Investments in IT create value to businesses by giving them capabilities to shorten and deploy new business processes quickly compared to their rivals. This creates a competitive advantage which when implemented well will ensure a high return on investments. Maggie gives Barton an example of a clothing retail from Spain, Zara, which made an investment in IT. Using IT, Zara was able to predict demands for certain products and stock them according to market demands. This capability to foresee market demands, which competitors lacked, led to higher profits. However, the competitive advantages to be realized from IT are determined by how it is used and its successful integration into the company culture. Maggie cites an example of Wal-Mart and K-Mart retails where Wal-Mart seems to be deriving more value from IT than K-Mart.
How we can get quantitative value of IT
According to Ruben, the quantitative value of IT sometimes can be demonstrated by looking at the Return on Investments (ROI) in terms of costs saved and in a rare case, the increased sales. However, he faults this method that it cannot be relied upon to give expected ROI at the start of investment like adopting the Enterprise Resource Planning (ERP). This is because the value from ERP implementation can be determined from the value of systems built on ERP at later stages. Ruben also gives a categorization scheme that distinguishes “Qualifier” and “Compete” investments made by an organization. A Qualifier investment is one that keeps a firm in business whereas Compete investment gives a company a competitive advantage in a particular industry. If the investments made on IT are compete, then this can be used to ascertain the value of IT in a firm. We can also examine the value of IT by looking at existing systems in a company using McFarlans’s Strategic Grid as shown below.
The vertical axis shows the extent operations in the organization rely on IT while the horizontal axis is a representation of the competitive edge the organization gets from IT. If a company is at the bottom left corner, then it depends less on IT for operations or development of strategies; thus, the value that can be obtained from technology is less, and there’s little competitive advantage achieved. On the other hand, a company at the upper right quadrant is operationally dependent on IT and gets a lot of competitive advantage over rivals. IT value is high here.
Report on Davies’ firing
