The Strategic Role of Information Systems Laudon & Laudon CH 2

M I S Dr. Ernst-Gerd vom Kolke 2 L & L 2: Kinds of Information Systems KIND OF SYSTEM GROUPS SERVED STRATEGIC LEVEL SENIOR MANAGERS MANAGEMENT LEVEL MIDDLE MANAGERS OPERATIONAL OPERATIONAL LEVEL MANAGERS KNOWLEDGE LEVEL KNOWLEDGE & DATA WORKER Sales & Manufacturing Finance Accounting Human Res. Sales & Manufacturing Finance Accounting Human Res.Marketing

M I S Dr. Ernst-Gerd vom Kolke 3 L&L 2: Kinds of Information Systems n Operational Level Systems n keep track of elementary activities and transactions of the organization n system type is called Transaction Processing Systems (TPS) n examples: hotel reservation systems, order tracking systems

M I S Dr. Ernst-Gerd vom Kolke 4 L&L 2: Kinds of Information Systems n Knowledge Level Systems n help to integrate knowledge into the business (Knowledge Work System, KWS) n help to control the flow of paperwork (Office Automation Systems, OAS) n examples: CAD Systems, word processing/ desktop publishing, document imaging systems

M I S Dr. Ernst-Gerd vom Kolke 5 L&L 2: Kinds of Information Systems n Management Level Systems n provide the management level with reports and n serve monitoring and controlling functions (MIS) n help making decisions (Decision Support Systems, DSS) n examples: report functions of Excel and Access, solver and scenario manager in Excel

M I S Dr. Ernst-Gerd vom Kolke 6 L&L 2: Kinds of Information Systems n Strategic Level Systems n serves strategic issues and long-term trends (e.g. 5-year period) (Executive Support Systems, ESS) n typical questions: n What business should we be in? n What are the competitors doing? n What will employment levels be in 5 years? n examples: ?

M I S Dr. Ernst-Gerd vom Kolke 7 L & L 2:Kinds of Information Systems Sales and Marketing Systems OPERATIONAL Assistance in locating/ contacting prospective customers, LEVEL tracking sales, processing orders, customer service KNOWLEDGE LEVEL Identifying customers and markets using data on demographics, markets, consumer behavavior and trends STRATEGIC LEVEL Monitoring of sales trends, planning new products, monitoring of competitors’ performance MANAGEMENT LEVEL Advertising and promotional campaigns, pricing decisions

M I S Dr. Ernst-Gerd vom Kolke 8 l & l 2:Kinds of Information Systems Human Resources Information Systems OPERATIONAL Track recruitment and placement of firm’s employees, LEVEL track employee training, skill, performance appraisals KNOWLEDGE LEVEL Design career paths for employees, job design and reporting relationships STRATEGIC LEVEL Planning long-term labor force needs of the organization (skills, educational level, types and number of positions, costs) MANAGEMENT LEVEL Monitor range and distribution of employee wages, salary and benefits

M I S Dr. Ernst-Gerd vom Kolke 9 n Strategic information systems n don’t focus on long-term decision making (like strategic level systems) n make use of strategic opportunities n change the way a firm conducts its business n can provide competitive advantage L&L 2: Strategic Role of Information Systems

M I S Dr. Ernst-Gerd vom Kolke 10 L&l 2: Strategic Role of Information Systems n Two models to identify strategic opportunities n competitive forces model n value chain model

M I S Dr. Ernst-Gerd vom Kolke 11 L&L 2: Competitive Forces Model n External competitive forces n new market entrants n pressure from substitute products/ services n bargaining power of suppliers and customers n positioning of industry competitors

M I S Dr. Ernst-Gerd vom Kolke 12 L&L2: Competitive Forces Model THE FIRM TRADITIONAL COMPETITION NEW MARKET ENTRANTS SUPPLIERSCUSTOMERS SUBSTITUTE PRODUCTS & SERVICES

M I S Dr. Ernst-Gerd vom Kolke 13 L&L 2: Strategies to counter competitive forces n Develop brand loyalty by product differentiation n unique new and distinguishable products n custom-tailored products n Information systems are the basis for creating these products n examples: ATM-machines, custom jeans by Levi’s

M I S Dr. Ernst-Gerd vom Kolke 14 L&L 2: Strategies to counter competitive forces n Create new market niches by focused differentiation n provide specialized products for narrow target markets in a superior way n Information systems produce data to improve sales and marketing techniques n examples: American Express relationship billing, Fingerhuts customized catalogue offers, Kraft Food’s selected coupons

M I S Dr. Ernst-Gerd vom Kolke 15 L&L 2: Strategies to counter competitive forces n Linkages to customers and suppliers n raise switching costs and reduce bargaining power for customers/ suppliers n “lock” customers into firm’s products, tie suppliers into delivery timetable and price structure

M I S Dr. Ernst-Gerd vom Kolke 16 L&L 2: Strategies to counter competitive forces n Manufacturer information systems “integrate” customer/ supplier operation n examples: Baxter Healthcare’s “stockless inventory”, GM’s just-in-time delivery

M I S Dr. Ernst-Gerd vom Kolke 17 L&L 2: Strategies to counter competitive forces n Low-cost production n produce goods and services at prices lower than competitors n Information systems optimize inventory replenishment/ orders n examples: Wal-Mart’s continuous inventory replenishment system

M I S Dr. Ernst-Gerd vom Kolke 18 L&L 2: Strategic Uses of the Internet n Product differentiation: virtual banking (Deutsche Bank, 1st. Nat. Bank Durango)Deutsche Bank1st. Nat. Bank n Focused differentiation: ? n Links to customers/ suppliers: FedEx “track system”FedEx n Low-cost producer: Avex Electronics EDI-SystemAvex Electronics

M I S Dr. Ernst-Gerd vom Kolke 19 L&L 2: Value Chain Model n Firms are chains of activities, adding value to products/ services n primary value creating activities in the production/ distribution process n secondary supporting activities n Identify the most value adding “leverage points” in a chain to enhance competitive position

M I S Dr. Ernst-Gerd vom Kolke 20 L&L 2: Value Chain Model n Information systems support the most value adding activities n example: Gilette’s “low cost, high quality”- system

M I S Dr. Ernst-Gerd vom Kolke 21 L&L 2: How Information Systems promote Quality n Producer perspective: Conformance to specs n Customer satisfaction: quality of product and service n Total quality management n quality control is an end in itself

M I S Dr. Ernst-Gerd vom Kolke 22 L&L 2: How Information Systems promote Quality n Total quality management n quality is the responsibility of all poeple in an organization n Engineers try to avoid design errors n Production workers try to spot defects n Sales people try to present the product properly n basic measures to improve quality n Simplify product/ production process (“fewer is better”) n Reduce cycle time n Establish benchmarks

M I S Dr. Ernst-Gerd vom Kolke 23 L&L 2: How Information Systems promote Quality n Mapping production and administrative processes n Analyze data (e.g. customer return transactions) n Use of Computer Aided Design (CAD) software n designing precise products, testing products n improve quality, precision