The Power of Information Technology in Business Transformation

By | April 17, 2018

The impact that Information Technology (IT) has on the ways businesses are conducted is undeniably gigantic in proportions. With the advent of the Internet, conventional methods of doing businesses have been altered to a great extent as evidenced by the emergence of e-commerce. In addition, the ever pervasive use of World Wide Web for a myriad of applications also triggers the growth in IT. Boundaries of time and space are transcended and “the world is flat” now. Globalisation ensues and a corollary that follows is even more intense competition among business entities. Such is the eloquent testimony of the power of IT to transform businesses!

With the awareness of such enormous influence of IT on businesses, this naturally calls for a greater need to focus on a firm’s IT and strategic management. Of particular concern is the use of IT on strategic management. In view of this, the role of Information Technology has expanded, changing its role as a traditional information system function to one that is increasingly a general management concern. Three important concepts related to this observation should be given attention. These are strategic management, Information Technology (IT) and Management Information System (MIS). The descriptions that follow explain the relationship between these concepts.

The first relationship is that between Information Technology and Management Information System. The traditional view of Information Technology is such that Information Technology is seen as a function through which data are processed. In this perspective, systems merely serve the information needs of various managerial roles. Hardware and software support are accordingly important for this function. Strategic planning involves making decisions that are unstructured. Consequently, this renders the use of information systems for such decisions impossible as the data then are only suitable for making decisions that are structured in nature.

The second relationship is that between strategic management and Management Information System. In reference to the aforesaid relationship explained above, it is noted that this relationship was prevalent until the late 1960s and early 1970s. It was at this juncture of time that the need to tailor the information system to that of the organizational strategic planning arose. The implication is a new perspective devoted to strategic management and Management Information System. One proponent of this relationship is McKinsey & Co, who published a report titled Unlocking the Computer’s Profit Potential in 1968. The report recognised the importance of this relationship, thus urging managers to have a renewed perspective on the role of computers such that they should not be regarded as merely data processing resources. Instead, they ought to be viewed as providing the means towards supporting the organization’s strategies.

This gives rise to the distinction between Strategic Information System and the more operationally inclined Management Information System. Some examples of Strategic Information Systems operating at real companies include SABRE reservation system (American Airlines), ASAP-order entry system (American Hospital Supply Co), Economost order entry system (McKesson Corp.) and APOLLO-travel agency reservation system (United Airlines).

Essentially, Strategic Information System achieves its objectives through a number of mechanisms. Two mechanisms of particular interest are reconfiguration of the information flows within an organization and development of inter-organizational systems that extend beyond the traditional standalone information system at each organization.

One basic concept behind reconfiguration of information flow is that of timeliness of information. This implies that the flow of information is structured such that data are available when they are required. Consider the case of a strategic information system designed to collect data on flight bookings whereby the information is exchanged between the airline organization and its partnering ticketing agents and travel agents. By virtue of this information flow, the airline can inform the relevant ticketing agents and travel agents to modify the number of discounted seats available based on the current level of ticket sales. As for inter-organizational systems, this is basically self-explanatory.

The third relationship is that between strategic management and Information Technology. This relationship serves to emphasize the role of Information Technology as one that influences the formulation of a firm’s strategy rather than merely supporting its operations. This is exemplified by Merrill Lynch as its strategy demonstrates that IT has the capability to enable the development of superior substitute products or services. Its Cash Management Account (CMA) system shows that IT has the ability to alter the way businesses are conducted in the financial industry.

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