Investing in the It That Makes a Competitive Difference

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Studies of corporate performance reveal a growing link between certain kinds of technology investments and intensifying competitiveness.

Investing in the IT That Makes a Competitive Difference
by Andrew McAfee and Erik Brynjolfsson

Included with this full-text Harvard Business Review article: 1 Article Summary The Idea in Brief—the core idea The Idea in Practice—putting the idea to work 2 Investing in the IT That Makes a Competitive Difference 11 Further Reading A list of related materials, with annotations to guide further exploration of the article’s ideas and applications

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Purchased by Steven Stillman (sstillm@post.harvard.edu) on March 13, 2013

Investing in the IT That Makes a Competitive Difference
The Idea in Brief
It’s not just you. It really is getting harder to outpace the other guys. Since the mid1990s, competition in the U.S. economy has accelerated to unprecedented levels. The engine behind this hypercompetition: IT. Thanks to powerful tools like ERP and CRM, backed by cheap networks, companies are swiftly replicating business-process innovations throughout their organizations. The firm with the best processes (order fulfillment, field installation, job closing) wins, but not for long. Rivals are striking back with their own IT-based process innovations. To gain—and keep—a competitive edge in this environment, McAfee and Brynjolfsson recommend a three-step strategy: • Deploy a consistent technology platform, rather than stitching together a jumble of legacy systems. • Innovate better ways of working. • Propagate those process innovations widely throughout your company. By taking these steps, elevator-systems maker Otis realized not only dramatically shorter sales-cycle times but higher revenues and operating profit.

The Idea in Practice
The authors recommend these steps for staying ahead of rivals through IT-enabled process innovation: Deploy. Adopt a uniform technology platform to be used throughout your company. Example: Before deploying a consistent platform, Cisco’s various units had nine different tools for checking an order’s status. Each pulled information from different repositories and defined key terms differently, leading to circulation of conflicting order-status reports around the company. The company reconfigured its IT systems for consistent execution of key business processes including market to sell, lead to order, quote to cash, issue to resolution, forecast to build, idea to product, and hire to retire. The payoff? Strong performance over the past few years. Innovate. Design better ways of doing work in your company. The best candidates for innovation are processes that: • Apply across a large swatch of your company (such as all your stores, factories, or delivery teams) • Produce results as soon as your new IT system goes live • Require precise instructions (such as order taking or delivery) • Can be executed the same way everywhere and every time in your organization • Can be tracked in real time so you can immediately spot and address any backsliding to older versions of the process Example: U.K. grocery chain Tesco has long used customer-rewards cards to collect detailed data on individual purchases, to categorize customers, and to tailor offers. But it went one step further: tracking redemption rates for direct-marketing initiatives and tweaking its processes to get better responses from customers. Its process innovation drove its redemption rate to 20%— far above the industry’s average of 2%. Propagate. Use IT to replicate process innovations throughout your company. Example: At CVS pharmacies, customer satisfaction was declining. The reason: Prescription orders were delayed during the insurance check, which was performed after customers had left the store. So customers weren’t immediately available to answer common questions such as “Have you changed jobs?” The company decided to move the insurance check forward in the...
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