1

MODULE 3 :Creating Business Advantage with IT

Matakuliah : J0422 / Manajemen E-Corporation

Tahun : 2005

Versi : 1 / 2

2

Learning Outcomes

In this chapter, we will study:

Entrepreneurs, able to draw on unprecedented scale economies, built vast empires.

Three frameworks that can be used to guide analysis of the impact of IT on business strategy.

We will learn about The Networked Economy Business Model.

We can compare about Networked Economy of Scale and Networked Economy of Scope.

We will know that what the impact of IT on making a strategic decision.

3

Outline Topic

Forces that shape Business strategy.

Analyzing the Impact of IT on Strategic Decision Making.

4

Content

Creating Business Advantage with IT

As the century closed, the world became smaller. The public rapidly gained access to new and dramatically faster communication technologies.

Entrepreneurs, able to draw on unprecedented scale economies, built vast empires.

Everyday day brought forth new technological advances to which old business models seemed no longer to apply

5

Creating Business Advantage with IT

IT Evolution 1950 - 1960

• Hardware costs and limitation of capacity and reliability. Limited IT personnel• Mainframe computer, data processing center.

Mid 1960 - Early 1980• Difficulty in delivering reliable system on time and within budget, productivity of system developers, tools limitation.• Introduction of PCs

1980- Early 1990• Communication networks• Powerful desktops, Laptops, internet etc.

Late 1999-• Internet, wireless network, etc.

Hardware constraints

Software constraints

Hardware constraints

User related constraints

Organization environmentconstraints

Data processing

Management InformationSystems

Strategic InformationSystems

6

Notes: The winners in the world of the information highway and

the networked society will not just be the providers of the fibre, the computer terminals devices, and the software packages but….

Organizations (large and small) who are able to perceive new channels for reaching their customers, identify transformed products and services which can be offered, and those who have the courage and will to rapidly reposition their organizations and undertake the risks, turmoil and opprobrium which often accompanies radical change.

Creating Business Advantage with IT

7

Three frameworks that can be used to guide analysis of the impact of IT on strategy

Value Chain Analysis

Industry and competitive analysis

Strategic Grid Analysis

Forces that Shape Business Strategy

8

Value Chain Framework Tool for identifying and analyzing the stream of activities

through which products and services are created and delivered to customers.

Once activities are defined, it becomes possible to analyze the economics at each step in the chain by identifying both the costs incurred and the value created.

These activities can be located inside a firm or across firm boundaries.

Accompanying the physical value chain is a related information value chain through which the involved parties coordinate and control activities

Value chain participants (Market Roles)

Forces that Shape Business Strategy

9

Value chain participants

Forces that Shape Business Strategy

10

Value Chain Framework

Value Chain Analysis Industrial Economy Business Model

• Favored production

Economy of Scale• Are achieved when a market participant or a network of participants

is able to leverage capabilities and infrastructure to increase its revenue and profit within a single product line

Economy of scope• … to launch new product line or businesses or enter a new market

The point within a value chain where maximum economics of scale and scope are created determines market power

11

Value Chain Framework

Industrial Economy Business Model The innovations favored production

• Physical/analog production (machine, telephones, steam engines, etc)

Operational model• Assembly line, marketing, sales

Management model• Hierarchy

Social/regulation system• Specialized work, pay-for- performance incentives, etc

12

The Value Chain

Supportactivities

Inbound 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

Primary activities

13

Forces that shape competition

The Networked Economy Business Model Innovation model

• Digital production and distribution technologies (broadband and wireless, networks, multimedia content creation, etc)

Operational model• Integrated supply chains and buy chains

Management model• Team, partnerships, consortia

Social/regulatory systems• Ownership incentives, virtual work, distance learning, etc)

14

Forces that shape competition

Network Economy of Scale Are achieved when a “community” of firms shares its

infrastructure, capabilities, and customer base to produce and distribute products faster, better, and cheaper than competitors can

Network Economy of Scope … when community uses its shared infrastructure to

produce and distribute new products and services, enter new market, or lunch new business more quickly, at less cost, and more successfully than competitors can

15Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/I rwin, 2002. Chapter 1 Figure 1-3

The Value Chain Defines Industry Structure and Relationships

Forces that shape competition

16

Industry and Competitive Analysis (ICA)

ICA framework postulates that economics and the competitive forces in the industry are the result of five basic forces: Bargaining power of suppliers Bargaining power of buyers Treat of new entrants Treat of substitute products or services Competitive intensity and position among traditional

business rivals

17Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate I nformation Strategy and Management. Burr Ridge, IL: McGraw-Hill/I rwin, 2002.

Chapter 1 Figure 1-5

Forces Influencing Industry and Competitive Advantage

Industry and Competitive Analysis (ICA)

18

The strategic Grid Analysis

The value chain and the industry analysis help in framing the strategic decision

19

Categories of Strategic Relevance and Impact

Factory

Support

Strategic

Turnaround

IT Impact on core operations

Low

Low

High

High

A contingency appropriate to IT management.

IT Impact on core strategy

Goal: Identify and launch new VenturesLeadership: Venture incubation unitProject Management: New Venture

development

Goal: Improve performance of core processesLeadership: Business unit executivesProject Management: Process

engineering

Goal: Improve local performanceLeadership: Local level oversight Project Management: Grassroots

experimentation

Goal: Transform organization or industry

Leadership: Senior executives & boardProject Management: Change

management

20

Impact of IT on Strategic Decision Making

Can IT be used to reengineer core value activities and change the basis of competition?

Can IT change the nature of relationship and the balance of power among buyers and suppliers?

Can IT build or reduce barriers to entry?

Can IT decrease or increase switching costs?

Can IT add value to existing products and services to create New Ones

21

Assessing IT-enabled business

Opportunity and Risk Risks increased when executives

• Have poor understanding of sources of competitive dynamics in the industry within which their firm competes

• Fail to fully understand the long-term implications of a strategic system that have been launched or one lunched by a competitor or another industry participant

• Lunch a system that brings litigation or regulation to the detriment of the innovator

• Fail to account for the time, effort, and cost required to ensure user adoption, assimilation, and effective utilization.

22

Assessing IT-enabled business

Opportunities and Risks What business are we in? Who are our customers,

suppliers, and business partners? What value do we provide to these key constituencies (including 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

Who is our biggest competitor today and who will it be in future? How easy is it for new players to enter our market. How easily can customer, suppliers and partners switch

How efficient and effective is our core operation activities and processes? How easily or difficult is it to do business with partners

23

Assessing IT-enabled business

Opportunities and Risks Do we want to be an industry leader or follower?

Will changes in related industry (or even unrelated industries) influence our industry?

Do we have the required infrastructure to adapted to rapid changes in the industry?

Do our planning and budgeting process enable us to identify and effectively respond to strategic opportunities and threats

24

Chapter Summary

Frameworks for analyzing the impact of IT on the core operations and core strategy of firm.

Executives are encouraged to ask five key questions as they assess potential strategic use of IT. Can we use IT to reengineer key value activities and

change the basis of competition? Can we use IT to change the nature of relationships and

the balance of power among buyers, suppliers, business partners, and competitors?

Can we use IT to build or reduce barriers to entry? Can we use IT to increase or decrease switching costs? Can we use IT to add value to existing products and

services or create new ones? An understanding of strategic opportunities must be

combined with and understanding of strategic risks.