MANAGING INFORMATION SYSTEMS FOR STRATEGIC ADVANTAGE Copyright © 2005 Prentice Hall, Inc.

Copyright © 2005 Prentice Hall, Inc. LEARNING GOALS Describe the various approaches to devising corporate strategy. Explain how information systems can help organizations achieve a strategic advantage. Describe the methods organizations use to choose a strategic information systems project. Describe how information systems can bring about corporate change. Explain the concept of knowledge management and describe the technologies that comprise knowledge management systems. Copyright © 2005 Prentice Hall, Inc.

Competition at The Bead Bar The Bead Bar faces increased competition and needs to find ways to use information systems to generate competitive advantage. Meredith – How to know if the Bead Bar information systems truly improve the business and how can they be used to help create a competitive advantage? Suzanne – How to share knowledge and collaborate about designs ? Leda – How to lock in franchisees? Copyright © 2005 Prentice Hall, Inc.

Competition at The Bead Bar (continued) Mitch – How to use IS to keep advantage in the cruise industry? Julia – How to value the current information systems? Miriam – How can the marketing team share knowledge and collaborate? Rachel – How to demonstrate increased efficiency and reduced costs achieved through information system? Jim – How to use systems to assist in transitioning new employees into the Bead Bar environment? Copyright © 2005 Prentice Hall, Inc.

Copyright © 2005 Prentice Hall, Inc. Value Chain Value chain – activities within an organization that bring products and services to market Primary activities – take raw materials and transform it into something of greater value Inbound logistics • Marketing and sales Operations • Service Outbound logistics Supporting activities – those functions that the company requires to do business but do not directly add value to a product or service HR • Procurement IT • Firm infrastructure Copyright © 2005 Prentice Hall, Inc.

Copyright © 2005 Prentice Hall, Inc. Value Chain Analysis Process of analyzing the activities within an organization’s value chain Companies gain strategic value by focusing on a particular portion of the value chain IT can help reduce the costs of these processes, thus increasing profit margins Copyright © 2005 Prentice Hall, Inc.

Copyright © 2005 Prentice Hall, Inc.

Porter’s Competitive Forces Model Unlike the value chain, the Competitive Forces Model deals with external factors Five components Level of competition in industry Threat of new entrants into industry Bargaining power of customers Bargaining power of suppliers Threat of substitute products Uses for CFM Determine position within industry Analyze industries and market segments they might wish to enter (exit) Copyright © 2005 Prentice Hall, Inc.

Copyright © 2005 Prentice Hall, Inc.

Competitive Advantage (CA) Those qualities that allow a company to earn above-average profits within an industry Low cost Unique product Three generic strategies to achieve competitive advantage Cost leadership strategy Differentiation strategy Focus strategy Copyright © 2005 Prentice Hall, Inc.

Copyright © 2005 Prentice Hall, Inc.

Information Systems for Strategic Advantage How can information systems improve the value chain? By reducing the cost of primary and support activities How can information systems change the way an organization reacts to its competitive forces? By changing the bargain power of suppliers By building closer ties with customers By increasing or decreasing barriers to entry in a market By serving as the basis for new products and/or services Copyright © 2005 Prentice Hall, Inc.

Sustainable Competitive Advantage Four approaches lead to sustainable competitive advantage Create barriers to entry through patents, monopoly, or technical expertise Be the first to develop systems with high switching costs Develop the technologies that change the underlying nature of the industry Cultivate and hire people with excellent information systems management skills Copyright © 2005 Prentice Hall, Inc.

Copyright © 2005 Prentice Hall, Inc. Productivity Paradox “We see computers everywhere, but in the productivity statistics.” Robert Solow, Nobel Prize-winning economist It is difficult to attribute cost savings directly to a specific information system It is difficult to prove that a specific system led to certain financial outcomes Other measures are needed Balanced scorecard Total cost of ownership (TCO) Copyright © 2005 Prentice Hall, Inc.

The Balanced Scorecard Strategic planning method that translates business strategy into a comprehensive set of performance measures Investigates strategies in four areas Financial – e.g. improving cash flow and reducing expenses Internal business processes – e.g. decreased cycle time and improved quality Learning and growth – e.g. develop successful new products Customer – e.g. improve customer satisfaction and decrease product defects Copyright © 2005 Prentice Hall, Inc.

Copyright © 2005 Prentice Hall, Inc.

Value of Information Systems Cost must NOT outweigh benefits Return on investment (ROI) ROI = (Benefits – Costs) *100 / Costs Costs include – Benefits include Hardware • Tangible benefits Software • Intangible benefits Labor Total cost of ownership (TCO) Method to quantify long-term direct and indirect costs Copyright © 2005 Prentice Hall, Inc.

TCO Analysis for PDA Purchase Copyright © 2005 Prentice Hall, Inc.

Copyright © 2005 Prentice Hall, Inc. The IS Portfolio Treat investments in IS assets like a portfolio of investment assets to find redundancies and achieve balance Five steps Put information about all the organization’s IS projects into a database Prioritize the IS projects Divide the IS projects into three types of investments Infrastructure Upgrades Strategic initiatives Automate the entire process Have the organization’s top finance executive perform a Modern Portfolio Theory analysis Copyright © 2005 Prentice Hall, Inc.

Copyright © 2005 Prentice Hall, Inc. Sample IS Portfolio Copyright © 2005 Prentice Hall, Inc.

Business Process Improvement and Reengineering BPI – processes are good but can be better BPR – elimination or change of business processes “The fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance such as cost, quality, service, and speed.” Hammer and Champy, 1993 Automation (e.g information systems) is a key factor in both BPI and BPR Copyright © 2005 Prentice Hall, Inc.

Major Themes of Successful BPR Several jobs are combined into one. Workers are empowered to make decisions. Work is performed where it makes the most sense. Checks and controls are reduced or eliminated. Reconciliation is minimized. Copyright © 2005 Prentice Hall, Inc.

Copyright © 2005 Prentice Hall, Inc. Steps in BPR Have a clear strategy that is aligned with the organization’s goals Clearly defined scope that identifies exactly which processes need to be reengineered and which supporting processes need to be revised Define measures and benchmarks for success Develop an understanding of the current, as-is processes Develop a plan for transition from the as-is processes to the to-be processes Implement the changed processes Measure the outcomes of the changes Copyright © 2005 Prentice Hall, Inc.

Knowledge Management (KM) Knowledge assets – the knowledge that exists within the minds of each employee and the knowledge that exists in a tangible form such as databases, documents, and reports Companies must know how to manage this knowledge Knowledge management (KM) – the process by which organizations extract value from their knowledge assets Copyright © 2005 Prentice Hall, Inc.

Copyright © 2005 Prentice Hall, Inc. KM Systems Information technologies that enable the exchange of knowledge among employees and the storage of knowledge in repositories Types of KM systems Expert directories Knowledge repositories Knowledge sharing technologies Knowledge representation technologies Knowledge discovery tools Copyright © 2005 Prentice Hall, Inc.

Copyright © 2005 Prentice Hall, Inc. Knowledge Portals A single access point to the knowledge of an organization Provides Web-based access to all of the KM technologies within an organization Copyright © 2005 Prentice Hall, Inc.

Copyright © 2005 Prentice Hall, Inc. Bead Bar Consultant How Issues on Managing Information Systems for Strategic Advantage Affect the Bead Bar Meredith – Understanding the strategic role of information systems has changed the way I think about technology Suzanne – Wants to build KM system to share bead designs Leda – Using KM systems to streamline the value chain makes the Bead Bar more attractive to franchisees Mitch – Use IS to create differentiation for cruise line customers Miriam – KM system for collaboration on marketing campaign Rachel – Use IT for incremental improvements in business processes Jim – Develop KM system to improve retention of valued employees Copyright © 2005 Prentice Hall, Inc.

Learning Goals Summary In this chapter you have learned: The various approaches to devising corporate strategy How information systems can help organizations achieve a strategic advantage The methods organizations use to choose a strategic information systems project How information systems can bring about corporate change The concept of knowledge management and the technologies that comprise knowledge management systems Copyright © 2005 Prentice Hall, Inc.