-IT in business -Importance of IT -Features of IT -Impact of IT on business

1. IT in Business

2. Why IT in Business?
IT is the largest single component of capital
investment in the US.
Businesses worldwide spend more than $2
trillion on IT every year.
Are organizations making their IT investment
decisions judiciously?
Are these investments likely to impact firm
performance?
Business Strategy and IT-enabled Business Capabilities

3. Senior Management Concerns
“What to do with this IT”
Where is ROI?
How to do well with IT in my business: now and in
future?
Is it important to begin with?
How do I know if I am spending right, at right
places.
Do I have the right Infrastructure?
My infrastructure or lack is limiting my business?
If so, how?

4. What can happen without ITS
Incoherent, mis-aligned ITS
Wasted investments, unsatisfactory business
impact
Fragmentation of IT resources
Delays in implementation
No availability or incomplete MIS hampering
business
Loss of business edge, competitive advantage

5. What is business/IT alignment?
5/36
Business/IT alignment:
Allocation of IT budgets such that business functions
are supported in an optimal way

6. Strategy (and tactics) 1/2
6/36
Strategy: external position of the organization
Product/market combinations
Make-or-buy decisions
Human resources
Impact of decisions: years

7. Strategy (and tactics) 2/2
7/36
Tactical level: realizing the strategy by internal
means
Impact of decisions: month(s) – 1 year
Example: organization structure
Operational level: day-to-day decisions
Impact of decisions: day(s) – month(s)
Example: hire temps in case of sudden increase in
sales

8. 8/36Taken from: Henderson, & Venkatraman, (1993). Strategic alignment: Leveraging information technology for transforming organisations. IBM Systems Journal, 32(1):472-484.
Business/IT alignment Model

9. IT as Strategy rather than Support

10. The Business Environment Today
- Two Key Factors
10
1. Globalization
The liberalization of trade and regulatory regimes in many
countries and the falling costs of transportation and
communication are making the world economy more
global.
Markets are so heavily interconnected that ignoring
interdependencies can only be at our peril. Advances in
telecommunication and digital technology have further
shrunk the globe to the point where “geography is now
history”.
Source CEO of Ranbaxy’s Address, Business India, Dec 28 – Jan 10, 1999

11. The Business Environment Today
- Two Key Factors
11
Globalization has changed the rules of the game.
Businesses no longer complete in the exclusive comfort
of their domestic backyards, using capital and labor
imbalances or regulatory perversities to further wealth
creation. These approaches and techniques that served
us well during the past few decades have now been
pushed aside by technology and, increasingly, by
knowledge as a basis for competition.
- 40 years ago; Ghana & South Korea had nearly the
same per capita income - by the early 1990s, Korea
stood at 6 times Ghana, more than half the growth
being attributed to Korea’s superior ability to use
2. Knowledge-Based Competition

12. Is IT Just a Back-Office Data Processing Function?
12
“Historically, IS was regarded as a support
function and treated as administrative
overhead, but now technology has become
entwined with all the classic functions of
business… to such an extent
that understanding its role is necessary for
making intelligent and effective decisions
about any other function.”

13. Much Truth is Said in Jest!
13
A man is flying in a hot air balloon and realizes he is lost. He
reduces height and spots a man down below. He lowers the balloon
further and shouts:
“Excuse me, can you tell me where I am?”
Man: “Yes, you’re in a hot air balloon, hovering 30 feet above
this field.”
Balloonist: “You must work in Information technology”
Man: “I do. How did you know?”
Balloonist: “Well, everything you have told me is technically correct,
but it’s no use to anyone.”
Man: “You must work in business.”
Balloonist: “I do. How did you know?”
Man: “Well, you don’t know where you are, or where you’re
going, but you expect me to be able to help. You’re in the

14. The Information Economy
- The View from Two Different Lenses
14
“From being organized around the flow of things and the flow of
money, the economy is becoming organized around the flow of
information.”
Wall Street Journal, September 9, 1992
The Original Management Guru, Peter Drucker
The Czar of the U.S. Economy, A. Greenspan
IT has “begun to alter, fundamentally, the manner in which we do
business and create economic value.” By enabling businesses
to remove “large swaths of unnecessary inventory,” real-time
information is accelerating productivity growth and raising living
standards. This has contributed to the “greatest prosperity the
world has ever witnessed.”
Speech to the Gerald R. Ford Foundation in Grand Rapids, as quotedin
Wall Street Journal, September 21, 1999

15. Impact of IT
15
IT is fundamentally transforming the way companies are
run. The new economy is about the specific potential of IT
to change the way businesses work and thereby yield a
quantum shift in productivity. The computer, and
especially now the Internet, can change how companies
deal with suppliers and customers…
The Net is helping customers to lower costs dramatically
across their supply and demand chains, take their
customer service into a different league, enter new
markets, create additional revenue streams and redefine
their business relationships.

16. The “I” versus “T” in IT
- Peter Drucker Pinpoints THE Issue
16
Information is data endowed with relevance and purpose.
Converting data into information thus requires knowledge… So
far, most computer users still use the new technology only to do
faster what they have always done before, crunch conventional
numbers. But as soon as a company takes the first tentative
steps from data to information, its decision processes,
management structure and even the way its work gets done begin
to be transformed.
Harvard Business Review, January-February, 1988
So far, for 50 years, the information revolution has centered ...
on the “T” in IT. The next information revolution asks: What is
the MEANING of information, and what is its PURPOSE? And
this is redefining the tasks to be done with the help of
information, and with it, to redefining the institutions that do
these tasks.
Forbes ASAP, August 24, 1998

17. Drug Companies Spend Big on Software
(“Times of India” – Jan 2, 2004)
17
 The 12 major pharma companies (46% of domestic market)
spent Rs.114 crore on IT in 2002-03 … Expected to go up 6% to
Rs.121 crore – about 1% of revenue – in 2003-04
(TCS Study)
 “With research advancing at a break-neck pace, scientists are
looking for way to better manage the vast volumes of data
generated
Over 60 million pieces of data per molecule each year”
- IT-intensive R&D can shave a year off the drug development
time
- Translates into $70 M for a niche drug and $365 M for a
block- buster drug.
 Urgent need to transform “data” into “intelligence”
- Ranbaxy Labs installed an ERP software from Hummingbird
…
“Our consolidation of enterprise-wide data including financial,

18. The Frito-Lay Case
Use of IT to Sustain Competitive Advantage
18
Competitive Advantage of Frito-Lay was NOT IT
- It was: Direct Sales to 350,000 Stores
- Army of 13,000 salespeople with trucks
- Competitors unable to match it
50% share of the $15 billion salty-snacks U.S. market
Staved off the threat from Anheuser-Busch’s Eagle
Snacks...“Frito’s a fortress ... don’t try to impinge on Frito’s
territory or you’ll get crushed.” Anheuser sold its plants to –
who else? – Frito-Lay.
Wall Street Journal, October 27,
1995

19. Value of the Direct Sales Model
19
F/ L Plant
- 40 Plants
- 200 SKUs
Stores
F/L Warehouse
- 200+ W/ Hs
Purchases by
Consumers
Truck -
Load
Shipments
F/ L
Salespeopl
e with
Trucks
 High Costs
- Operations of 200+ Warehouses
- Inventory Costs
- Cost of “Stales” in Warehouses & Stores
 Big Benefit
- Know which SKUs are selling in each store
- Salesforce can sell the “Right SKU” to the Right Store at the Right Time
- Salesforce trained to rotate products – “older-date” packs moved to the
front of the shelves – and stack them neatly to attract shoppers in the
aisles
Annheuser -
Busch
Plant
Stores
Third - Party
Distributor/
Wholesaler
Purchases by
Consumers
Truck -
Load
Shipments
Salesforce
of
Distributor
 Third – party Salesforce is NOT the same as Company Salesforce !

20. IT Target
- SUSTAIN the Competitive Advantage
20
FOCUS ON:
- Revenue Drivers to Increase Revenues
- Cost Drivers to Reduce Costs
 Improve Salesforce Productivity
- Expand coverage by adding new stores without increasing the
salesforce
 Reduce “Stales”
-Timely information on sales and inventory from stores can trigger
corrective action to reduce stales
 Micromarketing
- Promote the “Right SKU in the Right Store at the Right Time”
- Get more bang for the promotional dollars !

21. The “T” Had to be Developed
21
 Pioneered hand-held computers for used by 13,000
salespeople
 Contracted with Fujitsu in early 1980s to develop the “T”
 Rugged hardware had to be developed for use in trucks
 Field-tested hardware in Texas and Minnesota to check
whether it will work in extreme climatic conditions
THAT WAS THE EASY PART!
MORE DIFFICULT: How to get the Salesforce to Change?

22. 22
The Implementation Strategy
- Key to Successful IT Innovation
 PILOT TEST IN A SELECTED SALES AREA IS A MUST
- especially when the salesforce has to use a new IT tool
 TEST WHETHER SALEFORCE BUYS-IN TO THE NEW TOOL
- “GO” Roll it out to All Sales Areas
- “NO GO” Back to the Drawing Board
 SELECT MOST HUNGRY AREA: Receptive to Change
- If “No Go”, Buy-In from Rest of Salesforce will be a BIG
PROBLEM!
 FRITO-LAY CHOSE THE “BEST”: The Los Angeles Sales Area
 GOT “GO“ SIGNAL FROM PILOT TEST
- Used LA Sales Staff in rollout to establish credibility with
salesforce

23. Impact of Hand-Held Computers
23
Eliminated Paperwork of Salesforce
- Time savings: 3 to 5 hours per week
BUT… Is That a Benefit?
Frito-Lay Made It a Benefit!
- Allayed salespeople’s fears of downsizing
- Used time saved to grow revenues and reduce cost
A Side-Benefit, But Important for Salesforce
- End-of-day reconciliation was easier, more accurate
- “Over/short” accounting discrepancies were
$4 million in 1985 and growing
- Source of extreme frustration to salespeople

24. “What’s In It for Me?”
- Reduces Tedious Arithmetic at End of the Day
24
Salesperson must reconcile each SKU’s daily sales from store
invoices with the “Load-Out – Load-In” Sheet.
SKU
Load-Out
from
Warehouse
Load-In to
Warehouse
Out minus
In
Sales to
Stores (from
invoices)
Short/ Over
1 300 200 100 90 -10
2 250 50 200 210 +10
3 400 250 150 150 0
:
:
200 200 75 125 120 -5
A Huge Tangible Benefit:
- Time saved in adding the sales figures for each SKU from the
individual store
invoices to get the total sales of the SKU (the “Sales to Stores” figure
above)
- No arithmetical errors in the adding process

25. Management Process Had to be
Changed to Capitalize on New
Information
25
Availability of timely information at the SKU
level for each store enabled weekly one-on-one
meetings between first-line district sales
managers and their salespeople
If a salesperson's stales are running higher than my district goal, we discuss what
can be done to decrease them. We analyze sales returns to zero in on the stores
and the SKUs with the most stales, and then decide whether to change the mix of
products or their location in the store.

26. The New “I” Enables Micromarketing
26
Recently, I noticed red numbers (indicating reduced
market share) for tortilla chips in our central business
region. I punched up another screen display and located
the problem: Texas. I kept punching up new screens and
tracked the red numbers to a specific sales division and,
finally, the chain of stores. The numbers pinpointed the
problem area and, after additional research, revealed the
culprit: the introduction of a generic store-branded
product. We quickly formulated a counter-strategy and
sales climbed again.
Frito-Lay President

27. How to Get Payoff from the IT Investment
27
 Hardware investment - $40 million
 Software investment - $100 million during
1984 - 88To pay for it, Corporate Sales had to commit to reduce selling
expenses from 22 cents on the dollar to 21 cents within a year
of the handheld installation – increase sales at constant cost or
reduce costs or a combination of the two
By setting this target before the rollout, we focused the
attention of each sales area on identifying ways to use the
technology to change the way it did business and ensure
that we achieved the anticipated benefits.
- CEO of Frito-Lay

28. Decentralization Facilitated
By Frito-lay System
28
Timely, accurate information for top
management
- NOT massaged & sanitized information
Information support for 4 geographic regions with P&L
responsibility
Frito-
Lay
System
Impact: 60% of corporate decisions pushed to regions

29. DECENTRALIZATION REQUIRES DECENTRALIZE
INFORMATION
29
BEFORE
Information took weeks to wend its way back to the
32 Frito-Lay Divisional Sales Managers from the
variety of databases in Headquarters, if it got there
at all.
AFTER
PC in the Division provides information on:
• Comparison of brand / pack sales by type of store
• Analysis of weekly performance by districts
• Ranking of sales reps’ performance (about 350 in each
district)

30. EMPOWERING OF EMPLOYEES
30
Organizations have to be fast, flexible and
responsive to be competitive in a dynamic and
complex business environment
Decision-making authority has to be passed to the "front
lines"

31. PREREQUISITE FOR EMPOWERMENT
31
What sets us apart is that we train people to be
merchants. We let them see all the numbers so they
know exactly how they're doing within the store and
within the company; they know their cost, their
markup, their overhead, and their profits. It's a big
responsibility and a big opportunity.
PROVISION OF RELEVANT INFORMATION
TO ALL LEVELS TO EFFECTIVELY FUNCTION
IN THEIR JOBS
Wal-Mart's "Store within a Store"
Sam Walton, Wal-Mart CEO

32. EIS IS THE KEY TO
A BALANCED ORGANIZATION
32
that leverages the benefits of both centralized
and decentralized decision-making and
control systems.
Empowering does not mean
wholesale relinquishing of authority to lower levels.
There must still be management by higher level executives.
Top management must have access to information
that is not massaged and sanitized.

33. An Invaluable Benefit
"Management by Walking Around“ is Feasible
33
 Frito-Lay CEO can make a "computer tour" of
operations
 “Can view the performance of each of our
managers and salespeople around the country“
 Can fire off an electronic-mail memo if the view
is not good or contact manager to congratulate
on the good view

34. The Frito-Lay System
- An Integrated Everyone’s Information System
34
Delivers timely and consistent information to ALL
levels
of management and ALL functions:
• A sales support system for field personnel
• An Executive Information System for the top 200
executives
• A market analysis and profitability reporting
system for corporate staff
• Additional support systems for key functions:
purchasing, manufacturing and logistics

35. JUSTIFYING THE IT INVESTMENT
35
• BENEFITS NOT EASY TO QUANTIFY
• LOOK AT THE COSTS IN RELATION TO
- Cost of NOT Having the “I” at ALL Levels
To Make Smarter Decisions
• IT CAN PROVIDE COMPETITIVE ADVANTAGE IF
That “IF” depends on WHAT IT is used for.
“We’ve invented… $40 million for hardware and software so
for, and $15 million per year to keep it rolling… I believe this
will give us real competitive advantage.”
- Frito-Lay CEO

36. Major Payoffs from
The Frito-Lay Enterprise System
36
 Able to tie manufacturing to consumer purchases
from the stores
 Reduced “stales” by 50%
 Micromarketing optimizes margin
 Able to target local demand patterns with just the
right sales promotion
 Domestic revenues: $3B in 1986 $4.2B in 1989
Purchasing Manufacturing Logistics Sales
Compress the time taken for information flows….
Sales data from the hand-held computers of salespeople provide the
foundation for “time synchronizing” the entire
business process:

37. Some Lessons
37
1. Modern IT is a marvel, but to realize the potential, you
have to USE it - to make each person more effective and
efficient.
2. “Manumation” – mere automation of manual processes –
will not generate the anticipated payoff from the IT
investment.
3. Focus IT on Revenue Drivers and Cost Drivers.
4. Data by itself is worthless
– It has to be converted into Actionable Information.
5. Availability of good quality ‘I” does not automatically
guarantee its use.
Problem: What do we do with the new “I”?
The Management Process has to be changed, including
the Performance Measurement and Reward Systems, to