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Information Technology Options for Strategy Implementation

 

The many ways in which advances in information technology (IT) affect strategy implementation is an important issue today. Evidence that managerial capabilities in
managing IT can be a source of competitive advantage is growing; companies that do
not adopt leading-edge information systems are likely to be at a competitive disadvantage.

At the level of organizational structure, control, and culture, IT has given strategic
managers many new options in implementing their strategies. IT is instrumental in
both shaping and integrating resources and capabilities—capabilities that can be dif-
ficult to imitate because they are often embedded in firm-specific IT skills.Wal-Mart,
for example, legally protected what it regards as a core competency in IT by blocking
the movement of some of its key programmers to dot-coms like Amazon.com. A
company’s ability to pursue a cost-leadership or differentiation business model depends on its possession of distinctive competencies in efficiency, quality, innovation,
and customer responsiveness,and IT has a major impact on these sources of competitive advantage.
Information technology enables companies to integrate knowledge and expertise
across functional groups so that they can deliver new differentiated goods and services
to customers. The way in which Citibank implemented an organizationwide IT system
to increase responsiveness to customers is instructive.In the 2000s, Citibank set a goal to
be the premier global international financial company. After studying its business
model,managers found that the main customer complaint was the amount of time customers had to wait for a response to their request, so Citibank managers set out to
solve this problem.Teams of managers examined the way Citibank’s current IT system
worked and then redesigned it to empower employees and reduce the handoffs between people and functions. Employees were then given extensive training in operating the new IT system. Citibank has been able to document significant time and cost
savings, as well as an increase in the level of personalized service it is able to offer its
clients,which has led to a significant increase in the number of global customers.
Indeed, IT has important effects on a company’s ability to innovate. It improves
the base of knowledge that employees draw on when they engage in problem solving
and decision making and provides a mechanism for promoting collaboration and information sharing both inside and across functions and business units. However,
knowledge or information availability alone will not lead to innovation; the ability to
use knowledge creatively is the key to promoting innovation and creating competitive advantage.One argument is that the absolute level of knowledge a firm possesses
does not lead to competitive advantage, but the speed or velocity with which it is circulated in the firm does.31
IT transfers knowledge where it can add the highest value to the organization.
The project-based work that is characteristic of matrix structures provides a vivid example of this process. As a project progresses, the need for particular team members
waxes and wanes. Some employees will be part of a project from beginning to end,
and others will be asked to participate only at key times when their expertise is required. IT provides managers with the real-time capability to monitor project
progress and needs, to allocate resources accordingly, and thus to increase the value
added of each employee. Traditionally, product design has involved sequential processing across functions, with handoffs as each stage of the process is completed. This linear process is being replaced by parallel, concurrent engi-
neering made possible through the application of IT that allows employees to work
simultaneously with continual interaction through electronic communication.All of
this can promote innovation.
IT has major effects on other aspects of a company’s structure and control systems.
The increasing use of IT has been associated with a flattening of the organizational
hierarchy and a move toward greater decentralization and increased integration
within organizations. By providing managers with high-quality, timely, and relatively
complete electronic information,IT has reduced the need for a management hierarchy to coordinate organizational activities.Email systems and the development of organi-
zationwide corporate intranets are breaking down the barriers that have traditionally
separated departments, and the result has been improved performance. To facilitate
the use of IT and to make organizational structure work, however, a company must
create a control and incentive structure to motivate people and subunits.

Some companies are taking full advantage of IT’s ability to help them integrate
their activities to respond better to customer needs. These companies make the most cost-effective use of their employees’skills by using a virtual organizational structure.
The virtual organization is composed of people who are linked by computers, fax
machines, computer-aided design systems, and video teleconferencing and who may
rarely, if ever, see one another face to face. People come and go as their services are
needed, much as in a matrix structure.
Information technology has also affected a company’s ability to pursue strategic outsourcing to strengthen its business model. The use of strategic
outsourcing is increasing rapidly because organizations recognize the many opportunities it offers to promote differentiation, reduce costs, and increase flexibility. Recall
that outsourcing occurs as companies use short- and long-term contracts, joint ventures,and strategic alliances to form relationships with other companies.IT increases
the efficiency of such relationships. It also promotes the transfer, sharing, and leveraging of competencies between companies, which can lead to design and engineering improvements
that increase differentiation and lower costs.

 

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