Strategic Information Systems for Competitive Advantage

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Chapter 3

• Strategic Information Systems for Competitive
  Advantage

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Learning Objectives

• Describe various information systems and their
  evolution, and categorize specific systems you
  observe.
• Describe transaction processing and functional
  information systems.
• Identify the major support systems, and relate
  them to managerial functions.
• Discuss information infrastructure and
  architecture.

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Learning Objectives (cont.)

• Compare client/server architecture,
  enterprisewide computing, and legacy systems, and
  analyze their interrelationship.
• Describe the major types of Web-based information
  systems and understand their functionality.
• Describe how information resources are managed.
• Describe the role of the information systems
  department and its relationship with end-users.

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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

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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

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Strategic Information Systems (SISs)

• SISs provide strategic solutions to the 5
  Business Pressures

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Elements of Strategic Management

• 1. Long Range Planning
• 2. Response Management
• 3. Proactive Innovation
• - Information Technologies

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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

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Competitive Intelligence
The Internet is central to supporting
competitive intelligence

• 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
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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.
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CASE McKesson Drug (www.Mckesson.com)

• Whole Sale Drug Distributor
• Economost (McKessons 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.

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Porters 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.

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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.
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Response Strategies (added by Porter and others)
GROWTH Increasing market share, acquiring more
customers or selling more products
IMPROVE INTERNAL EFFICIENCY To improve employee
and customer satisfaction
ALLIANCES Working with business partners to
create synergy provide opportunities for growth
CRM Customer-oriented approaches, e.g. the
customer is king (queen)
INNOVATION Developing new products services
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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 vendors prices and related procurement
  expenses
• monitor the exact location of trucks

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Porters Model in Action
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Porters Model in Action (cont.)

• Step 1 The players in each force are listed.
• Step 2 An analysis is made which relates
  Porters determining factors.
• Step 3 A strategy is devised to defend against
  these factors.
• Step 4 Support information technologies are
  employed.

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CASE Daimler Chrysler

• Problem
• In 1999, the company lost US 2.6 Billion
• Chryslers 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

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Porters Value Chain Model

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

Supply Chain
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Porters Value Chain Model

• SUPPORT ACTIVITIES
• Firm Infrastructure
• Human Resources Management
• Technology Development
• Procurement

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VALUE SYSTEM

• A firms 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.

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CASE Frito Lay uses IT the Value Chain

• Worlds 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 Lays use of IT allows for an optimal
  functioning of the value chain.

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The Value Chain Model

• The Value System Model is used to
• Evaluate a companys process and competencies.
• Investigate whether adding IT supports the value
  chain.
• Enable managers to assess the information
  intensity and the role of IT.

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Bakos Treacy Framework
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McFarlans Portfolion Framework (1984)

• For Analyzing Existing, Planned Potential
  Information Systems

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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

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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

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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

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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 system
• Results
• Reduced transaction cost from 45/order to 1.25
• Fewer shortages, better customer service
• decline in distributor administration costs

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Examples of EDI/Internet-based SIS (for
individual Companies)

• Electronic Auctions
• Electronic Biddings
• Buyer-Driven Commerce
• Single Company Exchange
• Direct Sales

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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

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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

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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 firms global business drivers.
• Drivers look at the current and future needs,
  focusing on worldwide implementation.

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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)

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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 applications
• Reduced customer complaints by 50
• Trouble Call Management System
• Reduced black out time from 70 to 48 min.

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CASE Geisinger Implements an Intranet

• Problem
• 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.

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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
  Aribas software.
• Many benefits to buyers and suppliers,
  particularly in Asia, Africa the Middle East.
• System enables Caltex to successfully handle
  complex multinational business environments.

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CASE Port of Singapore

• Problem
• The Port of Singapore, the worlds 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

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CASE Volvo Speed Cars

• Problem
• In comparison to global competitors, Volvos 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.

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CASE Caterpiller Corporation

• Problem
• 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.

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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.

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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.
  

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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.

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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.

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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.