IT Infrastructure
Introduction, Chapters 1 & 2
INFO 410
Glenn Booker
Images are from the text author’s slides
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Chapters 1-2
IT and business
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Information Technology (IT) has had a
strained relationship with the business world
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Opportunity but uncertainty
Advantage but risk
This course examines their relationships
through a series of case studies
IT is a tool, which like any other, can be
helpful or misused or ignored
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Scope of IT
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US$2 trillion spent on IT worldwide in 2007
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Increasing dependence on, and impact of, IT
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Continued rapid spending growth
Truly global spending distribution
Search for opportunity
Avoidance of operational risk
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IT background
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IT has evolved at lightning speed compared
to business practices
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1950’s first mainframe computers
1960’s mainframes become common
backend tools
1970’s minicomputers start to appear
1980’s the first personal computers
(microcomputers)
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IT background
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The role of IT therefore started in the back
office, and has become prominent in all
aspects of daily business
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1990’s PCs flourish, and the Internet goes
mainstream, leading to the Internet boom/bust
2000’s can’t exist without computers and the
Internet
Name a big business that doesn’t use computers!
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Effects of the IT revolution
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As a result, location matters far less
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The 1960’s concept of the ‘global village’ is far
more true than ever imagined
Virtual organizations easy to establish
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Bad part – interdependency has resulted in
things like the global financial collapse
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Challenges the definition of a organization
Systems are almost impossible to isolate
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Rapid change
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With the computer revolution, change occurs
much faster than ever possible before
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Not just in systems, such as architecture,
interfaces, etc.
But also in organizational structures, businesses
Workforce composition and skills
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The challenge
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The old ways don’t work, so we need to
experiment with new approaches
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Before moving forward, helps to understand
where we’ve been
Avoid repeating past mistakes
Learn insights from brave new views
That’s why this course is based on case
studies
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The CIO viewpoint
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The text is for an advanced MIS course
Critical for us to understand not only the
technology, but also the business world’s
view of it/IT
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Business leaders and technical execs often speak
different languages, have different priorities
Business thinks IT doesn’t understand their
problems; IT thinks business leaders lack vision
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IT is everywhere!
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IT now forms the foundation for fundamental
business models, industries, markets,
strategies, and organizational structures
Wise use of IT can establish competitive
advantage, or create products or services
that wouldn’t exist without it
IT is an enabler, and primary business
channel for many businesses
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Chapters 1-2
Text outline
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Module 1 (Ch. 1-4) focus on the executive
view of IT, and how it relates to the business
model (strategy, capabilities, and value)
Module 2 (Ch. 5-8) looks at how IT affects
business operations – what is its impact on
how business can be done?
Module 3 (Ch. 9-10) looks at how IT
leadership at a strategic scale
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Where do I go?
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So we need to understand our foundation –
the IT revolution
Learn from its successes and failures
See what we can measure and control to
use IT effectively
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What decisions do we need to make about the IT
we use? How can IT help us make wise business
decisions about our organization?
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Chapter 1 - Understanding
Business Models
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What is a business model?
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What does that mean?
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What environment is relevant?
What are examples of a business strategy?
What kind of capabilities do we mean?
What resources are needed?
Who are the stakeholders?
How do you measure value?
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Dot bust
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The Dot Com boom (circa 2000) went bust
because of many unsustainable business
models
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Nevertheless, following a business model is
a good thing
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Lots of expenditures, no revenue!
New technologies can create new models
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Business model
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“A business model … forms the foundation
for how executives make decisions about
opportunities to pursue, businesses to launch
or buy, activities to perform, talent to hire,
and ways to organize to deliver value to
stakeholders” (text, page 43)
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Business model components
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As noted earlier, a business model consists
of three main dimensions
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Strategy
Capabilities
Value
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Analyzing Strategy
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Strategy covers the scope of your business –
what do you sell, what services do you offer,
what markets are you in, how can people tell
you from other companies?
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Business context – what business are you in?
Who are your customers?
What competitors and substitutes are there?
What is your supply and distribution network?
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Analyzing Capabilities
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Capabilities are the collection and use of
resources needed to achieve the strategy
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Capabilities include
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Essentially, the stuff needed to be in business
Processes and infrastructure
People and partner organizations
Organization and culture
Leadership and governance
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Analyzing Value Created
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Who benefits from value created by an
organization?
Are there types of value not financial?
Economic value often expressed by various
measures
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ROE, earnings per share, ROI, etc.
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Analyzing Value Created
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Typical tasks to determine value created
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Identify all stakeholders, their interests and
expectations
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How do they affect your ability to find & serve
customers?
Analyze the business model for strengths and
weaknesses (SWOT); which affect value?
Develop a financial model, and compare to similar
businesses; how much uncertainty is there?
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Business model connections
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Business model concepts
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What’s ROE?
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Fish eggs? A Supreme Court ruling from 1973?
What is asset efficiency?
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The DuPont Formula for ROE
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ROE components
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What are income, revenue, and assets?
What is shareholder’s equity?
What’s a typical or good value for profit
margin?
What does leverage mean?
What does ROE boil down to, as an
equation?
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Business model evolution - Amazon
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Business model evolution
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Business models can change to
accommodate changes in technology,
culture, Presidents, etc.
What do these dimensions mean, markets
versus products?
Is change good or needed?
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Business model evolution
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Major approaches to changes in business
model
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Enhance; small improvement to existing strategy
or capability
Expand into new products, markets, or
capabilities
Explore new businesses or capabilities
Exit a product, market, or capability
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How does IT fit in the business model?
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IT influence on structure and
relationships
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IT influence on structure and
relationships
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What kind of structure are we talking about?
Relationships to whom or what?
What role does IT play in changing both of
these dimensions?
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How to do a case study
From
http://plato.acadiau.ca/c
ourses/Busi/IntroBus/C
ASEMETHOD.html
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What is a case study?
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A case study focuses on a decision to be
made or a problem to be solved
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Could be entirely real, or partly disguised (“based
on a true story”)
Often written from the view of the manager
Might examine the decisions actually made,
but often asks what you would do
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What’s the “right answer?”
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In case studies, there is often no single
correct answer
This is based on you exploring the case,
then reaching a conclusion about what to
do and WHY
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Your rationale is just as important as your
conclusion, if not more so!
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Our approach for case studies
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We’ll do case studies in groups of two or
three people
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You pick with whom you’ll work
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Preparation is critical
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The key for case studies lies in your
preparation
Key for preparing for case studies is to read
them several times
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Once for the general idea
Again to look for key problems and decisions
And again to see how those challenges were
handled, or could be handled differently
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The Short Cycle process
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Each case study will start with the short
cycle process, a quick overview
Read the case study, or skim it if it’s long
Answer the four questions in the handout
Look at the exhibits (data tables). What
questions do you have about them?
Review the questions I’ve provided for the
case study, if any
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The Long Cycle process
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Now for the real work, the long cycle
process
Read the full case study, looking for:
Introductory material
Background and context
What functional areas are affected?
What is the problem or decision?
What alternatives or choices are there?
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The Long Cycle process
What conclusion did the case study reach?
 Then analyze the case study
Defining the issue(s)
Analyzing the case data
Generating Alternatives
Key Decision Criteria
Evaluation of Alternatives
Recommendation
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Write up the case study
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Use the suggested outline
Each section can be brief – a couple
sentences, or paragraphs, but should be
clearly stated and well thought out
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Keep attention on where and how IT plays a role
in business processes and the decisions made
You’ll want to have two copies – one to turn
in, and one to keep for reference during class
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Write up the case study
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Keep in mind basics of formal writing
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Make it look clean and professional
Use third person – no “I,” “we,” “our”
Don’t restate the case study, except specific facts
to back up your opinion
Check each others’ work
Use the Writing Center for help if your writing
is poor; which means you’ll need to plan ahead!
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Chapter 2 - IT Impact
on Business Models
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Chapter 2 objectives
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See how IT can impact the business model
through its effects on strategy and/or
organizational capabilities
Analyze the potential of IT to create
strategic opportunities
Evaluate IT as a potential source of
strategic risk
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IT becomes visible
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IT has emerged from being a back office
automation tool, to play a major role in
strategic opportunities, and establish the
capability needed to achieve them
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All kinds of IT investment; computers,
communications, software, services, and staffing
But about 40% of IT investments fail to achieve
their intended return
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Reward for performance
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Executive pay is often linked to company
performance
Correspondingly, IT investments are often
linked to the projected benefit to business
performance
Can show the intent of IT changes in terms
of strategy and capabilities using an IT
Impact Map
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IT Impact Map
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Two central dimensions
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What is the core strategy of an organization?
What are the core capabilities of an organization?
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IT Impact Map for IBM
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IT Impact Categories
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Incremental (or Local) Improvement – use IT
to improve local performance of the business
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Business Process Design/Reengineering –
use IT to improve operating processes
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Tends to be low risk, and locally administered
Affects entire business unit and suppliers
Riskier, often involves major process changes,
integration with old ways, and org changes
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IT Impact Categories
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Emerging Opportunities – use IT to launch
new products, enter new markets, or start
new businesses
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Business Transformation – reinvent the
organization and strategy, maybe industry
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Very risky, so needs executive support
May involve new technologies
Huge risk, hard to connect to previous business
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IT Impact Map for MDT
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Search for Opportunities
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In Chinese, “Wei Ji” is crisis,
consisting of the symbols for
danger and opportunity
In making any decision about a
business (including doing nothing
differently!), both danger and
opportunity are present
Image from http://www.accountability-central.com/enterprise-risk-management/enterprise-risk-management-intro/
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Search for Opportunities
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So while the search for opportunities drives
entrepreneurship, making it happen requires
IT, in conjunction with the business model
IT’s original purpose was to automate routine
tasks (payroll, accounting, inventory), but it
has become a tool to inform and transform
businesses across boundaries
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Change basis of competition
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American Hospital Supply Corp (AHSC) took
an inventory and order processing system,
and let purchasing agents order supplies
over the phone electronically (with punch cards!)
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Huge efficiency improvement over manual
processes, by allowing customers to place orders
Simplify, standardize, and coordinate internal
processes; reducing cost and cycle time
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Change basis of competition
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American Airlines (AA) had a system for
internal reservations
AA was the first to give travel agents access
Both AHSC and AA gave away terminals to
allow access to their systems
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Could afford to, thanks to the additional orders
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Change basis of competition
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Charles Schwab was the first to introduce
discount brokerage services and later
introduced online trading, well before the
Internet became publicly popular
Both are now major markets that they
invented
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Change buyer-seller relationships
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AHSC first bought supplies and put them in
warehouses, all offline
Once online customers emerged, putting
their supply chain online was the next step
Contrast roles of suppliers (manufacturers,
service providers) versus channel players
(wholesalers, distributors, and retailers) in
terms of product or service value creation
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Change buyer-seller relationships
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Five healthcare suppliers merged to create
Global Healthcare Exchange (GHX)
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Immediately 70% of all products and services
were supplied by GHX, via 90% of all buyers
Independent suppliers were all driven out of
business
Now industry shared service providers like
GHX compete only with independent
providers like Google, Amazon, or eBay
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Build barriers to entry
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IT can create a barrier to keep anyone else
from competing, because of the scope of
investment and expertise needed
Initially, the Internet lowered barriers
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Amazon started in a 400 sq ft warehouse
But to take advantage of it, need fast
response, proprietary capabilities, and a
large loyal community
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Build barriers to entry
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Amazon grew quickly as an online bookstore,
adding music and videos in year 3
Key was the automated transaction
infrastructure Amazon established to allow
filling massive orders
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Holidays 2000, 31 million units sold in six weeks
Competitive advantage from mining that data
for customer preferences, fed to suppliers
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Raise switching costs
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Good IT systems should be addictive!
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Easy to start using, hard to stop
Used to achieve via proprietary interfaces,
such as AHSC and AA did
Hard to do on Internet – {order from Amazon}
= {order from BN or Borders} – and prices
are easy to compare
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Raise switching costs
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But Intuit created high switching costs in
personal finance software (QuickBooks, TurboTax)
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Hook customers with easy interface, keep them
since data can’t be exported easily
Then connect them to Quicken financial services,
which adds services and complicates leaving
Creates value for the customer, but keeps
them yours!
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Add value to products & services
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IT content can add information to an existing
product, e.g. chips monitoring cars
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Information as a commodity is weird
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OnStar not just for emergencies, but can find
a restaurant or hotel
You can “sell” it without losing it, and “use”
it without it disappearing
It can be customized easily, and loses value fast
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Add value to products & services
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The Boeing 787 includes a flying hub, to
help connect passengers with the Internet
and help manage aircraft operations
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Flight diagnostics & maintenance, manage
supplies onboard, crew scheduling, flight
planning, etc.
Boeing had to buy key companies to help
make this possible (Jeppesen) and use many
consultants, all to optimize system value
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Add value to products & services
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Simpler value added via IT includes buying
a PDF book instead of paper, or paying to
download music legally (!)
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So IT can have a huge role in business
opportunities, but there are substantial risks
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Especially when times are good!
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Technology Strategic Risks
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Can new technology make our business
model obsolete?
Can IT lower barriers, adding competition?
Can IT inspire new regulations?
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Technology Project Risks
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How uncertain are project’s requirements?
How experienced are we, and the world, with
this technology?
Do we have resources to implement project?
Do we have sponsorship from stakeholders?
Is the organization and industry ready to
support what we create?
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