1. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 1 Chapter 2 Strategic Uses of Information Systems

2. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 2 Learning Objectives When you finish this chapter, you will: –Understand business strategy and strategic moves. –Recognize how information systems can give business a competitive advantage. –Understand basic initiatives for gaining a competitive advantage.

3. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 3 Learning Objectives –Know what makes an information system a strategic information system. –Understand the fundamental requirements for developing strategic information systems. –Recognize circumstances and initiatives that make one SIS succeed and another fail.

4. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 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.

5. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 5 Achieving a Competitive Advantage Profits increase significantly through increased market share. The essence of strategy is innovation, so competitive advantage often occurs when an organization tries a strategy that no one has tried before. Dell was the first PC manufacturer to use the Web to take customer orders.

6. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 6 Achieving a Competitive Advantage Figure 2.1 Eight basic ways to gain advantage

7. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 7 Achieving a Competitive Advantage Figure 2.2 Many strategic moves can work together to achieve a competitive advantage

8. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 8 Achieving a Competitive Advantage Initiative #1: Reduce Costs –Lower Costs –Lower Price –Bigger Market Share

9. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 9 Achieving a Competitive Advantage Initiative #2: Raise Barriers to Entrants –Patenting and Copyrights of proprietary software –High expense of entering industry State Street, Inc. (Pension fund management business) invested huge amount of capital on developing an IS for Pension fund management, thereby making it difficult for new entrants in this business area. Similar organizations start to rent services from the new IS of State Street, Inc.

10. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 10 Achieving a Competitive Advantage Initiative #3: Establish High Switching Costs –Explicit Switching Costs Fixed and nonrecurring –Implicit Switching Costs Indirect costs in time and money of adjusting to a new product –Good example is an ERP system such as SAP or Oracle ERP

11. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 11 Achieving a Competitive Advantage Initiative #4: Create New Products and Services –Dynamic The advantage lasts only until other organizations in the industry start offering an identical or similar product or service for a comparable or lower price. Businesses have to improve services to retain competitive advantages (FedEx has add tracking IS to it postal services to regain competitive advantage)

12. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 12 Achieving a Competitive Advantage Initiative #5: Differentiate Products and Services –Product differentiation – usually achieved through advertising Brand recognition –Examples of brand name success »Levi’s jeans »Chanel perfumes »Calvin Klein clothing –The Internet as a business tool used businesses to add more services to existing offerings to make its businesses more recognized by customers. Amazon.com is a good example.

13. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 13 Achieving a Competitive Advantage Initiative #6: Enhance Products and Services –Instead of differentiating a product or service, add to it in order to enhance its value 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

14. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 14 Achieving a Competitive Advantage Initiative #7: Establish Alliances –Combined service may attract customers Lower cost Convenience –Examples Travel industry HP and FedEx

15. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 15 Achieving a Competitive Advantage Figure 2.3 Strategic alliances combine services to create synergies

16. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 16 Achieving a Competitive Advantage Initiative #8: Lock in Suppliers or Buyers –Bargaining Power –Purchase volume –Create a standard

17. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 17 Strategic Information as a Competitive Weapon Strategic Information Systems (SIS) –Any IS that can help an organization achieve a 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 IS must be serving an organizational goal IS unit must be working with the managers of the other functional units

18. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 18 Strategic Information as a Competitive Weapon Creating an SIS –Top management must be involved from initial consideration through development and implementation. –SIS must be a part of the overall organizational strategic plan.

19. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 19 Strategic Information as a Competitive Weapon Figure 2.4 Steps for considering a new SIS

20. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 20 Strategic Information as a Competitive Weapon Figure 2.5 Steps to take in an SIS idea-generating meeting

21. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 21 Strategic Information as a Competitive Weapon Re-engineering and Organizational Change –To implement an SIS and achieve a competitive advantage, organization must rethink the entire way in which it operates. –Goal of re-engineering is to achieve efficiency leaps of 100 percent or even higher.

22. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 22 Strategic Information as a Competitive Weapon Competitive Advantage as Moving Target –SISs developed as strategic advantages quickly become standard business. Banking industry (ATMs and banking by phone) –Companies must continuously contemplate new ways of utilizing information technology to their advantage. SABRE, American Airlines’ reservation system

23. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 23 Strategic Information as a Competitive Weapon Sources of Strategic Information Systems –Existing System –New Service –New Technology –Excess Information –Vertical Information

24. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 24 Strategic Information as a Competitive Weapon –From Automation to SIS An organization can gain a competitive advantage through automation of a manual process. American Hospital Supply automated manual orders and improved services, resulting in a seventeen percent (17%) compound annual growth rate in sales.

25. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 25 Strategic Information as a Competitive Weapon –SIS from a New Service A company may gain competitive advantage by providing a new service using IT. Merrill Lynch was the first to use IT to provide a cash- on-demand service for their investors and captured a lion’s share of the market.

26. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 26 Strategic Information as a Competitive Weapon –SIS from New Technology Often, technology involved in an SIS has been around for some time –Just waiting to be sued strategically Sometimes, new technology sparks major change in the way a firm does business A company that figures out how to use a new technology can gain a competitive advantage.

27. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 27 Strategic Information as a Competitive Weapon –SISs from Excess Information An organization can gain an advantage by putting excess information toward a new product or service. A company can look for strategic use of its information –What information do we have that another company could use? –What information do we have that could be used to start a new business? –Can we produce information to assist in creation of new products or services for ourselves to other companies?

28. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 28 Strategic Information as a Competitive Weapon –SISs from Vertical Information Organizations use ISs to augment their businesses vertically by offering related services. Realtors offer financing and relocation information in addition to information about houses for sale.

29. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 29 Acumax Plus: An SIS Success –Good SIS ideas must be carefully executed if a company is to seize opportunities. McKesson Drugs, Inc., automated its operations and gained a competitive advantage. –Enhanced existing services –Provided new services –Cut costs –Created high switching costs for clients

30. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 30 Acumax Plus: An SIS Success Improving Existing Services –McKesson devised a new information system to automate order entry and order processing Implementation of a wearable computer and scanner called Acumax to automate collection and fulfillment of orders Business Process Redesign –Acumax and its successor, Acumax Plus, contributed to significant cost cutting and increased market share at McKesson Corporation.

31. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 31 Acumax Plus: An SIS Success Providing New Services –McKesson delivers about ninety-three percent of its over-the-counter items and ninety-nine percent of prescribed drugs the next day. This creates an almost just-in-time supply cycle. –McKesson succeeded in forming an alliance with drugstores, thereby helping drugstores save time

32. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 32 Mortgagepower Plus: An SIS Failure Identifying the Competitive Advantage –Citicorp had all the ingredients necessary for successful implementation of new ideas using IT –In 1987 a great new idea was conceived: a 15- minute mortgage approval process Equivalent to a 10-minute oil change or one-hour photo processing.

33. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 33 Mortgagepower Plus: An SIS Failure The SIS Plan –Citicorp removed the requirement for mortgage insurance Did not compensate by increasing its reserve for potential losses –Low-document and non-document loans Checked borrowers’ credit reports and abridged employment histories but not their assets or incomes –At worst, the executives believed, the bank could profit by selling a foreclosed house and recoup the loan

34. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 34 Mortgagepower Plus: An SIS Failure How the SIS Failed –Failed strategically due to unwise business shortcuts. –Failed operationally due to poor technical implementation. Losing Ground –Mortgagepower Plus rejected seventy percent of all applicants (twice the bank’s normal rate of thirty-five percent) –Citicorp’s management reduced size of mortgage unit and removed its responsibility for originating loans for later sale

35. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 35 Success and Failure on the Web Just being first on the Web is not enough to be successful; 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. To succeed, Web business must offer a new product or service others are willing to pay for.

36. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 36 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 technology will work or customers and employees will welcome it

37. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 37 The Bleeding Edge The bleeding edge: failure in an organization’s effort to be on the technological leading edge. Some organizations let competitors assume the risk associated with being on the leading edge. –Risk losing initial rewards. –Can quickly adopt and even improve pioneer organization’s successful technology.

38. BZUPAGES.COM Management Information Systems, 3 rd Edition Effy Oz 38 Ethical and Societal Issues The Power of Information At what point is a successful strategy considered as a predatory, unfair business practice? –Court cases against Microsoft have focused on questions such as these.