure and offerings. • Being an online customer—The other side of the coin is being an online customer.

17. Case example: a day in the life of an eLancer One entrepreneur gains all his work and his working partners via eLance, an online services marketplace. This case tracks a typical day in his use of eLance’s site.

18. Working across: business-to-business The next big management challenge is streamlining processes across organizational boundaries. There are numerous ways to work across businesses. • Working with co-suppliers—One arrangement is working with non-competitors who supply the same customers.

19. Case example: General Mills and Land O’Lakes Both supply non-competing refrigerated goods to retailers (yogurt and butter) yet neither has full truckloads of these goods. Hence, they have teamed up to coordinate their shipments to stores. They use the Internet to easily share information.

20. Working across: business-to-business • Establishing close and tight relationships—Firms can establish three types of relationships with each other: 1. Loose integration—One party gives another party ac hoc access to information, probably not confidential information. There’s little or no integration—business processes remain distinct. Companies may have many such relationships. 2. Close integration—Parties exchange information formally. Some of that information may be confidential. Processes are distinct, but some tasks are joint. Both risks and benefits increase due to the sharing of confidentialities. Companies can manage a number of these relationships. 3. Tight integration—Two parties share a business process in an area important to them. Often lots of data.

21. Case example: Sara Lee Bakery Group SLBG was one of the first to initiate scan-based trading with large retailers that sell its baked goods. Using this technology, SLBG does not get paid until a loaf of bread is sold and passes through the point-of-sale scanner. The technology requires drawing from a single database hosted by a third party. Its use has improved the quality of delivery people, lowered costs and increased revenues. But SLBG requires retailers to adhere to a number of prerequisites—to demonstrate that they are good trading partners.

22. Working across: business-to-business • Becoming a customer-centric value chain—The demand-pull world, where products and services are built to order, is a major trend these days. But getting there means becoming customer-centric and having a tightly integrated supply-chain. • Getting the back-end systems in shape—To have a hope of making working across organizations viable, internal back-end systems must be in shape. Companies are using ERP, extranets and other approaches to do this.

23. Working across: business-to-business • Mobile computing as a strategic advantage—While importance of mobile computing has increased dramatically in the context of enhancing business processes, an effective strategy is required to take advantage of the opportunities. Another interesting trend is the emergence of the use of mobile phones on the business-to-consumer side (e.g., mobile shopping).

24. PREPARED BY: JOVELYN ARENAS CELESTE JOYCE FLORES ROSEANNE DE LEON