Information Systems Strategy

Chapter 2
INFORMATION SYSTEM &
GLOBALIZATION
Outsourcing
 Initially outsource certain task

 outsource business function

 Eg: accounting to other company domestically

 Then manufacturing

 Lower pay, less regulations etc

 Now services

 Dev of computer sotware / webpages

 Customer support , telemarketing (eg: x-ray reading)

Outsourcing factors
 Language profiency

 Salaries

 Geopolitical risk
Why outsource
 Reduce / control costs  Reduce time to market

 Free up internal resources  Increase efficiency

 Gain access to world class  Focus on core act

capabilities  Compensate lack of

 Increase revenue potential capability / skills

Offshoring
 Eg:

 Airlines: British Airways moves customer relations & passenger

revenue accounting to India

 Airplane design : parts of Airbus & Boeing airplanes are designed

& engineered in Moscow

 Insurance : Prudential PCL moves call centre operations to India

 Banking: HSBC moves back-office operations to India

Short Discussion

What are the challenges that can arise

when outsourcing / off shoring?
Challenges
 Governmental challenges

 Geo economic eg: time zone

 Cultural – language, work ethic, religion, belief, attitude

 Role of IS
 Facilitate / help / enable globalization
Telemarketing
Customer
service Subsidiary
Subsidiary Control / Data Location
Location Eg : Philipines
Eg : India

Control / Data
Home
Control / Data

Location
Eg : US

Subsidiary
Subsidiary Location
Location Control / Data Eg : Malaysia
Eg : Mexico
Sales
Manufacturing
 Role 1 : Automating / doing things faster
 Eg: loan automating
Primary activities Manual Technology Supported Fully Automated

1. Complete & submit Take the form home, Take the form home, complete Customer fills out application from
loan application complete and submit and submit (1.5 days) home via the web (1 hour)
(1.5 days)
2. Check application for Process in batches Process in batches Computer checks for error
errors (2.5 days) (2.5 days) (3.5 seconds)
3. Input data from Handling time In batches Done as a part of online
application into IS (1 hour) (2.5 days) application process
(no extra time needed)
4. Assess loan <$250K Completely manual by With the help of computer Computer does this automatically
hand (15 days) (1 hour) (1 second)
5. If loan >$250K, (15 days) (15 days) (15 days)
committee decides
6. Applicant notified Letter generated in Letter generated with the help System notifies applicant via email
batches ( 1 week) of computer (1 day) (3.5 seconds)
TotalTime 25-40 days 5-20 days 1 hour – 15 days
Role 2: Organizational learning / doing
things better
 A computer based loan processing system can enables the

bank manager to identify trends in loan application.

 Eg:

 Car loans are always higher during festival seasons especially Hari Raya &

Chinese New Year.

 Personal loans are also typically higher before and after festival seasons.
Role 3: Supporting strategy :Doing
things smarter
 Use websites with IS such as : www.eloan.com.

 The websites offers:

 Information on loans

 Tools & calculators

 Search engines

 Current rates

 etc
 IS & Value Chain Analysis
 Value chain analysis – identify opportunities to use IS for

competitive advantage.

Inbound Outbound Sales &

Operations Service
Logistics Logistics marketing

Product R & D, Technology & System development

Human Resource Management
General Administration

A sample generic organizational value chain

 IS & Value Chain Analysis
 IS – used to automate value chain analysis. Customer
Website with Service
Internet Link wt
online catalog & Response
suppliers & dealers
ordering System

Inbound Outbound Sales &

Operations Service
Logistics Logistics marketing

CAM

Product R & D, Technology & System development CAD

Project
Mgmt Human Resource Management Financial
S/w Decision
General Administration
Support
system
IS adds value to an organizational value chain
IS
 How to match technology & strategy

 Many types of IS

 Which one to use , how to use, how much to spend ,why spend

INFORMATION SYSTEM
STRATEGY
IS Strategy
 Making the business case for IS (justifying why we need IS)

 Eg: how lawyers work – build strong & integrated set of

arguments & evidence

 how IS will bring benefit to the organization

 What are the elements

 Why
Productivity paradox
 Easy to say that IS increases productivity but difficult to prove

 Increase cost for IS expenses, salary, investment and number of

staff but not necessary productivity will increase.

 Games

 Facebook or other social website

 Chatting / IM

 Junk / personal emailing

 Personal shopping / surfing

Productivity paradox
 Factors leading to IS productivity paradox

 Measurement : difficult to measure the impact of IS to

productivity.
 Eg: how much ATM contribute to banking productivity?

 Time lags : significant time lapse between the investment &

improvement.
 Eg: ATM: the benefits only felt after years of implementation.
Productivity paradox
 Factors leading to IS productivity paradox

 Redistribution : IS may be beneficial for individual firms but not

the industry as whole.

 Eg: Ms.Word in your computer – is it really helping? Think the time

when no word processing software.

 Mismanagement : IS not implemented & managed well.

 Eg: the company still relies on human to do the work.

Faith , Fear & Fact
 Types of argument in a business case:

1. Faith
 Based on beliefs about organizational strategy, competitive advantage,
industry forces, customer perceptions, market share etc.
 “I know I don’t have data to back this up but I think CRM will really
bring a lot of benefits to our organization. We can serve our customers
better than our competitors and then we can double our customer
number. I really have faith it going to make us better”
Faith , Fear & Fact
 Types of argument in a business case:

2. Fear
 Based on notion that is the system is not implemented, the firm
will lose out to the competition or go out of business.
 “if we don’t implement this ERP system, we’ll be finished
because they are implementing these kind of systems. We either
do or die”
Faith , Fear & Fact
 Types of argument in a business case:

3. Fact
 Arguments based on data, quantitative analysis and/or
indisputable factors.
 “this analysis shows that implementing the inventory control
system will reduce errors by 50 % and reduce operating cost by
15% a year etc”
Potential use of IS
 Traditional rivals within your industry that bring competition in price,
product distribution and service
 Implement ERP to reduce costs and be able to act and react more quickly

 Implement web site to offer better service to customers.

 Threat of new entrants into market that increases capacity in the

industry, reduced prices and decreased market share
 Better web site to reach customers and differentiate product

 Inventory control system to lower costs and better manage excess capacity
Potential use of IS
 Customers bargaining power that brings reduced prices, need for

increased quality and demand for more services

 Implement CRM system to serve customers better

 Implement CAD / CAM to improve product quality

 Suppliers bargaining power that brings increased costs and

reduced quality
 Use Internet to establish closer electronic ties with suppliers and

create relationships with new suppliers located far away

Potential use of IS
 Threat of substitute products from other industries that

brings potential returns of product, decreased market share,

losing customers for life
 Use DSS and customer purchase database to better assess trends

and customer needs

 Use CAD to design new product or redesign existing products
IS : Yes or No?
 So :

 Identify cost

 recurring & non-recurring cost

 recurring costs – eg: salary, training, Internet fee, website fee

etc
 Non-recurring – eg: hardware, webmaster etc
IS : Yes or No?
 So :
 Identify benefits

 Tangible & intangible benefits

 Tangible benefits – such as increase in sales, fewer order

entry clerks, reduction in operation cost
 Intangible benefits – faster order-full filling,
improvements in customer service etc.
IS : Yes or No?
 So :

 Do cost – benefit analysis

 Break-even analysis

 Net-present-value analysis
IS system example
 Pizza delivery system : have you ordered pizza

online or via telephone? How are your orders

taken? What are the information required when
taking order? What information is required when
you order again?
END OF CHAPTER 2