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CREATING BUSINESS

ADVANTAGE WITH IT
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From Agricultural Economy to Network
Economy
Internet and broadband
WWW, URL
Multi-media and digital devices
Wireless
OOP, Java XML etc
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Agricultural
Economy
1900
Industrial
Economy
1950
Network
Economy
2000
The driving force behind every change
is:
INNOVATION
Comparison of Industrial and
Network Economies
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Characteristics Industrial Economy Network Economy
Criteria of Economic
Success
Internal. Economies of
scale and scope limited
to the internal
Infrastructure
External. Shared
economies of scale and
scope
Technological
Innovations
Production Information
Operating Innovations Standardization of work Knowledge
management,
Outsourcing
Management Innovations Hierarchical co-
ordination
Network Co-ordination
Societal Innovation Urban growth Work from home
Time taken to achieve
economies of scale and
scope
Decades Uncertain
Dominant Industry Power Producers Channel Managers,
Solution assemblers
Forces that shape Business
Strategy
Three frameworks that can be used to
analyze the impact of IT.
1. Value Chain
2. Industry and Competitive analysis
3. Strategy grid


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1. Value Chain
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1. Identify the activities that make up the value
chain.
2. Identify the costs vs the value created for
each activity.
3. Identify where in the value chain is the
maximum economies of scale and scope
created.
4. The answer to step#4 = Market Power !
2. Industry and Competitive
Analysis
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Suppliers
Bargaining power of
Suppliers and
Channel
Buyers
Bargaining power of
Customers and
Channel
Threat of Substitute
Products
Barriers to Entry
Competitive Intensity
among Rivals
3. Strategic Grid Analysis
Factory Strategic
Goal: Improve performance of
core processes
Leadership: BU exec
PM: Process Re-engineering

Goal: Transform Org
Leadership: Senior Exec &
Board
PM: Change Mgmt
Support Turnaround
Goal: Improve Local
performance
Leadership: Local
PM: Grass root exp

Goal: Launch new ventures
Leadership: Venture Unit
PM: New venture development

Impact on Core Strategy
High
I
m
p
a
c
t

o
n

C
o
r
e

O
p
e
r
a
t
i
o
n
s

Low
High
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Analyzing the impact of IT on
Strategic Decision Making
Five questions to answer:
1. Can IT be used to re-engineer core value
activities and change the basis of competition ?
2. Can IT change the nature of relationships and
the balance of power among buyers and
suppliers ?
3. Can IT build or reduce barriers to entry ?
4. Can IT increase or decrease switching costs ?
5. Can IT add value to existing products and
services or create new ones ?
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1. Can IT be used to re-engineer core value
activities and change the basis of competition ?
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Migration from back office solutions (Accounts/Payroll)
to front office solutions (e.g: CRM) i-e from
automation to transformation.
E.g: AHSC (American Hospital Supply
Corporation)and AA (American Airlines) Both the
firms automated internal operations and then focused
on self-servicing customers without reducing quality
of service and products.
Why should the self servicing customers not charged
for the new service?
Answer: Costs Vs Benefits. E.g: Schwab Brokerages
case. Web access @ $29.95. Full service offline
@$80.
2. Can IT change the nature of relationships and
the balance of power among buyers and suppliers ?
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Re-configuration of Supply Chain
Pull affect of keeping up => suppliers were
forced to keep their catalogues on-line.
Result: Reduction in cycle time and cost are
reduced.
Channel Consolidation increased.
3. Can IT build or reduce barriers to entry ?
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Companies erect barriers based on their competitive
priorities.
Option 1: Significant investment in IT infrastructure (Not
sustainable in the long run)
Option 2: Exploit the value of:
Information generated by technology and
Loyal community of suppliers, customers and partners -
Knowledge and community barriers
Amazon.coms first movers advantage and investment. $500
million for the development of web based order fulfillment
capability to manage 31 million units in 6 months.
More than99% orders arrived on time.
Knowledge management (customer preferences) done through
TPS, MIS, DSS
Decline on internet => move away from retail to services
(online/offline logistics support)
Investor (Time and Warner) spent $100 million and posted its first
profit in the 4
th
quarter the same year.
4. Can IT increase or decrease switching costs ?
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IT systems should be easy to start using but
difficult to stop using.
Past: Switching costs were high.
Present: Low
Challenge: How to increase the switching
costs ?
5. Can IT add value to existing products and
services or create new ones ?
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Grocery stores are also selling POS data
No of computer chips in a car by 2000 > Entire
US DoD in 1960 !
Digitization and its impact on supply chain.
Questions ?
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