information systems for competitive advantage

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Information Systems For Competitive Advantage

J.-S. Rayson Chou, P.E., Ph.D.Assistant Professor

IMIS Lecture 3

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Learning Objectives

1. Discuss how organizations can use information systems for automation, organizational learning, and strategic support

2. Describe information systems’ critical strategic importance to the success of modern organizations

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Learning Objectives

3. Formulate and present the business case for a system and understand why it is sometimes difficult to do so

4. Explain why and how companies are continually looking for new ways to use technology for competitive advantage

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Three Primary Uses of Information Systems

AutomationProviding support to complete a task faster, more cheaply, and perhaps with greater accuracy and/or consistency


Organizational Learning (Informating)Providing support to improve day-today operations by creating, acquiring, and transferring knowledge

Organizational Learning (Informating)Providing support to improve day-today operations by creating, acquiring, and transferring knowledge

Achieving StrategyProviding support in a way that enables the firm to gain or sustain competitive advantage over rivals


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What Value Is Provided in These Functions?

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Automation



Styles of ProcessingManual Processing• No technology automation supportTechnology Supported Processing• A combination of manual and system supported stepsFully Automated Processing• All manual steps have been eliminated.

Styles of ProcessingManual Processing• No technology automation supportTechnology Supported Processing• A combination of manual and system supported stepsFully Automated Processing• All manual steps have been eliminated.

EffectivenessIf the underlying process is bad, automating with technology alone may mask process problems

EffectivenessIf the underlying process is bad, automating with technology alone may mask process problems

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Benefits of Automation – Loan Example

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Organizational Learning

Organizational LearningProviding support to improve day-today operations by creating, acquiring, and transferring knowledge

Organizational LearningProviding support to improve day-today operations by creating, acquiring, and transferring knowledge

Informating (Zuboff 1988)A technology that provides information about its operation and the underlying work process it supports

Informating (Zuboff 1988)A technology that provides information about its operation and the underlying work process it supports

EffectivenessA combined automating and learning approach is more effective than an automating approach alone. If the underlying process is flawed, a learning use of technology might help you detect problems with the process

EffectivenessA combined automating and learning approach is more effective than an automating approach alone. If the underlying process is flawed, a learning use of technology might help you detect problems with the process

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Organizational Learning Example

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Strategy and Competitive Advantage

Sources of Competitive Advantage• Having the best-made product on the market• Delivering superior customer service• Achieving lower cost than rivals• Having proprietary manufacturing technology• Having shorter lead-times in developing and testing new

products• Having a well-known brand name and reputation• Giving customers more value for their money



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Strategy

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Traditional vs System Support Process

ExampleUsing handheld technology combined with a reengineered business process to create a competitive advantage

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Value Chain Analysis

Value Chain Analysis (Porter 1985, 2001 )Is a process of analyzing an organization’s activities to determine where value is added to products and/or services and what costs are incurred in doing so.

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Information Systems Roles in the Value Chain

Systems play a significant role throughout the Value Chain to achieve competitive advantage and:

• Must be appropriate for the business strategy (e.g. cost) • Are usually coupled with Business Process Reengineering that

address process to enhance company operations

Systems play a significant role throughout the Value Chain to achieve competitive advantage and:

• Must be appropriate for the business strategy (e.g. cost) • Are usually coupled with Business Process Reengineering that

address process to enhance company operations

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Making the Business Case

Business Case Development IssuesSeveral common issues create difficulty in defining businesscases for information systems including:

• Measurement Problems• Time Lags• Redistribution• Mismanagement

Business CaseIdentifying the value provided by an information system

The Productivity Paradox• It is often difficult to quantify tangible productivity gains

from the use of an information systems • As system based productivity increases, other forces

can simultaneously reduce gains (e.g. regulation)• Unintended consequences of technology expenditures

can reduce system effectiveness (e.g. web surfing)

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Making the Business Case – Issues

Time Lags• Describes the difference in time from when the IT

expenditure was made and when the benefits are realized• One explanation for this lag is that it takes time for people

to become proficient at using new technology• Another explanation is that large systems take a long time

to fully implement and integrate - sometimes many years

Measurement Problems• The benefits of IT are difficult to pinpoint because firms

may be measuring the wrong things• Expected benefits are not always defined in advance, so

they are never seen (They must be identified to measure).• The biggest increases in productivity come from system

effectiveness but many metrics focus on system efficiency

Measurement Problems• The benefits of IT are difficult to pinpoint because firms

may be measuring the wrong things• Expected benefits are not always defined in advance, so

they are never seen (They must be identified to measure).• The biggest increases in productivity come from system

effectiveness but many metrics focus on system efficiency

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Making the Business Case – Issues

Redistribution• IS may be beneficial to individual firms, but not for an

entire industry or the economy as a whole • Strategic information systems may help one firm increase

its market share at the expense of others (redistributing) • Expectations have increased as technology has become

prevalent. We forget the gains that have been realized.

Mismanagement• IS has not been implemented and managed well• Some believe that people simply build bad systems,

implement them poorly, and rely on technology fixes for problems that require joint technology/process solutions

• Inappropriate IS investments can mask or even increase organizational slack and inefficiency

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Making the Business Case - Arguments

Based onFaith

Based onFear

Based onFact

Arguments based on beliefs about organizational strategy, competitive advantage, industry forces, customer perceptions, market share, and so on

Arguments based on the notion that if the system is not implemented, the firm will lose out to the competition or, worse, go out of business

Arguments based on data, quantitative analysis and/or indisputable factors

Individuals in organizations generally use one, or in most cases, a combination of the following arguments types to justify investments in information systems

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Making the Business Case - Argument Examples

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Making the Business Case - Fear Based Considerations

IndustryFactors

Stage of Maturity

Regulation

Nature of Competition

What is effective in one industry may not be in another. Consider the industry!

The maturity of the industry can have a significant impact on necessity for investment

In regulated industries, companies can use IS to control process and ensure compliance

What competitors are doing can drive the necessity for IS investment

There are several different factors to take into account when a business case is developed using arguments Based on Fear

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How the Nature of Competition Affects IS Investment

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Recurring/Non-Recurring and Tangible/Intangible

Recurring vs Non-Recurring• Recurring - Ongoing costs or benefits identified in

a business case (IT staff to support system)• Non-Recurring - One-time costs or benefits

identified in a business case (software purchase)

Tangible vs Intangible• Tangible - Cost and benefits that are easily

identified (e.g. headcount or labor cost)• Intangible - Cost and benefits that are not easily

identified (i.e. increased customer service)

Business cases typically include both Recurring/Non-recurring and Tangible/Intangible costs and benefits

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Business Case – Cost/Benefit Analysis

CostsAll recurring and nonrecurring costs related to the acquisition, development, and deployment of the systems project

CostsAll recurring and nonrecurring costs related to the acquisition, development, and deployment of the systems project

BenefitsAll recurring and nonrecurring increases in revenue, reduction in costs, and or increases in organizational efficiency

BenefitsAll recurring and nonrecurring increases in revenue, reduction in costs, and or increases in organizational efficiency

Net Costs/BenefitsBenefits minus Cost

Net Costs/BenefitsBenefits minus Cost

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Presenting the Business Case – Success Factors

Know your AudienceA number of people may be involved in the decision making process. The key is to present information that is relevant and important to them

IS Manager - He/She has overall responsibility for development, deployment, and maintenance of systems. Concern about IS organization impact are likely

Company Executives - They represent various stakeholders in the organization. The may also have their own agenda at stake when making decisions about expenses

Steering Committee – A collection of various company stake holders whose goal is to balance the needs and concerns in making a recommendation to the CEO

Know your AudienceA number of people may be involved in the decision making process. The key is to present information that is relevant and important to them

IS Manager - He/She has overall responsibility for development, deployment, and maintenance of systems. Concern about IS organization impact are likely

Company Executives - They represent various stakeholders in the organization. The may also have their own agenda at stake when making decisions about expenses

Steering Committee – A collection of various company stake holders whose goal is to balance the needs and concerns in making a recommendation to the CEO

The key to successfully presenting the business case depends on thorough presentation and paying attention to the following factors

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Presenting the Business Case – Success Factors

Convert Benefits to Monetary TermsTry to translate all benefits into monetary terms (e.g. savings of 1 hr/day = $ salary/total hours x one hour = benefit). Monetary terms have impact and are understood by all

Devise Proxy VariablesConvert difficult to quantity benefits in proxy variables to demonstrate relative improvement such as 1 to 5 scale (e.g. customer face time moves from 1 to 5 with new system)

Measure What is Important to ManagementMeasure managerial hot buttons including cycle time, downtime, customer feedback, employee moral. Spend the time to explain and show how these are achieved

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Assessing Value for IT Infrastructure

Economic

Architectural

Operational

Regulatory & Compliance

Use important business metrics to assess contribution to profitability an economic value

Assess the capability to address current and future business needs (e.g scalability)

Assessing the performance in meeting business processing requirements

Assess the extent in meeting control, security, and integrity regulatory requirements

Howard Rubin, Executive Vice President of Meta Group agues a holistic approach should taken in measuring IT infrastructure value. He suggests assessment along the following lines

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Cutting Edge Competitive Advantage

Being at the Cutting EdgeDeploying new state-of-the-art technologies can provide competitive advantage over rivals using older mainstream technologies (e.g. a new database that speeds processing)

Requirements for Being at the Cutting EdgeA firm must eliminate bureaucracy for tech adoption (fast track), have sufficient human capital (right numbers and skills), and have a risk tolerance (failures happen)

Cutting Edge versus Bleeding EdgeChoosing the right emerging system technologies is very difficult. It is a balance of the opportunity for significant competitive advantage against a risk of total failure

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The Need for Constant IS Innovation

“ The most important discoveries of the next 50 years are likely to be the ones of which we can not even now conceive” Sir John Maddox, Physicist (Scientific American 1999)

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E-Business Innovation Cycle

ChoosingDevote dedicated resources to scan the environment for new emerging and enabling technologies that appear to be relevant to the organization

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Matching

Match the promising new technologies with current economic opportunities

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Executing

Select from among the current economic opportunities using new technologies to grab customers and market share

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Assessing

Assess the value of a technology use to customers, and to internal clients as well (e.g. sales reps, marketing, CIO, etc.)

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E-Business Innovation Cycle – Implications

ImplicationOne

ImplicationTwo

ImplicationThree

Technology is so important to strategy and to success that you have to begin with technology

Technology is more important than Marketing

The step of “Choosing” for firms using the E-Business Innovation Cycle has to be ongoing and in search of the “next big thing”

The E-Business Innovation Cycle presents a new way of thinking about technology. Many currently held ideas are challenged by this process

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Technology Choices – Path to Competitive Advantage?

“IT Doesn’t Matter” Car 2003• As IT becomes more pervasive, technology

becomes more standardized and ubiquitous• Competitors have access to the same technology

which produces No Competitive Advantage

“The Engine that Drives Success…” Lundberg 2004• Companies with bad business models fail regardless

of IT systems or other capabilities• Companies with good business models use IT to

execute successful business models and succeed

“Predicting the New, New Thing” Bakos/Treacy 1986 • Use IS to make your products and services unique or

cause customers to invest in you to raise switching cost• Competitive Advantage can be more easily sustainable

under these conditions

information systems for competitive advantage

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