Chapter Four: Measuring The Success Of Competitive Initiative

MEASURING INFORMATION TECHNOLOGY’S SUCCESS

Key performance indicator - measures that are tied to business drivers

Metrics - detailed measures that feed KPIs

Performance metrics - fall into the nebulous area of business intelligence that is neither technology, nor business centered, but requires input from both IT and business professionals

EFFICIENCY AND EFFECTIVENESS

Efficiency IT metric - measure the performance of the IT system itself including throughout speed and availability

Effectiveness IT metric - measures the impact IT has on business processes  and activities including customers satisfaction conversion rates and self-through increases

BENCHMARKING – BASELINING METRICS

Regardless or what is measured, how it is measured and whether it is for the sake of efficiency or effectiveness, there must be

Benchmarks – baseline values the system seek to attain

Benchmarking – a process of continuously measuring system results, comparing those results to optimal system performance and identifying to improve system performance

THE INTERRELATIONSHIPS OF EFFICIENCY AND EFFECTIVENESS IT METRICS

a) Efficiency IT metrics focuses on technology and includes :

Throughput - the amount of information that can travel trough a system at

any point

Transaction speed - the amount of time a system takes to perform a

transaction

System availability – the number of hours a system is available for users

Information accuracy – the extent to which a system generates the correct results when executing the same transaction numerous times

Web traffic – includes a host of benchmarks such as the number of page views, the number of unique visitors, and the average time spent viewing a Web page

Response time –the time it takes to respond to user interactions such as a mouse click

b) Effectiveness IT metrics focuses on an organization’s goals, strategies, and objectives and includes:

Usability – The ease with which people perform transactions and/or find information. A popular usability metric on the Internet is degrees of freedom, which measures the numbers of clicks required to find desired information.

Customer satisfaction – Measured by such benchmarks as satisfaction surveys, percentage of existing customers retained, and increases in revenue dollars per customer.

Conversion rates – The number of customers an organization “touches” for the first time and persuades to purchase its products or services. This is a popular metric for evaluating the effectiveness of banner, pop-up, and pop-under ads on the Internet.

Financial – Such as return on investment (the earning power of an organization’s assets), cost-benefit analysis (the comparison of projected revenues and costs including development, maintenance, fixed, and variable), and break-even analysis (the point at which constant revenues equal ongoing costs).

Security is an issue for any organization offering products or services over the Internet. It is inefficient for an organization to implement Internet security, since it slows down processing

a) However, to be effective it must implement Internet security

b) Secure Internet connections must offer encryption and Secure Sockets Layers (SSL denoted by the lock symbol in the lower corner of a browser) .

c) Web Site Metrics:

Abandoned registrations – Number of visitors who start the process of completing a registration page and then abandon the activity.

Abandoned shopping carts – Number of visitors who create a shopping cart and start shopping and then abandon the activity before paying for the merchandise.

Click-through – people who visit a site, click on an ad, and are taken to the site of the advertiser.

Conversion rate – potential customers who visit a site and actually buy something.

Cost-per-thousand (CPM) – sales dollar generated per dollar of advertising. This is commonly used to make the case for spending money to appear on a search engine.

Page exposures – average number of page exposure to an individual visitor.

Total hits – number of visits to a web site, many of which may be by the same visitor.

Unique visitor – number of unique visitors to a site in a given time. This is commonly used by Nielsen/Net ratings to rank the most popular Web site.

SUPPLY CHAIN MANAGEMENT METRICS

Back order – an unfilled customer order.

Customer order promised cycle time – the anticipated or agreed upon cycle time of a purchase order.

Customer order actual cycle time – to actually fill a customer’s purchase order.

Inventory replenishment cycle time – measure of the manufacturing cycle time plus  the time included to deploy the product to the appropriate distribution center.

Inventory turns ( inventory turnover ) – the number of times that a company’s inventory cycles or turns over per year.

CUSTOMER RELATIONSHIP MANAGEMENT METRICS

•   Customer relationship management metrics measure user satisfaction and interaction and includes :

-          Sales metrics

-          Service metrics

-          Marketing metrics

BPR and ERP METRICS

The balanced scorecard enables organizations to measures and manage strategic initiatives

Chapter Three: Strategic Initiatives For Implementing Competitive Advantages

1. SUPPLY CHAIN MANAGEMENT (SCM)

Involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability.

1a) Four basic components of Supply Chain Management includes:

a) Supply chain strategy - strategy for managing all resources to meet customer demand.

b) Supply chain partner - partners throughout the supply chain that deliver finished products, raw    materials, and services.

c) Supply chain operation - schedule for production activities.

d) Supply chain logistic - product delivery process.

1b) Effective & Efficient SCM systems can enable an organization to:

a) Decrease the power of its buyers

b) Increase its own supplier power

c) Increase switching costs to reduce the threats of substitute products or services

d) Create entry barriers thereby reducing the threats of new entrants.

e) Increase efficiencies while seeking a competitive advantage through cost leadership

2. CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

Involves managing all aspects of a customer's relationship with an organization to increase customer loyalty and retention and an organization's profitability. CRM is not just technology, but a strategy, process and business goal that an organization must embrace on an enterprisewide level.

CRM can enable an organization to:

a) Identify types of customers

b) Design individual customer marketing campaigns

c) Treat each customer as an individual

d) Understand customer buying behaviors

3. BUSINESS PROCESS REENGINEERING (BPR)

Business process: A standardized set if activities that accomplish a specific task, such as processing a customer's order.

Business process reengineering (BPR): The analysis and redesign of workflow within and between enterprises

4. ENTERPRISE RESOURCE PLANNING (ERP)

Integrates all departments and functions throughout an organization into a single IT system so that employees can make decisions by viewing enterprisewide information on all business operations.

ERP systems collect data from across an organization and correlates the data generating an enterprisewide view.

Chapter Two: Identifying Competitive Advantages

Competitive Advantages

Competitive advantages are typically temporary because competitors often seek ways to

duplicate the competitive advantage. In turn, organizations must develop a strategy based

on a new competitive advantage.

Five forces in Porter’s Five Forces Model

a) Buyer power: 

High when buyers have many choices of whom to buy from and low when

their choices are few

b) Supplier power: 

High when buyers have few choices of whom to buy from and low when their choices are

many

c) Threat of substitute products or services:

High when there are many alternatives to a product or service and low when there are few

alternatives from which to choose

d) Threat of new entrants:

High when it is easy for new competitors to enter a market and low when there are significant

entry barriers to entering a market

e) Rivalry among existing competitors

High when competition is fierce in a market and low when competition is more complacent

Porter’s three generic strategies

Organizations typically follow one of Porter’s three generic strategies when entering a new

market.  

1. Broad cost leadership

2. Broad differentiation

3. Focused strategy

Broad strategies reach a large market segment.  Focused strategies target a niche

market.  Focused strategies concentrate on either cost leadership or differentiation.

The relationship between business processes and value

chains

A business process is a standardised set of activities that accomplish a specific task, such

as processing a customer’s order.  The value chain approach views an organization as a

chain, or series, of processes, each of which adds value to the product or service for each

customer.  The value chain helps an organization determine the “value” of its business

processes for its customers.

•Competitive advantages are important for an organization

•It is even more important to understand that competitive advantages are typically temporary

since competitors are quick to copy competitive advantages

1. Example of companies that achieved success through competitive advantages:

a) United was the first airline to offer a competitive advantage with its frequent flyer mileage

(this first-mover advantage was temporary)

b) Sony had a competitive advantage with its portable stereo systems (this first-mover

advantage was temporary)

c) Microsoft had a competitive advantage with its unique Windows operating system

Chapter One: Business driven Technology

Difference Between Management Information System & Information Technology

Management Information System:

Information Systems is a large umbrella referring to systems designed to create, store, manipulate, or disseminate information. Example of an information system is a pencil and a piece of paper. The two objects themselves are just tools, but together they create a system for writing (information). The term Information systems has been around a lot longer than the computer, or the term information technology. These days the two are sometimes thought to be synonymous, but that, in most cases is a misconception. 


Information Technology:

Information technology falls under the information systems umbrella, but has nothing to do with systems per say. IT deals with the technology involved in the systems themselves, e.g. an information system like wiki.answers.com contains many information technologies. Servers, server operating systems, web-server software (IIS, Apache, et al), and code written for the web-server software (PHP, C#, VB, PERL, Ruby, et al). Even your computer and browser make up part of this information system. Like the pencil and paper example, each one of the mentioned parts of this information system in itself is an information technology. 

That being said, most people in the profession no longer make a distinction. Moreover, companies call their IS/IT department a wide range of titles based on more on culture and tradition than anything else.



Relationship Between People, Information & Information Technology

•Information-Functional Culture - 

   Employees use information as a means of exercising influence or power over others. For example, a manager in sales refuses to share information with marketing. This causes marketing to need the sales manager’s input each time a new sales strategy is developed.

•Information-Sharing Culture  - 

   Employees across departments trust each other to use information (especially about problems and failures) to improve performance.

•Information-Inquiring Culture - 

   Employees across departments search for information to better understand the future and align themselves with current trends and new directions.

•Information-Discovery Culture - 

   Employees across departments are open to new insights about crisis and radical changes and seek ways to create competitive advantages.

Achieving Business Success

Computers and information systems are essential parts of every business today. Like accounting and legal, every business needs to invest in technology to compete. Technology is both a cost of doing business, and an opportunity to do more business. Most people I talk with recognize the necessity of having a computer, an email address, and a web site, but still look at the upfront cost more than other issues.

After spending some time working with dozens of businesses, I think it's time to take a step back and look at the big picture of technology in business. Let's take a reporter's view of the topic, and ask the basic questions: who, what, where, why, when, and how much?

For today, we'll keep this short, but each of these questions deserves a more complete article in the future.

Why?

What are the benefits of technology for a business? There are many, but most fall under a few categories:

• Reach more potential customers, develop a business relationship with potential customers
• Streamline operations, reduce costs, improve efficiency, maximize profit, minimize waste, devote talent to core business instead of overhead
• Provide better service to customers
• Support better relationships with key partners
• Allow customers to better guide the business

The very first question businesses should ask before spending any money or time on technology is, “why am I doing this?” If there is not a core business benefit to be gained, why do it in the first place?

How Much?

Established businesses outside the technology industry typically spend between ½ percent and 10 percent of their annual revenue on technology spending, depending mostly on the industry. Manufacturing and retail are typically at the low end of this range, while finance and health care are typically at the high end.

If you're at the low end of technology spending for your industry, you may be missing out on some key benefits technology can provide. If you're at the high end, you may be spending more than you need to on proprietary solutions, or you may be leading your industry with some strategic investment.

What?

What costs do you need to consider as part of your technology budget? These break down into several categories:

• Initial cost—hardware and software, and training
• Ongoing cost—maintaining systems, including licenses for proprietary software, hosting, and support
• Upgrade cost—cost of upgrades, and expected lifespan of systems/frequency of upgrades
• Value proposition—how much employee time will the system save? How much new business could the system generate?
• Opportunity cost—how much potential revenue is lost by not implementing a system? What are your competitors doing in this area?
• Risk—what are the risks of a particular system? What does it cost to mitigate those risks?

Where?

Should you spend most of your technology budget on infrastructure, hosted applications, custom line-of-business applications, or what? The answer to this depends a lot on your industry, but even more on your specific business. Generally, most businesses spend around half of their technology budget on infrastructure—computers, networking equipment, and Internet Service Providers (ISPs). As the world moves more and more online, and open source software becomes more compelling, there are huge opportunities for savings in these areas, for businesses that can take advantage of them.

When?

There's a fine line between too much and not enough. Spend too much on technology, and it will consume your time and budget, leaving you ill prepared to do anything else on your business. Spend too little and your competition may improve their business to the point that you can't compete.

You need to implement enough technology to see a real benefit, prevent the worst disasters, and not miss out on any major opportunities, while not spending more than you can handle.

Technology has a cost not just in dollars, but also in the time you and your employees need to spend adapting to it. Bite off too big a chunk and technology becomes counter-productive. Nearly always, small, incremental, ongoing chunks are a better way to bring technology into your business than large all-or-nothing systems that promise to do everything right away.

Who?

Finally, you need to decide who to help you implement technology in your business. Will you do it yourself? Do you purchase an off-the shelf product? Do you use free software? Do you hire a programmer to create a custom system? Do you use a hosted system? Do you hire a consultant to help?

Obviously, as an open source consultant, I think the answer is usually hire a good consultant to help you use as much quality free software in your business as possible. Whether or not to use a hosted system depends on your specific business needs. Off-the-shelf proprietary products are quickly becoming the least favorable way to go, but there are still a few niches where there isn't a viable alternative.

Many businesses are stuck at a tactical level, trying to stay ahead on cash flow and payroll, and don't have time to think about technology in a strategic way. But a strong plan for technology should be a part of every business plan, and re-evaluated whenever taking a strategic look at a business.

If you need assistance answering these questions in your business, Freelock would be happy to help.