ICS321 / IBM205 Management
Information Systems
Dr. Kenneth Cosh
Lecture 3
Review
• What is MIS?
• What types of information system are we
dealing with?
• How has the role of information systems
changed?
– Business Pull factors
– Technology Push factors
• What distinct era’s has IS been through?
Today’s Topic
• Strategic Information Systems
• Five Forces
• How IS drives alternative strategies
Strategic Information Systems
• No longer is IS an afterthought when
considering corporate strategy, now it is
often either the ‘cause’ or the ‘driver’ of
strategy.
– Cause;
• Taking advantage of some core competency within
the organisation’s IT.
– Driver;
• Using IT to realise the organisation’s strategy.
Strategic Information Systems
• A strategic information system is any information
system which helps an organisation gain any
kind of competitive advantage.
• Michael Porter’s model of competitive strategy
suggests that any business which wants to
survive and succeed has to develop strategies to
counter 5 key forces.
–
–
–
–
–
Rivalry of Competitors
Threat of New Entrants
Threat of Substitutes
Bargaining power of Customers
Bargaining power of Suppliers
Porter’s 5 Forces
Threat of
New Entries
Bargaining Power
of Suppliers
Intensity
of
Rivalry
Threat of
Substitutes
Bargaining Power
of Buyers
Bargaining Power of Customers
•
•
•
•
•
•
•
•
•
Buyer concentration vs Firm Concentration
Buyer Volume
Buyer switching costs
Ability to backward integrate
Price Sensitivity
Product Differences
Brand Identity
Impact of quality / performance
Buyer Profits
Bargaining Power of Suppliers
•
•
•
•
Differentiation of Inputs
Switching costs of suppliers
Supplier Concentration
Ability to forward integrate
Threat of Substitutes
• Impact on Supplier & Buyer Power
Threat of New Entries
•
•
•
•
•
•
•
•
Economies of Scale
Brand Identity
Switching costs
Capital Requirements
Access to Distribution
Cost Advantages
Government Policy
Expected Retaliation
Intensity of Rivalry
•
•
•
•
•
•
Industry Growth
Product Differences
Brand Identity
Switching Costs
Diversity of Competitors
Exit Barriers
Determining Strategy
• Combine Porter’s Analysis with SWOT
– Reduce Costs
– Raise Barriers to Market Entrants
– Establish High Switching Costs
– Create New Products or Services
– Differentiate Products or Services
– Enhance Products or Services
– Establish Alliances
– Lock-in Suppliers or Buyers
Reduce Costs
• Gain advantage by selling more units at a
lower price while maintaining/increasing
it’s profit margin
– Automation
• Production using robots
• Web based customer service
– FAQs
– Convert task from being labour intensive to
being technology intensive.
Raise Barriers to Market Entrants
• Deters competition, thus increasing market
potential
– Gaining legal protection
• Intellectual Property
– Amazon.com owns a patent for one-click online
purchasing until 2017
– It also owns a patent for techniques to predict what the
customer may buy in the future.
• Expense of entering market
– Essential, but bespoke software.
Establish High Switching Costs
• Economically infeasible for customers to
switch to a new supplier
– Direct
• Contracts which are expensive to break (e.g.
mobile phone contract).
– Indirect
• Time and money expense of learning how to use
Open Office.
– Consider printers! Cheap printer, but
expensive ink catridges.
Create New Products / Services
• Gain first mover advantage
– Be the first to deliver a new product (that the
customers want)
• Lotus 1-2-3 Spreadsheet program
– But how long did this advantage last?
• E-Bay – the first online auction
– But how long will it last?
• Netscape?
Differentiate Products or Services
• Persuading customers my product is
better than anyone elses.
– Skype
• Not the first internet telephone service, but better
than competitors
• Differentiated by adding video and other features
such as mobile…
Enhance Products / Services
• Add value to existing products / services
– Perhaps by adding information / help to a web
portal
– Offering traditionally physical transactions via
the internet
Establish Alliances
• Focus on our core competency, but work
closely with experts in symbiotic markets.
– Strategic Alliances allow the tourism industry
to offer complete vacation packages;
• Combining flights, hotels, car rental, restaurant,
mobile phones etc.
– Affiliate programs?
• The web allows anyone to create an alliance with
another service provider or retailer.
Lock-in Suppliers / Buyers
• Depends entirely on bargaining power.
– Walmart has power to influence its suppliers, such
that they are locked in to them
– Software industry
• often customers fear high switching costs, and if the software
provider continues to improve their product…
– Flash
• Free to download, but buy the development tool. The more
people who download the player, the more companies are
willing to invest in the development kit – and the more
companies who invest, the more people download…
Competitive Strategies
• 5 key strategies (and some others) have
been developed to counter the threats of
competitive forces.
– Cost Leadership
– Differentiation
– Innovation
– Growth
– Alliance
Cost Leadership
• Become the low-cost producer of
products, by finding ways to lower our
costs, lower our customers and suppliers
costs or increase our competitors costs.
– IT can drive cost reduction, such as reducing
labour costs.
– SCM systems can assist reducing suppliers
costs (Walmart).
– Online Price adjustment, to match best match
competitors prices.
Differentiation
• Develop ways to make our product different from
our competitors (or reduce our competitors
differentiation). Focus on a niche or market
segment.
– IT can assist by introducing IT features to a product
such as a camera on a phone.
– Reduce competitors by integrating their differentiated
ideas (adding a camera to our phone too!)
– Ross Operating Valves, allows customers to design
their desired valves online.
Innovation
• Find new ways of doing business, developing
new markets or unique products. Making
changes to business processes to change the
way business is done within the industry.
– Create new products which include IT, e.g. online
stock trading
– Amazon constantly innovates introducing new
products / services
– Paypal introducing a system for making payments
online.
Growth
• Increasing capacity to produce more
goods and services, expanding into global
markets or diversifying into new products.
– Using IT to manage global business, such as
by using a global intranet
– Using technology to increase capacity,
through automating processes.
Alliance
• Building alliances with suppliers, customers,
competitors, consultants etc. Creating links
through mergers, acquisitions or joint ventures.
Creating ‘virtual’ organisations
– Use technology to improve communication channels
between alliance partners
– Walmart links with supplier to enable automatic
inventory replenishment – a win win alliance.
– Online inventory management for supplier, with
shipment tracking for customer.