BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 1 Chapter 2 Strategic Uses of...

Management Information Systems, 3rd EditionEffy Oz

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Chapter 2Strategic Uses of Information

Systems


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Learning Objectives

• When you finish this chapter, you will:– Understand business strategy and strategic moves.– Recognize how information systems can give

business a competitive advantage.– Understand basic initiatives for gaining a

competitive advantage.


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Learning Objectives

– Know what makes an information system a strategic information system.

– Understand the fundamental requirements for developing strategic information systems.

– Recognize circumstances and initiatives that make one SIS succeed and another fail.


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Strategy and Strategic Moves

• Strategy– A plan designed to help an organization

outperform its competitors.

• Strategic Information Systems– Information systems that help seize

opportunities.– Can be developed from scratch, or they can

evolve from existing ISs.


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Achieving aCompetitive Advantage

• Profits increase significantly through increased market share.

• The essence of strategy is innovation, so competitive advantage often occurs when an organization tries a strategy that no one has tried before.

• Dell was the first PC manufacturer to use the Web to take customer orders.


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Figure 2.1Eight basic waysto gain advantage


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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– Lower Costs

– Lower Price

– Bigger Market Share


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• Initiative #2: Raise Barriers to Entrants– Patenting and Copyrights of proprietary

software– High expense of entering industry

• State Street, Inc. (Pension fund management business) invested huge amount of capital on developing an IS for Pension fund management, thereby making it difficult for new entrants in this business area. Similar organizations start to rent services from the new IS of State Street, Inc.


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• Initiative #3: Establish High Switching Costs– Explicit Switching Costs

• Fixed and nonrecurring

– Implicit Switching Costs• Indirect costs in time and money of adjusting to a new

product

– Good example is an ERP system such as SAP or Oracle ERP


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• Initiative #4: Create New Products and Services– Dynamic

• The advantage lasts only until other organizations in the industry start offering an identical or similar product or service for a comparable or lower price.

• Businesses have to improve services to retain competitive advantages (FedEx has add tracking IS to it postal services to regain competitive advantage)


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• Initiative #5: Differentiate Products and Services– Product differentiation – usually achieved through

advertising• Brand recognition

– Examples of brand name success» Levi’s jeans» Chanel perfumes» Calvin Klein clothing

– The Internet as a business tool used businesses to add more services to existing offerings to make its businesses more recognized by customers. Amazon.com is a good example.


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• Initiative #6: Enhance Products and Services– Instead of differentiating a product or service, add

to it in order to enhance its value• 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


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• Initiative #7: Establish Alliances– Combined service may attract customers

• Lower cost

• Convenience

– Examples• Travel industry

• HP and FedEx


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Achieving a Competitive Advantage

Figure 2.3 Strategic alliances combine services to create synergies


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• Initiative #8: Lock in Suppliers or Buyers– Bargaining Power– Purchase volume– Create a standard


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Strategic Information as a Competitive Weapon

• Strategic Information Systems (SIS) – Any IS that can help an organization achieve a 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• IS must be serving an organizational goal• IS unit must be working with the managers of the other

functional units


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• Creating an SIS– Top management must be involved from

initial consideration through development and implementation.

– SIS must be a part of the overall organizational strategic plan.


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Figure 2.4 Steps for considering a new SIS


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Figure 2.5 Steps to take in an SIS idea-generating meeting


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• Re-engineering and Organizational Change– To implement an SIS and achieve a competitive

advantage, organization must rethink the entire way in which it operates.

– Goal of re-engineering is to achieve efficiency leaps of 100 percent or even higher.


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• Competitive Advantage as Moving Target– SISs developed as strategic advantages quickly

become standard business.• Banking industry (ATMs and banking by phone)

– Companies must continuously contemplate new ways of utilizing information technology to their advantage.

• SABRE, American Airlines’ reservation system


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• Sources of Strategic Information Systems– Existing System– New Service– New Technology– Excess Information– Vertical Information


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– From Automation to SIS• An organization can gain a competitive advantage

through automation of a manual process.

• American Hospital Supply automated manual orders and improved services, resulting in a seventeen percent (17%) compound annual growth rate in sales.


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– SIS from a New Service• A company may gain competitive advantage by

providing a new service using IT.

• Merrill Lynch was the first to use IT to provide a cash-on-demand service for their investors and captured a lion’s share of the market.


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– SIS from New Technology• Often, technology involved in an SIS has been

around for some time– Just waiting to be sued strategically

• Sometimes, new technology sparks major change in the way a firm does business

• A company that figures out how to use a new technology can gain a competitive advantage.


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– SISs from Excess Information• An organization can gain an advantage by putting

excess information toward a new product or service.

• A company can look for strategic use of its information– What information do we have that another company could

use?

– What information do we have that could be used to start a new business?

– Can we produce information to assist in creation of new products or services for ourselves to other companies?


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– SISs from Vertical Information• Organizations use ISs to augment their

businesses vertically by offering related services.

• Realtors offer financing and relocation information in addition to information about houses for sale.


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Acumax Plus: An SIS Success

– Good SIS ideas must be carefully executed if a company is to seize opportunities.

• McKesson Drugs, Inc., automated its operations and gained a competitive advantage.

– Enhanced existing services

– Provided new services

– Cut costs

– Created high switching costs for clients


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• Improving Existing Services– McKesson devised a new information system to

automate order entry and order processing• Implementation of a wearable computer and scanner called

Acumax to automate collection and fulfillment of orders

• Business Process Redesign– Acumax and its successor, Acumax Plus, contributed to

significant cost cutting and increased market share at McKesson Corporation.


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• Providing New Services– McKesson delivers about ninety-three percent

of its over-the-counter items and ninety-nine percent of prescribed drugs the next day.

• This creates an almost just-in-time supply cycle.

– McKesson succeeded in forming an alliance with drugstores, thereby helping drugstores save time


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Mortgagepower Plus: An SIS Failure

• Identifying the Competitive Advantage– Citicorp had all the ingredients necessary for

successful implementation of new ideas using IT

– In 1987 a great new idea was conceived: a 15-minute mortgage approval process

• Equivalent to a 10-minute oil change or one-hour photo processing.


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• The SIS Plan– Citicorp removed the requirement for mortgage

insurance• Did not compensate by increasing its reserve for potential

losses

– Low-document and non-document loans• Checked borrowers’ credit reports and abridged employment

histories but not their assets or incomes

– At worst, the executives believed, the bank could profit by selling a foreclosed house and recoup the loan


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• How the SIS Failed– Failed strategically due to unwise business shortcuts.– Failed operationally due to poor technical implementation.

• Losing Ground– Mortgagepower Plus rejected seventy percent of all

applicants (twice the bank’s normal rate of thirty-five percent)

– Citicorp’s management reduced size of mortgage unit and removed its responsibility for originating loans for later sale


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Success and Failure on the Web

• Just being first on the Web is not enough to be successful; 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.

• To succeed, Web business must offer a new product or service others are willing to pay for.


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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


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The Bleeding Edge

• The bleeding edge: failure in an organization’s effort to be on the technological leading edge.

• 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.


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Ethical and Societal IssuesThe Power of Information

• At what point is a successful strategy considered as a predatory, unfair business practice?– Court cases against Microsoft have focused on

questions such as these.

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