A Value-Chain Based Model for Supporting Information Technology Investments

Abstract

Business organizations are thinking increasingly in terms of informationtechnology solutions to business problems, as opposed to dataprocessing for supporting the business. Information technology is nowviewed as an important means for achieving competitive advantage.For firms in hardware/software business it is therefore becoming increasinglyimportant to provide clients with the means to do an analysisof business needs and strategies and to think in terms of providingglobal IT solutions that address these needs.The value-chain model articulated by Porter (1985) attempts tolink IT solutions to business strategy. It is based on a simple economictheory: a firm remains competitive by virtue of being a lowcost producer or differentiating its products/services; accordingly itsstrategies must be based on countering forces (such as new entrants,substitute products, bargaining power of buyers and suppliers) thaterode these advantages . Information technology is considered a keyfactor in being able to deal with these forces Accordingly, how much tospend and where to spend on information technology is determined byhow well it enables the firm to deal with its dominant forces (threats).Porter's model has found widespread appeal among practitioners(notably information systems executives) due to its simplicity and intuitiveappeal. Several methodologies have been designed around thismodel that encourage executives to "think through" this model in orderto identify technologies that could provide competitive advantage.However, there are no existing formalizations of the value-chain modeleither by industry, market structure, or organizational structure. Wehave been developing such a model for a specific industry (insurance)with the objective of building an executive support tool that can showinteractively, how a proposed technology or organizational change canimpact specific metrics/values of interest of business processes definedat various levels of abstraction, and thereby the bottom line. By usingsuch a model, an executive can also analyze technology and resourcerequirements required to transform one set of business processes intoanother, more desirable state.