Strategic Information Systems

Infsy 540
Dr. R. Ocker

Chapter 3:
Competing with Information Systems

First
First Edition
Edition

Foundations of Information Systems

win/McGraw-Hill

Vladimir
Vladimir Zwass
Zwass
The McGraw-Hill Companies, Inc.., 1998

Business challenges of an
Information Society

Global competition
rapid product and process innovation

Increases in amount of knowledge that

affect your business
need organizational knowledge
management supported by IS
faster base of business events
time-based competition

How role of IS has evolved

1. Operational support
2. Support of management and
knowledge work
3. Support of business transformation
and competition
4. Ubiquitous computing

3- 5

Era
Era II of
of Organizational
Organizational Computing:
Computing:
Operational
Operational Support
Support

Primary
Objective

Justification

Irwin/McGraw-Hill

Support of
Operations

Large
Company
Units

Efficiency

Single
DP/IS
Department

Primary
Clients

Source

TheMcGraw-Hill Companies, Inc., 1998

Era 1 operational support

1950s-1970s
Single data processing department
which developed all applications
end users - no direct access to
computer technology
large backlog

Era
Era IIIIof
of Organizational
Organizational Computing:
Computing:
Support
Support of
of Management
Management &
& Knowledge
Knowledge Work
Work

Primary
Objective

Justification

Irwin/McGraw-Hill

Management
Support

Individual
Managers
and
Professionals

Management
Effectiveness

Information
Systems Units
and End
Users

3- 4

Primary
Clients

Source

TheMcGraw-Hill Companies, Inc., 1998

Era II support management &

knowledge work

Began late 1970s

Apple II PC 1977
end-user software
beginning of end user computing

Era
Era III
III of
of Organizational
Organizational Computing:
Computing: Support
Support
of
of Business
Business Transformation
Transformation &
& Competition
Competition

Primary
Objective

Entranced
Competitive
Position

Line of
Business
Units

Justification

Market Share
and
Profitability

Coordinated
Organizational
End User
Computing

Irwin/McGraw-Hill

3- 3

Primary
Clients

Source

TheMcGraw-Hill Companies, Inc., 1998

Era III Support Business

Transformation & Competition

Mid 1980s - orgs. heavy reliance on

computers
strategic information systems became
prominent
systems support line-of-business units,
e.g. development and marketing of a
product
line-of-business units control their own
systems

3- 1

Era
Era IV
IV of
of Organizational
Organizational Computing:
Computing:
Ubiquitous
Ubiquitous

Primary
Objective

Justification

Irwin/McGraw-Hill

Electronic
Integration

Collaborating
Teams

Primary
Clients

Organizational
Effectiveness

Owned and
Outsourced
Computing
Infrastructure

Source

TheMcGraw-Hill Companies, Inc., 1998

Era IV Ubiquitous computing

Cannot pursue competitive advantage

based on single system
Competing with information systems
must be based on a broad and
continually enhanced technology
platform linked to corporate strategy
networks & client/server architecture
electronic integration of entire
organization

Strategic Information Systems

(SIS)

A strategic system alters the way an

organization does business
some systems - offer a company a clear
competitive advantage - higher profits
or increased market share
most strategic systems - enable a
company to be an effective competitor

Strategic Information Systems

rapid diffusion of technological change

makes it difficult to maintain a
competitive advantage
so strategic development of IS
dynamic capability of an org.
not a static attribute

What are Strategic Systems?

An information system designed to give

the owner organization a strategic
competitive advantage.
A strategic system supports or shapes a
business unit's competitive strategy.
outward looking: customers,
competitors, environments
inward looking: employees, systems,
procedures

Characteristics of Strategic
Information Systems:

significantly change business

performance
contribute to attaining a strategic goal
fundamentally change the way a
company does business,
or the way it competes,
or the way it deals with its customers or
suppliers.

Strategic systems

External focus
changes way firm competes

innovative use of IT
high degree of project risk

Strategies, Forces, and Tactics in

Competitive Markets

Competitive Strategies

Uncovering Strategic Use of

Systems

1. Analyze competitive forces

2. Study the value chain

1. Competitive Forces Model

1.Competitive Forces model

used to describe the interaction of

external influences -- threats and
opportunities -- that affect an
organizations strategy and ability to
compete
competitive advantage - can be
achieved by enhancing the firms ability
to deal with customers, suppliers,
substitute products and services, and
new entrants to its market

1.Competitive Forces model

Objective - use this model to identify

potential areas where IT can be used to
gain a competitive advantage

Competitive Strategies for

competing in marketplace

businesses can use four basic

competitive strategies to deal with these
competitive forces:
1. Product Differentiation
2. Cost leadership
3. Focused differentiation
4. Cost Focus

3- 6

Competitive
Competitive Strategies
Strategies
Competitive Advantage
Lower Cost

Differentiation

Broad
Target

Cost
Leadership

Differentiation

Narrow
Target

Cost
Focus

Focused
Differentiation

Competitive
Scope

Irwin/McGraw-Hill

TheMcGraw-Hill Companies, Inc., 1998

1. Differentiation

competitive strategy for creating brand

loyalty
Develop products & services which are
different from what the competition
offers
. superior attributes
. distinguishing features

2.Cost leadership

to prevent new competitors from

entering their markets, businesses
produce goods/services at lower price
than competition
based on efficient operations
based on effective operations
economies of scale

3.Focused differentiation

develop new market niche for

specialized products or services
so that business can compete in target
market better than its competitors

4.Cost Focus

Company serves narrow market

segment with product/service
which it offers at a significantly lower
cost than competitors

Competitive Forces

Use competitive strategy to combat 5

competitive forces in marketplace
1. threat of new competitors
2. bargaining power of suppliers
3. bargaining power of customers
4. substitute products
5. rivalry within the industry

Competitive Forces

Use IT to enact or counteract these

forces with respect to
customers
existing & potential competitors
suppliers

Threat of new competitors

Erect barriers to entry:

use IT to slow down new firms entering
market
SABRE
ASAP

Intensify rivalry among

competitors

Change basis of competition

novel IS can perhaps change the basis of
competition - help offer product/service
with new features
e.g. delivery service allows customer to
track progress of package
you are now differentiated from competition
no longer compete just on price basis

Pressures from potential

substitute products

Deliver products with better value

identify and track a market niche with IS
that you can serve better than others
try to prevent substitution

Bargaining power of customers

Introduce switching costs

cost of switching to competitor
deters customers from switching
e.g. due to training and contracts, travel
agents unlikely to switch to different airline
reservation system

Bargaining power of suppliers

Develop Alternatives
use IS to maintain information on
available alternative sources of supply

Tactical Moves in Pursuing a

Strategy

Firm can use any of several tactics to

change its products or processes
through use of SIS
Internal innovation - generate new
knowledge
internal growth - economies of scale
Mergers & acquisitions
Strategic alliances - partnerships with other
companies

IOS & Strategic Alliances

strategic alliances:
information partnership - cooperative
alliance formed between two firms

Advantages
share information systems
reciprocity of competencies
economy of time and money

3- 7

The
The Strategic
Strategic Cube
Cube
COMPETITIVE
FORCES TO
CONTEND WITH
Customer
Power
Supplier
Power

Strategic
Alliance
Merger or
Acquisition
Internal Growth

Present
Competitors
Potential
Competitors
Substitute
Products

Internal
Innovation

TACTICS

STRATEGIES
Irwin/McGraw-Hill

TheMcGraw-Hill Companies, Inc., 1998

3. Value Chain

Value Chain

Tool to use to discover where a

company can apply IS to gain a
competitive advantage

Value Chain Analysis of Strategic

Opportunities

value chain model

highlights the primary or support
activities
that add a margin of value to a firms
products or services
where information systems can best be
applied
to achieve a competitive advantage

Value Chain Analysis of Strategic

Opportunities

Value chain consists of the major

activities that have been added to the
product during its creation,development
or sale.

Activities in the value chain

Activities in the creation of product or service

inbound logistics - obtain raw materials
Operations - transformation of inputs to
finished goods
Outbound logistics - storing products and
delivering them
Marketing/sales - establishing a customer
need
Service activities - after-sale service and
maintenance
each of these activities adds value to final
product

3- 8

Value
Value Chain
Chain with
with Typical
Typical Strategic
Strategic IS
IS
Mapped
Mapped onto
onto itit

EDI-Based
Purchasing
System

ComputerIntegrated
Mftg.

Inbound
Logistics

Upstream Chains
of Suppliers

Irwin/McGraw-Hill

Operations

Automated
Ordering
System
Outbound
Logistics

Expert
Systems for
Salespeople
Marketing
and Sales

Telemaintenance
Expert
Systems
Service

Downstream Chains
of Customers

TheMcGraw-Hill Companies, Inc., 1998

Value Chain

besides determining discrete steps in

chain - also need to analyze linkages
between steps in value chain
Use value-chain analysis to identify
strategic information systems
to use IS strategically, must identify
potentially info.-related aspects of each
activity in value chain and linkages
between them.

Virtual Value Chain

Mirrors with information the physical

value chain
possible to integrate the systems
mapped onto the physical value chain
(fig. 3.14) to produce the virtual V.C.
can also link V.C. to that of suppliers
and customers to form an integrated
supply chain

point of analysis

identify stages and links where highestimpact potential is available and

creatively use IS to bring about that
potential.

Organizational Requirements for

Successful SIS

Active support of Senior management not just MIS management

Integrated Planning - for strategic use
of IS into overall company strategic
planning process
Readiness: successful use of MIS
already, org. experience with tech.
innovation

Sustainability of a competitive
advantage

depends on:
1. lead time will allow the achievement
of competitive advantage
2. Copy cats may fail because of
Uniqueness
3. If copied: Your organization will still
have preempted the marketplace

3- 9

Key
Key Terms
Terms in
in Chapter
Chapter 33
Information
Information Society
Society
Business
Business Globalization
Globalization
Product
Innovation
Product Innovation
Process
Process Innovation
Innovation
Knowledge
Knowledge Management
Management
Strategic
Strategic Information
Information System
System
Competitive
Competitive Forces
Forces Model
Model
Differentiation
Differentiation
Cost
Cost Leadership
Leadership
Focused
Focused Differentiation
Differentiation
Cost
Cost Focus
Focus
Value
Value Chain
Chain

Irwin/McGraw-Hill

TheMcGraw-Hill Companies, Inc., 1998