Chapter 2 Information Systems For Competitive Advantage www.prenhall.com/jessup

Learning Objectives 1. Discuss how organizations can use information systems for automation, organizational learning, and strategic support 2. Describe information systems’ critical strategic importance to the success of modern organizations

Learning Objectives 3. Formulate and present the business case for a system and understand why it is sometimes difficult to do so 4. Explain why and how companies are continually looking for new ways to use technology for competitive advantage

Three Primary Uses of Information Systems Automation Providing support to complete a task faster, more cheaply, and perhaps with greater accuracy and/or consistency Organizational Learning (Informating) Providing support to improve day-today operations by creating, acquiring, and transferring knowledge Achieving Strategy Providing support in a way that enables the firm to gain or sustain competitive advantage over rivals

What Value Is Provided in These Functions?

Automation Automation Providing support to complete a task faster, more cheaply, and perhaps with greater accuracy and/or consistency Styles of Processing Manual Processing No technology automation support Technology Supported Processing A combination of manual and system supported steps Fully Automated Processing All manual steps have been eliminated. Effectiveness If the underlying process is bad, automating with technology alone may mask process problems

Benefits of Automation – Loan Example

Organizational Learning Providing support to improve day-today operations by creating, acquiring, and transferring knowledge Informating (Zuboff 1988) A technology that provides information about its operation and the underlying work process it supports Effectiveness A combined automating and learning approach is more effective than an automating approach alone. If the underlying process is flawed, a learning use of technology might help you detect problems with the process

Organizational Learning Example

Strategy and Competitive Advantage Achieving Strategy Providing support in a way that enables the firm to gain or sustain competitive advantage over rivals Sources of Competitive Advantage Having the best-made product on the market Delivering superior customer service Achieving lower cost than rivals Having proprietary manufacturing technology Having shorter lead-times in developing and testing new products Having a well-known brand name and reputation Giving customers more value for their money

Strategy

Traditional vs System Support Process Example Using handheld technology combined with a reengineered business process to create a competitive advantage

Value Chain Analysis Value Chain Analysis (Porter 1985, 2001 ) Is a process of analyzing an organization’s activities to determine where value is added to products and/or services and what costs are incurred in doing so.

Information Systems Roles in the Value Chain Systems play a significant role throughout the Value Chain to achieve competitive advantage and: Must be appropriate for the business strategy (e.g. cost) Are usually coupled with Business Process Reengineering that address process to enhance company operations

Making the Business Case Identifying the value provided by an information system The Productivity Paradox It is often difficult to quantify tangible productivity gains from the use of an information systems As system based productivity increases, other forces can simultaneously reduce gains (e.g. regulation) Unintended consequences of technology expenditures can reduce system effectiveness (e.g. web surfing) Business Case Development Issues Several common issues create difficulty in defining business cases for information systems including: Measurement Problems Time Lags Redistribution Mismanagement

Making the Business Case – Issues Measurement Problems The benefits of IT are difficult to pinpoint because firms may be measuring the wrong things Expected benefits are not always defined in advance, so they are never seen (They must be identified to measure). The biggest increases in productivity come from system effectiveness but many metrics focus on system efficiency Time Lags Describes the difference in time from when the IT expenditure was made and when the benefits are realized One explanation for this lag is that it takes time for people to become proficient at using new technology Another explanation is that large systems take a long time to fully implement and integrate - sometimes many years

Making the Business Case – Issues Redistribution IS may be beneficial to individual firms, but not for an entire industry or the economy as a whole Strategic information systems may help one firm increase its market share at the expense of others (redistributing) Expectations have increased as technology has become prevalent. We forget the gains that have been realized. Mismanagement IS has not been implemented and managed well Some believe that people simply build bad systems, implement them poorly, and rely on technology fixes for problems that require joint technology/process solutions Inappropriate IS investments can mask or even increase organizational slack and inefficiency

Making the Business Case - Arguments Individuals in organizations generally use one, or in most cases, a combination of the following arguments types to justify investments in information systems Based on Faith Fear Fact Arguments based on beliefs about organizational strategy, competitive advantage, industry forces, customer perceptions, market share, and so on Arguments based on the notion that if the system is not implemented, the firm will lose out to the competition or, worse, go out of business Arguments based on data, quantitative analysis and/or indisputable factors

Making the Business Case - Argument Examples

Making the Business Case - Fear Based Considerations There are several different factors to take into account when a business case is developed using arguments Based on Fear Industry Factors Stage of Maturity Regulation Nature of Competition What is effective in one industry may not be in another. Consider the industry! The maturity of the industry can have a significant impact on necessity for investment In regulated industries, companies can use IS to control process and ensure compliance What competitors are doing can drive the necessity for IS investment

How the Nature of Competition Affects IS Investment

Recurring/Non-Recurring and Tangible/Intangible Business cases typically include both Recurring/Non-recurring and Tangible/Intangible costs and benefits Recurring vs Non-Recurring Recurring - Ongoing costs or benefits identified in a business case (IT staff to support system) Non-Recurring - One-time costs or benefits identified in a business case (software purchase) Tangible vs Intangible Tangible - Cost and benefits that are easily identified (e.g. headcount or labor cost) Intangible - Cost and benefits that are not easily identified (i.e. increased customer service)

Business Case – Cost/Benefit Analysis Costs All recurring and nonrecurring costs related to the acquisition, development, and deployment of the systems project Benefits All recurring and nonrecurring increases in revenue, reduction in costs, and or increases in organizational efficiency Net Costs/Benefits Benefits minus Cost

Presenting the Business Case – Success Factors The key to successfully presenting the business case depends on thorough presentation and paying attention to the following factors Know your Audience A number of people may be involved in the decision making process. The key is to present information that is relevant and important to them IS Manager - He/She has overall responsibility for development, deployment, and maintenance of systems. Concern about IS organization impact are likely Company Executives - They represent various stakeholders in the organization. The may also have their own agenda at stake when making decisions about expenses Steering Committee – A collection of various company stake holders whose goal is to balance the needs and concerns in making a recommendation to the CEO

Presenting the Business Case – Success Factors Convert Benefits to Monetary Terms Try to translate all benefits into monetary terms (e.g. savings of 1 hr/day = $ salary/total hours x one hour = benefit). Monetary terms have impact and are understood by all Devise Proxy Variables Convert difficult to quantity benefits in proxy variables to demonstrate relative improvement such as 1 to 5 scale (e.g. customer face time moves from 1 to 5 with new system) Measure What is Important to Management Measure managerial hot buttons including cycle time, downtime, customer feedback, employee moral. Spend the time to explain and show how these are achieved

Assessing Value for IT Infrastructure Howard Rubin, Executive Vice President of Meta Group agues a holistic approach should taken in measuring IT infrastructure value. He suggests assessment along the following lines Economic Architectural Operational Regulatory & Compliance Use important business metrics to assess contribution to profitability an economic value Assess the capability to address current and future business needs (e.g scalability) Assessing the performance in meeting business processing requirements Assess the extent in meeting control, security, and integrity regulatory requirements

Cutting Edge Competitive Advantage Being at the Cutting Edge Deploying new state-of-the-art technologies can provide competitive advantage over rivals using older mainstream technologies (e.g. a new database that speeds processing) Requirements for Being at the Cutting Edge A firm must eliminate bureaucracy for tech adoption (fast track), have sufficient human capital (right numbers and skills), and have a risk tolerance (failures happen) Cutting Edge versus Bleeding Edge Choosing the right emerging system technologies is very difficult. It is a balance of the opportunity for significant competitive advantage against a risk of total failure

The Need for Constant IS Innovation “ The most important discoveries of the next 50 years are likely to be the ones of which we can not even now conceive” Sir John Maddox, Physicist (Scientific American 1999)

E-Business Innovation Cycle Choosing Devote dedicated resources to scan the environment for new emerging and enabling technologies that appear to be relevant to the organization

E-Business Innovation Cycle Matching Match the promising new technologies with current economic opportunities

E-Business Innovation Cycle Executing Select from among the current economic opportunities using new technologies to grab customers and market share

E-Business Innovation Cycle Assessing Assess the value of a technology use to customers, and to internal clients as well (e.g. sales reps, marketing, CIO, etc.)

E-Business Innovation Cycle – Implications The E-Business Innovation Cycle presents a new way of thinking about technology. Many currently held ideas are challenged by this process Implication One Two Three Technology is so important to strategy and to success that you have to begin with technology Technology is more important than Marketing The step of “Choosing” for firms using the E-Business Innovation Cycle has to be ongoing and in search of the “next big thing”

Technology Choices – Path to Competitive Advantage? “IT Doesn’t Matter” Car 2003 As IT becomes more pervasive, technology becomes more standardized and ubiquitous Competitors have access to the same technology which produces No Competitive Advantage “The Engine that Drives Success…” Lundberg 2004 Companies with bad business models fail regardless of IT systems or other capabilities Companies with good business models use IT to execute successful business models and succeed “Predicting the New, New Thing” Bakos/Treacy 1986 Use IS to make your products and services unique or cause customers to invest in you to raise switching cost Competitive Advantage can be more easily sustainable under these conditions