Week 6 Strategic Uses of Information Systems

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Week 6Strategic Uses of Information Systems
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Learning Objectives

• When you finish this week, you will
• Understand business strategy and strategic moves.
• Recognize how information systems can give
  business a competitive advantage.
• Understand basic initiatives for gaining a
  competitive advantage.

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Learning Objectives

• Know what makes an information system a strategic
  information system.
• Understand the fundamental requirements for
  developing strategic information systems.
• Recognize circumstances and initiatives that make
  one SIS succeed and another fail.

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Strategy and Strategic Moves

• Strategy
• A plan designed to help an organization
  outperform its competitors.
• Strategic Information Systems
• Information systems that help seize
  opportunities.
• Can be developed from scratch, or they can evolve
  from existing ISs.

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Achieving aCompetitive Advantage

• Profits increase significantly through increased
  market share.
• The essence of strategy is innovation, so
  competitive advantage often occurs when an
  organization tries a strategy that no one has
  tried before.
• Dell was the first PC manufacturer to use the Web
  to take customer orders.

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Achieving aCompetitive Advantage
Figure 2.1 Eight basic ways to gain advantage
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Achieving aCompetitive Advantage
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Achieving aCompetitive Advantage

• Initiative 1 Reduce Costs
• Lower Costs
• Lower Price
• Bigger Market Share

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Achieving aCompetitive Advantage

• Initiative 2 Raise Barriers to Entrants
• Patenting
• High expense of entering industry
• State Street, Inc. (Pension fund management
  business)

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Achieving aCompetitive Advantage

• Initiative 3 Establish High Switching Costs
• Explicit Switching Costs
• Fixed and nonrecurring
• Implicit Switching Costs
• Indirect costs in time and money of adjusting to
  a new product

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Achieving aCompetitive Advantage

• Initiative 4 Create New Products and Services
• Dynamic
• The advantage lasts only until other
  organizations in the industry start offering an
  identical or similar product or service for a
  comparable or lower price.

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Achieving aCompetitive Advantage

• Initiative 5 Differentiate Products and
  Services
• Product differentiation
• Brand recognition
• Examples of brand name success
• Levis jeans
• Chanel perfumes
• Calvin Klein clothing

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Achieving aCompetitive Advantage

• Initiative 6 Enhance Products and Services
• Examples
• Auto manufacturers enticing customers with a
  longer warranty
• Real estate agents providing useful financing
  information to potential buyers
• Charles Schwab moving stock trading services
  on-line before Merrill Lynch

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Achieving aCompetitive Advantage

• Initiative 7 Establish Alliances
• Combined service may attract customers
• Lower cost
• Convenience
• Examples
• Travel industry
• HP and FedEx

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Achieving a Competitive Advantage
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Achieving aCompetitive Advantage

• Initiative 8 Lock in Suppliers or Buyers
• Bargaining Power
• Purchase volume
• Strengthen perception as a leader
• Create a standard

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Strategic Information as a Competitive Weapon

• Strategic Information Systems (SIS)
• Any IS that can help an organization achieve a
  long-term competitive advantage
• SIS embodies two types of ideas
• Potentially-winning business move
• How to harness IT to implement that move
• Two conditions for SIS
• IS must be serving an organizational goal
• IS unit must be working with the managers of the
  other functional units

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Strategic Information as a Competitive Weapon

• Creating an SIS
• Top management must be involved from initial
  consideration through development and
  implementation.
• SIS must be a part of the overall organizational
  strategic plan.

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Strategic Information as a Competitive Weapon
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Strategic Information as a Competitive Weapon
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Strategic Information as a Competitive Weapon

• Re-engineering and Organizational Change
• To implement an SIS and achieve a competitive
  advantage, organization must rethink the entire
  way in which it operates.
• Goal of re-engineering is to achieve efficiency
  leaps of 100 percent or even higher.

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Strategic Information as a Competitive Weapon

• Competitive Advantage as Moving Target
• SISs developed as strategic advantages quickly
  become standard business.
• Banking industry (ATMs and banking by phone)
• Companies must continuously contemplate new ways
  of utilizing information technology to their
  advantage.
• SABRE, American Airlines reservation system

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Strategic Information as a Competitive Weapon

• Sources of Strategic Information Systems
• Existing System
• New Service
• New Technology
• Excess Information
• Vertical Information

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Strategic Information as a Competitive Weapon

• From Automation to SIS
• An organization can gain a competitive advantage
  through automation of a manual process.
• American Hospital Supply automated manual orders
  and improved services, resulting in a 17 percent
  compound annual growth rate in sales.

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Strategic Information as a Competitive Weapon

• SIS from a New Service
• A company may gain competitive advantage by
  providing a new service using IT.
• Merrill Lynch was the first to use IT to provide
  a cash-on-demand service for their investors and
  captured a lions share of the market.

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Strategic Information as a Competitive Weapon

• SIS from New Technology
• A company that figures out how to use a new
  technology can gain a competitive advantage.
• American Express used new scanning technology to
  process credit charges and saved millions of
  dollars in reduced labor costs.

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Strategic Information as a Competitive Weapon

• SISs from Excess Information
• An organization can gain an advantage by putting
  excess information toward a new product or
  service.
• Sears Roebuck and Company uses its customer
  record database to provide target information to
  its subsidiaries in insurance and real estate.

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Strategic Information as a Competitive Weapon

• SISs from Vertical Information
• Organizations use ISs to augment their businesses
  vertically by offering related services.
• Realtors offer financing and relocation
  information in addition to information about
  houses for sale.

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Strategic Information as a Competitive Weapon

• Good SIS ideas must be carefully executed if a
  company is to seize opportunities.
• McKesson Drugs, Inc., automated its operations
  and gained a competitive advantage.
• Enhanced existing services
• Provided new services
• Cut costs
• Created high switching costs for clients

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Strategic Information as a Competitive Weapon

• How one IS Failed
• Citicorp tried to use an SIS to implement a
  15-minute mortgage approval plan called
  MortgagePower Plus, but the program failed.
• Failed strategically due to unwise business
  shortcuts.
• Failed operationally due to poor technical
  implementation.

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Strategic Information as a Competitive Weapon

• Success and Failure on the Web
• Just being first on the Web is not enough to be
  successful business ideas must be sound.
• An organization must carefully define what buyers
  want.
• Establishing a recognizable brand name is
  important but does not guarantee success
  satisfying needs is more important.

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The Bleeding Edge

• Business owners must develop new features to keep
  the system on the leading edge.
• Adopting a new technology involves great risk.
• No experience from which to learn
• No guarantee technology will work or customers
  and employees will welcome it

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The Bleeding Edge

• The bleeding edge failure in an organizations
  effort to be on the technological leading edge.
• Some organizations let competitors assume the
  risk associated with being on the leading edge.
• Risk losing initial rewards.
• Can quickly adopt and even improve pioneer
  organizations successful technology.