Chapter 3 Chapter 3
Strategic Information Systems for Competitive
Advantage
Learning Objectives
Describe strategic information systems (SIS) and explain their advantages.
Describe Porter’s competitive forces model & how IT helps companies improve their competitive positions.
Describe Porter’s value chain model and its relationship to information technology.
Describe several other frameworks that show how IT supports the attainment of competitive advantage.
Learning Objectives (cont.)
Describe and understand the role of web-based SIS and the nature of competition in the digital age.
Describe global competition and its SIS framework.
Describe representative strategic information systems and the advantage they provide to organizations.
Discuss implementation issues including possible failures of
SIS.
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
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
Strategic Information Systems
(SISs)
SISs provide strategic solutions to the 5 Business Pressures:
Elements of Strategic Management
1. Long Range Planning
2. Response Management
3. Proactive
Innovation
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
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
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.
CASE: McKesson Drug (www.Mckesson.com)
Whole Sale Drug Distributor
Economost (McKesson’s 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.
Porter’s 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.
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.
Response Strategies
(added by Porter and others)
INNOVATION
Developing new products & services
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)
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 vendor’s prices and related procurement expenses
monitor the exact location of trucks
Porter’s Model in Action
Porter’s Model in Action (cont.)
Step 1: The players in each force are listed.
Step 2: An analysis is made which relates Porter’s determining factors.
Step 3: A strategy is devised to defend against these factors.
Step 4: Support information technologies are
employed.
CASE: Daimler Chrysler
Problem :
In 1999, the company lost $US 2.6 Billion
Chrysler’s 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
Porter’s Value Chain Model
PRIMARY ACTIVITIES
In bound logistics (in puts)
Operations (manufacturing & testing)
Outbound logistics (storage & distribution)
Marketing & sales
Service
Supply
Chain
Porter’s Value Chain Model
SUPPORT ACTIVITIES
Firm Infrastructure
Human Resources Management
Technology Development
Procurement
VALUE SYSTEM
A firm’s 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.
CASE: Frito Lay uses IT & the Value Chain
World’s 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 Lay’s use of IT allows for an optimal functioning of the
The Value Chain Model
The Value System Model is used to:
Evaluate a company’s
process and competencies.
Investigate whether adding IT supports the value chain.
Enable managers to assess the information intensity and the role of IT.
Bakos & Treacy Framework
McFarlan’s Portfolion Framework (1984)
For Analyzing Existing, Planned & Potential Information Systems
Strategic e-procurement electronic ticketing Agents’ management
High Potential
Intelligent data mining e-mail direct marketing
Key Operational Scheduling online Online parts ordering
Maintenance online
Support
Frequent flyer account tracking Online credit union
Training online
Wireless SMS information
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
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
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
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
Examples of EDI/Internet-based SIS
(for individual Companies)
Electronic Auctions
Electronic Biddings
Buyer-Driven Commerce
Single Company Exchange
Direct Sales
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
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
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 firm’s global business drivers.
Drivers look at the current and future needs, focusing on
worldwide implementation.
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)
CASE: Total Quality Management at
Florida Power & Light largest US utility company FPL
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.
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.
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 Ariba’s software.
Many benefits to buyers and suppliers, particularly in Asia, Africa
& the Middle East.
System enables Caltex to successfully handle complex multinational business environments.
CASE : Port of Singapore
Problem:
The Port of Singapore, the world’s 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
CASE: Volvo Speed Cars
Problem:
In comparison to global competitors, Volvo’s 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.
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.
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.
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.
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.
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.
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.
