3-Strategic Uses of IT

Strategic Uses of Information
Technology
INSY532 Lecture Slides 1

Strategic Uses of IT
• Use of the Internet by businesses set off a revolution in the
use of IT, so that utilizing the Internet to conduct business
became the strategic use of information technology.
• The questions that remain are:
– Has the revolution ended, or
– Does an even larger revolution loom?
– Does IT still matter?, and
– What sorts of strategic uses are companies making?
INSY532 Lecture Slides Slide-2

Strategic Uses of IT…
• Strategic roles of IT fall into one of three categories:
1. “working inward” (improving a firm’s internal processes and
structure)
2. “working outward” (improving the firm’s products and relationships
with customers) and
3. “working across” (improving its processes and relationships with its
business partners)
• Grainger, GE Power Systems, Wire Nova Scotia, The

Shipping Industry, Cisco Systems and UPS Supply Chain
Solutions, Semco, S. A., A Day in the Life of an E-lancer,
General Mills and Land O’ Lakes, Sara Lee Bakery Group,
and Dell Computer serve as examples of how companies are
using information systems in strategic roles
the Lecture includes
• Introduction
– History of Strategic Uses of IT
– Whether the Internet Revolution?
– Episode Two: Profitability Strikes Back
– E-Business Drivers
– Does IT Still Matter?
• Working Inward: Business-to-Employee
– Building an Intranet
– Fostering a Sense of Belonging

the Lecture includes…
• Working Outward: Business-to-Consumer
– Jumping to a New Experience Curve
– The Emergence of Electronic Tenders
– Getting Closer to Customers
– Being an Online Customer
• Working Across: Business-to-Business

– Coordinating with Co-suppliers
– Establishing Close and Tight Relationships
– Becoming a Customer-Centric Value Chain
– Getting Back-End Systems into Shape

Introduction
• Use of the Internet by businesses in mid/late ’90s
set off a revolution in the use of IT
– Utilizing the Internet to conduct business became the
strategic use of IT
• Strategic = having a significant, long-term impact on a firm’s
growth, industry and revenue
• What now?
– Dot-com crash
– A larger revolution to come?
– Does IT still matter?
– What strategic uses are companies making of IT (esp. the
Internet)
Introduction…
Figure 3-1 Strategic Uses of Information Systems

Introduction…
– History of Strategic Uses of IT
• Mid 1980s, hot topic = end user computing

(working inward)
• Help employees learn about PCs
• Late ’80s strategic use focused outward to
gain competitive advantage
• e.g. Merrill Lynch cash management account
– Now considered ‘normal’ = competitive necessity Vs.
competitive advantage

Introduction…
– History of Strategic Uses of IT…
• In the 1990s
– Strategic use attention turned inward to
reengineering business processes
• Intent = not to automate existing processes but to
totally redesign how the enterprise operated
– Good idea but many failed as they were ‘lay-off’ plans
• Introduction of ERP systems was also aimed at
internal operations, specifically providing single
sources of data enterprise-wide
Introduction…
• Late ’90s
• Use of the Internet for business underway
• Bursting of the dot com bubble
• E-Business has become more reality based
• Integration of the Internet into how companies work has proceeded
• early ’00s
– Theme became leveraging traditional operations by using
the Internet to work more closely with others
• Innovations of the dot-coms created competitive challenges for
‘bricks and mortar’ firms
– Their ‘strike back’ is essentially the theme for this era
Introduction…
• In 2005
– “Something has changed”
• Especially with regards to the use of IT for competitive
advantage
– Some may question IT’s ability to give companies a
competitive edge but it is absolutely necessary for
competitive parity (necessity?)
• Being used strategically:
– Inward
– Outward
– Across

Introduction…
– Whither the Internet Revolution?
• Internet frenzy peaked in 2000

• Is the Information Revolution dead?
– Not if history is any guide –the information rev has just
began
 British Railway Revolution – mid 1800s
 10 fold increase after the boom
– During boom = great excitement and small companies flourished
– After = glamour gone. Business became serious and full of hard work
– Industry became orderly and profits began to reflect real returns
 Connecting industries
– Race for space followed by the ‘real deal’
Introduction…
-Whither the Internet Revolution?
• We are now in a period where organizations are re-
architecting themselves around Internet
technologies
– Tearing down old structures as they go
• Real gains will come when Internet technology
adapts to organizations and people
– When the technology disappears and becomes part of life
• It will be ‘quiet’ compared to frenzy of ’99/00 but
many think it will be a giant revolution

Introduction…
The Cheap Revolution
• CIOs are shifting from buying expensive proprietary products to
buying cheap generic products
– “Cheap Tech”
• The Cost savings are so compelling
– Google = runs on 100,000 cheap servers
• IOne breaks = discards
– Avoids expensive service contracts and in-house fix it staff
– By going cheap Google saves 90% of cost most IT shops spend
– “Dellification”
• Moved from selling PCs to also selling servers, printers, storage devices….
– “Cheap” is occurring elsewhere:
• Labour – outsourcing to other countries
• Film production – camcorders etc.
• Software – Linux Vs. Microsoft
• Telecommunications – unlicensed vs. Licensed, Voice-over-IP…
Introduction…
Episode Two: Profitability Strikes Back
• Dot-coms became dot-bombs (dot-cons?) because they
couldn’t generate profits
• Episode One: The Dot-Com Menace/threat/
• Episode Two: Profitability Strikes Back
– Whilst it has taken these so-called “old economy firms” longer to
utilize the Web they realize that they must do so in a profit-making
manner
– Unlike episode one which starred companies that only had an
Internet presence, the sequel has starred those with a dual physical
and Internet presence (initially called the bricks and clicks firms) and
that are profitable
• Use the Internet to complement your strategy, not replace
your past way of serving customers

GRAINGER
Case example: Using the Internet to complement your strategy
• Distributes non-production products to

companies through stocking locations all over the
U.S.
– Customers who purchase on its website also purchase
through traditional channels
• Physical sites make its online presence more valuable
– Customers who want fast delivery
• Ordering is less expensive and shipping is cheaper in bulk to
stocking locations Vs. individual small shipments
– Continue publishing its paper catalogs
• It receives a surge of online orders every time it issues its
paper catalog
E-Business Drivers
• Key Components that have accelerated the rapid growth and
acceptance of e-business:
– Wide access to a public network
– Standard communication protocol
– Standard user interface
• E-business applications run over the Internet, drastically

reducing access and communications costs
• With standardized communication protocols and user
interfaces, implementation and training costs are far lower
• As a result, a much broader set of users and firms has access to
the systems, allowing rapid growth

Does IT Still Matter?
• “IT Doesn’t Matter” – article by Nicholas Carr in
Harvard Business Review May 2003
– Controversial and now a book
– Bottom line = IT doesn’t matter anymore, at least not
strategically
• IT is an infrastructure technology, like rail, electricity, telephone, etc
– Such technology can create a strategic advantage for an individual firm
at the beginning of its life cycle when it is expensive and risky
• Carr = IT is now at the end of build out and is neither proprietary nor
expensive
– = A commodity which is available to anyone and won’t give any
individual firm a competitive advantage

Does IT Still Matter?...
• Reached the end of its build out:
 Power of IT now outstrips the needs of business
 IT prices have dropped = now affordable
 Capacity of Internet has caught up with demand (fibre surplus)
 Many vendors want to be seen as utilities akin electric utility
 Investment bubble has burst
• When an infrastructure technology reaches the end of its
build out, it simply becomes a cost of doing business
• Although IT is necessary for competitiveness, Competitive
advantage comes from the firm’s business model

• IT has become part of the business, its management needs
change, success hinges on defense, not offense
• Management of IT should become “boring” focussing on:
1. Manage the risks
– Focus on vulnerabilities rather than opportunities (risks are more
common with open systems than proprietary)
2. Keep costs down
– Greatest risk = overspending, so only pay for use and limit
upgrading
• Don’t update PCs when not needed
3. Stay behind the technology leaders
– But not too far behind!
• Delay investments until there are standards and best practices and
prices drop
• Only innovate when risks are low
• Carr’s ‘negative’ view of IT value deals with its innovative use by
individual firms = losing competitive advantage
• Infrastructure technology brings its greatest economic and social
benefits to all once it has become a shared infrastructure
– This is what IT is becoming Carr believes
• The debate is on
– Many other views-
– Is that right? Regardless = has prompted some important discussions
– Brown & Hagel believed the past has taught three lessons about how
to use IT strategically
• IT alone has never been a differentiator but it is inherently strategic
because of its indirect effects
1. Value comes from IT only when paired with concurrent innovations in business
practices
2. IT’s economic impact comes from incremental improvements
3. Strategic differentiation emerges over time

Working Inward: Business-to-Employee
Building an Intranet
• The primary e-business way to reach employees is via
‘Intranets’
– Intranets are private company networks that use Internet
technologies and protocols, and possibly the Internet itself
• Benefits of using intranets:
– Wider access to company information
– More efficient and less expensive systems development
– Decreased training (due to browser interface)
– By using an intranet’s open-system architecture, companies can
significantly decrease the cost of providing companywide
information and connectivity

Building an Intranet…
• Benefits cont.
– Investments in a intranet (open) = significantly less cost than a
proprietary network
– The link to the Internet allows companies to expand intranets
worldwide easily and cheaply
 Significant Benefit = unthinkable before the Internet!
– Because an intranet uses the browser interface (and internet
‘protocols’ /technology) = users do not need extensive training on
different products
 To a certain extent = applies to ‘all’ products today
– Companies only need to record information in one place, where it can
be kept up-to-date for access by all employees no matter where in the
world they are located
WORKING INWARD: Business to Employee

Building an Intranet
• Due to the ease with which Web sites can be created, many
employees have built their own, leading to a proliferation of
sites with company information
– Deciding how much control of the systems should be decentralized
• Proposed solutions
– Create a corporate portal to act as the gateway to the firm’s internal
resources, information, and Internet services
– Develop separate departmental or divisional portals, such as sales, HR,
operations, and finance portals which are linked to form a corporate
portal

Read about case: GE POWER SYSTEMS

Fostering a Sense of Belonging
• Intranets are evolving into very important enterprise
structures
– In some enterprises, the intranet is seen as the enterprise
 Videos of executives – vision and mission
 Internal forms, rules and processes
• The Intranet embodies the company’s processes and culture
and can be accessed anywhere an employee has a Web
connection
• Can provide the foundation for creating a sense of belonging
by giving a means of communicating and creating
communities
– Care of employees = one of the most important things
enterprises do!
Working Outward: Business-to-Customer
• In most industries companies need sophisticated

computer systems to compete
– Airlines, hotels, rental car companies = a sophisticated reservation
system (theirs or someone else’s) is a must
– Similar ‘musts’ in other industries
• Wholesale = automated order entry and distribution
• Finance = ATMs., trading and settlement…
• As industry leaders increase the sophistication of their
systems to concurrently address the four hallmarks of
competitiveness
– Quality, service, innovation and speed
• Their competitors must do the same or find themselves at
a disadvantage

1. Jumping to a New Experience Curve
• Using IT (or any technology) as the basis for a product or
service can, in some cases, be viewed as moving up a series
of experience curves
• More experience leads to a set of connected curves Vs. one

continuous learning curve
• Each curve represents a new technology or combination

thereof in a product or service as well as in its manufacture
and/or support
• Moving to a new curve requires substantial investment in a

new technology
THE SHIPPING INDUSTRY
Case Example: Jumping to a New Experience Curve

CISCO SYSTEMS and UPS
Case Example: Jumping to a New Experience Curve (RA)
• In the late 1990s Cisco committed itself to manufacturing
products within 2 weeks of order
– BUT = could not guarantee delivery
• Turned over its European supply chain to UPS Supply

Chain Solutions (UPS SCS)
– Uses UPS system to find the best shipper to move the package
from the Netherlands centre to the customer
– The systems of the two companies have become increasingly
linked
• Each movement of product is recorded in both systems
• Handles over 1m boxes a year
– Because UPS can ensure reliable transit times, Cisco is able to now
promise delivery times for its European customers

2. The Emergence of “Electronic Tenders”
• Initially IT has been embedded in products and services
for its computational capabilities
– e.g. in cars and elevators to make them operate more efficiently
• Now = allows product/service to be “ tended” i.e. cared
for, attended to, or kept track of by another computer
– e.g. vehicle diagnostics monitored by car dealer
– Packages / luggage etc. with bar codes = able to be tracked
– Potential uses are endless and we are just at the beginning
• Options are endless but the goal is still to get closer to the
customer

3. Getting Closer to Customers
• Business-to-consumer e-business is the most widely
reported form of e-business.
• Nearly every type of product can now be purchased online:
books, CDs, flowers etc.
– Many success stories – Dell, Cheap Tickets, ETrade ….
• Success is not easily achieved:
– Amazon.com had its business viability questioned for a long time
– Levi Strauss, despite encouraging figures, quit selling jeans over the Internet
“…complex proposition and management had better uses for company
funds”
• Advantages are numerous and seem obvious (Fig 3-4)
• Potential problems are also numerous but not so obvious

WORKING OUTWARD: Business to Customer

WORKING OUTWARD: Business to Customer

Getting Closer to Customers…
• Use of the Internet has grown more sophisticated

• Customer Relationship Management (CRM)
– Involves using IT to know more about customers (and
possibly non-customers)
 Whether you visit their website, call them (home, office, mobile) or
buy something – the firm is often keeping track and combining that
information to create a profile of you
 CRM focuses on customer data
– Boon or bane = depends on how intrusive you think they are
 Great useful information Vs.
 Invasion of privacy
– Privacy – protection laws in many countries

• Successful selling over the Internet entails much more than just setting up
a Web site and taking orders
– It involves organizing the entire value chain around the Internet
• The E-Business Model
– Redefining Customer Value
 “On-demand”: reduces the time it takes to respond to customer
requests
 Convenience: more than one stop shopping plus a single point of
contact in the company
 Personalization of services: Online business(CRM) allows gathering
and managing customer information (to serve the customer as per
their buying pattern)
 Access to a wide range of competitive prices and sellers for products:
online business forces companies to rethink their pricing of products
and services
• The Internet is not only used to sell to customers online. It is
also used to provide services to customers
– Sometimes it is can be difficult to know which is more
valuable – the product or the service
– For instance which is more important a piece of
machinery or the ongoing monitoring of that machinery
and receiving an alert before it malfunctions?
• The current focus is on staying in closer contact with customers,
understanding them better, and eventually, becoming customer driven
by delivering personalized products and service
• Note: as in the ‘real world’; the highest volume sellers do not always
have the lowest price:
• Prices are offset by branding, awareness and customer trust
INSY 532 Lecture Slides Slide- 37

SEMCO (RA)
Case Example – Using the Internet to get Closer to Customers
• Brazilian heavy equipment manufacturer with an ‘interesting’
management attitude/structure
– Letting employees ‘self manage’ and following their ideas with $
• First = moved into services and more recently into the market space
of e-business services over the Internet
– Now = even teaming with a virtual trade show company to host virtual
trade fairs for companies too small to have one on their own
• All of this change has occurred by following the employees
– When they have a good idea = Semco management is likely to provide the
funding to test it out
• Unusual company, however its forays into using the Internet to
expand its business provide lessons for others

Being an Online Customer
• Companies large and small are transacting

business via the Internet
• Some still use it as their main means of

business, even after the dot-com crash

TerenceNet (RA)
Case Example – A Day in the Life of an E-Lancer
• E-business consulting, development, and research
firm for small/medium businesses
• Much of its work is procured from www.elance.com
– Website that puts e-business freelancers in contact with
clients
 Charges 10% commission
 Bid on projects
 Have private conversations with potential clients
 Even able to sub-contract to others (become a client!)
– Trust involved on both sides
• When you sign up on Elance, it’s like joining a
community
Working Across: Business-to-Business
• Streamlining processes that cross company

boundaries is the next big management challenge
– Companies have spent a lot of time and effort
streamlining their internal processes, but their
efficiencies often stop at their corporate walls
• Working across business takes many forms
including:
1. Working with ‘co-suppliers’
2. Working with customers in a close mutually dependent
relationship
3. Building a virtual enterprise, in fact, one that might
evolve into an e-marketplace
Working Across: Business-to-Business…
• Businesses have long used IT to reduce costs

and time of inter-organizational transactions, for
example:
– Inter-organizational Systems (IOS)
 Reservation systems
• Sabre (AA)
 Electronic funds transfer systems
• Cirrus (Green Machine)
– Electronic Data Interchange Systems (EDI)
 Transmission, in standard syntax, of data for business
transactions between computers of independent
organizations
Coordinating with Co-suppliers
• Collaborating with non-competitors is a type of
working across
• Example – two food manufacturers might have
the same customers (supermarkets and other
retailers) but do not compete with each other
• Lack of convenient ways to share information
quickly and easily has deterred co-suppliers from
working together
– Internet takes away this deterrent

GENERAL MILLS & LAND OF LAKES
Case Example – Coordinating with Co-suppliers
• Seven largest US food companies supply about
40% of supermarket shelf space for dry goods
– Use own trucks etc.
• Only supply 15% of refrigerated
– One truck for several supermarkets
 Less efficient, delays etc. = unhappy clients
• Combine their deliveries on General Mills trucks
– Now = looking into integrating their order taking and
billing processes

Establishing Close and Tight Relationships
• Strategic use of IT and the Internet has
moved to the most difficult area =
working across companies
– Having relationships with various players
in one’s business ecosystem
• Banks, advertising agencies, suppliers,
distributors, retailers, even competitors
• Such relationships often have accompanying
linking information systems
Establishing Close and Tight Relationships…
• Need to determine what level of systems integration they
want:
– Loose = provide ad hoc access to internal information
• Business processes remain distinct
• Such limited integration requires little risk or cost
– Close = two parties exchange information in a formal manner
• Leads to greater benefits, so there is greater impetus to make the
relationship work
• Risks increase because confidentialities are shared
• Costs are also higher
– Tight = two parties share at least one business process
• Most risky – business critical and the most costly to integrate
– Due to high costs and risks = can only have a few!!
• Where does one organizational boundary begin and the other end? =
Intermeshed!
WORKING OUTWARD: Business to Business

SARA LEE (RA)
Case Example: Close relationship becoming a tight one
• Sara Lee was one of the first to initiate scan-based trading with
large retailers that sell its baked goods
• Using this technology, Sara Lee does not get paid until a loaf of
bread is sold and passes through the point-of-sale scanner
• The technology requires drawing from a single database
hosted by a third party
• Its use has improved the quality of delivery people, lowered
costs, and increased revenues
• Note: Sara Lee requires retailers to adhere to a number of
prerequisites – to demonstrate that they are good trading
partners
• Look at how it is administered:
– ‘Seven prerequisites for SBT’
– Management structure to support
Becoming a Customer-Centric Value Chain
• A company’s value chain consists of:
– Upstream supply chain
 Working with its suppliers of raw materials and parts
– Downstream demand chain
 Working with its distributors and retailers to sell its products and
services to end customers
• Traditionally most companies make-to-stock = build
products / create services and then “push” them to
customers
– Supply-Push world
• Today, we are seeing the rise of the reverse – a demand-
pull world where a customer’s order triggers the creation
of a customized product or service the customer has
defined
DELL COMPUTER
Case Example: Demand - Pull
• Dell is the foremost example of the demand-pull business

model
• Customers configure their on PCs on Dell’s Website, and
once an order is initiated, Dell’s suppliers can see the
ordering information and production schedule on Dell’s
extranet
• In fact, their production systems grab this information
automatically; as a result, Dell’s extranet has become a
private exchange
• Dell is even working to give suppliers two tiers down access
to customer order information, so they can react to changes
even faster
Becoming a Customer-Centric Value Chain…
• Pros and Cons of Demand-Pull

– Value-chain transparency = should reduce the number of duplicate
orders
 10,000 memory chips Vs. 30,000 ‘ordered’ due to shortage
– Creating private exchanges such as Dell changes the level of co-
operation among firms; suppliers even customers become
collaborators
– Con = infrastructure
 Manufacturer’s becomes its suppliers – binding them even tighter
 Requires TRUST
– Becoming customer centric is not easy, especially for supply-push
companies
• The promise of CRM is alluring
– Aims to help companies shift their attention from managing their
operations to satisfying their customers
Getting Back-End Systems in Shape
• Most, if not all, B2B systems must integrate with existing

back-end systems which has proved to be particularly
difficult
• Challenge
– Variety of platforms
– Incompatible
• Approach
– Purchase ‘new’ systems
 Database Management Systems (DBMS)
 ERP Systems
– Extranet = securely share with suppliers, partners etc.
• Goal = extend the company’s back-end systems to
reengineer business processes external to the company
Conclusion
• Over the years a few innovative companies have used IT

for strategic advantage
– ‘Models’ but many companies did not have the resources or skills
to follow their example
– With the growth of the Internet and development of e-business, IT
has become a strategic tool in every industry
• Looking for cohesion of often dispersed employees
– Intranets and Portals
• Increasingly customer centric view has many using IT in
working across
– Value chains are looking to shift from supply-push to demand-pull
• As IT continues to evolve, so do its strategic uses

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Strategic Uses of Information

INSY532 Lecture Slides 1

INSY532 Lecture Slides Slide-2

• Grainger, GE Power Systems, Wire Nova Scotia, The

INSY532 Lecture Slides Slide-4

• Working Across: Business-to-Business

INSY532 Lecture Slides Slide-5

Figure 3-1 Strategic Uses of Information Systems

• Mid 1980s, hot topic = end user computing

INSY532 Lecture Slides Slide-8

INSY532 Lecture Slides Slide-11

• Internet frenzy peaked in 2000

INSY532 Lecture Slides Slide-13

INSY532 Lecture Slides Slide-15

• Distributes non-production products to

• E-business applications run over the Internet, drastically

INSY532 Lecture Slides Slide-17

INSY532 Lecture Slides Slide-18

INSY532 Lecture Slides Slide-19

INSY532 Lecture Slides Slide-21

INSY532 Lecture Slides Slide-22

INSY532 Lecture Slides Slide-24

INSY532 Lecture Slides Slide-25

Working Inward: Business-to-Employee

• In most industries companies need sophisticated

INSY532 Lecture Slides Slide-27

• More experience leads to a set of connected curves Vs. one

• Each curve represents a new technology or combination

• Moving to a new curve requires substantial investment in a

INSY532 Lecture Slides Slide-29

• Turned over its European supply chain to UPS Supply

INSY532 Lecture Slides Slide-30

INSY532 Lecture Slides Slide-31

INSY532 Lecture Slides Slide-32

INSY532 Lecture Slides Slide-33

INSY532 Lecture Slides Slide-34

• Use of the Internet has grown more sophisticated

INSY532 Lecture Slides Slide-35

INSY 532 Lecture Slides Slide- 37

INSY532 Lecture Slides Slide-38

• Companies large and small are transacting

• Some still use it as their main means of

INSY532 Lecture Slides Slide-39

• Streamlining processes that cross company

• Businesses have long used IT to reduce costs

INSY532 Lecture Slides Slide-43

INSY532 Lecture Slides Slide-44

INSY532 Lecture Slides Slide-47

• Dell is the foremost example of the demand-pull business

• Pros and Cons of Demand-Pull

• Most, if not all, B2B systems must integrate with existing

• Over the years a few innovative companies have used IT

INSY532 Lecture Slides Slide-53

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