Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Introduction to Information Technology 2 nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. Chapter 13: Strategic Systems and Reorganization Prepared by: Roberta M. Roth, Ph.D. University of Northern Iowa

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Chapter Preview  In this chapter, we will study:  How IT can support an organization’s strategy  A model that helps reveal competitive strategies that IT can support  Real examples of strategic information systems  How organizations must adapt their structures with IT support to remain competitive  How business processes can be revised with IT support to enhance competitiveness  How IT can enable new organizational forms (e.g., the Virtual Corporation)

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Strategic Information Systems  Strategic Information Systems – systems that support or shape an organization ’ s competitive strategy  May significantly change the way the business operates  Makes substantial contribution toward achieving strategic goals  May increase performance and productivity significantly

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Strategic Information Systems  Outward focus: aimed at direct competition in an industry  Inward focus: enhance the competitive position of the firm through …  Increasing employee productivity  Improving teamwork  Enhancing communication  Strategic Alliances - two or more companies share an inter-organizational system for mutual benefit

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Competitive Strategy & IT  Strategy is the creation of a unique and valuable position, involving a set of activities different than what rivals do  IT creates competitive advantage by giving companies new ways to outperform their rivals  Create new applications  Enable reengineering of business processes  Enable innovation  Gather competitive intelligence

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Competitive Intelligence  Gather information about competitors’ performance and activities  Gather information about markets, technologies, and governmental actions  Often enabled by use of intelligent agents  Not the same as industrial espionage

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Competitive Intelligence on the Internet Intelligence Search StrategyDescription Review competitor’s Web sites Reveal information about marketing information Analyse related newsgroups Find out what people think about a company and its products Examine publicly available financial documents By entering a number of databases and analyse findings Do market research at your own Web site Pose questions to Web site visitors Use an information delivery service to gather news on competitors Find what is published on the Internet about competitors Use corporate research companies Provide information ranging from risk analysis to stock market analysts’ reports about competitors

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Porter ’ s Competitive Forces Model and IT  Porter ’ s Competitive Forces Model  Competition - at the core of a firm ’ s success or failure  Used to develop strategies for companies to increase their competitive edge  Demonstrates how IT can enhance the competitiveness of corporations  5 major forces: Threat of entry of new competitorsThreat of substitute products or services Bargaining power of suppliersBargaining power of customers (buyers) Rivalry among existing firms in the industry

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Porter ’ s Competitive Forces Model and IT  Response Strategies (Per Porter and Others) – may be supported in part by IT  Cost leadership strategy - producing at lowest cost  Differentiation strategy - being unique  Focus strategy - selecting a narrow-scope segment  Growth strategy - increasing market share  Alliances strategy - working with business partners  Innovation strategy - developing new products  Internal efficiency strategy - improving the manner in which business processes are executed  Customer-oriented strategy - concentrating on making customers happy

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Porter ’ s Competitive Forces Model and IT  How the model is used 1.List the players in each competitive force  E.g. shopping via the Internet 2.Relate the major determinants of each force to each competitor  E.g. check the switching cost of the buyers & the price advantage of electronic shopping, etc. 3.Devise a strategy by which you can defend yourself against these forces  E.g. provide advantages to buyers not available online, create your own electronic commerce site, etc. 4.Look for supportive information technologies  E.g. Utilize your electronic shopping site more effectively than your competitors.

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Impact of IT on Competitive Forces Key Forces Affecting the Industry Business Implications Potential IT Responses Threat of new entrants Additional capacity Reduced prices New basis for competition Exploit existing economies of scale Differentiate products / services, Control distribution channels Segment markets High power suppliers Raise prices/costs Reduce quality of supply Reduce availability Implement sourcing systems Extend quality control into suppliers’ operations Use forward planning with suppliers High power buyers Forces prices down Higher quality demanded Service flexibility required Encourage competition Differentiate and improve products/ services Increase switching costs of buyers Facilitate buyers product selection

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Key Forces Affecting the Industry Business Implications Potential IT Responses Substitute products threatened Limits potential and profit Imposes price ceilings Use differentiation strategy Incorporate IT into product, service, or method of provision Intense competition from rivals Price competition Need to develop new products and services Distribution and service become critical Customer loyalty required Improve price/performance Redefine products and services to increase value Redefine market segments Differentiate products and services in distribution channels and to consumers Get closer to the end consumer - understand the user requirements Impact of IT on Competitive Forces

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Sustaining a Competitive Advantage  Early examples of SIS were difficult to sustain  Outward systems will probably eventually be duplicated by competition  Combining SISs with structural changes in the organization can provide a sustainable strategic advantage  Inward systems can be kept secret  Install a comprehensive, complex, innovative, and expensive system that cannot easily be duplicated

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc The Need for Organizational Change  Organizational structures and processes established in the Industrial Revolution are no longer effective, due to …  Globalization  Pressure for rapid change  Increasingly demanding customers  Opportunities afforded by IT  Focus on vertical, functional organization is inappropriate  Need integration that spans departmental and organizational boundaries

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Business Process Reengineering  Solution based on fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in measures of performance  Elements:  Job Enrichment  Employee Empowerment  Process Simplification  Mass Customization  Reduced Cycle Time

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc BPR - The Enabling Role of Information Technology  The IT tools for BPR  Simulation and visual simulation tools - to support the modeling activities of BPR  Flow diagrams – depict information flows  Work analysis - analyze current and proposed processes  Workflow software – depict flow of work from place to place through the organization

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Changes in Work Rules Brought by IT Old RuleIntervening TechnologyNew Rule Information appears in only one place at one time Shared databases, client/server architecture, electronic mail Information appears simultaneously wherever needed Only an expert can perform complex work. Expert systems, neural computingNovices can perform complex work. Managers make all decisions. Decision support systems, enterprise support systems, expert systems Decision making is part of everyone’s job Field personnel need offices to receive, send, store, and process information. Wireless communication and portable computers, information highways, electronic mail Field personnel can manage information from any location. You have to locate items manually. Tracking technology, groupware, workflow software, client/server Items are located automatically Plans get revised periodically. High-performance computing systems Plans get revised instantaneously whenever needed.

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Changes in Work Rules Brought by IT Old RuleIntervening TechnologyNew Rule People must come to one place to work together. Groupware and group support systems, telecommunication, electronic mail, client/server People can work together from different locations. Customized products and services are expensive and take a long time to develop. CAD-CAM, CASE tools, online systems for JIT decision making, expert systems Customized products can be made fast and inexpensively (mass customization). A long period of time is spanned between the inception of an idea and its implementation (time to market) CAD-CAM, electronic data interchange, groupware, imaging (document) processing Time-to-market can be reduced by 90 percent Work should be moved to countries where labor is inexpensive (off-shore production). Robots, imaging technologies, object-oriented programming, expert systems Work can be also done in countries with high wages and salaries.

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Restructuring Entire Organizations Customer demographics Checking accounts Installment loans Savings accounts Mortgage loans TrustsEtc Expert system Statement Customer Account manager supported by... Backed up by... Checking expert Loan expert Etc Consolidated statement Reengineered bank with integrated system

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Networked Organization  Resemble computer networks and are supported by computerized systems  Shift toward the networked organization due to the movement toward an information-based economy Highly structured Control Direct Employees a cost Information management-owned Hierarchical organizations Risk avoidance Individual contributions Hierarchical Organization Informal Loosely structured Delegate/lead Ownership/participation Empower Employees an asset Information shared ownership Flatter/ manageable organizations Team contributions Networked Organization Manage Formal Risk management

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Networked Organization - Roles of Managers and Subordinates Use of Authority by the Manager Area of Freedom for Subordinates Hierarchical Organization Flattened Organization Network Organization Manager makes decisions and announces or “sells” it. Manager presents ideas and invites questions. Manager presents tentative decision subject to change. Manager presents problem, gets suggestions, makes decision. Manager defines limits; asks group to make decision. Manager permits subordinates to function within limits defined by superior. Manager allows situational leadership to occur based on which node of the network is best equipped to solve problem

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Self-Directed Teams  Permanent or Workgroup teams  Usually multi-skilled, which conduct the routine work of the organization  Problem-Solving Teams  Usually multidisciplinary and multi-skilled, which are established for the purpose of solving a specific problem and then are dismantled  Quality Circles  Meet intermittently to find and solve workplace-related problems  Management Teams  Consist mainly of managers from different functional areas whose major objective is to coordinate the work of other teams  Virtual Teams  Members are in different places, frequently belonging to different organizations and communicate electronically

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Empowerment  Employees have decision-making or approval authority in instances where such authority formerly belonged to managers  Empowerment and Information Technology  Providing the right information at the right time allows employees to make decisions  Increase the availability of knowledge  Tools enable employees to be more creative and productive with higher quality work  Training can be enhanced by IT

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Ethical and Societal Issues  Unethical tactics  Pressuring competitor ’ s employees to reveal information  Using software that is the intellectual property of other companies without permission  Using IT to monitor the activities of employees and customers and in so doing invading the privacy of individuals  Societal Issues  Reengineering efforts involve dramatic changes in people ’ s jobs and working relationships  Jobs are eliminated

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Virtual Corporations  Characteristics of Virtual Corporations (VC)  Excellence - each partner brings its core competence so an all- star winning team is created. No single company can match what the virtual corporation can achieve.  Full utilization of resources - some resources of the business partners may be underutilized when not in a VC.  Opportunism - the partnership is opportunistic. A VC is organized to seize market opportunities.  Lack of borders - it redefines traditional boundaries.  Trust - business partners in a VC are far more reliant on each other and more trusting than ever before.  Adaptability to change - the VC can quickly adapt to environmental changes because its structure is relatively simple.  Technology - IT makes the VC effective and efficient.

Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc Chapter Summary  Strategic information systems can provide an competitive advantage  Porter’s Competitive Forces model helps reveal competitive strategies that may be supported with IT  Reorganization supported by IT may be needed to stay competitive  IT can provide a number of key innovations, including mass customization, cycle time reduction, empowerment, self-direct teams  IT enables the creation of virtual corporations

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