Unit 3: IT as strategic resource
Strategic Management of IT notes · PTU syllabus (MBA 946-18)
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Unit summary
IT can transform businesses and create advantage — but it also carries strategic risks. This unit covers turning technology into business transformation, IT as a strategic source of competitive advantage, risks of using IT strategically, inter-organisational systems and competitive advantage, and the strategic grid.
After this unit you can
- Explain how IT enables business transformation
- Explain IT as a source of competitive advantage
- Identify the risks of strategic IT use
- Explain inter-organisational systems and the strategic grid
PTU syllabus topics
- Turning technology into business transformation
- IT as strategic source and competitive advantage
- risks of using IT strategically
- inter-organizational systems (IOS) and competitive advantage
- the strategic grid
Support
Low current and future impact of IT
Factory
High current, low future impact
Turnaround
Low current, high future impact
Strategic
High current and future impact
Topic 1
Turning technology into business transformation
- Business scope redefinition
New businesses and markets
- Business network redesign
Reconfiguring relationships with partners
- Business process redesign
Re-engineering core processes
- Internal integration
Linking systems across functions
- Localised exploitation
Automating isolated tasks
- Higher levels give greater potential benefits but need more change.
Topic 2
IT as a strategic source of competitive advantage
- Porter and Millar (1985): IT changes industry structure, creates competitive advantage and spawns new businesses.
Cost leadership
Automation, e-procurement, self-service
Differentiation
Personalisation, superior service, new features
Innovation
New products and digital services
Customer and supplier lock-in
Switching costs, integrated systems
Barriers to entry
Scale of IT investments, network effects
Alliances and growth
Platforms and ecosystems
- Sustainability debate: Carr's "IT doesn't matter" (2003) — commodity IT gives no lasting advantage; advantage comes from how IT is combined with unique processes, data and capabilities (RBV).
Topic 3
Risks of using IT strategically
- High investment that may not pay off; rapid imitation by rivals; technology obsolescence; implementation failure; cybersecurity and privacy breaches; dependence on vendors and platforms; regulatory and antitrust exposure; organisational resistance.
Topic 4
Inter-organisational systems and competitive advantage
- IOS: information systems shared by two or more organisations — EDI, supply chain portals, banking networks (UPI, NEFT), airline reservation systems, B2B marketplaces.
- Advantages: lower transaction costs, faster cycles, better coordination, switching costs that lock in partners, data advantages.
Example
American Airlines' SABRE reservation system gave the airline an early advantage by placing its terminals in travel agencies; in India, NPCI's UPI is an IOS that enabled many fintech businesses.
Topic 5
The strategic grid
McFarlan's strategic grid classifies firms by the strategic impact of existing and future IT applications.
Support
Low impact of current and future IT — cost focus
Factory
High impact of current IT, low of future — reliability critical
Turnaround
Low current, high future impact — investing for transformation
Strategic
High current and future impact — IT central to strategy
- Use: decide IT governance, budget levels and leadership role (CIO's position) according to the quadrant.
Key terms
- Business network redesign
- Reconfiguring partner relationships using IT
- IOS
- Information system shared across organisations
- Switching cost
- Cost to a customer of changing suppliers
- Strategic grid
- McFarlan's matrix of IT's strategic impact
- Factory quadrant
- Firms dependent on reliable existing IT
Quick revision
- Venkatraman's five levels.
- Porter and Millar; IT and generic strategies; lock-in; Carr's debate.
- Risks of strategic IT.
- IOS examples and advantages.
- Strategic grid: support, factory, turnaround, strategic.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.Name Venkatraman's levels of IT-enabled transformation.
- Q2.State two ways IT creates competitive advantage.
- Q3.What was Carr's argument in "IT doesn't matter"?
- Q4.What is an inter-organisational system?
- Q5.Name the quadrants of the strategic grid.
- Q6.State three risks of strategic IT.
Long-answer questions
- Q1.Explain how technology can be turned into business transformation.
- Q2.Discuss IT as a strategic source of competitive advantage and its risks.
- Q3.Explain inter-organisational systems and competitive advantage.
- Q4.Explain McFarlan's strategic grid and its implications.
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