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Agenda:

• Introduction to management• IT strategy

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Famous IT Strategy Models

• 3 Era model

• McFarlan s Strategic grid model

• Porter’s value chain model (Homework)

Michael E. Porter

Warren McFarlan

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Read Supplemental Reading #1. For each Company and Value Chain combination that is checked, write a paragraph explaining how that company company uses technology to support that portion of the value chain. For example, explain how Wal-Mart uses technology to support the Inbound Logistics portion of the value chain. There should be six short paragraphs in total.

Submit this assignment as a Microsoft Word document through the Distance Learning and Course on Line system or turn it in on paper.

This is an individual assignment.  

InboundLogistics

Wal-Mart Amazon.comFedExAnd/or

UPS

Operations

OutboundLogistics

Marketingand

Sales

Service

x

x

x

x

x

MasterCard

x

Value Chain

Com

pan

y

Group work

4Trends in the evolution of business IT Source: Ward / Griffiths, 1997, p. 19

computersfragmented(hardware limitation

Nature of Technology

Nature of Operation

Issues in System Development

Reasons for Using the Technology

Characteristics of Systems

“distributed process”interconnected

software limitation

“networks”integrated

people / vision limitation)

remote from userscontrolled by DP

regulated bymanagement services

available and supportive

to users

technical issues(programming / projectmanagement)

support businessusers’ needs

(info management)

related to businessstrategy

reducing costs(esp. administrative)(technology driven)

supporting the business (manager)

(user driven)

enabling the business?

(business driven)

regimented /operational(internal)

accommodating /control

flexible /strategic?

(external?)

DP Era MIS Era SIS Era

The evolving role of IS & IT in organizations3-ERA MODEL

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Information Technology Challenges

Regulated

Monopoly

Organization

Productivity/ Efficiency

Free Market Individu

al

Individual/Group

Efficiency

Collaborative

Enterprise and Industry

Integration

Value Creation

Era I

Era II

Era III

Administrative

Framework

Primary Target

Justification/ Purpose

?

?

?

Application

Challenges

?

?

?

• Integrating Changing Technology Platforms

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Transition from DP to MIS

• Change in how IS/IT resources were managed

• Change in how the role of IS/IT is evaluated

• Strategy for management of IS/IT

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The Three-era Model - DP and MIS Eras

• Three threads of evolution have enabled the development of the information systems during three eras:

– Hardware: reducing cost and size

– Software: increasing availability, more flexible OS, more quickly developed business application, and greater accuracy with less experience required from the users

– Methodology: improved ways of organizing, coordinating, and implementing multiples projects

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The Three-era Model - Lessons Learned from DP and MIS Eras

• Pros: – Automation through Data Processing (DP) does not

fundamentally alter the business process, however, produces a competitive advantage over the operational efficiency.

– DP provides the means for managers to make better decisions regarding business activities.

– MIS enables more efficient information processing and better ways of communicating and presenting information to typical managers.

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The Three-era Model - Lessons Learned from DP and MIS Eras

• Cons: – DP needs to understand the process to design

entire information systems, not just the programs to process data;

– needs to involve requirements and more through data analysis;

– needs project management on extended level to recognize both user and DP functions;

– needs better planning.

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The Three-era Model - Lessons Learned from DP and MIS Eras

• Cons cont’d: – Return to investment is not necessary the goal of the

MIS;

– MIS should involves heavy user requirement study and corporation;

– MIS should be service oriented to enable user’s information accessibility

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The Three-era Model Strategic Information Systems Era

• Objectives of three eras: – DP era: improve operational efficiency by

automation of processes– MIS: increase management efficiency– SIS: improve competitiveness by changing the

nature or conduct of business.• SIS are systems whose unique functions or specific

applications shape an organization’s competitive strategy or it provide it with competitive advantage.

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The Three-era Model Strategic Information Systems Era

• Relationship between the three eras: – MIS relies on good operational DP systems; SIS relies

on good DP and (or) DP for appropriate information provisioning;

– The difference between SIS and DP/MIS is not the functions of each, it is the impact on the business that makes the difference;

– Strategic applications may put so much stress on DP and MIS applications that they may need to be redeveloped.

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Towards a Fourth Era

• Distinction between sustainability and competitive advantage

• Only IS Management skills will be the source of sustained advantage -Mata

• Organizations must focus less on IT itself and more on managing IT

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• Most IT developments can easily be copied by competitors– Sometimes there is less risk attached

to being second

• Productivity paradox – large scale IT investment rarely translates into substantial cost savings

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Retu

rn o

n E

qu

ity -

%

Spending on Information Technology and Profitability

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Sustainability

• It may be that only IS management skills, rather than particular IT applications, can be the source of sustainable competitive advantage

• The ability to learn faster than competitors may be the only truly sustainable competitive advantage

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“How you gather, manage, and use information will determine whether you win or lose”

- Bill Gates

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IT is inextricably intertwined with business

• Technology is an expected way to conduct business

• Organizations are looking to apply technology to streamline existing processes

• Organizations are also looking to create new opportunities which are a source of competitive advantage

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Support Applications which improve management and performance but which are not critical to the business. e.g. Time recording

Turnaround Applications which may be of future strategic importance. e.g. Expert systems, MRP II

Factory Applications which are critical to sustaining existing business. e.g. Stock Control, MRP

Strategic Applications which are crucial for future success.

e.g. Computer-Integrated Manufacturing

LOWLOW HIGH

HIGH

Strategic impact of existing systems

Strategic impact of future systems

McFarlan’s Strategic Grid

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Support IT of little impact. Low spending. Invisible to senior management. Might have low-level office systems specialists. e.g. Cement Factory

Turnaround Education programs in place for senior management. Move from back office computing to center stage. e.g. Some retailers

Factory Applications which are critical to sustaining existing business. Have on-line real-time systems for daily operations. Significant IT budget. e.g.. Steelworks, oil refinery.

Strategic Applications which are crucial for future success. The business is shaped by the IT systems it uses. e.g. Banking, credit card companies, insurance.

LOWLOW HIGH

HIGH

Strategic impact of existing systems

Strategic impact of future systems

The Strategic Grid Organisations

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The Value Chain

Supportactivities

Primary activitiesInbound logistics Materials receiving, storing, and distribution to manufacturing premisesOperations Transforming inputs into finished products.Outbound logistics Storing and distributing productsMarketing and Sales Promotions and sales forceService Service to maintain or enhance product valueCorporate infrastructure Support of entire value chain, e.g. general management planning,

financing, accounting, legal services, government affairs, and QMHuman resources management Recruiting, hiring, training, and developmentTechnology Development Improving product and manufacturing processProcurement Purchasing input

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Competitive Advantage

Inbound Logistics

SIS: Automated Just-in-

Time Warehous

ing

Administrative Coordination and Support ServicesSIS: Collaborative Work Systems

Human Resources ManagementSIS: Employee Skills Database Systems

Technology DevelopmentSIS: Computer-Aided Engineering and Design

Operations

SIS: Computer

-Aided Flexible

Manufac-turing

Outbound

Logistics

SIS: Online

Point-of-Sale and

Order Processin

g

Marketing and Sales

SIS: Interactiv

e Targeted Marketing

Customer Service

SIS: Help Desk

Expert System

Procurement of ResourcesSIS: Electronic Data Interchange with Suppliers

SupportProcess

es

PrimaryBusines

sProcess

es

Porter’s Value Chain

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Porter’s Value Chain

Primary Activities: • Inbound Logistics: ‘Inbound’ activities to receive, store and

distribute inputs to the product, such as material handling, inventory control, warehousing and contact with suppliers.

• Operations: Production activities to create the product such as machining, packaging, printing and testing.

• Outbound Logistics: ‘Outbound’ activities to store and distribute the product to customers, including warehousing, order processing and vehicle scheduling.

• Marketing and Sales: Activities associated with providing a means by which buyers can purchase the product and be included to do so (advertising, selling, pricing, merchandising and promotion).

• Service: Activities for providing service or maintaining product value, including installation and training.

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Porter’s Value Chain

Support Activities:

• Procurement: Purchasing input.

• Technology Development: Not just machines and processes but also expertise, procedures and systems.

• Human Resource Management: Activities involved in recruiting, training and staff development.

• Infrastructure: General management, finance, planning and quality assurance. Infrastructure supports the whole value chain.

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SUPPLIERVALUECHAINS

FIRMVALUECHAIN

CHANNELVALUECHAINS

BUYERVALUECHAINS

Porter’s Value SystemPorter’s Value System

In the “value system” supplier, firm, distributor, and buyer value chains overlap.

The supplier’s outbound logistics is the firm’s inbound logistics. TheDistributor’s inbound logistics is the firm’s outbound logistics, etc.

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Why do IT managers care about these models?

Jean Botin founded the world's oldest restaurant (according to the Guinness Book of Records) on Cuchillero Street in 1725.

Goya supposedly once washed dishes here, andthe restaurant is mentioned in the last lines ofHemmingway’s The Sun Also Rises.

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IT managers care about these models because:

The models provide a “map” to help managers

•Find where they are •Find where they should go

You are here

Goal

The road to competitive advantage