Learning Objectives• Define strategic information systems and explain their advantages• Describe the value chain model and its relationship to information technology• Describe Porters competitive forces model and how information technology helps companies improve their competitive positions• Describe several frameworks that show how IT supports the attainment of competitive advantage• Building and Implementing Strategic Information Systems
Internetworked Commerce Electronic E-Business & M-Commerce1990-2000 End User End User Strategic Computing EIS1980-1990 & Decision Support Decision Reporting Support Systems (DSS)1970-1980 And Ad hoc Reports Management Management1960-1970 Information Systems Processing1950-1960 EDP and TPS Data 3
Information Revolution affecting Competition• It changes industry structure and, in doing so alters the rules of competition. For example, the newspaper industry, book retailer moving to online space.• It creates competitive advantage by giving companies new ways to outperform their rivals. For example, traditional match-making service providers when went online outperformed all their rivals.• It spawns whole new businesses, often from within a organizations existing operations. For examples, when newspaper industry went online, they created multiple number of new business models.
Strategic Information Systems (SIS)• Strategic Information System (SIS) is any system that offers an organization a competitive advantage over its competitors.• Strategic Information Systems (SIS) is concerned with systems which contribute significantly to the achievement of an organizations overall objectives.• Strategic Information Systems (SIS) is those technology based systems that helps in implementing business strategies of an organization.
Methods of Competitiveness• Cost Leadership• Differentiation• Focused or Niche Differentiation• Innovation• Alliance
Porter’s Value Chain Model• Primary Activities – Inbound Logistics: this deal with receipt, storage and management of raw material. – Operations: Deals with manufacturing or service steps. – Outbound Logistics: this deals with collection, storage and distributions of finished product. – Marketing and Sales: this includes order entry, price management, and customer relationship – After Sales: this deals with the support of the products after the sale has been done. This may also include installation and customer training.
Porter’s Value Chain Model• Support Activities – Procurement: this includes the procurement of raw material required for the final product, or any other item required by the organization. Procurement process is generally spread across the organization. – Technology: this deals with selection and utilization of appropriate technology for product development and other activities. – Human Resource Management: this deals with managing human resource in an organization from recruitment to training to development of employees. – Firm Infrastructure: this is a major support function which includes accounting, legal, planning, labor relations, and other departments in an organization.
Steps to Achieve Cost Leadership• Identify the appropriate value chain and assign cost to each activity• Identify the cost drivers for each value activity and see how they interact• Determine the relative costs of competitors and the sources of cost differentiators• Develop a strategy to lower relative cost position through controlling cost drivers or by redefining the value chain• Test the cost reduction strategy for sustainability
Steps to Achieve Differentiation• Identify the real customer• Understand the customer’s value chain and impact of seller’s product on it• Identify the customer’s buying criteria• Identify the possible sources of uniqueness• Identify the cost associated with these sources of uniqueness• Select the value activities that create the most important differentiation for the customer relative to costs incurred• Test the selected differentiation strategy for sustainability
Wiseman’s Strategic Model• Wiseman suggested use of the information system for gaining competitive advantage.• Wiseman emphasized that the significance of information system does not lie only in the technological sophistication, but the role that they play in gaining and maintaining competitive advantage for the organizations.• Organisations must develop a complete framework for identifying the Strategic Information Systems opportunities
Strategic Planning Process• Introduce the Information Service Management to SIS concept, which helps in describing the complete process using round-robin technique of idea generation to lower- level management.• Conduct an SIS idea-generation meeting with middle level management.• Conduct an SIS idea-generation meeting with senior management.• Introduce the SIS concepts to the top-level management.• Lastly conduct the SIS idea-generation meeting with the corporate planners. Compare and match the ideas generated at various levels.
Summary• This chapter has outlined the emergence and development of theory in the area of management strategies and strategic information systems.• With the change in business environment, the information needs of managers kept on changing.• Organizations started using information systems for business purposes way back in 1950s for data processing activities and Transaction Processing Systems (TPS) emerged as a Strategic Information Systems as it started giving competitive advantage to organizations.• Later in 1960s, organizations started using the data generated by TPS for management reporting purposes and hence Management Information Systems (MIS) became critical application for business organisations. Organization got lot of advantage from TPS and MIS systems, but these systems were too structured systems and never supported decisions of real-time changing needs of managers. From 1970s onwards, organizations started developing Management Support Solutions like DSS and ESS.• With the emergence of Internet as main business communication tool, organizations started looking at new methods of doing business to gain competitive advantage. Organizations implemented business models to support e-commerce, e-business and virtual organization using Internet as main communication and networking technology.• Strategic Information Systems (SIS) is any Information Systems solution implemented at any level that offers and organization a competitive advantage over its competitors.• SIS is concerned with a system which contributes significantly to the achievement of an organization’s goals and objectives.• The SIS that helps the organization to achieve competitive advantage can be achieved by Differentiation, Cost Leadership, Focused or Niche and Innovation.• Value Chain Model suggest that each organization’s activities can be divided into nine value based activities and are broadly categorized as primary and support activities.• Primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and after sales. The support activities include procurement, technology, human resource management and firm’s infrastructure.
Summary• Organization’s competitive advantage grows out of its ability to perform these activities either in cheaper manner or in a differentiated manner as compared to its competitors.• None of these activities are independent. Information technology solutions are implemented at each of these activities in such a manner that overall optimisation of the product is done.• Porter also suggested an organization’s value chain for competing in a particular industry is embedded in larger stream of activities being performed by number of organizations in that industry is defined as “Value System”. Value System may include suppliers, distributors and retailers.• Porter’s Competitive Forces Model suggests that the performance of the organization is determined by the extent to which they cope with, and manipulate, the five key forces which make up the industry structure. The five key forces defined are the bargaining power of suppliers; the bargaining power of buyers; the threat of new entrants; the threat of substitute products; and rivalry among existing firms.• Organizations in general tend to follow one of the four generic strategies to gain above-average performance over its competitors. The four generic strategies are: cost leadership; differentiation; cost focus; and focused differentiation.• Charles Wiseman emphasized that organizations must start using information technology based solutions to gain competitive advantage. Wiseman suggested that the significance of the technology is more on its implementation to gain competitive advantage.• Organization must draw a complete IS plan as it helps the organization to identify the key business processes and key decision points. The IS plan of an organization must also match with the organization plan.• Porter and Miller suggested the use of an information intensity matrix to assess the role of information technology for strategic advantage. Strategic thrusts which have been identified as a means of identifying strategic IS are differentiations; cost; innovation; growth; and alliance. IT can be used to support the organization’s competitive strategy by supporting competitive thrusts.• To implement the strategic information system that organizations need to develop a complete strategic planning process. Wiseman suggested a five stage process for effective SIS planning under which SIS idea-generation meeting are held at various level in an organization. The basic objectives of these meetings are to introduce the strategic perspective on information systems which should match with the business strategies of an organisation.• The importance of the information revolution is not whether it will offer a significant impact on organisation’s competitive position or not, but when and how it will strike. Organisations that anticipate the power of information technology will be in control of challenges. Organisations that do not respond will be forced to accept changes that others have initiated and will find themselves at a competitive disadvantage.