Week 6 Strategic Uses of Information Systems

1. Week 6Strategic Uses of Information Systems

2. Learning Objectives • When you finish this week, you will: • Understand business strategy and strategic moves. • Recognize how information systems can give business a competitive advantage. • Understand basic initiatives for gaining a competitive advantage.

3. Learning Objectives • Know what makes an information system a strategic information system. • Understand the fundamental requirements for developing strategic information systems. • Recognize circumstances and initiatives that make one SIS succeed and another fail.

4. Strategy and Strategic Moves • Strategy • A plan designed to help an organization outperform its competitors. • Strategic Information Systems • Information systems that help seize opportunities. • Can be developed from scratch, or they can evolve from existing ISs.

5. Achieving aCompetitive Advantage • Profits increase significantly through increased market share. • The essence of strategy is innovation, so competitive advantage often occurs when an organization tries a strategy that no one has tried before. • Dell was the first PC manufacturer to use the Web to take customer orders.

6. Achieving aCompetitive Advantage Figure 2.1 Eight basic ways to gain advantage

7. Figure 2.2 Many strategic moves can work together to achieve a competitive advantage Achieving aCompetitive Advantage

8. Achieving aCompetitive Advantage • Initiative #1: Reduce Costs • Lower Costs • Lower Price • Bigger Market Share

9. Achieving aCompetitive Advantage • Initiative #2: Raise Barriers to Entrants • Patenting • High expense of entering industry • State Street, Inc. (Pension fund management business)

10. Achieving aCompetitive Advantage • Initiative #3: Establish High Switching Costs • Explicit Switching Costs • Fixed and nonrecurring • Implicit Switching Costs • Indirect costs in time and money of adjusting to a new product

11. Achieving aCompetitive Advantage • Initiative #4: Create New Products and Services • Dynamic • The advantage lasts only until other organizations in the industry start offering an identical or similar product or service for a comparable or lower price.

12. Achieving aCompetitive Advantage • Initiative #5: Differentiate Products and Services • Product differentiation • Brand recognition • Examples of brand name success • Levi’s jeans • Chanel perfumes • Calvin Klein clothing

13. Achieving aCompetitive Advantage • Initiative #6: Enhance Products and Services • Examples • Auto manufacturers enticing customers with a longer warranty • Real estate agents providing useful financing information to potential buyers • Charles Schwab moving stock trading services on-line before Merrill Lynch

14. Achieving aCompetitive Advantage • Initiative #7: Establish Alliances • Combined service may attract customers • Lower cost • Convenience • Examples • Travel industry • HP and FedEx

15. Figure 2.3 Strategic alliances combine services to create synergies Achieving a Competitive Advantage

16. Achieving aCompetitive Advantage • Initiative #8: Lock in Suppliers or Buyers • Bargaining Power • Purchase volume • Strengthen perception as a leader • Create a standard

17. Strategic Information as a Competitive Weapon • Strategic Information Systems (SIS) • Any IS that can help an organization achieve a long-term competitive advantage • SIS embodies two types of ideas • Potentially-winning business move • How to harness IT to implement that move • Two conditions for SIS • IS must be serving an organizational goal • IS unit must be working with the managers of the other functional units

18. Strategic Information as a Competitive Weapon • Creating an SIS • Top management must be involved from initial consideration through development and implementation. • SIS must be a part of the overall organizational strategic plan.

19. Figure 2.4 Steps for considering a new SIS Strategic Information as a Competitive Weapon

20. Figure 2.5 Steps to take in an SIS idea-generating meeting Strategic Information as a Competitive Weapon

21. Strategic Information as a Competitive Weapon • Re-engineering and Organizational Change • To implement an SIS and achieve a competitive advantage, organization must rethink the entire way in which it operates. • Goal of re-engineering is to achieve efficiency leaps of 100 percent or even higher.

22. Strategic Information as a Competitive Weapon • Competitive Advantage as Moving Target • SISs developed as strategic advantages quickly become standard business. • Banking industry (ATMs and banking by phone) • Companies must continuously contemplate new ways of utilizing information technology to their advantage. • SABRE, American Airlines’ reservation system

23. Strategic Information as a Competitive Weapon • Sources of Strategic Information Systems • Existing System • New Service • New Technology • Excess Information • Vertical Information

24. Strategic Information as a Competitive Weapon • From Automation to SIS • An organization can gain a competitive advantage through automation of a manual process. • American Hospital Supply automated manual orders and improved services, resulting in a 17 percent compound annual growth rate in sales.

25. Strategic Information as a Competitive Weapon • SIS from a New Service • A company may gain competitive advantage by providing a new service using IT. • Merrill Lynch was the first to use IT to provide a cash-on-demand service for their investors and captured a lion’s share of the market.

26. Strategic Information as a Competitive Weapon • SIS from New Technology • A company that figures out how to use a new technology can gain a competitive advantage. • American Express used new scanning technology to process credit charges and saved millions of dollars in reduced labor costs.

27. Strategic Information as a Competitive Weapon • SISs from Excess Information • An organization can gain an advantage by putting excess information toward a new product or service. • Sears Roebuck and Company uses its customer record database to provide target information to its subsidiaries in insurance and real estate.

28. Strategic Information as a Competitive Weapon • SISs from Vertical Information • Organizations use ISs to augment their businesses vertically by offering related services. • Realtors offer financing and relocation information in addition to information about houses for sale.

29. Strategic Information as a Competitive Weapon • Good SIS ideas must be carefully executed if a company is to seize opportunities. • McKesson Drugs, Inc., automated its operations and gained a competitive advantage. • Enhanced existing services • Provided new services • Cut costs • Created high switching costs for clients

30. Strategic Information as a Competitive Weapon • How one IS Failed • Citicorp tried to use an SIS to implement a 15-minute mortgage approval plan called MortgagePower Plus, but the program failed. • Failed strategically due to unwise business shortcuts. • Failed operationally due to poor technical implementation.

31. Strategic Information as a Competitive Weapon • Success and Failure on the Web • Just being first on the Web is not enough to be successful; business ideas must be sound. • An organization must carefully define what buyers want. • Establishing a recognizable brand name is important but does not guarantee success; satisfying needs is more important.

32. The Bleeding Edge • Business owners must develop new features to keep the system on the leading edge. • Adopting a new technology involves great risk. • No experience from which to learn • No guarantee technology will work or customers and employees will welcome it

33. The Bleeding Edge • The bleeding edge: failure in an organization’s effort to be on the technological leading edge. • Some organizations let competitors assume the risk associated with being on the leading edge. • Risk losing initial rewards. • Can quickly adopt and even improve pioneer organization’s successful technology.