Information Systems Business Strategy

							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
             Business-level Strategy
• 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
  strategies by:
   – 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
     activities possible.
         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
     services

– 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
         Business-level Strategies
• 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
     Web site.

• 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.
               Firm-level Strategy
• 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
  a whole.
• 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
  instruments.
              Industry-level Strategy
• 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
     electronically.
   – 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-
     based marketplaces.

• 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.