Information Systems & Business Strategy
• What is a strategic information system (SIS)?
– Information system at any level of the organization that
change goals, operations, products, services, or
environmental relationships to help the organization
gain a competitive advantage
– Information system that has become especially critical to
firms’ long-term prosperity and survival
– Information system that is used to exploring, identifying,
and occupying new market niches before competitors;
understanding the customer value chain better; and
learning faster and more deeply than competitors
– Information system that operate at any of these strategic
levels: business, firm, and industry
• The key question is, “How can we compete effectively in
this particular market?”
• The most common generic strategies at this level are:
– to become the low-cost producer,
– to differentiate your product or service, and/or
– to change the scope of competition by either enlarging the market
to include global markets or narrowing the market by focusing on
small niches not well served by your competitors
• SISs provide new capabilities for supporting business-level
– managing the supply chain,
– building efficient customer “sense and response” systems, and
– participating in value webs (groups of independent firms who use
information technology to coordinate their value chains to
collectively produce a product or service for a market) to deliver
new products and services to market
Business-level Strategy – The Value Chain
• Value chain analysis is the most common analytical
tool at the business level.
• The value chain model views the firm as a series or
“chain” of basic activities that add a margin of value
to a firm’s products or services.
• These activities can be categorized as:
– Primary activities are most directly related to the
production and distribution of the firm’s products and
services that create value for the customer.
– Support activities make the delivery of the primary
Examples of Activities
– Primary activities
• inbound logistics – receiving and storing materials for
distribution to production
• operations – transforming inputs into finished products
• outbound logistics – storing and distributing finished products
• sales and marketing – promoting and selling the firm’s products
• service – maintenance and repair of the firm’s goods and
– Support activities
• organization infrastructure – administration and management
• human resources – employee recruiting, hiring, and training
• technology – improving products and the production process
• procurement – purchasing input
Activities of the Value Chain
• Differentiating products
– SISs for product differentiation can prevent the competition from reacting
by doing the same thing and help the firms with these differentiated
products and services no longer have to compete on the basis of cost.
– Citibank developed automatic teller machines (ATMs) and bank debit
cards in 1977.
• Serving new markets
– SISs enable companies to finely analyze customer buying patterns, tastes,
and preferences so that they efficiently try to make advertising and
marketing campaigns to smaller and smaller target markets.
– Yahoo.com captures and analyzes data generated when people visit its
• Reducing costs
– SISs can help firms link with customers and suppliers and reduce their
inventory costs while responding rapidly to customer demands.
– Wal-Mart’s SIS sends orders for new merchandise directly to suppliers as
soon as consumers pay for their purchases at the cash register.
• SISs can improve the overall performance of business units
in a firm by promoting synergies and core competencies.
• One use of IT in synergy situations is to tie together the
operations of different business units so that they can act as
• IT can enhance a core competency (an activity at which a
firm is a world-class leader) by encouraging the sharing of
knowledge across business units of a firm.
• After merging between Citicorp and Travelers Insurance,
Citigroup can cross-market both Citicorp and Travelers
financial products to customers, and IT could lower
retailing costs, increase customer access to new financial
products, and speed up the process of marketing new
• Information partnerships
– Firms can form information partnerships and link their information systems
to achieve unique synergies.
– American Airlines has an arrangement with Citibank to award one mile in its
frequent flier program for every dollar spent using Citibank credit cards.
• The competitive forces model
– By working with other firms, industry participants can use IT to develop
industry-wide standards for exchanging information or business transactions
– Covisint, an electronic marketplace shared by the major automobile
manufacturers, enables all manufacturers and suppliers to trade on a single
Internet site, preventing manufacturers the cost of setting up their own Web-
• Network economics
– In a network, the marginal costs of adding another participant are about
zero, whereas the marginal gain can be much larger.
– Internet sites, such as EBay, can be used by firms to build “communities of
users” who want to share their experiences, and can build customer loyalty
and enjoyment, and unique ties to customers.