Chapter 3
Strategic Information
Systems for Competitive
Advantage
1
Learning Objectives
 Describe strategic information systems (SIS) and explain
their advantages.
 Describe Porter’s competitive forces model & how IT helps
companies improve their competitive positions.
 Describe Porter’s value chain model and its relationship to
information technology.
 Describe several other frameworks that show how IT
supports the attainment of competitive advantage.
2
Learning Objectives (cont.)
 Describe and understand the role of web-based SIS and the
nature of competition in the digital age.
 Describe global competition and its SIS framework.
 Describe representative strategic information systems and
the advantage they provide to organizations.
 Discuss implementation issues including possible failures of
SIS.
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Case: Rosenbluth International
 Rosenbluth Int., a global player in the travel agency industry, faced
threats due to the digital revolution.
 They responded with 2 strategies:
(1) Withdrawal from the leisure travel business
(2) Implementation of web-based travel technology, such as:
 DACODA
 Electronic Messaging Services
 E-Ticket Tracking Solution
 Res-Monitor
 A Globalization Network
 Customer-Res
 IntelliCenters
 NOC
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Lessons from the Case
 Need for exchange business models and strategies
 Importance of web-based IT
 Global competition over service is key
 Large investment over time
 Importance of networked infrastructure for global systems
 Web-based applications for superior customer service
 Need to patent innovative systems
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Strategic Information Systems (SISs)
SISs provide strategic solutions to the 5 Business Pressures:
6
Elements of Strategic Management
1. Long Range Planning
2. Response Management
3. Proactive Innovation
- Information Technologies
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The Role of IT
 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
8
Competitive Intelligence
Many
companies
monitor the
activities of
competitors
Such activities drive
business
performance by:
 Increasing market
knowledge
 Improving internal
relationships
 Raising the quality of
strategic planning
The Internet
is central to
supporting
competitive
intelligence
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Competitive Advantage in the Web Economy
Competitive
Strategy
Competitive
Advantage
Sustainable
Strategic
Advantage
Search for a
competitive
advantage in an
industry, which
leads to control of
the market.
Look for a
competitive
necessity, which will
help your company
keep up with the
competitors.
Maintain profitable
& sustainable
position against
the forces that
determine industry
competition.
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CASE: McKesson Drug
(www.Mckesson.com)
 Whole Sale Drug Distributor
 Economost (McKesson’s Web-based service)
 Allows for customers to phone, fax or e-mail orders.
 Order is transferred to an IBM main frame, quick delivery to
pharmacies.
 Significant benefits to customers.
 Due to Economost, McKesson has survived the new economy,
revenues have escalated.
 Early 2001, McKesson offered a suite of comprehensive Internetbased applications.
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Porter’s 5 Competitive Forces

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.
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Response Strategies
(Porter, 1985)
COST
LEADERSHIP
DIFFERENTATION
Providing products Being unique in the
and/or services at
industry
the lowest cost in
the industry.
FOCUS
Selecting a niche
market and
achieving
cost leadership
and/or
differentation.
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Response Strategies
(added by Porter and others)
GROWTH
Increasing market share, acquiring
more customers or selling more
products
IMPROVE INTERNAL
EFFICIENCY
To improve employee and customer
satisfaction
ALLIANCES
Working with business partners to
create synergy & provide
opportunities for growth
CRM
Customer-oriented approaches, e.g.
the customer is king (queen)
INNOVATION
Developing new products & services
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Case: Trucking , IT & Cost Leadership
 JB Hunt (www.jbhunt.com)
 Uses web-based technology to:
 trigger lowest possible fuel costs
 notify customers of accurate fuel surcharge
 provide an on-line “proof of delivery”
 Roadway Express (www.roadway.com)
 Uses IT technology to:
 compare vendor’s prices and related procurement expenses
 monitor the exact location of trucks
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Porter’s Model in Action
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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.
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CASE: Daimler Chrysler
Problem:
 In 1999, the company lost $US 2.6 Billion
 Chrysler’s program with part suppliers was failing
Solution:
 Suppliers began using Lotus notes/ Damino
 Measurement reports to static HTML web pages
 E-procurement exchange at Convisint
Results:
 Chrysler saves billions
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Porter’s Value Chain Model
PRIMARY ACTIVITIES





In bound logistics (in puts)
Operations (manufacturing & testing)
Outbound logistics (storage & distribution)
Marketing & sales
Service
Supply
Chain
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Porter’s Value Chain Model
SUPPORT ACTIVITIES




Firm Infrastructure
Human Resources Management
Technology Development
Procurement
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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.

Is the basis for the Supply Chain Management.
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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.
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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.
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Bakos & Treacy Framework
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McFarlan’s Portfolion Framework (1984)
For Analyzing Existing, Planned & Potential Information Systems
Strategic
e-procurement
electronic ticketing
Agents’ management
High Potential
Intelligent data mining
e-mail direct marketing
Key Operational
Scheduling online
Online parts ordering
Maintenance online
Support
Frequent flyer account tracking
Online credit union
Training online
Wireless SMS information
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Stages in Customer Resources Life Cycle (1-7)
(1)
Establish Customer Requirements
(2)
Specify Customer Requirements
(3)
Select a source, match customer with a supplier
(4)
Place an order
(5)
Authorize and pay for goods & services
(6)
Acquire goods or services
(7)
Test & accept goods or services
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Stages in Customer Resources Life Cycle (8-13)
(8)
Integrate into and manage inventory
(9)
Monitor use and behavior
(10)
Upgrade if needed
(11)
Provide maintenance
(12)
Transfer or dispose of product or service
(13)
Accounting for purchases
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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
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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
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Examples of EDI/Internet-based SIS
(for individual Companies)

Electronic Auctions

Electronic Biddings

Buyer-Driven Commerce

Single Company Exchange

Direct Sales
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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
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Growth of Companies Operating in a Global
Environment
 Fully Global or Multinational
Corporations
 Companies that export or
import
 Companies facing
competitions of low labor
cost and high natural
resources
 Companies with low cost
production facilities abroad
 Small companies that can now
use EC to buy/sell
internationally
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A Global Drivers Framework
(Ivers 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.
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Examples of Who is Using SIS
Otis Elevator
Centralized call center, self diagnosing elevators’
malfunctions and maintenance analysis
Baxtar International
Terminals in customers’ hospitals
Merrill Lynch
Cash management accounts system
American Airlines
Computerized reservation system (SABRE)
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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.
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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.
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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.
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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
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CASE: Volvo Speed Cars
Problem:
 In comparison to global competitors, Volvo’s cars were to
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.
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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.
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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.
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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.
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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.
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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.
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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.
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