Week 2

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Week 2

• Strategic Information Systems for Competitive
  Advantage

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Today

• Three eras of IT/IS revolution
• Strategic Information Systems
• The role of IT/IS in competition
• Porters 5 competitive forces
• Porters value chain
• Some other academic views
• Cases
• Managerial issues

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Three eras of I.T. evolution

• Mainframe Era
• (1950s-1970s)
• Microcomputer Era
• (late 1970s to 1980s)
• Network Era
• (late 1980s to present)

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Strategic Information Systems (SISs)

• SISs provide strategic solutions to the 5
  Business Pressures

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Elements of Strategic Management

• 1. Long Range Planning
• 2. Response Management
• 3. Proactive Innovation

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The Role of IT in Business Innovation

• IT creates applications that provide strategic
  advantages to companies
• IT is a competitive weapon
• IT supports strategic change, e.g,
  re-engineering
• IT networks with business partners
• IT provides cost reduction
• IT provides competitive business intelligence

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Competitive Intelligence

• The Internet is central to supporting competitive
• intelligence

• Such activities drive business
• performance by
• Increasing market knowledge
• Improving internal relationships
• Raising the quality of strategic planning

• Many companies monitor the activities of
  competitors

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Competitive Advantage in the Web Economy
Competitive Advantage Look for a competitive
necessity, which will help your company keep up
with the competitors.
Competitive Strategy Search for a competitive
advantage in an industry, which leads to control
of the market.
Sustainable Strategic Advantage Maintain
profitable sustainable position against the
forces that determine industry competition.
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Porters 5 Competitive Forces (1985)

• The threat of entry of new competitors.
• The bargaining power of suppliers.
• The bargaining power of customers (buyers).
• The threat of substitute products or services.
• The rivalry among existing firms in the industry.

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Porters Model in Action
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HOW IT/IS AFFECTS THE NATURE OF COMPETITION

• It changes industry structure and alters the
  rules of competition...
• by increasing the power of buyers,
• raising barriers to entry and
• influencing the threat of substitution
• It creates competitive advantage by giving
  companies new ways to out-perform their rivals...
• lowering costs,
• enhancing differentiation and
• changing competitive scope

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HOW IT/IS AFFECTS THE NATURE OF COMPETITION

• It spawns whole new businesses, often from within
  a company's own operations... by making
• new businesses technologically feasible
• creating derived demand for new products and
• creating new businesses within old ones.

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Key points about I.T. and competitive advantage

• Understanding the information content of the
  business process is a pre-requisite to developing
  IT systems that deliver advantage.
• Leaders who initiate the use of IT at one level
  of opportunity are quickly imitated by their
  competitors.

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Technology versus Management of technology

• I.T. is so accessible today that organisations
  cannot compete on technology alone.
• The competitive advantage is derived from how the
  technology is used.
• Today the management of technology has become a
  critical issue in competing more effectively.
• The issue is not whether to invest in I.T. but
  where and how.

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Response Strategies (Porter, 1985)
FOCUS Selecting a niche market and achieving
cost leadership and/or differentation.
DIFFERENTATION Being unique in the industry
COST LEADERSHIP Providing products and/or
services at the lowest cost in the industry.
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Response Strategies (added by Porter and others)
GROWTH Increasing market share, acquiring more
customers or selling more products
IMPROVE INTERNAL EFFICIENCY To improve employee
and customer satisfaction
ALLIANCES Working with business partners to
create synergy provide opportunities for growth
CRM Customer-oriented approaches, e.g. the
customer is king (queen)
INNOVATION Developing new products services
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Porters Model in Action (cont.)

• Step 1 The players in each force are listed.
• Step 2 An analysis is made which relates
  Porters determining factors.
• Step 3 A strategy is devised to defend
  against these factors.
• Step 4 Support information technologies are
  employed.

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Porters Value Chain Model (1985)

• PRIMARY ACTIVITIES
• In bound logistics (in puts)
• Operations (manufacturing testing)
• Outbound logistics (storage distribution)
• Marketing sales
• Service

Supply Chain
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Porters Value Chain Model

• SUPPORT ACTIVITIES
• Firm Infrastructure
• Human Resources Management
• Technology Development
• Procurement

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Porters Value Chain Model - Graphically
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VALUE SYSTEM

• A firms value chain is part of a larger stream
  of activities, which Porter calls a Value
  System
• Includes the suppliers that provide the
  necessary inputs AND their value chains
• Applies to both products services, for any
  organization, PUBLIC or PRIVATE
• The basis for the Supply Chain Management
• Think about UPSTREAM and DOWNSTREAM

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CASE Frito Lay uses IT the Value Chain

• Worlds largest snack food producer and owner of
  Pepsi products.
• SIS System
• Integrates marketing, sales, manufacturing,
  logistics, finance.
• Provides managers with information about
  suppliers, customers competitors.
• Enables employees to access valuable information.
  
• Frito Lays use of IT allows for an optimal
  functioning of the value chain.

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The Value Chain Model

• The Value System Model is used to
• Evaluate a companys process and competencies
• Investigate whether adding IT supports the value
  chain
• Enable managers to assess the information
  intensity and the role of IT

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Bakos Treacy Framework (1986)
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McFarlans Portfolion Framework (1984)
High
Current
Low
Low
High
Future
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McFarlans Portfolion Framework (1984)
High
Current
Low
Low
High
Future
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Web-based Strategic Information Systems (SISs)

• Many of the SISs of the 70s - 90s were based on
  privately owned networks, or organizational
  information systems (OISs).
• EDI-based systems are of key importance
• SISs are changing the nature of competition
• In some cases, SIS renders traditional business
  procedures obsolete.
• E.g, Encyclopedia Britannia

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CASE Mobile Oil Moves to Web-based System

• Problem
• Largest marketer of lubricants in the USA
• In 1995, introduced EDI system
• Used to place orders, submit invoices exchange
  business documents
• It was too expensive, too complex to use
• Solution
• In 1997, moved to web-based extranet-supported
  B2B system
• Results
• Reduced transaction cost from 45/order to 1.25
• Fewer shortages, better customer service
• decline in distributor administration costs

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Examples of EDI/Internet-based SIS (for
individual Companies)

• Electronic Auctions
• Electronic Biddings
• Buyer-Driven Commerce
• Single Company Exchange
• Direct Sales

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Examples of EDI/Internet-based SIS (for Groups
of Companies)

• Industry Consortiums
• Horizontal Consortiums
• Web-based Call Centers
• Web-based Tracking Systems
• Web-based Intelligent Agents
• Web-based Cross Selling
• Accessing knowledge via Intranets

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Growth of Companies Operating in a Global
Environment

• Fully Global or Multinational Corporations
• Companies that export or import
• Companies facing competition of low labour cost
  and high natural resources

• Companies with low cost production facilities
  abroad
• Small companies that can now use eC to buy/sell
  internationally

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A Global Drivers Framework (Ives et al., 1993)

• The success of companies doing business in a
  competitive environment depends on the link
  between their information systems AND their
  global business strategy.
• This framework provides a tool for identifying
  the firms global business drivers.
• Drivers look at the current and future needs,
  focusing on worldwide implementation.

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CASE Total Quality Management at FPL

• Florida Power Light ? largest US utility
  company
• Leader in implementing total quality management
• Several successful SIS programs
• Generation Equipment Management System (GEMS)
• Tracks electrical generators, saving 5 million/
  yr.
• 20 different quality control applications
• Reduced customer complaints by 50
• Trouble Call Management System
• Reduced black out time from 70 to 48 min.

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CASE Geisinger Implements an Intranet

• Problem
• As a result of mergers acquisitions, Geisinger
  (a health maintenance organization) had 40
  different IT legacy systems in need of an upgrade
  integration.
• Solution
• In 1993, Geisinger implemented an innovative
  Intranet with the following features
• Tel-a-Nurse
• Clinical Management System
• Human Resource Management
• Results
• Geisinger reduced costs and unnecessary medical
  work.

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CASE Caltex Corporation

• Major multinational company selling gasoline
  petrol products.
• In 2000, created a centralized e-purchasing
  corporate exchange (www.caltex.com)
• Suppliers build electronic catalogues with
  Aribas software.
• Many benefits to buyers and suppliers,
  particularly in Asia, Africa the Middle East.
• System enables Caltex to successfully handle
  complex multinational business environments.

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CASE Port of Singapore

• Problem
• The Port of Singapore, the worlds largest
  international port, faced increased global
  competition.
• Solution
• Implementation of Intelligent Systems
• Results
• Reduction in Cycle Time
• 4 hours versus 16 - 20 hours in neighboring ports
• Reduction in uploading/ loading time
• 30 sec. versus 4-5 min./ truck in neighboring
  ports

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CASE Volvo Speed Cars

• Problem
• In comparison to global competitors, Volvos cars
  were too expensive, with a slow delivery time
• Solution
• Creation of global ISDN-based network
• Result
• Reduction in delivery time from 12 - 16 weeks to
  4 - 6 weeks for customized cars
• Reduction in cost of doing business, along with
  the price of the car

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CASE Caterpiller Corporation

• Problem
• This world leader in manufacturing of heavy
  machines faced strong competition from Japanese
  companies.
• Solution
• Computer-aided manufacturing and robots
• Computerized inventory management
• Supply chain web-based management
• Global Intranet EDI
• Sensory Intelligent Agents attached to products.
• Results
• CAT experienced such a high rate of success that
  their main competitor was forced to shift its
  strategy

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CASE Dun Bradstreet (D B)

• Problem
• Clearing house that provides risk analysis
  maintains database of credit ratings.
• Customers complained about long waiting periods
  and inaccuracies.
• Solution
• Implementation of Web-based expert system.
• Results
• Response time reduced from 3 days to a few
  seconds
• Credit ratings became more accurate.

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SIS Implementation

• Major Issues to be Considered
• Justification
• Justifying SIS may be difficult due to the
  intengible nature of their benefits.
• Risks Failures
• The magnitude, complexity, continuous changes in
  technology and business environment may result in
  failures.
• Finding appropriate SIS
• Identifying appropriate SIS is not a simple task.
  

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Sustaining SIS Strategic Advantage

• A Major problem that companies face is how to
  sustain their SIS competitive advantage.
• 3 Major approaches
• Create inward systems which are not visible to
  competitors.
• Provide a comprehensive, innovative expensive
  system that is difficult to duplicate.
• Combine SIS with structural changes. This would
  include business processes, reengineering
  organizational transformation.

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Managerial Issues

• Implementing SIS Can Be Risky
• The investment involved in implementing Strategic
  Information Systems (SIS) is high
• Strategic Information Systems Requires Planning
• Planning for an SIS is a major concern of
  organizations

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Managerial Issues (cont.)

• Sustaining Competitive Advantage Is Challenging
• As companies become larger and more
  sophisticated, they develop resources to
  duplicate the systems of their competitors
  quickly
• Ethical Issues
• Gaining competitive advantage through the use of
  IT may involve unethical or even illegal actions
• Companies can use IT to monitor the activities of
  other companies and may invade the privacy of
  individuals working there

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References

• Porter M.E. (1985), Competitive Advantage
  Creating and Sustaining Superior Performance, New
  York Free Press
• Bakos J.Y. and M.W. Treacy (1986), Information
  Technology and Corporate Starategy A research
  Perspective, MIS Quarterly (June 1986)
• McFarlan (1984), Information Technology Changes
  the Way You Compete, Harvard Business Review,
  (May-June 1984)
• Ives B. et al (1993), Global Business Drivers
  Aligning IT to Global Business Strategy, IBM
  Systems Journal, Vol 32, No 1

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Suggested Reading

• Information Technology for Management
• Chapter 3 Information Systems for Competitive
  Advantage pp 80 to 119
• Look at references and bibliography for this
  chapter
• Computing Press read it
• See Kens notes from last year - week 2 page

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Next Week week 3

• Network Computing
• Discovery, Communication, Collaboration