Strategic Uses of Information Systems

- Prof. (Ms.) Avani Rachh

Objectives
Explain what business strategy and strategic moves are Illustrate how information systems can give businesses a competitive advantage Identify basic initiatives for gaining a competitive advantage Explain what makes an information system a strategic information system

Objectives (continued)
Identify fundamental requirements for developing strategic information systems Explain circumstances and initiatives that make one IT strategy succeed and another fail

Strategy and Strategic Moves

Strategy: plan to gain advantage over enemy Business strategy is plan to outperform competitors
Done by creating new opportunities, not beating rivals

Strategic Information System: Information system that create and seize opportunities Strategic Advantage: Using strategy to maximize company strengths
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Achieving a Competitive Advantage

Many initiatives used to gain competitive advantage Strategies aim to maximize competitive advantage Strategic moves often consist of combination of two or more initiatives Essence of strategy is innovation

Achieving a Competitive Advantage (continued)

Figure 2.1: Eight basic ways to gain competitive advantage

Achieving a Competitive Advantage (continued)

Figure 2.2: Many strategic moves can work together to achieve a competitive advantage

Initiative #1: Reduce Costs

Customers want to pay little for service Reduce costs to lower price Automation greatly reduces costs Web can automate customer service

Initiative #2: Raise Barriers to Market Entrants

Less competition is better for company Raise barriers to entrants to lower competition Techniques include obtaining copyrights and patents on inventions, techniques, and services Building unmatchable information systems blocks entrants

Initiative #3: Establish High Switching Costs

Switching costs: incurred when customer stops buying from company and starts buying from another company
Explicit: charge customer for switching Implicit: indirect costs over period of time

High switching costs locks in customers

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Initiative #4: Create New Products or Services

Having unique product or service gives competitive advantage First mover: organization that is first to offer a new product or service
Superior brand name, better technology, more experience

Critical mass: body of clients that is large enough to attract other clients

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Initiative #4: Create New Products or Services (continued)

EBay created a new service that established it as an industry leader

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Initiative #5: Differentiate Products or Services

Product differentiation: persuading customers that product is better than competitors
Achieved through advertising Exemplified by brand name success Promotes brand name

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Initiative #5: Differentiate Products or Services (continued)

Google did not offer an original service, but the service has grown superior to other Web search services

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Initiative #6: Enhance Products or Services

Enhance existing products or services to increase value to consumer Many products and services have been enhanced by the Web

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Initiative #6: Enhance Products or Services (continued)

Dell continues to enhance its service to maintain the competitive advantage of its online order site

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Initiative #7: Establish Alliances

Alliance: two companies combining services
Makes product more attractive Reduces costs Provides one-stop shopping

Affiliate program: linking to other companies and rewarding the linker for click-throughs

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Initiative #7: Establish Alliances (continued)

Figure 2.3: Strategic alliances combine services to create synergies

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Initiative #8: Lock in Suppliers or Buyers

Accomplished by achieving bargaining power Bargaining power: leverage to influence buyers and suppliers
Achieved by being major competitor or eliminating competitors Uses purchase volume as leverage

Lock in clients by creating high standards

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Creating and Maintaining Strategic Information Systems

Many opportunities to accomplish competitive edge with information technology Innovative software establishes competitive advantage Strategic information systems created from scratch or modified from previous system
Must serve organization goal Must collaborate with other functional units of company
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Creating an SIS
Strategic information system must be part of the overall organizational strategic plan Precisely measuring financial output of SIS is difficult

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Creating an SIS (continued)

Figure 2.4: Questions to answer in a strategic information system idea-generating meeting

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Reengineering and Organizational Change

To implement SIS, organizations must rethink way of operation Reengineering: Eliminating and rebuilding operations from the ground up
Involves new machinery and elimination of management layers Achieves huge efficiency improvements

New SIS requires businesses to revamp processes

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Competitive Advantage as a Moving Target

Competitive advantage is often short-lived Organizations imitating leader diminishes advantage SIS has become expected business practice Company must modify and enhance technology to sustain competitive advantage

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JetBlue: A Success Story

JetBlue: Airline company that entered a formerly hurting market with great success
Ticketless travel Automation with IT Reduced costs Improved service

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JetBlue: A Success Story (continued)

For JetBlue, information technology is at least as important as fuel

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Massive Automation
JetBlue used Open Skies software to automate ticket handling
Greatly reduced travel agent fees

Maintenance information system logs airplane parts and time cycles Flight planning automated with application Training management system eliminates need for paper records

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Away from Tradition

JetBlue used innovative technique for routing airplanes
Take most profitable route between cities

Keeping flight manuals on laptop computers allows for paperless cockpits

Saves time associated with calculating weight of plane

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Enhanced Service
JetBlue offers better service
Leather seats Real-time television Fewest mishandled bags Better security

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Impressive Performance
Most important metric in airline industry is cost per available seat-mile
Measures how much it costs to fly a passenger one mile

JetBlue has lowest or second lowest CASM

Less than 7 cents

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Late Mover Advantage

Late mover: enters the market later than other competitors
Can be viewed as advantage Implements latest available technologies Not burdened with legacy systems

JetBlue used 40% beta software

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Ford on the Web: A Failure Story

Some strategic moves end up being colossal failures May fail because of lack of attention to details Unable to predict customer or business partner response Jacque Nasser, CEO of Ford: ideas failed

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The Ideas
Nasser eager to push company to Web Install devices in vehicles to enable drivers and passengers to access Web Establish Web site to market parts with auctions Push vehicle sales to Web

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Hitting the Wall

Customers not interested in Web access in vehicles Other car companies learned to use online part auctioning Franchising laws do not allow car companies to bypass dealers Online sales initiative failed

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The Retreat
Ford abandoned plan to sell directly online Web site was used instead to select proper model only Site sold cars but not enough to save Nassers job

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The Bleeding Edge

Ford case shows being first mover is risky Pioneers can be burned even with careful planning Bleeding edge: failure occurring because of company trying to be on leading edge
Implementation costs are greater than anticipated Technology ends up losing money for company

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The Bleeding Edge (continued)

Due to bleeding edge, companies wait before implementing newer technologies Microsofts approach is to seize existing idea, improve, and promote with marketing power
Also known as competing by emulating and improving

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Summary
Some information systems have become strategic tools as a result of strategic planning Strategic information systems help companies gain strategic advantage Company achieves strategic advantage by using strategy to maximize its strength

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Summary (continued)
Various initiatives to establishing advantage
Cost reduction, raising barriers to competitors, establishing high switching costs, new products, differentiating products, enhancing products, alliances, and locking suppliers

Creating standards establishes strategic advantage in software industry

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Summary (continued)
Reengineering is process of designing a business process from scratch to accommodate new information systems Strategic advances from information systems are short lived and new opportunities must always be searched for Bleeding edge is the undesirable result of a failed innovation effort

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