Strategic Information Systems
Infsy 540
Dr. R. Ocker
Chapter 3:
Competing with Information Systems
First Edition
Foundations of Information Systems
Vladimir Zwass
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc.., 1998
Business challenges of an
Information Society

Global competition
– rapid product and process innovation

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Increases in amount of knowledge that
affect your business
– need organizational knowledge
management supported by IS
faster base of business events
– time-based competition
How role of IS has evolved
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1. Operational support
2. Support of management and
knowledge work
3. Support of business transformation
and competition
4. Ubiquitous computing
3- 5
Era
Era II of
of Organizational
Organizational Computing:
Computing:
Operational
Operational Support
Support
Primary
Objective
Justification
Irwin/McGraw-Hill
Support of
Operations
Large
Company
Units
Efficiency
Single
DP/IS
Department
Primary
“Clients”
Source
©The McGraw-Hill Companies, Inc., 1998
Era 1


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
operational support
1950s-1970s
Single data processing department
which developed all applications
end users - no direct access to
computer technology
large backlog
Era
Era IIIIof
of Organizational
Organizational Computing:
Computing:
Support
Support of
of Management
Management &
& Knowledge
Knowledge Work
Work
Primary
Objective
Justification
Irwin/McGraw-Hill
Management
Support
Individual
Managers
and
Professionals
Management
Effectiveness
Information
Systems Units
and End
Users
3- 4
Primary
“Clients”
Source
©The McGraw-Hill Companies, Inc., 1998
Era II support management &
knowledge work




Began late 1970s
Apple II PC 1977
end-user software
beginning of end user computing
Era
Era III
III of
of Organizational
Organizational Computing:
Computing: Support
Support
of
of Business
Business Transformation
Transformation &
& Competition
Competition
Primary
Objective
Entranced
Competitive
Position
Line of
Business
Units
Justification
Market Share
and
Profitability
Coordinated
Organizational
End User
Computing
Irwin/McGraw-Hill
3- 3
Primary
“Clients”
Source
©The McGraw-Hill Companies, Inc., 1998
Era III Support Business
Transformation & Competition




Mid 1980s - orgs. heavy reliance on
computers
strategic information systems became
prominent
systems support line-of-business units,
e.g. development and marketing of a
product
line-of-business units control their own
systems
3- 1
Era
Era IV
IV of
of Organizational
Organizational Computing:
Computing:
Ubiquitous
Ubiquitous
Primary
Objective
Justification
Irwin/McGraw-Hill
Electronic
Integration
Collaborating
Teams
Primary
“Clients”
Organizational
Effectiveness
Owned and
Outsourced
Computing
Infrastructure
Source
©The McGraw-Hill Companies, Inc., 1998
Era IV Ubiquitous computing


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Cannot pursue competitive advantage
based on single system
Competing with information systems
must be based on a broad and
continually enhanced technology
platform linked to corporate strategy
networks & client/server architecture
electronic integration of entire
organization
Strategic Information Systems
(SIS)



A strategic system alters the way an
organization does business
some systems - offer a company a clear
competitive advantage - higher profits
or increased market share
most strategic systems - enable a
company to be an effective competitor
Strategic Information Systems


rapid diffusion of technological change
makes it difficult to maintain a
competitive advantage
so strategic development of IS
– dynamic capability of an org.
– not a static attribute
What are Strategic Systems?

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An information system designed to give
the owner organization a strategic
competitive advantage.
A strategic system supports or shapes a
business unit's competitive strategy.
outward looking: customers,
competitors, environments
inward looking: employees, systems,
procedures
Characteristics of Strategic
Information Systems:



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significantly change business
performance
contribute to attaining a strategic goal
fundamentally change the way a
company does business,
or the way it competes,
or the way it deals with its customers or
suppliers.
Strategic systems

External focus
– changes way firm competes


innovative use of IT
high degree of project risk
Strategies, Forces, and Tactics in
Competitive Markets
Competitive Strategies
Uncovering Strategic Use of
Systems


1. Analyze competitive forces
2. Study the value chain
1. Competitive Forces Model
1. Competitive Forces model


used to describe the interaction of
external influences -- threats and
opportunities -- that affect an
organization’s strategy and ability to
compete
competitive advantage - can be
achieved by enhancing the firm’s ability
to deal with customers, suppliers,
substitute products and services, and
new entrants to its market
1. Competitive Forces model

Objective - use this model to identify
potential areas where IT can be used to
gain a competitive advantage
Competitive Strategies for
competing in marketplace

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businesses can use four basic
competitive strategies to deal with these
competitive forces:
1. Product Differentiation
2. Cost leadership
3. Focused differentiation
4. Cost Focus
3- 6
Competitive
Competitive Strategies
Strategies
Competitive Advantage
Lower Cost
Differentiation
Broad
Target
Cost
Leadership
Differentiation
Narrow
Target
Cost
Focus
Focused
Differentiation
Competitive
Scope
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1998
1. Differentiation




competitive strategy for creating brand
loyalty
Develop products & services which are
different from what the competition
offers
. superior attributes
. distinguishing features
2. Cost leadership




to prevent new competitors from
entering their markets, businesses
produce goods/services at lower price
than competition
based on efficient operations
based on effective operations
economies of scale
3. Focused differentiation


develop new market niche for
specialized products or services
so that business can compete in target
market better than its competitors
4. Cost Focus


Company serves narrow market
segment with product/service
which it offers at a significantly lower
cost than competitors
Competitive Forces

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Use competitive strategy to combat 5
competitive forces in marketplace
1. threat of new competitors
2. bargaining power of suppliers
3. bargaining power of customers
4. substitute products
5. rivalry within the industry
Competitive Forces

Use IT to enact or counteract these
forces with respect to
– customers
– existing & potential competitors
– suppliers
Threat of new competitors


Erect barriers to entry:
use IT to slow down new firms entering
market
– SABRE
– ASAP
Intensify rivalry among
competitors

Change basis of competition
– novel IS can perhaps change the basis of
competition - help offer product/service
with new features
– e.g. delivery service allows customer to
track progress of package
– you are now differentiated from competition
– no longer compete just on price basis
Pressures from potential
substitute products

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Deliver products with better value
identify and track a market niche with IS
that you can serve better than others
try to prevent substitution
Bargaining power of customers

Introduce switching costs
– cost of switching to competitor
– deters customers from switching
– e.g. due to training and contracts, travel
agents unlikely to switch to different airline
reservation system
Bargaining power of suppliers


Develop Alternatives
use IS to maintain information on
available alternative sources of supply
Tactical Moves in Pursuing a
Strategy

Firm can use any of several tactics to
change its products or processes
through use of SIS
– Internal innovation - generate new
knowledge
– internal growth - economies of scale
– Mergers & acquisitions
– Strategic alliances - partnerships with other
companies
IOS & Strategic Alliances

strategic alliances:
– information partnership - cooperative
alliance formed between two firms

Advantages
– share information systems
– reciprocity of competencies
– economy of time and money
3- 7
The
The Strategic
Strategic Cube
Cube
COMPETITIVE
FORCES TO
CONTEND WITH
Customer
Power
Supplier
Power
Strategic
Alliance
Merger or
Acquisition
Internal Growth
Present
Competitors
Potential
Competitors
Irwin/McGraw-Hill
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C
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oc
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Internal
Innovation
TACTICS
D
Fo
rs
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if f
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Substitute
Products
STRATEGIES
©The McGraw-Hill Companies, Inc., 1998
3. Value Chain
Value Chain

Tool to use to discover where a
company can apply IS to gain a
competitive advantage
Value Chain Analysis of Strategic
Opportunities

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
value chain model
highlights the primary or support
activities
that add a margin of value to a firm’s
products or services
where information systems can best be
applied
to achieve a competitive advantage
Value Chain Analysis of Strategic
Opportunities

Value chain consists of the major
activities that have been added to the
product during its creation,development
or sale.
Activities in the value chain


Activities in the creation of product or service
– inbound logistics - obtain raw materials
– Operations - transformation of inputs to
finished goods
– Outbound logistics - storing products and
delivering them
– Marketing/sales - establishing a customer
need
– Service activities - after-sale service and
maintenance
each of these activities adds value to final
3- 8
Value
Value Chain
Chain with
with Typical
Typical Strategic
Strategic IS
IS
Mapped
Mapped onto
onto itit
EDI-Based
Purchasing
System
ComputerIntegrated
Mftg.
Inbound
Logistics
Upstream Chains
of Suppliers
Irwin/McGraw-Hill
Operations
Automated
Ordering
System
Outbound
Logistics
Expert
Systems for
Salespeople
Marketing
and Sales
Telemaintenance
Expert
Systems
Service
Downstream Chains
of Customers
©The McGraw-Hill Companies, Inc., 1998
Value Chain

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
besides determining discrete steps in
chain - also need to analyze linkages
between steps in value chain
Use value-chain analysis to identify
strategic information systems
to use IS strategically, must identify
potentially info.-related aspects of each
activity in value chain and linkages
between them.
Virtual Value Chain



Mirrors with information the physical
value chain
possible to integrate the systems
mapped onto the physical value chain
(fig. 3.14) to produce the virtual V.C.
can also link V.C. to that of suppliers
and customers to form an integrated
supply chain
point of analysis

identify stages and links where highestimpact potential is available and
creatively use IS to bring about that
potential.
Organizational Requirements for
Successful SIS



Active support of Senior management not just MIS management
Integrated Planning - for strategic use of
IS into overall company strategic
planning process
Readiness: successful use of MIS
already, org. experience with tech.
innovation
Sustainability of a competitive
advantage




depends on:
1. lead time will allow the achievement
of competitive advantage
2. Copy cats may fail because of
Uniqueness
3. If copied: Your organization will still
have preempted the marketplace
3- 9
Key
Key Terms
Terms in
in Chapter
Chapter 33
Information
Information Society
Society
Business
Business Globalization
Globalization
Product
Innovation
Product Innovation
Process
Process Innovation
Innovation
Knowledge
Knowledge Management
Management
Strategic
Strategic Information
Information System
System
Competitive
Competitive Forces
Forces Model
Model
Differentiation
Differentiation
Cost
Cost Leadership
Leadership
Focused
Focused Differentiation
Differentiation
Cost
Cost Focus
Focus
Value
Value Chain
Chain
Irwin/McGraw-Hill
©The McGraw-Hill Companies, Inc., 1998