Amazon.Com Article Review
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“Legacy” Mindset Limitations
“Legacy” Mindset occurs when management views IT system or programs with an outdated development approach. Since 1960, companies ran their IT systems on mainframes, then microcomputers, and more recently Client-Server systems. These systems would be set up to run stand-alone projects. Executives regarded technology and IT as applications and programs that preform specific tasks and deliver a fixed benefit. The project-by-project view of IT is an outdated and leads to the legacy mindset. With technology constantly changing and improving companies need not to only enhance their technology platforms they also need to change the way they view IT. Strategic IT systems can transform an organization generating significant proprietary advantage. Amazon.com is a great example of to use IT as a proprietary asset to provide a sustainable advantage.
Amazon.com views its IT as the glue that holds the company together. IT at Amazon.com is not stand-alone projects and is not budgeted as a technology expense on their balance sheet. Executives at Amazon.com were able to see that their IT was able to link processes together to give the company a competitive advantage in their industry. In the beginning Amazon.com invested heavily into an infrastructure that developed them their best-in-class retailing capabilities. They established the legacy mindset that the retailing capabilities were only an advantage to their current products. The company then introduced auctions and their online marketplace to their website. These new business models allowed individuals and small businesses to leverage the companys proprietary online retail infrastructure to gain millions of customers and best-in-class retailing capabilities. Amazon soon realized that IT wasnt an expense that was balanced by an increase in the sale of their products but a strategic advantage that can produce a whole new income. This is even more prevalent when Amazon.com expanded its marketplace business model through a series of equity partnerships with online retailers like Drugstore.com, living.com and pets.com. This is illustrated in the graph below, by the green-line. Amazon.com was able to exploit its IT capabilities as a strategic advantage over its competition.
Retailing wasnt the only legacy mindset executives at Amazon.com faced. They also had the legacy mindset that IT was only able to improve individual processes. They viewed IT as technology and programs that would decrease separate processes, cutting Amazon.com overall costs. However in 1999, Amazon.com purchased a 429 million dollar infrastructure, giving them the capability to link process together. Their state-of-the-art infrastructure gave them the capability to store information and seamlessly share it with other processes. The capability to link its customer-facing processes (shopping, buying, paying, and customer service) to its back-end processes (supply chain, inventory, and order fulfillment) created an exclusive asset that can deliver a sustainable advantage. They used this capability to their advantage in 2000 when they partnered with Toy R Us. They were able to use their strategic IT system to provide Toys R Us with state-of-the-art customer services, inventory management and fulfillment, while further expanding Amazon.coms service offerings to include hosting both physical and online customer and logistics services. The legacy mindset can lead companies to not maximize on their capabilities. Amazon.com was able to not only create capabilities, but they were able to use those capabilities to create extra value. The graph above shows how Amazon.com was able to lose the legacy mindset and to capitalize on the strategic advantages their IT system created.
Framing Opportunities
IT development can no longer be viewed as an investment that can be measured on a project-by-project basis. Instead, we must think of IT opportunities as a string of investments that must deliver value today and in the future. The future value can be answered by four questions;
Can IT drive cost savings?
Can IT drive revenue growth?
Can IT drive asset efficiency?
Can IT create sustainable advantage?
Executives should answer these questions when they are in the process of developing business models to exploit on their IT capabilities. If they are able to answer yes to these