Strategic IS for Competitive Advantage Dr Sherif Kamel Department of Management School of Business, Economics and Communication

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Outline  Strategic information systems  Strategic management and the role of IT  Competitive intelligence  Porter’s competitive model  The value system  Web-based strategic information systems  Cases  SIS implementation  Managerial issues  Lessons learnt

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Strategic Information Systems (SIS)

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Elements of Strategic Management  Long Range Planning  Response Management  Proactive Innovation o Information Technology

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Role of Information Technology  IT creates applications that provide strategic advantages to companies  IT is a competitive weapon  IT supports strategic change (re-engineering)  IT networks with business partners  IT provides cost reduction  IT provides competitive business intelligence

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Competitive Intelligence The Internet is central to supporting competitive intelligence Activities drive business performance by Increasing market knowledge Improving internal relationships Raising the quality of strategic planning Many companies monitor the activities of competitors

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe 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 and sustainable position against the forces that determine industry competition

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Porter’s Competitive Model  Threat of entry of new competitors  Bargaining power of suppliers  Bargaining power of customers (buyers)  Threat of substitute products or services  Rivalry among existing firms in the industry

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Response Strategies FOCUS Selecting a niche market and achieving cost leadership and/or differentiation DIFFERENTATION Being unique in the industry COST LEADERSHIP Providing products and/or services at the lowest cost in the industry

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Response Strategies INNOVATION Developing new products and 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 and provide opportunities for growth CRM Customer-oriented approaches, e.g. the customer is king (queen)

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Case: Daimler Chrysler  Problem o In 1999, the company lost 2.6 Billion US dollars o Chrysler’s program with part suppliers was failing  Solution o Suppliers began using Lotus notes o Measurement reports to static HTML web pages o eProcurement exchange online  Results o Chrysler saves billions

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Value System  A firm’s value chain is part of a larger stream of activities, which Porter calls a Value System o Includes the suppliers that provide the necessary inputs and their value chains o Applies to both products and services, for any organization, public or private o Is the basis for the Supply Chain Management (SCM)

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Case: Frito Lay uses IT and the Value Chain  World’s largest snack food producer and owner of Pepsi products  SIS System o Integrates marketing, sales, manufacturing, logistics, finance o Provides managers with information about suppliers, customers and competitors o Enables employees to access valuable information  Frito Lay’s use of IT allows for an optimal functioning of the value chain

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Value Chain Model  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

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Web-based Strategic Information Systems  Many of the SIS of the 70s and 90s were based on privately owned networks, or organizational information systems (OIS)  EDI-based systems are of key importance  SIS are changing the nature of competition

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Case: Mobile Oil Moves to Web-based System  Problem o Largest marketer of lubricants in the USA o In 1995, introduced EDI system ­ Used to place orders, submit invoices and exchange business documents ­ It was too expensive, too complex to use  Solution o In 1997, moved to web-based extranet-supported B2B system  Results o Reduced transaction cost from $45/order to $1.25 o Fewer shortages, better customer service o Decline in distributor administration costs

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Examples of EDI/Internet-based SIS (for individual companies)  Electronic Auctions  Electronic Biddings  Buyer-Driven Commerce  Single Company Exchange  Direct Sales (for group 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

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Who is using SIS?  Otis Elevator o Centralized call center, self diagnosing elevators’ malfunctions and maintenance analysis  American Airlines o Computerized reservation system (SABRE)

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Case: Port of Singapore  Problem o Port of Singapore, the world’s largest international port, faced increased global competition  Solution o Implementation of Intelligent Systems  Results o Reduction in Cycle Time ­ 4 hours versus hours in neighboring ports o Reduction in uploading/ loading time ­ 30 sec. versus 4-5 min./ truck in neighboring ports

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Case: Volvo Speed Cars  Problem o In comparison to global competitors, Volvo’s cars were too expensive, with a slow delivery time  Solution o Creation of global ISDN-based network  Result o Reduction in delivery time from weeks to weeks for customized cars o Reduction in cost of doing business, along with the price of the car

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe SIS implementation  Justification o Justifying SIS may be difficult due to the intengible nature of their benefits  Risks and failures o The magnitude, complexity, continuous changes in technology and business environment may result in failures  Finding appropriate SIS o Identifying appropriate SIS is not a simple task

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Sustaining SIS and strategic advantage  A Major problem that companies face is how to sustain their SIS competitive advantage  3 Major approaches… o Create systems which are not visible to competitors o Provide a comprehensive, innovative and expensive system that is difficult to duplicate o Combine SIS with structural changes including business processes, reengineering and organizational transformation

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Managerial Issues  Implementing SIS can be risky o Investment involved in implementing strategic information systems (SIS) is high  Strategic information systems requires planning o Planning for an SIS is a major concern of organizations  Sustaining competitive advantage is Challenging o As companies become larger and more sophisticated, they develop resources to duplicate the systems of their competitors quickly  Ethical issues o Gaining competitive advantage through the use of IT may involve unethical or even illegal actions o Companies can use IT to monitor the activities of other companies and may invade the privacy of individuals working there

Copyright © 2005 Sherif Kamel Copyright © 2002 Turban, McLean and Wetherbe Lessons Learnt  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