1 Chapter 3 Strategic Information Systems for Competitive Advantage

2 Learning Objectives  Describe strategic information systems (SIS) and explain their advantages.  Describe Porter’s competitive forces model & how IT helps companies improve their competitive positions.  Describe Porter’s value chain model and its relationship to information technology.  Describe several other frameworks that show how IT supports the attainment of competitive advantage.

3 Learning Objectives (cont.)  Describe and understand the role of web-based SIS and the nature of competition in the digital age.  Describe global competition and its SIS framework.  Describe representative strategic information systems and the advantage they provide to organizations.  Discuss implementation issues including possible failures of SIS.

4 Case: Rosenbluth International  Rosenbluth Int., a global player in the travel agency industry, faced threats due to the digital revolution.  They responded with 2 strategies: (1) Withdrawal from the leisure travel business (2) Implementation of web-based travel technology, such as:  DACODA  A Globalization Network  Electronic Messaging Services  Customer-Res  E-Ticket Tracking Solution  IntelliCenters  Res-Monitor  NOC

5 Lessons from the Case Need for exchange business models and strategies Importance of web-based IT Global competition over service is key Large investment over time Importance of networked infrastructure for global systems Web-based applications for superior customer service Need to patent innovative systems

6 Strategic Information Systems (SISs) SISs provide strategic solutions to the 5 Business Pressures:

7 Elements of Strategic Management 1. Long Range Planning 2. Response Management 3. Proactive Innovation - Information Technologies

8 The Role of IT  IT creates applications that provide strategic advantages to companies  IT is a competitive weapon  IT supports strategic change, e.g, re-engineering  IT networks with business partners  IT provides cost reduction  IT provides competitive business intelligence

9 Competitive Intelligence The Internet is central to supporting competitive intelligence Such activities drive business performance by: Increasing market knowledge Improving internal relationships Raising the quality of strategic planning Many companies monitor the activities of competitors

10 Competitive Advantage in the Web Economy Competitive Advantage Look for a competitive necessity, which will help your company keep up with the competitors. Competitive Strategy Search for a competitive advantage in an industry, which leads to control of the market. Sustainable Strategic Advantage Maintain profitable & sustainable position against the forces that determine industry competition.

11 CASE: McKesson Drug (  Whole Sale Drug Distributor  Economost (McKesson’s Web-based service)  Allows for customers to phone, fax or orders.  Order is transferred to an IBM main frame, quick delivery to pharmacies.  Significant benefits to customers.  Due to Economost, McKesson has survived the new economy, revenues have escalated.  Early 2001, McKesson offered a suite of comprehensive Internet- based applications.

12 Porter’s 5 Competitive Forces  The threat of entry of new competitors.  The bargaining power of suppliers.  The bargaining power of customers (buyers).  The threat of substitute products or services.  The rivalry among existing firms in the industry.

13 Response Strategies (Porter, 1985) FOCUS Selecting a niche market and achieving cost leadership and/or differentation. DIFFERENTATION Being unique in the industry COST LEADERSHIP Providing products and/or services at the lowest cost in the industry.

14 Response Strategies (added by Porter and others) INNOVATION Developing new products & services GROWTH Increasing market share, acquiring more customers or selling more products IMPROVE INTERNAL EFFICIENCY To improve employee and customer satisfaction ALLIANCES Working with business partners to create synergy & provide opportunities for growth CRM Customer-oriented approaches, e.g. the customer is king (queen)

15 Case: Trucking, IT & Cost Leadership  JB Hunt (  Uses web-based technology to:  trigger lowest possible fuel costs  notify customers of accurate fuel surcharge  provide an on-line “proof of delivery”  Roadway Express (  Uses IT technology to:  compare vendor’s prices and related procurement expenses  monitor the exact location of trucks

16 Porter’s Model in Action

17 Porter’s Model in Action (cont.) Step 1: The players in each force are listed. Step 2: An analysis is made which relates Porter’s determining factors. Step 3: A strategy is devised to defend against these factors. Step 4: Support information technologies are employed.

18 CASE: Daimler Chrysler Problem : In 1999, the company lost $US 2.6 Billion Chrysler’s program with part suppliers was failing Solution : Suppliers began using Lotus notes/ Damino Measurement reports to static HTML web pages E-procurement exchange at Convisint Results: Chrysler saves billions

19 Porter’s Value Chain Model PRIMARY ACTIVITIES  In bound logistics (in puts)  Operations (manufacturing & testing)  Outbound logistics (storage & distribution)  Marketing & sales  Service Supply Chain

20 Porter’s Value Chain Model SUPPORT ACTIVITIES  Firm Infrastructure  Human Resources Management  Technology Development  Procurement

21 VALUE SYSTEM  A firm’s value chain is part of a larger stream of activities, which Porter calls a “Value System ”.  Includes the suppliers that provide the necessary inputs AND their value chains.  Applies to both products & services, for any organization, PUBLIC or PRIVATE.  Is the basis for the Supply Chain Management.

22 CASE: Frito Lay uses IT & the Value Chain  World’s largest snack food producer and owner of Pepsi products.  SIS System:  Integrates marketing, sales, manufacturing, logistics, finance.  Provides managers with information about suppliers, customers & competitors.  Enables employees to access valuable information.  Frito Lay’s use of IT allows for an optimal functioning of the value chain.

23 The Value Chain Model  The Value System Model is used to:  Evaluate a company’s process and competencies.  Investigate whether adding IT supports the value chain.  Enable managers to assess the information intensity and the role of IT.

24 Bakos & Treacy Framework

25 McFarlan’s Portfolion Framework (1984) For Analyzing Existing, Planned & Potential Information Systems

26 Stages in Customer Resources Life Cycle (1-7) ( 1) Establish Customer Requirements (2)Specify Customer Requirements (3) Select a source, match customer with a supplier (4) Place an order (5) Authorize and pay for goods & services (6) Acquire goods or services (7) Test & accept goods or services

27 Stages in Customer Resources Life Cycle (8-13) (8)Integrate into and manage inventory (9) Monitor use and behavior (10) Upgrade if needed (11) Provide maintenance (12) Transfer or dispose of product or service (13) Accounting for purchases

28 Web-based Strategic Information Systems (SISs)  Many of the SISs of the 70s - 90s were based on privately owned networks, or organizational information systems (OISs).  EDI-based systems are of key importance.  SISs are changing the nature of competition.  In some cases, SIS renders traditional business procedures obsolete.  E.g, Encyclopedia Britannia

29 CASE: Mobile Oil Moves to Web-based System Problem:  Largest marketer of lubricants in the USA  In 1995, introduced EDI system  Used to place orders, submit invoices & exchange business documents  It was too expensive, too complex to use Solution:  In 1997, moved to web-based extranet-supported B2B system Results:  Reduced transaction cost from $45/order to $1.25  Fewer shortages, better customer service  decline in distributor administration costs

30 Examples of EDI/Internet-based SIS (for individual Companies)  Electronic Auctions  Electronic Biddings  Buyer-Driven Commerce  Single Company Exchange  Direct Sales

31 Examples of EDI/Internet-based SIS (for Groups of Companies)  Industry Consortiums  Horizontal Consortiums  Web-based Call Centers  Web-based Tracking Systems  Web-based Intelligent Agents  Web-based Cross Selling  Accessing knowledge via Intranets

32 Growth of Companies Operating in a Global Environment  Fully Global or Multinational Corporations  Companies that export or import  Companies facing competitions of low labor cost and high natural resources  Companies with low cost production facilities abroad  Small companies that can now use EC to buy/sell internationally

33 A Global Drivers Framework (Ivers et al., 1993)  “The success of companies doing business in a competitive environment depends on the link between their information systems AND their global business strategy.”  This framework provides a tool for identifying the firm’s global business drivers.  Drivers look at the current and future needs, focusing on worldwide implementation.

34 Examples of Who is Using SIS Otis Elevator Centralized call center, self diagnosing elevators’ malfunctions and maintenance analysis Baxtar International Terminals in customers’ hospitals Merrill Lynch Cash management accounts system American Airlines Computerized reservation system (SABRE)

35 CASE: Total Quality Management at FPL  Florida Power & Light  largest US utility company  Leader in implementing total quality management  Several successful SIS programs:  Generation Equipment Management System (GEMS) Tracks electrical generators, saving $5 million/ yr.  20 different quality control applications Reduced customer complaints by 50%  Trouble Call Management System Reduced black out time from 70 to 48 min.

36 CASE: Geisinger Implements an Intranet Problem:  As a result of mergers & acquisitions, Geisinger (a health maintenance organization) had 40 different IT legacy systems in need of an upgrade & integration. Solution:  In 1993, Geisinger implemented an innovative Intranet: with the following features:  “Tel-a-Nurse”  Clinical Management System  Human Resource Management Results:  Geisinger reduced costs and unnecessary medical work.

37 CASE: Caltex Corporation  Major multinational company selling gasoline & petrol products.  In 2000, created a centralized e-purchasing corporate exchange (  Suppliers build electronic catalogues with Ariba’s software.  Many benefits to buyers and suppliers, particularly in Asia, Africa & the Middle East.  System enables Caltex to successfully handle complex multinational business environments.

38 CASE : Port of Singapore Problem:  The Port of Singapore, the world’s largest international port, faced increased global competition. Solution :  Implementation of Intelligent Systems Results:  Reduction in Cycle Time  4 hours versus hours in neighboring ports  Reduction in uploading/ loading time  30 sec. versus 4-5 min./ truck in neighboring ports

39 CASE: Volvo Speed Cars Problem:  In comparison to global competitors, Volvo’s cars were to expensive, with a slow delivery time. Solution:  Creation of global ISDN-based network Result:  Reduction in delivery time from weeks to weeks for customized cars.  Reduction in cost of doing business, along with the price of the car.

40 CASE: Caterpiller Corporation Problem:  This world leader in manufacturing of heavy machines faced strong competition from Japanese companies. Solution:  Computer-aided manufacturing and robots  Computerized inventory management  Supply chain web-based management  Global Intranet & EDI  Sensory Intelligent Agents attached to products. Results:  CAT experienced such a high rate of success that their main competitor was forced to shift its strategy.

41 CASE: Dun & Bradstreet (D & B) Problem:  Clearing house that provides risk analysis & maintains database of credit ratings.  Customers complained about long waiting periods and inaccuracies. Solution:  Implementation of Web-based expert system. Results:  Response time reduced from 3 days to a few seconds  Credit ratings became more accurate.

42 SIS Implementation  Major Issues to be Considered:  Justification  Justifying SIS may be difficult due to the intengible nature of their benefits.  Risks & Failures  The magnitude, complexity, continuous changes in technology and business environment may result in failures.  Finding appropriate SIS  Identifying appropriate SIS is not a simple task.

43 Sustaining SIS & Strategic Advantage  A Major problem that companies face is how to sustain their SIS competitive advantage.  3 Major approaches =  Create inward systems which are not visible to competitors.  Provide a comprehensive, innovative & expensive system that is difficult to duplicate.  Combine SIS with structural changes. This would include business processes, reengineering & organizational transformation.

44 Managerial Issues Implementing SIS Can Be Risky. The investment involved in implementing Strategic Information Systems (SIS) is high. Strategic Information Systems Requires Planning. Planning for an SIS is a major concern of organizations.

45 Managerial Issues (cont.) Sustaining Competitive Advantage Is Challenging. As companies become larger and more sophisticated, they develop resources to duplicate the systems of their competitors quickly. Ethical Issues. Gaining competitive advantage through the use of IT may involve unethical or even illegal actions. Companies can use IT to monitor the activities of other companies and may invade the privacy of individuals working there.