customer-oriented strategic systems

Customer-oriented strategic systems

Blaize Horner Reich an’d Sid L. HuffC

Faculty of Commerce, University of British Columbia, Canada

Three recurring questions concerning strategic applications of information technology are (a) how can companies be first in implementing strategic systems? (b) how should their development and implementation be managed? and (c)what do strategic systems really contribute to the company? In this study, a specific class of strategic information systems, ‘customer oriented strategic systems’ (COSS) are examined with respect to these questions. Eleven systems in nine major organizations were studied using in-depth site interviews with the system’s business managers and developers. Conclusions were drawn concerning factors that facilitate or inhibit the COSS innovation process within the originating firm, factors that influence the adoption of a COSS by a customer organization, and factors related to the overall strategic impact of the system.

Keywords: competitive use of information technology, strategic information systems, inter-organizational information systems, information systems innovation

Commenting on the strategic benefits of a new information system that connects his bank to cash managers in client organizations. the Vice President of Cash Management Products observed recently: ‘It provides us with a very clear view ofthe future. and how we want to deal with business customers. Our target is to have every customer be able to deal with us electronically by the mid-1990’s. The system gives us a strategic advantage: it advances our understanding of the information business. it produces very significant cost savings for us. and it provides a new source of considerable revenue.‘

A few years ago. as Business Week was reporting on American Airline’s Sabre system. and the Wall Sweet Journal was describing Merrill Lynch’s Cash Manage- ment System. it became obvious to industry observers that companies had found a new weapon to use against their rivals. Information systems were emerging from a supporting role, to make major contributions to the competitiveness of many companies. such as the multi- national bank referred to above. Since then. academics and practitioners. including senior managers. have become very interested in this new phenomenon: the strategic use of information systems.

The meaning of the words ‘strategic information systems’ are not unambiguous. The working definition for this study came from Wiseman’: ‘information systems used to support or shape the competitive strategy of an organization’ (p. 7). To operationalize this concept. we used two filters to select the sample: we chose systems which had been first entrants into their respective markets and we conducted interviews to

Received January 1991: revised paper accepted by Professor Jon Turner October 1991 *School of Business Administration. The llniversity of Western Ontario. Canada

verify that the developer of the system perceived it to be strategic.

The phenomenon is difficult to study in a rigorous fashion. in part because the competitive. strategic nature of such systems frequently makes companies reticent to share detailed information about them. Much ofthe literature on the topic is derived from a few well known anecdotal situations; most ofthe remainder is non-empirical. As a consequence,despite the interest and growing body of literature surrounding the concept of gaining competitive advantage from information technology.certain key questions keep recurring:

I. How can organizations develop opportunities for strategic systems before their competitors do?

2. What special challenges do they face in the implementation of strategic systems?

3. What do strategic systems really contribute to an organization?

The first question is testimony to the general lack of information that companies have to guide the development of strategic systems. Frameworks have been created to assist in the discovery process’-3. but little is known about the systems development stage. Questions concerning typical new-product tradeoffs such as customer involvement versus security leaks. or technical quality versus time to market. have not been investigated for information systems which support primary products. Many of the stories in the business press foster the mistaken impression that a good idea will automatically create a competitive payoff.

Implementation of a strategic information system means obtaining user adoption. The potential negative consequences for implementation failure are high: some strategic systems may be ‘bet your company’ propositions. The very high profile of strategic systems

Vol 1 No 1 December 1991 0963~8687/91/010029-09 0 1991 Butterworth-Heinemann Ltd 29


was recounted by one vice-president of IS in our sample. whose vice-chairman bluntly told him ‘If they (the competitors) deliver their system before we do. your life here will be most difficult. Do I make myself clear?

The third question is. in many ways. the most difficult of all. IS managers for years have experienced difficulty justifying their organization’s expenditures on systems. even when the benefits were of the more quantifiable cost reduction variety. The shift to strategic systems makes the benefits that much harder to quantify. to the point that CEOs are advised to assess investments in strategic systems usingtheir managerial intuition4. This is exacerbated by the self-doubt many senior managers feel about their judgment in the area of information technology.

These questions are among the most challenging faced by organizations in their management of information technoloa today. The strategic use of IT. far from a cliche5. continues to ‘top the chart’ in terms of real managerial concern’. ‘. Answers are urgently needed. However. research to date has provided little in the way of generalizeable. reliable results.

Ourpurpose here is to describe the key findings ofan empirically-based, comparative analysis of eleven different strategic systems. findings which we believe provide actionable. solid answers to the three questions posed above.

Customer-Oriented Strategic Systems (COSS)

Strategic information systems can take a number of different forms: they can be strictly internal in scope. or they can be inter-organizational. connecting the organization to its customers or suppliers. Of all the varieties of strategic systems. the most common is the system that connects a company with its customers. This is the class of system we consider here. We refer to such an information system as a Customer-Oriented Strategic System (COSS). In one recent study. it was found that COSSs accounted for 70 per cent of all the strategic systems in the samplex.

A COSS creates a new form of relationship between a company and its customers. Figure l(a) illustrates the traditional firm-customer relationship. based on the provision of certain products (or services) from the company to the customers.

As illustrated in Figure l(b). the introduction of a COSS between the company and customers creates a second type of relationship - one based directly on the information system itself (i.e. on information). and only indirectly on the primary products/services. The difference is important. because the COSS-based relationship in most cases should be managed differently from the traditional one. The creation of a COSS bears many similarities to that of a ‘normal’ information system: however. it also differs in some important respects. Most of the differences derive from the new relationship the COSS embodies.

Research approach

In framing the study. we began by restating the three opening questions in more operational terms. as follows:

30

Figure I(a). Traditional companv-customer relationship

INDUSTRY

r---- --------------7 Sales RelatmF---

I , Cos Relationship _-___---______-~ ----_ _____-I

Figure I(h). Relation.~hips @ier introduction qf a COSS

The Innovation Question: what factors were common among companies which were ‘first movers’ in creating a COSS? The Adoption Question: what factors influenced the adoption rate of a COSS by the company’s customers‘? The Competitive Impact Question: what factors affected the size and sustainability of the competitive advantage achieved by a company?

We took as our dependent variable overall COSS success. which was viewed in three ways: timely development (being a ‘first mover’ in developing the system). successful adoption by the customers. and the improvement in competitive position of the company. We identified several COSSs by asking consultants and managers to recommend systems which were considered to be innovative in their industry. We then narrowed the list to include eleven functioning systems in nine large organizations by applying the following screening criteria:

the COSS had to have been the first in the relevant market area (country or region): the company had to be profit-oriented: the COSS had to be operated at the customer’s place of business via a remote terminal or personal computer connected through a telecommunications link to the company’s computer: the customer had to be able to refuse the COSS while still purchasing the product: and the COSS must have been available for at least a year.

Although we had determined from industry sources that each system was a ‘first-mover’ and considered by

Journal of Strategic Information Systems

B. H. REICH and S. L. HUFF

Table 1. Description of the eleven strategic systems studied

Industry

Banking

Distribution

Date Released Purpose of the System ___ -

1981 A cash management system to allow corporate treasurers to manage their liquid funds across all branches of the bank

1974 Hand-held computer used by store operators for reordering stock from distributor

Insurance 1984 PC-based system to automate certain operations of insurance brokers (e.g.. policy management. billing. accounting)

Banking 1985 A retailer support system which issues credit authorization and captured credit card information

Energy resources 1982 A system that. connected to fuel pumps, allows fuel to be dispensed when activated by a credit card; bills are directed automatically to the card owners

Banking 1981 A cash management system to allow corporate treasurers to manage their liquid funds across all branches of the bank (similar to the first system above)

Computers 1985 A general purpose computer link between the company and any authorized customers at client sites: the system is highly extendable. and supports activities such as messaging. order placement. accounting. and trouble shooting

Banking 1986 A system to allow corporate clients to conduct stock transactions. and to report the status of securities held by them

Distribution 1982 A system to enable retail dealers to inquire about the status of their orders. reserve stock. send electronic messages and perform other activities

Banking 1985

Pulp and paper 1985

A system to support the creation ofdocumentary letters ofcredit for importers

An inventory tracking and newsprint waste management system designed to support newspaper publishers

observers to be innovative, we alsochecked in interviews to see if the builders of the systems felt that they were ‘strategic’. In our sample. each company reported using the system to significantly influence either product sales or internal costs or both. Companies felt that the risk of not implementing the system was higher than the risk of doing so.

Each COSS was studied through site visits and interviews with line and IS executives who had participated in the creation and management of the system. An interview guide designed to explore the life cycle of the system from identification to the date of the interview was used in the data gathering process. It contained over 100 items. and used both ‘open’ and ‘closed’ questions to explore the system’s benefits. The interview and written data about each system was condensed using four worksheets - one each relating to implementation. early adoption. later adoption. and competitive advantage. The worksheets were then used to rank the systems studied on their dependent variables. and comparisons developed to determine which independent variables showed support for the anticipated relationships.*

In a study of this kind. there are many threats to the

*A more complete discussion ofthe models and methodology for this study can be found in Reich, B H and Benbasat, I ‘An experimental investigation of the factors influencing the success of Customer Oriented Strategic Systems’ I~$wn~arion .S~~rem.r Research Vol I No 3 (1990) pp 325-347. Our intent here is to focus more on developing directions for managerial action.

reliability of the data that is collected. We tried to increase the reliability by using the following tactics: selecting more than one respondent in each site who had participated directly in implementing the system. selecting both IS and business managers. preparing for the interview by gathering written and anecdotal data from outsiders. interviewing on each main topic using several different questions. and using an interviewer with many years of experience in the systems field.

Table 1 contains a brief description of each of the eleven systems in the study. In the following sections. we outline the findings from the research.

COSS as an innovation

As we were primarily interested in the structures and processes associated with companies first into the market with a COSS. ten of the eleven systems we chose to study were ‘first movers’ in their relevant market areas (one of the systems in the sample was the second to be introduced in its market and it was not included in this part of the analysis). Our selection criteria meant that we could not identify factors which distinguished first movers from late entrants. We could. however. identify common characteristics of the ten first movers in our sample. There were many similarities (factors that occurred in at least 60 per cent of our first movers): we have grouped them into four distinct levels - industry. company. IS function and COSS. A summary of these findings is depicted in Figure 2.

Vol 1 No 1 December 1991 31


Bypass@ of Normal IS. Riolitipticm Procedures.

DEVELOPMENT

Fipre 2. Factors common to COSS,first movers

Rivalry among existing competitors in the industries represented in our study was very high. This rivalry took two forms: a direct product-oriented rivalry. and a COSS-inspired rivalry. Many managers reported being motivated by perceptions that rivals were developing COSSs at the same time as they were. They also perceived strong threats from new entrants. especially in the financial industry. where deregulation had spawned new competitors.

Not surprisingly. customer bargaining power was one of the strongest motivators for building COSSs. In several instances. a small number of large customers provided a significant portion of the firm’s revenue. Many of the COSSs were built in the hope that electronic linkages would increase the quality of relationships. raise switching costs and/or reduce the price sensitivity of these large customers. Any of these outcomes would constitute a lowering of the bargaining power of the customer.

Company level

In a study of strategic systems. conducted recently in England by David Runge’. the role of corporate champion was found to be very important in success- fully developing the systems. In our study as well. many of the companies reported that a specific person was the unequivocal champion of the COSS. playing a very important role in its development. and its acceptance within the company and by customers. In one company. the champion. who happened to be the comptroller. developed a strategic vision of increasing sales through improved customer ordering mechanisms. He convinced the company president and sales manager to support the idea. bargained with vendors over hardware prices. and travelled across the country educating customers and installing the system. His presence in customer sites was visible proof to his company and to the customers that this COSS was an important part of their future together.

The strong support of the Chief Executive Officer was an important factor in half of the cases studied. In one financial institution. the vice-chairman ran a full- page advertisement in a national newspaper announcing the COSS while it was still in very early stages of development. He then took the unprecedented step of holding monthly meetings with the vice-president of Information Systems to discuss the system’s progress.

The latter was quite motivated by this ‘support’. When discussing their corporate style. nearly all of the companies indicated a strong drive to be number one. either in all parts of their business or in the specific product line affected by the COSS. They had developed clearly articulated strategies for success. and everyone in the company had a role to play in their execution.

In three companies. neither form of management support was evident during the development of the COSS. However. in each case. the company had previously built COSSs to support other product lines.

The IS jiunction level

In his study. Runge observed that 75 per cent of the systems in his sample had been in existence before plans were made to link the company and its customers. In our research. a similar trend was operating: 60 per cent of the COSSs studied were extensions of previously developed internal systems or databases. while 40 per cent were new. Furthermore. nearly all our companies had previous COSS experience.

In most of the organizations. the IS function was very proactive. continually seeking innovative ways to support their organizations through technology. They had developed high levels ofcompetence and were well equipped to participate in the design and delivery of the COSS. In one company. the IS manager and his senior technologist travelled twice yearly across North America to search for new approaches in his industry. (Although this level of proactive IS behaviour may be less noteworthy today. the actions described here took place in the late 1970s.) The IS management team then produced a strategic IS plan. based on their conceptual- ization of the company’s future direction and information processing requirements. This plan was prepared almost two years before the company produced its first strategic business plan.

In Runge’s UK study and in our own. most of the strategic systems were developed outside of the organization’s IS planning guidelines: they did not follow the rules by which systems were normally prioritized. Seven of the COSS were developed quickly by circum- venting the IS prioritization procedures. In three other cases. the procedures had previously been modified to better address strategic systems. which could not be justified by the usual quantitatively-based analyses. This circumvention of the rules (rules set up originally for internal transaction and MIS systems. not for strategic systems such as COSSs) was usually accomp- lished by senior management to save time in the development process. The market driven nature of COSSs demands rapid response. Pressures from competitors and customers made spending time in the IS backlog queue unthinkable. As one vice-president remarked. ‘The normal planning process would have taken us nine months to get a preliminary project proposal. We said “You have nine months to turn the system on”.‘The same executive acknowledged that the planning process had been avoided. pointing out that ‘This was the only system ever developed in under one year.’ At another company. they described the system as ‘the fastest rollout the vendors had ever done. world- wide’.

Journal of Strategic Information Systems


The COSS pmject level

Most of the systems had a very high profile within the company while they were being developed. They were accorded high priority, and an abundance of resources - including top quality management support. Although most companies reported that no special development methods were used. there were two notable exceptions. In one company, the project work area was guarded and separated from the rest of the IS employees. The team was split into four groups (design. coding. testing. documentation) who worked as much as possible in parallel with each other (something the IS textbooks tell you never to do!). The first release was ready in four months. At another company. the COSS champion (a line manager) built a complete prototype of the system in order to bypass the specifications phase of the development cycle. Previously. the manager had not been closely involved with a systems development effort and was not considered to be a technological leader.

One might suspect that the high-pressure environment surrounding a COSS would result in short-cuts in the testing phase of development. In fact. the reverse was true. A number of firms reported comprehensive pilot tests. and one company in a very competitive situation followed the pilot with a complete system rewrite. The companies often viewed pilot testing as an important marketing step (i.e. the beginning of the customer adoption process) as opposed to the final stage of the system’s development cycle.

The key forces which may drive a company to be ‘first in’ with a COSS are summarized in Figure 2: companies were under pressure from the environment. champions arose to implement theirvisions. supported by proactive IS departments. organizational prioritizing procedures were bypassed. and development teams worked faster and harder than ever before. This is a very different scenario from the traditional systems development model. Despite progress in computer- aided software. engineering techniques. and proto- typing. application development practices today are still too often characterized by long waits in the IS project queue. use of standard project planning and management techniques. and multiple checkpoints and signoffs.

target. All of the systems fell into one of these two classes.

COSS adoption

As with traditional information systems. a COSS may be a technical wonder. but it can only succeed if it is adopted and used by its intended users. However. in the case of a COSS. the usem are in other organizations. Understanding the factors that impact customer adoption rates is of primary importance in assessing a COSS’s strategic potential.

In this study. we measured adoption in two different ways. First. we asked quantitative questions about customer response during the first year and had the respondents rate the early adoption rate as fast. moderate or slow. We also evaluated the systems which had been in the market for five or more years against their original market penetration targets. We classified the systems as having high long-term adoption if they had achieved or exceeded targets. and low long-term adoption if they had achieved 50 per cent or less of

Earl_v adoption

For purposes of analysis, we contrasted the COSSs which had achieved fast adoption rates with those reporting slow adoption rates in the first year of implementation. Six reported fast adoption. four reported slow adoption. and one felt that the adoption was moderate.

The most influential factor affecting early adoption was the presence (or absence) of known dissatisfaction among the customer population. Customers rarely, if ever. asked for an information system to solve their problems. They did, however, complain about the lack of information quality. timeliness, and availability. Of the seven COSSs that were built in reaction to needs expressed by the customer. six experienced moderate or rapid early customer adoption. Four systems were built in the absence of a felt need from customers: three of these systems experienced slow early adoption.

The price of the COSS was also an important factor. The rapidly adopted COSSs usually were offered to customers at nominal cost. The price ofone such COSS was set specifically so that the adopter would be ‘cost neutral’ to it (the cost of the system was the same as the customer’s cost of doing business in the traditional manner). Three of the slowly adopted COSSs had prices which their originators (and the customers) considered to be ‘high’. For instance. one was priced at $15 000 plus an annual maintenance fee. This price caused some customers’ adoption decisions to be placed into the capital budgeting process. resulting in very long decision times. Another COSS was priced at $2000 per month in order to recover all the development and operating costs of the system. Customers. accustomed to receiving inferior but free information. had difficulty in identifying the savings which would justify acquiring the COSS. They were unfamiliar (as many companies are) with the process of attaching value to more timely or more complete information.

Customer input also appears to be influential. While only three of the COSSs we studied were built using significant input from the firm’s customers. all three experienced rapid adoption in the tirst year.

On the negative side. all of the slowly adopted COSSs suffered from poor performance by the sales staffcharged with 'selling' the system to customers. The sales people had been trained to sell certain product lines; now they were being asked to sell an information system. They. as well as many of the customers. were unfamiliar with information technology. This unfamili- arity resulted in a reluctance and. in one case (in which the sales people perceived that their role was being decreased in importance). active resistance to the new assignment. The companies which achieved more rapid adoption had. for the most part. opted to sell the system using headquarters staff rather than through the existing product sales force.

Longer-tam adoption

The factors that affect longer-term adoption were more difficult to assess because relatively few of the COSSs in our sample had been in use for more than a few

Vol I No 1 December 1991 33


Identified Customer Needs

\

Cmthity of the COSS Champion

Continual Enhancements to the toss

Thorough Pilot Test

Figure 3. Factors common in succe.wful COSS adoption

years. Ofthe six COSSs which had been in existence for more than four years. two reported achieving or exceeding their targets and the other four reported achieving less than 50 per cent of their goals for the implementation of the COSS. Figure 3 depicts the factors which seemed to influence the long term adoption of the systems in our sample.

We found that three of the factors that had significantly influenced early adoption rates also impacted longer term adoption: the need expressed by the customer. the competence of the sales force and the COSS price.

In addition. the use of a careful pilot test was associated with successful longer term adoption. Companies who had reached targeted adoption reported running long pilots involving many customers: solving problems and gauging customer response before the COSS was officially released. Both companies that ran short. quick-and-dirty pilots obtained low long-term adoption. They were very anxious to announce a system ahead of the competition and had released products which suffered from a paucity of features and/ or technical deficiencies. Previous studies of innovation adoption have shown that later adopters take important cues from early adopters. COSS customers who were early adopters and struggled with deticient systems may have sent powerful messages to those who followed.

Another important discriminating factor is management continuity. For example. when the COSS champion is transferred to other duties or otherwise stops championing the effort. the will and ability to win with the COSS is often lost. In two of the low achievers. the champion had been moved to another position shortly after the COSS was introduced. In one instance. after five years the company did not have a single manager in place who was present during the idea formation or the development ofthe COSS! Organizational memory is an important part of corporate culture. The transfer of many managers into and out of a function disrupts the building of such a memory and can dilute the function’s ability to implement long-term strategies. As one manager who had been transferred away from the COSS ruefully remarked. ‘In I98 I and ‘82. I lost control of the system and we sagged in vision. A product champion must do some stringent handovers to successors.’

Finally, the follow-on enhancements made to a

COSS influence its longer term adoption. One manager remarked that. for organizational and technical reasons. they were unable to make the changes that the early adopters desired. This caused reduced customer satis- faction and. ultimately. contributed to a low overall penetration rate. Another noted that their system had undergone enhancements continuously since it was introduced. by which means they were able to turn an initially low adoption rate into a very rapid one after some time responding to customers’ requests for changes.

To summarize. given a COSS of good technical quality. its initial adoption seems to be influenced most strongly by the price at which it is offered. the effectiveness of the selling effort. and the extent to which it addresses real customer needs. Over the longer term. champion continuity. the quality of pilot testing. and follow-on enhancements to the system itself also come into play. These factors are illustrated in Figure 3.

Competitive advantage

A rich set of ‘results’ data was collected during the interviews. Managers were asked to evaluate the qualitative (i.e. changes in switching costs. customer relationships. image in the industry. company morale) and quantitative (i.e. changes in production costs. number of customers. primary product price) changes which had been effected by the COSS. Based on this data. we were able to separate the COSSs into three categories: winners (two systems). losers (two systems). and hopefuls (seven systems). The winners had reaped significant quantitative and qualitative benefits based on high adoption penetration. Their sales were up. their costs were down. and they had attained strategic goals for their products. The losers had failed to differentiate their products or to lower their costs substantially: they had a small number of COSS customers and were now trying to develop a more appropriate offering. The hopefuls had. for the most part. entered their COSS into the market within the last four years. They had created the potential for significant gains by raising switching costs or erecting entry barriers. Their efforts. however. had not yet been realized on the company’s income statement.

When discussing the competitive advantage achieved by such systems. the issue of the sustainability of the advantage inevitably arises. The COSSs we observed tended to he large and relatively complex systems. not easily duplicated by competitors. The ‘winners’ in our sample used their ‘first-mover’ lead time to add new features and extensions to the system while the competitors were playing catch-up. In short. sustained competitive advantage seemed to be linked with sustained hard work and a thorough understanding of the customer’s business needs.

By examining the ends of the spectrum - the clear winners and obvious losers - and drawing comparisons, some useful insights emerged. We present below descriptions of a ‘winner’. a ‘loser’ and a ‘hopeful’ from our sample.

A winner

This COSS was envisaged as a service to be used by a very few large customers of the company. Although it

34 Journal of Strategic Intormation Systems


was designed and built under intense competitive pressure. a full pilot test followed by a complete rewrite ensured that the quality ofthe system was high from the beginning. Nonetheless. customers were initially slow to adopt. since they were accustomed to personal service and had no experience with computer technology. The system delivered significant benefits in information timeliness, however, and the first users were well rewarded for their efforts in mastering it. During the next two years, the COSS’s champion was transferred to another division and the system was maintained but not significantly enhanced. Its future direction was unclear but current customers continued to use it because of its quality and because of their investment in its operation. When the champion was transferred back to the product area. several significant changes were made to the marketing and the features of the COSS. Instead of continuing to use headquarters staff to market the system. all account managers were trained in its operation and made responsible for selling it. This created several thousand salespeople instead of a dozen. and reduced the elitism that had crept into the product’s reputation in the company. Delivering information electronically instead of manually had significantly reduced the company’s transaction costs and funded further development at the COSS. The product was enhanced to use the latest technological advances. thus reducing its price. Adoption rate increased. and the target customer set was enlarged to include medium-sized customers. These customers had never received this information before. and were not averse to paying for it. The price of the COSS was modified. to include a variable component based on the amount of information delivered. These charges. multiplied by a high number of new adopters. produced significant new revenue for the company. Current COSS adoption is fifteen times the original projection. and the company’s target market for the COSS is now a thousand-fold larger than was originally conceived.

A loser

The rivalry in this industry was very fierce and it was well known that several competitors were simultan- eously developing a COSS. The company’s top management supported the view that technology was the key to future success and the system had both line management and IS champions. The system was priced to cover all costs. resulting in a high monthly fee. The salespeople. as well as the customers. were not familiar with the technology. Their learning curve. coupled with the system’s high cost. led to a slow early adoption rate. The COSS product manager was transferred to another part of the business. the initial vision of the system was lost. and it languished with few enhancements. There was a constant tension between the rigid internal IS procedures which surrounded the system. and the need to quickly respond to customer requests forchanges. In addition. the slow early adoption of the system had discouraged the company. making them even more unwilling to give changes high priority. Potential customers had other COSSs to choose from and were not attracted to one which had limited functions. A recent lowering of the price of the COSS has now enabled the company to protect its initial adopters until a re-engineering of the system is completed.

Comparing the winner and the loser. we find:

l both were technologically sophisticated systems: l both had top management support; l the winner built the customer interface and subjected

it to a thorough pilot test and a full rewrite. The loser took an existing system and extended it to the customer with little pilot testing:

l although the product champion was transferred away in both cases, the winner’s champion regained control and re-instituted the original strategy for the system;

l the winner’s system had many enhancements to bring it to full-featured status; the loser’s system had fewer enhancements and continues to be viewed by customers as underpowered.

A hopeful

One of the insights the research produced was the understanding that significant financial results from a COSS often take several years to be realized. This time lag between COSS adoption and quantitative results is understandable if the COSS.is being used. as so many are, to change the attitudes and buying behaviours of the customer with respect to the primary product. In large. bureaucratized customer organizations, procedures are changed very slowly since they are embedded in organizational routines.

The following profile of one of the COSSs in our ‘hopeful’category shows how the structural enablers of competitive advantage can be built in the first few years but the bottom line results can take much longer to appear.

This COSS was the culmination of a multi-year undertaking by the product manager. first to automate his internal operation and then to offer electronic links to customers to improve the quality and timeliness of the data they received. It was a technologically sophisticated system and very expensive to build. No executive support was forthcoming and this system was championed at the middle manager level. Pressure had been brought to bear on the company’s market leader- ship position by competitors. and by customers who wanted better service. Because of the company’s haste to get the system to market. it was not fully tested before its release. It was introduced by a national marketing plan and was nominally priced to attract customers. Adoption during the first year was limited to a few large customers. Since they received significant benefits from the system they were willing to deal with the communications problems and system bugs. The COSS has now re-established the company’s preeminence in this product line and has stopped attrition of its customers.

Customers do not often switch suppliers but the originating company considers that the COSS will effect some changes. Additional customers should produce the economies of scale necessary to significantly lower the cost of the product. Since the competitor’s COSS offerings are no match for this system’s quality. there is some reason to believe that the company’s new competitive weapon will eventually deliver impressive results.

The hopefuls in our sample are a diverse group. They support a range of strategic goals and a wide variety of

Vol I No 1 December 1991 35


product types. Their champions came from many levels and functions within the companies. What they all share, however. is potential to significantly assist in shaping the future for their companies. Developing and implementing a COSS is very much an act of faith: one requires a strong belief in its strategic potential. Only then can the players bring a constant source of enthusiasm and fresh ideas to the table.

General summary and recommendations

In general. many of the factors surfaced by this study were similar to those predicted by other research. However. there were several unexpected and new results:

the presence of long pilot tests was unexpected because ofthe competitive environment ofa COSS: the influence of a poorly supported sales force was a new finding; the importance of champion continuity rather than just his/her presence at the inception of the COSS had not been previously reported.

The dynamics ofCOSS success are complex. Success at any one stage of a COSS project will strongly influence but not ensure success at the next. Failure can be overcome and turned into success. Unrelated changes in the economy. the industry, or the regulatory system can also influence outcomes. From our research. we offer the following general recommendations for supporting

. information technoloa innovations. in particular. COSS applications:

1. Infuse your organization’s management with an appreciation of the potential competitive uses for information systems and information technology. Encourage functional managers to examine their operations for opportunities.

2. Foster a sense of urgency. a drive to ‘be number one’ in the industry in the competitive use of information technology.

3. Provide the IS people with some budgetry slack. and encourage them to innovate with technoloa in advance of identified requirements. IS teams need financial and organizational support to play a proactive role within the company.

4. Think of. and treat. the COSS like a new product innovation (which. in a sense. it is). rather than just another information system.

In order to be ‘first in’ with a COSS. both senior management and IS management must recognize that the project should be handled differently from internal IS projects. Top management support. consisting of either a committed CEO or a champion. is almost mandatory at this stage. to provide the organizational power to bypass the IS backlog queue and put together a well resourced project team. Companies with experienced. proactive IS personnel will have an advantage since much of the technology necessary for the project will already have been mastered. Other recommendations include:

I. Develop a clear strategy for the COSS. Define the competitive advantage target and the ways in which the COSS will assist in reaching it. Under- stand the changes in customer attitudes and

behaviours that are desirable (e.g. changes in purchasing criteria. increases in purchasing frequency or volume. willingness to consult before purchase). Create a staged approach if complex changes are envisioned. Target the COSS to address stated customer requirements or clearly expressed sources of dissatisfaction: don’t try to ‘guess’what the COSS should accomplish. Involve the customers in the design if at all possible. This will provide early feedback on the practicality of your plan and provide reference accounts for the marketing programme to follow.

After the COSS has been developed. it is released to the firm’s sales staff. and to the customers. Early adopters will be influenced most heavily by a recognition that the system addresses known needs. by the COSS price. and by the competence of the sales staff ‘selling’ the COSS. Later adopters will be much more influenced by the results achieved by the early adopters; they can more easily overlook poor sales staff. can justify the price. and can better evaluate the COSs’s features. Specific recommendations for companies introducing COSSs into the market are:

Price it carefully. Covering costs may not be important ifcompetitive advantage is the ultimate goal. The system may have to be considered a ‘loss leader’ such that the primary product itself can achieve higher margins. However. it should be priced high enough to ensure that the customer expends the effort necessary to use it effectively. Test the system with customers in a thorough pilot. Use the process to discover weaknesses in the adoption strategy as well as in the system itself. Plan the sales effort thoroughly. Anticipate resistance from product sales people and develop tactics to overcome it. such as teaming headquarters staff with field sales people for initial sales calls or installations. involving sales people in design. or implementing thorough training for all sales people. Marketing programmes should stress benefits: education and support programmes should be of superior quality.

After the first year. the industry will have shown its initial reaction to the COSS. whether it is an eager acceptance or a stifled yawn. Both situations can be reversed by actions taken (or not taken) during the next two to five years. Companies with excellent endurance can solidify early success or turn around a poor initial response to gain eventual benefits. Some of the factors which influenced early adoption. such as COSS price. sales staff support. and customer recognition of needs. continue to exert influence on this stage. Companies achieving high longer term adoption have ensured the continuity of their systems’champions. The winners in our study have moved into high gear. adding many enhancements to the original system and tailoring it to fit customer requirements. Companies which are reluctant to invest in enhancements to systems which encountered slow adoption increase the probability of eventual failure. Specific recommendations for companies entering the second year after the system is released are as follows:

36 Journal of Strategic Information Systems

Keep the faith. Time is required to produce the changes in behaviour on the part of the firm’s customers needed to achieve the hoped-for competitive advantage. If there was a well- planned strategy in place when the system was developed. stay focused on it. Examine poor response rates for factors which can be corrected.

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2. If early adoption has been brisk. resist the tempt- ation to relax. Examine the system for ways of expanding further into the customer’s operation. Enhance the system regularly to keep ahead of competitors.

3. Don’t ‘reward’ the champion with a transfer unless a successor fully understands and is committed to the vision that created the initial offering.

Building a customer-oriented strategic system involves good strategy. adequate resources. perseverance and good luck. Tangible rewards are often the result of a long-term change in customer behaviour. industry structure. or the economy. The long-term nature of the payoff must be matched by a long-term perspective on the part of all participants in the company.

Acknowledgements

The authors wish to thank DMR Group Inc.. a Canadian-based international consulting company. for their generous support of this study. The authors also wish to thank the Editor-in-Chief of theJournal sf


Stratqic Information Systems and the anonymous reviewers for their helpful comments.

References Wiseman, C Strategy and Computers: lqfbrmarion and Systems as Competitive Weapons Dow Jones-Irwin. New York (1985) Porter, M Competitive Strategy Free Press. New York ( 1980) Porter, M Competitive Advantage Free Press. New York (1985) Keen, P Competing in Time: Using Telecommunicationsfor CompeGtive Advantage Ballanger Publishing Company: Cambridge. MA (1986) Warner, T ‘Information technology as a competitive burden’ Sloan Manag. Rev. (Fall 1987) Brancheau, J and Wetherbe, J ‘Key issues in information systems management’ MIS Quatier/_v (December 1987) Graham, J, Dexter, A and Huff, S ‘Key MIS issues in Canada’ Canadian hf Proce,wing Sot. Rev. Vol I2 No 4 (July/August 1988) King, W R, Grover, V and Hufnagel, E ‘Seeking competitive advantage using information-intensive strategies: facilitators and inhibitors’ (Chapter 3) in Laudon, K C and Turner, J A (eds.) Information Technology and Management Strategy Preniice Hall. Englewood Cliffs. New Jersey (1989) Runge, D ‘Using telecommunications for competitive advantage’. unpublished doctoral dissertation. Oxford University (1985)

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customer-oriented strategic systems

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