Chapter 2 introduces fundamental concepts of competitive advantage through information technology and illustrates major strategic applications of information systems. Information Technology (IT) professionals must understand how to use IT systems and technology to deliver a competitive advantage to the organization. Information systems and technology should provide more than a cost savings benefit to organizations. Today, IT solutions are expected to provide the means to surpass a competitor’s performance. As discussed in Chapter 1, the role of IT professionals is changing. Currently, there is an evolving term, business technology, which is used to describe the emerging role in IT. IT professionals are becoming more and more integrated with the business operations of an organizations.
The Real World Case Study 4, “IT Leaders: Reinventing IT as a Strategic Business Partner,” describes how one organization is reorganizing to better utilize IT to increase business benefits and contribute to a competitive advantage. It is important for an IT organization to utilize IT to reduce the cost of running the business, grow the business, or develop new services to change the business. To position an organization to better provide its products and services, an understanding of the competitive forces is needed. Michael Porter identifies five threats that require business strategies ensure that an organization can out-perform other competitors. They are:
1. Rivalry of competitors within its industry
2. Threat of new entrants
3. Threat posed by substitute products that might capture its market share
4. The bargaining power of customers
5. The bargaining power of suppliers
To counteract these threats, competitive strategies must be developed to address the potential risks an organization may encounter as it strives to maintain its position on the market place. The competitive strategies are:
1. Cost Leadership Strategy
2. Differentiation Strategy
3. Innovation Strategy
4. Growth Strategies
5. Alliance Strategies
6. Other Strategies
These strategies can be used either individually or in a combination to position an organization to better compete for the future. An example of an organization that is utilizing IT to change how it does business and remain economically viable in the future is the online magazine Cross Talk. In the 1990’s, Cross Talk was printing and mailing the magazine to subscribers. With a decrease in funding, this organization had to develop ways to reduce costs, deliver its services to its subscribers, grow its subscriber base, demonstrate its value above other on-line content providers, and justify why it should not be eliminated.
Cross Talk is now available at its new website in either an online digital flipbook format or PDF version—CrossTalk is now completely electronic. This change reduces their carbon footprint and allows them to bring the journal to their readers in their preferred and most convenient format. This is also CrossTalk’s first step towards reaching new reader devices and enhancing the suitability of the journal for our increasing electronic readership.
Customer value has become a driving force in the world economy. A key success factor for many organizations is developing customer value by increasing customer loyalty, anticipate their future needs, respond to customer concerns, and provide top-quality customer service. One example is Southwest Airlines. Not only have they automated ticket sales via the Internet, Southwest also sends special offers regarding discounts available at my destination, emails to remind customers that the trip is “around the corner,” text alerts if a flight is delayed, and offers incentives to fly with them. It seems that Southwest Airlines provides a personal assistant to help make the travel experience more enjoyable. Think about how some of your favorite businesses are creating customer value for you.
Many organizations use Internet technologies to create a strategy to offer fast, responsive, high-quality products and services tailored to a customer’s individual preferences. Internet technologies make customers the focal point of customer relationship management (CRM) and other e-business applications. New technologies such as wikis and blogs are also being incorporated as a means to provide enhanced customer experience. Such communications enable continual interaction with customers by creating a cross-functional collaboration with customers in product development, marketing, delivery, service, and technical support. Television is taking advantage of this capability. TV news shows are reading and answering emails and some reality TV shows allow views to vote for their favorite contestant, preferred ending, or favorite commercial. Using the Internet technologies, business units are better able to shape and offer products and services.
The value chain is another concept that helps to identify opportunities for strategic information systems. It views an organization as a series of basic activities that add value to its products and services. In this framework, activities are organized into primary and support processes. From the business understanding gained by analyzing an organization’s value chain, the IT organization can determine where to best apply IT systems and technology. The following value chain graphic provides an example of how and where information technologies can be applied to specific business processes to gain a competitive advantage in the market place.
Value chain offered by information technologies.
Often times, to remain competitive, an organization must consider more than just where and what IT systems and technology solutions should applied. An organization must look at how it actually does business and then reengineer its business processes. Business reengineering requires an organization to re-design how it does business by eliminating stove-piped, silo organizations and functions, develop an improved understanding for opportunities for information sharing, and instituting enhanced stewardship regarding an organizations data and business processes.
The rate of change is increasing and organizations must be able to quickly respond to changing market trends. Standardized, long-lived products and services are giving way to globalized, niche markets which offer products that are individualized and short-lived. To become an agile organization, an organization must consider the following strategies. 1. Provide a solution that customers perceive as a solution to an individual problem. This allows the product to be priced based on value rather than cost to produce. 2. Cooperate with customers suppliers, and other companies to quickly bring the product to market. 3. Thrive on change and uncertainty.
4. Leverage the individuals and knowledge of the processes. Become entrepreneurial in spirit.
Knowledge as a Competitive Advantage
To remain competitive, organization must become a learning organization. Organizations must be able to capture the knowledge of the organization, learn from this knowledge, and then use it to enhance its offerings. Knowledge Management Systems facilitates an organization’s ability to capture and then utilize its knowledge. Understanding and being able to utilize this “unstructured date” is key to developing and maintain a competitive advantage. Information capture includes processes, procedures, patents, reference works, best practices, etc. This integration of knowledge helps an organization become an innovative and agile provider of high-quality products and customer services, and potentially a more formidable competitor in the market place.
Leaders in information technology are expected to be not only a technology professional but also a business professional. Many are tasked with finding emerging business opportunities, driving growth, encouraging innovation, and engaging customers. This provides a tremendous opportunity for you to step up and co-create and ultimately shape the future business vision. Collaborating with the business will not be enough—you don’t just provide the technology but jointly own the success and failure of business initiatives. IT Portfolio Management and Governance
An emerging trend is enhanced IT Portfolio Management and Governance as a means to effectively apply IT systems and technology to business needs. According to Richard Spires, DHS CIO, in his blog post entitled Getting Program Governance Right Helps Ensure Success on the federal CIO Council Web site: Complex IT systems encompass at least a half-dozen stakeholder organizations that must be synchronized, including the strategy organization, the business or mission owner of the system, IT, finance, procurement, security, and privacy. Ensuring all key stakeholders are involved in key decisions is an essential element to assuring genuine alignment.
Program Governance Boards provide guidance, decision-making, and oversight of one or more programs. The function of the Program Governance Board is not to usurp the authorities of the Program Manager (PM), but rather to provide a forum by which the PM can bring key issues and trade-off decisions to an informed, empowered body that has a vested interest in that program’s success and views the PM as a trusted advisor and true subject matter specialist. IT organizations must determine where to invest time, people, and money in current and new IT systems and services in order to enhance the value of products and services. To do this, many organizations are categorizing offerings into individual portfolios and establishing a strong governance structure to guide the selection and investment into solutions.
Organizations are establishing an Enterprise Architecture (EA) to inform, guide and constrain the investment decisions made by governance boards regarding IT systems. The Federal CIO Council defines EA as: Enterprise Architecture is a strategic information asset base, which defines the mission, the information necessary to perform the mission and the technologies necessary to perform the mission, and the transitional processes for implementing new technologies in response to changing mission needs. An enterprise architecture includes a baseline architecture, target architecture (sometimes referred to an as-is and to-be), and a sequencing plan. An EA identifies which processes and IT systems to standardize and integrate. The benefits of an EA are reduction in IT Costs, improved IT responsiveness, guides the proper selection of IT solutions to ensure the accomplishment strategic business outcomes. The components of an enterprise architecture is described in the figure below:
Various layers of an enterprise architecture. (Source: NIST)
How does your organization determine how to invest in IT? You might see if one of your organization’s senior executives is available for a 30 minute meeting to discuss how the organization determines what technologies to invest in as a corporation. Think about questions to ask. Some examples might be: how is an business need identified? How are IT investments justified? Who are your competitors? If you work for an IT consulting firm, you might as how the company decides what contracts it will bid on. It can be said that our use of IT systems and technology is equivalent to when we were using rotary telephones.
As you complete your Masters Program at UMUC, remain watchful of emerging trends in the IT industry, how it will be utilized to gain a competitive advantage, and what impact it will have on the skills needed by an IT professional and the organization structure required to take advantage of the advancements in technology. Trends currently occurring that may be worth watching are: cloud computing, software as a service, virtualization, social networks, and mobile computing. It is through developing learning as a life-long habit, remaining aware of trends in the industry, and understanding the impact that technology has on a company’s ability to compete that you, as an individual, will be able to keep your skills current, agile, and competitive.
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