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Why study Strategic Information Systems?
 Technology is no longer an afterthought in forming
business strategy, but the actual cause and driver.
 IT can change the way businesses compete.
 Information systems are a means of organizational
restructuring to allow organizations to adapt
 Information Systems are a necessary investment in
technologies that help a company adopt strategies and
business processes that enable it to reengineer or
reinvent itself in order to survive and succeed in today’s
dynamic business environment.
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What is a strategic IS?
 Any kind of information system
that uses information technology
to help an organization gain a
competitive advantage, reduce a
competitive disadvantage, or meet
other strategic enterprise
objectives.
 These systems provide Competitive Advantage as
opposed to Competitive Necessity
What’s the difference?
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What is the difference between competitive
advantage and competitive necessity?
 Competitive Advantage
• developing products, services, processes, or
capabilities that give a company a superior business
position relative to its competitors and other
competitive forces
 Competitive Necessity
• products, services, processes, or capabilities that are
necessary simply to compete and do business in an
industry
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Factors Influencing Competitive Forces
 Factors shaping the structure of competition
in its industry.
• Number Competitors
Competitors
• Growth Potential
• Capacity
• Complexity
Rivalry
• Intense rivalry if
many companies
• Increased rivalry if
growth potential
and high profits
• Private Space
Shuttles v. Airlines
• Genetic Research
v. Hot Dog Stands
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Factors Influencing Competitive Forces
 Factors discouraging/encouraging new
competitors
• Economies of Scale
• Proprietary Products
• Brand Identity
• Distribution Channels
• Profit Margin
New Entrants
Competitors
• Production of large
outputs at lower costs
than smaller rivals
• CPUs v. 7-11
• Coca-Cola v. Top Soil
• Easy Access?
Rivalry
• Supermarkets v.
Jewelry Stores
• Government Policy
• Network Broadcasting
v. Lemonade Stands
• Retaliation
• Operating Systems v.
Slide-rule manufacture
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Factors Influencing Competitive Forces
 Factors influencing supplier power
• Concentration
• Differentiation (branding)
• Volume
New Entrants
Competitors
• DeBeers v. Diing Sen
• Rolls Royce
• Is the industry vital to
the supplier?
Vendors
Rivalry
• Switching Costs
• Microsoft for Linux?
• Can suppliers easily
find new customers?
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Factors Influencing Competitive Forces
 Factors influencing buyer power
• buyer concentration to
firm concentration ratio
• Information
New Entrants
• Many buyers/Few
Suppliers
Competitors
• Surfers v. unaware
Customers.
Vendors
• Importance of volume
• Price Sensitivity
Buyers
Rivalry
• Calpers
• Necessary (electricity)
v. impulse buying
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Factors Influencing Competitive Forces
 Factors influencing Substitutes
• Switching Costs
• Buyer inclination to
substitute
New Entrants
• DVD v. VCR
• iPod
Competitors
Vendors
• Price-Performance
Buyers
Rivalry
Substitutes
• Trade-off substitutes
• Does it give a good
‘bang for the buck?”
• Heating (necessary) v.
impulse buying
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What Competitive Strategies are available?
 Cost Leadership
• Becoming a low-cost producer of products and services
• Finding ways to help suppliers and customers reduce
their costs
• Increase costs of competitors
Example?
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What Competitive Strategies are available?
 Differentiation
• Developing ways to differentiate a firm’s products and
services from its competitors’
• Reduce the differentiation advantages of competitors
Examples?
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What Competitive Strategies are available?
 Innovation
• Development of unique products and services
• Entry into unique markets or market niches
• Making radical changes to the business processes for
producing or distributing products and services that are
so different from the way a business has been conducted
that they alter the fundamental structure of an industry
Examples?
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What Competitive Strategies are available?
 Growth
• Significantly expanding a company’s capacity to produce
goods and services
• Expanding into global markets
• Diversifying into new products and services
• Integrating into related products and services
Examples?
electrical and electronic equipment, plastics,
aircraft engines, medical imaging
equipment, and financial services
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What Competitive Strategies are available?
 Alliance
• Establishing new business linkages and alliances with
customers, suppliers, competitors, consultants, and other
companies
Examples?
Proctor and Gamble
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How does that work?
• In the early 1990’s, Wal-Mart invited its major suppliers to
jointly develop powerful supply chain partnerships
• The Wal-Mart/Procter & Gamble (P&G) alliance incorporated
vendor-managed inventory, category management, and
other inter-company innovations.
• For example, P&G monitors and replenishes all of the
merchandise at Wal-Mart Stores (Wal-Mart does not place
any orders, although occasionally it reviews P&G’s orders)
• Based on in-store sales, P&G also modifies it product mix
• The outcome has been increased sales and JIT inventory,
resulting in increased sales/profits for both Wal-Mart and
P&G
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How do Information Systems help in This?
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Additional Competitive Advantage Tactics
 Locking in customers or suppliers:
• McKesson Drugs, as well as others, have developed
their own proprietary automated dispensing and
reporting systems along with consulting services to
deepen their relationships with clients.
• Airlines and hotels have benefited from frequent flier
and frequent guest (Loyalty) programs
• These programs are possible because companies
keep more information about their customers'
historical purchasing patterns. Retailers collect
detailed information on individual customers' buying
patterns. These methods require tracking individual
customer purchases over time, establishing accounts
for each
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Additional Competitive Advantage Tactics
 Locking in customers or suppliers:
 Building switching costs:
• A firm’s customers or suppliers are reluctant to pay the
costs in time, money, effort, and inconvenience that it
would take to switch to a company’s competitors.
• The benefits (of Frequent Flier/Frequent guest programs)
become part of the total switching costs: Either the
customer loses them (a customer switching cost) or the
new carrier matches them (a supplier switching cost).
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Additional Competitive Advantage Tactics
 Locking in customers or suppliers:
 Building switching costs:
 Raising barriers to entry:
• Without the technology in use by the industry (e.g.,
ATMs) new entrants would be at a severe disadvantage
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Additional Competitive Advantage Tactics




Locking in customers or suppliers:
Building switching costs:
Raising barriers to entry:
Leveraging investment :
• Using investments in information technology that have
developed new products and services that can not be
duplicated without a strong IT capability.
• For example, the use of intranets and extranets which
enables them to leverage previous investments in web
browsers, PCs, servers and client-server networks.
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Another example of SIS
 JetBlue Airlines
• At a time when airlines (especially
low-cost airlines) have failed
JetBlue (founded 1999) has
prospered.
• 2009 Revenues: $3.286 billion
• JD Powers 2010 rankings of low-cost carriers:
1. JetBlue Airways
2. Southwest Airlines
3. WestJet
4. AirTran Airways
5. Frontier Airlines
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Another example of SIS
 Some Reasons
• Combination reservation system and accounting system
• Supports customer services and sales tracking
• Electronic tickets
• No paper handling or expense
• Encourages online ticket purchases
• Avoids travel agents
• Significant cost savings
• Automated Maintenance Systems
• Logs all airplane parts and time cycles
• Reduced tracking costs
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Another example of SIS
 Some Reasons
• Flight planning software
• Maximize seats occupied on a flight
• Reduced planning costs
• In-house software for tracking operational data
• Updated on a flight by flight basis
• Systems are accessible by all employees
• Employees are given wireless devices so they can
Report and respond to irregular events
• All training records are stored electronically
• Do not use the hub and spoke routing
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Another example of SIS
 Some Reasons
•
•
•
•
•
•
•
•
Paperless Cockpits
Pilots provided with laptops
Live TV through contract with DirecTV
Excellent on-schedule arrivals/departures
Fewest mishandled baggage
Rapid check-in times
Partnership
In 2009, signed a 6 year strategic agreement with
Verizon Business to manage its IT data center and
network needs, as well as provide security and IT
consulting services.
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Customer Focused Businesses
 Business that:
• provide top-quality customer service
• respond to customer interests and concerns
• anticipate customers’ future needs
Such as?
Consider Hilton Hotels Reservations World-Wide (HRW)
• 2,400 hotels in 65 Countries
• 31M calls, 9M reservations annually
• Average time to complete reservation: less than 2 minutes
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How?
Customer Orders
Placed Directly
Create/Revise
as necessary
Customer
Database
OR
Distribution Partner Orders
(e.g., Expedia, Priceline)
Transaction
Database
View customer
Information
Employees
(Intranet/Extranet)
Build Web
Community
(Customers,
Providers,
Partners)
Check/Revise
Reservation
Personalize
Service
(Internet/Extranet)
Customers and
Distribution Partners
(Internet/Extranet)
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Value Chains
 Viewing a firm as a series, chain, or network of basic activities that add value to its
products and services, and thus add a
margin of value both to the firm and its
customers.
• Primary processes add to revenues (Line)
• Support Processes are intended to assist primary
processes (Staff)
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Value Chains and Strategic IS
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Using IT for Strategic Advantage
 Organizational Redesign
• The use of self-directed cross-functional or multidisciplinary process teams
 Business Process Reengineering
• Fundamental rethinking and radical redesign of business
processes to achieve dramatic improvements in cost,
quality, speed, and service.
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Using IT for Strategic Advantage
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Agile Companies
• Agility is the ability to prosper:
• In rapidly changing, continually fragmenting global markets
• By selling high-quality, high-performance, customerconfigured products and services
• By using Internet technologies to integrate and manage
business processes.
• An agile company profits in spite of:
• Broad product ranges
• Short model lifetimes
• Arbitrary lot sizes
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Agile Companies
• Support mass customization: Providing individualized
products while maintaining high volumes of production.
• Presents products as solutions to customers’ problems
• Cooperates with customers, suppliers and competitors
• Brings products to market as quickly and cost-effectively as
possible
• Organizes to thrive on change and uncertainty
• Leverages the impact of its people and the knowledge they
possess
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2
Agile vs. ‘Staid’ companies
Performance
Agile
Staid
Measurement
New Products
8.8
3.2
Percent of 2004 sales from new products introduced in
previous three years. Average = 5.6%
Modified
Products
35
13
Average percent of 2004 sales from modified products
introduced in previous three years. Average = 22.5%
Growth
+7
-10
Average annual percentage growth 2002-2004 (relative to
industry average). Average growth = 6.8% per annum
Profit Growth
+37
-13
Average annual percent change in ROE 2002-2004
(relative to industry average). Average = 0.5%
From: "Business Agility & IT Portfolios," MIT Sloan School of Management, Center for Information Systems Research, Summer Session
3, June 2006, data from 649 firms, National Science Foundation grant number IIS- 0085725. Agile = Average of firms above sample
mean on percent of sales from new products (i.e., 5.6%). Staid = Average of firms below sample mean. Copyright © Massachusetts
Institute of Technology, 2006. This work was created by MIT’s Sloan Center for Systems Research (CISR)
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IT and Agile Companies
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Creating a virtual company
• An organization that uses information technology to link
people, organizations, assets, and ideas.
• Creation of Interenterprise Information Systems:
• Information systems implemented on an extranet
among a company and its suppliers, customers,
subcontractors, and competitors with whom it has
formed alliances.
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Virtual company strategies
•
•
•
•
Share infrastructure and risk with alliance partners.
Link complementary core competencies
Reduce concept-to-cash time through sharing.
Increase facilities and market coverage.
• Gain access to new markets and share market or customer
loyalty.
• Migrate from selling products to selling solutions
Example?
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Virtual company strategies
 Cisco Systems
• The world’s largest supplier of telecommunications product; manufacturer of
none
• Online orders arrive simultaneously at
Cisco (San Jose) and Jabil Circuit (St.
Petersburg, FL).
• Jabil builds the product from 3 on-site warehouses: 1 owned
by Jabil, 1-owned by Cisco, 1 owned by Hamilton Standard
• Product is tested, checked against the order (at Cisco) and
shipped (by Jabil)
• Jabil and Hamilton Standard send bills to Cisco
• Cisco sends bill to customer
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Knowledge Creation Companies
• “learning organizations” or “organizational learning”
• Creating new business knowledge, disseminating it widely
throughout the company, and quickly building the new
knowledge into their products and services.
What does “knowledge” mean?
• Includes processes, procedures, patents, reference works,
formulas, best practices, forecasts, and fixes
• Explicit knowledge: data, documents, things written down
or stored on computers
• Tacit knowledge: the “how-tos” of knowledge, which
reside in workers
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Knowledge Management Systems (KMS)
• Manages organizational learning and know-how
• Helps knowledge workers create, organize, and make
available important knowledge
• Makes this knowledge available wherever and whenever it
is needed
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Knowledge Management
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Summary
 Information technologies can support many
competitive strategies including cost leadership, differentiation, innovation, growth and
alliance
 IT can help
• Build customer-focused businesses
• Reengineer business processes
• Businesses become agile companies
• Create virtual companies
• Build knowledge-creating companies
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??? Any Questions ???
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