Making IT Matter

By Gabe Piccoli, Guest Contributor | January 01, 2005

Pressure put on IT professionals to demonstrate IT's strategic value is nothing new. Every so often it seems, the skeptics point to the evidence suggesting that many hospitality firms are not achieving benefits commensurate with the sums of money spent on IT. Those amongst us who have been concerned with IT for some time know full well the amount of education, cajoling, and prodding required to convince business managers that technology is not just a cost of doing business. But maybe this constant need to advocate for IT is partly our own fault. Maybe our colleagues still need convincing because we have so far been unable to challenge their misconceptions, to clearly identify the drivers of IT-enabled competitive advantage. Creating such a comprehensive guide is what I set out to do in writing a recent report, Making IT Matter, for the Center for Hospitality Research at Cornell University.

Quibbling about whether IT matters or not from a strategic standpoint is a waste of time. IT does matter, of course, and companies like eBay, Dell Computers, and Wal-Mart have amply demonstrated that it does. The hospitality industry has had its share of IT success stories: Ritz Carlton's personalization is well known, as is Harrah's business intelligence initiative, and Radisson's look-to-book initiative has also proven quite successful. But making the case that IT is strategic is of little help if we can't offer a guide to make sound decisions about when (and when not) to engage in the strategic deployment of information technologies.

In my report I start with a crucial differentiation between information systems and information technology. I then focus on strategic information systems and how they can be used to create and appropriate economic value. After discussing established frameworks for value creation, I introduce the notion of barriers to replication. Using this concept I show how innovative IT-dependent strategic initiatives can be analyzed to evaluate their potential for sustainable advantage.

Strategists need to seek a definite answer to the following baseline questions: Is the proposed initiative aligned with the firm's business strategy? Is it designed to reduce the firm's costs or to increase customers' willingness to pay? What is the information system design underpinning the initiative?

Upon answering these background questions management can evaluate whether the initiative creates a defendable position of competitive advantage. In my report I offer substantial guidance to answer the following critical questions based upon a sound and disciplined analysis: What competitors are appropriately positioned to replicate the initiative? How long before they have the same functionality in place? Will replication do competitors any good? What evolutionary paths does the innovation create that the innovator can exploit?

Armed with the results of the above analysis it becomes easier to choose the appropriate course of action to develop the IT-dependent strategic initiative independently, as part of a consortium, or shelve the proposed initiative, if competitors' response will degrade value-appropriation potential for all.

Successful innovation with IT is no easy task and very often, when subjected to the in-depth analysis described above, the most appealing initiative reveals weaknesses. But when IT-dependent strategic initiatives can be defended against competitive response, the payoff can be tremendous. It is only through this type of disciplined analysis that we will be able to unequivocally demonstrate the business value of strategic IT investment. n

Gabe Piccoli is assistant professor at Cornell University and a member of the HT Editorial Advisory Board. The complete "Making IT Matter" study is available at hotelschool.cornell.edu/chr/

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