Strategic Information Systems Infsy 540 Dr. R. Ocker

Foundations of Information Systems Chapter 3: Competing with Information Systems Chapter Notes First Edition Foundations of Information Systems Vladimir Zwass Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc.., 1998 1 1

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

Era 1 operational support 1950s-1970s Single data processing department which developed all applications end users - no direct access to computer technology large backlog

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

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

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 innovative use of IT 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

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 information partnership - cooperative alliance formed between two firms Advantages share information systems reciprocity of competencies economy of time and money

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

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