Business Value of Information Technology - Essay Example

Running Head: BUSINESS VALUE OF INFORMATION TECHNOLOGY Business Value of Information Technology Name Institution Date Business Value of Information Technology The first value added function in an organization is Inbound Logistics. This involves the processes of procurement and obtaining the input materials required for the process of manufacturing, putting them together and making an output product. Data is the major input used by several organizations and the process of data collection is done intensively with the information technology skills. This function adds value in information organizations since it enables procurement processes such as supply chain management, electronic data interchange, E-procurement and just-in-time approaches to manufacturing. This function can also add value through cost reduction since it enables organizations to participate in E-market places (Association of Consulting Engineers New Zealand, 1998). The other value added function in organizations is the Operations. This looks at all the major processes in an organization. When all the processes are IT enabled this will have an impact on various value parameters. The function of operations adds value through redesign of the processes which can lower the costs and can make the processes to be faster. The other function is Outbound Logistics. This refers to the manner in which products and services are being delivered to the customers. Through use of IT, it has been possible to separate the content from medium in information rich products and passing those products through the internet. IT enabled changes in outbound logistics have been in areas such as online flight and hotel reservation and automatic teller machines. This has led to increase in an organizations value. Another function is on Marketing and Sales. This function looks at the way companies promote and sell their products. IT has increased business value by reducing the costs incurred during sales and marketing since it has enabled distribution of information through the internet. Through the internet, the customer can access the information about the products in a faster way and be able to learn about them. Real time inventory control system has also enabled the companies to keep a track of how their products are selling and also large scale modification of the products. The last function is the Customer Service. This involves building of a relationship with the customers by the use after sale services. IT enabled customer service system adds value by increasing on the knowledge of various customers’ purchases, their behaviours and their contact with the organization. This also adds value by increasing the speed of the companies and customers since it offers convenient ways of communication thereby offering the customers a 24hour service. The quality of customer service has also increased (Egan, 1998). There are two major processes that apply the Information Technology Business Value (ITBV) model which is designed for teaching discovery of value. The first major process it the use of The Matrix. This is a two dimension matrix which defines value and states where value can be used in an organization. The matrix is a portion of the ITBV which looks at explaining what business value is and stating the functional areas in an organization where information technology can be applied to add on value. The horizontal axis of the matrix represents the value that can be added (what), while the vertical axis represents the areas that it can be applied (where). In the matrix, business value is defined as a total increase in direct gains such as higher revenues or lower costs, and indirect gains such as relationships with the customers, increase in flexibility such as high alertness in response to he changes that are taking place in the market and reduction on the risks involved in the business. The vertical axis of the matrix gives five columns that represent the fundamental value parameters in an organization. These parameters are interrelated and interdependent, and they all contribute towards answering the question of what business value is. The first parameter is increased quality. This refers to both the quality of the processes used and the products, and contributes both directly an indirectly. When the quality of the processes is high, errors are few and the cost of correcting them is low. This totals to value addition through satisfying the customers. The other parameter is cost reduction. This increases profitability to the organization, which is a direct benefit. Another parameter is speed. This brings in value by faster response to market changes and timely supplies in the market. Speedy response also enables an organization to enjoy the advantage of being the first in the market. The other parameter is innovation. This adds value by enabling an organization to participate in the competitive market. It also offers new ways of product delivery. The last parameter is relationship with the customers. This brings in long term benefits since they increase the organization’s market share. Formation of business alliances helps share the expertise and the risks especially where a new technology is being adopted. On the vertical axis of the matrix, the areas where business value can be added are defined. These are Inbound Logistics; Operations, Outbound Logistics, Marketing and Sales, and Customer Service. These are the functional parameters on which value in an organization can be added. The second major process In ITVB is Uncovering Value Opportunities. This is a set of action triggers that directs the users through the process of activating the ITVB model and is founded on the principles of Business Process Reengineering. While the matrix answers what and where of business value, the action triggers answers how the processes can be changed to add value. The action gives several ways of changing the process to achieve value. These include elimination of process, reducing the non value added processes, simplification, integration of activities and process automation. In the action trigger, the value contribution of a particular technology or for several technologies is considered. This will also put into consideration the hardware and the soft ware employed in that technology. The technologies to be evaluated include the internet, the intranet and the extranet. Also shared data such as data found in the organization dada bases and wireless access. This process can also be used to evaluate a system that is new in its use to check on its expected performance and how it is going to add value. When evaluation is done on what value is to be added, where it is going to be added and how it will be added helps the members of an organization to understand the expected impact (Lientz, & Larssen, 2004). Redesign activities in the Action Triggers list Activity 1. Elimination of processes which are non value added. This will help reduce the time spent on waiting for the completion of the processes. The activities that will be eliminated include transporting documents, duplication, inspection and reforming. Elimination process will end the time spent in those activities. Activity 2. Minimizing non value added processes. This aims at reducing the number of activities involved in the processes. Such activities include handling of products, checks, controls and verifications. When the number of activities are reduced, others which will be value added will be effectively performed (Devaraj, & Kohli, 2002). Activity 3. Simplification of the processes: This involves reducing the complexity of the activities involved. The forms used, the procedures followed, the technology employed, the work flows and the customer contacts. When theses activities are simplified, the major task in the process will be easy to carry. Simplification also helps reduce the time spent in carrying out one task. This is because the procedures are simple and there are no complicated technological methods to apply. Activity 4. Integration of the workmates: This is the process where the related parameters are put together or are merged. For example, the jobs which use similar procedures and materials, teams which are doing almost similar works, the customers of similar products and suppliers of similar products. This will enable reduce the inputs and the cost of running all the processes together. Activity 5. Automation of tasks: This is the process where technology is applied in performing of certain tasks. Those which used to be done manually can be done using automatically run machinery. For example the difficult tasks, capturing and transfer of data and error checking. These tasks can be done automatically and this will cut the cost of running them manually. Redesign Activity and Enabling Technology The first redesign activity is elimination of wait time for updates on product information by building an online customer catalog. This will make it easy for the customers to see product samples and current information concerning the products. Marketing and the volume of sales will increase since the customers will be receiving up date information on time and in an easier way. It will also reduce the time and the cost of manually printing and sending of the information. The enabling technology here is the internet. Customers through the computer will be able to open the company’s website in which the information update is posted and read the update details (Shi, 2003). The second redesign activity is automating the process of capturing and transferring data through online order entry by the sales representatives. This will help raise the quality and the speed of collecting data and avail it quickly for use in decision making on issues such as financing, and planning. The enabling technology for this redesign activity is a virtual private network (VPN), through the internet and a database that is shared by all members in an enterprise. The third redesign activity is minimizing the handling and transportation of papers by building an order completion tracking system. This will enable the organization to reduce the cost involved in planning for the workload, and also improve the quality of the services that the customers receive since they will be getting up to date information about their orders. The costs incurred in delivery will also be reduced. The enabling technology for this activity is creation of a database that is shared by all the members of an enterprise. ITVB Matrix ACTION REASON Elimination of wait time will make it easy for the customers to see product samples and current information concerning the products Automation will help raise the quality and the speed of collecting data and avail it quickly for use in decision making on issues such as financing, and planning Minimizing will enable the organization to reduce the cost involved in planning for the workload, and also improve the quality of the services that the customers receive References Association of Consulting Engineers New Zealand. (1998).Adding value to business: a feature issue. Auckland: CC Publications. Egan, G., (1998).Adding value: a systematic guide to business-driven management and leadership. New York: Jossey-Bass Publishers. Lientz, B., & Larssen, L., (2004).Manage IT as a business: how to achieve alignment and add value to the company. Oxford: Butterworth-Heinemann. Shi, N., (2003).Creating business value with information technology: challenges and solutions. Hong Kong: Idea Group Inc. Devaraj, S., & Kohli, R., (2002).The IT payoff: measuring the business value of information technology investments. New Word: FT Press. Read More