MISO-Chapter 6

IT Strategy

Source: Information Technology For Management 5 th Edition By: Turban, Leidner, McLean, Wetherbe

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)

Ubiquitous computing (wireless)

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Strategic Information Systems (SISs)

SISs provide strategic solutions to the 5 Business
Pressures:

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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

Many
companies
monitor the
activities of
competitors

Such activities drive

business
performance by:
Increasing market
knowledge
Improving internal
relationships

The Internet
is central to
supporting
competitive
intelligence

Raising the quality of

strategic planning

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HOW IT/IS AFFECTS

THE NATURE OF COMPETITION

It changes industry structure and alters the rules of

competition...

It creates competitive advantage by giving

companies new ways to out-perform their rivals...

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by increasing the power of buyers,

raising barriers to entry and
influencing the threat of substitution

lowering costs,
enhancing differentiation and
changing competitive scope

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HOW IT/IS AFFECTS

THE NATURE OF COMPETITION

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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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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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 What can help us:

think and
analyse situations

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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 5 Competitive Forces (1985)

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Porters Model in Action

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Response Strategies - 0909

(Porter, 1985)

COST
LEADERSHIP

DIFFERENTATION

Providing
Being unique in the
products and/or
industry
services at the
lowest cost in the
industry.

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FOCUS
Selecting a
niche market
and achieving
cost leadership
and/or
differentation.

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More 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 Value Chain Model - Graphically

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Inbound logistics

Materials receiving, storing, and distribution to

manufacturing premises
Operations

Transforming inputs into finished products.

Outbound logistics
Storing and distributing products
Marketing and Sales
Promotions and sales force
Service
Service to maintain or enhance product value
Corporate infrastructure Support of entire value chain, e.g. general
management planning,
financing, accounting, legal services, government
affairs, and QM
Human resources management Recruiting,
hiring, training, and
development
Technology Development Improving product and manufacturing process
Procurement Purchasing input

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Porters Value Chain Model (1985)

PRIMARY ACTIVITIES
Inbound logistics (inputs)
Operations (manufacturing & testing)
Outbound logistics (storage & distribution)
Marketing & sales
Service

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Supply
Chain

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Porters Value Chain Model

SUPPORT ACTIVITIES
Firm Infrastructure
Human Resources Management
Technology Development
Procurement

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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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Integrated Value System

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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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McFarlans Portfolion Framework (1984)

High

Current

Key Operational
Applications upon
which the organisation
currently depends for
success

Strategic
Applications that are
critical for future business
strategy

Support
Applications that are
currently valuable and
desirable but not critical
for future business
success

High Potential
Applications that may be
important in achieving
future business success

Low
Low
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Future
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High
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McFarlans Portfolion Framework (1984)

High

Current

Key Operational
Strategic
Scheduling on-line e-procurement
Online parts
Electronic ticketing
ordering
Agents management
Maintenance online
Support
frequent flyer
account tracking
Training on-line
Wireless SMS info

High Potential
Intelligent data mining
e-mail direct marketing

Low
Low
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Future
IT Strategy

High
PGM

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)

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Electronic Auctions

Electronic Biddings

Buyer-Driven Commerce

Single Company Exchange

Direct Sales

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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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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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Suggested Reading

Information Technology for Management

Old Book
Chapter 3 Information Systems for
Competitive Advantage pp 80 to 119

New Book
Chapter 12 Information Systems for
Competitive Advantage pp 505 to 518

Computing Press read it

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Q&A
Source: Information Technology For Management 5 th Edition By: Turban, Leidner, McLean, Wetherbe
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