IT Strategy

S. Ramanathan
 Growth of IT Investments
IT spend as % of capital expenditure

60

50

40

30

20

10

0
1965 1980s 1990s 2000

Recessionary trends caused IT investments to collapse in 2000 and with it

NASDAQ collapsed
 2000: Boardroom Dilemma
What went wrong?
For what purpose did we spend?
What has changed? What has not?
What do we do now?
What should be our technology strategy?
How would it affect our corporate
strategy?
No one would dispute that information technology has become the
backbone of commerce

But

Does IT have the capability of differentiating one company

from the pack – does it have the strategic potential?
Does IT Have Strategic Value?
Scarcity – not ubiquity – offers strategic
advantage
IT is available to all and is affordable
Has become a commodity factor
Cost that must be paid by all, but provides
distinction to none
Similar to railroads, telegraph, telephone
and electricity
Proprietary Vs. Infrastructural Technologies

Comparator Proprietary Infrastructure

Ownership By a company broader
Value proposition In protection In sharing

Investment By a company By industry / govt.

Reach Protected making Best practices get
copying difficult emulated; become
standard
Advantage from protection commoditization
Impact Higher profit for the Broader market
company changes; leads to
cost advantage, not
sustainable
Do Infrastructural Technologies Not
Influence Competition?
At macroeconomic level
Countries / industries failing to leverage
would suffer
For a company, strategic potential
declines
IT is An Infrastructural Technology
IT is a transportation mechanism such as
railroads and power grids
Progress of IT is linked to interoperability
and interconnectivity
Greater standardization of technology
Greater homogenization of functionality
Benefits of customization vs. costs of
isolation
 Commoditization of IT
IT is highly replicable – much more easily and
repeatedly than any other commodity at no cost
Near-infinite scalability of IT functions, combined
with technical standardization, dooms most
proprietary applications to economic
obsolescence
Generic applications  generic business
processes
Cost advantage and interoperability benefits
overwhelm the benefits of distinctiveness
 Internet Has Accelerated
Commoditization
By providing a perfect delivery channel for generic
applications
Fee-based Web Services from third parties – similar to
purchase of electric power and telecommunication
services
Major IT vendors – from Microsoft to IBM – reposition
themselves as IT utilities
Repositioning of offerings from packaged software
(good) to an annual subscription (service)
Extension of PC market commoditization (Dell model) to
servers, storage and services
Usage of terms like “the grid”
War of scale would lead to further commoditization
 Sprint to Commoditization
Rapidly increasing affordability of IT
functionality has destroyed potential
barrier to competitors
Most cutting edge IT capabilities quickly
become available to all
See p 255
Case: American Hospital Supply
In-house system using proprietary software
Mainframe computer
Only distributor offering electronic ordering  superior
financial performance between 1976 and 1983
Arrival of personal computers, packaged software and
networking standards rendered proprietary
communication systems unattractive to users and
uneconomical to owners
Closed nature of AHS’s system turned into a liability – ‘a
millstone around the neck’
Only a few companies could turn technological
advantage into enduring positioning advantage (eg) Dell,
Wal-Mart
 IT Has Nothing More to Offer
IT build out is closer to end than beginning
1. IT’s power is outstripping most of the business needs it fulfils
“What if the reality is that people have already bought most of
the stuff they want to own?” – Bill Joy, Chief Scientist and Co-
founder, Sun Microsystems at the 2003 World Economic
Forum, Davos
2. Price of essential IT functionality has dropped to a level,
where it is affordable to all
3. Distribution capacity (internet) has caught up with demand
4. IT vendors are rushing to position themselves as commodity
suppliers even as utilities
5. Investment bubble has burst
• A few companies may still be able to wrest advantages
from highly specialized applications – more of
exceptions than rule
 Strategic Option: Defense
When a resource becomes critical to competition, but
inconsequential to strategy, the risks it creates becomes
more important than advantages it provides (eg)
electricity
Operational risks associated with IT
 Technical glitches
 Obsolescence
 Service outages
 Unreliable vendors / partners
 Security breaches
 Terrorism?
Some of these have become magnified as companies
have moved from tightly controlled, proprietary systems
to open, shared ones
New Rules for IT Management
Spend less
 Companies with biggest IT investments rarely post the best
financial results
25 companies that delivered highest economic returns spent an
average of 0.8% of their revenues on IT, while a typical company
spent 3.7% (Alinean study, 2002)
“Most companies spend too much and get very little in return” -
Larry Ellison, Oracle
 It is getting much harder to achieve a competitive advantage
through IT investment, but surely higher investments would put
the company at a cost disadvantage
 Stronger cost management – exploring cheaper alternatives
 Evaluating expected return form systems
 Cutting out waste
how much power is needed for a non-power user of PC with vanilla
applications
Are your massive hard disks storing all important information relevant
to customer service?
 Don’t be led by vendors in purchase decisions
 Negotiate contacts with long term view
New Rules for IT Management –
Contd.
Follow, don’t lead
 First mover advantage of IT investment is vanishing except in
rare cases
 The longer you wait to make an IT purchase, the more you will
get value for your money
 Waiting will decrease the risk of buying something
technologically flawed,
 Cutting edge advantages are becoming rarer in IT, as IT
capabilities have become near homogeneous
Focus on vulnerabilities, not opportunities
 Mature infrastructure technologies offer little competitive
advantage, but even a brief disruption can be devastating
 With more and more outsourcing of IT infrastructure
management, threats will proliferate
The Debate
No, IT Matters – in Its Usage
IT, by itself, rarely offers strategic differentiation
Yet it creates possibilities and options that did not exist
before
Companies that see these possibilities before others do,
will differentiate themselves in the marketplace
Even the most tightly controlled generic application suite
(SAP) can deliver completely different results for look-
alike firms
IT is ubiquitous, but the insight required to harness the
potential will not be evenly distributed
In fact, proprietary technologies of yesteryears inhibited
interoperability and collaboration
Extracting Strategic Value from IT
[Business] activities are the basic unit of competitive advantage – Michael
Porter
As these activities get automated using software, information technology
would continue to be of strategic importance
Extracting value from IT requires innovation in business practices
McKinsey Global Institute study (Oct 2001) shows positive correlation
between IT investments and productivity in only six out of 59 industries
studied
True – the biggest investors in IT don’t get most value from these
technologies
Alinean responded to Carr’s article saying that the worst performing
companies too were penurious in IT investments. Best performing
companies are able to adjust their investments to economy
What makes the difference is the benefit conversion factors, which include
clear decision rights, accountability for IT related decisions, integrated
business and technology planning and execution, reinforcement of
collaborative behaviours
 Redefine IT’s Potential for
Reducing Transaction Costs
Many companies view IT’s potential for reduction in transaction cost
only in terms of faster transmission of data
But a broader definition of transaction cost would include creating
value for customer, building relationship with customer,
development and dissemination of knowledge
(eg) Cisco’s e-learning initiatives
Enabling global marketplace to function effectively will require
enormous new investments by individual firms – such a marketplace
will be of significant advantage to millions of enterprise
Possibilities of products / services not possible in the past (eg)
changes in automobiles
Universal affordability of IT need not necessarily take away its
benefits to macroeconomic level. A large number of SME units can
now benefit out of IT
Business Process Innovations
Incremental, not “big bang”: Typically in waves of relatively short-term (often 6 – 12 months)
operating initiatives designed to test and refine specific innovations in business practices.
Advantages
 Reduced financial risks
 Measurability of returns
 Better ability to manage resistance
IT has helped us relook at our business problems in a newer ways. For a long time solution to
supply chain inefficiencies was considered as inventory. Today we look at inventory as the
problem and try to solve it with IT. IT can offer order-of-magnitude improvement in efficiencies
Strategic impact comes from the cumulative effect of these tactical initiatives; these arise out of
an organization’s ability to continually innovate around IT’s evolving capabilities (counter eg)
American Hospital Supply
A long term view of the challenges and opportunities provided by IT should help prioritize near
term innovations in business practices
Tactical advantages are ephemeral in the absence of long term goals
While tactics can be imitated, underlying strategy cannot be – the success of Dell abd Wal-Mart
could not be duplicated in other companies
Firms using identical information technologies and spending comparable amounts on IT display
enormous variability in profitability
Short term wins with long term goals are a source of competitive advantage
Achievement of current best practices would set a higher benchmark, to achieve which we need
more IT – Wal-Mart innovated continuously around new generation of IT, thus preserving
productivity advantage
 How is IT Different from Other
Infrastructure Technologies?
In case of other technologies
 Underlying technology burst forth in one relatively concentrated innovation
 Rate of improvement of technology was modest
 Reached a level of standardization quickly
 Reached a point of diminishing return soon
IT is very different
 Technology improvements have continued at a rapid sustained pace
 Newer ways of storing, distributing and accessing data
 Newer applications (eg) Radio-Frequency Identification Devices in grocery stores
 Several waves of standardization – changes in architecture, for example
 Architectural standards, instead of stifling innovation, provide stable platforms to offer new
ways of differentiation
 Standards do not take away the value, on the other hand they facilitate interoperability and
allow companies to concentrate on value-enhancing activities
 A lot of areas such as health and education are yet to realize full value of IT
 Other technologies have physical limitations of growth; the scope for variability in
functionality is higher in case of IT
 As of now, the technology has shown ability to reinvent itself and does not seem to be near
the end of life cycle
 Collapse in IT investment in 2000 is a correction to the excesses of the past decade and is
a crucible for generating more and better innovation
 Is IT Only A Transportation
Technology?
Information technology adds value mainly
by improving the management of
information intelligence and collaboration
among individuals, groups and
organizations
Transport function is essential, but it is
only tertiary
Value is in the message and not so much
in the medium
 IT – Not Merely Electronic
Messengers
Information technologies provide primary
means for extending the value of the firm’s
knowledge capital
Knowledge capital is now worth more than
the assets reported in the financial
statements
Information technologies empower people
by providing tools to perform complex
tasks
Have We Exhausted What IT Can
Offer?
Increased uncertainties in market, competition, resources  need
for higher coordination, real-time remediations  need for more and
better information technologies
There is a still a wide gap between IT’s potential and business
realization of that potential. This gap provides fertile ground for new
strategies
It could be argued that innovation through electronically enabled
services, processes and products has just begun
In fact, firms now demand more choices, more flexibility, more IT

At least a decade or two will go by before computing can catch up

with the current needs biological investigation – Craig Venter,
Genomics Expert
Should A Firm Be Defensive in IT
Strategy?
Cost cutting should be done; but investments in
innovations should not be stopped
The cure of legacy systems is radical innovation
Hype about IT’s capabilities should be avoided; but its
importance should not be underemphasized
Attention should be paid to information security, network
reliability and system integrity. But that does not make
IT risks more important than its advantages
Defensive strategy would inhibit value enhancement for
the enterprise. It is still time for proactive strategy
Building the Business Case for IT
Benefits of IT: IT Value Framework
Value enablement
 Cost reduction
 Asset efficiency improvement
Value creation
 Revenue generation
 Profit enhancement
Value sustenance
 Strategic differentiation
 Proprietary advantage
Value Enablement Strategies
Leverage shared services
Offshore
Outsource
Lean, yet flexible infrastructure
Create options
Metrics
 Total cost of ownership
 Asset productivity
 Decrease in IT costs
 Value Creation Strategies
Enhance revenue generating capabilities
 Improve customer facing processes (eg) data
analytics, customer relationship management
systems
 Enable inter-firm revenue generating
capabilities
Launch IT enabled products / services
 Value Sustenance
Achieve proprietary advantage / change
competitive positioning
 Enter growth markets
 Exit from shrinking ones
 Achieve and sustain market leadership
 Attract loyal investors who pay a premium
 IBM – Case Study
1990: second most profitable company in the
world; industry leader
Beginning first quarter 1991, posted substantial
losses (attributed to structural problems)
1993: Lou Gerstner took charge
1995; back in sound financial footing; growth
again
2003: market leader again! No.1 in market share
in global service and server business and no.2
in software
Phase I: Leveraging Infrastructure
and Creating Options
Focus on cutting cost – hired a CFO with this
specific mandate
Expense to revenue ratio: 43% in 1993
Needed 9% reduction ( $ 7 billion) to match
competitors
Internal IT infrastructure was out-of-date,
inflexible and costly to maintain
Between 1994 and 1997 IT operations cost was
reduced by half ($ 2 billion annual savings)
(table 4.2)
 Reengineering Back Office
Processes
Objectives
1. Make it cost competitive
2. Redesign from scratch for global use
• Outsource the physical activity and keep strategy and
planning
• Use standard enterprise software
• After one year of reengineering
• Costs were down by 20%
• Order processing time decreased from 48 hrs to 2.5 hrs
• Online procurement saved $ 370 million annually
• While procurement volume grew by 60% y-o-y, no new staff
was added
(see Table 4.3)
Phase II: Driving Profitable Growth
Research and product development were
identified as key revenue generating
processes, needing improvement
In 85% of the product launches IBM’s time
to market was 1.25 times slower than the
best-in-class competitor
Development expense to revenue
generation ratio was twice higher than
best-in-class
 Phase II Results
By 1995, these processes were
streamlined
See Table 4.4
Phase III: Achieving Proprietary
Advantage
Table 4.5
 What is IT Strategy?
Provide effective, efficient, responsive and
flexible systems to meet the current and
future business and legislative needs
 Components of IT Strategy
IT application strategy
Technology management strategy
IT management strategy
 Application Strategy
Identify business areas which need IT
intervention
Select, prioritize and decide about
investment and approach for
implementation
Evaluation based on present and future
importance of the application
 Strategic Grid

Factory:
Cost reduction
Quality Strategic
primarily engineered by IT in Top level involvement in IT
consultation with business
P users
r
e
s
e
n
Support Turn Around
t
Local improvements Exploit emerging
incremental cost saving strategic opportunities
initiated by end users with IT Driven by business
 Technology Strategy
Planning and selection of technology
components and tools
Considerations:
 Skills available
 Cost
 Resources available
 IT Management Strategy
Challenges
 High employee turnover
 Quality and reliability of bespoke products
 Risks due to system failure
 Heightened expectations of business users
 Trend
 High service level requirements
 Managing cultural changes among IT staff and
users
 How Information Gives You
Competitive Advantage
Michael E. Porter and Victor E. Millar
 Strategic Significance of IT
Information Technology is changing the
way companies operate
It is affecting the entire process by which
companies create their products
It is reshaping the product itself
 Value Chain
Technologically and economically distinct
activities a company performs to do its business
– Value activities
A business is profitable if the value it creates
exceeds the cost of performing the value
activities
To gain competitive advantage over its rivals, a
company must either perform these activities at
a lower cost perform them in a way that leads to
differentiation
 Value Activities
Nine generic categories
Primary activities
 Receipt from suppliers
 Physical creation of the product
 Marketing
 Delivery to buyers
 After sale support
Support activities
 Procurement
 Human resources management
 Technology development
 Firm infrastructure (general management, legal,
accounting…)
 Value System
Value chain of suppliers +
Value chain of the firm +
Value chain of the channels +
Value chain of the buyer

Cost reduction / Differentiation in any / all

of these may lead to competitive
advantage
 Competitive Scope
Breadth of a company’s activities
Four key dimensions
1. Segment scope
2. Vertical scope (degree of vertical integration)
3. Geographical scope
4. Industry scope (range of related industries in which the
company operates)
Broad scope can allow the company to exploit
interrelationships between the value chains serving
different industry segments, geographies or related
industries
Narrow scope allows focused customization of value
chain for a particular segment and thus derive
advantage
 IT and the Value Chain
Information technology transforms the way
value activities are performed and the
linkages between them (Exhibit III)
Also affects competitive scope and
reshapes the way products meet buyer
needs
IT and the Value Chain – Contd.
Every activity has a physical and
information processing component
Massive amount of data can be
processed, stored and retrieved at a very
fast pace at a very low cost due to
information technology
Transforms physical processing too –
computer-controlled machine tools
IT and the Value Chain – Contd.
IT affects the linkages too. Drug store
providing terminals to customers for easy
ordering and invoicing
Effect on competitive scope – coordination
of value activities across remote
geographies
 Transforming the Product
Historically, a product’s physical component is
more important for the buyer than its information
component
But service supported by sound data makes the
product more attractive for customers
Expanding information content in product as in
dishwashers and automobiles
Emergence of information as a product
 Information Intensity
See Exhibit IV
 IT is Changing Rules of
Competition
IT changes the industry structure and in so
doing alters the rules of competition
IT provides new ways to outperform rivals
and thus provides competitive advantage
IT spawns new businesses often from
existing operations
Changing the Industry Structure
Five competitive forces (Exhibit V) – Information technology can alter each of these
Empower the buyer with more information and make services quick and available
round the clock to make it attractive for buyer
Make high investments in technology as in Banks to create barriers to entry
Through flexible computer-aided design and manufacturing, reduce threat of
substitutes
Electronic databases as substitutes for library research
Boundaries between suppliers and buyers are blurring – electronic integration
Since scale is not important automation, barriers to entry are falling in many
industries
Automation no longer leads to inflexibility – flexible manufacturing systems
Falling cost of product design has created opportunities to serve small niche markets
Lethal potential of IT: Transparent fares allow airlines customers to shop around
Creating Competitive Advantage
Lowering cost: Insurance under-writing: optimal offer by
a computer model reducing no’ of insurers and
documentation
Enhancing differentiation: Digital Equipment’s artificial
intelligence system, XCON for decision rules to develop
custom computer configurations – dramatic reduction in
order filling time and increase in accuracy
Changing competitive scope: Dow Jones pioneered page
transmission technology linking its 17 printing plants in
US to produce a truly national newspaper
Creating interrelationship among industries
 Spawning New Business
1. By making new business technologically
feasible:
 Blending of imaging and telecommunications
technology to support facsimile services such as
Federal Express’s Zapmail
 American Airlines made SABRE available to other
airlines – new revenue stream
 IRCTC e-commerce site
2. By creating derived demand for new products:
Western Union’s Easylink services
3. By creating new businesses within old ones:
use of barcode scanners in supermarkets 
market research data
 Competing through IT
Five steps
1. Assess information intensity - existing and potential intensity of
products and processes
2. Determine role of IT in the industry structure – how IT would affect in
future: would it change the five forces or boundary itself: would there
be a new definition of industry?
3. Identify and rank the ways in which IT might create competitive
advantage.
1. What are the value activities that are likely to be affected most in terms of
cost and differentiation?
2. How would IT affect the competitive scope?
3. Can IT help the company serve new segments? Or woyld the technology
allow narrowing scope and hence focused advantage in niche segments?
4. Would IT allow new competitors to enter niche markets?
5. Would IT provide leverage to expand globally?
6. Would IT facilitate interrelationships?
7. Can the company bundle more information with the product?
 Competing through IT – Contd,
4. Investigate how IT might spawn new business
1. Could the company sell some information generated?
2. Do we have some information processing capacity that could
help start a new business?
3. Does IT make it feasible to produce new products?
5. Develop a plan to take advantage of IT
1. Strategic investments necessary in hardware, software and
new product development
2. Organizational changes
3. Functional managers should own information technology
initiatives. IS would manage the technology – architecture,
standards
Business – IT Alignment
 What is Business – IT
Alignment?
Capability of IT to deliver what business
needs
Ability to play a strategic role in shaping a
new business strategy
Achieved by ability to absorb new
technology opportunities for business
benefits
Requires IT to transform from back office
support function to strategic differentiator
 Strategic Alignment Model
S
t
r Opportunities for process
a Opportunities improvement
t Priorities Technology changes
e Position Risk management
g Project priorities
y
Value
C
a People
p People Processes
a Processes Controls
bi Governance Tools
lit Infrastructure Technology
ie Culture Culture
s
 Strategic Grid

An assessment method to check the

alignment of IT with the strategic goals of
the firm
Two key dimensions to assess an
organization’s IT initiatives
 Impact on business operations
 Impact on strategy
Oversight and governance need to be
defined accordingly
 Strategic Grid

I Factory:
m Cost reduction
p Quality Strategic
a primarily engineered by IT in Top level involvement in IT
c consultation with business
t users
o
n

O
p
Support Turn Around
e
Local improvements Exploit emerging
r
incremental cost saving strategic opportunities
a
initiated by end users with IT Driven by business
ti
o
n
s
 Can IT Support and Drive
Strategy?
Can IT change the basis of competition?
Can IT change the nature of relationships
and the balance of power among buyers
and customers?
Can IT build or reduce barriers to entry?
Can IT decrease switching costs?
Can IT add value to existing products and
services or create new ones?
 Can IT Change the Basis of
Competition?
At its core IT’s function is to automate activities
But while automating IT can inform and transform
And in this IT can transcend business boundaries
A streamlined value chain can produce better
efficiencies
Timely information produced better coordination and
control
IT enabled products and services – new players in the
market
(eg) American Hospital Supply Corporation, American
Airlines
 IT is Changing Rules of
Competition
IT changes the industry structure and in so
doing alters the rules of competition
IT provides new ways to outperform rivals and
thus provides competitive advantage
IT spawns new businesses often from existing
operations
Michael E. Porter and Victor E. Millar
“How Information Gives You Competitive
Advantage”
 Can IT Change the Nature of Relationship and
Balance of Power in Buyer – Seller Relationship?
AHSC rose to power within the hospital supplies industry
by streamlining channels, dramatically decreasing cost,
improving order accuracy and increasing speed of order
fulfillment
Customers encouraged channel consolidation
Sensing risk of exclusion, suppliers put their catalogs
online
With electronic links with suppliers, AHSC customers
could directly order from supplier inventory, which
enabled further reduction in cost and cycle time for all
members of online market
This neutral third party distributor created such a
significant shift in the balance of power that in 1985, it
was bought by Baxter Healthcare, a hospital supplier
A few years later, responding to market pressure, Baxter
was forced to spin off the supply chain business to
ensure neutrality
Does Internet Shift Power from the
Suppliers to Channel Players and
Buyers?
During late 90s, internet based channel players
flooded the market
By 2004, many of them were struggling / closed
As neutral channel players faltered, established
players rushed in
(eg) Global Healthcare Exchange (GHX)
launched by five of the largest healthcare
suppliers (with 70% of all products and services
for hospitals and doing business with 90% of the
hospitals) ; within months, more than half the
independent players disappeared
Can IT Build / Reduce Barriers to
Entry?
Proprietary systems of AHSC and AA provided initial
entry barrier.
But more sustainable advantage came from the
information generated by the technology and the value of
the loyal community of customers and suppliers
Internet, being low cost and shared, does not provide
advantage to any one player
Competitive advantage should come from building
proprietary capabilities such as loyal customer
community or quick response
In such a scenario, first mover advantage may turn a
disadvantage also
 Case Study: Amazon.com
1995: The company was started in a modest way
Quickly became no.1 online book seller
Within two years, sales: $ 148 m and customer base: > 2 m
1998: replicated the success in online music and video stores
1999 – 2000: spent $ 500 m in sophisticated order fulfillment
capability
Knowledge management infrastructure was created to understand
needs of individual customers to personalize services
Late 2000: Customer base: > 25 m
2001: internet stocks crashed. Need to reinvent business from retail
product sale to services model for quicker profitability
Understood the need for taking ownership of physical inventory
2004: established relationship with a number of “brick-and-mortar”
retailers to avoid creation of equivalent capability  redefined
business from e-tailer to online / offline logistics service provider
 Can IT Raise / Lower Switching
Cost?
Internet has lowered switching cost
Price comparisons being easy, customer loyalty is rare in
Internet economy
But some companies have succeeded in creating switching
cost on the Internet too (eg) Intuit, which allowed customer
to store personal information in their financial services
software. Data have to be reentered, if the customer moves
to a different product. Intuit quickly became market leader in
the market segment with 80% market share and 90%
retention rate, competing against giants like Microsoft
Services such as bill payment. Banking online, tax
calculation and payment, managing portfolio of investments
were all added
Intuit’s online version of TurboTax gained over 80% market
share in a highly competitive market
Can IT Add Value to the Existing
Products or Create New Ones?
Grocery stores selling information to
market research firms
Information component in products is
increasing as in automobiles
Total transformation of product in books,
magazines, music, video and games
 IT Impact on Strategic Risk
Can emerging technologies disrupt current
business models?
Are we too early / too late to exploit an IT
opportunity?
Does IT lower entry barriers?
Does IT trigger regulatory issues?
Can emerging technologies disrupt
current business models?
Key features of disruptive technologies
 Evolve significantly faster than the dominant
technology in the industry
 Enables new products, services, pricing, business
models that change the basis of competition
 Trigger regulatory changes or significant customer
dissatisfaction with the status quo
These may be viewed as threats or opportunities,
depending on which side you are
(eg) emergence of minicomputers and PCs
Responding to risk: IBM example, p 50 - 52
Are we too early / too late to exploit
an IT opportunity?
Ability to identify the right time to enter
with an organization to suit the need
Allied issues
 How much to invest?
 How long?
 How do we sustain cash flows?
 When would the pay-off start?
Does IT lower entry barriers?
Wide-spread availability of Internet with
low cost open standard technologies may
bring the barrier down
Does IT trigger regulatory issues?
IT successes may invite complaints of
unfair competition
Baxter was forced to spin off hospital
supply business after its acquisition of
AHSC
Assessing IT-enabled Business
Opportunities - I
What business are we in?
Who are our customers, suppliers and
business partners?
What value do we provide to these key
constituencies? (incl. employees and
owners)
What are the competitive dynamics and
balance of power within the industry?
Can IT be used to create value and
change the basis of competition?
Assessing IT-enabled Business
Opportunities - II
Who are the biggest competitors today?
Who will they be in future?
How easy / difficult for the new players to
enter into our markets, offering a unique
value proposition and / or substitute
products and services
How easy / difficult would it be for
customers, suppliers or partners to
switch?
Assessing IT-enabled Business
Opportunities - III
How efficient / effective are our
processes?
How easy / difficult is it for customers,
suppliers and partners to do business with
us?
Could we continuously improve our
products / services and the way we do our
business?
Assessing IT-enabled Business
Opportunities - IV
Are there any disruptive changes looming
on the horizon?
Are we in a position to capitalize on these
changes?
What is the risk / return profile and the
window of opportunity?
Do we want to lead the industry or a fast
follower?
Assessing IT-enabled Business
Opportunities - V
Will changes in related industries (or even
unrelated industries) influence our
industry?
Could we extend into new products /
markets?
Do we have processes in place to
understand and manage risks?
 Challenges in Business – IT
alignment
1. Well articulated business strategy
2. Uniform communication of strategy to all
levels
3. IT’s ability to capture end-user
requirements with speed
 Inhibitors of Business – IT
Strategy Alignment
1. Desire of business leadership to take IT
along in strategy formulation and execution
2. IT’s ability to understand business
3. Communication gap between business
and IT
4. IT’s ability to deliver
5. Management support to IT in application
prioritization, development process and
budgetary requirements
 Business – IT Alignment at
Three Levels
1. Knowledge of business needs
2. Application development process
3. Management of technology
achieved by
1. Planned development of infrastructure
2. Anticipating future needs
3. Driving for results
 Strategies for Achieving
Business – IT Alignment
Recognition of strategic role of IT by
Management
Good communication between CEO and
CIO
CIO’s involvement in strategic
management of business
Cross rotation of IT managers in business
functions
Hiring candidates with business
experience into IT function
Strategies for Achieving Business –
IT Alignment (Contd.)
Create an IT architecture to suit the
business processes
Use IT innovations such as SOA to derive
better business advantage
Improve operational level performance of
IT through frameworks such as ITIL
Implementation of IT governance for better
management of IT resources to provide
service at acceptable levels and keep the
IT staff motivated and involved in business
 Business – IT Alignment -
Techniques
1. Cross-functional Steering Committee to keep the
projects on track and deliver business benefit
2. Joint Application Development (JAD)
3. IT champion in user departments
4. User advocate / subject matter expert in IT
5. Sabbatical for IT staff in user function
6. Making IT staff part of strategy groups
7. Co-authoring of papers and presentations by user and
IT
8. Joint training for users and IT on non-technical topics
 IT Strategy and Business
Maturity ust
om er
C tric
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ness
i
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c ess n
io
Pro omat
t
au
lo gy
ch no
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Differ
Partne entiat
r with e
Solve
IT with
business
culture IT
Control IT problems
resources
Extending the Enterprise
Network – Emerging Organizational
Form
In pre-Internet economy, sharp boundaries between organization and market
Network form of an organization blurs the boundary between the two
Typical organizational hierarchies have well-defined authority and control; markets do
not have enduring relationship
Network falls between the two – cross-enterprise collaboration
No command and control mechanism; but relationships are more enduring than
typical markets
cross-enterprise collaboration emerges when two or more firms voluntarily agree to
integrate human, financial, or technical resources in an effort to create a new, more
efficient, effective, or relevant business model
The parties to a network agree to forego the right to pursue their own interests at the
expense of others
Trust is one of the defining elements of a network form of governance, and the
network form of governance is therefore not reducible to a hybridization of market and
hierarchical forms, which, in contrast, are premised on a more adversarial posture
Traditional forms of organization do not have the adaptability and flexibility of network
organization
Successful collaboration requires the development of new skills, mindsets, and
corporate architectures.
Network Organization Imperatives
Each potential participant of a business network has its
own strategies, models, and processes for the present
and the future.
Therefore the network should create a joint business
logic that matches or complements each company's
strategic objectives
This means that each partner in the network should
reveal its true strategic goals concerning its cooperation,
after which the network may jointly make decisions over
the target for the network.
Often takes a considerable amount of time to build a
sufficient level of trust between the parties before
strategic intentions are articulated and communicated
and actions are taken accordingly
 Emerging Extended Enterprise
Models
Based on ownership and governance
 Network within a corporation
 Alliance
 Community
 Trust – Need of the Inter-firm
Networks
Process-based: emerging from transactions in
an interdependent environment
Affiliation-based: feeling of identity within a
group
Infrastructure-based: tied to organizational and
social structures
Trust is transferable from a trusted party to an
unknown party through provision of
endorsement / verifiable evidence
 Obstacles for Building Trust
different units of network members may not
share a common view of the benefits of joining
the network.
strategic advisability for partnering may be
marred by short-term needs to generate income
widespread adoption of short-term management
through increasing shareholder value may be a
major stumbling block in the road of many
networks
 Steps Towards Building a
Successful Network Organization
Choice of a leader / coordinator
Should be from the focal company – that which
provides critical core competence in the new
service concept
Joint business model: both top-down and
bottom-up approaches
 Top-down: alignment of corporate goals to suit the
new business model
 Bottom-up: aligning the business processes to
business model
Business model and context (synthesis from Osterwalder & Pigneur, 2002 and e-factors,
2002)
 CSOFT Ontology

Ann Becker S., The Role of Business Models in Developing Business Networks,
Electronic Commerce: Concepts, Methodologies, Tools, and Applications, Volume 1 ,IGI
Global @ 2008 citation
 Potential Benefits from a Virtual
Community
Increase purchasing intention. A virtual community containing a wide range of
information and options for customers can reduce customers' risk perception involved
in making a purchase. Current customers sharing their positive opinions can also
influence potential customers to make purchases.
Access to customer opinions. A virtual community can provide valuable feedback
to the company about its products and services, and how these compare with rival
companies.
Greater ability to meet customers' demands. A virtual community can connect
companies to their customers in order to work together in developing products that
meet customers' needs.
Additional sources of revenue. A virtual community provides a means for the
company to gather detailed information on customer profiles. This information could
be used to attract advertisers or sold to marketing companies. Alternatively, if the
community is of substantial value to the customer, the company could charge
subscription or membership fees.
Lower customer service costs. A virtual community can help reduce the costs
associated with customer service personnel as community spirit could prompt
members to help each other with product advice and thus save on customer service
costs otherwise incurred by the company.
NASDAQ – Case Study
 Have the Rules of Strategy
Changed with Internet?
It makes strategy more vital than ever – Porter
“In our quest to see how the Internet is different,
we have failed to see how the Internet is the
same” – Porter
Virtual value chain (as value chain for physical
flow of goods) - value-adding steps for
information (gathering, organizing, selecting,
synthesizing, and distributing)
Michael Hammer’s Prescription for
Customer Economy
make yourself easy to do business with
sell through, not to, your distribution
channels;
push past your boundaries in pursuit of
efficiency;
lose your identity in an extended
enterprise
These are directly facilitated by the Web
initiatives
 Things to Consider in an EC
Initiative
the source and target (business, consumer,
government)
the focus (internal or external or both)
whether the objective is efficiency or
effectiveness
go it alone versus partnership
proactive versus reactive approach
targeting one-time versus ongoing customers
physical versus virtual goods
single good/service versus package
 Strategic IT Planning (SITP)
Strategic planning is the systematic
examination of opportunities and threats in
the business environment so that you are
in a position to identify those opportunities
that should be exploited and those threats
that should be avoided
–George Steiner
 Strategic Planning Process

You want to be here Best practices

Gap Assessment IT strategy

Current IT support

You are here

 SITP Explained
The core purpose of SITP lies in identifying future
directions of investments in information technology
and systems to assist the organization realize its
business goal (Tuebner and Mocker)
Planning is a process by which deployment of
resources (people, money, hardware / software etc.)
is decided based on the strategic direction,
importance of current operation and the returns each
investment is going to produce in terms of cost
saving, customer satisfaction or competitive
advantage (3 Cs)
Strategic IT Planning Methods
Top down analytical approach
 Identify and agree on business objective
 Define critical success factors (CSF)
 Arrive at information systems portfolio that
supports / enables these factors
Bottoms up evaluative approach: Emphasis
on current systems – graded by business
value and technical quality and options are
exercised
 Bottoms-up Evaluative
Approach
Lo

P
e
r
c Divest Reassess
e
i
v
e
d

v
a
l Renew Maintain and Enhance
u
e
Hi
 Creative Approach
Explore external factors too for innovation
Challenges in Developing and
Executing SITP
Continuous improvement of applications
and infrastructure
Lack of joint ownership between business
and IT
SITP Approaches – Business
Systems Planning Approach
Developed and promoted by IBM
Focus on data and processes; based on
these an information architecture is
proposed
Identify missing systems
Prioritize for development
 SITP Approaches – Critical
Success Factor Approach
Focus on important managerial issues
Identify the information needs for the
CSFs
 SITP Approaches – Stages of
Growth Approach
Six stages of IT adoption as identified by
Richard Nolan
Maturity IT as a resource: IT projects deliver expected results

Data Shared data and common systems. Users are made

Administration accountable for the success of systems
Integration Of processes and systems with support for innovation
Control Disjointed applications lead to sub optimization of resources,
cost over run and delayed delivery requiring management
intervention to discipline

Expansion Automation demands: multiple stand-alone applications

Initiation Computerization of routine processes like payroll, FA
 SITP Approaches – Value
Chain Analysis
All the generic activities are examined to
determine how they can be improved to
lower cost / increase value and how this
can be achieved using IT
 SITP Approaches – Value
Hi Matrix
B
u
s Operational excellence Breakthrough
i Resource optimization New market expansion
n Time to market Customer value creation
e
s

c
r
i
t Routine applications HR, Finance Experimentation led applications
i (eg) mobile commerce
c
a
l
i Lo Innovation Hi
t
y Useful for application prioritization
 SITP Approaches – Linkage
Analysis
Suitable for e-business
Identifies inter-organizational linkages, their shortcomings and
then plans for their reinforcement
Five steps
 Innovate to focus on revenue generation than cost control
 Invest in technology
 Understand who wields power among the various players and build
electronic linkages
 Manage across supply and distribution channels
 Improve information across the network thro electronic channels
The method advocates use of information technology to
redefine network affiliation and restructure the industrial space
SITP Approaches – Scenario
Planning
Several possible scenarios are crafted for
the future
A team complies possible future events
that may have influence over outcome of
each scenario
Identify business strategy for the
shortlisted scenarios
Envisage IT applications needed for each
of these strategies
Integrated Planning Approach
Combines elements of different methods
 Perform business analysis to understand
critical areas
 Identify potential IT projects to serve these
areas
 Rank projects on 3C principle
 Typical Content of SITP
a) Executive summary
b) Objectives of SITP
c) Basic structure
a) Data model
b) Process diagram
d) Identified application portfolio
e) Applications available off-the-shelf / to be developed
f) Recommended implementation plan
g) Budget
h) HR Plan – skill requirement, recruitment and training plan
i) Organization plan
j) Change management plan for process changes
k) Technical architecture – hardware, networks, software, data base, interfaces
l) Migration plan
m) Project calendar
n) Policies for project management, systems development and package selection
o) Security plan
p) Cost – benefit analysis
q) Risk management
r) Projection of possible future requirements and comparison of past IS performance
 Why Does SITP Fail?
Inadequate resources (financial, technical, human) for implementation
Lack of user involvement during implementation
Inadequate analysis of information needs
Failure to anticipate changes in external environment (architecture should
be made flexible enough to allow mid-course correction)
Resistance to change – fear of loss of job, authority etc.
Poor choice of technology
No ownership of SITP
Lack of management support
Communication issues
IT’s inability to understand business requirements
Poor IT leadership
Line managers fail to appreciate long term goals and do not support SITP
 Implementation Best Practices
1. Strong implementation team
2. Clarity of expectations
3. Ownership by stakeholders
4. Process-driven approach
5. Proper monitoring / review
6. Addressing root causes of slippages
7. Proof-of-concept approach
8. Documentation of requirements
9. Change management
10.Involving users in implementation team full-time
Enterprise IT Architecture
Establish alignment between business
strategy and IT strategy

Develop strategic IT plan

Enterprise IT Architecture

Application Development
 What is Enterprise IT
Architecture? (EITA)
Articulation of structure of IT systems, its
elements, their interrelationships
Five components:
Business process architecture (BPA)
Information systems and solutions
architecture (ISA)
Information technology architecture (ITA)
Security architecture (SA)
Organization architecture (OA)
 Benefits of EITA
Helps better planning and decision making
Improves communication between business and IT
Facilitates management of complex systems
Facilitates adoption of emerging technologies
Enables sharing of IT managed information across the
enterprise
Helps assessment of benefits, impacts
Facilitates efficient application management
Leads to increased adherence to legal and regulatory
compliances
 Contents of EITA
Organization mission
Vision (Through this critical success factors are identified)
Enterprise business process model
Business process in use cases
Logical data model
Physical implementation – node connectivity diagram
Access matrix
System interrelationships
Standards
Technical infrastructure
 IT Application Strategy
Acquiring / developing application
packages
Implementation
Post-implementation support
 Development vs. Sub-contracting
Quality
Structured documentation
Requisite skills
Clarity of specifications
Confidentiality of proprietary business processes
Cost
Scalability
Expandability
Ownership
Development lead-time
performance
COTS Package Selection Cycle
Select the right alternative
Identification of candidate packages
Defining evaluation criteria and selection
process
Package customization strategy
Implementation strategy
Post-implementation support and
management
 Why COTS?
Affordability
Scalability / modularity
Flexibility
quality
Disadv
 source code may not be available
 Resource requirement may be high for a
general product
 Integration across products
COTS –As-is / Customized?
As-is ideal
Resistance from users
COTS Package Selection Life
Cycle – Preliminary
Qualification
Presence in similar industry
Presence in similar industry
User-friendliness
Wide choice of hardware platform
Budgetary cost quoted
Quality and cost of support capability
Vendor reputation and maturity
Secure information
Ease of installation
Request for Information (RFI)
General information – ownership, turnover, installed
base
Vendor business model – licensing, annual maintenance
Direct and indirect costs
Locations of service
Package design architecture
Version choice and control
Overview of functional capabilities
Recommended technical architecture
Implementation case studies
 Criteria for Evaluation
Functional fit with company’s business processes
Degree of integration of various components

Flexibility and Scalability

Complexity

User-friendliness

Ease of implementation

Ability to support multisite planning and control

Technology

Availability of regular upgrades

Amount of customization required

Local support infrastructure

Reputation and sustainability of the vendor

Total cost of ownership

 Package Customization
Strategy
Reasons for customization
 Statutory requirements
 Unique differentiator
Criteria for customization
 Will this lead to additional revenue?
 Is this needed to meet a statutory provision?
 Will this lead to significant cost saving in the
long run?
COTS Implementation – Critical
Success Factors
1. Top management support
2. Project team competence
3. Interdepartmental cooperation
4. Clear goals and objectives
5. Project management
6. Interdepartmental communication
7. Management expectations
8. Project champion
9. Vendor support
10. Careful package selection
 Other Important Success
Factors
11. Data analysis and conversion
12. Dedicated resources
13. Steering Committee
14. User training
15. Education on new processes
16. BPR
17. Minimal customization
18. Architecture choices
19. Change management
20. Vendor partnership
21. vendor’s tools
22. Use of consultants
 Best Practices for
Implementation
1. All COTS projects should have clear and operational
goals
2. Solicit top management buy-in and involvement
3. Ensure careful package selection
4. Attempt to reengineer processes
5. Dedicated resources
6. Vendor capability
7. Judicious use of consultants
8. People-related change management
9. User training and education
 Post Implementation Support
and Management
1. Managing version upgrade
2. Optimizing performance
3. Interfaces to new systems
4. Customized report development
5. Managing commercial and support issues
with vendor
6. Measuring benefits and attainment of
objectives
 Technology Management
Strategy
1. Data management strategy
2. Solution and application integration
strategy
3. Component strategies
4. Security strategy
 Why Technology Strategy?
1. Enterprise-wide technology management ensures
alignment of IT strategy to business needs
2. Better support service levels and IT capability
3. Ensures directions for business continuity
4. Facilitates data management as a corporate asset
5. Strategy for service sourcing
6. Helps infrastructure standardization; upgrade and
continuous improvement of infrastructure
 Technology Strategy
Management
1. Track technology evolution trajectory
2. Deploy technology internally
3. Ascertain technology absorption in peer
group of industry
 Data Management Strategy
Centralized vs. decentralized data governance and
management
Standardize data management environment
Strategy for business intelligence solutions
Data dissemination strategies
Single source of truth for operational data
Content management
Centralized metadata registry
Common configuration management practices
Common data service layer
 Application Integration
Strategies
1. Through customized programs
2. EAI (Enterprise application integration)
through a common bus
3. Web services
4. Use of extract, transform and load tools
 Technology Component
Strategies
1. Hardware
2. Software
3. Networks
Capacity
Quality
Unit cost
 Security Strategies
Automated prevention and intrusion
detection
Identity theft prevention