Strategic Information Systems

Infsy 540
Dr. R. Ocker
 Chapter 3:
Competing with Information Systems

First Edition

Foundations of Information Systems

Vladimir Zwass

Irwin/McGraw-Hill © 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
 3- 5
Era
Era II of
of Organizational
Organizational Computing:
Computing:
Operational
Operational Support
Support

Large
Primary Support of Primary
Company
Objective Operations “Clients”
Units

Single
Justification Efficiency DP/IS Source
Department

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Era 1 operational support

1950s-1970s
Single data processing department
which developed all applications
end users - no direct access to
computer technology
large backlog
 3- 4
Era
Era IIIIof
of Organizational
Organizational Computing:
Computing:
Support
Support of of Management
Management && Knowledge
Knowledge Work
Work

Individual
Primary Management Managers Primary
Objective Support and “Clients”
Professionals

Information
Justification Management Systems Units Source
Effectiveness and End
Users

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Era II support management &
knowledge work
Began late 1970s
Apple II PC 1977
end-user software
beginning of end user computing
 3- 3
Era
Era III
III of
of Organizational
Organizational Computing:
Computing: Support
Support
of
of Business
Business Transformation
Transformation &
& Competition
Competition

Entranced Line of
Primary Primary
Competitive Business
Objective Position Units
“Clients”

Coordinated
Market Share
Justification Organizational Source
and
End User
Profitability
Computing

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©The McGraw-Hill Companies, Inc., 1998
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
 3- 1
Era
Era IV
IV of
of Organizational
Organizational Computing:
Computing:
Ubiquitous
Ubiquitous

Primary Collaborating Primary

Electronic
Objective Teams “Clients”
Integration

Organiza- Owned and

Justification tional Outsourced Source
Effectiveness Computing
Infrastructure

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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
organization’s strategy and ability to
compete
competitive advantage - can be
achieved by enhancing the firm’s 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
 3- 6

Competitive
Competitive Strategies
Strategies

Competitive Advantage
Lower Cost Differentiation

Broad Cost
Differentiation
Target Leadership

Competitive
Scope
Narrow Cost Focused
Target Focus Differentiation

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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
 3- 7
The
The Strategic
Strategic Cube
Cube

COMPETITIVE
FORCES TO
CONTEND WITH
Customer
Power
Supplier
Power
Present Strategic
Competitors Alliance
Merger or
Potential
Competitors Acquisition
Internal Growth
Substitute
Products Internal
Innovation TACTICS

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ip

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io
n

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iat

Fo
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iat

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Di cu
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Fo
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STRATEGIES
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©The McGraw-Hill Companies, Inc., 1998
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 firm’s
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
 3- 8
Value
Value Chain
Chain with
with Typical
Typical Strategic
Strategic IS
IS
Mapped
Mapped onto
onto itit

EDI-Based Computer- Automated Expert Telemaintenance

Purchasing Integrated Ordering Systems for Expert
System Mftg. System Salespeople Systems

Inbound Outbound Marketing

Operations Service
Logistics Logistics and Sales

Upstream Chains Downstream Chains

of Suppliers of Customers

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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
 3- 9

Key
Key Terms
Terms in
in Chapter
Chapter 33
Information
Information Society
Society
Business
Business Globalization
Globalization
Product Innovation
Product Innovation
Process
Process Innovation
Innovation
Knowledge
Knowledge Management
Management
Strategic
Strategic Information
Information System
System
Competitive
Competitive Forces
Forces Model
Model
Differentiation
Differentiation
Cost
Cost Leadership
Leadership
Focused
Focused Differentiation
Differentiation
Cost
Cost Focus
Focus
Value
Value Chain
Chain

Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1998