1 Chapter 2 Information Systems for Competitive Advantage

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3 Chapter 2 Objectives Understand the IS in automation, organizational learning, and strategic support Understand the IS in automation, organizational learning, and strategic support Understand IS for strategic organizational success Understand IS for strategic organizational success Understand the need for making an IS business case Understand the need for making an IS business case Understand technological innovations to improve competitive advantage Understand technological innovations to improve competitive advantage

4 Why Use Information Systems? Automating: doing things faster Automating: doing things faster Organizational learning: doing things better Organizational learning: doing things better Supporting Strategy: doing things smarter Supporting Strategy: doing things smarter

5 Automating: Doing Things Faster Technology is used to automate a manual process Technology is used to automate a manual process Doing things faster, better, cheaper Doing things faster, better, cheaper Greater accuracy and consistency Greater accuracy and consistency Loan application example Loan application example Manual processing Manual processing Technology-supported process Technology-supported process Completely automated Completely automated

6 Example Primary activity Of Loan ProcessingManualSemi-AutomatedFully-automated Complete and submit the application Customer takes the application home, completes it, returns it (1.5 days) Customer fills out application from home via web (1 hour) Check errors Employee does this in batch (2.5 days) Computer does this as it is being completed (3.5 s) Input data into IS Applications kept in paper form, this involve (1 h) Employee does this in batch (2.5 days) Done as part of the online application process (no extra time needed) Assess loan application to determine whether to fund them Employee does this completely by hand (15 days) Employee does with the help of the computer (1 hour) Computer does this automatically (1 s)

7 Organizational Learning: Doing Things Better Going beyond automation Going beyond automation Involves learning to improve the day-to-day activities within the process Involves learning to improve the day-to-day activities within the process Organizational Learning Organizational Learning Using acquired knowledge and insights to improve organizational behavior Using acquired knowledge and insights to improve organizational behavior Looking at patterns and trends Looking at patterns and trends Total Quality Management (TQM) Total Quality Management (TQM) Monitoring an organization to improve quality of operations, products, and services Monitoring an organization to improve quality of operations, products, and services

8 Supporting Strategy: Doing Things Smarter Strategic Planning  Create a vision: setting the direction  Create a standard: performance targets  Create a strategy: reaching the goal

9 Types of Competitive Advantage Low-Cost Leadership Low-Cost Leadership Best prices on goods/services Best prices on goods/services Examples: Dell, Target Examples: Dell, Target Differentiation Differentiation Best products or services Best products or services Examples: Porsche, Nordstrom, IBM Examples: Porsche, Nordstrom, IBM Best-Cost Provider (middle-of-the-road) Best-Cost Provider (middle-of-the-road) Reasonable quality, competitive prices Reasonable quality, competitive prices Example: Wal-Mart Example: Wal-Mart

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11 Information Systems for Competitive Advantage A clear strategy is essential A clear strategy is essential Sources of competitive advantage: Sources of competitive advantage: Best-made product Best-made product Superior customer service Superior customer service Lower costs Lower costs Superior manufacturing technology Superior manufacturing technology Shorter lead times Shorter lead times Well-known brand name Well-known brand name High value per cost High value per cost

12 Information Systems for Competitive Advantage IS and Value Chain Analysis IS and Value Chain Analysis VC Analysis: adding value within an organization VC Analysis: adding value within an organization Organizations as big input/output processes Organizations as big input/output processes IS can automate many value chain activities: IS can automate many value chain activities: Purchased supplies inbound logistics Purchased supplies inbound logistics Operations Operations Outbound logistics Outbound logistics Sales and marketing Sales and marketing Service Service

13 Organizational Value Chain

14 Information Systems for Competitive Advantage The Role of IS in Value Chain Analysis The Role of IS in Value Chain Analysis IS competitive advantage in VCA: IS competitive advantage in VCA: Internet link with suppliers, dealers Internet link with suppliers, dealers Extranets: using the Internet for B2B interactions Extranets: using the Internet for B2B interactions Computer-aided manufacturing systems Computer-aided manufacturing systems Web site with online product ordering Web site with online product ordering Customer service response system Customer service response system Computer-aided design Computer-aided design

15 Information Systems for Competitive Advantage The Technology/Strategy Fit The Technology/Strategy Fit An IS implementation should create a significant organizational change consistent with the business strategy An IS implementation should create a significant organizational change consistent with the business strategy Business Process Reengineering (BPR) – chapter 7. Business Process Reengineering (BPR) – chapter 7.

16 Making the Business Case for a System The Productivity Paradox: The Productivity Paradox: Easy to quantify the costs associated with developing an IS Easy to quantify the costs associated with developing an IS Often difficult to quantify tangible productivity gains from the use of IS. Often difficult to quantify tangible productivity gains from the use of IS. Reasons for this: Reasons for this: Measurement problems : Measurement problems :  Measuring wrong things  Real benefits not detected  Effectiveness improvements are difficult to measure  Expected benefits are not known  Type of Systems and their problems: End-user developed systems: end-users in different business units may be tracking and analyzing a system’s benefits and costs in different ways. End-user developed systems: end-users in different business units may be tracking and analyzing a system’s benefits and costs in different ways. Decision support systems (DSS): how do we measure the impact of the system, difficult to measure the differences between decisions made with and without DSS ! Decision support systems (DSS): how do we measure the impact of the system, difficult to measure the differences between decisions made with and without DSS ! Strategic systems: time-money saved or ROI do not adequately indicate whether these strategic systems have been successful. Strategic systems: time-money saved or ROI do not adequately indicate whether these strategic systems have been successful.

17 Time lags: Time lags:  Lags of 3 years are typical before strong organizational impacts of IS investment are left Redistribution Redistribution  may be beneficial for individual firms, but not for a particular industry or the economy as a whole  The IS may be beneficial for individual firms, but not for a particular industry or the economy as a whole Mismanagement Mismanagement   IS has not been implemented and managed well.   Managers must be sure that they evaluate the entire process being automated, making changes as necessary to old processes in order to truly benefit IS investment.   If Managers overlay new technology on old processes, then they will likely be disappointed in productivity gains from their investment.…cont

18 Making the Business Case for a System Making a Successful Business Case Making a Successful Business Case Arguments Based on Faith: Arguments Based on Faith: Arguments based on beliefs about organizational strategy, competitive advantage, industry forces, customer perceptions, market share… Arguments Based on Fear: Arguments Based on Fear: Arguments based on the notion that if the system is not implemented the firm will lose out to the competition, go out of the service, losing business share… Arguments Based on Facts Arguments Based on Facts Arguments based on data, quantitative analysis, or indisputable factors. Cost-benefit analysis for a web-based system Cost-benefit analysis for a web-based system Recurring cost: salary of Webmaster – helpdesk personnel – IS manager,,, Recurring cost: salary of Webmaster – helpdesk personnel – IS manager,,, Nonrecurring costs: One-time cost not expected to continue after the system is implemented (Web server – Telecommunication equipments,,,). Nonrecurring costs: One-time cost not expected to continue after the system is implemented (Web server – Telecommunication equipments,,,). Tangible costs (easy to identify) Tangible costs (easy to identify) Intangible costs: losing customers that are not “Web ready” – cost of reducing traditional sales. Intangible costs: losing customers that are not “Web ready” – cost of reducing traditional sales. Tangible: increase of web customer – increase of sales – reduction of errors Tangible: increase of web customer – increase of sales – reduction of errors Intangible benefits: improvement of customer service – good perception of the firm Intangible benefits: improvement of customer service – good perception of the firm

19 Presenting the Business Case Know the Audience Know the Audience The IS Manager The IS Manager Company Executives (VPs and higher) Company Executives (VPs and higher) Steering Committee Steering Committee Convert Benefits to Monetary Terms Convert Benefits to Monetary Terms

20 Presenting the Business Case Devise Proxy Variables Devise Proxy Variables Measure changes in terms of perceived value Measure changes in terms of perceived value Develop a Work Profile Matrix Develop a Work Profile Matrix Time spent on each job, each type of work Time spent on each job, each type of work Measure What Is Important to Management Measure What Is Important to Management Conoco: Making a Business Case Conoco: Making a Business Case Changing Mindsets About Information Systems Changing Mindsets About Information Systems

21 Competitive Advantage in Being at the Cutting Edge To differentiate itself, an organization often must deploy new, state-of-art technologies.

22 Competitive Advantage in Being at the Cutting Edge The Need for Constant IS Innovation: The Need for Constant IS Innovation:  Executives today are serious about using IT in innovative ways.  people in organization are continually on the lookout for new technologies that will have impact on their business

23 Competitive Advantage in Being at the Cutting Edge E-Business Innovation Cycle: E-Business Innovation Cycle: The successful organizations: First create jobs, groups, and processes that are all devoted to scanning the environment for new emerging and enabling technology Matching with economic opportunities Executing business innovation for growth Assessing client value

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25 The Cutting Edge vs. The Bleeding Edge Information systems are often bought from, or built by, someone else Information systems are often bought from, or built by, someone else An organization typically cannot patent an IS An organization typically cannot patent an IS Rivals can copy emerging information systems Rivals can copy emerging information systems Therefore, one’s IS competitive advantage can be short-lived Therefore, one’s IS competitive advantage can be short-lived

26 Requirements for Being at the Cutting Edge Organization must adapt well to change Organization must adapt well to change Human capital available for deployment (knowledge, time, skills) Human capital available for deployment (knowledge, time, skills) Tolerance of risk and uncertainty Tolerance of risk and uncertainty