Strategic Information Systems

Infsy 540Dr. R. Ocker

Foundations of Information Systems

Vladimir ZwassVladimir Zwass

Chapter 3: Competing with Information Systems

Irwin/McGraw-Hill

First EditionFirst Edition

© The McGraw-Hill Companies, Inc.., 1998

Business challenges of an Information Society Global competition

– rapid product and process innovation Increases in amount of knowledge that

affect your business– need organizational knowledge

management supported by IS faster base of business events

– time-based competition

How role of IS has evolved

1. Operational support 2. Support of management and

knowledge work 3. Support of business transformation

and competition 4. Ubiquitous computing

©The McGraw-Hill Companies, Inc., 1998

3- 5

Irwin/McGraw-Hill

Era I of Organizational Computing: Operational Support

Era I of Organizational Computing: Operational Support

Support ofOperations

LargeCompany

Units

SingleDP/IS

DepartmentEfficiency

PrimaryObjective

Justification

Primary“Clients”

Source

Era 1 operational support

1950s-1970s Single data processing department which developed all applications end users - no direct access to

computer technology large backlog

©The McGraw-Hill Companies, Inc., 1998

3- 4

Irwin/McGraw-Hill

Era II of Organizational Computing: Support of Management & Knowledge Work

Era II of Organizational Computing: Support of Management & Knowledge Work

ManagementSupport

IndividualManagers

andProfessionals

InformationSystems Units

and EndUsers

ManagementEffectiveness

PrimaryObjective

Justification

Primary“Clients”

Source

Era II support management & knowledge work Began late 1970s Apple II PC 1977 end-user software beginning of end user computing

©The McGraw-Hill Companies, Inc., 1998

3- 3

Irwin/McGraw-Hill

Era III of Organizational Computing: Supportof Business Transformation & Competition

Era III of Organizational Computing: Supportof Business Transformation & Competition

EntrancedCompetitive

Position

Line ofBusiness

Units

CoordinatedOrganizational

End UserComputing

Market Shareand

Profitability

PrimaryObjective

Justification

Primary“Clients”

Source

Era III Support Business Transformation & Competition Mid 1980s - orgs. heavy reliance on

computers strategic information systems became

prominent systems support line-of-business units, e.g.

development and marketing of a product line-of-business units control their own

systems

©The McGraw-Hill Companies, Inc., 1998

3- 1

Irwin/McGraw-Hill

Era IV of Organizational Computing: Ubiquitous

Era IV of Organizational Computing: Ubiquitous

ElectronicIntegration

CollaboratingTeams

Owned andOutsourcedComputing

Infrastructure

Organiza-tional

Effectiveness

PrimaryObjective

Justification

Primary“Clients”

Source

Era IV Ubiquitous computing

Cannot pursue competitive advantage based on single system

Competing with information systems must be based on a broad and continually enhanced technology platform linked to corporate strategy

networks & client/server architecture electronic integration of entire organization

Strategic Information Systems (SIS) A strategic system alters the way an

organization does business some systems - offer a company a clear

competitive advantage - higher profits or increased market share

most strategic systems - enable a company to be an effective competitor

Strategic Information Systems

rapid diffusion of technological change makes it difficult to maintain a competitive advantage

so strategic development of IS– dynamic capability of an org.– not a static attribute

What are Strategic Systems? An information system designed to give

the owner organization a strategic competitive advantage.

A strategic system supports or shapes a business unit's competitive strategy.

outward looking: customers, competitors, environments

inward looking: employees, systems, procedures

Characteristics of Strategic Information Systems:

significantly change business performance

contribute to attaining a strategic goal fundamentally change the way a

company does business, or the way it competes, or the way it deals with its customers or

suppliers.

Strategic systems

External focus– changes way firm competes

innovative use of IT high degree of project risk

Strategies, Forces, and Tactics in Competitive Markets

Competitive Strategies

Uncovering Strategic Use of Systems

1. Analyze competitive forces 2. Study the value chain

1. Competitive Forces Model

1. Competitive Forces model

used to describe the interaction of external influences -- threats and opportunities -- that affect an organization’s strategy and ability to compete

competitive advantage - can be achieved by enhancing the firm’s ability to deal with customers, suppliers, substitute products and services, and new entrants to its market

1. Competitive Forces model

Objective - use this model to identify potential areas where IT can be used to gain a competitive advantage

Competitive Strategies for competing in marketplace businesses can use four basic

competitive strategies to deal with these competitive forces:

1. Product Differentiation 2. Cost leadership 3. Focused differentiation 4. Cost Focus

©The McGraw-Hill Companies, Inc., 1998

3- 6

Irwin/McGraw-Hill

Competitive StrategiesCompetitive Strategies

Competitive AdvantageCompetitive Advantage

Competitive Competitive ScopeScope

Lower Cost Differentiation

BroadTarget

NarrowTarget

CostLeadership

CostFocus

Differentiation

FocusedDifferentiation

1. Differentiation

competitive strategy for creating brand loyalty

Develop products & services which are different from what the competition offers

. superior attributes . distinguishing features

2. Cost leadership

to prevent new competitors from entering their markets, businesses produce goods/services at lower price than competition

based on efficient operations based on effective operations economies of scale

3. Focused differentiation

develop new market niche for specialized products or services

so that business can compete in target market better than its competitors

4. Cost Focus

Company serves narrow market segment with product/service

which it offers at a significantly lower cost than competitors

Competitive Forces

Use competitive strategy to combat 5 competitive forces in marketplace

1. threat of new competitors 2. bargaining power of suppliers 3. bargaining power of customers 4. substitute products 5. rivalry within the industry

Competitive Forces

Use IT to enact or counteract these forces with respect to – customers– existing & potential competitors– suppliers

Threat of new competitors

Erect barriers to entry: use IT to slow down new firms entering

market– SABRE– ASAP

Intensify rivalry among competitors Change basis of competition

– novel IS can perhaps change the basis of competition - help offer product/service with new features

– e.g. delivery service allows customer to track progress of package

– you are now differentiated from competition– no longer compete just on price basis

Pressures from potential substitute products Deliver products with better value identify and track a market niche with IS

that you can serve better than others try to prevent substitution

Bargaining power of customers

Introduce switching costs– cost of switching to competitor– deters customers from switching– e.g. due to training and contracts, travel

agents unlikely to switch to different airline reservation system

Bargaining power of suppliers

Develop Alternatives use IS to maintain information on

available alternative sources of supply

Tactical Moves in Pursuing a Strategy Firm can use any of several tactics to

change its products or processes through use of SIS– Internal innovation - generate new knowledge– internal growth - economies of scale– Mergers & acquisitions– Strategic alliances - partnerships with other

companies

IOS & Strategic Alliances

strategic alliances:– information partnership - cooperative

alliance formed between two firms Advantages

– share information systems– reciprocity of competencies– economy of time and money

©The McGraw-Hill Companies, Inc., 1998

3- 7

Irwin/McGraw-Hill

The Strategic CubeThe Strategic Cube

CustomerPower

SupplierPower

PresentCompetitors

PotentialCompetitors

SubstituteProducts

COMPETITIVECOMPETITIVEFORCES TOFORCES TO

CONTEND WITHCONTEND WITH

STRATEGIESSTRATEGIES

TACTICSTACTICS

StrategicAlliance

Merger orAcquisition

Internal Growth

InternalInnovation

Diff

eren

tiatio

nC

ost L

eade

rship

Focu

sed

Diff

eren

tiatio

nC

ost F

ocus

3. Value Chain

Value Chain

Tool to use to discover where a company can apply IS to gain a competitive advantage

Value Chain Analysis of Strategic Opportunities value chain model highlights the primary or support activities that add a margin of value to a firm’s

products or services where information systems can best be

applied to achieve a competitive advantage

Value Chain Analysis of Strategic Opportunities Value chain consists of the major

activities that have been added to the product during its creation,development or sale.

Activities in the value chain Activities in the creation of product or service

– inbound logistics - obtain raw materials– Operations - transformation of inputs to finished

goods– Outbound logistics - storing products and

delivering them– Marketing/sales - establishing a customer need– Service activities - after-sale service and

maintenance each of these activities adds value to final product

©The McGraw-Hill Companies, Inc., 1998

3- 8

Irwin/McGraw-Hill

Value Chain with Typical Strategic IS Mapped onto it

Value Chain with Typical Strategic IS Mapped onto it

EDI-BasedPurchasingSystem

Computer-IntegratedMftg.

AutomatedOrderingSystem

ExpertSystems forSalespeople

TelemaintenanceExpertSystems

InboundLogistics Operations

OutboundLogistics

Marketingand Sales Service

Downstream Chains of Customers

Upstream Chainsof Suppliers

Value Chain

besides determining discrete steps in chain - also need to analyze linkages between steps in value chain

Use value-chain analysis to identify strategic information systems

to use IS strategically, must identify potentially info.-related aspects of each activity in value chain and linkages between them.

Virtual Value Chain

Mirrors with information the physical value chain

possible to integrate the systems mapped onto the physical value chain (fig. 3.14) to produce the virtual V.C.

can also link V.C. to that of suppliers and customers to form an integrated supply chain

point of analysis

identify stages and links where highest-impact potential is available and creatively use IS to bring about that potential.

Organizational Requirements for Successful SIS

Active support of Senior management - not just MIS management

Integrated Planning - for strategic use of IS into overall company strategic planning process

Readiness: successful use of MIS already, org. experience with tech. innovation

Sustainability of a competitive advantage depends on: 1. lead time will allow the achievement

of competitive advantage 2. Copy cats may fail because of

Uniqueness 3. If copied: Your organization will still

have preempted the marketplace

©The McGraw-Hill Companies, Inc., 1998

3- 9

Irwin/McGraw-Hill

Key Terms in Chapter 3Key Terms in Chapter 3

Information SocietyBusiness GlobalizationProduct InnovationProcess InnovationKnowledge ManagementStrategic Information SystemCompetitive Forces ModelDifferentiationCost LeadershipFocused DifferentiationCost FocusValue Chain

Information SocietyBusiness GlobalizationProduct InnovationProcess InnovationKnowledge ManagementStrategic Information SystemCompetitive Forces ModelDifferentiationCost LeadershipFocused DifferentiationCost FocusValue Chain