OBIECTIVE:-

In this assignment I have explain the uses of strategic uses of

information technology
THE STRATEGIC USE OF IT
The Paper P3 syllabus contains an important section titled Information
technology. Three sub-sections of that section refer to e-business
applications:
e-business application: upstream supply chain management
e-business application: donstream supply chain management
e-business application: customer relationship management.
!lthough it is useful to categories e-business applications in this ay"
you ill reali#e that it can represent an over-simpli$cation of hat
happens in real life as the categories can interact and overlap. %or
example" donstream supply chain management &basically" the sales
side' ill be closely related to customer relationship management.
(imilarly" some of the most successful modern businesses or) very
hard to lin) closely the donside and upstream &purchasing and
production' sides of their operations.
*hen analy#ing or advising on the use of IT by businesses you should
alays try to ma)e use of theories" models or frameor)s. (ome of these
are fundamental to any discussion of business strategy+ some are more
focused on the use of IT. The theory and frameor)s hich I ill refer to
are:
The value chain
,eneric strategies
-ichael .arls analysis of ho organi#ations use of e-business
evolves.
*e ill start ith brief revision of each of these models" then e ill
loo) at some real-life examples of ho companies have employed IT"
relating their use bac) to models as appropriate.
The value chain
The value chain sets out all the groups of activities that a business performs"
and see)s to identify hat the business does to give it the right and ability
to earn pro$ts. The value chain is therefore perhaps the most fundamental
model there is: value has to be added if any pro$ts are to be made at all.
/alue chain theory emphasi#es ho important it is to identify lin)ages
beteen activities. %or example" better technology development is li)ely to
result in more e0cient operations and feer units needing after-sales
service and repair.
There is no problem at all seeing ho information technology could be
used in each activity:
Value chain Examples o !he use o IT
componen!
%irm infrastructure !ccounting system" corporate intranet" email
Technology 1omputer aided design" automated softare
development testing" internet searches for ne discoveries and
processes
2uman resource ()ills databases" manpoer scheduling" computer
management based training" performance monitoring
Procurement 3rdering process" supplier databases
Inbound logistics -aterial resource planning &-4PI'" manufacturing
resource planning &-4PII'" 5ust-in-time inventory
management
3perations 1omputer aided design" computer aided
manufacturing" automated production lines"
robotics
-ar)eting and .-commerce" internet advertising" customer
sales relationship management
(ervice %ault monitoring" 6uality control systems"
computer aided design.
2oever" 5ust because IT can be used does not mean that value ill be
added" and if value is not added pro$ts cannot be improved.
Inappropriate use of IT could harm a companys prospects. %or example"
there is little point in automating production if hat your customers
cherish are hand-made" individuali#ed products.
Gene"ic s!"a!e#ies
The value chain explains hy pro$ts are earned" but all businesses see)
competitive advantage" that is" the ability to ma)e above average pro$ts
in the long-run. -ichael Porter suggests that competitive advantage can
be obtained in to main ays:
cost leadership
7i8erentiation.
!dditionally" each of these generic strategies might or might not ma)e
use of a focus strategy. 2oever" the use of IT ill not necessarily
generate competitive advantage. %or example" if the IT being used is
pac)age softare" almost by de$nition this ill mean that many
competitors are li)ely to be using the same pac)age. It is di0cult to see
ho a pac)age ill of itself give a particular company any advantage over
its rivals and such IT is li)ely to be the starting point &threshold capability'
rather than a provider of strategic capability.
3rdinary IT is li)ely to be everyones starting point and the successful
company needs to do more 9 either by using non-standard IT &a uni6ue
resource' or by using their IT in a better ay &a core competence'.
In addition to the generic strategies set out above" IT developments can
also o8er the possibility of an organi#ation discovering and setting up an
entirely ne business opportunity. %or example" the internet enabled
!pple to invent iTunes" and no legitimate mp3 donloads have
overta)en high street 17 sales. (imilarly" ()ype allos very cheap phone
calls to be made over the internet and this is a ma5or challenge to
traditional telecommunication companies.
$ichael Ea"l%s anal&sis o ho' o"#ani(a!ions% use o e-
)usiness evolves*
.arl suggested that business use of e-business technology
progresses through the folloing stages:
.xternal ! eb presence
communication
Internal !n intranet
communication
.-commerce :uying and selling
.-business :uying and selling" plus the capabilities to match
.-enterprise -anagement processes and business processes
are redesigned. Transactions can be monitored
and analy#ed real-time.
Transformation ;e business and management models re6uired
for the ne economy are embedded.
!s is said by .arl: The six stages are ideal types" stylistic phrases
hich capture 9 even caricature 9 the experiential learning of these
companies+ thus they are not necessarily de$nitive periods of
evolution from old economy to ne economy corporations. 2oever
e do $nd most companies identify ith the model.
The particularly interesting elements of these steps are:
.-commerce<e-business. It is recogni#ed that companies often try
to run before they can al). Their ebsite promises e0cient
transactions but their systems simply cannot deliver so that the
dispatch of goods is unreliable and errors are made. !ll this
manages to do is advertise the $rms incompetence to an
international clientele.
.-enterprise. -anagement processes and business processes
are redesigned. Transactions can be monitored and analy#ed
real-time. Its the real-time element thats important here. %or
example" analy#ing sales as they happen and ad5usting
purchasing and production in response.
Transformation. ;e business and management models re6uired
for the ne economy are embedded. %or example" iTunes as
mentioned above.
Examples o !he s!"a!e#ic use o IT
There no follos a number of examples of ho businesses have
harnessed IT and e-business to create competitive advantage.
Tesco
Tesco plc is the leading supermar)et chain in the =>. In the early ?@@As all
supermar)ets developed the idea of lin)ing to their suppliers so that
orders could be sent electronically hen inventories reached their reorder
levels &.7I" or electronic data interchange'. 2oever" although this gave
great cost e0ciencies" it did mean that suppliers could still be ta)en o8-
guard hen orders ere received.
!t the end of the ?@@As Tesco developed the Tesco Information .xchange
system &TI.'" hich enables Tescos suppliers to monitor sales and stoc)
levels of their products at Tesco branches. Therefore" suppliers are more
aare of hen deliveries are needed as they can perform their on
specialist forecasts of demand and more closely integrate their production
of goods" dispatch and delivery to supermar)ets. This process can be
extended so that instead of a supermar)et placing an order" suppliers
)no hen they need to deliver to supermar)ets. (uppliers monitor their
on stoc)s at the supermar)et branches and this enables even closer
integration ith their customers.
Through technological development Tesco has greatly improved its
procurement" inbound logistics and supply chain management. %or
example" if a product promotion is being run by Tesco" suppliers can
atch closely the e8ect of the promotion on demand and react
accordingly. This is an example of management processes and business
processes being redesigned so that transactions can be monitored and
analy#ed real-time. 1osts are reduced and customer service is also
improved" hich gives the company competitive advantage.
Zara
Bara is the leading brand of the (panish retail group Inditex (!. It is
based in ! 1orunna" ;orth *est (pain. It sells clothing through its
international chain of shops.
Traditional large clothing retailers had very long design" manufacturing
and distribution times. Typically design of ne fashions ould start ?C
months in advance of a season. /ery large 6uantities of garments ould
then be ordered 9 enough to last the hole season. Darge volume
production and relatively stable inventory lines alloed these companies
to )eep their costs don. 2oever" you ill understand that if planning
starts a year in advance" the clothes that result might not represent the
latest fashions and the large orders meant that expensive mista)es
could be made.
Bara ta)es a very di8erent approach. Its development time of a ne
article of clothing is typically E9F ee)s" and that covers design"
manufacturing and distribution. Its clothes" therefore" have an excellent
chance of loo)ing up to date+ around ?C"AAA 9?G"AAA di8erent styles are
produced each year. %urthermore" the company deliberately under-
produces so that maximum demand is often not met. This means that
there is relatively little chance of having to mar) don excess" unsold
clothing. Do volumes also mean that hen an item is sold out it ill
usually not reappear in a store" so customers )no that they have to buy
no as that might be their only chance. %re6uent inventory changes
repeatedly dra customers bac) to the stores to see hat ne lines might
be in.
Dell
7ell is a ma)er of des)top and laptop computers. It is famed for its 5ust-in-
time inventory management system. /isitors to the 7ell ebsite
&'''*+ell*com, are given a choice of several levels of machine" such as
home" home-o0ce and small business. 2aving chosen a base model"
customers can then ad5ust those basic models by" for example" opting for
larger hard discs" loer speci$cation operating systems" di8erent
(creen si#es and so on. Typically about CA customi#ation choices are
provided. The recalculated price is shon and the buyer can ma)e
further amendments as re6uired. *hen the :uy option is chosen and
payment ta)en" production of the machine begins.
.very half hour" 7ell consolidates all its online and telephone orders and
produces parts lists and manufacturing schedules &manufacturing
resource planning" -4PII'. The speci$cations of the parts re6uired are
transmitted to suppliers ho have to deliver ithin the hour. 3bviously" to
meet this time limit manufacturers have to be located close to 7ell or
have their on arehousing facilities on 7ells site. The parts are ta)en
directly from delivery truc)s onto the production line and production
commences. There is e8ectively no ra material stoc)" and inventory
consists only of the small amount of or)-in-progress and the completed
units being tested and delivered.
The hole purpose of the system is to reduce inventory" and to provide
Hexible and fast responses to customer re6uirements. The company has
integrated its donstream and upstream supply chains very closely and
manages to combine very lo cost production ith di8erentiation through
customi#ation. It is certainly at the e-enterprise stage of IT use.
Rolls Royce aero engines
This company provides an illustration of the strategic use of IT hich
goes beyond the usual examples of inventory control and ebsite
design.
!lthough there are relatively fe $rms in the aero engine mar)et" it is
very competitive environment. 4olls 4oyce &44' competes not 5ust by
ma)ing the initial sale" but by selling lifetime care of the engine. The
initial sale is relatively lo cost" and pro$t is earned over the life of the
contract. *hat the company has developed is a system called .ngine
1ondition -onitoring &.1-' in hich the airlines have e8ectively turned
over engineering and engine maintenance to 44. The company has
added value to hat its o8ering and built close relationships ith its
customers through advanced use of IT" hich is used to reduce
maintenance costs and service disruption. .1- is additional to the
normal safety systems and inspections managed by the airlines.
.ngines are $tted ith about CG sensors hich continually monitor
conditions and transmit the data bac) to 44 in 7erby" =>. There"
sophisticated IT methods &including arti$cial intelligence techni6ues'
are used to analy#e the data and identify signi$cant events. These can
then be noti$ed to 44 engineering sta8 and to the airline so that
preventative chec)s and maintenance can be carried out.
IT has been used to add value by giving customers much better service"
reliability" safety and loer costs. The company has achieved great
success through a transformation of the ay aero engines are sold and
maintained.
I CA?A !11!