UNIT I STUDY GUIDE

The Value and Importance of IT

Course Learning Outcomes for Unit I

Upon completion of this unit, students should be able to:

1. Outline processes for developing the information technology (IT) value proposition.
1.1 Compile empirical sources to support your assessment of the relationship between IT strategy
and value creation.

Course/Unit Learning Activity

Learning Outcomes
Unit Lesson
Chapter 1
1.1 Chapter 2
Unit I Annotated Bibliography

Reading Assignment
Chapter 1: Delivering on the IT Value Proposition

Chapter 2: Developing IT Strategy for Business Value

Unit Lesson
Information Technology Spurs Value Creation

It is commonplace for novel products or services to be launched utilizing technology that was developed for
another purpose. Some of these products and services may have been considered as an afterthought at the
time. Consider Apple as an example. At the turn of the 21st century—less than 20 years ago—Apple was a
computer company that sold computers at a premium due to its high-performance operating system (OS) and
exceptional industrial design. Today, the customers of Apple would not recognize the company of just a few
years ago. What is it that Apple sells today? Its most significant products are its smartphones, laptops, and
tablets along with the Mac OS and iTunes ecosystem. The products of Apple today provide an interesting
case study of how information technology spurs value creation. Most notably, the case of Apple illustrates
how the strategic capabilities of information technology (IT) have the potential to escalate far beyond the initial
tactical deployment. To understand this better, consider Apple’s strategy to offer its OSs only on Apple-
developed hardware rather than cloned hardware (as was the practice in the context of the Microsoft, Intel,
and Advanced Micro Device [AMD] computers). This policy in practice meant that if Apple were to grow its OS
presence in the market, it would have to do so by selling more of its computers. This was the only means for
increasing Apple’s market share. As a result of this policy, Apple considered ways to make its OS more
compelling by offering new products that were preferentially compatible with Apple computers.

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 One of the first products developed that offered
UNIT x STUDY GUIDEsuch
preferential compatibility forTitle
Apple computers was the first
iPod. The iPod provided an additional reason for the
market to adopt the Apple OS and, in addition, spurred the
development of iTunes.

In the beginning, iTunes was simply a vehicle to support

the organization and curation of music and playlists for the
iPod. The stunning success of the iPod triggered the
iPod MP3 music player and ear buds decision to make iTunes available for personal computers
(Zorn, n.d.) (PCs) in addition to Apple computers. This did not
necessarily sell more Apple computers, but the decision
did lead to an explosion of sales of the iPod and, over time, increased sales of content in the Apple iTunes
Store.

The story of Apple’s IT-based trajectory picked up speed when it felt as if nearly everyone—not just traditional
Apple users—had to have an iPod. Couple this market situation with the growth of high-speed Internet and
the rise of 3G and 4G cellular connectivity, and the stage was set for Apple’s shift from the iPod to the iPhone.
While it is true that the industrial design innovation of the touch screen revolutionized the smartphone market,
it is also true that Apple’s focus on connectivity sewed seeds for another surge of value-creating innovation.
Apple did not seek to limit the use of the Internet on iPhones but, rather, encouraged web browsing via the
touchscreen interface. Wireless operators began enhancing networks to better support browsing the web,
sending pictures, taking videos, and purchasing applications from the iTunes Store.

The success of the iPhone triggered other related innovations

that complemented the iPhone and provided other ways to
expand the reach of the Apple OS. The success of phones
suggested that there may be a market for devices smaller than a
laptop computer but larger than an iPhone. The result was the
development of the iPad. The iPad created a new category of
computing products. It was a computer with less memory than a
laptop, less processing power, and no keyboard, yet the product
sold more than many laptops. Why? Perhaps the limitations of
the iPad give clues to its overriding strategic purpose. The iPad
may not have had the power of the laptop, but it did act as an
additional portal to the Apple iTunes ecosystem for use in
downloading content, such as games, music, books, and movies.
Further, the iPad and the iPhone could be connected to and
controlled by the Apple watch.

So, is Apple a computer company? Is it a smartphone company?

Is it an OS and content company that sells hardware to facilitate
and grow its OS business? Such questions illustrate the
underlying strategic power of IT. The usefulness and connectivity
of IT leads it to morph, to evolve, and to bleed over into new
Cell phone value-creating arenas that were never imagined.
(Photobee, 2013)

Developments Unfold in Industry Transitions

There is an example that can inform IT value creation today; ironically, this example originates in the 19th
century rather than the 20th century. The example involves both connectivity as well as functionality. First,
consider the invention of the telegraph in the 1840s. For the first time in human history, telegraph networks
provided the means for information to travel faster from one point to another than a horse or a train could
travel in 1 day. As telegraph networks expanded, people began using the telegraph in ways similar to how
people used the Internet in the late 20th century. People chatted with each other, they bought and sold goods,
and they even got married over the telegraph. In the case of the telegraph, basic connectivity and information
transfer led to the support of a number of unique new applications including command and control of the
military during the Civil War era.

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It is relatively easy to understand how the invention of the telegraph kick-started society’s
UNIT reliance
x STUDY on timely
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communication. However, this example fails to completely capture the ability of IT to morph into unrelated
Title
value-creating opportunities. One example that does capture this is the introduction of electrical power to the
home. Why was electric power first introduced in homes? Electricity was introduced for one reason only, and
that was to power electric lights. Once electric power got its foothold in the home, it was quickly recognized
that power could do other things. Using an adapter plugged into a lightbulb socket, one could heat water,
make toast, and even iron clothes. As electrical power advanced, it enabled the use of stoves, ovens,
refrigerators, fans, radios, and televisions—just to name a few! The explosion of applications enabled by
electrical power mirrors how the connectivity of IT can spur transformation and value creation.

Stepping back to the Apple example, it can be observed that Apple transitioned from hardware, to OS, to
preferentially compatible devices, to content, and then to an ecosystem. Had Apple not started down this path
of innovation and transformation, Apple—as we know it today—might not exist. The supreme irony is that not
all of the twists and turns within the Apple story were necessarily intentional. Rather, most of the
developments simply unfolded within an industry in transition. What does this mean for managers? Managers
today must understand some critical principles of IT and its transformation power. This is summarized through
a few key points, which are listed below.

 IT has the tendency to grow beyond its initially intended purpose.

 IT used today may become the basis of tomorrow’s new business model.
 Subtle shifts in tactics may create positive unintended consequences (e.g., the decision to make
iTunes available on PCs led to the explosion of the iPod business and the rise of the iPhone).
 IT is transformative.

These points are supported in this unit’s readings from the textbook; the authors prompt readers to think
holistically, aim for chunks of value, and experiment more often. This is because those small, often
unintentional actions taken by management have a tendency to end up fundamentally transforming the
company—and sometimes the entire industry.

References

Photobee. (2013). Hand phone (ID 34644337) [Photograph]. Retrieved from www.dreamstime.com

Zorn, J. (n.d.). iPod MP3 music player and ear buds (ID 55424857) [Photograph]. Retrieved from
www.dreamstime.com

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