Strategic Information Systems for Competitive Advantage

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					       Week 2
 Strategic Information
Systems for Competitive
      Advantage


                          1
                 Today
• Three eras of IT/IS revolution
• Strategic Information Systems
• The role of IT/IS in competition
• Porter‟s 5 competitive forces
• Porter‟s value chain
• Some other academic views
• Cases
• Managerial issues
                                     2
         Three eras of I.T. evolution
• Mainframe Era
  – (1950‟s-1970‟s)

• Microcomputer Era
  – (late 1970‟s to 1980‟s)

• Network Era
  – (late 1980‟s to present)



                                        3
Strategic Information Systems (SISs)
 SISs provide strategic solutions to the 5 Business
                      Pressures:




                                                      4
Elements of Strategic Management



               1. Long Range Planning

               2. Response Management

               3. Proactive Innovation




                                         5
 The Role of IT in Business Innovation
• IT creates applications that provide strategic
  advantages to companies
• IT is a competitive weapon
• IT supports strategic change, e.g, re-engineering

• IT networks with business partners

• IT provides cost reduction

• IT provides competitive business intelligence




                                                      6
           Competitive Intelligence

                 Such activities drive
   Many               business
                  performance by:         The Internet
companies
                                          is central to
monitor the     •Increasing market         supporting
activities of   knowledge
                                          competitive
competitors                               intelligence
                •Improving internal
                relationships

                •Raising the quality of
                strategic planning

                                                          7
Competitive Advantage in the Web Economy


 Competitive      Competitive        Sustainable
  Strategy        Advantage           Strategic
                                     Advantage
 Search for a        Look for a
                                         Maintain
 competitive        competitive        profitable &
advantage in     necessity, which      sustainable
 an industry,      will help your   position against
which leads to    company keep       the forces that
control of the      up with the         determine
   market.         competitors.          industry
                                      competition.

                                                       8
                 •
Porter‟s 5 Competitive Forces (1985)
 • The threat of entry of new competitors.

 • The bargaining power of suppliers.

 • The bargaining power of customers (buyers).

 • The threat of substitute products or services.
 • The rivalry among existing firms in the
   industry.


                                                    9
Porter‟s Model in Action




                           10
             HOW IT/IS AFFECTS
        THE NATURE OF COMPETITION

•   It changes industry structure and alters the rules of
    competition...
    –    by increasing the power of buyers,
    –    raising barriers to entry and
    –    influencing the threat of substitution


•   It creates competitive advantage by giving
    companies new ways to out-perform their rivals...
    –    lowering costs,
    –    enhancing differentiation and
    –    changing competitive scope

                                                            11
             HOW IT/IS AFFECTS
        THE NATURE OF COMPETITION


•   It spawns whole new businesses, often from within a
    company's own operations... by making

    –    new businesses technologically feasible

    –    creating derived demand for new products and

    –    creating new businesses within old ones.




                                                        12
 Key points about I.T. and competitive advantage


• Understanding the information content of the
  business process is a pre-requisite to
  developing IT systems that deliver advantage.

• Leaders who initiate the use of IT at one level of
  opportunity are quickly imitated by their
  competitors.


                                                   13
  Technology versus Management of technology

• I.T. is so accessible today that organisations
  cannot compete on technology alone.
• The competitive advantage is derived from how
  the technology is used.
• Today the management of technology has
  become a critical issue in competing more
  effectively.
• The issue is not whether to invest in I.T. but
  where and how.

                                               14
           Response Strategies
                   (Porter, 1985)

    COST
 LEADERSHIP       DIFFERENTATION            FOCUS

    Providing      Being unique in the     Selecting a
 products and/or        industry          niche market
  services at the                         and achieving
lowest cost in the                       cost leadership
     industry.                                 and/or
                                          differentation.




                                                        15
            Response Strategies
             (added by Porter and others)


      GROWTH                     IMPROVE INTERNAL
Increasing market share,            EFFICIENCY
acquiring more customers or       To improve employee and
selling more products             customer satisfaction

     ALLIANCES                             CRM
Working with business             Customer-oriented
partners to create synergy &      approaches, e.g. the
provide opportunities for         customer is king (queen)
growth
                      INNOVATION
             Developing new products & services

                                                             16
    Porter‟s Model in Action (cont.)

Step 1:   The players in each force are listed.

Step 2:   An analysis is made which relates
          Porter‟s determining factors.

Step 3:   A strategy is devised to defend
          against these factors.

Step 4:   Support information technologies
          are employed.

                                                  17
    Porter‟s Value Chain Model (1985)

PRIMARY ACTIVITIES
•   In bound logistics (in puts)
•   Operations (manufacturing & testing)
•   Outbound logistics (storage & distribution)   Supply
•   Marketing & sales                             Chain
•   Service




                                                       18
      Porter‟s Value Chain Model

SUPPORT ACTIVITIES
  •   Firm Infrastructure
  •   Human Resources Management
  •   Technology Development
  •   Procurement




                                   19
Porter‟s Value Chain Model - Graphically
Firm Infrastructure

Human Resources Management

Technology Department

Procurement

Inbound Operations Outbound    Sales Service
Logistics          Logistics    and
                               Mkting


                                               20
             VALUE SYSTEM
• A firm‟s value chain is part of a larger stream of
  activities, which Porter calls a “Value System”

   •   Includes the suppliers that provide the
       necessary inputs AND their value chains

   •   Applies to both products & services, for any
       organization, PUBLIC or PRIVATE

   •   The basis for the Supply Chain Management


• Think about UPSTREAM and DOWNSTREAM

                                                       21
•CASE: Frito Lay uses IT & the Value Chain

  • World‟s largest snack food producer and owner of
    Pepsi products.

  • SIS System:
     • Integrates marketing, sales, manufacturing,
       logistics, finance.
     • Provides managers with information about
       suppliers, customers & competitors.
     • Enables employees to access valuable
       information.

  • Frito Lay‟s use of IT allows for an optimal
    functioning of the value chain.
                                                       22
        The Value Chain Model

• The Value System Model is used to:

  • Evaluate a company‟s process and
    competencies
  • Investigate whether adding IT supports the
    value chain

  • Enable managers to assess the information
    intensity and the role of IT


                                                 23
Bakos & Treacy Framework (1986)




                                  24
       McFarlan‟s Portfolion Framework (1984)

High
              Key Operational                     Strategic
             Applications upon            Applications that are
           which the organisation      critical for future business
           currently depends for                  strategy
                  success

Current            Support                   High Potential
            Applications that are       Applications that may be
           currently valuable and        important in achieving
             desirable but not          future business success
              critical for future
             business success
 Low
          Low                       Future                   High 25
       McFarlan‟s Portfolion Framework (1984)

High         Key Operational            Strategic
          Scheduling on-line     e-procurement
          Online parts           Electronic ticketing
          ordering               Agent‟s management
          Maintenance online
Current
                 Support               High Potential
          frequent flyer         Intelligent data mining
          account tracking       e-mail direct marketing
          Training on-line
          Wireless SMS info
 Low
          Low                  Future              High 26
•Web-based Strategic Information Systems
                 (SISs)
• Many of the SISs of the 70s - 90s were based on
  privately owned networks, or organizational
  information systems (OISs).

• EDI-based systems are of key importance

• SISs are changing the nature of competition
• In some cases, SIS renders traditional business
  procedures obsolete.
   • E.g, Encyclopedia Britannia


                                                    27
CASE: Mobile Oil Moves to Web-based System

  • Problem:
  • Largest marketer of lubricants in the USA
  • In 1995, introduced EDI system
     • Used to place orders, submit invoices & exchange business
       documents
     • It was too expensive, too complex to use
  • Solution:
  • In 1997, moved to web-based extranet-supported B2B
    system
  • Results:
  • Reduced transaction cost from $45/order to $1.25
  • Fewer shortages, better customer service
  • decline in distributor administration costs


                                                              28
Examples of EDI/Internet-based SIS
        (for individual Companies)

  •   Electronic Auctions

  •   Electronic Biddings

  •   Buyer-Driven Commerce

  •   Single Company Exchange

  •   Direct Sales


                                     29
Examples of EDI/Internet-based SIS
        (for Groups of Companies)
  •   Industry Consortiums
  •   Horizontal Consortiums
  •   Web-based Call Centers
  •   Web-based Tracking Systems
  •   Web-based Intelligent Agents
  •   Web-based Cross Selling
  •   Accessing knowledge via Intranets
                                          30
Growth of Companies Operating in a Global
             Environment
• Fully Global or
  Multinational
  Corporations

• Companies that export or
  import                      • Companies with low cost
                                production facilities
• Companies facing              abroad
  competition of low labour
                              • Small companies that
  cost and high natural
                                can now use eC to
  resources
                                buy/sell internationally
                                                           31
     A Global Drivers Framework
                  (Ives et al., 1993)


• “The success of companies doing business in a
  competitive environment depends on the link
  between their information systems AND their
  global business strategy.”

• This framework provides a tool for identifying the
  firm‟s global business drivers.

• Drivers look at the current and future needs,
  focusing on worldwide implementation.

                                                       32
CASE: Total Quality Management at FPL
• Florida Power & Light  largest US utility
  company
• Leader in implementing total quality
  management
• Several successful SIS programs:
   • Generation Equipment Management System
     (GEMS)
      • Tracks electrical generators, saving $5 million/ yr.
   • 20 different quality control applications
      • Reduced customer complaints by 50%
   • Trouble Call Management System
      • Reduced black out time from 70 to 48 min.
                                                               33
CASE: Geisinger Implements an Intranet

• Problem:
   • As a result of mergers & acquisitions, Geisinger (a
     health maintenance organization) had 40 different
     IT legacy systems in need of an upgrade &
     integration.
• Solution:
   • In 1993, Geisinger implemented an innovative
     Intranet: with the following features:
       • “Tel-a-Nurse”
       • Clinical Management System
       • Human Resource Management
• Results:
   • Geisinger reduced costs and unnecessary medical
     work.

                                                           34
          CASE: Caltex Corporation

• Major multinational company selling gasoline &
  petrol products.
• In 2000, created a centralized e-purchasing
  corporate exchange (www.caltex.com)

   • Suppliers build electronic catalogues with Ariba‟s
     software.
   • Many benefits to buyers and suppliers, particularly in
     Asia, Africa & the Middle East.
   • System enables Caltex to successfully handle
     complex multinational business environments.


                                                              35
           CASE : Port of Singapore

• Problem:
   • The Port of Singapore, the world‟s largest
     international port, faced increased global
     competition.
• Solution:
   • Implementation of Intelligent Systems
• Results:
   • Reduction in Cycle Time
       • 4 hours versus 16 - 20 hours in neighboring ports
   • Reduction in uploading/ loading time
       • 30 sec. versus 4-5 min./ truck in neighboring ports



                                                               36
           CASE: Volvo Speed Cars

Problem:
   • In comparison to global competitors, Volvo‟s cars
      were too expensive, with a slow delivery time

Solution:
   • Creation of global ISDN-based network

Result:
   • Reduction in delivery time from 12 - 16 weeks to 4 - 6
     weeks for customized cars
   • Reduction in cost of doing business, along with the
     price of the car


                                                              37
        CASE: Caterpiller Corporation
Problem:
   • This world leader in manufacturing of heavy
      machines faced strong competition from Japanese
      companies.
Solution:
   • Computer-aided manufacturing and robots
   • Computerized inventory management
   • Supply chain web-based management
   • Global Intranet & EDI
   • Sensory Intelligent Agents attached to products.
Results:
   • CAT experienced such a high rate of success that
     their main competitor was forced to shift its strategy
                                                              38
     CASE: Dun & Bradstreet (D & B)

Problem:
   • Clearing house that provides risk analysis &
      maintains database of credit ratings.
   • Customers complained about long waiting periods
      and inaccuracies.

Solution:
   • Implementation of Web-based expert system.

Results:
   • Response time reduced from 3 days to a few
     seconds
   • Credit ratings became more accurate.


                                                       39
            SIS Implementation
• Major Issues to be Considered:
  • Justification
     • Justifying SIS may be difficult due to the
       intengible nature of their benefits.
  • Risks & Failures
     • The magnitude, complexity, continuous changes
       in technology and business environment may
       result in failures.
  • Finding appropriate SIS
     • Identifying appropriate SIS is not a simple task.


                                                           40
 Sustaining SIS & Strategic Advantage

• A Major problem that companies face is how to
  sustain their SIS competitive advantage.
• 3 Major approaches =
   • Create inward systems which are not visible to
     competitors.

   • Provide a comprehensive, innovative & expensive
     system that is difficult to duplicate.

   • Combine SIS with structural changes. This would
     include business processes, reengineering &
     organizational transformation.

                                                       41
            Managerial Issues

• Implementing SIS Can Be Risky
  • The investment involved in implementing
    Strategic Information Systems (SIS) is high


• Strategic Information Systems Requires
  Planning
  • Planning for an SIS is a major concern of
    organizations



                                                  42
           Managerial Issues (cont.)
Sustaining Competitive Advantage Is Challenging

• As companies become larger and more sophisticated, they
  develop resources to duplicate the systems of their
  competitors quickly

Ethical Issues

• Gaining competitive advantage through the use of IT may
  involve unethical or even illegal actions

• Companies can use IT to monitor the activities of other
  companies and may invade the privacy of individuals working
  there


                                                                43
                       References
• Porter M.E. (1985), Competitive Advantage: Creating and
  Sustaining Superior Performance, New York Free Press

• Bakos J.Y. and M.W. Treacy (1986), „Information Technology and
  Corporate Starategy: A research Perspective‟, MIS Quarterly (June
  1986)

• McFarlan (1984), „Information Technology Changes the Way You
  Compete‟, Harvard Business Review, (May-June 1984)

• Ives B. et al (1993), „Global Business Drivers: Aligning IT to Global
  Business Strategy‟, IBM Systems Journal, Vol 32, No 1



                                                                     44
             Suggested Reading

• Information Technology for Management

  • Chapter 3 – Information Systems for Competitive
    Advantage pp 80 to 119

  • Look at references and bibliography for this chapter


• Computing Press – read it

• See Ken‟s notes from last year - week 2 page

                                                       45
    Next Week – week 3


    Network Computing:
Discovery, Communication, &
        Collaboration




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