A VALUE-CHAIN BASED MODEL FOR SUPPORTING INFORMATION TECHNOLOGY INVESTMENTS

Abstract

Business organizations are thinking increasingly in terms of information technology solutions to business problems, as opposed to data processing for supporting the business. Information technology is now viewed as an important means for achieving competitive advantage. For firms in hardware/software business it is therefore becoming increasingly important to provide clients with the means to do an analysis of business needs and strategies and to think in terms of providing global IT solutions that address these needs. The value-chain model articulated by Porter (1985) attempts to link IT solutions to business strategy. It is based on a simple economic theory: a firm remains competitive by virtue of being a low cost producer or differentiating its products/services; accordingly its strategies must be based on countering forces (such as new entrants, substitute products, bargaining power of buyers and suppliers) that erode these advantages . Information technology is considered a key factor in being able to deal with these forces Accordingly, how much to spend and where to spend on information technology is determined by how 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 intuitive appeal. Several methodologies have been designed around this model that encourage executives to "think through" this model in order to identify technologies that could provide competitive advantage. However, there are no existing formalizations of the value-chain model either by industry, market structure, or organizational structure. We have been developing such a model for a specific industry (insurance) with the objective of building an executive support tool that can show interactively, how a proposed technology or organizational change can impact specific metrics/values of interest of business processes defined at various levels of abstraction, and thereby the bottom line. By using such a model, an executive can also analyze technology and resource requirements required to transform one set of business processes into another, more desirable state.