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Chapter 2 Strategic Uses of Information Systems

Chapter 2 Strategic Uses of Information Systems. Learning Objectives. Explain what business strategy and strategic moves are Illustrate how information systems can give businesses a competitive advantage Identify basic initiatives for gaining a competitive advantage.

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Chapter 2 Strategic Uses of Information Systems

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  1. Chapter 2Strategic Uses ofInformation Systems Management Information Systems, 4th Edition

  2. Learning Objectives • Explain what business strategy and strategic moves are • Illustrate how information systems can give businesses a competitive advantage • Identify basic initiatives for gaining a competitive advantage Management Information Systems, 4th Edition

  3. Learning Objectives (Cont.) • Explain what makes an information system a strategic information system (SIS) • Identify fundamental requirements for developing strategic information systems • Explain circumstances and initiatives that make one SIS succeed and another fail Management Information Systems, 4th Edition

  4. Strategy and Strategic Moves • Strategy • A plan designed to help an organization outperform its competitors • A best response counteracting to the competitor’s reactions • As a plan : a guide or course of action toward the goal and into the future • As a pattern: consistency in behavior/decision over time • As a positioning: determining the particular value proposition in a particular market segment • As a perspective: a concept of shaping the business • As a ploy: a specific maneuver intended to outwit an opponent • Strategic Information Systems • Information systems that help seize opportunities • Can be developed from scratch, or they can evolve from existing ISs Management Information Systems, 4th Edition

  5. Strategy and Strategic Moves (Cont.) • Strategic advantage: • Using a strategy to maximize strength/seek monopolistic rents • Competitive advantage: • The result of the use of a strategic advantage Management Information Systems, 4th Edition

  6. Achieving a Competitive Advantage • Increase profits through increased market share/profit margin • Innovation results in advantage • Strategies that no one has tried before, or conducted more efficiently than others did • Example: Dell using the Web to take customer orders quicker than the competitors Management Information Systems, 4th Edition

  7. Achieving a Competitive Advantage (Cont.) Innovation leadership Product proliferation Co-option Management Information Systems, 4th Edition

  8. Achieving a Competitive Advantage (Cont.) Management Information Systems, 4th Edition

  9. Initiative #1: Reduce Costs • Lower costs results in lower price • Economies of scale, and experience curve • Bigger Market Share • The spill-over effect of a common reputation/goodwill • Implement automation to become more productive • The Web has made this possible for many Management Information Systems, 4th Edition

  10. Initiative #2: Raise Barriers to Market Entrants • Patenting, (rent protection enforced by the public orders, mandated monopoly) • High capital of entering industry, high-level sunk cost • Limit pricing/predatory pricing/raising cost for entry deterrence • State Street, Inc. (Pension fund management business) Management Information Systems, 4th Edition

  11. Analysis of entry/exit barrier Exit barrier high low e.g., 蚵仔麵線 e.g., 黑道 low Entry barrier $₤₡¥ e.g., 祖傳祕方 e.g., 石化,製藥, 半導體…etc high Management Information Systems, 4th Edition

  12. Initiative #3: Establish High Switching Costs • Explicit Switching Costs • Fixed and nonrecurring, penalty costs expiated for breach of contract • Implicit Switching Costs • Indirect costs in time and money of adjusting to a new product Management Information Systems, 4th Edition

  13. Initiative #4: Create New Products or Services • Lasts only until competition offers an identical or similar product or service for a comparable or lower price • First Mover: Creates assets • Brand Name • Better Technology • Delivery Methods • Cannibalization for leadership • Critical Mass: body of clients that attracts other clients for crossing the diffusion chasm • Network externalities Management Information Systems, 4th Edition

  14. Initiative #5: Differentiate Products or Services • Product differentiation • Distinctive Brand recognition, re-branding for re-positioning • Examples of brand name success • Levi’s jeans • Chanel perfumes • Gap clothes Management Information Systems, 4th Edition

  15. Initiative #6: Enhance Products or 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 Total solutions! Management Information Systems, 4th Edition

  16. Initiative #7: Establish Alliances • Combined services may attract customers • Lower cost • Convenience • The whole product/the total solution resulted from the aggregation of necessary complements • Examples • Travel industry linking related tourist businesses • HP and FedEx collaborated for the convenient ordering process and fast delivery/return service Management Information Systems, 4th Edition

  17. Ref. Expedia.com Establishing Alliances (Cont.) Management Information Systems, 4th Edition

  18. Initiative #8: Lock in Suppliers or Buyers • Bargaining Power—assets specificity • Purchase volume—monopsony or monopoly • Strengthen perception as a leader—bandwagon effects of promotion (sunk costs as credible commitments) and market share • Create a standard for issuing the problem of compatibility Management Information Systems, 4th Edition

  19. Types of Lock-in and Associated Switching Costs • Contractual commitments • Compensatory or liquidated damages • Durable purchases • Replacement of equipment; tends to decline as the durable ages • Brand-specific training • Learning a new system, both direct costs and lost productivity; tends to rise over time • Information and databases • Converting data to new format; tends to rise over time as collection grows Management Information Systems, 4th Edition

  20. Types of Lock-in and Associated Switching Costs (Cont.) • Specialized suppliers • Funding of new supplier; may rise over time if capabilities are hard to find/maintain • Search costs • Combined buyer and supplier search costs; includes learning about quality of alternatives • Loyalty programs • Any lost benefits from incumbent supplier, plus possible need to rebuild cumulative use Management Information Systems, 4th Edition

  21. Strategic Information Systems (SIS) • An IS that helps achieve 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: • Serve an organizational goal • Work with the managers of the other functional units Management Information Systems, 4th Edition

  22. Creating an SIS • Top management involvement • From initial consideration through development and implementation • Must be a part of the overall organizational strategic plan Management Information Systems, 4th Edition

  23. Steps for Considering a new SIS Management Information Systems, 4th Edition

  24. Steps to Take in an SIS Idea-Generated Meeting Management Information Systems, 4th Edition

  25. Re-engineering and Organizational Change • To implement an SIS and achieve a competitive advantage, organization must rethink entire operation • Goal of re-engineering • Remove the process bottleneck, the key dead logs • Achieve efficiency leaps of 100% or higher Management Information Systems, 4th Edition

  26. Competitive Advantage as Moving Target • SISs developed as strategic advantages quickly become standard businesses • Banking industry (ATMs and banking by phone/Internet) • Continuous search for new ways of utilizing information technology to their advantage • SABRE, American Airlines’ reservation system enhanced continuously by several functions including web-based travel site, Travelocity. Management Information Systems, 4th Edition

  27. JetBlue: A Success Story • Gained competitive advantage where others failed • Proper technology and management methods • Reservation system, Electronic ticket, ticketless traveling service, revenue analysis for route management • Reducing costs resulting in lower prices • Improving service—on-time departures and arrivals Management Information Systems, 4th Edition

  28. JetBlue: A Success Story (Cont.) • Massive Automation • Automation of services with software • Combination reservation system and accounting system • Supports customer services and sales tracking Management Information Systems, 4th Edition

  29. JetBlue: A Success Story (Cont.) • Massive Automation, continued • Electronic tickets • No paper handling or expense • Encourages online ticket purchases • Avoids travel agents • Significant savings in cost Management Information Systems, 4th Edition

  30. JetBlue: A Success Story (Cont.) • Massive Automation, continued • Maintenance information system • Logs all airplane parts and time cycles • Reduces manual tracking costs • Flight planning software • Maximize seats occupied on a flight • Reduced planning costs Management Information Systems, 4th Edition

  31. JetBlue: A Success Story (Cont.) • Massive Automation, continued • Blue Performance • In-house software for tracking operational data • Updated on a flight by flight basis for maximizing yield • Accessible by airline’s 2,800 employees • Managers are able to respond immediately to problems Management Information Systems, 4th Edition

  32. JetBlue: A Success Story (Cont.) • Massive Automation, continued • Wireless devices for employees • Report and respond to irregular events • Quick response • Events recorded for future analysis • Training records stored electronically • Easy to update • Efficient retrieval Management Information Systems, 4th Edition

  33. JetBlue: A Success Story (Cont.) • Away from Tradition • Decision to not use the hub and spoke routing method • Paperless Cockpits • Laptops for Pilots • Harnessing IT to maintain a strategic gap Management Information Systems, 4th Edition

  34. JetBlue: A Success Story (Cont.) • Enhanced Service • Available on all flights and all class tickets • Live TV through contract with DirecTV • Leather Seating • Excellent on-schedule arrivals and departures • Fewest mishandled bags • Rapid check-in time • Security upgrades Management Information Systems, 4th Edition

  35. JetBlue: A Success Story (Cont.) • Impressive Performance • Maintains excellent statistics • 7 cent cost per available seat-mile (CASM) lesser than the industrial average • 78% of seats are filled higher than the industrial average • Late Mover Advantage • New Technology vs. legacy systems Management Information Systems, 4th Edition

  36. Ford on the Web: A Failure Story • The Ideas • Wingcast telematics • Technology in vehicles to enable Web access • Business to Business: Covisint • Joint venture with General Motors and DaimelerChrysler • Electronic market for parts suppliers • Vendor bidding for proposals from automakers Management Information Systems, 4th Edition

  37. Ford on the Web: A Failure Story (Cont.) • The Ideas (cont.) • Business to Consumer: FordDirect.com • Sell vehicles direct to consumers via the Web • Bypass dealerships • Provide service while saving dealer fees • ConsumerConnect • Special unit to build Web site and handle direct sales Management Information Systems, 4th Edition

  38. Ford on the Web: A Failure Story (Cont.) • Hitting the Wall • Wingcast: Failed • Buyers not interested (as the failure of WAP) • Product eliminated in June 2001 • Covisint: Successful • Now includes more automakers, Renault and Nissan Management Information Systems, 4th Edition

  39. Ford on the Web: A Failure Story (Cont.) • Hitting the Wall • FordDirect.com: Failed • Not a result of faulty technology • Ford failed to consider state laws and dealership relationships • Dealership relationship was still needed for purchases not on the Web Management Information Systems, 4th Edition

  40. Ford on the Web: A Failure Story (Cont.) • The Retreat • ConsumerConnect disbanded • FordDirect.com used by dealerships now • Sells used cars • Price tag for failure: $1 billion • FordDirect.com today results in 10,000 vehicle per month, and 100,000 sales in 2001 Management Information Systems, 4th Edition

  41. Success and Failure on the Web • Being first is not enough for success • 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 Management Information Systems, 4th Edition

  42. 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 new technology will work or customers and employees will welcome it • Bet on standard competition • Wait-and-see hesitation Management Information Systems, 4th Edition

  43. The Bleeding Edge (Cont.) • The bleeding edge: failure in an organization’s effort to be on the technological leading edge • First-mover dis-advantage? • Allow competitors to assume the risk • Risk losing initial rewards • Can quickly adopt and even improve pioneer organization’s successful technology • Second-mover advantage? Management Information Systems, 4th Edition

  44. Summary • Business strategy and strategic moves can give an organization an advantage • Basic initiatives for gaining a competitive advantage • Strategic information systems require fundamental elements • Circumstances and initiatives that make one SIS succeed and another fail Management Information Systems, 4th Edition

  45. Homework #1: Amazon vs. eBay • Refer to the pp.59-62. • Please specify the differences of business played between theses two dotcom giants. • Compare the sources of profit between these two firms. • Analyze the sustainability of competitive advantage among two. • Articulate the possible challenges for the future expansion respectively. Management Information Systems, 4th Edition

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