Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information...

Introduction to Information TechnologyTurban, Rainer and Potter

Chapter 13 Strategic Information Systems and Reorganization

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CHAPER 13STRATEGIC

INFORMATION SYSTEMS AND REORGANIZAITON



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Learning Objectives Describe strategic information systems and explain their advantages Describe Porter’s competitive forces model and how IT helps

improve competitiveness Describe representative strategic information systems and the

advantage they provide with the support of IT Understand the role of business processes in organizations and the

reasons why reengineering is necessary Demonstrate the role of IT in supporting BPR and especially mass

customization, cycle time reduction, self-directed teams, and empowerment

Describe virtual corporations and their IT support



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Chapter OverviewStrategic Advantage and Information Technology•Strategic Information Systems•The Role of IT in Strategic Systems•Competitive Intelligence

Porter’s Competitive Forces Model and IT•Porter’s Model•Response strategies•How the Model is Used

Illustrative Strategic Information Systems•Sustaining a Competitive Advantages•A Framework for Global Competition

Ineffective Organizations in the information Age

•The Need for a Fundamental Change•The Need for Integration

Business Process Reengineering

•Principles of BPR•The Enabling Role of Informative Technology•Major Reengineering Activities•Restructuring Entire Organizations•Ethical and Social Issues

Virtual Corporations and IT

•Characteristics of Virtual Corporations•How IT Supports Virtual Corporations



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The Problem

Case: Dell’s Reengineering Efforts Supported by Strategic Information Systems made IT World’s Champion

As a result of price war with Compaq, it had a loss from inventory write downs

The Solution IT-supported innovations emergence of electronic commerce

The Results its stock price zoomed more than 2000 percent increases its market share and profitability

simultaneously consistently be considered to be one of the most well managed and

profitable corporations in the world by the 21st century



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What have we learned from this case??

Case (continued…)

competition on price, quality, speed, and customer service can be very intense,

especially when large corporations are involved

providing quality products at a low prices is necessary, but may not be sufficient using conventional strategies may not be sufficient fundamental change may be the only way to succeed, or even to survive using IT, a company can gain a significant competitive advantage



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Strategic Advantage and Information Technology

Strategic Information Systems (SISs) support or shape an organization’s competitive strategy outward: aiming at direct competition in an industry inwardly: they are focused on enhancing the competitive

position of the firm by increasing employee’s productivity, improving teamwork, and enhancing communication

strategic alliances: two or more companies share an inter-organizational system

strategic systems: one of the organization’s critical responses to business pressures



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Strategic Advantage and Information Technology (continued …)

The Role of Information Technology IT creates applications that provide direct strategic advantage to

organizations IT supports strategic changes such as reengineering IT provides for technological innovations or acts as an enabler of

innovation IT provides competitive intelligence by collecting and analyzing

information about innovations, markets, competitors, and environmental changes

Competitive Intelligence (Industrial espionage) drives business performance by increasing market knowledge,

improving internal relationships, and raising the quality of strategic planning



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Competitive Intelligenceon the Internet

Intelligence Search Strategy DescriptionReview competitor’s Web sites Reveal information about marketing

informationAnalyze related newsgroups Find out what people think about a

company and its productsExamine publicly available financial documents

By entering a number of databases and analyze findings

Do market research at your own Web site

Pose questions to Web site visitors

Use an information delivery service to gather news on competitors

Find what is published on the Internet and provide any desired information

Use corporate research companies

Provide information ranging form risk analysis to stock market analysts’ reports about competitors

Investigate chat rooms Enter and challenge participants to express opinions regarding competitors’ products



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Porter’s Competitive Forces Model and IT

Porter’s Competitive Forces Model competition - at the core of a firm’s success or failure be used to develop strategies for companies to increase

their competitive edge demonstrates how IT can enhances the

competitiveness of corporations 5 major forces:

Threat of entry of new competitors Threat of substitute products or services

Bargaining power of suppliers Bargaining power of customers (buyers)

Rivalry among existing firms in the industry



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Porter’s Five Forces Model

IndustryCompetitors

Intensityof Rivalry

New Entrants

Substitute

Suppliers Buyers

Threat ofNew Entrants

Bargaining Powerof Suppliers

Threat ofSubstitutes

Bargaining Powerof Buyers

Entry Barriers

Determinants of Supplier Power

Determinants of Substitution Threat

Determinants of Buyer Power

RivalryDeterminants



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Porter’s Competitive Forces Model and IT (continued …)

Response Strategies (Per Porter and Others) Response strategies to competitive forces

Cost leadership strategy - producing at lowest cost Differentiation strategy - being unique Focus strategy - selecting a narrow-scope segment Growth strategy - increasing market share Alliances strategy - working with business partners Innovation strategy - developing new products Internal efficiency strategy - improving the manner

in which business processes are executed Customer-oriented strategy - concentrating on

making customers happy



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Porter’s Competitive Forces Model and IT (continued …)

How the Model is Used

The Players in each force are listed

An Analysis is made to relatethe determinants to each player listed

Devise a strategy todefend a company against the forces,

based on specific players and the determinants

Look for supportive information technologies



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Impact of Competitive Forces and the Role of IT

Key Forces Affecting the Industry Business Implications Potential IT Responses

Threat of new entrants •Additional capacity•Reduced prices•New basis for competition

Provide entry barriers/ reduce access by:•exploiting existing economies of scale•differentiating products/services,•controlling distribution channels•segmenting markets

High power suppliers •Raise prices/costs•Reduce quality of supply•Reduce availability

•Implement sourcing systems•Extend quality control into suppliers’ operations•Use forward planning with suppliers

Key Forces Affecting the Industry Business Implications Potential IT Responses

High power buyers •Forces prices down•Higher quality demanded•Service flexibility required•Encourage competition

•Differentiate products/ services and improve•Increase switching costs of buyers•Facilitate buyers product selection

Substitute products threatened

•Limits potential and profit•Imposes price ceilings

•Use differentiation strategy•Incorporate IT into product, service, or method of provision

Intense competition from rivals

•Price competition•Need to develop new products and services•Distribution and service become critical•Customer loyalty required

•Improve price/performance•Redefine products and services to increase value•Redefine market segments•Differentiate products and services in distribution channels and to consumers•Get closer to the end consumer - understand the user requirements

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Impact of Competitive Forces and the Role of IT (continued …)

Sustaining a Competitive Advantage When SISs are combined with structural

changes in the organization, they can provide a sustainable strategic advantage Example: comprehensive strategic

information system used by Federal Express provides a strategic advantage by building and maintaining a first-class personnel system



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Ineffective Organizations in the Information Age

Principles and Methods that enhance the development of the Industrial Revolution Specialization of labor Mass production (producing large quantities, storing them, selling

them at a later time) Hierarchical organizational structure following functional

specialties with top-down lines of authority Assembly lines that bring the work to the worker whenever

possible Complex support systems for planning and budgeting, resource

allocation, coordination, and control



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Ineffective Organizations in the Information Age (continued …)

Vendors, Suppliers

DistributionLogistics ServicePurchasing Finance R & D Production Sales

Distribution

Product development

Order fulfilllmetn

Planning, resourcing and control

Customer service

Organization Customers

Business processes acrossfunctional areas and organizational boundaries



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Ineffective Organizations in the Information Age (continued …)

The Need for Integration Integration should cross not only departmental

boundaries, but also organizational ones, reaching suppliers and customers

Account numbers in an information systems developed along departmental lines may not be logically related and so cannot be used for cross-referencing a customer’s accounts

Managers want to send letters to specific customers



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Business Process Reengineering - The Solution

Traditional solutions may not be effective

BPR = copy the definitionBPR = overcomes the problems cited earlier



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BPR (continued …) Principles of BPR

several jobs are combined into one employees make decision steps in the business process are performed in a natural order, and

several jobs get done simultaneously processes may have multiple versions work is performed where it makes the most sense controls and checks are minimized reconciliation is minimized a hybrid centralized/decentralized operation is used a single point of contact is provided to customers



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Rapid intense

unpredictable changes?

Continuous improvements

TOM, traditional strategies

BPR and networked

organization

IT Support

no yes

Pressure

BPR (continued …) BPR, continuous improvement programs,

and IT support



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BPR (continued …) The Enabling Role of Information Technology

The IT tools for BPR Simulation and visual simulation tools - to support the

modeling activities of BPR Flow diagrams - made by specialized BPR tools that are

usually integrated with other tools Work analysis - accomplished with tools that conduct

forecasting, risk analysis, and optimization Workflow software - places system controls in the hands of

end-user departments



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Changes in Work Rules Brought by ITOld Rule Intervening Technology New RuleInformation appears in only one place at one time

Shared databases, client/server architecture, electronic mail

Information appears simultaneously wherever needed

Only an expert can perform complex work.

Expert systems, neural computing

Novices can perform complex work.

Managers make all decisions.

Decision support systems, enterprise support systems, expert systems

Decision making is part of everyone’s job

Field personnel need offices to receive, send, store, and process information.

Wireless communication and portable computers, information highways, electronic mail

Field personnel can manage information from any location.

You have to locate items manually.

Tracking technology, groupware, workflow software, client/server

Items are located automatically

Plans get revised periodically.

High-performance computing systems

Plans get revised instantaneously whenever needed.



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Changes in Work Rules Brought by ITOld Rule Intervening Technology New Rule

A long period of time is spanned between the inception of an idea and its implementation (time to market)

CAD-CAM, electronic data interchange, groupware, imaging (document) processing

Time-to-market can be reduced by 90 percent

Customized products and services are expensive and take a long time to develop.

CAD-CAM, CASE tools, online systems for JIT decision making, expert systems

Customized products can be made fast and inexpensively (mass customization).

Work should be moved to countries where labor is inexpensive (off-shore production).

Robots, imaging technologies, object-oriented programming, expert systems

Work can be also done in countries with high wages and salaries.

People must come to one place to work together.

Groupware and group support systems, telecommunication, electronic mail, client/server

People can work together from different locations.



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Major Reengineering Activities Redesign of processes From mass production to mass customization

mass production produces a large quantity of an identical, standard product

mass customization produces large volumes, yet customizes the products to the

specifications of individual customers increases with the spread of electronic commerce, which

transforms the supply chain from a traditional push model to a pull model



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Major Reengineering Activities (continued …)

Cycle time reduction IT makes a major contribution in

shortening cycle times by allowing companies to combine or eliminate steps, and to expedite various activities in the business process

Cycle time reduction can result in gain a substantial market share



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Restructuring Entire Organizations

Customerdemographics

Checking accounts

Installment loans

Savings accounts

Mortgage loans

Trusts Etc

Expert system

Statement

CustomerAccount manager supported by ...

Backed up by ...

Checking expect

Loanexpect

EtcConsolidated statement

Reengineered bank with integrated system



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Restructuring Entire Organizations (continued …)

Networked organization resemble computer networks and are supported

by computerized systems away from the hierarchical organization toward

the networked organization due to the evolution from an industrial-based economy to an information-based economy



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Hierarchical vs. Networked Organization

Formal

Highly structured

Manage

Control

Direct

Employees a cost

Informationmanagement-owned

Hierarchical organizations

Risk avoidance

Individual contributions

Hierarchical Organization

Informal

Loosely structured

Delegate/lead

Ownership/participation

Empower

Employees an asset

Informationshared ownership

Flatter/ manageable organizations

Risk management

Team contributions

Networked Organization



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The Roles of Managers and Subordinates

Use of Authority by the manager Area of Freedom

for Subordinates

Hierarchical Organization

Flattened Organization

Network Organization

Manager makes decisions and announces or “sells” it.

Manager presents ideas and invites questions.

Manager presents tentative decision subject to change.

Manager presents problem, gets suggestions, makes decision.

Manager defines limits; asks group to make decision.

Manager permits subordinates to function within limits defined by superior.

Manager allows situational leadership to occur based on which node of the network is best equipped to solve problem.

1 2 3 4 5 6 7



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Restructuring Entire Organizations (continued …)

Empowerment - the vesting of decision-making or approval authority in employees in instances where such authority traditionally was a managerial prerogative Empowerment’s relationship to information technology

the provision of right information, at the right time allows employees to make decisions

enhances the creativity and productivity of employees, as well as the quality of their work

training can be enhanced by IT enables non-managers to make decisions



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Ethical and Societal Issues Unethical tactics

pressuring competitor’s employees to reveal information

using software that is the intellectual property of other companies without permission

using IT to monitor the activities of their employees and customers, and in so doing they may invade the privacy of individuals

Societal Issues Reengineering efforts involve dramatic changes in

people’s jobs and working relationships Jobs are eliminated



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Virtual Corporations Characteristics of Virtual Corporations (VC)

Excellence. Each partner brings its core competence (area of excellence) so an all-star winning team is created. No single company can match what the virtual corporation can achieve.

Full utilization of resources. Some resources of the business partners are sometimes underutilized when not in a VC.

Opportunism. The partnership is opportunistic. A VC is organized to seize market opportunities.

Lack of borders. It redefines traditional boundaries. Trust. Business partners in a VC must be far more reliant on

each other and more trusting than ever before. Adaptability to change. The VC can adapt quickly to

environmental changes because its structure is relatively simple. Technology. IT makes the VC effective and efficient.



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How IT Supports Virtual Corporations IT allows communication and collaboration among

the dispersed business partners Standard transactions are supported by electronic data

interchange and EFT Modern database technologies and networking permit

business partners to access each other’s databases Lotus Notes and other groupware tools permit

diversified interorganizational collaboration

Virtual Corporations (continued …)



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For Accounting The accountant must understand these

technologies and the role of IT to collect the data for justification of the investment

For Finance Finance people must understand the nature of

these technologies and the manner in which they enable organizations to seize opportunities and solve problems

What’s in IT for Me?



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What’s in IT for Me? (continued …)

For Marketing SIS and/or BPR are likely to change distribution

channels, order fulfillment, customer service, and many tasks that are under the control of marketing and sales

For Production/Operations Management BPRs are most likely to completely change

existing business processes including production lines, materials handling, design, and inventory systems



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What’s in IT for Me? (continued …)

For Human Resource Management What makes SIS and BPR different is the

magnitude of the organizational changes that could disrupt the operation of the organization if not handled properly by management and HRM

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information...

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