Chapter 2 Strategic Uses of Information Systems Learning

Chapter 2 Strategic Uses of Information Systems

Learning Objectives l 2 When you finish this chapter, 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.

Learning Objectives 3 – 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 another fail.

Strategy and Strategic Moves l Strategy – l 4 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.

Achieving a Competitive Advantage 5 l Profits increase significantly through increased market share. l The essence of strategy is innovation, so competitive advantage often occurs when an organization tries a strategy that no one has tried before. l Dell was the first PC manufacturer to use the Web to take customer orders.

Achieving a Competitive Advantage Figure 2. 1 Eight basic ways to gain advantage 6

Achieving a Competitive Advantage 7 Figure 2. 2 Many strategic moves can work together to achieve a competitive advantage

Achieving a Competitive Advantage l 8 Initiative #1: Reduce Costs – Lower Price – Bigger Market Share

Achieving a Competitive Advantage l Initiative #2: Raise Barriers to Entrants – Patenting – High expense of entering industry l State Street, Inc. (Pension fund management business) 9

Achieving a Competitive Advantage l Initiative #3: Establish High Switching Costs – Explicit Switching Costs l Fixed – and nonrecurring Implicit Switching Costs l Indirect costs in time and money of adjusting to a new product 10

Achieving a Competitive Advantage l Initiative #4: Create New Products and Services – Dynamic l The 11 advantage lasts only until other organizations in the industry start offering an identical or similar product or service for a comparable or lower price.

Achieving a Competitive Advantage l Initiative #5: Differentiate Products and Services – Product differentiation – Brand recognition – Examples of brand name success l l l 12 Levi’s jeans Chanel perfumes Calvin Klein clothing

Achieving a Competitive Advantage l Initiative #6: Enhance Products and Services – Examples l l l 13 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

Achieving a Competitive Advantage l Initiative #7: Establish Alliances – Combined service may attract customers l l – Examples l l 14 Lower cost Convenience Travel industry HP and Fed. Ex

Achieving a Competitive Advantage 15 Figure 2. 3 Strategic alliances combine services to create synergies

Achieving a Competitive Advantage l 16 Initiative #8: Lock in Suppliers or Buyers – Bargaining Power – Purchase volume – Strengthen perception as a leader – Create a standard

Strategic Information as a Competitive Weapon l Strategic Information Systems (SIS) – Any IS that can help an organization achieve a long-term competitive advantage – SIS embodies two types of ideas l l – Two conditions for SIS l l 17 Potentially-winning business move How to harness IT to implement that move IS must be serving an organizational goal IS unit must be working with the managers of the other functional units

Strategic Information as a Competitive Weapon l 18 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.

Strategic Information as a Competitive Weapon 19 Figure 2. 4 Steps for considering a new SIS

Strategic Information as a Competitive Weapon Figure 2. 5 Steps to take in an SIS idea-generating meeting 20

Strategic Information as a Competitive Weapon l 21 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.

Strategic Information as a Competitive Weapon l Competitive Advantage as Moving Target – SISs developed as strategic advantages quickly become standard business. l – Companies must continuously contemplate new ways of utilizing information technology to their advantage. l 22 Banking industry (ATMs and banking by phone) SABRE, American Airlines’ reservation system

Strategic Information as a Competitive Weapon l Sources of Strategic Information Systems – – – 23 Existing System New Service New Technology Excess Information Vertical Information

Strategic Information as a Competitive Weapon – From Automation to SIS l An organization can gain a competitive advantage through automation of a manual process. l American Hospital Supply automated manual orders and improved services, resulting in a 17 percent compound annual growth rate in sales. 24

Strategic Information as a Competitive Weapon – SIS from a New Service l. A company may gain competitive advantage by providing a new service using IT. l Merrill Lynch was the first to use IT to provide a cash-on-demand service for their investors and captured a lion’s share of the market. 25

Strategic Information as a Competitive Weapon – SIS from New Technology l. A company that figures out how to use a new technology can gain a competitive advantage. l American 26 Express used new scanning technology to process credit charges and saved millions of dollars in reduced labor costs.

Strategic Information as a Competitive Weapon – SISs from Excess Information l An organization can gain an advantage by putting excess information toward a new product or service. l Sears Roebuck and Company uses its customer record database to provide target information to its subsidiaries in insurance and real estate. 27

Strategic Information as a Competitive Weapon – SISs from Vertical Information l Organizations use ISs to augment their businesses vertically by offering related services. l Realtors offer financing and relocation information in addition to information about houses for sale. 28

Strategic Information as a Competitive Weapon – Good SIS ideas must be carefully executed if a company is to seize opportunities. l Mc. Kesson Drugs, Inc. , automated its operations and gained a competitive advantage. Enhanced existing services – Provided new services – Cut costs – Created high switching costs for clients – 29

Strategic Information as a Competitive Weapon l How one IS Failed – Citicorp tried to use an SIS to implement a 15 -minute mortgage approval plan called Mortgage. Power Plus, but the program failed. l l 30 Failed strategically due to unwise business shortcuts. Failed operationally due to poor technical implementation.

Strategic Information as a Competitive Weapon l Success and Failure on the Web – Just being first on the Web is not enough to be successful: business ideas must be sound. l l 31 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.

The Bleeding Edge 32 l Business owners must develop new features to keep the system on the leading edge. l 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

The Bleeding Edge 33 l The bleeding edge: failure in an organization’s effort to be on the technological leading edge. l 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 organization’s successful technology.

Ethical and Societal Issues The Power of Information l 34 The U. S. Department of Justice, the Attorneys General of several states, and Sun Microsystems filed suit against Microsoft claiming the company violated fair trade practices in establishing itself as a monopoly. – Started with DOS on every PC; continued with Windows. – Bundled Internet Explorer with Windows. – Modified Java to run only on Windows.