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Strategy
 A plan designed to help an organization outperform
its competitors.
Strategic Information Systems
 Information systems that changes goals,
operations, products, services, or environmental
relationships to help the firm gain a competitive
advantage
 Can be developed from scratch, or they can evolve
from existing ISs.
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Strategies for this type of company involve increasing
profits
 Reduce costs
 Increase revenue through a larger market share
 Do both
The essence of strategy is innovation, so competitive
advantage often occurs when an organization initiates
a strategy that no one has tried before.
 Dell’s use of the Web to take customer orders
 Citibank’s use of ATMs
 Airlines use of computerized reservation systems
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1.
2.
3.
4.
Operational excellence: Wal-Mart
New products, service, or business models: Netflix,
Apple’s iPod and iTunes
Customer and supplier intimacy: effective CRM and SCM
Improved decision making
 GIS
 Data mining
 CRM
 Mathematical modeling in DSS applications
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Strategies and Initiatives
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Figure 2.2 Many strategic moves can work together to achieve a competitive
advantage
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Initiative #1: Reduce Costs (1, 3, & 4)
 Lower Costs enable you to lower your
prices
 Competitors may not be able to follow
your lead; thus you gain market share
 Examples:
▪ Dell’s ability to continually lower cost of
PCs through improving their supply
chain and taking orders online
▪ Wal-Mart use of SCM (vendor
replenishment) cuts their operational
costs
▪ On-line services (FAQ, package tracking)
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Initiative #2: Raise Barriers to Entrants (2)
 Patenting
▪ Microsoft's programs
▪ Lotus’s 1-2-3
▪ Priceline.com’s reverse auction
▪ Amazon.com’s one-click shopping
▪ Patented features of Apple’s IPod; sell music from
big labels on Apple’s web site
 High expense of entering industry
▪ State Street, Inc. (Pension fund management
business); money required to build systems keeps
competitors out of this market; rents its software
to others
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Initiative #3: Establish High Switching Costs (2 or 3)
 Explicit switching costs are fixed and nonrecurring
▪ Penalties for canceling cell phone provider
▪ Use of proprietary products (operating
systems;tape formats;DVD formats)
▪ Use of IS/IT in customer loyalty programs (e.g.,
grocery stores, retailers)
 Implicit Switching Costs
▪ Indirect costs in time and money of adjusting to a
new product
▪ Changing application software (MS Office to Sun’s
StarOffice)
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Initiative #4: Create New Products and Services
 This advantage lasts only until other organizations in
the industry start offering an identical or similar
product or service for a comparable or lower price. (2)
 Examples
▪ FedEx’s package tracking
▪ Levi’s “personal pair”
▪ eBay
▪ ATM’s from Citibank
▪ Custom computers from Dell
 Fleeting advantage (Netscape and Internet Explorer)
 First mover success; critical mass
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Initiative #5: Differentiate Products and Services (2, 3)
 Persuade customers that your product is better than your
competitors
▪ Brand recognition such as Levi’s, Chanel, or Calvin
Klein
 Use of the Internet to differentiate
▪ Email
▪ Answering questions online
▪ Purchasing advice online
▪ Personalize the Web page (Amazon.com)
▪ Easy to use Web site
 IBM’s transformation to a consulting company
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Initiative #6: Enhance Products and Services (similar to
#5) (2 and 3)
 Examples
▪ Dell offers a buying guide to differentiate itself from
other online sellers
▪ Charles Schwab moving stock trading services on-line
before Merrill Lynch
▪ Web enables companies to continually enhance
services
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Initiative #7: Establish Alliances that links your IS
with a partner’s IS (3)
 Combined service may attract customers
▪ Lower cost
▪ Convenience
 Examples
▪ Travel industry
▪ HP and FedEx
▪ Affiliate programs
▪ Amazon’s relationship with Target and other
retailers
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Initiative #8: Lock in Suppliers or Buyers (similar to high
switching costs) (3)
 Lock in suppliers
▪ Bargaining power of buyer is determined by
purchase volume (systematic sourcing)
▪ Wal-Mart
 Lock in buyers
▪ Create impression of product superiority
▪ High switching costs
▪ Create a standard (software industry)
▪ Microsoft
▪ Adobe (gave away the reader but sells the writer);
Macromedia
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Top management involvement
 From initial consideration through development and
implementation
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Must be a part of the overall organizational strategic plan
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Implementation of an SIS often results in
organizational change (sometimes unplanned)
Planned organizational change is often referred to as
“reengineering”
 Actively seek ways to employ IT to gain large leaps
in efficiencies
 Different from continuous improvement
 Often associated with large job losses.
 Reengineering projects have high failure rates
GM’s Saturn division
 How did GM approach this?
 Why did they do it this way?
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Success: JetBlue (you fill in the details)
 Use of IT
 Change in internal processes
 Enhanced customer service
 Late mover advantage
Failure: Ford (you fill in the detail)
 ConsumerConnect (replaced by FordDirect)
 Covisint
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Easy
 Reduce cost
 Differentiate
product/service
 Enhance
product/services
 Establish alliances
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Hard
 Raise barriers to
entrants
 Lock in buyers or
suppliers
 Establish high
switching costs
 Create new
product/service
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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 technology will work or customers
and employees will welcome it
Some organizations let competitors assume the risk
associated with being on the leading edge.
 Risk losing initial rewards.
 Can quickly adopt and even improve pioneer
organization’s successful technology (Microsoft)
 Home Depot’s use of a data warehouse
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Competitive advantage is difficult to sustain
In some industries, companies must continually
contemplate new ways of utilizing IS/IT for
competitive advantage
 Many strategic systems have been unplanned and
often come from transaction processing systems
 You cannot depend on your IS/IT department as your
sole source of ideas for strategic use of IS/IT
 Strategic systems often become standard business
procedures (e.g., ATMs, bank by phone)
 Personal competitive advantage
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