strategic use of information systems

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Management Information Management Information SystemsSystems

Strategic Use of Information Systems

Jerry Fjermestad

Copyright 1998-1999

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Information Systems for Information Systems for Competitive PositioningCompetitive Positioning Objectives A Strategic Perspective on Information

Systems A. Why a New Perspective? B. Change

Information Systems in Strategic Thrusts B. Creating Products & Services based on IS C. Transforming Products/Processes with IS

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Information Systems for Information Systems for Competitive PositioningCompetitive Positioning Strategies, Forces, and Tactics in

Competitive Markets A. Competitive Systems B. Competitive Forces C. An example of Strategic Thrusts D. Tactical Moves in Pursuing a Strategy E. Strategic Cube

Z Figure 5.3 p 156

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Information Systems for Information Systems for Competitive PositioningCompetitive Positioning Value Chain Analysis of Strategic

Opportunities Customer-Oriented Strategic Systems

A. A Scenario: B. Outbound Logistics C. Marketing & Sales D. Service

Strategic Systems in Operations A. Manufacturing B. Service Industries

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Information Systems for Information Systems for Competitive PositioningCompetitive Positioning Supplier-Oriented Strategic Systems:

Inbound Logistics Organizational Requirements for Successful

Strategic Information Systems

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Information Systems for Information Systems for Competitive PositioningCompetitive Positioning To Reengineer Business processes

A. Definition: B. The reason for the shifts C. Where are we Headed? D. Using IT as a Catalyst for CHANGE E. Principles Guiding Business Reengineering F. Lesson about Reengineering G. The role of the System Department

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Information Systems for Information Systems for Competitive PositioningCompetitive Positioning For Interorganizational Linkage

A. Characteristics of interorganizational Systems (IOS)

B. EDI Strategic Systems Can change how

organizations work A. Changing how decisions are made B. Offering more communications options C. Providing tools for coordination

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ObjectivesObjectives

Improve competitive position of organization Transform the way the organization does

business Create a new perception of the nature of the

business Change the firms products & services

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ObjectivesObjectives

Create new relationships with the environment: Customers Suppliers Competitors Government Partners Employees Community

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A Strategic Perspective on A Strategic Perspective on Information SystemsInformation Systems

“From the realization that IS may be designed to give a firm an enhance ability to compete & possible furnish the firm with a competitive advantage in the market place" Zwass, 1992, p145

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A Strategic Perspective on A Strategic Perspective on Information SystemsInformation Systems A. Why a New Perspective?

The dynamics of information; Many organization both produce goods & services process information Reduced cost of IT; The substitution power of IS: IS in

place of resources (labor, materials) An interaction effect: Educated people, technology &

change in organization culture The change started to occur in the 1980's with the birth

of the USER- TRON

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A Strategic Perspective on A Strategic Perspective on Information SystemsInformation Systems B. Change

A strategic system radically alters the way an organization does business

Most companies change via a series of small steps

Strategic benefits from a system: Lower cost; Market penetration = competitive advantage

The company may not attribute COMPETITIVE ADVANTAGE to IS, but one uses these to justify the IS

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Information SystemsInformation Systemsin Strategic Thrustsin Strategic Thrusts Competitive systems Cooperative systems Systems that change What are Strategic Systems?

Strategy: a definition - The science or art of military command as applied to the overall planning conduct of large-scale combat operations. A plan of action resulting from the practice of this science. The art or skill of using stratagem in politics, business, courtship or the like.

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Information SystemsInformation Systemsin Strategic Thrustsin Strategic Thrusts

Stratagem: A military maneuver designed to deceive or surprise an enemy.

Strategic: Essential to the effective conduct of war. Designed to destroy the military potential of an enemy.

Strategic Information System: An information system designed to give the owner organization a strategic competitive advantage.

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Strategic systems: A systems that supports or shapes a business unit's competitive strategy. outward looking: customers, competitors,

environments inward looking: employees, systems, procedures

Characteristics of Strategic systems: significantly changes business performance as

measured by one or more key indicators. (Take no prisoners).

contributes to attaining a strategic goal.

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fundamentally changes the way a company does business, or the way it competes, or the way it deals with its customers or suppliers. A PARADIGM shift.

Differences between traditional systems and strategic Traditional project management techniques to not

work well for developing strategic systems. WHY? the questions are unstructured, equivocal and

uncertain.

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Strategic systems follow: a prototype form, tested on a small scale by the

customers then iteratively developed piece by piece. User involvement is crucial both manager and

customer.

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A. Redefining Company Business What business are we in?

Actually a "new vision" is created as an answer Build on existing strengths Examples:

B. Creating Products & Services based on IS C. Transforming Products/Processes with IS

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Redefining CompanyRedefining CompanyBusinessBusinessCompany Type New VisionAmericanExpress

FinancialService

InformationBusiness

ReutersHolding

FinancialInformation

FinancialExecution,

Merrill Lynch StockBroker

Financial Services(CMA, EFTS)

Sears Retailer(before 1992)

InformationBusiness

Dun &Bradstreet

Financial Information

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Creating Products & Creating Products & Services based on ISServices based on ISCompany Type Product/ServiceCiticorp Financial

ServiceSoftware - creditunions internationalbanking

Backtel Construction ConstructionManagement software

IBM/Sears ProdigyH & R Block Tax CompuserveProcurementTechnology

BiddingInformation

Matching system forgovernment bids withcompany profiles

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Transforming Products / Transforming Products / Processes with ISProcesses with ISCompany Type TransformationFederalExpress

Shipping Information:Cosmos

UPS Shipping InformationBaxter Pharmaceutical Automated Order

taking systemAmericanAirlines

Saber System:ReservationSystem

UnitedAirlines

Apollo System

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Strategies, Forces, and Tactics Strategies, Forces, and Tactics in Competitive Marketsin Competitive Markets A. Competitive Systems The watchwords for the 2000's

Innovation Speed Service Quality

To Stay in Business

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Strategies, Forces, and Tactics Strategies, Forces, and Tactics in Competitive Marketsin Competitive Markets a. To Gain Market Share (Federal Express)

Continuously improve quality Improve the value of service Get closer to the customers Make an international business profitable Produce strong cash flow

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Strategies, Forces, and Tactics Strategies, Forces, and Tactics in Competitive Marketsin Competitive Markets b. Uncovering Strategic Use of Systems

Analyze competitive forces Study strategic thrusts Study the value chain Take the customer's view

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Strategies, Forces, and Tactics Strategies, Forces, and Tactics in Competitive Marketsin Competitive Markets c. Strategies: Z-1998 Figure 3.11 p96

Differentiation Develop products & services which are different

from what the competition offers superior attributes distinguishing features

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Competitive StrategiesCompetitive StrategiesCompetitive StrategiesCompetitive Strategies

Competitive AdvantageCompetitive Advantage

Competitive Competitive ScopeScope

Lower Cost Differentiation

BroadTarget

NarrowTarget

CostLeadership

CostFocus

Differentiation

FocusedDifferentiation

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Strategies, Forces, and Tactics Strategies, Forces, and Tactics in Competitive Marketsin Competitive Markets

Cost leadership based on efficient operations based on effective operations economies of scale

– become a low cost producer– market segmentation (niche)

Focused differentiation Market niche

Cost focus narrow market & low cost

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Strategies, Forces, and Tactics Strategies, Forces, and Tactics in Competitive Marketsin Competitive Markets B. Competitive Forces

Threat of new entrants Intensifying realty Pressures from substitute products Bargaining power of customers Bargaining power of suppliers Z-1998 Figure 3.12 p97

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Strategies, Forces, and Tactics Strategies, Forces, and Tactics in Competitive Marketsin Competitive Markets

C.Process for uncovering strategic systems opportunities 1. informal meetings to sell the idea 2. a tutorial on the theory of strategic information 3. Discussion of case examples 4. BRAINSTORMING 5. Executive brainstorming

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Strategies, Forces, and Tactics Strategies, Forces, and Tactics in Competitive Marketsin Competitive Markets D. Tactical Moves in Pursuing a Strategy

Internal innovation Internal growth (reengineering) economies of scale (large volume) economies of scope (Small volume) Mergers Strategic alliances

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The Strategic CubeThe Strategic CubeThe Strategic CubeThe Strategic Cube

CustomerPower

SupplierPower

PresentCompetitors

PotentialCompetitors

SubstituteProducts

COMPETITIVECOMPETITIVEFORCES TOFORCES TO

CONTEND WITHCONTEND WITH

STRATEGIESSTRATEGIES

TACTICSTACTICS

StrategicAlliance

Merger orAcquisition

Internal Growth

InternalInnovation

Differ

entia

tion

Cost L

eade

rshi

pFo

cuse

d

Differ

entia

tion

Cost F

ocus

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Value Chain Analysis Value Chain Analysis of Strategic Opportunitiesof Strategic Opportunities Definition: Value chain- consists of the

major activities that have been added to the product during its creation, development or sale.

Primary activities : the creation of product or service inbound logistics - order entry data collection,

obtain raw materials, subassemblies Operations - order processing, MRP;

transformation of inputs to finished goods

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Value Chain Analysis Value Chain Analysis of Strategic Opportunitiesof Strategic Opportunities Primary activities : the creation of product or

service Outbound logistics - distribution & sales data;

storing products, Marketing sales - promotions, discounting;

establishing a customer need Service activities - calls, returns, product

rotation and maintenance

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Value Chain with Typical Strategic IS Value Chain with Typical Strategic IS Mapped onto itMapped onto itValue Chain with Typical Strategic IS Value Chain with Typical Strategic IS Mapped onto itMapped onto it

EDI-BasedPurchasingSystem

Computer-IntegratedMftg.

AutomatedOrderingSystem

ExpertSystems forSalespeople

TelemaintenanceExpertSystems

InboundLogistics Operations

OutboundLogistics

Marketingand Sales Service

Downstream Chains of Customers

Upstream Chainsof Suppliers

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Value Chain Analysis Value Chain Analysis of Strategic Opportunitiesof Strategic Opportunities Support activities: The required

infrastructure Org's infrastructure Human resources Technology Procurement

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Value Chain Analysis Value Chain Analysis of Strategic Opportunitiesof Strategic Opportunities Z-1992 fig 5.5 & 5.6

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Customer-Oriented Strategic Customer-Oriented Strategic SystemsSystems "How can we use IT to help our customers

more easily acquire our products and get more value out of it?"

The Customer Resource Life Cycle

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The Customer Resource The Customer Resource Life Cycle - 1Life Cycle - 1PHASES EXAMPLESDETERMINE THE NEEDEstablish requirementsSpecify Attributes

Videodisc system to selecta product (fish)

PC to help determineproduct features

PC system to locateproduct

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The Customer Resource The Customer Resource Life Cycle - 2Life Cycle - 2PHASES EXAMPLESACQUIRE THE PRODUCTLocate the supplierOrder the productAuthorize and pay for productAcquire the productTest and accept the product

On-Line yellow pages,Airline reservation systemsEDI order entry systemsElectronic funds transfer and billing systemsJIT insuranceATM’s MAC’sDrug store systems (check for other products the customer is using)

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The Customer Resource The Customer Resource Life Cycle - 3Life Cycle - 3PHASES EXAMPLESMANAGE THE PRODUCT’S USEMaintain inventoryMonitor the productUpdate the productRepair the product

On-Line inventory,shipment tracking systems

Sales vs return to establishbetter stocking policies

Automatic productupgrades

Maintenance reminders

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The Customer Resource The Customer Resource Life Cycle - 4Life Cycle - 4PHASES EXAMPLESDISPOSE OF THEPRODUCTDispose or transferAccount for product

On-Line terminals for carrentals

Record keeping forcustomers

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Customer-Oriented Strategic Customer-Oriented Strategic SystemsSystems

Whence Success? Opportunity costs: Switching costs of customer are

low (from other supplier to you) YOU provide hardware/software, training, custom

implementation You ensure the exit cost is high

Staying power based on time & money exit costs

Offer responsive service provide maintenance provide upgrades

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ISO YOU know the customers business

STRATEGIC BENEFITS 1. Barriers to entry for new competitors are high

– ordering systems take time to develop– costs are high (but are coming down)

2. Prevent substitution of other products 3. Market Segment leader: You have a DB of all your

customers

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4. You have reorganized your company based customer service and technology

– provided value to your customers– Systems based JUST on technology DO NOT

always create Competitive ADVANTAGE– (I.E. ATM's by Citicorp)

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B. Outbound LogisticsB. Outbound LogisticsService / System ExamplesOrdering Process Ordering systemsFacilitationPayments

Creditcard processingto other firmsDebit Cards (Nice, etc)

Facilitation ofInformation

ATM’s for/as ATM’sdistribution of ticketsstudent gradesInformation on usage

TrackingInformation

Fed Express/ UPS

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C. Marketing & Sales The Key is to use IS added to the creativity of the

people Systems used in Marketing & Sales

Ordering Customer DB's information by & about contact Telemarketing Quality Tracking Scheduling etc...

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C. Market & SalesC. Market & SalesSystem CompanyInsulation requirementfor homes

Owens CoringFiberglass

Properietary Clinicaldata to Physicians

Genentech:Notebook PC’s

Brokerage Services:Match Customersneeds with suppliers

Airline Guide(Display flights)

Select & Configure CAD / CAM - FMSMarketing Analysis Citicorp: From

credit card data

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D. Service After Sales continuation of customer relationship Reduce Cognitive dissonance

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D. ServicesD. ServicesSystem CompanyMaintenance Contract:send reminders

Sears

Mazda Follow-upDouble warranty onpurchases

AmericanExpress

Tele-maintenancesystem: Update onsystems configurations

StratusComputer Corp.

Diagnostics WestinghouseUpdate of software Prodigy

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Strategic SystemsStrategic Systemsin Operationsin Operations A. Manufacturing

CIM MRP II

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5.6 Strategic Systems5.6 Strategic Systemsin Operationsin Operations

Z Figure 5.7 p166

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Strategic Systems in Strategic Systems in Operations: ManufacturingOperations: ManufacturingSystem BenefitCIM Control of entire processFMS Units of 1CAD / CAM Configuration control for

each customerMRP II Reduced inventory costs

Reduced cycle time

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Strategies for CIM and BRPStrategies for CIM and BRP

Fjermestad & Chakrabarti, 1993

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Strategic SystemsStrategic Systemsin Operationsin Operations B. Service Industries

Anything that facilitates the information flow

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Strategic Systems in Strategic Systems in Operations: Service IndustriesOperations: Service IndustriesSystem BenefitSystem Benefit1-800-DENTIST Find a dentistphone numberbase ordering

call back when queueis full

Direct meterreading

Reduced costs andtime

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Supplier-Oriented Strategic Supplier-Oriented Strategic Systems: Inbound LogisticsSystems: Inbound Logistics Z-1992 Figure 5.6 p160

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Supplier-Oriented Strategic Supplier-Oriented Strategic Systems: Inbound LogisticsSystems: Inbound Logistics Using IS to increase its POWER with

Suppliers Want:

Price Delivery Time (JIT) Quality Quantity Service Certification

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Supplier-Oriented Strategic Supplier-Oriented Strategic Systems: Inbound LogisticsSystems: Inbound Logistics Want:

Control Good relationship Linkage

GM Example: JIT/ No-inventory Certified / Quality CAD/CAM for custom engineering EDI for all transactions

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Supplier-Oriented Strategic Supplier-Oriented Strategic Systems: Inbound LogisticsSystems: Inbound Logistics ShopRite Example:

a. UPC codes for collecting unit prices b. PicePlus Club: Customer data c. a & b customer data base

Information on: Who buys what Who buys when

d. point of sales coupons for the "other product"

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Supplier-Oriented Strategic Supplier-Oriented Strategic Systems: Inbound LogisticsSystems: Inbound Logistics

e. from a & b: Crew scheduling Shelf stocking

f. portable scanners for inventory checking g. All linked with main local warehouse h. all line via EDI to suppliers i. get store demand fees for stocking new

products

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Organizational Requirements for Organizational Requirements for Successful Strategic Information Successful Strategic Information SystemsSystems Requirements for success Active support of Senior management Integrated Planning Direct reporting responsibilities of strategic

Team Feedback & Control

budget reward

correction

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Organizational Requirements for Organizational Requirements for Successful Strategic Information Successful Strategic Information SystemsSystems Feedback & Control

Readiness: Culture, Resistance sustainability

1. lead time will allow the achievement of CA 2. Copy cats may fail because of Uniqueness 3. If copied: Your organization will still have

Preempted the marketplace

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To ReengineerTo ReengineerBusiness processesBusiness processes The 1980' focus is on the Competitive

advantage The 1990's focus on internal outmode

business practices

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To ReengineerTo ReengineerBusiness processesBusiness processes A. Definition: Fundamentally redesigning

how the enterprise works- procedures control mechanisms reporting relationships decision makers compensation criteria The is to replace the paper-base world with IT

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To Reengineer To Reengineer Business processesBusiness processes B. The reason for the shifts

1. From competition Quality Cycle time customer service niche markets

2. Failures in implementing IT 3. Organizations are being forced to cut expenses 4. The cost/performance of computer

hardware/software has dropped

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To Reengineer To Reengineer Business processesBusiness processes C. Where are we Headed?

Sprague Fig 3.5 p83

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To Reengineer To Reengineer Business processesBusiness processes D. Using IT as a Catalyst for CHANGE

1. Informate rather than automate: use the information gathered about automated

processes to improve the process or change the work performed

2. Use different structures centralized decentralized both

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To Reengineer To Reengineer Business processesBusiness processes E. Principles Guiding Business

Reengineering 1. Organize around Outcomes, Not tasks

Right! 2. People who use the output should perform the

process order your own supplies

3. Include information processing in the real work that produces the information decentralization. At Ford the receiving department

receive, process and authorizes payment

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To Reengineer To Reengineer Business processesBusiness processes

4. Treat geographically dispersed resources as if they were centralized central purchasing department to negotiate contracts,

local department to draw on the database 5. Link parallel activities rather than integrate

them work in parallel rather than sequenced

6. Let doers be self managing the lowest level makes the decision

7. Capture information once at its source Yes!

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To Reengineer To Reengineer Business processesBusiness processes F. Lesson about Reengineering

Synchronize: aligning strategy people technology business processes

to cut cost, reduce non-valued-added- work, and streamline client organizations

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To Reengineer To Reengineer Business processesBusiness processes

1. Business integration is a Process, not a project

2. People need time to change 3. Recognize the potential up front, get people

involved early 4. Make job change throughout the organization 5. Manage the pace of change

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To Reengineer To Reengineer Business processesBusiness processes G. The role of the System Department

1. Be an influencer 2. Participate on multifunctional teams 3. Build more Flexible Applications faster 4. Introduce processing supporting technologies.

Image processing EDI, Groupware, video conferencing, E-mail

5. Manage the technical architecture flexibility adaptability

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For Interorganizational LinkageFor Interorganizational Linkage

A. Characteristics of interorganizational Systems (IOS) 1. IOS require partners 2. Standards 3. Education 4. Coordination via third parties (consultants) 5. The work must be synchronized 6. Work processes are to be reevaluated 7. Technical aspects are the easy ones 8. Effort cannot be secretive

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Cooperative Systems Definition: Coordination- the act of working together The definition of cooperative is nested within

coordination. Sprague Fig 3.7 p96 (also 3.4)

B. EDI The computer to computer exchange of standard

business transactions payment/remittance request for quotations

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B. EDI (con’t) purchase order logistics Applications that have the greatest Benefits:

they involve a large number of transactions these transactions require careful and accurate

reporting they make it easier for the customer to purchase

goods & services

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Strategic Systems Can change Strategic Systems Can change how organizations workhow organizations work A. Changing how decisions are made B. Offering more communications options C. Providing tools for coordination

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Strategic Systems Can change Strategic Systems Can change how organizations workhow organizations work A. Changing how decisions are made

To match the increasing turbulence and complexity organizational decision making will be: more frequent performed faster more complex

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Strategic Systems Can change Strategic Systems Can change how organizations workhow organizations work

Thus three technologies will be needed: advanced computer and communications

technologies computer message system computer conferencing video conferencing decision group technologies (GDSS) as

environmental complexity increases there will be a need for more information exchanging either via meetings of CMC.

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Thus systems (CMC) with different structures to aid different problems (i.e. EBS, DI, Agenda setting, etc) Technology support for managing decision

processes project mgt for DM more rapid techniques expert systems AI Structuring techniques

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Strategic Systems Can change Strategic Systems Can change how organizations workhow organizations work B. Offering more communications options

E-mail, CMC, GDSS, CSCW These systems can ease and enhance

communication between individuals and groups.

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1. Among Individuals time and distance can be collapsed small messages will no longer be a potential bother

to other people communication has increase thus people are better informed problems are resolved much faster; people get the

point more quickly when messages are typed memo wars decrease CMC encourages action; messages are informal yet

to the point

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2. Among groups time and distance are collapsed people can easily signal interests to other people messages can easily be sent to other people E-mail reduces the costs of finding people with

mutual interests Can build strong ties (within group) weak ties

between groups

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2. Among groups E-mail encourages intergroup communication

because it reduces time and effort filtering mechanism become important to screen

in/out important/junk mail innovation/ effectiveness can be improved

– A second order effect– A first order effect is efficiency

strategic use of information systems

Business

service strategic systems

edi strategic systems

change information systems

traditional systems

strategic perspective

strategic goal

strategic thrusts stratagem

example of strategic