Management Information Systems, 4 th Edition 1 Chapter 2 Strategic Uses of Information Systems

Management Information Systems, 4 th Edition 2 Learning Objectives Explain what business strategy and strategic moves are Illustrate how information systems can give businesses a competitive advantage Identify basic initiatives for gaining a competitive advantage

Management Information Systems, 4 th Edition 3 Learning Objectives (Cont.) Explain what makes an information system a strategic information system Identify fundamental requirements for developing strategic information systems Explain circumstances and initiatives that make one SIS succeed and another fail

Management Information Systems, 4 th Edition 4 Strategy and Strategic Moves Strategy –A plan designed to help an organization outperform its competitors Strategic Information Systems –Information systems that help seize opportunities –Can be developed from scratch, or they can evolve from existing ISs

Management Information Systems, 4 th Edition 5 Strategy and Strategic Moves (Cont.) –Strategic advantage: Using a strategy to maximize strength –Competitive advantage: The result of the use of a strategic advantage

Management Information Systems, 4 th Edition 6 Achieving a Competitive Advantage Increase profits through increased market share Innovation results in advantage –Strategies that no one has tried before –Example: Dell using the Web to take customer orders

Management Information Systems, 4 th Edition 7 Achieving a Competitive Advantage (Cont.)

Management Information Systems, 4 th Edition 8 Achieving a Competitive Advantage (Cont.)

Management Information Systems, 4 th Edition 9 Lower costs results in lower price Bigger Market Share Implement automation to become more productive –The Web has made this possible for many Initiative #1: Reduce Costs

Management Information Systems, 4 th Edition 10 Patenting High expense of entering industry –State Street, Inc. (Pension fund management business) Initiative #2: Raise Barriers to Market Entrants

Management Information Systems, 4 th Edition 11 Explicit Switching Costs –Fixed and nonrecurring Implicit Switching Costs –Indirect costs in time and money of adjusting to a new product Initiative #3: Establish High Switching Costs

Management Information Systems, 4 th Edition 12 Lasts only until competition offers an identical or similar product or service for a comparable or lower price First Mover: Creates assets –Brand Name –Better Technology –Delivery Methods Critical Mass: body of clients that attracts other clients Initiative #4: Create New Products or Services

Management Information Systems, 4 th Edition 13 Product differentiation Brand recognition Examples of brand name success –Levi’s jeans –Chanel perfumes –Gap clothes Initiative #5: Differentiate Products or Services

Management Information Systems, 4 th Edition 14 Examples –Auto manufacturers enticing customers with a longer warranty –Real estate agents providing useful financing information to potential buyers –Charles Schwab moving stock trading services on- line before Merrill Lynch Initiative #6: Enhance Products or Services

Management Information Systems, 4 th Edition 15 Combined service may attract customers –Lower cost –Convenience Examples –Travel industry –HP and FedEx Initiative #7: Establish Alliances

Management Information Systems, 4 th Edition 16 Establishing Alliances (Cont.)

Management Information Systems, 4 th Edition 17 Bargaining Power Purchase volume Strengthen perception as a leader Create a standard Initiative #8: Lock in Suppliers or Buyers

Management Information Systems, 4 th Edition 18 Strategic Information Systems (SIS) An IS that helps achieve long-term competitive advantage SIS embodies two types of ideas: –Potentially-winning business move –How to harness IT to implement that move Two conditions for SIS: –Serve an organizational goal –Work with the managers of the other functional units

Management Information Systems, 4 th Edition 19 Creating an SIS Top management involvement –From initial consideration through development and implementation Must be a part of the overall organizational strategic plan

Management Information Systems, 4 th Edition 20 Steps for Considering a new SIS

Management Information Systems, 4 th Edition 21 Steps to Take in an SIS Idea- Generated Meeting

Management Information Systems, 4 th Edition 22 To implement an SIS and achieve a competitive advantage, organization must rethink entire operation Goal of re-engineering –Achieve efficiency leaps of 100% or higher Re-engineering and Organizational Change

Management Information Systems, 4 th Edition 23 SISs developed as strategic advantages quickly become standard business –Banking industry (ATMs and banking by phone) Continuous search for new ways of utilizing information technology to their advantage –SABRE, American Airlines’ reservation system Competitive Advantage as Moving Target

Management Information Systems, 4 th Edition 24 JetBlue: A Success Story Gained competitive advantage where others failed Proper technology and management methods Reducing costs resulting in reduced pricing Improving service

Management Information Systems, 4 th Edition 25 Massive Automation –Automation of services with software Combination reservation system and accounting system Supports customer services and sales tracking JetBlue: A Success Story (Cont.)

Management Information Systems, 4 th Edition 26 Massive Automation, continued –Electronic tickets No paper handling or expense Encourages online ticket purchases Avoids travel agents Significant savings in cost JetBlue: A Success Story (Cont.)

Management Information Systems, 4 th Edition 27 Massive Automation, continued –Maintenance information system Logs all airplane parts and time cycles Reduces manual tracking costs –Flight planning software Maximize seats occupied on a flight Reduced planning costs JetBlue: A Success Story (Cont.)

Management Information Systems, 4 th Edition 28 Massive Automation, continued –Blue Performance In-house software for tracking operational data Updated on a flight by flight basis Accessible by airline’s 2,800 employees –Managers are able to respond immediately to problems JetBlue: A Success Story (Cont.)

Management Information Systems, 4 th Edition 29 Massive Automation, continued –Wireless devices for employees Report and respond to irregular events Quick response Events recorded for future analysis –Training records stored electronically Easy to update Efficient retrieval JetBlue: A Success Story (Cont.)

Management Information Systems, 4 th Edition 30 Away from Tradition –Decision to not use the hub and spoke routing method –Paperless Cockpits –Laptops for Pilots –Harnessing IT to maintain a strategic gap JetBlue: A Success Story (Cont.)

Management Information Systems, 4 th Edition 31 Enhanced Service –Available on all flights and all class tickets Live TV through contract with DirecTV Leather Seating Excellent on-schedule arrivals and departures Fewest mishandled bags Rapid check-in time Security upgrades JetBlue: A Success Story (Cont.)

Management Information Systems, 4 th Edition 32 Impressive Performance –Maintains excellent statistics 7 cent cost per available seat-mile (CASM) 78% of seats are filled Late Mover Advantage New Technology vs. legacy systems JetBlue: A Success Story (Cont.)

Management Information Systems, 4 th Edition 33 The Ideas –Wingcast telematics Technology in vehicles to enable Web access –Business to Business: Covisint Joint venture with General Motors and DaimelerChrysler Electronic market for parts suppliers Vendor bidding for proposals from automakers Ford on the Web: A Failure Story

Management Information Systems, 4 th Edition 34 The Ideas (cont.) –Business to Consumer: FordDirect.com Sell vehicles direct to consumers via the Web Bypass dealerships Provide service while saving dealer fees ConsumerConnect –Special unit to build Web site and handle direct sales Ford on the Web: A Failure Story (Cont.)

Management Information Systems, 4 th Edition 35 Hitting the Wall –Wingcast: Failed Buyers not interested Product eliminated in June 2001 –Covisint: Successful Now includes more automakers Ford on the Web: A Failure Story (Cont.)

Management Information Systems, 4 th Edition 36 Hitting the Wall –FordDirect.com: Failed Not a result of faulty technology Ford failed to consider state laws and dealership relationships Dealership relationship was still needed for purchases not on the Web Ford on the Web: A Failure Story (Cont.)

Management Information Systems, 4 th Edition 37 The Retreat –ConsumerConnect disbanded –FordDirect.com used by dealerships now Sells used cars –Price tag for failure: $1 billion –FordDirect.com today results in 10,000 sales transactions a month Ford on the Web: A Failure Story (Cont.)

Management Information Systems, 4 th Edition 38 Success and Failure on the Web Being first is not enough for success Business ideas must be sound –An organization must carefully define what buyers want –Establishing a recognizable brand name is important but does not guarantee success; satisfying needs is more important

Management Information Systems, 4 th Edition 39 The Bleeding Edge Business owners must develop new features to keep the system on the leading edge Adopting a new technology involves great risk –No experience from which to learn –No guarantee new technology will work or customers and employees will welcome it

Management Information Systems, 4 th Edition 40 The Bleeding Edge (Cont.) The bleeding edge: failure in an organization’s effort to be on the technological leading edge Allow competitors to assume the risk –Risk losing initial rewards –Can quickly adopt and even improve pioneer organization’s successful technology

Management Information Systems, 4 th Edition 41 Summary Business strategy and strategic moves can give an organization an advantage Basic initiatives for gaining a competitive advantage Strategic information systems require fundamental elements Circumstances and initiatives that make one SIS succeed and another fail