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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