Chapter 2 Strategic Uses of Information Systems

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Chapter 2Strategic Uses ofInformation Systems
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Strategy and Strategic Moves

• Strategy
• A plan designed to help an organization to
  outperform its competitors
• Strategic Information Systems
• Information systems that help seize opportunities
• Can be developed from scratch, or they can be
  evolved from existing ISs

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Strategy and Strategic Moves (Cont.)

• Strategic advantage
• Using a strategy to maximize strength
• Competitive advantage
• The result of the use of a strategic advantage

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5 Force Model

• How do you achieve competitive advantage?

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Michael Porters 5 Force Model
Hint Use this for Assignment 2 Question 3
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Achieving a Competitive Advantage

• Increase profits e.g. through increased market
  share or higher prices (because of differentiated
  product)
• Innovation results in advantage
• May be strategies that no one has tried before
• Example Dell using the Web to take customer
  orders

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Achieving a Competitive Advantage (Cont.)
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Achieving a Competitive Advantage (Cont.)
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Initiative 1 Reduce Costs

• Lower costs allows to lower price or higher
  profit
• Lower price may result in Bigger Market Share
• Implement ISs (I.e. automation) to lower cost
  e.g. Dell computer

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Initiative 2 Raise Barriers to Market Entrants

• Patenting
• High expense of entering industry E.g.
• State Street, Inc. (Pension fund management
  business)
• Banking industry
• Telecommunication Industry

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Initiative 3 Establish High Switching Costs

• Switching means changing products from one
  company to its competitor
• Explicit Switching Costs
• Fixed and nonrecurring
• Implicit Switching Costs
• Indirect costs in time and money of adjusting to
  a new product e.g. change mobile service provider.

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Initiative 4 Create New Products or Services

• The Competitive Advantage lasts only until
  competition offers an identical or similar
  product or service for a comparable or lower
  price
• First Mover Creates assets
• Brand Name
• Better Technology
• Delivery Methods
• Bleeding Edge?
• Critical Mass body of clients that attracts
  other clients

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Initiative 5 Differentiate Products or Services

• Product differentiation
• Brand recognition
• Examples of brand name success
• Levis jeans
• Citibank
• Guess clothes
• Rolex Watch

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Initiative 6 Enhance Products or Services

• 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
• HP and SingPost (in Singapore)

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Establishing Alliances (Cont.)
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Initiative 8 Lock in Suppliers or Buyers E.g.
Hypermarket

• Bargaining Power
• Purchase volume
• Strengthen perception as a leader
• Create a standard

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Strategic Information Systems (SIS)

• An IS that helps achieve 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
• Serve an organizational goal
• Work across 2 or more functional units

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Creating an SIS

• Top management commitment
• From initial consideration through development
  and implementation
• Must be a part of the overall organizational
  strategic plan

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Examples of SIS System.

• Air Asia Online Ticket Purchasing
• Case Study Avail.com ? Integrated online system
• WorkFlow Systems to reduce customer service
  time in Insurance companies.
• Dell Computer Supply Chain Systems
• US Department of Commerce Knowledge Management
  System
• Customer Relationship Management Systems Hilton
  Hotel

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Steps for Considering a new SIS
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Re-engineering and Organizational Change

• To implement an SIS and achieve a competitive
  advantage, organization must rethink entire
  operation
• Goal of re-engineering
• Achieve efficiency leaps of up to 100 or higher
• Or Provide much better service to customers E.g.
  pay insurance claims within 3 days (80 of all
  claims)

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Competitive Advantage as Moving Target

• SISs developed as strategic advantages quickly
  become industry standard
• E.g. Banking industry (ATMs and banking by phone)
• Continuous search for new ways of utilizing
  information technology to their advantage
• SABRE, American Airlines reservation system

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AirAsia A Local Success Story

• Gained Competitive Advantage through lower prices
• Lower prices achieved by
• Cost Reduction (E.g. Pilot clean aircraft too, no
  free refreshments on board)
• Sell tickets via Web (save Travel Agent
  Commission)

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Latest Technology - RFID

• Potential SIS?

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RFID is

• RFID Radio Frequency Identification
• Small microchip with an attached antenna
• Can store a small amount of data, normally a
  serial number
• Two types
• PASSIVE No battery, Reflect info short
  distances
• ACTIVE Li battery, long-term life expectancy

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Radio Frequency Identification

• RFID
• Tag and identify mobile objects
• E.g., store merchandise, postal packages, pets
• Use RFID chips to transmit and receive radio
  signals
• Chips half the size of a grain of sand
• Passive chips
• do not have power source and derive power from
  signal in reader
• Active chips
• Self-powered

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RFID
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Faster Payment

• Toll Passes
• Public Transport

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Secure Access

• Residential/Office Buildings

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Better Inventory Control
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Why is RFID Better than barcodes?
BAR CODES RFID
Individual code is assigned to every SKU Individual code is assigned to every item
Bar code is unreadable if ripped or soiled RFID is encased, is bendable and waterproof
Scanner must see bar code to register product Scanner just needs to be inside receiver range
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Video
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Major drivers of adoption

• Walmart
• Increase inventory control
• Reduce shrinkage
• By June, top 100 suppliers will supply RFID
  tagged stock for 6 distribution centers and 250
  retail stores in Texas
• Top 200 suppliers by January 2006

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Major drivers of adoption

• Government
• Department of Defense
• Department of Transportation
• RFID inclusive passports
• High value Euro notes
• UK License plates
• Ear-tagging livestock in Europe

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Other Uses

• Public transportation
• Highway toll Collection
• Vatican Library
• Pet identification
• People identification
• Government workers
• Baja Beach Club
• Japanese Primary Schools

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Case Study Ford On the Web

• Not every IT project is successful!
• What were the IT initiatives?
• Why are the reasons that cause Ford to fail?
• How would you have done it differently?

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Summary

• Business strategy What is it?
• 5 Force Model
• Initiatives for gaining a competitive advantage
• Strategic information systems
• RFID Potential SIS?