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ONLINE FILE W3.2

STRATEGIC INFORMATION SYSTEMS FRAMEWORKS

A framework for a strategic information system (SIS) is a descriptive structure that helps us understand and classify the relationships among strategic management, competitive strategy, and information technology. One reason for the abundance of SIS frameworks is that there are many different types of information systems (see Chapter 2 in the text). Neumann (1994) advocates the use of SIS frameworks and provides a detailed description of (and references for) the most important ones. Here we present only a few of the more important frameworks, basically to illustrate their role in the study of SIS. We introduce the following: Three frameworks that are related to Porters models: Porter and Millar, Wiseman and MacMillan, and Bakos and Treacy McFarlans application portfolio framework A customer resource life-cycle framework A global business drivers framework for multinational corporations For other approaches, see Buchanan and Gibb (1998) and Lederer and Salmela (1996).

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A CLOSER LOOK W3.2.1 PORTER AND MILLARS FIVE-STEP PROCESS

STEP 1. Assess information intensity. Organizations need to assess the information intensity of each link in each of their value chains. If customers or suppliers are highly dependent on information, then intensity is high, and strategic opportunities are likely to exist. Higher intensity implies greater opportunity. STEP 2. Determine the role of IT in the industry structure. An organization needs to know how buyers, suppliers, and competitors might be affected by and react to IT. STEP 3. Identify and rank the ways in which IT can create competitive advantage. An organization must analyze how particular links of the value chain might be affected by IT. STEP 4. Investigate how IT might spawn new businesses. Excess computer capacity or large corporate databases can provide opportunities for spinoff of new businesses. Organizations should answer the following three questions: What information generated (or potentially generated) by the business should be sold? What IT capacities exist to start a new business? Does IT make it feasible to produce new items related to the organizations current products? STEP 5. Develop a plan for taking advantage of IT. Taking advantage of strategic opportunities that IT presents requires a plan. The process of developing such a plan should be business-driven rather than technology-driven.
Source: Compiled from M. E. Porter and V. E. Millar, How Information Gives You Competitive Advantage, Harvard Business Review, JulyAugust 1985. Reprinted by permission of Harvard Business Review.

Porter and Millar (1985) concluded that competition has been affected by IT in three vital ways. First, industry structure and the rules of competition have changed as a result of new information technologies. Second, organizations have outperformed their competitors by using IT. Finally, organizations have created new businesses by using IT. Based on this conclusion, Porter and Millar developed a ve-step framework that organizations can use to exploit the strategic opportunities IT creates (see A Closer Look W3.2.1). Note that almost exactly the same effects are observed in e-commerce (Choi and Whinston, 2000; Turban et al., 2002). Porter and Millar have developed a matrix that indicates the high and low values of the interrelated information. They use this matrix to identify the role that information plays in product offerings, as well as the process used to deliver the product to customers. The framework enables managers to assess the information intensity in their businesses. Information intensity measures the level of information used in supporting business processes. The basic idea of the framework is to determine how specic IT applications can enhance various links in the value chain, whether in internal operations or in the external marketplace, and thus enable the business to achieve a strategic advantage. The framework relates the information intensity of a products value chain to the information content of the product. A number of companies have used Porter and Millars model successfully. Wiseman and MacMillan (1984) revised Porters framework by adding four defense strategies, innovation, growth, alliance, and time, to Porters three strategies. They then created a matrix in which the seven defense strategies are the rows and the columns are suppliers, customers, and competitors. The cells in the matrix can direct IT applications. For example, in the cell of row differentiation and column customer, one can utilize Web-based mass customization. Thus, each cell in the matrix identies the available IT strategies for an external industry force.

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Search-Related Costs

Unique Product Features

Bargaining Power

FIGURE W3.2.1 Bakos and Treacys causal model of competitive advantage. (Source:
Information Technology for Corporate Strategy, MIS Quarterly, June 1986. 1986 by the Management Information Systems Research Center (MISRC) by the University of Minnesota and the Society for Information Management (SIM). Reprinted by permission.)

Switching Costs

Competitive Advantage

Internal Efficiency Comparative Efficiency Interorganization Efficiency

An important implementation question is how to nd applications for the cells in this matrix. An example of a company that used this framework to nd applications is GTE Corporation. The company employed a brainstorming procedure and identied more than 300 ideas for strategic applications of IT. (For other suggestions about how to nd IT-based ideas, see Bergerson et al., 1991; Boynton et al., 1993; and Callon, 1996.) Bakos and Treacy (1986) proposed a causal framework of competitive advantage. According to their model, the two major sources of Porters competitive advantage are bargaining power and comparative efciency (see Figure W3.2.1). These sources of competitive advantage are caused by ve specic items: searchrelated costs, unique product features, switching costs, internal efciency, and interorganizational efciency. Initially, IT efforts were aimed at increasing comparative efciency. Lately, however, IT is also dealing with the other items, such as impacting search and switching costs by use of the Web. Let us consider how IT can support the ve activities (shown on the left side of Figure W3.2.1) that drive bargaining power and comparative efciency from the point of view of a company planning a defensive strategy. 1. IT can create or enhance unique product features. For example, Mattel enables customization of its Barbie dolls over the Web. Similarly, Rosenbluths systems provide unmatchable cost reduction for their customers. 2. IT can increase the switching cost to a companys customers when certain IT-based services are provided (e.g., a Web-based tracking system). 3. IT contributes to internal efciency; it is known for its effectiveness in reducing costs and increasing productivity, as shown throughout the book. 4. IT can increase interorganizational efciency through synergy, enhancing business partnerships, joint ventures, and other alliances. This is done by

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using EDI, extranets, and vertical exchanges for procurement (see Chapter 5 in the text). 5. IT can create new business models, such as reverse auctions and vertical exchanges, or can support new business models, such as fee for service, which replaced commissions as the revenue model of Rosenbluth. In doing so, improved internal efciency, interorganizational efciency, and searchrelated costs all contribute to competitive advantage. F. W. McFarlan developed a framework (1984) with which organizations can analyze their mix of existing, planned, and potential information systems. The framework, which can be applied to any type of application, including e-commerce, can be viewed as a four-cell matrix. Applications are classied into a collection (portfolio) of the following four categories: 1. High potential: applications that may be important in achieving future business success (such as intelligent systems or human resources planning) 2. Key operational: applications upon which the organization currently depends for success (such as inventory control, accounting receivable, personnel duties) 3. Strategic: applications that are critical for future business strategy (eprocurement, extranet, enterprise resource planning) 4. Support: applications that are currently valuable and desirable (but not critical) for business success (such as videoconferencing and multimedia presentations) Note that the classication is done according to current and future contributions as perceived by management. Note also that the positioning of the applications may vary from company to company. For example, online training, which we listed as a support application, would be a key operational application for a software vendor. McFarlans framework is important for allocating funds to IT initiatives, especially to costly ones. Figure W3.2.2 shows, for example, how one airline classied its current e-commerce projects. The customer resource life-cycle (CRLC) framework, set forth by Ives and Learmouth (1984), focuses on the relationship with customers. The idea behind CRLC is that an organization differentiates itself from its competition in the eyes of the customer. Therefore, concentrating on the customer relationship is the key to achieving a strategic advantage. CRLC postulates that the customer goes through 13 fundamental stages in the relationship with a supplier and that each stage should be examined to

FIGURE W3.2.2 McFarlans application portfolio model. (Source:

F. W. McFarlan, Information Technology Changes the Way You Compete, Harvard Business Review, MayJune 1984.)

Strategic E-procurement, electronic ticketing, agents' management

High Potential Intelligent data mining, e-mail, direct marketing

Key Operational Online scheduling, online parts ordering, online maintenance

Support Frequent-flyer account tracking, online credit union, online training, wireless SMS information

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TABLE W3.2.1 Stages in the Customer Resources Life-Cycle

Stage 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Description Establish customer requirements. Specify customer requirements. Select a source; match customer with a supplier. Place an order. Authorize and pay for goods and services. Acquire goods or services. Test and accept goods or services. Integrate goods into and manage inventory. Monitor use and behavior. Upgrade if needed. Provide maintenance. Transfer or dispose of product or service. Keep nancial records of purchases (accounting).

determine whether IT can be used to achieve a strategic advantage. (See Table W3.2.1 for a list of the stages.) This approach is used, for example, in developing electronic commerce systems. For example, Gonsalves et al. (1999) used the model to analyze the impact of the Web on competitiveness. The CRLC concept is one of the foundations upon which customer relationship management (CRM) is based.