1

Chapter 3Chapter 3Strategic Information

Systems for Competitive

Advantage

2

Learning Objectives Describe strategic information systems (SIS) and explain their

advantages.

Describe Porter’s competitive forces model & how IT helps companies improve their competitive positions.

Describe Porter’s value chain model and its relationship to information technology.

Describe several other frameworks that show how IT supports the attainment of competitive advantage.

3

Learning Objectives (cont.) Describe and understand the role of web-based SIS and the

nature of competition in the digital age.

Describe global competition and its SIS framework.

Describe representative strategic information systems and the advantage they provide to organizations.

Discuss implementation issues including possible failures of SIS.

4

Case: Rosenbluth International

Rosenbluth Int., a global player in the travel agency industry, faced threats due to the digital revolution.

They responded with 2 strategies: (1) Withdrawal from the leisure travel business(2) Implementation of web-based travel technology, such as:

DACODA A Globalization Network Electronic Messaging Services Customer-Res E-Ticket Tracking Solution IntelliCenters Res-Monitor NOC

5

Lessons from the Case

Need for exchange business models and strategies

Importance of web-based IT

Global competition over service is key

Large investment over time

Importance of networked infrastructure for global systems

Web-based applications for superior customer service

Need to patent innovative systems

6

Strategic Information Systems (SISs)

SISs provide strategic solutions to the 5 Business Pressures:

7

Elements of Strategic Management

1. Long Range Planning

2. Response Management

3. Proactive Innovation- Information Technologies

8

The Role of IT IT creates applications that provide strategic advantages to companies

IT is a competitive weapon

IT supports strategic change, e.g, re-engineering

IT networks with business partners

IT provides cost reduction

IT provides competitive business intelligence

9

Competitive Intelligence

The Internet is central to supporting competitiveintelligence

Such activities drive business

performance by:

Increasing market

knowledge Improving internal

relationships Raising the quality of

strategic planning

Many companies monitor the activities of competitors

10

Competitive Advantage in the Web Economy

Competitive Advantage

Look for a competitive

necessity, which will help your company

keep up with the competitors.

Competitive Strategy

Search for a competitive

advantage in an industry, which

leads to control of the market.

Sustainable Strategic

Advantage

Maintain profitable & sustainable

position against the forces that

determine industry competition.

11

CASE: McKesson Drug (www.Mckesson.com)

Whole Sale Drug Distributor

Economost (McKesson’s Web-based service) Allows for customers to phone, fax or e-mail orders. Order is transferred to an IBM main frame, quick delivery to

pharmacies.

Significant benefits to customers. Due to Economost, McKesson has survived the new economy,

revenues have escalated. Early 2001, McKesson offered a suite of comprehensive Internet-

based applications.

12

Porter’s 5 Competitive Forces

The threat of entry of new competitors.

The bargaining power of suppliers.

The bargaining power of customers (buyers).

The threat of substitute products or services.

The rivalry among existing firms in the industry.

13

Response Strategies (Porter, 1985)

FOCUS

Selecting a niche market and achieving

cost leadership and/or

differentation.

DIFFERENTATION

Being unique in the industry

COST LEADERSHIP

Providing products and/or services at the lowest cost in

the industry.

14

Response Strategies (added by Porter and others)

INNOVATIONDeveloping new products & services

GROWTH

Increasing market share, acquiring more customers or selling more products

IMPROVE INTERNAL EFFICIENCY

To improve employee and customer satisfaction

ALLIANCESWorking with business partners to create synergy & provide opportunities for growth

CRMCustomer-oriented approaches, e.g. the customer is king (queen)

15

Case: Trucking , IT & Cost Leadership

JB Hunt (www.jbhunt.com) Uses web-based technology to:

trigger lowest possible fuel costs notify customers of accurate fuel surcharge provide an on-line “proof of delivery”

Roadway Express (www.roadway.com) Uses IT technology to:

compare vendor’s prices and related procurement expenses monitor the exact location of trucks

16

Porter’s Model in Action

17

Porter’s Model in Action (cont.)

Step 1: The players in each force are listed.

Step 2: An analysis is made which relates Porter’s determining factors.

Step 3: A strategy is devised to defend against these factors.

Step 4: Support information technologies are employed.

18

CASE: Daimler Chrysler

Problem: In 1999, the company lost $US 2.6 Billion Chrysler’s program with part suppliers was failing

Solution: Suppliers began using Lotus notes/ Damino Measurement reports to static HTML web pages E-procurement exchange at Convisint

Results:Chrysler saves billions

19

Porter’s Value Chain Model

PRIMARY ACTIVITIES

In bound logistics (in puts) Operations (manufacturing & testing) Outbound logistics (storage & distribution) Marketing & sales Service

Supply

Chain

20

Porter’s Value Chain Model

SUPPORT ACTIVITIES

Firm Infrastructure Human Resources Management Technology Development Procurement

21

VALUE SYSTEM

A firm’s value chain is part of a larger stream of activities, which Porter calls a “Value System”.

Includes the suppliers that provide the necessary inputs AND their value chains.

Applies to both products & services, for any organization, PUBLIC or PRIVATE.

Is the basis for the Supply Chain Management.

22

CASE: Frito Lay uses IT & the Value Chain

World’s largest snack food producer and owner of Pepsi products.

SIS System: Integrates marketing, sales, manufacturing, logistics,

finance. Provides managers with information about suppliers,

customers & competitors. Enables employees to access valuable information.

Frito Lay’s use of IT allows for an optimal functioning of the value chain.

23

The Value Chain Model

The Value System Model is used to:

Evaluate a company’s process and competencies.

Investigate whether adding IT supports the value chain.

Enable managers to assess the information intensity and the role of IT.

24

Bakos & Treacy Framework

25

McFarlan’s Portfolion Framework (1984)

For Analyzing Existing, Planned & Potential Information SystemsStrategic

e-procurement electronic ticketing

Agents’ management

High Potential Intelligent data mining

e-mail direct marketing

Key Operational Scheduling online

Online parts ordering Maintenance online

Support Frequent flyer account tracking

Online credit union Training online

Wireless SMS information

26

Stages in Customer Resources Life Cycle (1-7)

(1) Establish Customer Requirements

(2) Specify Customer Requirements

(3) Select a source, match customer with a supplier

(4) Place an order

(5) Authorize and pay for goods & services

(6) Acquire goods or services

(7) Test & accept goods or services

27

Stages in Customer Resources Life Cycle (8-13)

(8) Integrate into and manage inventory

(9) Monitor use and behavior

(10) Upgrade if needed

(11) Provide maintenance

(12) Transfer or dispose of product or service

(13) Accounting for purchases

28

Web-based Strategic Information Systems (SISs)

Many of the SISs of the 70s - 90s were based on privately owned networks, or organizational information systems (OISs).

EDI-based systems are of key importance.

SISs are changing the nature of competition. In some cases, SIS renders traditional business procedures

obsolete. E.g, Encyclopedia Britannia

29

CASE: Mobile Oil Moves to Web-based System

Problem: Largest marketer of lubricants in the USA In 1995, introduced EDI system

Used to place orders, submit invoices & exchange business documents It was too expensive, too complex to use

Solution: In 1997, moved to web-based extranet-supported B2B systemResults: Reduced transaction cost from $45/order to $1.25 Fewer shortages, better customer service decline in distributor administration costs

30

Examples of EDI/Internet-based SIS

(for individual Companies) Electronic Auctions

Electronic Biddings

Buyer-Driven Commerce

Single Company Exchange

Direct Sales

31

Examples of EDI/Internet-based SIS

(for Groups of Companies) Industry Consortiums

Horizontal Consortiums

Web-based Call Centers

Web-based Tracking Systems

Web-based Intelligent Agents

Web-based Cross Selling

Accessing knowledge via Intranets

32

Growth of Companies Operating in a Global Environment

Fully Global or Multinational Corporations

Companies that export or import

Companies facing competitions of low labor cost and high natural resources

Companies with low cost production facilities abroad

Small companies that can now use EC to buy/sell internationally

33

A Global Drivers Framework (Ivers et al., 1993)

“The success of companies doing business in a competitive environment depends on the link between their information systems AND their global business strategy.”

This framework provides a tool for identifying the firm’s global business drivers.

Drivers look at the current and future needs, focusing on worldwide implementation.

34

Examples of Who is Using SIS Otis Elevator

Centralized call center, self diagnosing elevators’ malfunctions and maintenance analysis

Baxtar International Terminals in customers’ hospitals

Merrill Lynch Cash management accounts system

American Airlines Computerized reservation system (SABRE)

35

CASE: Total Quality Management at FPL

Florida Power & Light largest US utility company

Leader in implementing total quality management

Several successful SIS programs: Generation Equipment Management System (GEMS)

Tracks electrical generators, saving $5 million/ yr.

20 different quality control applicationsReduced customer complaints by 50%

Trouble Call Management SystemReduced black out time from 70 to 48 min.

36

CASE: Geisinger Implements an IntranetProblem:

As a result of mergers & acquisitions, Geisinger (a health maintenance organization) had 40 different IT legacy systems in need of an upgrade & integration.

Solution: In 1993, Geisinger implemented an innovative Intranet: with the

following features: “Tel-a-Nurse” Clinical Management System Human Resource Management

Results: Geisinger reduced costs and unnecessary medical work.

37

CASE: Caltex Corporation

Major multinational company selling gasoline & petrol products.

In 2000, created a centralized e-purchasing corporate exchange (www.caltex.com)

Suppliers build electronic catalogues with Ariba’s software. Many benefits to buyers and suppliers, particularly in Asia, Africa

& the Middle East. System enables Caltex to successfully handle complex

multinational business environments.

38

CASE : Port of SingaporeProblem:

The Port of Singapore, the world’s largest international port, faced increased global competition.

Solution: Implementation of Intelligent Systems

Results: Reduction in Cycle Time

4 hours versus 16 - 20 hours in neighboring ports Reduction in uploading/ loading time

30 sec. versus 4-5 min./ truck in neighboring ports

39

CASE: Volvo Speed CarsProblem:

In comparison to global competitors, Volvo’s cars were to expensive, with a slow delivery time.

Solution: Creation of global ISDN-based network

Result: Reduction in delivery time from 12 - 16 weeks to 4 - 6 weeks for

customized cars. Reduction in cost of doing business, along with the price of the

car.

40

CASE: Caterpiller CorporationProblem:

This world leader in manufacturing of heavy machines faced strong competition from Japanese companies.

Solution: Computer-aided manufacturing and robots Computerized inventory management Supply chain web-based management Global Intranet & EDI Sensory Intelligent Agents attached to products.

Results: CAT experienced such a high rate of success that their main competitor

was forced to shift its strategy.

41

CASE: Dun & Bradstreet (D & B)Problem:

Clearing house that provides risk analysis & maintains database of credit ratings.

Customers complained about long waiting periods and inaccuracies.

Solution: Implementation of Web-based expert system.

Results: Response time reduced from 3 days to a few seconds Credit ratings became more accurate.

42

SIS Implementation Major Issues to be Considered:

Justification Justifying SIS may be difficult due to the intengible nature of

their benefits.

Risks & Failures The magnitude, complexity, continuous changes in

technology and business environment may result in failures.

Finding appropriate SIS Identifying appropriate SIS is not a simple task.

43

Sustaining SIS & Strategic Advantage

A Major problem that companies face is how to sustain their SIS competitive advantage.

3 Major approaches =

Create inward systems which are not visible to competitors.

Provide a comprehensive, innovative & expensive system that is difficult to duplicate.

Combine SIS with structural changes. This would include business processes, reengineering & organizational transformation.

44

Managerial Issues Implementing SIS Can Be

Risky.

The investment involved in implementing Strategic Information Systems (SIS) is high.

Strategic Information Systems Requires Planning.

Planning for an SIS is a major concern of organizations.

45

Managerial Issues (cont.)

Sustaining Competitive Advantage Is Challenging.

As companies become larger and more sophisticated, they develop resources to duplicate the systems of their competitors quickly.

Ethical Issues. Gaining competitive advantage through the use of IT may involve unethical or even illegal actions.Companies can use IT to monitor the activities of other companies and may invade the privacy of individuals working there.