InformationWeek
Defining The Business Value Of Technology
February 8, 1999
IT Value Chains
More Links, More Value
It was once considered a victory to get workers--and systems--within sales, distribution, manufacturing, design, finance, and human resources to work together. Today we measure success not merely in terms of breaking down internal barriers, but by how quickly and effectively these and other parts of all our organizations operate with outsiders--including suppliers, partners, competitors, regulators, business customers, and consumers.
If there is any way of characterizing information technology in the new millennium, it must be through the extended value chain or value network. IT is key, therefore, to reinventing business relationships in the new economy. The nature of relationships within and between organizations, with a primary focus on flexible organization-to-organization links, will be explored this week at the 1999 InformationWeek Winter Forum in Naples, Fla. The cornerstone of our forum and this InformationWeek Executive Report is to explore technologies and business practices that help forward-thinking enterprises function in a revolutionary age, in which we are challenged to share knowledge and opportunity with each other so that they can create greater value for customers, employees, and shareholders.
A leading proponent of the IT value chain is General Motors Corp. CIO Ralph Szygenda, who will chair this week's forum. He shares his thoughts on a new role for IT, establishing an extended value chain, in an essay on a new role for IT, establishing an extended value chain. Other essays in this report were written by forum moderators, all InformationWeek editors.
Hold On To Your Value Chains
Value chains improve with age. The longer they've been around, the more value they add to an organization. Indeed, value and supply chains that have operated for more than two years show sharply higher returns than those less than two years old. The older the chain, the more likely it will be used on a daily basis. Nearly nine of 10 IT managers from companies that have operated chains for two years or more employed them multiple times a day to purchase raw materials, finished products, data, services or other information. That compares with 58% among managers from companies with newer chains.
Overall, IT managers rate the strategic importance of their value and supply chains at 7.3 on a 1-to-10 scale where 10 is extremely important. That's relatively high considering it's the midway point--about half the respondents rate the strategic importance even higher.
Wanted: Information
What are chains good for? The main application of supply and value chains is to provide information to customers. And they're used more for buying than for selling items. Purchasing supplies and raw materials ranks second, purchasing data ranks fifth, and selling products ranks sixth.
The most common gains from chains are faster order filling and delivery, improved customer service, faster cycle times, and lower order-processing costs, all cited by 60% or more of the IT managers surveyed. The least-common improvement was better sales forecasts.
Who Gets The Credit?
Departments across the enterprise drive the creation of value and supply chains. While 19% of IT managers credit themselves with being the driving force in deciding to build an electronic chain, 15% each credit executive management and purchasing executives and 12% point to the marketing department.
Come Join The Party
Suppliers and customers most often are invited to participate in a company's supply or value chain, rather than joining at their own request. Among larger companies, two-thirds of suppliers and customers become part of their chain by invitation and 20% by request. Among smaller companies, it's 46% by invitation and 32% by request.
Illustration by Matsu
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