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MANAGEMENT INFORMATION SYSTEM

UNIT-II
Strategic Information System: Computer systems at any level of the organization that change
The goals, operations, products, services, or environmental relationships, to help the organization
gain a competitive advantage .

Competitive Forces Model: Michael Porter designed various vital frameworks for developing an
organization’s strategy. One of the most renowned among managers making strategic decisions is
the five competitive forces model that determines industry structure. According to Porter, the
nature of competition in any industry is personified in the following five forces:
1. Threat of new potential entrants
2. Threat of substitute product/services
3. Bargaining power of suppliers
4. Bargaining power of buyers
5. Rivalry among current competitors
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FIGURE: Porter’s Five Forces model

1. Risk of entry by potential competitors: Potential competitors refer to the firms
which are not currently competing in the industry but have the potential to do so if
given a choice. Entry of new players increases the industry capacity, begins a
competition for market share and lowers the current costs. The threat of entry by
potential competitors is partially a function of extent of barriers to entry. The
various barriers to entry are-
 Economies of scale
 Brand loyalty
 Government Regulation
 Customer Switching Costs
 Absolute Cost Advantage
 Ease in distribution
 Strong Capital base
2. Rivalry among current competitors: Rivalry refers to the competitive struggle
for market share between firms in an industry. Extreme rivalry among established
firms poses a strong threat to profitability. The strength of rivalry among
established firms within an industry is a function of following factors:
 Extent of exit barriers
 Amount of fixed cost
 Competitive structure of industry
 Presence of global customers
 Absence of switching costs
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 Growth Rate of industry

 Demand conditions
3. Bargaining Power of Buyers: Buyers refer to the customers who finally consume
the product or the firms who distribute the industry’s product to the final
consumers. Bargaining power of buyers refer to the potential of buyers to bargain
down the prices charged by the firms in the industry or to increase the firms cost in
the industry by demanding better quality and service of product. Strong buyers can
extract profits out of an industry by lowering the prices and increasing the costs.
They purchase in large quantities. They have full information about the product
and the market. They emphasize upon quality products. They pose credible threat
of backward integration. In this way, they are regarded as a threat.
4. Bargaining Power of Suppliers: Suppliers refer to the firms that provide inputs to
the industry. Bargaining power of the suppliers refer to the potential of the
suppliers to increase the prices of inputs( labour, raw materials, services, etc) or
the costs of industry in other ways. Strong suppliers can extract profits out of an
industry by increasing costs of firms in the industry. Suppliers products have a few
substitutes. Strong suppliers’ products are unique. They have high switching cost.
Their product is an important input to buyer’s product. They pose credible threat of
forward integration. Buyers are not significant to strong suppliers. In this way, they
are regarded as a threat.
5. Threat of Substitute products: Substitute products refer to the products having
ability of satisfying customer’s needs effectively. Substitutes pose a ceiling (upper
limit) on the potential returns of an industry by putting a setting a limit on the price
that firms can charge for their product in an industry. Lesser the number of close
substitutes a product has, greater is the opportunity for the firms in industry to raise
their product prices and earn greater profits (other things being equal).
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Competitive Forces and Strategies

Competitive Strategies:
1. Cost leadership: In cost leadership, a firm sets out to become the low cost producer in
its industry. The sources of cost advantage are varied and depend on the structure of
the industry. They may include the pursuit of economies of scale, proprietary
technology, preferential access to raw materials and other factors. A low cost producer
must find and exploit all sources of cost advantage. if a firm can achieve and sustain
overall cost leadership, then it will be an above average performer in its industry,
provided it can command prices at or near the industry average.
2. Differentiation: In a differentiation strategy a firm seeks to be unique in its industry
along some dimensions that are widely valued by buyers. It selects one or more
attributes that many buyers in an industry perceive as important, and uniquely
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positions itself to meet those needs. It is rewarded for its uniqueness with a premium
price.
3. Innovation: Finding new ways of doing business. This strategy may involve
developing new products and services or entering unique market or market niches. It
may involve making radical changes to business process for producing products and
services that are so different form the way a business has been conducted that they
alter the fundamental structure of an industry.
4. Growth: significantly expanding a company’s capacity to produce goods and services,
expanding into global markets, diversifying into new products and services, or
interchanging into related products and services.
5. Alliance: Establishing new business linkage and alliances with customers, suppliers,
competitors, consultants, and other companies. These linkages may include mergers,
acquisitions, joint ventures, forming of virtual companies.
 VALUE CHAIN : Activities within an organization that bring products and services to
market
 Primary activities – take raw materials and transform it into something of greater
value
 Inbound logistics • Marketing and sales
 Operations • Service
 Outbound logistics
 Supporting activities – those functions that the company requires to do business
but do not directly add value to a product or service
 HR • Procurement
 Firm infrastructure IT
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By using different kind of information system at different level of value chain

competitive advantage can be achieved by the firm.

 How can information systems change the way an organization reacts to its competitive
forces?
 By changing the bargain power of suppliers
 By building closer ties with customers
 By increasing or decreasing barriers to entry in a market
 By serving as the basis for new products and/or services

WHAT IS BUSINESS PROCESS REENGINEERING?

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The analysis and design of workflows and processes within an organization. A business process is
a set of logically related tasks performed to achieve a defined business outcome. Re-engineering
is the basis for many recent developments in management. Business process reengineering (often
referred to by the acronym BPR) is the main way in which organizations become more efficient
and modernize. Business process reengineering transforms an organization in ways that directly
affect performance.
The FUNDAMENTAL rethinking and RADICAL redesign of business PROCESSES to bring
about DRAMATIC improvements in critical, contemporary measures of performance, such as
cost, quality, service and speed.”
 Potential payback is high, but so is risk of disruption and failure
 Organizational redesign approaches are an important enabler of reengineering
 Includes use of IT, process teams, case managers

How To Implement A BPR Project

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The best way to map and improve the organization's procedures is to take a top down approach,
and not undertake a project in isolation. That means:
 Starting with mission statements that define the purpose of the organization and describe
what sets it apart from others in its sector or industry.
 Producing vision statements which define where the organization is going, to provide a
clear picture of the desired future position.
 Build these into a clear business strategy thereby deriving the project objectives.
 Defining behaviours that will enable the organization to achieve its' aims.
 Producing key performance measures to track progress.
 Relating efficiency improvements to the culture of the organization
 Identifying initiatives that will improve performance.
Once these building blocks are in place, the BPR exercise can begin.
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A REENGINEERED BUSINESS
PROCESS

Creating a Virtual Company

A virtual company is an organization that uses IT to link people, assets, and ideas. Six basic
characteristics of successful virtual companies include:
• Adaptability
• Opportunism
• Excellence
• Technology
• Borderless
• Trust-based

Virtual Company Strategies: Forming virtual companies has become an important competitive
strategy in today’s global markets.
 A virtual company uses an organizational structure called a network structure because
these companies are usually interlinked by the Internet, intranets, and extranets
 This creates flexible and adaptable companies keyed to exploit fast changing business
opportunities
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IT plays an important role in providing computing and telecom resources to support the
communications, coordination, and information flows needed. Managers of a virtual company
depend on IT to help them manage a network of people, knowledge, financial and physical
resources provided by many business partners to quickly take advantage of rapidly changing
opportunities.
Business strategies of virtual companies include:
• Share infrastructure and risk
• Link complementary core competencies
• Increase facilities and market coverage
• Gain access to new markets and share market or customer loyalty
• Share information and risk with alliance partners
•
Why create a virtual company?
• A business may not have the time or resources to develop the manufacturing and
distribution infrastructure, people competencies, and information technologies needed
• By forming a virtual company of all star partners, a world class solution for customers can
be created
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KNOWLEDGE CREATING COMPANY: Japanese and Western societies and companies

have developed different understandings of what it means to learn and to innovate, but the way
forward is through a synthesis of both styles.
Knowledge is taken as the basis for what an organization does, but it's important to know
that creating knowledge can be as important as processing knowledge.
A key idea is that some knowledge is tacit (i.e., internalized) and other is explicit. Western
philosophy is described as having struggled to understand whether knowledge is based on what
we experience (empiricism) or inherent truths (rationalism), and to have focused more on explicit
knowledge. Japanese thought has tended to treat tacit knowledge as more important (but not really
addressed epistemology as a philosophical tradition).

Knowledge Transformations: knowledge creating in four zones, a two by two matrix of

knowledge moving from tacit or explicit to tacit or explicit. Each quadrant requires different kind
of thinking and interaction.
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Combination: Explicit to Explicit This is our most familiar process. We take explicit,
explainable knowledge, combine it with other explicit knowledge and develop new explicit
knowledge. This process characterizes most studying in school, the development of new designs
and procedures.
Internalization: Explicit to Tacit This is the process whereby something we learn becomes
automatic. When you first learned to drive, it was an explicit process, in which a constant internal
monologue reminded you to check the mirror, shift the gears, press the brake, etc. Once you more
deeply learned the process, it becomes completely internal and you can drive for hours without
noticing your driving. One interesting thing is that generally when you try to pay attention to how
you are doing these things, it impairs your performance. Just try writing down the steps to tying
your shoe and following them.
Socialization: Tacit to Tacit
One of the most powerful human learning capacities is through socialization, observing behavior
by others and copying their behaviors and beliefs. Humans learn to speak and survive in their
culture almost entirely by socialization. Psychologists talk about how reward and punishment are
at the root of learning, but in fact we often learn by observing how others are rewarded and
punished for their behavior. For example, if you are new to a group, and someone in the group
does a behavior that triggers a negative nonverbal reaction in the other members of the group, you
learn immediately, and often unconsciously, not to do that behavior. Fields that understand the
role of this tacit to tacit process develop people for their field with fewer lectures and more labs,
studios, and apprenticeships.
Externalization: Tacit to Explicit The book is full of stories of product development
collaborations, and one of the strongest themes is that successful design often requires getting
tacit knowledge into an explicit form so that you can develop effective designs. For example, in
the development of the automatic bread maker, no matter how many times they interviewed
bakers and watched them work, their designs failed to produce good bread. Finally, some
engineers apprenticed themselves to a famous baker and made a whole lot of bread before they
figured out that kneading process included a pulling aspect that created air spaces in the dough.
As engineers, they then put blunt fins at the bottom of the chamber to pull on the mass of bread
dough as it was rotated, making much better bread.
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Becoming an Agile Company

 Agility in business performance is the ability of a company to prosper in rapidly
changing, continually fragmenting global markets for high-quality, high-
performance, customer-configured products and services

 An agile company can make a profit in markets with broad product ranges and short
model lifetimes, and can produce orders in arbitrary lot sizes

 Agile companies support mass customization by offering individualized products while

maintaining high volumes of production

 These companies depend heavily on Internet technologies to integrate and manage

business processes while providing the information processing power to treat masses of
customers as individuals

 To become an agile company, a business must implement four basic strategies

 Customers of an agile company perceive products or solutions to be answers to

their individual problems

 Products can be priced based on their value as solutions not on their cost to
produce

 An agile company cooperates with customers, suppliers, and other companies,

even competition with its competitors

 This allows a business to bring products to market as rapidly and cost-effectively

as possible, no matter where the resources are located or who owns them

 An agile company organizes so that it prosper in uncertainty

 It uses flexible organizational structures keyed to the requirements of different and

constantly changing customer opportunities

 An agile company leverages the impact of its people and the knowledge they
possess

 An agile company provides powerful incentives for employee responsibility,

adaptability, and innovation by nurturing an entrepreneurial spirit