"Part III Building and Managing Information Systems"
10
III
MANAGING
INFORMATION
SYSTEMS FOR
STRATEGIC ADVANTAGE
Information Systems Technology
Ross Malaga
Copyright © 2005 Prentice Hall, Inc.
10-1
LEARNING GOALS
• Describe the various approaches to devising corporate
strategy.
• Explain how information systems can help organizations
achieve a strategic advantage.
• Describe the methods organizations use to choose a strategic
information systems project.
• Describe how information systems can bring about corporate
change.
• Explain the concept of knowledge management and describe
the technologies that comprise knowledge management
systems.
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Competition at The Bead Bar
• The Bead Bar faces increased competition and
needs to find ways to use information systems to
generate competitive advantage.
– Meredith – How to know if the Bead Bar information
systems truly improve the business and how can they be
used to help create a competitive advantage?
– Suzanne – How to share knowledge and collaborate
about designs ?
– Leda – How to lock in franchisees?
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Competition at The Bead Bar
(continued)
– Mitch – How to use IS to keep advantage in the cruise
industry?
– Julia – How to value the current information systems?
– Miriam – How can the marketing team share
knowledge and collaborate?
– Rachel – How to demonstrate increased efficiency and
reduced costs achieved through information system?
– Jim – How to use systems to assist in transitioning new
employees into the Bead Bar environment?
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Value Chain
• Value chain – activities within an organization that
bring products and services to market
– Primary activities – take raw materials and transform it
into something of greater value
• Inbound logistics
• Operations
• Outbound logistics
• Marketing and sales
• Service
– Supporting activities – those functions that the
company requires to do business but do not directly add
value to a product or service
• HR
• IT
• Procurement
• Firm infrastructure
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Value Chain Analysis
• Process of analyzing the activities within an
organization’s value chain
• Companies gain strategic value by focusing
on a particular portion of the value chain
• IT can help reduce the costs of these
processes, thus increasing profit margins
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Porter’s Competitive Forces Model
• Unlike the value chain, the Competitive Forces
Model deals with external factors
• Five components
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Level of competition in industry
Threat of new entrants into industry
Bargaining power of customers
Bargaining power of suppliers
Threat of substitute products
• Uses for CFM
– Determine position within industry
– Analyze industries and market segments they might
wish to enter (exit)
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Competitive Advantage (CA)
• Those qualities that allow a company to earn
above-average profits within an industry
– Low cost
– Unique product
• Three generic strategies to achieve competitive
advantage
– Cost leadership strategy
– Differentiation strategy
– Focus strategy
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Information Systems for
Strategic Advantage
• How can information systems improve the value
chain?
– By reducing the cost of primary and support activities
• How can information systems change the way an
organization reacts to its competitive forces?
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–
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By changing the bargain power of suppliers
By building closer ties with customers
By increasing or decreasing barriers to entry in a market
By serving as the basis for new products and/or services
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Sustainable Competitive Advantage
• Four approaches lead to sustainable competitive
advantage
– Create barriers to entry through patents, monopoly, or
technical expertise
– Be the first to develop systems with high switching
costs
– Develop the technologies that change the underlying
nature of the industry
– Cultivate and hire people with excellent information
systems management skills
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Productivity Paradox
• “We see computers everywhere, but in the
productivity statistics.”
Robert Solow, Nobel Prize-winning economist
• It is difficult to attribute cost savings directly to a
specific information system
• It is difficult to prove that a specific system led to
certain financial outcomes
• Other measures are needed
– Balanced scorecard
– Total cost of ownership (TCO)
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The Balanced Scorecard
• Strategic planning method that translates business
strategy into a comprehensive set of performance
measures
• Investigates strategies in four areas
– Financial – e.g. improving cash flow and reducing
expenses
– Internal business processes – e.g. decreased cycle time
and improved quality
– Learning and growth – e.g. develop successful new
products
– Customer – e.g. improve customer satisfaction and
decrease product defects
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Value of Information Systems
• Cost must NOT outweigh benefits
• Return on investment (ROI)
ROI = (Benefits – Costs) *100 / Costs
– Costs include
– Benefits include
• Hardware
• Software
• Labor
• Tangible benefits
• Intangible benefits
• Total cost of ownership (TCO)
– Method to quantify long-term direct and indirect costs
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TCO Analysis for PDA Purchase
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The IS Portfolio
• Treat investments in IS assets like a portfolio of
investment assets to find redundancies and achieve
balance
• Five steps
– Put information about all the organization’s IS projects
into a database
– Prioritize the IS projects
– Divide the IS projects into three types of investments
• Infrastructure
• Upgrades
• Strategic initiatives
– Automate the entire process
– Have the organization’s top finance executive perform a
Modern Portfolio Theory analysis
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Sample IS Portfolio
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Business Process Improvement
and Reengineering
• BPI – processes are good but can be better
• BPR – elimination or change of business
processes
– “The fundamental rethinking and radical redesign of business
processes to achieve dramatic improvements in critical
contemporary measures of performance such as cost, quality,
service, and speed.”
Hammer and Champy, 1993
• Automation (e.g information systems) is a key
factor in both BPI and BPR
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Major Themes of Successful BPR
• Several jobs are combined into one.
• Workers are empowered to make decisions.
• Work is performed where it makes the most
sense.
• Checks and controls are reduced or
eliminated.
• Reconciliation is minimized.
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Steps in BPR
• Have a clear strategy that is aligned with the
organization’s goals
• Clearly defined scope that identifies exactly which
processes need to be reengineered and which
supporting processes need to be revised
• Define measures and benchmarks for success
• Develop an understanding of the current, as-is
processes
• Develop a plan for transition from the as-is
processes to the to-be processes
• Implement the changed processes
• Measure the outcomes of the changes
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Knowledge Management (KM)
• Knowledge assets – the knowledge that exists
within the minds of each employee and the
knowledge that exists in a tangible form such
as databases, documents, and reports
• Companies must know how to manage this
knowledge
• Knowledge management (KM) – the process
by which organizations extract value from
their knowledge assets
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KM Systems
• Information technologies that enable the exchange
of knowledge among employees and the storage of
knowledge in repositories
• Types of KM systems
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Expert directories
Knowledge repositories
Knowledge sharing technologies
Knowledge representation technologies
Knowledge discovery tools
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Knowledge Portals
• A single access point to the knowledge of
an organization
• Provides Web-based access to all of the KM
technologies within an organization
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Bead Bar Consultant
• How Issues on Managing Information Systems for
Strategic Advantage Affect the Bead Bar
– Meredith – Understanding the strategic role of information
systems has changed the way I think about technology
– Suzanne – Wants to build KM system to share bead designs
– Leda – Using KM systems to streamline the value chain makes
the Bead Bar more attractive to franchisees
– Mitch – Use IS to create differentiation for cruise line customers
– Miriam – KM system for collaboration on marketing campaign
– Rachel – Use IT for incremental improvements in business
processes
– Jim – Develop KM system to improve retention of valued
employees
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Learning Goals Summary
In this chapter you have learned:
 The various approaches to devising corporate strategy
 How information systems can help organizations
achieve a
strategic advantage
 The methods organizations use to choose a strategic
information systems project
 How information systems can bring about corporate
change
 The concept of knowledge management and the
technologies that comprise knowledge management
systems
Copyright © 2005 Prentice Hall, Inc.
10-28