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Strategic Information Systems

Infsy 540
Dr. R. Ocker
Foundations of Information Systems
Vladimir Zwass
Chapter 3:
Competing with Information Systems
Irwin/McGraw-Hill
First Edition
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
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Era I of Organizational Computing:
Operational Support
Era I of Organizational Computing:
Operational Support
Support of
Operations
Large
Company
Units
Single
DP/IS
Department
Efficiency
Primary
Objective
Justification
Primary
Clients
Source
Era 1 operational support
1950s-1970s
Single data processing department
which developed all applications
end users - no direct access to
computer technology
large backlog
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Era II of Organizational Computing:
Support of Management & Knowledge Work
Era II of Organizational Computing:
Support of Management & Knowledge Work
Management
Support
Individual
Managers
and
Professionals
Information
Systems Units
and End
Users
Management
Effectiveness
Primary
Objective
Justification
Primary
Clients
Source
Era II support management &
knowledge work
Began late 1970s
Apple II PC 1977
end-user software
beginning of end user computing

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Era III of Organizational Computing: Support
of Business Transformation & Competition
Era III of Organizational Computing: Support
of Business Transformation & Competition
Entranced
Competitive
Position
Line of
Business
Units
Coordinated
Organizational
End User
Computing
Market Share
and
Profitability
Primary
Objective
Justification
Primary
Clients
Source
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
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Era IV of Organizational Computing:
Ubiquitous
Era IV of Organizational Computing:
Ubiquitous
Electronic
Integration
Collaborating
Teams
Owned and
Outsourced
Computing
Infrastructure
Organiza-
tional
Effectiveness
Primary
Objective
Justification
Primary
Clients
Source
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


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Competitive Strategies
Competitive Strategies
Competitive Advantage Competitive Advantage
Competitive Competitive
Scope Scope
Lower Cost Differentiation
Broad
Target
Narrow
Target
Cost
Leadership
Cost
Focus
Differentiation
Focused
Differentiation
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
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The Strategic Cube
The Strategic Cube
Customer
Power
Supplier
Power
Present
Competitors
Potential
Competitors
Substitute
Products
COMPETITIVE COMPETITIVE
FORCES TO FORCES TO
CONTEND WITH CONTEND WITH
STRATEGIES STRATEGIES
TACTICS TACTICS
Strategic
Alliance
Merger or
Acquisition
Internal Growth
Internal
Innovation
D
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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

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Value Chain with Typical Strategic IS
Mapped onto it
Value Chain with Typical Strategic IS
Mapped onto it
EDI-Based
Purchasing
System
Computer-
Integrated
Mftg.
Automated
Ordering
System
Expert
Systems for
Salespeople
Telemaintenance
Expert
Systems
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
and Sales
Service
Downstream Chains
of Customers
Upstream Chains
of Suppliers
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 highest-
impact 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

The McGraw-Hill Companies, Inc., 1998
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Irwin/McGraw-Hill
Key Terms in Chapter 3
Key Terms in Chapter 3
Information Society
Business Globalization
Product Innovation
Process Innovation
Knowledge Management
Strategic Information System
Competitive Forces Model
Differentiation
Cost Leadership
Focused Differentiation
Cost Focus
Value Chain
Information Society
Business Globalization
Product Innovation
Process Innovation
Knowledge Management
Strategic Information System
Competitive Forces Model
Differentiation
Cost Leadership
Focused Differentiation
Cost Focus
Value Chain

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