Chapter 8 Competitive Advantage with Information Systems across Organizations © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke

8-2 This Could Happen to You DSI relies on inbound logistics to obtain components and materials DSI business processes and supporting information systems cross into other organizations Is there a way to use cross-organizational information systems to gain labor productivity?

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-3 Study Questions How do inter-organizational information systems provide competitive advantages? What is the potential conflict concerning information systems between customers and vendors? What are the major categories of inter-organizational information systems? What technology is required for inter-organizational IS? How do inter-organizational information systems benefit small businesses? How will the increasing use of inter-organizational information systems change organizational structures? How does knowledge from this chapter help you at DSI?

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-4 Information Systems That Cross Organizations Integration of multiple-company operations – Selling – Purchasing – Check-clearing – Credit card processing

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-5 Value Chain Activities across Organizations Figure 8-1

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-6 Inbound Logistics Manufacturers – Acquisition, inventory, and control of raw materials and parts Non-manufacturers – Acquisition, inventory, and control of finished products – Operations activities only

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-7 Customer-Centric Activities Principal flows concern activities with customer – Solicitation/order, shipment, query/response – Facilitates organization’s competitive strategy Information systems must be designed to support different strategies – Lowest cost vendor Dell Computers – Differentiation based on quality Laguna Tools

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-8 Potential Conflicts Processes and flows exist between both company and customers and company and vendors – For DSI to minimize cost of ordering, vendor must minimize cost of selling Information systems can be designed to minimize processing costs for both customers and suppliers – Off-the-shelf software DSI uses AutoCad – Custom software can be created to achieve mutual benefit

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-9 Categories of Inter-Organizational Information Systems E-commerce Customer relationship management (CRM) Supply chain management (SCM) Inter-organizational transactional processing

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-10 E-Commerce Buying and selling goods and services over the Web – Vendors sell from Web-storefronts Web servers process http protocol Operate order-entry application software – Customers access through Web browsers E-commerce clients are thin Types: – B2C, B2B, B2G

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-11 Customer Relationship Management (CRM) Track interaction with customers Customer may install portion of vendor’s CRM on their system to facilitate purchasing – Thick-client software – Adds sufficient value to overcome risks of unknown software Vendor creates competitive advantage – Creates high switching costs

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-12 Supply Chain Management (SCM) Integrates primary inbound logistics business activity Systems source, order, settle

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-13 Inter-Organizational Transaction Processing Systems process routine transactions between organizations Oldest form of cross-organizational IS – Automated check clearing Handles repetitive tasks

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-14 MIS in Use: Dun and Bradstreet Sells Reports Using E-Commerce D&B collects and publishes financial data and analysis Use Web-based e-commerce – Site runs 24/7 – Saves data entry and administrative costs – Can change product easily – Mines customer purchase information

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-15 Guide: A Trojan Horse? Manufacturers install programs on distributor’s computers allowing direct ordering from CRM – Reduces lead time – Smaller inventory – Bypasses security Manufacturer’s programs will be behind firewall May have access to entire system How do you balance security and savings?

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-16 Inter-Organizational Ordering/Selling Systems Sellers induce buyers with e-commerce and CRM Buyers want sellers to use SCM Organization with system is server; organization utilizing system is client

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-17 Technologies Used in Ordering/Selling Systems – Limited capacity – Attachments may be problematic – Security problems Ftp – Greater capacity – Can be secured with password protection Thin-client e-commerce – Client needs only browser to participate – No software installed

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-18 Technologies Used in Ordering/Selling Systems, continued Thick-client e-commerce – Requires software be installed on client’s system – Security risks – Can produce administrative problems Joint custom applications – Both organizations meet to establish requirements – System jointly designed

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-19 Benefits of Inter-Organizational Systems Organizations can focus on their core competencies – Can outsource most activities – Avoid time and expense of building infrastructure Reduces capital requirement Requires fewer employees – Lowers payroll and associated costs – Shortens time to market

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-20 Resulting Changes in Organizational Structure from Outsourcing Inter-organizational information systems produce virtual organizations – Value chain activities shared among several entities Organizations look for the opportunity cost of time of employee performing activity to be greater than cost of outsourcing Employees should work in business activity that is directly in line with organization’s specialty, or may be outsourced

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-21 Ethics Guide: The Ethics of Supply Chain Information Sharing Distributor has developed information system that reads data up and down supply chain – Because you can read both directions, you know retailers are in need of product and manufacturer’s inventory is low. Believing you have only supply, you increase price claiming extra transportation costs. – Competitor has large supply as well and does not increase price, so you sell no product. You want to track competitor’s inventories, which can be estimated from information gained from reading supply chain.

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-22 Ethics Guide, continued – Your agreement with customers permits you to query their inventory levels for orders they have with you. System has a flaw and allows you to query all orders. – Your agreement with customers permits you to query their inventory levels for orders they have with you. Another retailer’s security is flawed. One of your developers writes a program allowing you to exploit the flaw and view all of their information.

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-23 How Does This Knowledge Help You at DSI? Inter-organizational information systems can be used to improve the in-bound logistics – DSI sends ftp AutoCad files to manufacturers and fabricators – Each project is color coded, and the parts are color coded for easy identification – DSI does not use JIT system Must move components in inventory Would require serious procedural changes

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-24 How Does This Knowledge Help You at DSI?, continued Could use RFID tags for easier locating of parts – Save labor – Reduces damage because of less handling

© 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke 8-25 Active Review How do inter-organizational information systems provide competitive advantages? What is the potential conflict concerning information systems between customers and vendors? What are the major categories of inter-organizational information systems? What technology is required for inter-organizational IS? How do inter-organizational information systems benefit small businesses? How will the increasing use of inter-organizational information systems change organizational structures? How does knowledge from this chapter help you at DSI?