EBB310

MANAGEMENT INFORMATION SYSTEM

CHAPTER 2
Strategic Use of Information Systems

PREPARED BY:
AHMAD SUHAIMI BIN ALIAS

SCHOOL OF E-BUSINESS
FACULTY OF BUSINESS AND MANAGEMENT
CHAPTER 2 : Strategic Uses of Information Systems
LEARNING OUTCOMES
TOPIC

At the end of this chapter, students will be able to understands

the concepts of :

 Definition of Competitive Advantages.

 Function of Porter’s Forces Model.

 Strategic Information as Weapon of Competitive Advantages.

 Describe the Issues in Information System Toward Competitive Advantages.

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CHAPTER 2 : Strategic Uses of Information Systems
TOPIC OUTLINES
TOPIC

2.1 Achieving Competitive Advantages.

2.2 Strategic Information as a Competitive Weapon.

2.3 Issues to be Considered in Getting Competitive Advantages From

Information System.

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CHAPTER 2 : Strategic Uses of Information Systems
2.1 Achieving Competitive Advantages
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Definition of Competitive Advantages

 According to “BusinessDictionary.com”, a superiority gained by an

organization when it can provide the same value as its competitors but at a
lower price, or can charge higher prices by providing greater value through
differentiation.
 Competitive advantage results from matching core competencies to the
opportunities.

 According to “About.com”, a competitive advantage is what distinguishes you

from the competition in the minds of your customers. Whether you are an
employee, a business or a country, you need to have a clear competitive
advantage and communicate it to your customers.

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CHAPTER 2 : Strategic Uses of Information Systems
2.1 Achieving Competitive Advantages
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Porter’s Competitive Forces Model

Figure 2.1:- Porter’s Five (5) Competitive

Forces Model. Slide 5 of 29
CHAPTER 2 : Strategic Uses of Information Systems
2.1 Achieving Competitive Advantages
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Porter’s Competitive Forces Model

Threat of New Entrances

 A new entry of a competitor into your market also weakens your power.
Threat of new entry depends upon entry and exit barriers.
 Threat of new entry is high when:-
 Capital requirements to start the business are less.
 Few economies of scale are in place.
 Customers can easily switch (low switching cost).
 Your key technology is not hard to acquire or isn’t protected well.
 Your product is not differentiated.
 There is variation in attractiveness of segment depending upon entry and exit
barriers.
 That segment is more attractive which has high entry barriers and low exit
barriers.

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CHAPTER 2 : Strategic Uses of Information Systems
2.1 Achieving Competitive Advantages
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Porter’s Competitive Forces Model

Threat of Substitute Product

 Threat of substitute products means how easily your customers can switch
to your competitors product.
 Threat of substitute is high when:-
 There are many substitute products available.
 Customer can easily find the product or service that you’re offering
at the same or less price.
 Quality of the competitors’ product is better.
 Substitute product is by a company earning high profits so can
reduce prices to the lowest level.
 Customer can easily switch to substitute products. So substitutes are a
threat to your company.
 When there are actual and potential substitute products available then
segment is unattractive.
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CHAPTER 2 : Strategic Uses of Information Systems
2.1 Achieving Competitive Advantages
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Porter’s Competitive Forces Model

Industry Rivalry

 Industry rivalry mean the intensity of competition among the existing

competitors in the market. Intensity of rivalry depends on the number of
competitors and their capabilities.
 Threat of rivalry is high when:-
 There are number of small or equal competitors and less when
there’s a clear market leader.
 Customers have low switching costs.
 Industry is growing.
 Exit barriers are high and rivals stay and compete.
 Fixed cost are high resulting huge production and reduction in
prices.
 These situations make the reasons for advertising wars, price wars,
modifications, ultimately costs increase and it is difficult to compete.

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CHAPTER 2 : Strategic Uses of Information Systems
2.1 Achieving Competitive Advantages
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Porter’s Competitive Forces Model

Bargaining Power of Suppliers

 Bargaining Power of supplier means how strong is the position of a seller.

How much your supplier have control over increasing the Price of supplies.
 Supplier’s are more powerful when:-
 Suppliers are concentrated and well organized.
 A few substitutes available to supplies.
 Their product is most effective or unique.
 Switching cost, from one suppliers to another, is high.
 You are not an important customer to Supplier.
 When suppliers have more control over supplies and its prices that segment is
less attractive.
 It is best way to make win-win relation with suppliers. It’s good idea to have
multi-sources of supply.

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Porter’s Competitive Forces Model

Bargaining Power of Buyers

 Bargaining Power of Buyers means, How much control the buyers have to
drive down your products price, Can they work together in ordering large
volumes.
 Buyer’s are more powerful when:-
 Few buyers chasing too many goods.
 Buyer purchases in bulk quantities.
 Product is not differentiated.
 Buyer’s cost of switching to a competitors’ product is low.
 Shopping cost is low.
 Buyers are price sensitive.
 Credible Threat of integration.
 Buyer’s bargaining power may be lowered down by offering differentiated
product.
 If you’re serving a few but huge quantity ordering buyers, then they have the
power to dictate you.
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Porter’s Competitive Forces Model

In Porter’s competitive forces model, the strategic position of the firm and its strategies are
determined not only by competition with its traditional direct competitors but also by four forces
in the industry’s environment: new market entrants, substitute products, customers, and
suppliers.

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CHAPTER 2 : Strategic Uses of Information Systems
2.2 Strategic Information as a Competitive Weapon
TOPIC
Information System Strategies for Dealing with Competitive Force

Align IT with Business Objectives

 75% of businesses fail to align their IT with their business

objectives, leading to lower profitability.
 To align IT:
 Identify business goals and strategies.
 Break strategic goals into concrete activities and processes.
 Identify metrics for measuring progress.
 Determine how IT can help achieve business goals.
 Measure actual performance.

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CHAPTER 2 : Strategic Uses of Information Systems
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Information System Strategies for Dealing with Competitive Force

Low-Cost Leadership

Use information systems to achieve the lowest operational costs

and the lowest prices.

E.g. Wal-Mart

Inventory replenishment system sends orders to suppliers

when purchase recorded at cash register.

Minimizes inventory at warehouses, operating costs.

Efficient customer response system.

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CHAPTER 2 : Strategic Uses of Information Systems
2.2 Strategic Information as a Competitive Weapon
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Information System Strategies for Dealing with Competitive Force

Low-Cost Leadership

Wal-Mart’s continuous inventory replenishment system uses sales data captured at

the checkout counter to transmit orders to restock merchandise directly to its
suppliers. The system enables Wal-Mart to keep costs low while fine-tuning its
merchandise to meet customer demands.

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CHAPTER 2 : Strategic Uses of Information Systems
2.2 Strategic Information as a Competitive Weapon
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Information System Strategies for Dealing with Competitive Force

Product Differentiation

Use information systems to enable new products and services, or

greatly change the customer convenience in using your existing
products and services.
E.g. Google’s continuous innovations, Apple’s iPhone
Use information systems to customize, personalize products to fit
specifications of individual consumers.
Dell
Land’s End’s mass customization

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2.2 Strategic Information as a Competitive Weapon
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Information System Strategies for Dealing with Competitive Force

Focus On Market Niche

Use information systems to enable specific market focus, and

serve narrow target market better than competitors.
Analyzes customer buying habits, preferences
Advertising pitches to smaller and smaller target markets
E.g. Hilton Hotel’s OnQ System
Analyzes data collected on guests to determine preferences
and guest’s profitability

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Information System Strategies for Dealing with Competitive Force

Strengthen Customer and Supplier Intimacy

 Strong linkages to customers and suppliers increase switching costs

and loyalty
 Chrysler: Uses IS to facilitate direct access from suppliers to production
schedules
Permits suppliers to decide how and when to ship suppliers to
Chrysler factories, allowing more lead time in producing goods.
 Amazon: Keeps track of user preferences for purchases, and
recommends titles purchased by others

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Information System Strategies for Dealing with Competitive Force

 Some companies pursue several strategies at same time.

 Dell emphasizes low cost plus customization of products.
 Parker Hannifin offers products with unique features but competes on
price.
 Successfully using IS to achieve competitive advantage requires precise
coordination of technology, organizations, and people.

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CHAPTER 2 : Strategic Uses of Information Systems
2.2 Strategic Information as a Competitive Weapon
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The Internet’s Impact on Competitive Advantages

Enables new
products and
services

Creates new
opportunities
for building Transforms
brands and industries
large customer
bases

Increases
bargaining power
of customers and
suppliers

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CHAPTER 2 : Strategic Uses of Information Systems
2.2 Strategic Information as a Competitive Weapon
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The Internet’s Impact on Competitive Advantages

Existing competitors:
Widens market, New entrants: Reduces
barriers to entry (e.g. need
increasing competitors, for sales force declines),
reducing differences, provides technology for
pressure to compete on driving business processes
price

Substitute products and Customers’ bargaining

services: Facilitates power: Bargaining power
creation of new products shifts to customer
and services

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CHAPTER 2 : Strategic Uses of Information Systems
2.3 Issues to be Considered in Getting Competitive Advantages From
Information System
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Difficulties of Sustaining Competitive Advantage

 Competitors will always attempt to copy the information systems a firm uses if
they provide competitive advantage.
 Markets, customer expectations, and technology are also continually changing
and providing competitors with new opportunities to achieve their own
advantages.
 Nevertheless, information systems do provide many large and small firms with
strategic advantages for significant periods of time.

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CHAPTER 2 : Strategic Uses of Information Systems
2.3 Issues to be Considered in Getting Competitive Advantages From
Information System
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Difficulties of Sustaining Competitive Advantage

 Even if a firm’s systems can be copied, the business processes and industry
relationships underlying those systems often cannot be replicated.
 Firms that achieve a strategic advantage by making early investments in
information technology can often apply their experience and knowledge to new
investments that confer new strategic advantages later on.

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2.3 Issues to be Considered in Getting Competitive Advantages From
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Difficulties of Managing System-Related Change

 Bringing about change through new information technology and systems is

slowed considerably by the natural inertia of organizations.
 Of course, organizations can and do change, but the process is more
complicated and much slower than is typically anticipated.

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2.3 Issues to be Considered in Getting Competitive Advantages From
Information System
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Solution – Performing a Strategic System Analysis

 Managers interested in using information systems for competitive advantage

will need to perform a strategic systems analysis.
 To identify the types of systems that would provide a strategic advantage to
their firms, managers should ask a typical question regarding the system that
the firm / organization use / want to use.

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2.3 Issues to be Considered in Getting Competitive Advantages From
Information System
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Solution – Performing a Strategic System Analysis

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2.3 Issues to be Considered in Getting Competitive Advantages From
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Solution – Managing Strategic Transitions

 Adopting the kinds of strategic systems generally requires changes in

business goals, relationships with customers and suppliers, internal operations
and information architecture.
 These socio-technical changes, affecting both social and technical elements of
the organization, can be considered strategic transitions a movement between
levels of sociotechnical systems.
 Such changes often entail blurring of organizational boundaries, both external
and internal. Suppliers and customers must become intimately linked and may
share each other’s responsibilities.

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CHAPTER 2 : Strategic Uses of Information Systems
2.3 Issues to be Considered in Getting Competitive Advantages From
Information System
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Solution – Managing Strategic Transitions

 For instance, in Baxter International’s stockless inventory system, Baxter has

assumed responsibility for managing its customers’ inventories. (Johnston
and Vitale, 1988)
 Managers will need to devise new business processes for coordinating their
firms’ activities with those of customers, suppliers, and other organizations.
 The organizational change requirements surrounding new information systems
are so important that they merit attention throughout this text.

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CHAPTER 2 : Strategic Uses of Information Systems
Next Session Preview
TOPIC

Information System In Business

Function

 I.S in Business Functions.

 Effective and Efficiency of I.S in Business.

 Function of I.S in Each Department.

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CHAPTER 2 : Strategic Uses of Information Systems

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