Matakuliah
Tahun
: A0814/Investment Analysis
: 2009
THE STRATEGIC ROLE OF
TECHNOLOGIES
Pertemuan 5-6
Why is Strategy in IT Planning Important?
• IT is a tool, and when used in the context of a sound
business strategy, can yield significant payoff.
• Peter G.W. Keen – difference in competitive and
economic benefits that firms gain from information
technology rests on a management difference and not
on a technology difference
• The technology generally available to other competitors
as well, yet some organizations reap far greater payoffs.
Similar to the strategy of the arrangement of pieces on a
chessboard, the management difference constitutes
placing pieces of technology in the pursuit of a strategic
objective.
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Why is Strategy in IT Planning Important?
• Example:
– Gas stations that offered customers the ability to pay by a charge
card at the pump. There was no new technology involved in in
this service; it was merely extending the card-charging service
that was available inside the glass doors to the gas pump. The
result : customer were happier because they did not have to go
inside and stand in line. The gas stations’ cost was low because
they did not have to hire more gas attendants to accept payment.
Yet, in those early days, gas stations with this facility were
charging a few pennies more per gallon. That’s the payoff of
reconfiguring an existing technology
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Why is Strategy in IT Planning Important?
• Example
– Pizza Hut, a popular chain of restaurants, linked their telephone
caller identification (ID) facility to a personal computer-based
database. As the call came in, the number from their caller ID
retrieved the customer’s name and address, including driving
directions, purchase history, and even preferences. The result:
customers referred to by name were impressed, the time to take
the order was significantly reduced because address and
directions did not need to be asked, and additional sales were
generated when the person taking the order prompted for
additional items.
What is Strategy?
• Michael Porter:
– Businesses need to get back to using It as part of corporate
strategy as opposed to an inward-looking operational role.
– He also places the responsibility on the IT professionals to know
the customer, to understand the manufacturing process, and to
take a business view of the company?
Porter’s Five Market Force
IT Investment Strategy
• IT investment should be managed by the strategic goals
of the company.
• The business strategy should be realigned when a new
technology is recognized or when a new business
opportunity arises.
Developing A Strategy
• A business should assess the state of the competition
and its position in the marketplace.
• Looking inward and assessing its own strengths and
weaknesses will allow the organization to recognize a
successful strategy.
• Management decide how it wants to stake its pace in the
market.
• For each set of options in the strategy should be studied
by examining the risks and opportunity associated.
• Many an investment has been abandoned because more
attention was placed on the risks and not enough on
future opportunities.
Looking Outward
• Based on Porter’s Five Force
– The threat of substitute products can change the competitive
nature of the industry.
– Threat of new competitiors entering the market can change the
rules of the market.
– New competitiors usually come with new ideas, revised
paradigms, and like the revolutionaries, are dissatisfied with the
way the industry operates. Due to dissatisfaction with the pricing
of IT services lack of IT’s link with business strategy, and
opportunity to stay technologically current has led many IT
professionals to break off and compete with their former mentors
and employers.
Looking Outward
– The intensity of rivalry among competitors is an indication of the
rough road ahead for a business looking to make it in a new
industry.
– New entrant have a novel idea or approach to gaining
customers, or a remedy for the weaknesses of the industry.
– The buying power of customer and suppliers can affect the
nature of competition.
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Looking Inward
• SWOT Analysis
– To match the internal strength with opportunities of the industry
and create something of value.
• Porter’s value chain analysis (VCA)
– Provides a framework to examine each area of the business that
can be targeted for IT Investment.
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Value Chain
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Value Chain
• Inbound logistics, evaluates the process of inbound
activites such as raw material to convert to finished
products, inventory for processing, or deposits in the
case of a financial institution.
• In some cases, the inbound activity involves human
intellectual activity such as a computer program or
remote monitoring and diagnostics, or data processing.
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Value Chain
• Operations activity involves receiving the inbound raw
materials and executing the process of converting them
into finished products.
• Outbound logistics involves efficiently dispatching
finished products and services out of operations to the
customers.
• Marketing and sales can offer significant opportunities
for IT investment payoff. Targeted advertising and
market research, developing sales leads, and managing
customer relationship are some examples of IT based
initiatives
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What To Look For
• The impact of IT investment is not always evident in the
profitability of the firm.
• The payoff can be reflected in other ways such as higher
efficiency or increased customer value.
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Lorin Hitt Research
• Lorin Hitt of the Wharton School at the University of Pennsylvania
and Erik Brynjolfsson of the Massachusetts Institute of Technology
found that IT has increased productivity and created substantial
value for customers.
• They found that there is no inherent contradiction between
increased productivity, increased consumer value, and unchanged
business profitability, because in competitive industries businesses
may pass on the savings from improved productivity to their
customers.
• An understanding of how and whom technology is likely to affect will
lead to useful metrics of IT payoff.
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