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Student Name: Duanmu Yilong Student ID: 21861110 Unit Code & Name: MNG03218, Strategic Information Systems Tutors Name: Jeff Tan Assignment Number: Assignment 1 Due Date: 29/09/2011 Date Submitted: 29/09/2011

Declaration: I declare that this assignment is my own original work and has not been submitted for assessment elsewhere. I acknowledge and irrevocably agree that the assessor of this assignment may, for the purpose of assessing this assignment: Reproduce this assignment and provide a copy to another member of faculty for review and comment, including whether the work is an original work; and/or Provide a copy of this assignment to a plagiarism checking service for review so that it may determine whether the assignment is an original work. The checking service may retain a copy of the assignment on its database for the purpose of future plagiarism checking. I have read and understand the Rules relating to Awards (Rule 3.17) as contained in the University Handbook. I understand the penalties that apply for plagiarism and agree to be bound by these rules. Signed: Date: 29/09/2011 Duanmu Yilong (Please type name here)

Table of Contents
ABSTRACT.... 3 1. Introduction.... 1.1 7-Eleven case. 1.2 Zara case.... 1.3 Swissair case.. 1.4 Beta case 2. Information systems gain competitive advantage... 2.1 Porter and competitive advantage ........... 2.2 Internal and external factors influence competitive advantages ... 2.3 Sustain competitive advantage ..... 2.4 Competitive advantage diminish ... 3. Success or failure factors of information systems... 3.1 Trust... 3.2 Strong motivation.. 3.3 Consensus on IS mission 3.4 Business process reengineering. 3.5 Advanced legacy IS infrastructure 3.6 Cross-organizational team. 3.7 Enough preparation and coordination. 3.8 Excellent project management and maintenance....... 4. Success metrics... 5. Conclusion.......... 6. References....... 4 4 5 5 6 7 7 9 9 9 10 10 10 10 10 10 10 10 11 12 13 14

ABSTRACT This report studied two success information systems cases, 7-Elven and Zara also two failure information systems cases, Swissair and Beta. By using Porters value chain and Porters five force model (Porter and Millar 1985) approaches, I examined the use of information systems for gaining competitive advantages. In addition, I analyzed the sustainability of the competitive advantages. Since successful information systems can enhance organizations competitive advantages, I summarized success factors for information systems and lessons learned from the two failure information systems cases. To evaluate the success of information systems, I adopted some notions of information systems as success metrics. After finishing this report, I am in agreement with that in todays computerized society every organization need a sophisticated information system to compete in the business world (Munir et al 2011).

Introduction The purpose of this report is to discuss how strategic information systems can bring competitive advantage to organizations. The information revolution affects all of our economic activities today; it dramatically reduces the cost of obtaining, processing and transmitting information. At the same time, the information revolution changes the way we do business (Porter and Millar 1985). I believe information systems can give companies competitive advantage, nevertheless, Griffiths (1995) concludes major IT projects offer the potential for huge returns, yet very few seem to come to successful conclusions. Hayes (1996) also states that many information systems are trapped in a downward spiral by consuming more valuable time and resources to resolve the problem occurred by the information system itself instead to work on actual service. I will go through case study to find what we can do to ensure the information systems giving competitive advantages to an organization and minimize the failure of information systems. 7-Eleven case Adopt from Website of Athens University of Economics and Business, Information Systems Management - 7-Eleven Case Study (2011) states 7Eleven, Inc. is the worlds largest operator, franchisor and licensor of the convenience stores with more than 24,000 units worldwide. In the early 1990s 7-Eleven Japan created a $200 million information system for its stores. The purpose of the system was to (1) discover who the customers are and what they want and (2) create a sophisticated product tracking system. The information system is also used to monitor the inventories. It allows 7-Eleven to keep a minimum inventory and enable their suppliers to deliver the products just-in-time. Other uses of the information system are to (1) electrically transmit orders to distribution centers and manufacturers (via satellite), (2) determine which products to keep in each store, (3) determine how much shelf space to allocate to each product, and (4) track employee performance. In addition, the company focus heavily on quality control, even the companys president goes into stores to check the quality sometimes. The quality control data is collected and analyzed continuously by a computerized decision support system at headquarters.

As a result of its information system, 7-Eleven know exactly what the market needs. This enhances 7-Elevens bargain power and enables them to get better prices and high quality products. Thus 7-Eleven can make 40 percent profit on sales; this is extremely unusual high level of profit. Zara case Zara is one of the largest international fashion companies. Gallaugher (2010) states in his book that Zara tripled in size between 1996 and 2000, then their sales skyrocketed from $2.43 billion in 2001 to $13.6 billion in 2007. The success of Zara is from highly vertically integrated information systems. The information systems enable Zara to make sure stores carry the kinds of things customers want to buy. One of the main job tasks of Zaras store manager is to gather customer feedback. Zaras staff might casually ask: What if this skirt was in a longer length? Would you like it in a different color? What if this v-neck blouse were available in a round-neck? Another level of data gathering starts once the door close. All staff turn into trend-spotting discussions, they will find the preferences or disappointments in cloth, color or style offered among the products in stock. All the information will be put into the handheld personal digital assistants (PDAs). PDAs are also linked to the stores point-of-sale (POS) system, showing how garments rank by sales. All of this valuable data allows the organization to plan styles and issue re-buy orders based on customer feedback. Zara can precisely understand the market needs through the information systems. Swissair case Sauer (1994) reports the failure of information systems developed by Swissair. Swissair wanted a personnel and payroll system, and the system developers were asked to work with two departments: personnel and finance, however the two departments had different objectives, which led to conflicting requirements of the system. After a review of the situation by the company, the initial budget of 5.3 million Swiss Francs needed to be supplemented with a further 3.6 million Swiss France, reducing the return on investment by 3% to zero. Finally the whole project was terminated.

1.1.

Beta case Bartis and Mitev (2008) report the information systems failure from Beta. Beta is a subsidiary of a large FMCG multinational, in a European country. The company operates a factory in a remote area with production in three shifts. To maintain the competitive advantage, Bata need to adopt a more flexible manufacturing schedule. As a result, the work-time and holiday planning was a problem for both employees and their managers. In January 2004, Beta decided to use an electronic work time registration (WTR) system to replace manual recording of work attendance. All employees working hours and attendance need registering in the same WTR system. But different group of employees have different interests. The manufacturing works receive wages according to flexible working hours, thus they have interests in filling-in the data. While manager level employees receive fixed salary, they have no interests in filling data daily. The project started in February 2004 and there were no significant results within eight months. The then project manager resigned, and new project manager was appointed in November 2004. At the beginning, the new project manager was told that everything was ready to launch. Half month later the project manager was told that she needed to sort out few technical problems. The project manager found that the user interface was not user-friendly and had a completely different inherent logic compared to other administrative systems in the company and few users had forgotten their passwords. The project manager organized training courses for different groups people, then the system was launched on 2 January 2005 for factory employees. Second day, all data was lost from the system, due to a server problem. In March and April, the system was rolled out to sales forces working in remote depots. The technical problems appeared widely and server was overloaded. Officially, the project phase ended in June 2005

2.

Information systems gain competitive advantage 2.1 Porter and competitive advantage Marketing is to create and deliver value. Kotler et al. (2010) concludes three step value creation and delivery process is, choose the value, provide the value and communicate the value. Kotler & Amstrong (1999) also concludes consumers will base their judgment of a product value on the prices that competitors charge for similar products. In view of the fact, Porter and Millar (1985) concludes information systems gain competitive advantage through the firms value chain. Information systems can either reduce the cost of producing value, or create value exceeding customers value perception of what they received. Porter and Millar (1985) concludes a companys value activities into a value chain process, which illustrate in Figure 2.1 below. Figure 2.1 The Value Chain Support Firm e Human resource management Technology development Procurement Inbound logistics Operations Outboun d logistics Primary Margin Marketing Service and sales activities Infrastructur

activities Information systems can permeate the value chain at every point enabling a company to achieve competitive advantage in three ways. First, advancement in information systems are changing the industry structure. The industry structure is constrained by five competitive forces and determines industry profitability. The five forces are the power of buyers, the power of suppliers, threat of new entrants, threat of substitute products, and 7

the rivalry among existing customer as illustrated in below figure 2.2 adopted from Baltzan et al. (2010). Figure 2.2 Porters Five Forces Model Threat of Substitute Products or Services Buyer Power Supplier Power Bargaining power of suppliers Rivalry among Existing Competitors Bargaining power of channels Bargaining power of end users Threat of New Entrants In 7-Elevens case, the IS discover who the customers are and what they want. Because of this 7-Eleven is able to supply exactly customers wants and needs better than their competitors. The IS also create a sophisticated product tracking system to enable 7-Eleven minimize their inventory, therefore reducing the cost of their value creation. In Zara case, the PDAs linked to POS system, enable Zara to act faster than their competitors and provides excessive value higher above customers perception. Both case prove IS can gain competitive advantage. Second, information systems are, a more and more important lever that a company can use to achieve competitive advantage. In 7-Eleven case, IS enable the firm to electrically transit orders to distribution centers and manufacturers to improve efficiency and reduce manpower cost. Because of this, 7-Eleven gains competitive advantage. Finally, advance in information system can spawn completely new business. In Zara case, most fashion retailers place orders for a seasonal collection months before these lines make an appearance in stores. With advance IS, Zara can feedback customer wants, precisely to their design and production center and deliver the goods to their retail shop in very short time, hence Zara gains competitive advantage. 2.2 Internal and external factors influence competitive advantages 8

From Porters value chain approach and five forces model, we can find both internal and external factors can influence an organization gaining competitive advantages. Companies use of information systems can enhance their bargain power to suppliers and buyers, because they know more than their suppliers and buyers. The bargain power can be categorized into external factors. However in general, internal factors are more critical. In the four cases illustrated in this paper, all the information systems depend on data input. When a new information system was implemented, it definitely requested some changes to internal staff to collect data and upload to the system. Because resistance to changes is human norm, if the organization cant overcome the resistance, the information system will fail. This is the lesson we learnt from Beta case. Hence competitive advantages cant be achieved. 2.3 Sustain competitive advantage Base on analysis in previous paragraph, we can attribute 7-Elven gain competitive advantage by adopting a cost leadership strategy and Zara by using differentiation strategy. Porter (2004) argues that the fundamental basis for above average performance in the long run is sustainable competitive advantage. In 7-Eleven case, through the information systems, they are able to seek out and exploit every source of potential cost advantage. Thus they are a cost leader; a cost leader is able to sustain competitive advantage. In Zara case, through the information system, they are able to position them self uniquely to meet customers needs. The uniqueness enables Zara to sustain their competitive advantage. 2.4 Competitive advantage diminish Scholar Nicholas (2004) argues while information technology has become the backbone of any business, the importance of IS as a strategic resource capable of gaining sustainable competitive advantage has diminished. I disagree this statement. All companies use information systems today, most of companies may use IS as data storage, data processing and data transfer. At this stage, the IS will not gain competitive advantage for sure. The companies who can use IS to analyse data and provide useful information will definitely gain sustainable competitive advantage, such as 7-Eleven and Zara.

Success or failure factors of information systems Rockart (1979) defines CSFs as those few key areas of activity in which favorable results are absolutely necessary for a particular company to reach its goals. Lu et al. (2005) attributes few critical success factors of information systems, I will use the factors to illustrate the success or failure of IS. 3.1 Trust In Beta case, all data was lost from the system, hence most user dont trust the IS and they will choose not use the system. Without trust, IS cant success. 3.2 Strong motivation In 7-Eleven case, the companys president occasionally goes into the store to check the quality and collect the data. This is strong motivation leads the IS success. 3.3 Consensus on IS mission In Swissair case, the objectives of IS are different between personnel and finance department, which led conflicting requirements of the system and cause the IS failure. 3.4 Business process reengineering In Zara case, most fashion retailers place orders for a seasonal collection months before these lines make an appearance in stores. Zara reengineering their business process by design and produce the items according to customers feedback immediately. 3.5 Advanced legacy IS infrastructure In Zara case, store managers collect the data and upload to PDAs and PDAs are also linked to their POS system. This advanced legacy IS infrastructure leads the IS success. 3.6 Cross-organizational team In Zara case, the data was collected by frontline sales and store managers and then transfer to their design team in headquarters. This cross-organizational team ensure the IS success. 3.7 Enough preparation and coordination In 7-Eleven case, they create $200 million information system for its stores. This enough preparation leads the IS success.

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3.8

Excellent project management and maintenance In Beta case, when the user group increased, they found the server was overload. This is a bad project management and maintenance, because of this, the IS failure.

Various other factors than illustrated above can influence the success or failure using IS and internet, such as size, geographical location and development level. For example, many information systems in developing countries can be categorized as failure either totally or partially (Heeks 2002). The reason may be lack of literature in general.

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3.

Success metrics The fundamental success metrics will be a financial report of return on investment. Some information systems may not be able to measure quantitatively, and then we may review its notions. Lyytinen and Hirschheim (1987) conclude four major notions of IS. First correspondence, when the system design objectives can be met, the IS is considered success. Second process, if an IS can be developed within an allocated budget, and/or time schedule, the IS is considered success. Third interaction, a success IS must be at expected level of end-user usage. Forth expectation, a success IS must be able to meet its stakeholders requirements, expectations, or values.

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Conclusion In conclusion, organizations are able to gain competitive advantage through information systems, and this competitive advantage is sustainable. But most information systems projects failed according to recent studies (Yeo 2002). Hence we have to learn from experiences from existing success and failure cases, we then can pay more attention to the critical success factors during developing information systems. In general, success information systems can be evaluated by financial results. I belief it also can be evaluated by nonquantitatively notions. From the discussion in this paper, I found that internal factors will determine whether the information systems can enhance an organizations competitive advantage. I would say people are the kenel of the information systems. No matter how advanced hardware and software used by an organization, if the people are not willing to use it, then the information systems will completely fail, so that competitive advantage cant be achieved.

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References Baltzan, P, Phillips, A & Hagg, S 2010, Business Driven technology, 4 edn, McGraw Hill Companies, Boston, MA. Bartis, E and Mitev, N 2008, A multiple narrative approach to information systems failure: a successful system that failured. European Journal of Information Systems, no. 2, (April 1): 112-124. http://www.proquest.com.ezproxy.scu.edu.au/ September 17, 2011). Carr, N 2004, Does IT Matter? Information technology and the Corrosion of competitive Advantage, 1 edn, Harvard Business Press. Gallaugher, J 2010, Information Systems: A managers Guide to Harnessing Technology, 1.2 edn, Flat World Knowledge, Inc. Griffiths, C 1995, Terminal Failures. Computer system disasters have cost billions and dinosaur bosses must take the blame. London: Independent on Sunday, 3rd December. Hayes, R 1996, Moving IS beyond conflict, The Journal of Systems Management, May 1996. Heeks, R 2002, Information Systems and Developing Countries: failure, Success, and Local Improvisations, The Information Society, Vol. 18, 2002. Pp. 101-112. http://paul-hadrien.info/backup/LSE/IS%20470/litterature%20review/IS%20failures %20developing%20countries.pdf (accessed September 18, 2011). Information Systems Management 7-Eleven Case Study, Athens University of Economics And Business, http://e-learning.dmst.aueb.gr/mis/Cases/7Eleven/index.htm (accessed September 17, 2011). Kotler, P & Armstrong, G 1999, Principles of Marketing, 8 edn., Prentice-Hall Inc., Upper Saddle River, New Jersey. Kotler, P, Keller, KL & Burton, S 2010, Marketing Management, Pearson Education Australia, Frenchs Forest, NSW. Lu, X H, Huang, L H & Heng M S H 2005, Critical success factors of interorganization information systems A case study of Cisco and Xiao Tong in China, Information & Management, Vol. 43, issue 3, Apr 2006, pp. 395-408. http://www.sciencedirect.com.ezproxy.scu.edu.au/science/article/pii/S0378720605000 625#ref_bib39 (accessed September 18, 2011). (accessed

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Lyytinen, K and Hirschheim R 1987, Information failures a survey and classification of the empirical literature. Oxford Surveys in Information Technology, Vol. 4, 1987, pp. 257-309. Munir, M, Rahim, F and Abrara-ud-Din 2011, Problems during implementation of business 2011) Porter, M E & Millar V E 1985, How Information Gives You Competitive Advantage, Harvard Business Review, July 1985, http://zaphod.mindlab.umd.edu/docSeminar/pdfs/Porter85.pdf Porter, M E 2004, Competitive Advantage Creating and Sustaining Superior Performance, New edn, Free Press, NY. Rockart, J F 1979, Chief executives define their own data needs, Harvard Business Review, Mar-Apr 1979, pp. 81-93 Sauer, C 1994, Why Information Systems Fail: A Case Study Approach, London, Alfred Waller. Yeo, K T 2002, Critical failure factors in information systems projects, International Journal of Project Management, Vol. 20, 2002, pp. 241-246 information systems, http://bada.hb.se/bitstream/2320/8154/1/2011MAGI02.pdf (accessed September 20,

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