Information Systems & Business Strategy What is a strategic information system (SIS)? Information system at any level of the organization that change goals, operations, products, services, or environmental relationships to help the organization gain a competitive advantage Information system that has become especially critical to firms’ long-term prosperity and survival Information system that is used to exploring, identifying, and occupying new market niches before competitors; understanding the customer value chain better; and learning faster and more deeply than competitors Information system that operate at any of these strategic levels: business, firm, and industry

Business-level Strategy The key question is, “How can we compete effectively in this particular market?” The most common generic strategies at this level are: to become the low-cost producer, to differentiate your product or service, and/or to change the scope of competition by either enlarging the market to include global markets or narrowing the market by focusing on small niches not well served by your competitors SISs provide new capabilities for supporting business-level strategies by: managing the supply chain, building efficient customer “sense and response” systems, and participating in value webs (groups of independent firms who use information technology to coordinate their value chains to collectively produce a product or service for a market) to deliver new products and services to market

Business-level Strategy – The Value Chain Value chain analysis is the most common analytical tool at the business level. The value chain model views the firm as a series or “chain” of basic activities that add a margin of value to a firm’s products or services. These activities can be categorized as: Primary activities are most directly related to the production and distribution of the firm’s products and services that create value for the customer. Support activities make the delivery of the primary activities possible.

Examples of Activities Primary activities inbound logistics – receiving and storing materials for distribution to production operations – transforming inputs into finished products outbound logistics – storing and distributing finished products sales and marketing – promoting and selling the firm’s products service – maintenance and repair of the firm’s goods and services Support activities organization infrastructure – administration and management human resources – employee recruiting, hiring, and training technology – improving products and the production process procurement – purchasing input

Activities of the Value Chain

Business-level Strategies Differentiating products SISs for product differentiation can prevent the competition from reacting by doing the same thing and help the firms with these differentiated products and services no longer have to compete on the basis of cost. Citibank developed automatic teller machines (ATMs) and bank debit cards in 1977. Serving new markets SISs enable companies to finely analyze customer buying patterns, tastes, and preferences so that they efficiently try to make advertising and marketing campaigns to smaller and smaller target markets. Yahoo.com captures and analyzes data generated when people visit its Web site. Reducing costs SISs can help firms link with customers and suppliers and reduce their inventory costs while responding rapidly to customer demands. Wal-Mart’s SIS sends orders for new merchandise directly to suppliers as soon as consumers pay for their purchases at the cash register.

Firm-level Strategy SISs can improve the overall performance of business units in a firm by promoting synergies and core competencies. One use of IT in synergy situations is to tie together the operations of different business units so that they can act as a whole. IT can enhance a core competency (an activity at which a firm is a world-class leader) by encouraging the sharing of knowledge across business units of a firm. After merging between Citicorp and Travelers Insurance, Citigroup can cross-market both Citicorp and Travelers financial products to customers, and IT could lower retailing costs, increase customer access to new financial products, and speed up the process of marketing new instruments.

Industry-level Strategy Information partnerships Firms can form information partnerships and link their information systems to achieve unique synergies. American Airlines has an arrangement with Citibank to award one mile in its frequent flier program for every dollar spent using Citibank credit cards. The competitive forces model By working with other firms, industry participants can use IT to develop industry-wide standards for exchanging information or business transactions electronically. Covisint, an electronic marketplace shared by the major automobile manufacturers, enables all manufacturers and suppliers to trade on a single Internet site, preventing manufacturers the cost of setting up their own Web-based marketplaces. Network economics In a network, the marginal costs of adding another participant are about zero, whereas the marginal gain can be much larger. Internet sites, such as EBay, can be used by firms to build “communities of users” who want to share their experiences, and can build customer loyalty and enjoyment, and unique ties to customers.