1. Strategy and Strategic Information Systems

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1. Strategy and Strategic Information Systems
Chapter 2Strategic Uses of Information Systems

• Strategy
• A plan designed to help an organization
  outperform its competitors.
• Strategic Information Systems
• Information systems that changes goals,
  operations, products, services, or environmental
  relationships to help the firm gain a competitive
  advantage
• Can be developed from scratch, or they can evolve
  from existing ISs.

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2. Achieving a Competitive Advantage for
aFor-Profit Company

• Strategies for this type of company involve
  increasing profits
• Reduce costs
• Increase revenue through a larger market share
• Do both
• The essence of strategy is innovation, so
  competitive advantage often occurs when an
  organization initiates a strategy that no one has
  tried before.
• Dells use of the Web to take customer orders
• Citibanks use of ATMs
• Airlines use of computerized reservation systems

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Eight Ways to Achieve aCompetitive Advantage
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Achieving aCompetitive Advantage

• Initiative 1 Reduce Costs
• Lower Costs enable you to lower your prices
• Competitors may not be able to follow your lead
  thus you gain market share
• Examples
• Dells ability to continually lower cost of PCs
• On-line services (FAQ, package tracking)

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Achieving a Competitive Advantage

• Initiative 2 Raise Barriers to Entrants
• Patenting
• Microsoft's programs
• Lotuss 1-2-3
• Patented features of Apples IPod sell music
  from big labels on Apples web site
• Priceline.coms reverse auction
• Amazon.coms one-click shopping
• High expense of entering industry
• State Street, Inc. (Pension fund management
  business) money required to build systems keeps
  competitors out of this market rents its
  software to others

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Achieving a Competitive Advantage

• Initiative 3 Establish High Switching Costs
• Explicit switching costs are fixed and
  nonrecurring
• Penalties for canceling cell phone provider
• Use of proprietary products (operating
  systemstape formatsDVD formats)
• Implicit Switching Costs
• Indirect costs in time and money of adjusting to
  a new product
• Changing application software (MS Office to Suns
  StarOffice)

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Achieving a Competitive Advantage

• Initiative 4 Create New Products and Services
• This advantage lasts only until other
  organizations in the industry start offering an
  identical or similar product or service for a
  comparable or lower price.
• Examples
• FedExs package tracking
• eBay
• Fleeting advantage (Netscape and Internet
  Explorer)
• First mover success critical mass

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Achieving a Competitive Advantage

• Initiative 5 Differentiate Products and
  Services
• Persuade customers that your product is better
  than your competitors
• Brand recognition such as Levis, Chanel, or
  Calvin Klein
• Use of the Internet
• Email
• Answering questions online
• Purchasing advice online
• Personalize the Web page (Amazon.com)
• Easy to use Web site
• IBMs transformation to a consulting company

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Achieving a Competitive Advantage

• Initiative 6 Enhance Products and Services
  (similar to 5)
• 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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Achieving a Competitive Advantage

• Initiative 7 Establish Alliances
• Combined service may attract customers
• Lower cost
• Convenience
• Examples
• Travel industry
• HP and FedEx
• Affiliate programs
• Amazons relationship with Target and other
  retailers

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Achieving a Competitive Advantage

• Initiative 8 Lock in Suppliers or Buyers
  (similar to 3)
• Lock in suppliers
• Bargaining power of buyer is determined by
  purchase volume
• Wal-Mart
• Lock in buyers
• Create impression of product superiority
• High switching costs
• Create a standard (software industry)
• Microsoft
• Adobe (gave away the reader but sells the
  writer) Macromedia

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3. Creation of a Strategic Information System

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

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Reengineering and Organizational Change

• Reengineering is the process of eliminating one
  set of operations and building another from the
  ground up to achieve hundreds of percentage
  points in improvement rates
• Implementation of an SIS often results in
  organizational change (sometimes unplanned)
• Planned organizational change is often referred
  to as reengineering
• Actively seek ways to employ IT to gain large
  leaps in efficiencies
• Different from continuous improvement
• Often associated with large job losses.
• Reengineering projects have high failure rates

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4. 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
• 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
  organizations successful technology (Microsoft)
• Home Depots use of a data warehouse

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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.
• eBay versus Amazon.com
• Success criteria
• New product/service at a competitive price
• Master the retail fulfillment challenge
• Create barriers to entrants (difficult to do)
• Create high-switching costs (difficult to do)
• Create strategic alliances (many companies have
  been successful at this)

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Selected Ideas About Strategic Use of Information
Systems

• Competitive advantage is difficult to sustain
• In some industries, companies must continually
  contemplate new ways of utilizing IS/IT for
  competitive advantage
• Many strategic systems have been unplanned and
  often come from transaction processing systems
• You cannot depend on your IS/IT department as
  your sole source of ideas for strategic use of
  IS/IT
• Strategic systems often become standard business
  procedures (e.g., ATMs, bank by phone)
• Personal competitive advantage