Chapter 2
Strategic Uses of Information Systems
1. Strategy and Strategic Information Systems
• 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.
1
2. Achieving a Competitive Advantage for a
For-Profit Company
• 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
2
Eight Ways to Achieve a
Competitive Advantage
Figure 2.2 Many strategic moves can work together to achieve a competitive
advantage
3
Achieving a
Competitive Advantage
• Initiative #1: Reduce Costs
– 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
• On-line services (FAQ, package
tracking)
4
Achieving a Competitive Advantage
• Initiative #2: Raise Barriers to Entrants
– Patenting
• Microsoft's programs
• Lotus’s 1-2-3
• Patented features of Apple’s IPod; sell music from
big labels on Apple’s web site
• Priceline.com’s reverse auction
• Amazon.com’s one-click shopping
– 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
5
Achieving a Competitive Advantage
• Initiative #3: Establish High Switching Costs
– Explicit switching costs are fixed and
nonrecurring
• Penalties for canceling cell phone
provider
• Use of proprietary products (operating
systems;tape formats;DVD formats)
– Implicit Switching Costs
• Indirect costs in time and money of
adjusting to a new product
• Changing application software (MS
Office to Sun’s StarOffice)
6
Achieving a Competitive Advantage
• 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.
– Examples
• FedEx’s package tracking
• eBay
– Fleeting advantage (Netscape and Internet
Explorer)
– First mover success; critical mass
7
Achieving a Competitive Advantage
• Initiative #5: Differentiate Products and Services
– Persuade customers that your product is better
than your competitors
• Brand recognition such as Levi’s, Chanel, or
Calvin Klein
– Use of the Internet
• 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 8
Achieving a Competitive Advantage
• Initiative #6: Enhance Products and Services (similar to
#5)
– 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 online before Merrill Lynch
9
Achieving a Competitive Advantage
• Initiative #7: Establish Alliances
– Combined service may attract customers
• Lower cost
• Convenience
– Examples
• Travel industry
• HP and FedEx
• Affiliate programs
• Amazon’s relationship with Target and other
retailers
10
Achieving a Competitive Advantage
• Initiative #8: Lock in Suppliers or Buyers (similar
to #3)
– Lock in suppliers
• Bargaining power of buyer is determined by
purchase volume
• 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
11
3. Creation of a Strategic Information
System
• Top management involvement
– From initial consideration through development and
implementation
• Must be a part of the overall organizational strategic
plan
12
Reengineering and Organizational Change
• Reengineering is the process of eliminating one set of
operations and building another from the ground up to
achieve hundreds of percentage points in improvement
rates
• 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
13
4. 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 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
14
Success and Failure on the Web
• Just being first on the Web is not enough to be
successful; business ideas must be sound.
– eBay versus Amazon.com
• Success criteria
– New product/service at a competitive price
– Master the retail fulfillment challenge
– Create barriers to entrants (difficult to do)
– Create high-switching costs (difficult to do)
– Create strategic alliances (many companies
have been successful at this)
15
Selected Ideas About Strategic Use of
Information Systems
• 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
16