1. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 1 CHAPER 13 STRATEGIC INFORMATION SYSTEMS AND REORGANIZAITON

2. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 2 Learning Objectives  Describe strategic information systems and explain their advantages  Describe Porter’s competitive forces model and how IT helps improve competitiveness  Describe representative strategic information systems and the advantage they provide with the support of IT  Understand the role of business processes in organizations and the reasons why reengineering is necessary  Demonstrate the role of IT in supporting BPR and especially mass customization, cycle time reduction, self- directed teams, and empowerment  Describe virtual corporations and their IT support

3. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 3 Chapter Overview Strategic Advantage and Information Technology Strategic Information Systems The Role of IT in Strategic Systems Competitive Intelligence Porter’s Competitive Forces Model and IT Porter’s Model Response strategies How the Model is Used Illustrative Strategic Information Systems Sustaining a Competitive Advantages A Framework for Global Competition Ineffective Organizations in the information Age The Need for a Fundamental Change The Need for Integration Business Process Reengineering Principles of BPR The Enabling Role of Informative Technology Major Reengineering Activities Restructuring Entire Organizations Ethical and Social Issues Virtual Corporations and IT Characteristics of Virtual Corporations How IT Supports Virtual Corporations

4. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 4  The Problem Case: Dell’s Reengineering Efforts Supported by Strategic Information Systems made IT World’s Champion  As a result of price war with Compaq, it had a loss from inventory write downs  The Solution  IT-supported innovations  emergence of electronic commerce  The Results  its stock price zoomed more than 2000 percent  increases its market share and profitability simultaneously consistently  be considered to be one of the most well managed and profitable corporations in the world by the 21 st century

5. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 5  What have we learned from this case?? Case (continued…)  competition on price, quality, speed, and customer service can be very intense, especially when large corporations are involved  providing quality products at a low prices is necessary, but may not be sufficient  using conventional strategies may not be sufficient  fundamental change may be the only way to succeed, or even to survive  using IT, a company can gain a significant competitive advantage

6. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 6 Strategic Advantage and Information Technology  Strategic Information Systems (SISs)  support or shape an organization’s competitive strategy  outward: aiming at direct competition in an industry  inwardly: they are focused on enhancing the competitive position of the firm by increasing employee’s productivity, improving teamwork, and enhancing communication  strategic alliances: two or more companies share an inter-organizational system  strategic systems: one of the organization’s critical responses to business pressures

7. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 7 Strategic Advantage and Information Technology (continued …)  The Role of Information Technology  IT creates applications that provide direct strategic advantage to organizations  IT supports strategic changes such as reengineering  IT provides for technological innovations or acts as an enabler of innovation  IT provides competitive intelligence by collecting and analyzing information about innovations, markets, competitors, and environmental changes  Competitive Intelligence (Industrial espionage)  drives business performance by increasing market knowledge, improving internal relationships, and raising the quality of strategic planning

8. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 8 Competitive Intelligence on the Internet Intelligence Search StrategyDescription Review competitor’s Web sites Reveal information about marketing information Analyze related newsgroups Find out what people think about a company and its products Examine publicly available financial documents By entering a number of databases and analyze findings Do market research at your own Web site Pose questions to Web site visitors Use an information delivery service to gather news on competitors Find what is published on the Internet and provide any desired information Use corporate research companies Provide information ranging form risk analysis to stock market analysts’ reports about competitors Investigate chat rooms Enter and challenge participants to express opinions regarding competitors’ products

9. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 9 Porter’s Competitive Forces Model and IT  Porter’s Competitive Forces Model  competition - at the core of a firm’s success or failure  be used to develop strategies for companies to increase their competitive edge  demonstrates how IT can enhances the competitiveness of corporations  5 major forces: Threat of entry of new competitorsThreat of substitute products or services Bargaining power of suppliersBargaining power of customers (buyers) Rivalry among existing firms in the industry

10. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 10 Porter’s Five Forces Model Industry Competitors Intensity of Rivalry New Entrants Substitute SuppliersBuyers Threat of New Entrants Bargaining Power of Suppliers Threat of Substitutes Bargaining Power of Buyers Entry Barriers Determinants of Supplier Power Determinants of Substitution Threat Determinants of Buyer Power Rivalry Determinants

11. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 11 Porter’s Competitive Forces Model and IT (continued …)  Response Strategies (Per Porter and Others)  Response strategies to competitive forces  Cost leadership strategy - producing at lowest cost  Differentiation strategy - being unique  Focus strategy - selecting a narrow-scope segment  Growth strategy - increasing market share  Alliances strategy - working with business partners  Innovation strategy - developing new products  Internal efficiency strategy - improving the manner in which business processes are executed  Customer-oriented strategy - concentrating on making customers happy

12. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 12 Porter’s Competitive Forces Model and IT (continued …)  How the Model is Used The Players in each force are listed An Analysis is made to relate the determinants to each player listed Devise a strategy to defend a company against the forces, based on specific players and the determinants Look for supportive information technologies

13. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 13 Impact of Competitive Forces and the Role of IT Key Forces Affecting the Industry Business ImplicationsPotential IT Responses Threat of new entrants Additional capacity Reduced prices New basis for competition Provide entry barriers/ reduce access by: exploiting existing economies of scale differentiating products/services, controlling distribution channels segmenting markets High power suppliers Raise prices/costs Reduce quality of supply Reduce availability Implement sourcing systems Extend quality control into suppliers’ operations Use forward planning with suppliers

14. Key Forces Affecting the Industry Business ImplicationsPotential IT Responses High power buyers Forces prices down Higher quality demanded Service flexibility required Encourage competition Differentiate products/ services and improve Increase switching costs of buyers Facilitate buyers product selection Substitute products threatened Limits potential and profit Imposes price ceilings Use differentiation strategy Incorporate IT into product, service, or method of provision Intense competition from rivals Price competition Need to develop new products and services Distribution and service become critical Customer loyalty required Improve price/performance Redefine products and services to increase value Redefine market segments Differentiate products and services in distribution channels and to consumers Get closer to the end consumer - understand the user requirements 14

15. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 15 Impact of Competitive Forces and the Role of IT (continued …)  Sustaining a Competitive Advantage  When SISs are combined with structural changes in the organization, they can provide a sustainable strategic advantage  Example: comprehensive strategic information system used by Federal Express provides a strategic advantage by building and maintaining a first-class personnel system

16. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 16 Ineffective Organizations in the Information Age  Principles and Methods that enhance the development of the Industrial Revolution  Specialization of labor  Mass production (producing large quantities, storing them, selling them at a later time)  Hierarchical organizational structure following functional specialties with top-down lines of authority  Assembly lines that bring the work to the worker whenever possible  Complex support systems for planning and budgeting, resource allocation, coordination, and control

17. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 17 Ineffective Organizations in the Information Age (continued …) Vendors, Suppliers Distribution Logistics Service Purchasing Finance R & D Production Sales Distribution Product development Order fulfilllmetn Planning, resourcing and control Customer service OrganizationCustomers Business processes across functional areas and organizational boundaries

18. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 18 Ineffective Organizations in the Information Age (continued …)  The Need for Integration  Integration should cross not only departmental boundaries, but also organizational ones, reaching suppliers and customers  Account numbers in an information systems developed along departmental lines may not be logically related and so cannot be used for cross-referencing a customer’s accounts  Managers want to send letters to specific customers

19. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 19 Business Process Reengineering - The Solution  Traditional solutions may not be effective BPR = copy the definition BPR = overcomes the problems cited earlier

20. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 20 BPR (continued …)  Principles of BPR  several jobs are combined into one  employees make decision  steps in the business process are performed in a natural order, and several jobs get done simultaneously  processes may have multiple versions  work is performed where it makes the most sense  controls and checks are minimized  reconciliation is minimized  a hybrid centralized/decentralized operation is used  a single point of contact is provided to customers

21. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 21 Rapid intense unpredictable changes? Continuous improvements TOM, traditional strategies BPR and networked organization IT Support no yes Pressure BPR (continued …)  BPR, continuous improvement programs, and IT support

22. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 22 BPR (continued …)  The Enabling Role of Information Technology  The IT tools for BPR  Simulation and visual simulation tools - to support the modeling activities of BPR  Flow diagrams - made by specialized BPR tools that are usually integrated with other tools  Work analysis - accomplished with tools that conduct forecasting, risk analysis, and optimization  Workflow software - places system controls in the hands of end-user departments

23. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 23 Changes in Work Rules Brought by IT Old RuleIntervening TechnologyNew Rule Information appears in only one place at one time Shared databases, client/server architecture, electronic mail Information appears simultaneously wherever needed Only an expert can perform complex work. Expert systems, neural computing Novices can perform complex work. Managers make all decisions. Decision support systems, enterprise support systems, expert systems Decision making is part of everyone’s job Field personnel need offices to receive, send, store, and process information. Wireless communication and portable computers, information highways, electronic mail Field personnel can manage information from any location. You have to locate items manually. Tracking technology, groupware, workflow software, client/server Items are located automatically Plans get revised periodically. High-performance computing systems Plans get revised instantaneously whenever needed.

24. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 24 Changes in Work Rules Brought by IT Old RuleIntervening TechnologyNew Rule A long period of time is spanned between the inception of an idea and its implementation (time to market) CAD-CAM, electronic data interchange, groupware, imaging (document) processing Time-to-market can be reduced by 90 percent Customized products and services are expensive and take a long time to develop. CAD-CAM, CASE tools, online systems for JIT decision making, expert systems Customized products can be made fast and inexpensively (mass customization). Work should be moved to countries where labor is inexpensive (off-shore production). Robots, imaging technologies, object-oriented programming, expert systems Work can be also done in countries with high wages and salaries. People must come to one place to work together. Groupware and group support systems, telecommunication, electronic mail, client/server People can work together from different locations.

25. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 25 Major Reengineering Activities  Redesign of processes  From mass production to mass customization  mass production  produces a large quantity of an identical, standard product  mass customization  produces large volumes, yet customizes the products to the specifications of individual customers  increases with the spread of electronic commerce, which transforms the supply chain from a traditional push model to a pull model

26. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 26 Major Reengineering Activities (continued …)  Cycle time reduction  IT makes a major contribution in shortening cycle times by allowing companies to combine or eliminate steps, and to expedite various activities in the business process  Cycle time reduction can result in gain a substantial market share

27. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 27 Restructuring Entire Organizations Customer demographics Checking accounts Installment loans Savings accounts Mortgage loans TrustsEtc Expert system Statement Customer Account manager supported by... Backed up by... Checking expect Loan expect Etc Consolidated statement Reengineered bank with integrated system

28. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 28 Restructuring Entire Organizations (continued …)  Networked organization  resemble computer networks and are supported by computerized systems  away from the hierarchical organization toward the networked organization due to the evolution from an industrial-based economy to an information-based economy

29. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 29 Hierarchical vs. Networked Organization Formal Highly structured Manage Control Direct Employees a cost Information management-owned Hierarchical organizations Risk avoidance Individual contributions Hierarchical Organization Informal Loosely structured Delegate/lead Ownership/participation Empower Employees an asset Information shared ownership Flatter/ manageable organizations Risk management Team contributions Networked Organization

30. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 30 The Roles of Managers and Subordinates Use of Authority by the manager Area of Freedom for Subordinates Hierarchical Organization Flattened Organization Network Organization Manager makes decisions and announces or “sells” it. Manager presents ideas and invites questions. Manager presents tentative decision subject to change. Manager presents problem, gets suggestions, makes decision. Manager defines limits; asks group to make decision. Manager permits subordinates to function within limits defined by superior. Manager allows situational leadership to occur based on which node of the network is best equipped to solve problem. 1 2 3 4 5 67

31. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 31 Restructuring Entire Organizations (continued …)  Empowerment - the vesting of decision-making or approval authority in employees in instances where such authority traditionally was a managerial prerogative  Empowerment’s relationship to information technology  the provision of right information, at the right time allows employees to make decisions  enhances the creativity and productivity of employees, as well as the quality of their work  training can be enhanced by IT  enables non-managers to make decisions

32. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 32 Ethical and Societal Issues  Unethical tactics  pressuring competitor’s employees to reveal information  using software that is the intellectual property of other companies without permission  using IT to monitor the activities of their employees and customers, and in so doing they may invade the privacy of individuals  Societal Issues  Reengineering efforts involve dramatic changes in people’s jobs and working relationships  Jobs are eliminated

33. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 33 Virtual Corporations  Characteristics of Virtual Corporations (VC)  Excellence. Each partner brings its core competence (area of excellence) so an all-star winning team is created. No single company can match what the virtual corporation can achieve.  Full utilization of resources. Some resources of the business partners are sometimes underutilized when not in a VC.  Opportunism. The partnership is opportunistic. A VC is organized to seize market opportunities.  Lack of borders. It redefines traditional boundaries.  Trust. Business partners in a VC must be far more reliant on each other and more trusting than ever before.  Adaptability to change. The VC can adapt quickly to environmental changes because its structure is relatively simple.  Technology. IT makes the VC effective and efficient.

34. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 34  How IT Supports Virtual Corporations  IT allows communication and collaboration among the dispersed business partners  Standard transactions are supported by electronic data interchange and EFT  Modern database technologies and networking permit business partners to access each other’s databases  Lotus Notes and other groupware tools permit diversified interorganizational collaboration Virtual Corporations (continued …)

35. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 35  For Accounting  The accountant must understand these technologies and the role of IT to collect the data for justification of the investment  For Finance  Finance people must understand the nature of these technologies and the manner in which they enable organizations to seize opportunities and solve problems What’s in IT for Me?

36. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 36 What’s in IT for Me? (continued …)  For Marketing  SIS and/or BPR are likely to change distribution channels, order fulfillment, customer service, and many tasks that are under the control of marketing and sales  For Production/Operations Management  BPRs are most likely to completely change existing business processes including production lines, materials handling, design, and inventory systems

37. Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization 37 What’s in IT for Me? (continued …)  For Human Resource Management  What makes SIS and BPR different is the magnitude of the organizational changes that could disrupt the operation of the organization if not handled properly by management and HRM