MANAGING INFORMATION SYSTEMS FOR STRATEGIC ADVANTAGE

LEARNING GOALS  Describe the various approaches to devising corporate strategy.  Explain how information systems can help organizations achieve a strategic advantage.  Describe the methods organizations use to choose a strategic information systems project.  Describe how information systems can bring about corporate change.  Explain the concept of knowledge management and describe the technologies that comprise knowledge management systems.

Value Chain  Value chain – activities within an organization that bring products and services to market Primary activities – take raw materials and transform it into something of greater value  Inbound logistics Marketing and sales  Operations Service  Outbound logistics Supporting activities – those functions that the company requires to do business but do not directly add value to a product or service  HR Procurement  IT Firm infrastructure

Value Chain Analysis  Process of analyzing the activities within an organization’s value chain  Companies gain strategic value by focusing on a particular portion of the value chain  IT can help reduce the costs of these processes, thus increasing profit margins

Porter’s Competitive Forces Model  Unlike the value chain, the Competitive Forces Model deals with external factors  Five components Level of competition in industry Threat of new entrants into industry Bargaining power of customers Bargaining power of suppliers Threat of substitute products  Uses for CFM Determine position within industry Analyze industries and market segments they might wish to enter (exit)

Competitive Advantage (CA)  Those qualities that allow a company to earn above-average profits within an industry Low cost Unique product  Three generic strategies to achieve competitive advantage Cost leadership strategy Differentiation strategy Focus strategy

Information Systems for Strategic Advantage  How can information systems improve the value chain? By reducing the cost of primary and support activities  How can information systems change the way an organization reacts to its competitive forces? By changing the bargain power of suppliers By building closer ties with customers By increasing or decreasing barriers to entry in a market By serving as the basis for new products and/or services

Sustainable Competitive Advantage  Four approaches lead to sustainable competitive advantage Create barriers to entry through patents, monopoly, or technical expertise Be the first to develop systems with high switching costs Develop the technologies that change the underlying nature of the industry Cultivate and hire people with excellent information systems management skills

Productivity Paradox  “We see computers everywhere, but in the productivity statistics.” Robert Solow, Nobel Prize-winning economist  It is difficult to attribute cost savings directly to a specific information system  It is difficult to prove that a specific system led to certain financial outcomes  Other measures are needed Balanced scorecard Total cost of ownership (TCO)

The Balanced Scorecard  Strategic planning method that translates business strategy into a comprehensive set of performance measures  Investigates strategies in four areas Financial – e.g. improving cash flow and reducing expenses Internal business processes – e.g. decreased cycle time and improved quality Learning and growth – e.g. develop successful new products Customer – e.g. improve customer satisfaction and decrease product defects

Value of Information Systems  Cost must NOT outweigh benefits  Return on investment (ROI) ROI = (Benefits – Costs) *100 / Costs Costs include – Benefits include  Hardware Tangible benefits  Software Intangible benefits  Labor  Total cost of ownership (TCO) Method to quantify long-term direct and indirect costs

TCO Analysis for PDA Purchase

The IS Portfolio  Treat investments in IS assets like a portfolio of investment assets to find redundancies and achieve balance  Five steps Put information about all the organization’s IS projects into a database Prioritize the IS projects Divide the IS projects into three types of investments  Infrastructure  Upgrades  Strategic initiatives Automate the entire process Have the organization’s top finance executive perform a Modern Portfolio Theory analysis

Sample IS Portfolio

Business Process Improvement and Reengineering  BPI – processes are good but can be better  BPR – elimination or change of business processes “ The fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance such as cost, quality, service, and speed. ” Hammer and Champy, 1993  Automation (e.g information systems) is a key factor in both BPI and BPR

Major Themes of Successful BPR  Several jobs are combined into one.  Workers are empowered to make decisions.  Work is performed where it makes the most sense.  Checks and controls are reduced or eliminated.  Reconciliation is minimized.

Steps in BPR  Have a clear strategy that is aligned with the organization’s goals  Clearly defined scope that identifies exactly which processes need to be reengineered and which supporting processes need to be revised  Define measures and benchmarks for success  Develop an understanding of the current, as- is processes  Develop a plan for transition from the as-is processes to the to-be processes  Implement the changed processes  Measure the outcomes of the changes

Knowledge Management (KM)  Knowledge assets – the knowledge that exists within the minds of each employee and the knowledge that exists in a tangible form such as databases, documents, and reports  Companies must know how to manage this knowledge  Knowledge management (KM) – the process by which organizations extract value from their knowledge assets

KM Systems  Information technologies that enable the exchange of knowledge among employees and the storage of knowledge in repositories  Types of KM systems Expert directories Knowledge repositories Knowledge sharing technologies Knowledge representation technologies Knowledge discovery tools

Knowledge Portals  A single access point to the knowledge of an organization  Provides Web-based access to all of the KM technologies within an organization