1. Dr. Kenneth Cosh Lecture 2
Information Systems
Dr. Kenneth Cosh
Lecture 2

2. Review
What is MIS?
What types of information system are we dealing with?
How has the role of information systems changed?
Business Pull factors
Technology Push factors
What distinct era’s has IS been through?

3. Today’s Topic Strategic Information Systems Five Forces
How IS drives alternative strategies
The Value Chain
Using IT for Strategic Advantage

4. Strategic Information Systems
No longer is IS an afterthought when considering corporate strategy, now it is often either the ‘cause’ or the ‘driver’ of strategy.
Cause;
Taking advantage of some core competency within the organisation’s IT.
Driver;
Using IT to realise the organisation’s strategy.

5. Strategic Information Systems
A strategic information system is any information system which helps an organisation gain any kind of competitive advantage.
Michael Porter’s model of competitive strategy suggests that any business which wants to survive and succeed has to develop strategies to counter 5 key forces.
Rivalry of Competitors
Threat of New Entrants
Threat of Substitutes
Bargaining power of Customers
Bargaining power of Suppliers

6. Porter’s 5 Forces Threat of New Entries Intensity Bargaining Power
Rivalry
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
Threat of
Substitutes

7. Bargaining Power of Customers
Buyer concentration vs Firm Concentration
Buyer Volume
Buyer switching costs
Ability to backward integrate
Price Sensitivity
Product Differences
Brand Identity
Impact of quality / performance
Buyer Profits

8. Bargaining Power of Suppliers
Differentiation of Inputs
Switching costs of suppliers
Supplier Concentration
Ability to forward integrate

9. Threat of Substitutes
Impact on Supplier & Buyer Power

10. Threat of New Entries Economies of Scale Brand Identity
Switching costs
Capital Requirements
Access to Distribution
Cost Advantages
Government Policy
Expected Retaliation

11. Intensity of Rivalry Industry Growth Product Differences
Brand Identity
Switching Costs
Diversity of Competitors
Exit Barriers

12. Determining Strategy Combine Porter’s Analysis with SWOT Reduce Costs
Raise Barriers to Market Entrants
Establish High Switching Costs
Create New Products or Services
Differentiate Products or Services
Enhance Products or Services
Establish Alliances
Lock-in Suppliers or Buyers

13. Reduce Costs
Gain advantage by selling more units at a lower price while maintaining/increasing it’s profit margin
Automation
Production using robots
Web based customer service
FAQs
Convert task from being labour intensive to being technology intensive.

14. Raise Barriers to Market Entrants
Deters competition, thus increasing market potential
Gaining legal protection
Intellectual Property
Amazon.com owns a patent for one-click online purchasing until 2017
It also owns a patent for techniques to predict what the customer may buy in the future.
Expense of entering market
Essential, but bespoke software.

15. Establish High Switching Costs
Economically infeasible for customers to switch to a new supplier
Direct
Contracts which are expensive to break (e.g. mobile phone contract).
Indirect
Time and money expense of learning how to use Open Office.
Consider printers! Cheap printer, but expensive ink catridges.

16. Create New Products / Services
Gain first mover advantage
Be the first to deliver a new product (that the customers want)
Lotus Spreadsheet program
But how long did this advantage last?
E-Bay – the first online auction
But how long will it last?
Netscape?

17. Differentiate Products or Services
Persuading customers my product is better than anyone elses.
Skype
Not the first internet telephone service, but better than competitors
Differentiated by adding video and other features such as mobile…

18. Enhance Products / Services
Add value to existing products / services
Perhaps by adding information / help to a web portal
Offering traditionally physical transactions via the internet

19. Establish Alliances
Focus on our core competency, but work closely with experts in symbiotic markets.
Strategic Alliances allow the tourism industry to offer complete vacation packages;
Combining flights, hotels, car rental, restaurant, mobile phones etc.
Affiliate programs?
The web allows anyone to create an alliance with another service provider or retailer.

20. Lock-in Suppliers / Buyers
Depends entirely on bargaining power.
Walmart has power to influence its suppliers, such that they are locked in to them
Software industry
often customers fear high switching costs, and if the software provider continues to improve their product…
Flash
Free to download, but buy the development tool. The more people who download the player, the more companies are willing to invest in the development kit – and the more companies who invest, the more people download…

21. Competitive Strategies
5 key strategies (and some others) have been developed to counter the threats of competitive forces.
Cost Leadership
Differentiation
Innovation
Growth
Alliance

22. Cost Leadership
Become the low-cost producer of products, by finding ways to lower our costs, lower our customers and suppliers costs or increase our competitors costs.
IT can drive cost reduction, such as reducing labour costs.
SCM systems can assist reducing suppliers costs (Walmart).
Online Price adjustment, to match best match competitors prices.

23. Differentiation
Develop ways to make our product different from our competitors (or reduce our competitors differentiation). Focus on a niche or market segment.
IT can assist by introducing IT features to a product such as a camera on a phone.
Reduce competitors by integrating their differentiated ideas (adding a camera to our phone too!)
Ross Operating Valves, allows customers to design their desired valves online.

24. Innovation
Find new ways of doing business, developing new markets or unique products. Making changes to business processes to change the way business is done within the industry.
Create new products which include IT, e.g. online stock trading
Amazon constantly innovates introducing new products / services
Paypal introducing a system for making payments online.

25. Growth
Increasing capacity to produce more goods and services, expanding into global markets or diversifying into new products.
Using IT to manage global business, such as by using a global intranet
Using technology to increase capacity, through automating processes.

26. Alliance
Building alliances with suppliers, customers, competitors, consultants etc. Creating links through mergers, acquisitions or joint ventures. Creating ‘virtual’ organisations
Use technology to improve communication channels between alliance partners
Walmart links with supplier to enable automatic inventory replenishment – a win win alliance.
Online inventory management for supplier, with shipment tracking for customer.

27. The Traditional Value Chain
Core Operating Activities
Inbound
Logistics
Operations
Outbound
Marketing
& Sales
Services
Support Activities
Human Resource Management,
Infrastructure, Information Technology

28. The Value Chain Information Core Operating Activities Infrastructure
Data Information Knowledge
Core Operating Activities
R & D
Procurement
Production
Marketing
& Sales
After Sales
Services
Infrastructure
Facilities & Equipment Technology People

29. Adding Value
Companies make their profits by adding value at some stage in the value chain.
Gaining Economies of Scale
Gaining Economies of Scope

30. Economies of Scale
Occur when mass producing a product, a lower average cost is attained.
Technical
Managerial
Financial
Marketing
Commercial
R & D
Technical economies made in the actual production of the good. For example, large firms can use expensive machinery, intensively.
Managerial economies made in the administration of a large firm by splitting up management jobs and employing specialist accountants, salesmen, etc.
Financial economies made by borrowing money at lower rates of interest than smaller firms.
Marketing economies made by spreading the high cost of advertising on television and in national newspapers, across a large level of output.
Commercial economies made when buying supplies in bulk and therefore gaining a larger discount.
Research and development economies made when developing new and better products

31. Network Economies of Scale
A “Community” of firms share infrastructure, capabilities, customer base etc. to produce and distribute products faster and cheaper etc.

32. Economies of Scope
The average total cost of production decreases as a result of increasing the number of different goods produced.
For Example, McDonalds can produce Hamburgers & Fries cheaper than other companies could produce either individually.

33. Network Economies of Scope
The “Community” shares infrastructure to produce and distribute new products and services, enter new markets etc. quicker and cheaper etc.

34. Further ways IS can impact on Strategy
Building a Customer-Focused Business
Business Process Re-engineering
Improving Business Quality
Becoming an ‘Agile’ company
Creating a Virtual Company
Building a Knowledge Creating Company

35. Building a Customer Focused Business
Let customers
Place orders
Through
Partners
Allow
Customers to
Place orders
directly
Internet
Internet, Extranet
Transaction
Database
Customer
Database
Link employees
And partners
With databases
And customers
Website
Intranet, Extranet
Give all
employees a
complete view
of each
customer
Let customers
Check order
History and
Delivery status
Build a
Community of
Customers,
Employees
& Partners
Make
Customers
Special with
Personalisation
Intranet
Internet

36. Business Process Reengineering (BPR)
Improving Business typically offers small increments in performance, Re-engineering involves complete, radical redesign of business processes.
As process is often an alternative word for system (a process is comprised of hardware, software, people, communication & data), so Systems Analysts often play a key role in re-engineering. Normally the re-engineered business will include new computer based information systems.
Most processes include multiple business functions, so for effective re-engineering multiple functions need to be included – IS plays a major role in co-ordinating BPR.

37. Improving Business Quality
IT can be used in many ways to improve quality;
Statistical Quality Control
Machine Calibration
Extranet Customer Complaint Reporting Tools

38. Becoming an ‘Agile’ Company
Agile companies are able to react quickly to changes.
Typically Large organisations have rigid structures and long communication channels
Entrepreneurial organisations have shorter communication channels and empowered employees.
Over the last decades large organisations have tried many ways to improve their agility – downsizing, rightsizing, outsourcing etc.
Recently improvements within networked communication technologies have enabled organisations to introduce novel organisational structures to improve communications, making them more ‘agile’.

39. Creating a Virtual Company
Virtual Companies are where interenterprise alliances are formed electronically linking distinct organisations to achieve common goals.
Business functions can be further broken down, outsourced with shared infrastructure, systems and technologies.
The Cunningham car company manufactures and retails cars (sporty type cars), but they don’t actually do any of the work themselves, the entire supply chain is outsourced.

40. Building a Knowledge Creating Company
Knowledge Management Systems (KMS) are now commonly being built to generate and share organisational knowledge.
A learning organisation rewards employees who contribute to systems their knowledge about their business and industry.