IT Infrastructure Introduction, Chapters 1

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IT InfrastructureIntroduction, Chapters 1 2

• INFO 410
• Glenn Booker

Images are from the text authors slides
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IT and business

• Information Technology (IT) has had a strained
  relationship with the business world
• 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

• US2 trillion spent on IT worldwide in 2007
• Continued rapid spending growth
• Truly global spending distribution
• Increasing dependence on, and impact of, IT
• Search for opportunity
• Avoidance of operational risk

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IT background

• IT has evolved at lightning speed compared to
  business practices
• 1950s first mainframe computers
• 1960s mainframes become common backend tools
• 1970s minicomputers start to appear
• 1980s the first personal computers
  (microcomputers)

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IT background

• 1990s PCs flourish, and the Internet goes
  mainstream, leading to the Internet boom/bust
• 2000s cant exist without computers and the
  Internet
• The role of IT therefore started in the back
  office, and has become prominent in all aspects
  of daily business
• Name a big business that doesnt use computers!

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Effects of the IT revolution

• As a result, location matters far less
• The 1960s concept of the global village is far
  more true than ever imagined
• Virtual organizations easy to establish
• Challenges the definition of a organization
• Bad part interdependency has resulted in things
  like the global financial collapse
• Systems are almost impossible to isolate

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Rapid change

• With the computer revolution, change occurs much
  faster than ever possible before
• 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

• The old ways dont work, so we need to experiment
  with new approaches
• Before moving forward, helps to understand where
  weve been
• Avoid repeating past mistakes
• Learn insights from brave new views
• Thats why this course is based on case studies

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The CIO viewpoint

• The text is for an advanced MIS course
• Critical for us to understand not only the
  technology, but also the business worlds view of
  it/IT
• Business leaders and technical execs often speak
  different languages, have different priorities
• Business thinks IT doesnt understand their
  problems IT thinks business leaders lack vision

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IT is everywhere!

• 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
  wouldnt exist without it
• IT is an enabler, and primary business channel
  for many businesses

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Text outline

• 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?

• 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
• 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?

• 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

• The Dot Com boom (circa 2000) went bust because
  of many unsustainable business models
• Lots of expenditures, no revenue!
• Nevertheless, following a business model is a
  good thing
• New technologies can create new models

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Business model

• 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

• As noted earlier, a business model consists of
  three main dimensions
• Strategy
• Capabilities
• Value

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Analyzing Strategy

• 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?
• 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

• Capabilities are the collection and use of
  resources needed to achieve the strategy
• Essentially, the stuff needed to be in business
• Capabilities include
• Processes and infrastructure
• People and partner organizations
• Organization and culture
• Leadership and governance

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Analyzing Value Created

• Who benefits from value created by an
  organization?
• Are there types of value not financial?
• Economic value often expressed by various
  measures
• ROE, earnings per share, ROI, etc.

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Analyzing Value Created

• Typical tasks to determine value created
• Identify all stakeholders, their interests and
  expectations
• 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

• Whats ROE?
• 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

• What are income, revenue, and assets?
• What is shareholders equity?
• Whats 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

• 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

• Major approaches to changes in business model
• 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

• 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/courses/Busi/IntroBus
  /CASEMETHOD.html

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What is a case study?

• A case study focuses on a decision to be made or
  a problem to be solved
• 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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Whats the right answer?

• 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
• Your rationale is just as important as your
  conclusion, if not more so!

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Our approach for case studies

• Well do case studies in groups of two or three
  people
• You pick with whom youll work

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Preparation is critical

• The key for case studies lies in your preparation
  
• Key for preparing for case studies is to read
  them several times
• 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

• Each case study will start with the short cycle
  process, a quick overview
• Read the case study, or skim it if its long
• Answer the four questions in the handout
• Look at the exhibits (data tables). What
  questions do you have about them?
• Review the questions Ive provided for the case
  study, if any

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The Long Cycle process

• Now for the real work, the long cycle process
• Read the full case study, looking
  forIntroductory materialBackground and
  contextWhat 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 studyDefining the
  issue(s)Analyzing the case dataGenerating
  AlternativesKey Decision CriteriaEvaluation of
  AlternativesRecommendation

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Write up the case study

• Use the suggested outline
• Each section can be brief a couple sentences,
  or paragraphs, but should be clearly stated and
  well thought out
• Keep attention on where and how IT plays a role
  in business processes and the decisions made
• Youll 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

• Keep in mind basics of formal writing
• Make it look clean and professional
• Use third person no I, we, our
• Dont 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 youll need to plan ahead!

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Chapter 2 - IT Impact on Business Models
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Chapter 2 objectives

• 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

• 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
• 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

• 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

• Two central dimensions
• 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

• Incremental (or Local) Improvement use IT to
  improve local performance of the business
• Tends to be low risk, and locally administered
• Business Process Design/Reengineering use IT to
  improve operating processes
• 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

• Emerging Opportunities use IT to launch new
  products, enter new markets, or start new
  businesses
• Very risky, so needs executive support
• May involve new technologies
• Business Transformation reinvent the
  organization and strategy, maybe industry
• Huge risk, hard to connect to previous business

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IT Impact Map for MDT
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Search for Opportunities

• 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/e
nterprise-risk-management/enterprise-risk-manageme
nt-intro/
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Search for Opportunities

• So while the search for opportunities drives
  entrepreneurship, making it happen requires IT,
  in conjunction with the business model
• ITs 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

• 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!)
• 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

• 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
• Could afford to, thanks to the additional orders

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Change basis of competition

• 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

• 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

• Five healthcare suppliers merged to create Global
  Healthcare Exchange (GHX)
• 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

• 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
• 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

• 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
• 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

• Good IT systems should be addictive!
• 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

• But Intuit created high switching costs in
  personal finance software (QuickBooks, TurboTax)
• Hook customers with easy interface, keep them
  since data cant 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

• IT content can add information to an existing
  product, e.g. chips monitoring cars
• OnStar not just for emergencies, but can find a
  restaurant or hotel
• Information as a commodity is weird
• 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

• The Boeing 787 includes a flying hub, to help
  connect passengers with the Internet and help
  manage aircraft operations
• 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

• Simpler value added via IT includes buying a PDF
  book instead of paper, or paying to download
  music legally (!)
• So IT can have a huge role in business
  opportunities, but there are substantial risks
• Especially when times are good!

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Technology Strategic Risks

• 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

• How uncertain are projects 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?