A thought
communiqué
from Infosys
How IT Enables Business
Transformation?
Information
technology and
business are becoming
inextricably
interwoven. Nobody
can talk meaningfully
about one without the
talking about the
other
— Bill Gates
ge in
Chans impact
es
in
s
u
b
ge in e
Chanor Servic
uct
prod
r
uct o
Prodrvice
Se
tem
osys
ec
ge in
Sell
han
als
ateri
e
rm
ue o
chniq
, te
cess
n pro
s
ation
s&
Sale ting
e
Mark
ound
Outbistics
Log
nue
Reve
to
Time et
Mark
n
zatio
Reali
HEMA PREM & GEORGE EBY MATHEW
JULY 2006
Executive Summary
Organizations like Google, ebay, Amazon and Yahoo rely solely on IT to
drive their business. These companies minus IT become dysfunctional. FedEx,
WalMart and Dell have made IT an important element of their competitive
advantage. Take away IT, some or all sources of competitive advantage ceases
to exist. Firms like Jet Blue1, Infosys2 and Salesforce.com3 have made IT a
critical element of their business model to virtualize people, process and
technology respectively. Shutting out IT in these firms brings their business
model to nought. IT does transform the way businesses are conducted. But
how?
Almost any value creating activity can have a role for IT. Yet its role in
business transformation is sometimes misunderstood or undermined because
of the inability to establish a credible causal relationship. On the other hand,
very few companies seek a business case of IT led for process automation,
service level improvements and so on. But only a few firms (e.g. Jet Blue,
BHC4) have unlocked transformational results from their investments in IT.
How does IT and businesses together impact the value chain? How do firms
strategically leverage IT led business innovation to create market competitiveness
and produce transformational results? How does IT enable Business
Transformation?
y
tabilit
Profi
y
tabilit
Profi
st
ility
ictab
Pred
ent
llfillm
1
Code: CE-07-06
A thought
communiqué
from Infosys
IT as a strategic enabler for running
Businesses
IT as a driver for Business Transformation
In our view, true business transformation is a function of 1)
the degree of differentiation a firm is able to bring about in
its product (or service), 2) the degree of differentiation
inherently delivered in the process, technique or material
used in producing the product (or service), 3) the impact it
brings to the company’s business results and 4) the impact
it brings to the firm’s ecosystem in terms of differentiation.
Thus IT needs to create an impact on the supply value chain
of a business so as to impact these four aspects of
transformation.
In our previous communiqués we defined Business
Transformation and looked at how it happens. The link
between IT and Business Transformation has often been
elusive and surreal. On one hand we have firms that are
driven (eBay, Google, Amazon, Salesforce.com) by IT.
On the other we have firms like GE, that power their
razor sharp strategies using IT. This is quite different
from what firms like Salsforce.com do with Internet
and application development environments to enable
hosted applications and application sharing forming a
central part of its business model. Thus, the relationship
between Business Transformation and IT is gauged from
the predictable results that can ensue if IT were to be
plugged out. For a host of other firms like GE, JetBlue,
FedEx and others, IT is a very important enabler that
lends them competitive advantage and positioning in
the industries they represent. For all these firms, IT is
very strategic.
Consider WalMart, it not only uses the information from
its data warehouse for forecasting demand, maintaining
inventory or getting their replenishments ordered, but also
to communicate to their vendors/partners the interest of
the micro markets (Most of the time WalMart ended up in
partnerships with the vendors). In turn, Walmart has gained
control over a given product and hence the value chain.
They have the largest commercial satellite system in the
world that is used in collecting information and beaming
it down to their vendors. This has resulted in two things 1)
impact on Walmart’s business leading to excellence in
business execution and 2) the vendors know, how much of
what need to be produced, thus becoming more market
aligned. This is a classic example of how IT can bring about
a huge impact on the value chain parameters viz; inbound
logistics, operations, outbound logistics, sales & marketing
and the service/product. It is evident that technology is
employed to some degree or other in every value creating
activity8. On a close look, one would notice that the
technologies in itself don't bring in the business value, but
its innovative use to do different things, which otherwise
considered impossible without IT, is the source of
competitive advantage.
For example, when $ 32 bn FedEx Corp., delivers 6
million packages around the world every day, it is
reaping benefits of creating the world's first real-time
package tracking system that drives effectiveness in its
delivery model5. One of the key secrets of Walmart's
success is that it leverages an in-house data warehouse
that maintains ten terabytes of point of sale data. This
analysis helps Walmart better understand what is
happening, what did happen, within the company,
leading to a tangible value for better decision making.
The historic data speaks of good and bad decisions made
in the past, and how much of what sells and what doesn't
sell. Further Walmart is investing heavily in technologies
like RFID to bring in visibility in the changes in the
demand 6 . Capital One, one of the world's largest
providers of MasterCard and Visa credit cards, with
about 44 million customers, more than 20,000 employees,
is a classic example of how IT can drive efficiencies
through technology innovation. It has one of the world's
best business intelligence systems that help the company
not only to pin point demand patterns but also helps it
to up sell and cross sell effectively7.
While considering the kinds of impact IT can create, it is
worthwhile to consider the following: For one, IT has made
virtualization possible. For example, it has helped to create
virtual workspaces wherein an employee no longer needs
to be physically present in his or her cubical to execute a
company objective (see later example on Jet Blue) Another
important contribution of IT to the business world is in the
area of collaboration. There are enough technologies that
help in white boarding, conferencing, machine to machine
interactivity and so on that help to collaborate between
firms even without human intervention. For example, many
of the auctions that take place on eBay are hardly facilitated
by human intelligence. Hi-tech manufacturer Toshiba and
delivery and logistics major UPS offer another inspiring
example for how IT enabled collaboration is impacting
their value chain. UPS not only handles shipping and
handling of Toshiba-made laptops for service, but also the
repair and services the laptops itself. Toshiba notebooks
users’ drop the machines off at 3300 UPS retail shipping
When these firms leverage IT, it is with the express intent
to achieve business excellence which is otherwise
difficult to achieve in their respective industries. Their
leaders see IT not as a cost incurred to “keep lights on”
but as one that is mission critical. Everything else trickles
down from there in terms of choosing the right
technology, managing it, integrating it with business
processes and creating innovation platforms using IT.
But the question still remains, at a granular level how
does IT enable “Business Transformation”? How does IT
impact the value chain?
2
A thought
communiqué
from Infosys
locations in the US from where they will be shipped to a
UPS facility in Louisville, Ky. UPS employees who have
been certified by Toshiba performs the service and repairs.
The result being a drastic decrease in the turnaround time
required to fix a broken laptop and get it back in the hands
of the customer from an earlier 8 to 10 days time to 1 to 4
days time. Besides that, Toshiba is freed up to do what it
does best-design and manufacture computers. Toshiba
leverages UPS’s sophisticated IT systems for collecting data
about transactions to track what parts are causing the most
problems with the company’s laptops. Toshiba restructured
its processes thus bringing in a degree of differentiation in
the process to produce the same service resulting in a huge
business impact. UPS on the other hand emerged as a
pioneer in synchronizing supply chains impacting the
ecosystem at large9.
of software development work into logical components,
and distributing them geo-locationally, to perform them
in locations that where it creates the maximum value. This
model has emerged as a disruptive force in the industry
and led to the rise of offshore global outsourcing. Today,
offshore global outsourcing has gained widespread
acceptance as a crucial aspect of business strategy. While
being enabled by the availability of highly-educated,
technically-skilled and low-cost talent in India and other
emerging economies, the GDM has achieved broad
acceptance by delivering at least 20 -30 per cent lower costs,
higher quality, and productivity2. Baptist Healthcare
System (BHS) one of the largest not-for-profit healthcare
systems in Kentucky owning six acute-care hospitals with
more than 1,800 licensed beds saved hardware costs of up
to $300,000, by virtualising its IT infrastructure4. Grid
computing, an example of technology virtualization is sold
as a commodity today, creating yet another technology
trend. So, be it restructuring the process, reinventing the
business model or reengineering the infrastructure, the
three firms rode on the "virtualization" opportunities that
IT brought in, to bring about a degree of differentiation, in
the product (or service) they produced and in the process,
technique or material used in producing the product,
resulting in effective and efficient value chain, impacting
the company's business and its ecosystems.
While virtualization helps to re-distribute talent and tap
distributed talent, collaboration is helping them to
redeploy assets in more cost effective locations yet not
compromise on rich people interaction across geographies
and within business networks. The third area where IT has
had a big impact is in the area of real time commerce. Over
fifteen years ago, 24x7 was a distant dream and wasn’t
affordable. Technologies have not only helped in
connectivity but have now enabled even processes to be
executed in other cost effective parts of the world during
non business hours so as to bring in faster time to market,
efficiency and business continuity. It has also enabled skills
that are rare in one geography to be tapped into the business
ecosystem. At a more technical level, IT has helped in
digitization of processes and even relationships where in
electronic equivalent of trust can be established in an
electronic network. Collectively these contributions have
taken away barriers in doing business across geographies
and markets and given access to new sources of competitive
advantage making the playing field more level than before.
In other words, flattening the otherwise curved world.
Take the cases of Jetblue, Infosys and Baptist Health Care
(BHC). Jetblue virtualized its entire ticketing process
anchoring its performance on a process centric approach to
innovation where it slashed costs by transforming its core
reservation process, cut commissions to travel agents and
provided flexibility to its workforce. Instead of paying high
rent and corralling reservationists into cubicles, Jetblue let
them stay home and let the network become JetBlue process
chain. This operational innovation was accomplished by
redesigning the reservation processes and call-handling
software to distribute the work virtually anywhere in real
time. It resulted in no expensive real estate, time-wasting,
harried commutes, and lots of happy reservationists. This
allows the management to focus on the customer satisfaction
and other sources of revenue1. Infosys virtualized the
software engineering process. It pioneered the Global
Delivery Model (GDM), the philosophy of breaking pieces
In a nutshell (in no way exhaustive), the value chain
measures where IT has an impact may be summarized as
the following:
• Tremendous speed, agility and adaptability in the supply
chain resulting in faster demand fulfillment, shorter time
to market and quicker revenue realization.
• Improved cost variability and drastically lower
transaction costs leading to profitability in the value chain.
• Improved predictability and risk management resulting
in effective supply-demand co-ordination and reduced
cost at almost every stage in the value chain
Change in
business impact
Disruptive change in ecosystem
Buy
Make
Sell
Change in
product or Service
Change in process, technique or materials
Inbound
Logistics
Operations
Outbound
Logistics
Sales &
Marketing
Speed
Agility
Adaptability
Demand
Fulfillment
Time to
Market
Revenue Realization
Improve cost variability
Transaction costs
Profitability
Profitability
Profitability
Manage Risk
Improve Predictability
Demand
Fulfillment
Cost
Predictability
Reduced Defects
Service Improvement
Supplier
Satisfaction
Revenue
Realization
Order Fullfillment
Product or
Service
IT Initiatives
eg. Digitize, Virtualise,
Collaborate, “Flatten”,
etc
Figure 1: IT impact on Value Chain for
Business Transformation
3
Source: Infosys Research
A thought
communiqué
from Infosys
•
Reduced defects and service improvements leading to supplier satisfaction, quick
revenue realization and faster order fulfillment in the make, buy and sell part of the
value chain respectively.
The combined effect of technology trends and the business value chain parameters can
bring in a huge business impact, leading to a disruption in the ecosystem. Changes in
technology can impact competitive advantage by incrementally or drastically impacting
the vital value chain parameters (Figure 1) or by making possible new configurations of
the value chain that may involve process and people level transformations as well.
Such impact can be linked together to result in producing a new a product (or service),
employ a new technique, or process to product a product, in such a way that there is
business impact on the firm and its ecosystem. But, in many cases IT alone may not offer
sources of business transformation. There are significant levels of changes needed in the
business processes, organizational structure, amongst others as well.
Implications
For many firms IT has evolved beyond the role of mere infrastructure support but is the
business strategy itself it not only creates and supports but enables the business value at all
levels of the firms supply value chain10, 11. Thus understanding, 'How IT enables Business
transformation' at different levels of the value chain, draws ones attention to 'where' and
'what' to focus on when looking for transformational results through IT.
About the Authors
Hema Prem, PhD is a Research Associate
at SETLabs. She has authored several
journal papers conference papers and book
chapters. Her current research interests
include Business Transformation and
Business IT alignment. Hema can be
contacted at hema_prem@infosys.com
George Eby Mathew is Head of Infosys
Solutions Consulting for Canada where
he conceptualizes and develops market
relevant business solutions for the
Canadian market. He founded the
Business Transformation Lab a strategic
initiative to understand how
transformational strategies impacts
Fortune 1000 firms. George can be
contacted at george_mathew@infosys.com
Several technological inflexion points such as virtualization, collaboration, 24X7,
digitization, and utility models are setting the stage for new IT applications leading to
business transformation. The challenge thus remains for practitioners, technologies and
researchers is to uncover ways to help companies leverage information technology and
technological innovations to disrupt their ecosystem not just by influencing the processes
and techniques involved in the creation of a product (or service) but also in the design of
the product itself.
For Infosys researchers, technologists and practitioners, understanding of the impact of a
technology or technology trend on a value chain parameter (e.g. inventory level) leads to
clearer articulation of a solution or creation of an IT environment that improves inventory
management. As preciously stated the challenge is to apply technology disruptions in
business problem solving for which a basic requirement is an appreciation of causal
relationships and appetite for creating IT platforms for business innovation.
Key Words: Information technology, Business transformation, Value Chain Parameters
References:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
JetBlue Skies Ahead, Overby, S., CIO Magazine, 1 July. 2002.
GDM: www.infosys.com/gdm/default.asp
An eBay For Business Software, Business Week, September 19, 2005
Baptist Healthcare System: March 28, 2005, vmware.com/pdf/bhs.pdf,
FedEx: IDG News 6/14/06: , http://www.itworld.com/Man/2672/060614fedex/
Walmart: http://www.pbs.org/wgbh/pages/frontline/shows/walmart/
Culture and Partnership, Katherine Busser, BI Review Magazine, March 1, 2006
Porter's Generic Value Chain: http://www.netmba.com/strategy/value-chain/
Toshiba Will Have UPS Fix Its Laptops, Arik Hesseldahl, 04.27.04, Forbes.com
How to achieve Business Excellence through IT, Prof. Dr. Pierre M. A. Buuron.
CuttingEdge is a monthly thought leadership note published by Business Transformation Lab at
Software Engineering and Technology Labs (SETLabs) of Infosys.
Editor: Dayasindhu N. (dayasindhun@infosys.com)
© 2006 Infosys Technologies Ltd. All rights reserved.
For more information about Infosys and its capabilities, visit the World Wide Web at http://www.infosys.com
This document is for informational purposes only. Infosys makes no warranties, express or implied, in this summary.
The names of actual companies and products mentioned herein may be the trademarks of their respective owners.
4