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In this chapter, the following content will be discussed: Strategic uses of information technology, episode two: profitability strikes back, does it still matter? working inward: business-to-employee, building an intranet, fostering a sense of belonging.
Strategic Uses of Information Technology Lecture Today Lecture Summary ¨ Episode n Two: Profitability Strikes Back ¨ Does IT Still Matter? Working Inward: Business-to-Employee ă Building an Intranet ă Fostering a Sense of Belonging Introduction Episode Two: Profitability Strikes Back n Dot-coms became dot-bombs (dot-cons?) because they couldn’t generate profits n Episode One: The Dot-Com Menace n Episode Two: Profitability Strikes Back ă Whilst it has taken these so-called “old economy firms” longer to utilize the Web they realize that they must so in a profitmaking manner Introduction Episode Two: Profitability Strikes Back n Use the Internet to complement your strategy, not replace your past way of serving customers nor disintermediate your channels ă Michael Porter, Harvard Business Scho GRAINGER Case example: Using the Internet to complement your strategy n Distributes non-production products to companies through stocking locations all over the U.S ă Customers who purchase on their website also purchase through traditional channels n Physical sites make its online presence more valuable GRAINGER Case example: Using the Internet to complement your strategy conti Customers who want fast delivery n Ordering is less expensive and shipping is cheaper in bulk to stocking locations Vs individual small shipments ă Continue publishing its paper catalogs n It receives a surge of online orders every time it issues its paper catalog q Introduction Definitions n n n n ‘e’ = electronic e-business ă Conducting business using telecommunications networks esp Internet ă Involves more than buying and selling e-commerce ă Conducting commerce (buying and selling) electronically using the Internet Note: IT definitions ‘evolve’ E-Business Drivers n n Key Components that have accelerated the rapid growth and acceptance of e-business: – Wide access to a public network – Standard communication protocol – Standard user interface E-business applications run over the Internet, drastically reducing access and communications costs – Pre Internet – 95% of Fortune 500 used EDI Vs 2% of all U.S companies E-Business Drivers n With standardized communication protocols and user interfaces, implementation and training costs are far lower n As a result, a much broader set of users and firms has access to the systems, allowing rapid growth Does IT Still Matter? n “IT Doesn’t Matter” – article by Nicholas Carr in Harvard Business Review May 2003 ă Controversial and now a book ă Bottom line = IT doesnt matter anymore, at least not strategically n IT is an infrastructure technology, like rail, electricity, telephone etc Working Outward: Business-to-Customer Being an Online Customer n Companies large and small are transacting business via the Internet n Some (still?) use it as their main means of business, even after the dot-com crash TerenceNet Case Example – A Day in the Life of an E-Lancer n n n E-business consulting, development, and research firm for small/medium businesses Much of its work is procured from www.elance.com ă Website that puts e-business freelancers in contact with clients § Charges 10% commission § Bid on projects § Have private conversations with potential clients § Even able to sub-contract to others (become a client!) ă Trust involved on both sides When you sign up on Elance, it’s like joining a 3-42 community Working Across: Business-to-Business n n Streamlining processes that cross company boundaries is the next big management challenge ă Companies have spent a lot of time and effort streamlining their internal processes, but their efficiencies often stop at their corporate walls Working across business takes many forms including: Working with ‘co-suppliers’ Working with customers in a close mutually dependent relationship Building a virtual enterprise, in fact, one that might evolve into an e-marketplace Working Across: Business-to-Business n Businesses have long used IT to reduce costs and time of inter-organizational transactions, for example: Inter-organizational Systems (IOS) Đ Reservation systems Đ Sabre (AA) Electronic funds transfer systems • Cirrus (Green Machine) Electronic Data Interchange Systems (EDI) – § Transmission, in standard syntax, of data for business transactions between computers of independent organizations Working Across: Business-to-Business Coordinating with Co-suppliers n n n Collaborating with non-competitors is a type of working across Example – two food manufacturers might have the same customers (supermarkets and other retailers) but not compete with each other Lack of convenient ways to share information quickly and easily has deterred co-suppliers from working together ă Internet takes away this deterrent GENERAL MILLS & LAND OF LAKES Case Example – Coordinating with Co-suppliers n n n Seven largest US food companies supply about 40% of supermarket shelf space for dry goods ¨ Use own trucks etc Only supply 15% of refrigerated ¨ One truck for several supermarkets § Less efficient, delays etc = unhappy clients Combine their deliveries on General Mills trucks ă Now = looking into integrating their order taking and billing processes Working Across: Business-to-Business Establishing Close and Tight Relationships n Strategic use of IT and the Internet has moved to the most difficult area = working across companies ¨ Having relationships with various players in one’s business ecosystem n Banks, advertising agencies, suppliers, distributors, retailers, even competitors n Such relationships often have accompanying linking information systems Working Across: Business-to-Business Establishing Close and Tight Relationships n cont Need to determine what level of systems integration they want: ă Loose = provide ad hoc access to internal information n n ¨ Close = two parties exchange information in a formal manner n n n ă Business processes remain distinct Such limited integration requires little risk or cost Leads to greater benefits, so there is greater impetus to make the relationship work Risks increase because confidentialities are shared Costs are also higher Tight = two parties share at least one business process n Most risky – business critical and the most costly to integrate ă n Due to high costs and risks = can only have a few!! Where does one organizational boundary begin and the other end? = Intermeshed! WORKING OUTWARD: Business to Business SARA LEE Case Example: Close relationship becoming a tight one scan-based trading n Sara Lee was one of the first to initiate n n n n n (SBT) with large retailers that sell its baked goods Using this technology, Sara Lee does not get paid until a loaf of bread is sold and passes through the point-of-sale scanner The technology requires drawing from a single database hosted by a third party Its use has improved the quality of delivery people, lowered costs, and increased revenues Note: Sara Lee requires retailers to adhere to a number of prerequisites – to demonstrate that they are good trading partners Look at how it is administered: ă Seven prerequisites for SBT ă Management structure to support Working Across: Business-to-Business Becoming a Customer-Centric Value Chain n A company’s value chain consists of: Upstream supply chain ă Đ Downstream demand chain ă § n Working with its distributors and retailers to sell its products and services to end customers Traditionally most companies make-to-stock = build products / create services and then “push” them to customers ă n Working with its suppliers of raw materials and parts Supply-Push world Today, we are seeing the rise of the reverse – a demand-pull world where a customer’s order triggers the creation of a customized product or service the customer has defined DELL COMPUTER Case Example: Demand - Pull n n n n Dell is the foremost example of the demand-pull business model Customers configure their on PCs on Dell’s Website, and once an order is initiated, Dell’s suppliers can see the ordering information and production schedule on Dell’s extranet In fact, their production systems grab this information automatically; as a result, Dell’s extranet has become a private exchange Dell is even working to give suppliers two tiers down access to customer order information, so they can react to changes even faster Working Across: Business-to-Business Becoming a Customer-Centric Value Chain n Pros and Cons of Demand-Pull cont Value-chain transparency = should reduce the number of duplicate orders ă Đ Creating private exchanges such as Dell changes the level of co-operation among firms Con = infrastructure ă ¨ § § ¨ n 10,000 memory chips Vs 30,000 ‘ordered’ due to shortage Manufacturer’s becomes its suppliers – binding them even tighter Requires TRUST Becoming customer centric is not easy, especially for supply-push companies The promise of CRM is alluring ă Aims to help companies shift their attention from managing their operations to satisfying their customers Working Across: Business-to-Business Getting Back-End Systems in Shape n n n Most, if not all, B2B systems must integrate with existing back-end systems which has proved to be particularly difficult Challenge – – – Variety of platforms Incompatible Approach Purchase ‘new’ systems § § n – Database Management Systems (DBMS) ERP Systems Extranet = securely share with suppliers, partners etc Goal = extend the company’s back-end systems to reengineer business processes external to the company Conclusion n Over the years a few innovative companies have used IT for strategic advantage – – n n Looking for cohesion of often dispersed employees? ă Intranets and Portals Increasingly customer centric view has many using IT in working across ă n Models but many companies did not have the resources or skills to follow their example With the growth of the Internet and development of ebusiness, IT has become a strategic tool in every industry Value chains are looking to shift from supply-push to demand-pull As IT continues to evolve, so its strategic uses ... Introduction Episode Two: Profitability Strikes Back n Dot-coms became dot-bombs (dot-cons?) because they couldn’t generate profits n Episode One: The Dot-Com Menace n Episode Two: Profitability Strikes... using an intranet’s open -system architecture, companies can significantly decrease the cost of providing companywide information and connectivity Working Inward: Business- to-Employee Building an... ¨ Flexible to include more types of information and access to more applications n Single point of entry Working Inward: Business- to-Employee Fostering a Sense of Belonging n Intranets are evolving