1. Information Systems Investment & Strategic Advantage
Chapter 4
Information Systems Investment & Strategic Advantage
“The most important discoveries of the next 50 years are likely to be ones of which we cannot now even conceive.”
Sir John Maddox, 1999
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

2. Learning Objectives
Discuss how organizations can use information systems for automation, organizational learning, and strategic advantage.
Describe how to formulate and present the business case for an information system.
Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage.
Describe freeconomics and how organizations can leverage digital technologies to provide free goods and services to customers as a business strategy for gaining a competitive advantage.
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

3. Valuing Information Systems
Information systems can have strategic value to an organization
Information systems can be used in three ways to add value to an organization:
Automating
Informating
Strategizing
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

4. IS for Automating: Doing Things Faster
With automation, tasks can be completed:
Faster
Cheaper
More accurately
With greater consistency
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

5. Automating: Example
Loan processing comparison for 3 methods (from the moment the customer takes the application until the applicant is notified of decision)
Manual loan process—25 to 40 days
Technology-supported process—5 to 20 days
Fully automated process—1 hour to 15 days
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

6. IS for Organizational Learning: Doing Things Better
Information systems can also be used to:
Learn about processes
Improve processes
Support organizational learning
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

7. Informating: Example
Computer-based loan system identifies peak times during the year when specific loans are processed
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

8. IS for Supporting Strategy: Doing Things Smarter
IS used to gain or sustain competitive advantage
Turning benefits of automating and informating into strategic advantage
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

9. Strategizing: Five Types of Organizational Strategies
Organizational strategies define the way in which a company plans to gain/sustain competitive advantage
Source: Courtesy A. A. Thompson and A. J. Strickland III, Strategic Management: Concepts and Cases, 8th ed. (Homewood, III.: Richard D. Irwin, 1995).
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

10. Overall Low Cost Leadership Strategy
Offer best prices in the industry or product/service category
Broad focus
Wal-Mart
Source: Courtesy A. A. Thompson and A. J. Strickland III, Strategic Management: Concepts and Cases, 8th ed. (Homewood, III.: Richard D. Irwin, 1995).
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

11. Broad Differentiation Strategy
Offer better products/services than competitors
Broad Focus
Nordstrom
Source: Courtesy A. A. Thompson and A. J. Strickland III, Strategic Management: Concepts and Cases, 8th ed. (Homewood, III.: Richard D. Irwin, 1995).
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

12. Focused Low-Cost Strategy
Offer best prices in the industry or product/service in specific category
Focus on niche
Dell
Source: Courtesy A. A. Thompson and A. J. Strickland III, Strategic Management: Concepts and Cases, 8th ed. (Homewood, III.: Richard D. Irwin, 1995).
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

13. Focused Differentiation Strategy
Offer better products/services than competitors
Focus on niche
Apple
High-quality computers
Home and educational markets
Source: Courtesy A. A. Thompson and A. J. Strickland III, Strategic Management: Concepts and Cases, 8th ed. (Homewood, III.: Richard D. Irwin, 1995).
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

14. Best-Cost Provider Strategy
Provide products of reasonably good quality at competitive prices
Target
Source: Courtesy A. A. Thompson and A. J. Strickland III, Strategic Management: Concepts and Cases, 8th ed. (Homewood, III.: Richard D. Irwin, 1995).
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

15. Sources of Competitive Advantage
Best-made product on the market
Superior customer service
Achieving lower costs than rivals
Having proprietary manufacturing technology
Having shorter lead times in research and development projects
Having a well-known brand name and reputation
Giving customers more value for their money
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

16. Competitive Advantage
Manager use value chain Analysis to identify opportunities to use information systems for competitive advantage?
Look at organization as big input/output process
Porter’s Value Chain
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

17. Value Chain Analysis
Tool used by managers to identify opportunities for gaining competitive advantage
Analyzing an organization activities to determine where value added to product & cost incurred
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

18. IS and Value Chain Analysis
Information systems use in adding value:
Use of Internet
Use of Extranet/Intranet
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

19. Learning Objectives
1. Discuss how organizations can use information systems for automation, organizational learning, and strategic advantage.
2. Describe how to formulate and present the business case for an information system.
3. Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage.
4. Describe freeconomics and how organizations can leverage digital technologies to provide free goods and services to customers as a business strategy for gaining a competitive advantage.
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

20. Making the Business Case for an IS
What Dose Making the Business Case for an IS Mean?
Making the Business Case for an IS
Identification of benefits that the proposed information system will bring to the organization
Automating benefits
Informating benefits Lawyers defense
Strategic benefits
People ask for justification, quantifying why they should spend on IS
Presenting the value provided by IS
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

21. Productivity Gains Easy to identify costs with developing an IS
Difficult to identify productivity gains
There are limitation to productivity gains with development of an IS
Why hasn’t productivity increased at the rate of IS investments?
IS may have increased productivity, but other forces simultaneously may work to reduce it
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

22. The Productivity Paradox
Information systems may be used in unintended ways, employees spending time on
Web surfing
Junk mail
Games
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

23. Measurement Problems IS Benefits difficult to quantify Example: ATM
Wrong things measured
efficiency vs. effectiveness
Example: ATM
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

24. Time Lags
Benefits do not always occur at the same time IS is implemented
Some IS/IT implementation requires people to gain experience
System must be integrated with existing systems
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

25. Redistribution
IS may be beneficial for individual firms but not for a particular industry
IS may redistribute the pieces of the pie rather than make the pie bigger
Increases in market share come at the expense of the competitors’ market share
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

26. Mismanagement
Bad business model cannot be overcome by good information system
IS implementation poorly, or as a temporary fix
Creation of unanticipated bottlenecks
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

27. Making a Successful Business Case
Difficult to quantify benefits of IS
Money doesn’t grow on trees
Need to make a strong business case & managers arguments are
Based on: (3Fs)
Faith
Fear
Facts
Fiction
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

28. Arguments Based on Faith
Arguments based on beliefs about:
Organizational strategy
Competitive advantage
Industry forces
Customer perceptions
Example: Procter & Gamble
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

29. Arguments Based on Fear
Arguments based on the notion that if system is not implemented:
Company loses to a competitor
Goes out of business
Example: Automotive industry
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

30. Factors in IS Investment Decisions
Often considered when presenting arguments based on fear
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

31. Porter’s Five Forces Model
Framework used to analyze competition within an industry
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

32. Arguments Based on Fact
Data
Quantitative analysis
Indisputable factors
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

33. Arguments Based on Fact (cont’d)
Primary tools:
Cost-benefit analysis
Identify costs
Identify benefits
Contrast expected costs and benefits
Weighted multicriteria analysis
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

34. Cost-Benefit Analysis
Identifying costs
Total cost of ownership (TCO)
Cost of acquisition
Cost of use
Cost of maintenance
Recurring vs. nonrecurring costs
Tangible vs. intangible costs
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

35. Cost-Benefit Analysis (cont’d)
Identifying Benefits
Tangible benefits
5 percent increase in sales
Reduction of order entry errors
Intangible benefits
Improvement to customer service
Improvement in overall perception of a firm
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

36. Cost-Benefit Analysis (cont’d)
Contrasts total expected tangible costs with total tangible benefits
Break-even analysis—identifies the point when tangible costs equal tangible benefits
Net-present-value analysis—identifies the present value of future cash flows
Comparing computing investment
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

37. Comparing computing investment
Weighted Multicriteria Analysis
Method used for deciding between alternative IS investments or alternatives of the same system
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

38. Presenting the Business Case
Persuade decision makers in the firm
Know the audience
Identify stakeholder groups
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

39. Presenting the Business Case (cont’d)
Convert benefits to monetary terms
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

40. Presenting the Business Case (cont’d)
Devise proxy variables
Used when clear-cut assessment is not possible
Measures of perceived value of change to the organization
Measure what is important to management
Case becomes more meaningful
Focus on senior management’s “hot button” issues
Hot issues for the senior managers could be the cycle time (how long it takes to process an order), customer feedback…etc
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

41. Assessing Value for IS Infrastructure
Howard Rubin, president of Meta group argued that , when assessing IS value
Present holistic view
Economic value (contribution)
Architectural value (ability to extend infrastructure)
Operational value (measure the cost of not investing)
Regulatory and compliance value (measure the impact)
View IS as asset rather than necessary expense
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

42. Learning Objectives
1. Discuss how organizations can use information systems for automation, organizational learning, and strategic advantage.
2. Describe how to formulate and present the business case for an information system.
3. Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage.
4. Describe freeconomics and how organizations can leverage digital technologies to provide free goods and services to customers as a business strategy for gaining a competitive advantage.
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

43. Valuing Innovations
Which new technology will make or break your business?
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

44. Successful Innovation Is Difficult
Innovation is often fleeting
The advantages gained from innovations are often short lived
Innovation is often risky
Sometimes even superior products can lose the race
Blu-ray vs. HD DVD
Innovation choices are often difficult
Foreseeing the future is not always possible
In 1994 the Internet was not given much attention
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

45. Organizational Requirements for Innovation
Competitive environments require that organizations must remain at the cutting edge their use of IS
Process requirements—the organization has to be willing to do whatever it takes to implement the change
Resource requirements—need to have the human capital necessary for successful deployment of the system
Risk tolerance requirements—organizational members must have appropriate tolerance of risk and uncertainty
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

46. Predicting the Next New Thing
Deciding which innovations to adopt is very difficult
Diffusion of Innovations
Classic view of adoption of innovations
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

47. The Innovator’s Dilemma
Disruptive innovations
New technologies, products, or services that eventually surpass dominant technologies
Online vs. brick-and-mortar retailing
Automobiles vs. horses
CDs vs. records
MP3 vs. CDs
Undermine effective management practices
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

48. Disruptive Innovations
1970s: mid- and high-performance users were bulk of the market
Digital Equipment Company (DEC) tried to sell to those markets
Microcomputers seen as “toys”
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

49. Disruptive Innovations (cont’d)
1980s: Microcomputers focusing on low-performance users’ needs
Ignored by DEC
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

50. Disruptive Innovations (cont’d)
1990s: Growing performance of Microcomputers, meeting mid-performance users’ needs
DEC lost biggest market segment
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

51. Disruptive Innovations (cont’d)
Today, micro-computers meeting entire market’s needs
DEC out of business
Next disruptive innovation: 3G and 4G mobile phones?
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

52. The Innovator’s Solution
Christensen outlines a process—disruptive growth engine—that helps organizations respond to disruptive innovations more effectively
Start early
Executive leadership
Build a team of expert innovators
Educate the organization
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

53. Implementing the Innovation Process
E-Business Innovation Cycle
The model holds that the key to success is the extent of IS use in timely and innovative ways
Based on: Wheeler (2002)
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

54. E-Business Innovation Cycle
Choosing Enabling/Emerging Technologies
Organization first jobs, groups and Process that all devoted to looking for emerging IT
Based on: Wheeler (2002)
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

55. E-Business Innovation Cycle (cont’d)
Matching Technologies to Opportunities
Most promising new technology matched with current economic opportunities
Based on: Wheeler (2002)
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

56. E-Business Innovation Cycle (cont’d)
Executing Business Innovation for Growth
Stage at which the change is actually implemented
Based on: Wheeler (2002)
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

57. E-Business Innovation Cycle (cont’d)
Assessing Value
Value created for customers and internal operations assessed
Based on: Wheeler (2002)
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

58. Three Ways to Think About Investments in Disruptive Innovations
Put technology ahead of strategy
Technology is so important to success it needs to be considered first.
Strategy is developed afterwards.
Put technology ahead of marketing
Rapid development of technology makes it impossible for people to know what they want.
Innovation is continuous
New technologies are constantly being developed.
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

59. Learning Objectives
1. Discuss how organizations can use information systems for automation, organizational learning, and strategic advantage.
2. Describe how to formulate and present the business case for an information system.
3. Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage.
4. Describe freeconomics and how organizations can leverage digital technologies to provide free goods and services to customers as a business strategy for gaining a competitive advantage.
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

60. Freeconomics
FREECONOMICS—The leveraging of digital technologies to provide free goods and services to customers as a business strategy for gaining competitive advantage
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

61. How Does Freeconomics Work (for Yahoo!)
From Yahoo! free service
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

62. The Freeconomic Value Proposition
What a business provides to a customer and what that customer is willing to pay for that product or service
A broad ecosystem of many participants
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

63. Approaches for Applying Freeconomics
Advertising
Freemium
Cross-Subsidies
Zero Marginal Cost
Labor Exchange
Gift Economy
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

64. End of Chapter Content
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

65. Opening Case: Managing in the Digital World: TiVo
Unprecedented control over television viewing
Automatic recording of favorite shows
Scheduling using the Web
Pause a show and resume it later
Search by actors or a type of a show
View photos on your TV
Burn DVDs
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

66. The IT Department Often Knows
Strategies to grapple with ethical decisions
IT equipment and data use policy
Whistle-blower provision
Report violations, then let company handle it
IT professionals should develop “Code of Ethics”
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

67. Rootkits: Sony’s Secret
Sony BMG Music Entertainment was using “rootkit” to copyright protect CDs
Rootkit was installed on users’ hard drives without their knowledge
Left computers vulnerable to malicious intruders—Trojan horses used
Rootkit was discontinued and uninstall instructions were given to affected customers
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

68. Microsoft’s Bill Gates and Paul Allen
Both dropped out of college to run Micro-Soft in 1975
Partnership with IBM to install MS-DOS on all PCs set the stage
Gates’ worth—$58 Billion
Allen’s worth—$16.8 Billion
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

69. Who Is Sharing Files? Active consumers Informed about current events
Accustomed to on-demand lifestyle
Informed about current events
Internet is primary source
Conversations focused on tech gadgets, car accessories, home theater setups
Many were Mac users
Gamers
Frustrated with music and entertainment industries for punishing them
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

70. For Sale by Owner: Your Company’s Name.com
Domainers—buy and sell domain names
2006—$9 billion business
2009—projected to be worth $23 billion
Ad space renting
Domainer registers URL such as Amazon.com
Webpage with advertisements is displayed
Search engine owner pays money to the domainer for each click on an ad
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

71. What Were You Thinking? Brain Sensor Research for Market Research
EmSense
EEG sensor headset
Data on EEG, monitors breathing and heart rate, head motion, blink rate, and skin temperature. Moreover, the company has also devised algorithms that translate physiological data from the sensors into information about emotions that marketers can use.
Game designers can tell when players are involved or bored
Scientists argue that EEG is not as reliable as MRI
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World

72. Photo Industry
In only four years ( ) photography moved from film to digital
Canon, Konica Minolta no longer make film models
Nikon makes two film models:
One for professional photographers
One for beginners
Business models changed rapidly
Digital technology was a disruptive innovation for the photo industry
Dr. Ali Zolait - Information Systems Today: Managing in the Digital World