Sustainable Advantages of Business Value of Information Technology

Sustainable Advantages of Business Value of Information Technology

Jorge A. Romero (Towson University, USA)
DOI: 10.4018/978-1-5225-2255-3.ch079
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Abstract

The business value of information technology (IT) and the way to sustain advantages obtained through investment in IT has been a topic of interest in the last few years. It is important to understand the relationship of IT and its effects on business value, particularly the sustainable advantages that companies can obtain if they use IT to obtain a strategic differentiation and operating efficiency in relation to competitors. This chapter explores these sustainable advantages and their links to performance measures and firm strategies. This chapter will also help us understand the incremental contribution that companies can enjoy after the adoption of a new IT.
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Background: Industry Studies

Previous studies have concluded that the implementation of IT and its effects may affect firms in different industries in different ways (Porter, 2001; Melville et al., 2004; Mitra, 2007). Therefore, it is important to recognize the structural differences across industries when we try to measure business value and the managerial ability of firms applying IT in order to improve their performance. The understanding of those structural differences is not yet completely understood (Melville et al. 2004).

From a methodological point of view, it is possible to control industry effects in a regression across industries, but the concern with those studies across industries is that the industry effect may be averaged out when analyzing firms from a broad group of industries. On the contrary, in a study that focuses on one industry, the effect of industry-related factors are controlled and the unique characteristics of the specific industry can be taken into consideration in order to isolate the IT effects (Mitra, 2007). There have been very few industry studies analyzing the effect of business value of IT. The main limitation has been the difficulty to obtain and collect this kind of data which is more precise and accurate than cross sectional data. One of the advantages of an industry study is that it does not restrict the analysis; rather it minimizes the possibility of bogus results due to structural differences among industries.

Key Terms in this Chapter

Material Requirements Planning II: Also known as MRP II and was developed in 1980’s. MRP II evolved from MRP incorporating some additional features such as the master production schedule using the available-to-promise logic, sales forecasting,, and tracking tools until the items are delivered to customers among other tools ( Olhager, 2013 ).

Business value: It is the value of a firm that not only includes the monetary value of a firm, the hardware, the software, and the IT organizational processes but also includes other intangible components such as innovation, integration, standardization of processes, efficiency, and quality of products produced.

Customer Relationship Management: Also known as CRM. CRM with the use of technology supports a firm managing its interactions with customers and focuses on customer retention with the purpose of maximizing profitability (Weinman, 2015 AU27: The in-text citation "Weinman, 2015" is not in the reference list. Please correct the citation, add the reference to the list, or delete the citation. ). It is mostly considered a business and strategic solution rather than a software solution. CRM integrates different parts of a company that deal with customers such as: sales, advertising, direct mail, email, and call centers in order to improve customer communication and to increase competitiveness. With the use of CRM is possible to identify customer preferences. There have been case studies of companies failing to extract benefits from CRM installations mostly due a poor understanding of the system and not an adequate training of employees using the system ( Chen and Popovich, 2003 ). For instance, Salesforce, headquartered in San Francisco, is a cloud-based CRM package and is currently one of the market leaders that includes the following components: marketing cloud, analytics cloud, sales cloud, and service cloud.

Information Technology: Information technology includes the use of computer software, computer hardware, telecommunications equipment and services. It provides support to firms to store data, process data, synchronize and monitor processes. It also allows managers to think at a more strategic level because they do not need to spend time or resources on repetitive or administrative tasks that are being performed by the information technology ( Romero et al., 2010 ).

Material Requirements Planning: Also known as MRP. MRP was developed in the 1960’s and 1970’s as a production planning system to support manufacturing operations calculating the amount of raw materials needed by the production department and the specific timing of different individual parts that are needed (Jodlbauer, 2012 AU28: The in-text citation "Jodlbauer, 2012" is not in the reference list. Please correct the citation, add the reference to the list, or delete the citation. ). MRP also helps managers decide when to buy.

Cloud-Based Applications: Applications that do not need to be installed or run from a desktop or server on premise in a firm ( Choudhary and Vithayathil, 2013 ). They are applications that are hosted on remote servers and that can be accessed via the Internet from anywhere. It offers an advantage to firms avoiding the acquisition of IT assets that usually depreciate at a fast rate. Because the software is not installed on site, firms do not need to invest on upgrading software regularly or to pay annual license fees. However, there is a pay as-you-go fee in cloud applications ( Choudhary and Vithayathil, 2013 ).

Supply Chain Management: Also known as SCM. SCM is a group of different firms that work in a coordinated way and are linked together to maximize competitive advantage. It is composed of suppliers of raw materials, firms that process those raw materials, and retailers that sell the products to the final customers.

Enterprise Resource Planning: Also known as ERP and was developed in the 1990’s. An ERP system attempts not only to integrate all departments within a company but also to synchronize the ERP system of the firm with the ERP systems of others companies in the supply chain that it operates ( Anderson et al., 2011 ). An ERP system consists of several modules such as finance, sales, human resources, inventory, operations, and marketing among others. An ERP system is deemed complete when all modules are installed, and it is preferably to install all modules from the same vendor in order to avoid any compatibility issues ( Romero et al., 2010 ). Having all departments synchronized let a company know the status of an order at any point in time, and if there are changes in an order, all systems are updated automatically without having a need to update the systems of each department one by one.

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