Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Management Information Systems By Effy Oz & Andy Jones Chapter 2: Strategic Uses of Information Systems

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage 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 Explain what makes an information system a strategic information system

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Objectives (continued) Identify fundamental requirements for developing strategic information systems Explain circumstances and initiatives that make one IT strategy succeed and another fail

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Strategy and Strategic Moves Strategy: plan to gain advantage over enemy Business strategy is plan to outperform competitors –Done by creating new opportunities, not beating rivals Strategic Information System: Information system that create and seize opportunities Strategic Advantage: Using strategy to maximize company strengths

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Porter’s Five Forces Model

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Achieving a Competitive Advantage Many initiatives used to gain competitive advantage Strategies aim to maximize competitive advantage Strategic moves often consist of combination of two or more initiatives Essence of strategy is innovation

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Achieving a Competitive Advantage (continued)

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Achieving a Competitive Advantage (continued)

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Initiative 1: Reduce Costs Customers want to pay little for service Reduce costs to lower price Automation greatly reduces costs Web can automate customer service

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Initiative 2: Raise Barriers to Market Entrants Less competition is better for company Raise barriers to entrants to lower competition Techniques include obtaining copyrights and patents on inventions, techniques, and services Building unmatchable information systems blocks entrants

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Initiative 3: Establish High Switching Costs Switching costs: incurred when customer stops buying from company and starts buying from another company –Explicit: charge customer for switching –Implicit: indirect costs over period of time High switching costs locks in customers

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Initiative 4: Create New Products or Services Having unique product or service gives competitive advantage First mover: organisation that is first to offer a new product or service –Superior brand name, better technology, more experience Critical mass: body of clients that is large enough to attract other clients

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Initiative 5: Differentiate Products or Services Product differentiation: persuading customers that product is better than competitors’ –Achieved through advertising –Exemplified by brand name success –Promotes brand name

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Initiative 6: Enhance Products or Services Enhance existing products or services to increase value to consumer Many products and services have been enhanced by the Web

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Initiative 7: Establish Alliances Alliance: two companies combining services –Makes product more attractive –Reduces costs –Provides one-stop shopping Affiliate program: linking to other companies and rewarding the linker for click-throughs

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Initiative 7: Establish Alliances (continued)

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Initiative 8: Lock in Suppliers or Buyers Accomplished by achieving bargaining power Bargaining power: leverage to influence buyers and suppliers –Achieved by being major competitor or eliminating competitors –Uses purchase volume as leverage Lock in clients by creating high standards

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Creating and Maintaining Strategic Information Systems Many opportunities to accomplish competitive edge with information technology Innovative software establishes competitive advantage Strategic information systems created from scratch or modified from previous system –Must serve organisation goal –Must collaborate with other functional units of company

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Creating an SIS Strategic information system must be part of the overall organisational strategic plan Precisely measuring financial output of SIS is difficult

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Creating an SIS (continued)

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Reengineering and organisational Change To implement SIS, organisations must rethink way of operation Reengineering: Eliminating and rebuilding operations from the ground up –Involves new machinery and elimination of management layers –Achieves huge efficiency improvements New SIS requires businesses to revamp processes

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Competitive Advantage as a Moving Target Competitive advantage is often short-lived organisations imitating leader diminishes advantage SIS has become expected business practice Company must modify and enhance technology to sustain competitive advantage

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning JetBlue: A Success Story JetBlue: US airline company that entered a formerly hurting market with great success –Ticketless travel –Automation with IT –Reduced costs –Improved service

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Massive Automation JetBlue used Open Skies software to automate ticket handling –Greatly reduced travel agent fees Maintenance information system logs airplane parts and time cycles Flight planning automated with application Training management system eliminates need for paper records

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Away from Tradition JetBlue used innovative technique for routing airplanes –Take most profitable route between cities Keeping flight manuals on laptop computers allows for paperless cockpits –Saves time associated with calculating weight of plane

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Enhanced Service JetBlue offers better service –Leather seats –Real-time television –Fewest mishandled bags –Better security

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Impressive Performance Most important metric in airline industry is cost per available seat-mile –Measures how much it costs to fly a passenger one mile JetBlue has lowest or second lowest CASM –(Cost per Airline Mile Seat) –Less than 7 cents

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Late Mover Advantage Late mover: enters the market later than other competitors –Can be viewed as advantage –Implements latest available technologies –Not burdened with legacy systems JetBlue used 40% beta software

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Ford on the Web: A Failure Story Some strategic moves end up being colossal failures May fail because of lack of attention to details Unable to predict customer or business partner response Jacque Nasser, CEO of Ford: ideas failed

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning The Ideas Nasser eager to push company to Web Install devices in vehicles to enable drivers and passengers to access Web Establish Web site to market parts with auctions Push vehicle sales to Web

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Hitting the Wall Customers not interested in Web access in vehicles Other car companies learned to use online part auctioning Franchising laws do not allow car companies to bypass dealers Online sales initiative failed

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning The Retreat Ford abandoned plan to sell directly online Web site was used instead to select proper model only Site sold cars but not enough to save Nasser ’ s job

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning The Bleeding Edge Ford case shows being first mover is risky Pioneers can be burned even with careful planning Bleeding edge: failure occurring because of company trying to be on leading edge –Implementation costs are greater than anticipated –Technology ends up losing money for company

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning The Bleeding Edge (continued) Due to bleeding edge, companies wait before implementing newer technologies Microsoft’s approach is to seize existing idea, improve, and promote with marketing power –Also known as competing by emulating and improving

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Summary Some information systems have become strategic tools as a result of strategic planning Strategic information systems help companies gain strategic advantage Company achieves strategic advantage by using strategy to maximize its strength

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Summary (continued) Various initiatives to establishing advantage –Cost reduction, raising barriers to competitors, establishing high switching costs, new products, differentiating products, enhancing products, alliances, and locking suppliers Creating standards establishes strategic advantage in software industry

Use with Management Information Systems 1e By Effy Oz & Andy Jones ISBN © 2008 Cengage Learning Summary (continued) Reengineering is process of designing a business process from scratch to accommodate new information systems Strategic advances from information systems are short lived and new opportunities must always be searched for Bleeding edge is the undesirable result of a failed innovation effort