Chapter 2
Strategic Uses of
Information Systems
Management Information Systems, 4th Edition
1
Learning Objectives
• Explain what business strategy and strategic
moves are
• Illustrate how information systems can give
businesses a competitive advantage
• Identify basic initiatives for gaining a
competitive advantage
Management Information Systems, 4th Edition
2
Learning Objectives (Cont.)
• Explain what makes an information system a
strategic information system (SIS)
• Identify fundamental requirements for
developing strategic information systems
• Explain circumstances and initiatives that
make one SIS succeed and another fail
Management Information Systems, 4th Edition
3
Strategy and Strategic Moves
• Strategy
– A plan designed to help an organization outperform its competitors
• A best response counteracting to the competitor’s reactions
– As a plan : a guide or course of action toward the goal and into the future
– As a pattern: consistency in behavior/decision over time
– As a positioning: determining the particular value proposition in a
particular market segment
– As a perspective: a concept of shaping the business
– As a ploy: a specific maneuver intended to outwit an opponent
• Strategic Information Systems
– Information systems that help seize opportunities
– Can be developed from scratch, or they can evolve from existing
ISs
Management Information Systems, 4th Edition
4
Strategy and Strategic Moves
(Cont.)
– Strategic advantage:
• Using a strategy to maximize strength/seek
monopolistic rents
– Competitive advantage:
• The result of the use of a strategic advantage
Management Information Systems, 4th Edition
5
Achieving a Competitive
Advantage
• Increase profits through increased market
share/profit margin
• Innovation results in advantage
– Strategies that no one has tried before, or
conducted more efficiently than others did
– Example: Dell using the Web to take customer
orders quicker than the competitors
Management Information Systems, 4th Edition
6
Achieving a Competitive
Advantage (Cont.)
Innovation leadership
Product proliferation
Co-option
Management Information Systems, 4th Edition
7
Achieving a Competitive
Advantage (Cont.)
Management Information Systems, 4th Edition
8
Initiative #1: Reduce Costs
• Lower costs results in lower price
– Economies of scale, and experience curve
• Bigger Market Share
– The spill-over effect of a common reputation/goodwill
• Implement automation to become more productive
– The Web has made this possible for many
Management Information Systems, 4th Edition
9
Initiative #2: Raise Barriers to
Market Entrants
• Patenting, (rent protection enforced by the public orders,
mandated monopoly)
• High capital of entering industry, high-level
sunk cost
– Limit pricing/predatory pricing/raising cost for entry
deterrence
– State Street, Inc. (Pension fund management
business)
Management Information Systems, 4th Edition
10
Analysis of entry/exit barrier
Exit barrier
low
low
high
Entry barrier
e.g., 蚵仔麵線
$₤₡¥
e.g., 祖傳祕方
Management Information Systems, 4th Edition
high
e.g., 黑道
e.g., 石化,製藥,
半導體…etc
11
Initiative #3: Establish High
Switching Costs
• Explicit Switching Costs
– Fixed and nonrecurring, penalty costs
expiated for breach of contract
• Implicit Switching Costs
– Indirect costs in time and money of adjusting
to a new product
Management Information Systems, 4th Edition
12
Initiative #4: Create New
Products or Services
• Lasts only until competition offers an identical or
similar product or service for a comparable or lower
price
• First Mover: Creates assets
–
–
–
–
Brand Name
Better Technology
Delivery Methods
Cannibalization for leadership
• Critical Mass: body of clients that attracts other
clients for crossing the diffusion chasm
– Network externalities
Management Information Systems, 4th Edition
13
Initiative #5: Differentiate
Products or Services
• Product differentiation
• Distinctive Brand recognition, re-branding for
re-positioning
• Examples of brand name success
– Levi’s jeans
– Chanel perfumes
– Gap clothes
Management Information Systems, 4th Edition
14
Initiative #6: Enhance Products
or Services
• Examples
– Auto manufacturers enticing customers with a
longer warranty
– Real estate agents providing useful financing
information to potential buyers
– Charles Schwab moving stock trading services
on-line before Merrill Lynch
Management Information Systems, 4th Edition
15
Initiative #7: Establish Alliances
• Combined services may attract customers
– Lower cost
– Convenience
– The whole product/the total solution resulted from
the aggregation of necessary complements
• Examples
– Travel industry linking related tourist businesses
– HP and FedEx collaborated for the convenient
ordering process and fast delivery/return service
Management Information Systems, 4th Edition
16
Establishing Alliances (Cont.)
Management Information Systems, 4th Edition
17
Initiative #8: Lock in Suppliers or
Buyers
• Bargaining Power—assets specificity
• Purchase volume—monopsony or monopoly
• Strengthen perception as a leader—
bandwagon effects of promotion (sunk costs
as credible commitments) and market share
• Create a standard for issuing the problem of
compatibility
Management Information Systems, 4th Edition
18
Types of Lock-in and Associated
Switching Costs
• Contractual commitments
– Compensatory or liquidated damages
• Durable purchases
– Replacement of equipment; tends to decline as the
durable ages
• Brand-specific training
– Learning a new system, both direct costs and lost
productivity; tends to rise over time
• Information and databases
– Converting data to new format; tends to rise over
time as collection grows
Management Information Systems, 4th Edition
19
Types of Lock-in and Associated
Switching Costs (Cont.)
• Specialized suppliers
– Funding of new supplier; may rise over time if
capabilities are hard to find/maintain
• Search costs
– Combined buyer and supplier search costs; includes
learning about quality of alternatives
• Loyalty programs
– Any lost benefits from incumbent supplier, plus
possible need to rebuild cumulative use
Management Information Systems, 4th Edition
20
Strategic Information Systems
(SIS)
• An IS that helps achieve long-term
competitive advantage
• SIS embodies two types of ideas:
– Potentially-winning business move
– How to harness IT to implement that move
• Two conditions for SIS:
– Serve an organizational goal
– Work with the managers of the other functional
units
Management Information Systems, 4th Edition
21
Creating an SIS
• Top management involvement
– From initial consideration through
development and implementation
• Must be a part of the overall organizational
strategic plan
Management Information Systems, 4th Edition
22
Steps for Considering a new
SIS
Management Information Systems, 4th Edition
23
Steps to Take in an SIS IdeaGenerated Meeting
Management Information Systems, 4th Edition
24
Re-engineering and
Organizational Change
• To implement an SIS and achieve a
competitive advantage, organization must
rethink entire operation
• Goal of re-engineering
– Remove the process bottleneck, the key dead
logs
– Achieve efficiency leaps of 100% or higher
Management Information Systems, 4th Edition
25
Competitive Advantage as
Moving Target
• SISs developed as strategic advantages quickly
become standard businesses
– Banking industry (ATMs and banking by phone/Internet)
• Continuous search for new ways of utilizing
information technology to their advantage
– SABRE, American Airlines’ reservation system enhanced
continuously by several functions including web-based
travel site, Travelocity.
Management Information Systems, 4th Edition
26
JetBlue: A Success Story
• Gained competitive advantage where others failed
• Proper technology and management methods
– Reservation system, Electronic ticket, ticketless traveling
service, revenue analysis for route management
• Reducing costs resulting in lower prices
• Improving service—on-time departures and arrivals
Management Information Systems, 4th Edition
27
JetBlue: A Success Story
(Cont.)
• Massive Automation
– Automation of services with software
• Combination reservation system and accounting
system
• Supports customer services and sales tracking
Management Information Systems, 4th Edition
28
JetBlue: A Success Story
(Cont.)
• Massive Automation, continued
– Electronic tickets
• No paper handling or expense
• Encourages online ticket purchases
• Avoids travel agents
• Significant savings in cost
Management Information Systems, 4th Edition
29
JetBlue: A Success Story
(Cont.)
• Massive Automation, continued
– Maintenance information system
• Logs all airplane parts and time cycles
• Reduces manual tracking costs
– Flight planning software
• Maximize seats occupied on a flight
• Reduced planning costs
Management Information Systems, 4th Edition
30
JetBlue: A Success Story
(Cont.)
• Massive Automation, continued
– Blue Performance
• In-house software for tracking operational data
• Updated on a flight by flight basis for maximizing yield
• Accessible by airline’s 2,800 employees
– Managers are able to respond immediately to problems
Management Information Systems, 4th Edition
31
JetBlue: A Success Story
(Cont.)
• Massive Automation, continued
– Wireless devices for employees
• Report and respond to irregular events
• Quick response
• Events recorded for future analysis
– Training records stored electronically
• Easy to update
• Efficient retrieval
Management Information Systems, 4th Edition
32
JetBlue: A Success Story
(Cont.)
• Away from Tradition
– Decision to not use the hub and spoke routing
method
– Paperless Cockpits
– Laptops for Pilots
– Harnessing IT to maintain a strategic gap
Management Information Systems, 4th Edition
33
JetBlue: A Success Story
(Cont.)
• Enhanced Service
– Available on all flights and all class tickets
• Live TV through contract with DirecTV
• Leather Seating
• Excellent on-schedule arrivals and departures
• Fewest mishandled bags
• Rapid check-in time
• Security upgrades
Management Information Systems, 4th Edition
34
JetBlue: A Success Story
(Cont.)
• Impressive Performance
– Maintains excellent statistics
• 7 cent cost per available seat-mile (CASM) lesser than the
industrial average
• 78% of seats are filled higher than the industrial average
• Late Mover Advantage
• New Technology vs. legacy systems
Management Information Systems, 4th Edition
35
Ford on the Web: A Failure Story
• The Ideas
– Wingcast telematics
• Technology in vehicles to enable Web access
– Business to Business: Covisint
• Joint venture with General Motors and
DaimelerChrysler
• Electronic market for parts suppliers
• Vendor bidding for proposals from automakers
Management Information Systems, 4th Edition
36
Ford on the Web: A Failure Story
(Cont.)
• The Ideas (cont.)
– Business to Consumer: FordDirect.com
• Sell vehicles direct to consumers via the Web
• Bypass dealerships
• Provide service while saving dealer fees
• ConsumerConnect
– Special unit to build Web site and handle direct sales
Management Information Systems, 4th Edition
37
Ford on the Web: A Failure Story
(Cont.)
• Hitting the Wall
– Wingcast: Failed
• Buyers not interested (as the failure of WAP)
• Product eliminated in June 2001
– Covisint: Successful
• Now includes more automakers, Renault and Nissan
Management Information Systems, 4th Edition
38
Ford on the Web: A Failure Story
(Cont.)
• Hitting the Wall
– FordDirect.com: Failed
• Not a result of faulty technology
• Ford failed to consider state laws and dealership
relationships
• Dealership relationship was still needed for
purchases not on the Web
Management Information Systems, 4th Edition
39
Ford on the Web: A Failure Story
(Cont.)
• The Retreat
– ConsumerConnect disbanded
– FordDirect.com used by dealerships now
• Sells used cars
– Price tag for failure: $1 billion
– FordDirect.com today results in 10,000 vehicle
per month, and 100,000 sales in 2001
Management Information Systems, 4th Edition
40
Success and Failure on the
Web
• Being first is not enough for success
• Business ideas must be sound
– An organization must carefully define what
buyers want
– Establishing a recognizable brand name is
important but does not guarantee success;
satisfying needs is more important
Management Information Systems, 4th Edition
41
The Bleeding Edge
• 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 new technology will work or customers and
employees will welcome it
– Bet on standard competition
– Wait-and-see hesitation
Management Information Systems, 4th Edition
42
The Bleeding Edge (Cont.)
• The bleeding edge: failure in an organization’s effort
to be on the technological leading edge
– First-mover dis-advantage?
• Allow competitors to assume the risk
– Risk losing initial rewards
– Can quickly adopt and even improve pioneer
organization’s successful technology
• Second-mover advantage?
Management Information Systems, 4th Edition
43
Summary
• Business strategy and strategic moves can
give an organization an advantage
• Basic initiatives for gaining a competitive
advantage
• Strategic information systems require
fundamental elements
• Circumstances and initiatives that make one
SIS succeed and another fail
Management Information Systems, 4th Edition
44
Homework #1: Amazon vs.
eBay
• Refer to the pp.59-62.
• Please specify the differences of business
played between theses two dotcom giants.
• Compare the sources of profit between these
two firms.
• Analyze the sustainability of competitive
advantage among two.
• Articulate the possible challenges for the
future expansion respectively.
Management Information Systems, 4th Edition
45