Week 2

Strategic Uses of
Information Systems
Learning Objectives
 Explain what business strategy & 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
 Identify fundamental requirements for developing
strategic information systems
LDP 612: Week 3 2
Strategy and Strategic Moves
 Strategy
 A way of solving a problem given situations and
options
 A plan designed to help an organization outperform
its competitors (or to survive)
 Strategic Information Systems
 Information systems that help seize opportunities
 Can be developed from scratch, or they can evolve
from existing ISs
LDP 612: Week 3 3
Strategy and Strategic Moves
(Cont.)
 Strategic advantage:
 Adopting a strategy to maximize strength- this is
the move

 Competitive advantage:
 The result of the use of a strategic advantage

LDP 612: Week 3 4

Achieving a Competitive
Advantage
 Increase profits through increased market share

 Innovation results in advantage

 Strategies that no one has tried before
 Example:
 Dell using the Web to take customer orders

 Ryan air – no frills air travel, e-tickets (locally – fly540)

 Safaricom – “please call me” [Don’t beep me!!], Sambaza

LDP 612: Week 3 5

 Achieving a Competitive
Advantage (Cont.)
Competitive advantage can be realized through some of the
following initiatives:

LDP 612: Week 3 6

Achieving a Competitive
Advantage (Cont.)

LDP 612: Week 3 7

Initiative #1: Reduce Costs
 Lower costs results in lower price

 Bigger Market Share

 Implement automation to become more productive

 The Web has made this possible for many

LDP 612: Week 3 8

Initiative #2: Raise Barriers to
Market Entrants
 Patenting

 High expense of entering industry

 Example 1 - A few years back KBS in Nairobi

 Example 2 – Celtel & Safaricom; Econet Wireless has

challenge

LDP 612: Week 3 9

Initiative #3: Establish High
Switching Costs
 Explicit Switching Costs

 Fixed and non-recurring

 Implicit Switching Costs

 Indirect costs in time and money of adjusting to a new

product

LDP 612: Week 3 10

Initiative #4: Create New
Products or Services
 Lasts only until competition offers an identical or
similar product or service for a comparable or lower
price
 First Mover: Creates assets
 Brand Name
 Better Technology
 Delivery Methods
 Critical Mass: body of clients that attracts other
clients

LDP 612: Week 3 11

Initiative #5: Differentiate
Products or Services
 Product differentiation
 Brand recognition
 Examples of brand name success
 Safaricom, Celtel
 Kimbo
 Tusker

LDP 612: Week 3 12

Initiative #6: Enhance
Products or Services
 Examples
 Nakumatt and the Smart Card – points
 Safaricom and Bonga Points
 Real estate agents providing useful financing information
to potential buyers
 E-bill by KPLC

LDP 612: Week 3 13

Initiative #7: Establish Alliances
 Combined service may attract customers
 Lower cost
 Convenience
 Examples
 Travel industry (e.g. Tourism promotions)
 HP and FedEx (courier)

LDP 612: Week 3 14

Establishing Alliances (Cont.)

LDP 612: Week 3 15

Initiative #8: Lock in Suppliers
or Buyers
 Bargaining Power

 Purchase volume

 Strengthen perception as a leader

 E.g. Bus transport Nairobi-Mombasa -> Coast Bus

 Safaricom

 Create a standard

LDP 612: Week 3 16

Strategic Information Systems
(SIS)

 An IS that helps achieve long-term competitive

advantage
 SIS embodies two types of ideas:
 Potentially-winning business move
 How to harness ICT to implement that move
 Two conditions for SIS:
 Serve an organizational goal
 Work with the managers of the other functional units

LDP 612: Week 3 17

Creating an SIS

 Top management involvement

 From initial consideration through development and

implementation

 Must be a part of the overall organizational

strategic plan

LDP 612: Week 3 18

Steps for Considering a new
SIS

LDP 612: Week 3 19

Steps to Take in an SIS Idea-
Generated Meeting

LDP 612: Week 3 20

Re-engineering and
Organizational Change

 To implement an SIS and achieve a competitive

advantage, organization must rethink entire
operation
 Goal of re-engineering
 Achieve efficiency leaps of 100% or higher

LDP 612: Week 3 21

Competitive Advantage as
Moving Target

 SISs developed as strategic advantages quickly

become standard business
 Banking industry (internet banking, ATMs and banking
by phone)
 Continuous search for new ways of utilizing
information technology to their advantage
 SABRE, American Airlines’ reservation system

LDP 612: Week 3 22

JetBlue: A Success Story
 Gained competitive advantage where others failed

 Proper technology and management methods

 Reducing costs resulting in reduced pricing

 Improving service

LDP 612: Week 3 23

JetBlue: A Success Story
(Cont.)
 Massive Automation
 Automation of services with software

 Combination reservation system and accounting

system

 Supports customer services and sales tracking

LDP 612: Week 3 24

JetBlue: A Success Story
(Cont.)
 Massive Automation, continued
 Electronic tickets

 No paper handling or expense

 Encourages online ticket purchases

 Avoids travel agents

 Significant savings in cost

LDP 612: Week 3 25

JetBlue: A Success Story
(Cont.)

 Massive Automation, continued

 Maintenance information system
 Logs all airplane parts and time cycles
 Reduces manual tracking costs
 Flight planning software
 Maximize seats occupied on a flight
 Reduced planning costs

LDP 612: Week 3 26

JetBlue: A Success Story
(Cont.)
 Massive Automation, continued
 Blue Performance

 In-house software for tracking operational data

 Updated on a flight by flight basis

 Accessible by airline’s 2,800 employees

 Managers are able to respond immediately to
problems

LDP 612: Week 3 27

JetBlue: A Success Story
(Cont.)
 Massive Automation, continued
 Wireless devices for employees
 Report and respond to irregular events
 Quick response
 Events recorded for future analysis
 Training records stored electronically
 Easy to update
 Efficient retrieval

LDP 612: Week 3 28

JetBlue: A Success Story
(Cont.)
 Away from Tradition
 Decision to not use the hub and spoke routing method

 Paperless Cockpits

 Laptops for Pilots

 Harnessing IT to maintain a strategic gap

LDP 612: Week 3 29

JetBlue: A Success Story
(Cont.)
 Enhanced Service
 Available on all flights and all class tickets
 Live TV through contract with DirecTV
 Leather Seating
 Excellent on-schedule arrivals and departures
 Fewest mishandled bags
 Rapid check-in time
 Security upgrades

LDP 612: Week 3 30

JetBlue: A Success Story
(Cont.)
 Impressive Performance
 Maintains excellent statistics

 7 cent cost per available seat-mile (CASM)

 78% of seats are filled

 Late Mover Advantage

 New Technology vs. legacy systems

LDP 612: Week 3 31

Ford on the Web: A Failure Story
 The Ideas
 Wingcast telematics
 Technology in vehicles to enable Web access
 Business to Business: Covisint
 Joint venture with General Motors and
DaimelerChrysler
 Electronic market for parts suppliers
 Vendor bidding for proposals from automakers

LDP 612: Week 3 32

Ford on the Web: A Failure Story
(Cont.)
 The Ideas (cont.)
 Business to Consumer: FordDirect.com
 Sell vehicles direct to consumers via the Web
 Bypass dealerships
 Provide service while saving dealer fees
 ConsumerConnect
 Special unit to build Web site and handle direct sales

LDP 612: Week 3 33

Ford on the Web: A Failure Story
(Cont.)
 Hitting the Wall
 Wingcast: Failed
 Buyers not interested
 Product eliminated in June 2001
 Covisint: Successful
 Now includes more automakers

LDP 612: Week 3 34

Ford on the Web: A Failure Story
(Cont.)
 Hitting the Wall
 FordDirect.com: Failed

 Not a result of faulty technology

 Ford failed to consider state laws and dealership

relationships

 Dealership relationship was still needed for

purchases not on the Web

LDP 612: Week 3 35

Ford on the Web: A Failure Story
(Cont.)
 The Retreat
 ConsumerConnect disbanded
 FordDirect.com used by dealerships now
 Sells used cars
 Price tag for failure: $1 billion
 FordDirect.com today results in 10,000 sales
transactions a month

LDP 612: Week 3 36

Success and Failure on the
Web
 Being first is not enough for success

 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

LDP 612: Week 3 37

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 new technology will work or customers

and employees will welcome it

LDP 612: Week 3 38

The Bleeding Edge (Cont.)
 The bleeding edge: failure in an organization’s
effort to be on the technological leading edge

 Allow competitors to assume the risk

 Risk losing initial rewards

 Can quickly adopt and even improve pioneer

organization’s successful technology

LDP 612: Week 3 39

Summary
 Business strategy and strategic moves can give an
organization an advantage
 Basic initiatives for gaining a competitive advantage
 Strategic information systems require fundamental
elements
 Circumstances and initiatives that make one SIS
succeed and another fail

LDP 612: Week 3 40

EXERCISES


Define the terms: strategy, strategic information
systems, strategic advantage, bleeding edge

Discuss how an organization may gain
competitive advantage.

Describe how strategic information systems may
be developed within an organization.

Discuss why competitive advantage may be a
moving target.

Discuss the nature of success on the Web.

Visit mamamikes.com site and comment on its
innovativeness LDP 612: Week 3 41