Challenges When Organisations Apply Technologies in Their Value Chains - Coursework Example

Organisations are increasingly becoming more capable in taking advantage of new technological solutions to enable and extend their value chain. Usingexamples when appropriate illustrate the advantages and challenges that organisations face when applying technologies in their value chains. Explain how organisations can deal with these challenges and benefit from the advantages. Simply put, the value chain is the structure of initiatives and activities of a business organization that is used to implement its business strategy. Those activities that are directly involved in creating value for customers such as: the sources of materials; the process that develops the actual products; sales and distribution; client support, are considered the primary activities. While those that support these activities and indirectly create value for customers are classified as secondary in the value chain. According to Tapscott, Lowy and Ticoll the value proposition of a value chain is the design and delivery of an integrated product or service that meets a specific set of customer needs. (p. 118) Analyzing the value chain helps companies fully understand their strength and identify which part of their operation or their processes are contributing best to creating value so that they can be reinforced. This paper will explore how technology increases value chains for business organizations and in the process highlight how this strategy benefits it. The Role of IT in Value Chains Historically, technology has always been an enabler of business transformation. At the core of its impact, the current information technology advances is able to eliminate time and space in business processes, allowing business organizations to dissolve boundaries to achieve better, faster and cheaper commerce. Because of technology, processes that were previously implemented and operated manually became automated, enhancing productivity and allowing for more efficient and faster business processes. Information systems are examples of these information technologies. These are database technologies that provide efficient data storage and easy access. Information technology’s role in the context of value chain is best put forward by Croteau and Bergeron (2001) when they discussed the concept of technological deployment as a process that corresponds to the way companies plan and manage information technology to benefit from its potential and effectiveness. They cited five recognized conceptual frameworks addressing the strategic aspect of information systems wherein technological deployment emerges. These five models were developed by various scholars and cover issues such as: the strategic value of technology; the contribution of IT in enhancing the competitive position of an organization; the design and development of various technological, organizational and administrative structures; as well as the successful strategic alignment of technology with business strategy. (p. 79-80) What these numerous concepts mean today is that information and technology is the glue that holds together the structure of all modern businesses. (Evans and Wurster 1997, p. 72) Furthermore, according to Pralahad and Krishnan, technology energizes the internal organization, engage customers in dialogue and foster collaboration among all parties. (p. 25) These authors identified the technological capability of flexibility and speed as one of the most important contributions of IT to value chains. For them, it is “analogous to driving an automobile with each wheel spinning at a different number of revolutions per minute.” (p. 25) Sambamurthy, Bharadwaj and Grover (2003) posited a different name for this, the term agility. For them: Agile firms continually sense opportunities for competitive action in their product-market spaces and marshal the necessary knowledge and assets for seizing those opportunities. (p. 238) Through technology, companies are able to differentiate between their various business activities and classify them according to importance and integrate them in such a way that the whole organization becomes an adaptable entity, especially in its relationship with suppliers and customers as well as other parties that are influential in its performance. Examples The extended value chain became one of Wal-Mart’s strongest assets when it developed the first ever continuous replenishment system. This is consisted of point-of-sale systems as well as shelf-side computers that measure sales on a daily basis. Wal-Mart’s roster of suppliers were forced to link to this computer system so that orders are automatically triggered and delivered by the suppliers according to the automatically generated daily inventory report. Because of this system, Wal-Mart was able to reduce inventory costs, a crucial element in its ability to significantly lower prices for its retail goods. There is also the case of Amazon.com. By using technology, it was able to capture its market and successfully maintained its strategy. One sees this in Amazon’s main innovation, which is to offer a vast selection of books and other products that are not necessarily in stock and to have the systems in place to acquire the non-stocked items quickly for considerably less cost. Another aspect in Amazon’s use of technology in its value chain is its ability to collect and analyze customer data via the use of sophisticated applications that determine the customer behavior. This use of information system to augment value chain has also worked for Ebay.com. Through the information systems, Ebay is able collect and analyze the customers’ preferences and offer products that they would value. In addition, Ebay also capitalized on this ability in order to reinforce its brand name by taking advantage of forums and online communities for a strategic form of advertisement. This is made successful by the use of database that enables the firm to continuously file reports on sellers and buyers. Outsourcing Another example in regard to how IT enhances the value chains is in the area of outsourcing. Ross and Westerman emphasized that IT outsourcing delivers one or more of three capabilities: “infrastructure services and data center operations, application development and maintenance, and business processes.” (p. 6) In addition, they argued that cost savings in infrastructure services results from the vendor’s ability to leverage economies of scale and scope in IT operations or applications maintenance. (p. 6) This is demonstrated by the quality of IT services and products being produced by countries such as India, China and the Philippines at radically low costs because these countries have access to IT talents that have lower wages than those found in Western countries. It must be underscored, however, that besides the traditional model that values outsourcing in the context of the economics of scale, several innovators outsource for strategic, not tactical, reasons in order to exploit more fully the business benefits of technology. (DiRomualdo and Gurbaxani 1998, p. 69) With technology, an organization can also succeed by an immediate access to its experiences. In developing a product or a business strategy or in investing on a venture, the prospect of success and failure can easily be measured through an evaluation of such experiences. Cross and Baird called this as the organizational memory built by technology. This kind of knowledge retention allows managers to build a collective corporate memory that permeates processes, products, services, and even distributed digital networks. (p. 69) Challenges in implementing IT/IS There is always a danger when business organizations initiate change. The process of moving towards the deployment of technology in their business processes is no exception. This transition might be disruptive both in the organization itself and its business processes. For instance, employees may purposely or through insufficient understanding, undermine potential benefits by failing to adapt to new processes, culture, technology or employee arrangements. (Ross and Westerman, p. 7) Then, there is also the issue of productivity. As Brynjolfsson (1993) put it, productivity is the fundamental economic measure of technology’s contributions. (p. 67) He cited numerous studies that underscore how companies spend so much on IT but the measured gains for such appetite were insignificant. For instance, there was the research on 60 business units that concluded that the contribution of IT capital to output was approximately zero over the five-year period studied in almost every subsample examined. (p. 69) Unarguably, there are other factors, besides technology that drives such dismal productivity statistics. However, the figures here cannot be ignored specifically considering the potential of technology to revolutionize and reenergize the processes within an organization. As it turned out, information and technology could also become an organizational liability with the introduction of a concept called business and technology alignment. Business and Technology Alignment To demonstrate what alignment is, the experience of Charles Schwab & Co., would be cited Through the years, this company has built its fortune and competitive advantage on information technology but there came a point when it became a liability. "By the companys own reckoning, IT staffers’ responses to business requests had become slow and expensive. IT engineers had to spend more time than ever fixing bugs in the systems. Meanwhile, several, big, ambitious projects were overdue." (Shpilberg et al. p. 51) In a survey conducted in regard to IT failures, two patterns emerged: general ineffectiveness at bringing projects in on time and on budget and ineffectiveness with added complications of alignment to an important business objective. (p. 52) What one sees here, according to Shpilberg et al., is that despite efforts of alignment - the organizations efforts to tightly link IT with the companys growth strategy, there often would come a time when IT went sideways or declined. Managing Challenges Targeting user involvement is one of the most effective ways in managing the challenges posed by IT deployment. The aspect about user involvement, particularly in the context of its use in managing IT challenges, is addressed in Yetton and Sharma’s model, the unified theory of IS implementation, which emerged from innovation characteristics theory and the implementation process theory. The two models are emphasizing different impacts of the IS innovation and solutions for successful managerial actions. Innovation characteristics theory emphasizes the user’s favorable reception of new technology based on the benefits he will get it from it; while the implementation process theory puts importance on the managerial action as the main influence in end-user technology adoption. (p. 53-54) By combining these models, Yetton and Sharma have posited a comprehensive solution that would focus both on: 1) managerial effort; and, 2) the assurance that products or the innovations being introduced have the right characteristics and appeal. The point being made here is that by dealing with the managerial and end-user elements simultaneously, an organization is able to “develop more effective implementation strategies by identifying the critical success factors within specific contexts... it also results in a more efficient allocation of managerial resources. (p. 54) IT failures are, hence, mitigated if not entirely eliminated due to the fact that end users - both from within the organization and the customers - will not frequently reject IT innovations. Another important point to be made here is that organization’s management often fall into the trap by assuming that opportunities for advantage will be available indefinitely. In actuality, wrote Carr, the window for gaining advantage from technology is open only briefly: Companies and individuals, dazzled by the seemingly unlimited commercial possibilities of the technologies, threw large quantities of money away on half-baked businesses and products. (p. 43-44) And so, business organizations must be very practical and introspective when it comes to investing in technology and whether the benefits would outweigh the cost. Otherwise there are other technological alternatives and solutions available such as outsourcing, maintaining simplicity in technological infrastructure, establishing accountability systems, among others. Conclusion: Critical Success Factors This paper has established how technology has facilitated the enhancement of value chain that drives business organizations to profitability. This is best demonstrated in the case wherein technology and business strategy are perfectly aligned and nurtured to remain that way. In this case, technological capabilities can be harnessed in order to bring together all aspects and structures of the modern organization, making it more efficient and responsive to all the elements that influence it. According to Porter and Millar, value chain is all bout linkages. “Linkages exist when the way in which one activity is performed affects cost or effectiveness of other activities.” (Porter and Millar 2001, p. 150) By enhancing these linkages, technology is able to connect value activities and create interdependencies and collaborations among value chains, in effect, establishing a highly efficient and productive value system, which in turn achieves for a company innovation and competitive advantage. Furthermore, there is also the variable of agility. This element underlies an organization’s success by allowing the continuous enhancement and redefinition of its value creation, capture, and competitive performance through innovations in products, services, channels, and market segmentation. (Sambamurthy, Bharadwaj and Grover , p. 238) While there are potentials for failure, there remains the fact that technology will remain pivotal in the speed and efficiency of business processes and, therefore, the survival of business organizations especially amid the increasing globalization of commerce. References Brynjolfsson, E 1993, The Productivity Paradox of Information Technology. Business Computing, 36: 12, p. 67-77. Carr, N 2003, IT Doesnt Matter. HBR On Point. pp. 41-49. Cross, R and Baird, L 2000, Technology is not enough: Improving Performance by Building Organizational Memory. Sloan Management Review. p. 69-78. Croteau, A and Bergeron, F 2001, An information technology trilogy: Business strategy, technological deployment and organizational performance. Journal of Strategic Information Systems, 10: p. 77-99. p. 24-33. DiRomualdo, A and Gurbaxani, V 1998, Strategic Intent for IT Outsourcing. Sloan Management Review, p. 67-80. Evans, P and Wurster, T 1997, Strategy and the New Economics of Information. Harvard Business Review September-October 1997, p. 71-82. Porter, M and Millar, V 1985, How Information Gives You Competitive Advantage, Harvard Business Review. July-August 1985. Pralahad, C.K. and Krishnan, M.S. 2002, The Dynamic Synchronization of Strategy and Information Technology. MIT Sloan Management Review. Ross, J.W. and Westerman, G 2004, Preparing for Utility Computing: The role of IT architecture and relationship management. IBM Systems Journal, 43: p. 5-15. Sambamurthy, V, Bharadwaj, A, and Grover, V 2003, Shaping Agility Through Digital Options: Reconceptualizing the Role of Information Technology in Contemporary Firms. MIS Quarterly, 27: 2, p. 237-263. Shpilberg, D, Berez, S and Puryear, R and Shah, S 2007, Avoiding the Alignment Trap in Information Technology. MIT Sloan Management Review, 49: 1, p. 50-59. Tapscott, Don, Lowy, Alex and Ticoll, David. (2000). Digital capital: harnessing the power of business webs. Harvard Business Press. Yetton, P, Sharma, R and Southon, G 1999, Successful IS Innovation: the contingent contributions of innovation characteristics and implementation process. Journal of Information Technology, 14, p. 53-68 Read More