Does IT strategy matter? Why do firms need to develop an IT strategy? Discuss Essay Example
Does IT strategy Matter
The today global business operations have led to firms being information business. This is due to the information that global firms have to store, process, capture data and distribute. Effective information management system has become the most important need to enhance firm competence. The role of information technology in the firms has evolved. Most of the international firms have adopted IT for their operations. The role of IT leaders has increased in the firms taking part in strategic management and alignment of the information technology and firm. This has led to the role being played by IT to be hard to assume. The developments of the information technology strategy for the firm have become critical for its success (Dedrick, Gurbaxani & Kraemer, 2003). For most firms, efforts are being put in place to come up with an effective information technology strategy. The efforts are in a bid to enable the firm to have new competency that complements business strategy. Information technology strategy is said to be capable to shape the firm strategic direction and allowing more opportunities. Others have claimed that whichever the IT strategy is used in the firm, it have to be linked with the business value for the best results. This is due to common belief that IT strategy and business strategy are supposed to go together and complement each other (Melville, Kraemer & Gurbaxani, 2004). Having an effective IT strategy is still a main problem for many businesses. This essay will prove that IT strategy matters and the firms need to develop it.
A strategy can be defined as an approach used in doing business (Dedrick, Gurbaxani & Kraemer, 2003). Traditionally, business strategies involved differentiation and performing different activities than the competitors. This worked for the businesses at that time since it was hard to duplicate giving them a competitive advantage. The IT was then used as a support to the business strategy. This was through understanding it and coming up with a plan on how to support. Most of the people in the management lacked appropriate knowledge in using IT strategy and its potentials. At the moment, most of the business has realized the importance of business strategies. Most of the business strategies at the moment cannot be conceived without using IT. Most of the factors in the firms are being implemented using information technology (Melville, Kraemer & Gurbaxani, 2004).There have been changes in the way competition is viewed. With information technology, speed and innovation are the main drive for the competition.
According to Liu & Ravichandran (2008), most of the business leaders have realized the problems that have been associated with IT strategy have been due to leaders. This is due to leaders who failed to realize that by adopting the It strategies, the firm was to benefit in business. Most of the business leaders failed to adopt IT strategies claiming they posed a technological challenge. Those who have adopted the right IT strategies in their firms have benefited from increased business. IT does not only enable implementation of business strategy but it provides the firm with new opportunities.
Despite the advantages that the firms have gained from IT, some of the firms have inconsistent strategies in IT. These are strategies that have been developed without looking at the future firm competitive environment. This can be rectified by changing the approach that have been used in coming up with the strategy. There is a need for the strategy that is developed being dynamic since it’s a continuous process. This will enable the firms to come up with an IT strategy that will be in line with their business strategy (Liu & Ravichandran, 2008).
Framework for global IT strategy
There is need for the business executives to be competent in coming up with IT strategies. This should be done in five major levels of analysis which are; global, national, company and individual levels. These are important levels that enable the firm to come up with a competitive international IT strategy. This is an important skill that all the business executives should acquire. The global level of the strategy is the widest and complex. As the levels goes up, they narrow and becomes easier to implement (Melville, Kraemer & Gurbaxani, 2004).
Melville, Kraemer & Gurbaxani (2004) explains that the internet has enabled the global business to become borderless. This is due to fact that the internet is an open system and interaction can be done in any place globally. This has led to reduced physical borders as interaction has improved. A borderless world has immensely helped the business world. This is due to increase in innovations, collaboration and excellent communication. Despite the advantages, many challenges have also been associated with connectivity. The technical challenges associated with use of different software and hardware has been solved through the use of international standards
IT and diversification
IT has been a major player in many firms diversification process. Diversification refers to the ability of the firm to operate in different lines of business. This is due the excess capacity of the firms resources. Using diversification, the firm is able to share the resources in multiple lines of its business. The main issue arises from the cost increase from coordinating the resources in multiple products. Diversified firms are able to get extra income in their level of market operation. One of such situation can be explained by shopping malls where the firm can sell different products to the same customers with reduced transactional costs. The costs increase in a diversified firm occurs through the coordination costs. Using the information technology platform, the firm can be able to reduce the unit cost of coordinating and enhancing the scope of economies (Liu & Ravichandran, 2008).
It is possible to use IT in executing the logistics which are needed to carry out a diversified business. The firm can use the date from one product and leverage it for selling other products. Using the data systems, the firm can enable direct marketing and target the consumers with their products more effectively. The diversified firm has an advantage as it can use the IT resources it has across all; its products line hence achieving higher returns for a given level of investment. Technology can enable linking of different lines of communication within a firm. This leads to a positive relationship in the diversified firm (Liu & Ravichandran, 2008).
Monitoring of the performance in different lines of a diversified firm is vital. The firm using IT strategy have an advantage as it can help in monitoring. Information processing requirements are found in IT based solutions. Information technology has a role in tracking and reporting the performance of the firms sectors and associated resources which are productive. In a diversified firm, there is sharing of resources. This leads to a correlation in the product lines and the organization units. The correlation leads to effectiveness which is inherently dependent on the information technology. This shows that there is a positive relationship between IT and the returns gained under diversification (Liu & Ravichandran, 2008).
IT and firm integration
This refers to the extent in which the firm is able to conduct successive activities in a value chain. Integrating the firm activities vertically enables the firm to reduce the transactions costs. This increases the internal coordination costs of the firm. This situation can be helped if there is a well developed IT strategy in the firm. Information Technology lowers the communication and information processing costs within the firm (Liu & Ravichandran, 2008). Information technology also the firm to monitor and control which lead to reduced costs of operation. The strategic purpose for the use of IT is to enable coordination of activities in the value chain. Each of the costs that are incurred by the firm during vertical integration can be reduced through use of IT. The search costs are reduced which acts to reduce the logistics costs and enhances the information sharing among the business partners. This also reduces the contractual costs between the firm business partners (Tanriverdi & Ruefli, 2004).
IT and firm risks
Use of vertical integration in a firm is aimed at reducing the firm risks. To manage the risks, the firm increases control of its internal transactions which leads to easy predictability of the firm performance and lowered risks (Tanriverdi & Ruefli, 2004). Through monitoring the business capabilities and increasing the information flow in the firm, IT can help to reduce the firm risk. This is due it enhances control of internal transactions with its efforts. The sharing of the common IT resources within the value chains in a firm leads to reduction in the uncertainty in costs and reducing the firm risks (Benaroch, 2002).
IT business value
According to Chari, Devaraj & David (2008), Information technology is able to add value to business. This is through automation of the business processes, new forms of value creation and effective decision making through increased information. Research has showed evidence of increased returns being associated with high IT investments. This is through firms being able to enhance their revenue rather than traditional methods of cost saving. The profitability is enhanced through the firm interactions with its resources. This can be illustrated by the IT ability to enhance customer satisfaction.
Competition in foreign market
For a business to compete in the international market, it must have efficiency, differentiation and worldwide innovation. This is achieved through coordination of the business in all its areas of operation and to resolve the differences in its aspects. Having good coordination and information processing enables the firm to expend fast to the global operations. The need for high coordination increases as the firm expands into global operations. The marketing experts are expected to be able to produce information at all levels. Having a competitive alignment of the business with the IT technologies can enable the company to have international competitiveness (Chari, Devaraj & David, 2008).
Information technology has been a major boost in the global economy. It has been proved that IT can help a lot in improving the country’s economy. There has been a growing demand for IT professionals in the countries with shortage of them. Through use of information technology, people have been able to form virtual teams (Kayworth & Leidner, 2002). IT has enabled people to learn and work remotely. For business, it becomes possible to make up virtual teams which collaborate and share ideas online. This shows that a firm with a good IT strategy will be able to deliver well in the global arena and benefit from innovations such as virtual teams (Chari, Devaraj & David, 2008).
Challenges faced by IT
Cultural issues are some of the problem of IT where virtual teams are formed. People from different countries collaborate with each other online which lead to communication and coordination challenges (Kayworth & Leidner, 2002). Culture is what distinguishes one group from the other. Culture is also learned and not inherited as it comes from the person environment but not genes. Before implementing the IT strategy in a global company, it’s important to understand that all countries have their unique culture that have to be integrated during the design of the information system. The global information system should first look at the different cultures that the organization is supposed to encounter (Marcus & Gould, 2000).
IT structures varies with the country’s development. Not all countries have sufficient information technology infrastructure in place. The issues associated with IT are measured using literacy rate, trade volume and country investment. The developed countries have the best infrastructure in information technology as compared to developed countries. For the developed countries, there is strategic use of the information technology in enabling international business operations. For the newly developed countries, infrastructure and management of the IT function becomes a major issue. Looking at the developing countries such as India, having the appropriate personnel in IT sectors proves to be an issues while the underdeveloped countries have no the right infrastructure. The underdeveloped countries lack the basic infrastructure on IT leading to the business operations to lack appropriate support (Dedrick, Gurbaxani & Kraemer, 2003).
According to Liu & Ravichandran (2008), lack of supportive governance structure is another problem. In some cases, there are poor ways of managing the IT implementation in an enterprise. The IT strategy is aimed at wider organization perspective and hence more complex. This leads to some organizations which were used to have everything within their organization boundaries failing to offer appropriate support. The managerial system is in most cases focused on the reward thinking on the line of business rather than the wider good for the organization.
According to Doms (2004) poor balancing of IT investment is another challenge that faces the implementation of the IT strategy. Technology have diverse use and have unlimited opportunities. The main issues lies to fact that the available resources are not limitless. This leads to some of the firms allocating the IT budget inappropriately. Firms require a lot of IT services for them to operate smoothly. The basic support and other utilities are estimated to occupy from 30 to 70 percent of the total organization budget. This leads to the need of IT strategies to be implemented with care taken to reduce the fixed budget. The remaining budget should then be allocated toward the other aspects of IT strategy that will benefit the firm business strategy (Bardhan, Bagchi & Sougstad, 2004).
Lack of appropriate infrastructure in the business is another issue in adopting IT strategy. The organization infrastructure such as hardware, software, personnel, communication and data available will determine how effective the IT strategy is. Most of the companies do not see the infrastructure investment as a strategy. This leads to most business struggling on funding the infrastructure. There is need for the firms to realize the importance of having the right infrastructure in place to drive their IT strategy. This ensures that the firm is able to implement the IT strategy smoothly (Melville, Kraemer & Gurbaxani, 2004)
Being able to balance short term returns with the company long term interests is a challenge to some firm’s management. For an effective IT strategy, all the five dimensions must be appropriately looked at and funded. For some firms, their operations are based on traditional business thinking. This is where short term profitability is favored over long term view. This leads to the IT sector being underfunded as more money is channeled to support short term profitability projects. There are firms which under fund some IT sectors while others are overfunded (Bardhan, Bagchi & Sougstad, 2004).
Use of IT strategy presents an issue of data privacy and security. With the increase in cyber crime, most of the organizations have suffered from the vice. The firm has to be able to secure database and also make sure that rules of privacy are followed. Most of the firms that have successfully implemented IT strategy collects their consumers’ data and stores it in their databases. The company directive determines the way in which the data is collected. The firm should also ensure they have use diligence in collecting and managing the data about employees and firms consumers. This ensures there is data security and privacy (Doms, 2004).
Lastly, another challenge lies in choosing the right technology partner. Partnering with external services providers has been proved to reduce the risks and enable a first implementation. The information technology industry is composed of multiple players especially in the developed countries. For a firm, choosing the right technology partner to implement the IT strategy is challenging. For most firms, looking at IT as short term venture into cost saving compromises the choice of their partners. This is due to fact that some of the management thinks that the alliance will be short lived. Most of the firms’ strategy fails due to poor partnership (Doms, 2004). These are partnerships that lead to incompatibilities and poor information flow. The communication must be smooth between the firm and the partner. Establishing good connectivity with a wrong partner proves challenging which may later lead to failure (Dewan & Ren, 2007).
In conclusion, information technology has become a pillar to many firms operating in the global arena. The firms’ processes such as data processing, storage, capturing and disseminating have been adopted through information technology. Effective information technology infrastructure has been one of the most vital competitive advantages to multinationals. Using information technology, the firms have been able to increase on their returns and impact their financial risk performance positively. IT strategy has helped the firms to reduce their risks and increase on their returns. The main challenges that face implementation of the IT strategy are poor infrastructure in the firm, country’s level of development, partnership formed, cyber crime, and lack of corporate support. These have led to some of the firms experiencing failures in implementing their IT strategies. For the firms to be able to survive in the global market, they must have a strong IT strategy. This can be achieved through the use of the right infrastructure and having the right partnerships in technology. For the firms that have implemented IT strategy successfully, they have a promising future in the global business world. This is due to the increasing importance of IT in running the business. IT strategy works together with the firm’s business strategy to enhance the firm global performance.
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