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Revisiting business value

The IT portfolio draws on the four types of assets and identifies the relationship of these to specific business returns.
PROFESSOR LUBNA ALAM: Let us revisit the idea of business value. An organisation should only ever make an investment in an asset if there are business value returns to be gained. But what exactly is meant by assets? And what types of business value returns are we talking about here? It turns out that a neat little theory called I.T. Portfolio Theory explains what these different types of asset classes are and what business value returns we could expect from each asset class. Going back to our restaurant example, the first category of benefits we discussed was to do with automation. Automation of transactions, that is taking orders from customers, chefs being notified of orders coming in, and so on. In I.T.
Portfolio Theory, this falls into an asset class called the transactional assets. Then what are the business value returns of transactional assets? It primarily comes down to cutting transaction costs, increasing transaction efficiency, and throughput. In the restaurant example, the second category of benefits we discussed fell under the umbrella of what we called informate, that is using the information captured by the transactional system to make better decisions. There is an element of analytics involved here. For example, we could look at up selling by individual wait stuff to find out who are our best employees, then increase the number of shifts allocated to them. We could find out which days and times the restaurant is busiest and tailor our staffing accordingly.
How about determining our best dishes and recognising any seasonal variations, so we could plan our main offering. Any investment in gathering information, storing this information in data warehouses and big data systems, decision support system, all this fall into informational asset class. What are the business value returns of informational assets? Primarily, better information leading to better control and improved quality. One asset class that we really haven’t tapped into last week is infrastructural assets. Our transactional systems, transaction assets, and information analysing systems and capabilities, that is information assets, both rely on a basic level of I.T. infrastructure. Transactional and informational assets are built on top of this foundation created by the infrastructural asset class.
In our automated restaurant ordering system, we had a wireless router that enable orders to be transmitted wirelessly from waiters’ handheld devices directly to the kitchen. Handheld terminals themselves could be classified as infrastructure and so too the printers and monitors that display orders around the restaurant. What are the business value returns from this asset class, you may ask? Standardisation, so that different systems can talk to each other and speak the same language, so to speak, reducing I.T. costs, business integration, and business flexibility. The other remaining asset class that we haven’t touched on is the strategic asset class. Strategic assets aim to give your business a firm competitive advantage, enabling consolidation of the position in the marketplace or gain market share.
In our restaurant example, if you could take orders from customers say within 30 seconds of them being ready to order, that’s better customer service. Our competitors may not be able to match. Because waiters are not preoccupied with remembering which food goes together with which wines, they might be more relaxed and be able to serve customers with smiles on their faces. Again, that’s better customer service. If our waiters are happy, they would have less employee turnover. That’s better employee satisfaction. All of those add up to elevating the restaurant’s reputation and elevating market position. In terms of business value returns from the strategic asset class, we have product and process innovation, competitive advantage, better market position, just to name a few.
Other important distinctions in the strategic class is that it’s not exclusive and always overlap with other asset classes. Let us imagine our restaurant competitors also invest in an automated order taking system. All of a sudden, we don’t have the strategic advantage we once had. Then it stops being a strategic asset. But that’s not to say that transactional benefits are still not there. So strategic assets, as their strategic value fades away in time, falls back into either infrastructural, transactional, or informational asset classes.

The IT portfolio draws on the four different types of assets and identifies the relationship of these to specific business returns.

If you consider the Pic Nic Pak cafe example, the cafe experienced multiple business value returns within the different types in the IT portfolio. For example, returns included:

  • cutting transaction costs, increasing transaction efficiency and throughput
  • better control and improved quality.
  • reduction in IT costs leading to business integration and business flexibility
  • product and process innovation, competitive advantage and better market position.

Your task

Discuss the transactional, informational, infrastructural and strategic assets in relation to a business you are familiar with, in the comments section.

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Competitive Advantage: Using Information to Build Business Success

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