Matakuliah
Tahun
Versi
: J0422 / Manajemen E-Corporation
: 2005
:1/2
MODULE 3 :
Creating Business Advantage with IT
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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.
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Outline Topic
 Forces that shape Business strategy.
 Analyzing the Impact of IT on Strategic Decision
Making.
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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
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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
Hardware
constraints
Data
processing
Software
constraints
• Difficulty in delivering reliable system on time and
within budget, productivity of system developers,
Hardware
tools limitation.
constraints
• Introduction of PCs
 1980- Early 1990
• Communication networks
• Powerful desktops, Laptops, internet etc.
User related
constraints
 Late 1999• Internet, wireless network, etc.
Management
Information
Systems
Organization
environment
constraints
Strategic
Information
Systems
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Creating Business Advantage with IT
 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.
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Forces that Shape Business Strategy
 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
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Forces that Shape Business Strategy
 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)
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Forces that Shape Business Strategy
 Value chain participants
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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
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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
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The Value Chain
Support
activities
Primary activities
Inbound logistics
Operations
Outbound logistics
Marketing and Sales
Service
Corporate infrastructure
Human resources management
Technology Development
Procurement
Materials receiving, storing, and distribution to manufacturing premises
Transforming inputs into finished products.
Storing and distributing products
Promotions and sales force
Service to maintain or enhance product value
Support of entire value chain, e.g. general management planning,
financing, accounting, legal services, government affairs, and QM
Recruiting, hiring, training, and development
Improving product and manufacturing process
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Purchasing input
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)
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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
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Forces that shape competition
The Value Ch ain Defines Ind ust ry Str uctu re a nd Relationships
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Source: Applegate, Lynd a M., Rober t D. Austi n, and F. War r en McF arla n, Corporate I nfor mation Strategy and M anagement . Bur r Ridge, IL:
McGr aw-Hill/Irwin, 2002.
Chapter 1 Figur e 1-3
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
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Industry and Competitive Analysis (ICA)
Forces Influencing Indust ry and Competitive Advan t age
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Source: Applegate, Lynd a M., Rober t D. Austi n, and F. War r en McF arla n, Corporate I nfor mation Strategy and M anagement . Bur r Ridge, IL:
McGr aw-Hill/Irwin, 2002.
Chapter 1 Figur e 1-5
The strategic Grid Analysis
 The value chain and the industry analysis help in framing
the strategic decision
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Categories of Strategic Relevance and Impact
A contingency appropriate to IT management.
Factory
High
IT Impact on
core operations
Strategic
Goal: Improve performance of
core processes
Leadership: Business unit executives
Project Management: Process
engineering
Support
Goal: Transform organization or
industry
Leadership: Senior executives & board
Project Management: Change
management
Turnaround
Goal: Improve local performance
Leadership: Local level oversight
Project Management: Grassroots
experimentation
Low
Low
Goal: Identify and launch new
Ventures
Leadership: Venture incubation unit
Project Management: New Venture
development
High
IT Impact on core strategy
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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
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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.
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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
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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
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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.
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