Chapter 2: STRATEGIC USE OF INFORMATION TECHNOLOGY

2.1 STRATEGIC INFORMATION SYSTEMS (SIS)

An information system is strategic if its objective is to improve the competitive position of the
organisation. This means that the company enjoys a competitive edge over its competitors in
the market segment.

A strategic IS differentiates an organisation’s products/ services; adding value to existing

processes … provides a business with strategic products, services, and capabilities for CA. The
systems are information systems that play a major role in a product’s value chain.

A strategic IS significantly alters the way an organisation does business by:

 improving the way the company converts its inputs into products
 enhancing the delivery of the product into the marketplace
 lowering production costs (e.g JIT) hence a lower price for market segment
 changing the perception of product in the market- target market perceives the product as
being significantly different
 improving internal efficiencies
 providing competitive advantage- higher profits or increased market share than
competitors e.g Banks.

Characteristics that indicate whether an information system should be considered strategic.:

 If they help differentiate the product from its competitors.
 If customers/ users directly perceive its value to them.
 If the products production or service provision requires the system.
If the SIS increases the customers’ perceived value of a product or service- this should be by
providing information and services/products with improved reliability, eliminating delays in
transaction time and quality of service also making products easier to use

The strategic role of Information Systems

 Improving operational efficiency
 Promoting business innovation – new products e.g. use of ATMs, JIT
 Building strategic IT resources e.g. lower costs of production, improved quality,
differentiation- creating products and services based on ISs e.g Banks
 Improved intra and inter-organisational communication
 Management support- strategic

“An innovative state-of-the-art support system can be a basis for competitive advantage if it
gives the firm capabilities that rivals can’t match” Thompson Strategic Management Principles

Organisational requirements for successful strategic Information Systems

 Active support of senior company management (not just of MIS management) in
identifying strategic opportunities and the implementation process.
 Integration of planning for strategic use of ISs into the overall company strategic
planning process.
 Direct reporting by those responsible for the strategic use of ISs to line management in
the area to be affected by the new system.
 Placement of control mechanisms (e.g budget controls, rewards) in the hands of line
managers- for systems to be developed and used.
  Readiness for strategic use of ISs- i.e. successful use of the already existing systems
and ability to innovate into new technologies
2.2 APPLICATION OF IT FOR COMPETITIVE ADVANTAGE AND BUSINESS
INNOVATION

Computers as Competitive Tools

Computers are used in two ways for this; to beat competitors and to stay in the market (alive).
This is based on four fronts:
 Innovation
 Speed
 Service
 Quality.

Competitive forces that companies have to contend with (identified by Michael Porter):
 Threat of new entrants
 Bargaining power of suppliers
 Bargaining power of customers
 Threat of substitute products/ services
 Rivalry among existing competitors

Competitive strategies
1. Differentiation
2. Cost leadership/ Adjust cost
3. Innovation
4. Improve growth – increase volume, expand geographically or integrate with
suppliers/customers.
5. Form alliances/ integration
6. Lock-in strategy

Tactical moves in pursuing the strategies

 Internal innovation
 Internal company growth to have economies of scale
 Merger with or acquistion of other company
 Strategic alliances (partnerships) wth other companies in long-term relationship that goes
beyond a joint venture.

Products can compete on many aspects of value:

 Better features- e.g modern cars done with CAM one cannot differentiate the makes
 Higher quality products/ services- CAD, CAM
 Better service- packaging, customer care
 Greater availability in market
 Information management (Management support & operating info.) availability of
information in dbs, advertising, info. About competitors
How IT can be applied in CA
i) New innovative products/services development
ii) Increasing the effectiveness of decision making:
Automatic decisions
Supporting complex decisions
Augmenting/ supplementing Knowledge:
iii) Improving intra- and inter-Organisational Communication: internal-operational
iv. Improved Operations- efficiency- TPS, OAS
v. Improving supplier relations and customer satisfaction:
Matching customer demands: Improving the product or service:
vi. Improving Environmental Scanning – EIS, Control systems
By getting highly accurate information in a timely manner, decision makers are notified
immediately and can take appropriate corrective action if need be.

SWOT analysis- predictive reports from MIS

2.5 INTERNET BUSINESS

Services
Email
Newsgroups
WWW
E-commerce, e-trade

Benefits of using Internet

i) Advertisements- on various sites
ii) Use of electronic transactions
iii) Security guaranteed
iv) Faster communication- warehouses, EFT
v) Wider scope f search – important information
vi) Enhanced communication- newsgroups
vii) Provides most current information for business
viii) Possible to gain competitive advantage- market expansion
ix) Browsing
x) Agent of globalisation
xi) Employment opportunities
xii) Entertainment
xiii) Prestige
xiv) Shareware
xv) Knowledge about competitors
xvi) Telecommuting

Problems
i) Ignorance
ii) Fraud
iii) Junk Mail
iv) Lack of control
v) Expensive
vi) Time wasting for employees
vii) Lack of censorship
viii) Organisation’s security compromised
ix) Rigid structure- difficulty in networking, expensive
x) Commercial hacking
xi) Traffic control – mail- lacking