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6 Pages

Accounting & Financial Management
Course Code
Theophanis Stratopoulos

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Chapter 3: IT Strategy 1 Managerial Perception Regarding Role of IT a IT strategy is a shared view, among a firm’s top management team (TMT), regarding the role of IT in the organization b TMT’s attitude toward IT might be based on prior experience, personal experience and industry requirements c Roller Coaster Pattern 2 Factors Driving IT Strategy: Decide whether IT represents a strategic resource by answering the following ... a Can IT change the basis of competition? i Cost Leader, Product Differentiator, Focused Cost Leader/Product Differentiator ii Adding value to their product/service, can change the basis of competition from cost leadership to product differentiator (vice versa) iii Use IT to achieve dramatic cost reduction (i.e. reduce existing staff or grow without hiring staff, improve material use, increase machine efficiency through better scheduling or maintenance, and lower inventories) - can leverage IT to achieve substantial reduction in cost per unit to shift to cost leadership iv Example: Distributor of Magazine v Example: Google Apps and Docs. b Can IT build barriers to entry? i Threat of entry places downward pressure on potential profit of industry - If high, unlikely to observe high profit without attracting new competition ii Refer to Chapter 2 Seven Barriers iii Example: Adoption of new procurement, distribution and inventory control technologies with large fixed cost → increases economies of scale and makes it more difficult for others to enter iv Example: Cloud - buy capacity as need, which lowers the bar for innovation because can build something quickly and deploy it quickly c Can IT build in switching cost? i If customer have made a significant investment in IT solution that supplier has developed, then customer faces switching cost ii Example: Mobile Provider iii Example: Time invested in learning Bloomberg and integrated into business, unlikely to switch vendor iv The higher the perceived (due to human inertia) or actual switching cost, the harder for new entrants to enter market and find new customers, the lower the bargaining power of customers and the higher the profitability of suppliers in the industry d Can IT change the balance of power in supplier relationships? i Example: Collaborative Planning Forecasting Replenishing - Coordinate supplier’s and retailer’s forecast of demand for Listerine 1 ii Implement inter-organizational initiative to reduce inventory, increase forecasting accuracy, increase sales revenue, reduce safety stock and increase productivity e Can IT technology generate new products? i For little cost, able to take existing product and tailor it to customer’s needs] ii Mass Customization 3 Functional Roles of IT a Automate - Replacing Human Labour in Automating Business Processes i Goal: Save Money and Improve Quality ii Sr. management regards IT as an overhead whose cost have be carefully managed a Tend to look at organization from a manufacturing POV and preoccupied with cose and/or technological issues b Relatively less sensitive to the possible role of IT in the management system iii Has long range implications technologically and may involve large capital expenditure → short-sighted because human behaviour can be automated in complex technological environment may not be valid in some cases (don’t take advantage of innovation and creativity) iv Not expected to produce large increase in profits or value: 1 Extremely difficult to sustain competitive advantage, unless extremely difficult to duplicate - otherwise, short lived benefits 2 When such IT practices come to dominate an industry, these IT investments are best referred to as competitive necessities (continue as active industry participants, at best maintaining current level of profitability) b Informate Up - IT provides information to higher levels of organization more easily and efficiently to aid their organizational control and coordination roles i Agent of Control - further tighten and consolidation of power and control by top management ii Sr. management sees IT as means of facilitating their access to information from every aspect of their firms operations → able to pinpoint problems and initiate corrective measures rapidly a Appeals to more control oriented executive c Informate Down - IT is used to distribute key information to lower levels of organization in order to enhance the information reach of “front line” organizational members and empower them with relevant knowledge and information i Agent of Empowerment and Autonomy ii Organizational transformation, since employee empowerment requires changes to organizational architectures of structures, processes and reward system iii Applies to informate-up → potential to enhance competitiveness, however, short term improvements in firm’s performance and likely to be short-lived (mode comes to characterize an industry’s IT related activities - profits may decrease and consumer surplus goes to consumers) 2 iv Must accompany initiatives with changes in firm’s decision structure and cultures, such that decisions are made radically better and quicker! Radical transformation allow sustainability due to complexities and difficulties involved in introducing and maintaining radical transformation d Transform - IT is a vehicle for fundamentally altering the structure and competitive forces of the industry where the firm operates i Sr. management view IT as a means for changing firm’s fundamental relationship with its suppliers and customers and altering the products, markets, organizational structures and organizational boundaries, inter-organizational relationships, and management processes ii Disruptive and promise high, sustainable returns if successful (however, unlikely because of associated complexities and uncertainties - high risk, high return scenario) 4 Disposition Toward IT: Innovative vs. Conservative a Innovator i Goal: To be an IT leader within its industry ii Seeks to be the first in its industry to respond to the opportunities (explore, develop and capitalize on innovative IT initiatives for its benefit) iii Not always first to introduce or adopt every new technological innovation and be on the “leading edge” iv Instead, has consistent strategic perspective in which it is constantly engaged in seeking ways to innovate with IS and to bean IS leader over its competitors v More likely to have both greater levels of success and failures! b Conservative i Seeks to exploit IS innovations only after they are carefully scrutinized and proven to be beneficial for its competitors ii Reduce potential risk of engaging in an aggressive IS strategy 5 Dispo sition Toward IT: Offensive vs. Defensive View of IT a Offensive i How much the company relies on IT for its competitive edge through systems
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