Ch02 Information Systems As Competitive Advantage

CHAPTER 2
INFORMATION
SYSTEMS AS
COMPETITIVE
ADVANTAGE
INFORMATION SYSTEMS An Introduction All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 2
LEARNING OUTCOMES
 Define and identify the concept of strategic information

systems
 Define and explain Porter’s five competitive forces that
determine industry structure
 Identify the competitive strategy for business organizations
 Explain how information systems provide competitive
advantage
 Identify value chains and demonstrate how value chains can
determine business processes and information systems
 Identify and examine the business value of using information
technology/information systems to become an agile
competitor or to form virtual businesses
OUTLINE OF THE CHAPTER
 The purpose of this chapter is to demonstrate how IS can be used to

help organizations develop competitive strategies by adopting
Porter’s Competitive forces model.
 The first section provides an overview of the concept of Strategic
Information Systems.
 The second section describes Porter’s Competitive Forces model.
 The third section examines the strategic uses of IS and the key
features of strategic IS.
 The fourth section discusses how value chains and IS help
businesses identify opportunities for Strategic IS application.
 Finally, the fifth section identifies the business value of using IS for
organizations to be agile competitors.

PORTER’S COMPETITIVE
FORCES MODEL

FORCES MODEL (CONT)
 Bargaining power of buyers

− Potential buyers have the capability to bargain over or increase
the prices charged, and demand better quality and service of
products by business organizations.
− Here the buyers have control to drive down business
organizations’ product prices.
 Threat of new entry into an industry
− They are considered threats because they will have the potential
to increase the industry capacity, begin competition for market
share and lower current costs.
 Intensity of rivalry among existing competitors
− Competitive struggle for market share between organizations in
an industry is referred to as rivalry.
FORCES MODEL (CONT)
 Threat of substitute products

− The threat of substitute products occurs when customers can
easily switch to the competitors’ products, and this affects the
business organization’s profits and prices.
 Bargaining power of suppliers

− Suppliers have bargaining power when they have the potential to
increase the prices of inputs such as labour, raw materials and
services, or the costs of industry in other ways.

STRATEGIES FOR
COMPETITIVE ADVANTAGE
 In order to succeed in business, organizations need to adopt

one or more of the following competitive strategies:
− Cost leadership strategy
• Cost leadership strategy is applied when business organizations
have the edge to get more sales from the potential and existing
consumers and also from their competitors’ existing consumers.
− Differentiation strategy
• Differentiation strategy involves making organizations’ products or
services different from and more attractive than those of their
competitors.
− Focus strategy
• Focus strategy concentrates on particular niche markets by
understanding the dynamics of that market and the unique needs of
customers within it.
STRATEGIES FOR
COMPETITIVE ADVANTAGE
(cont.)

CHOOSING THE RIGHT GENERIC
STRATEGY

THE ROLE OF INFORMATION
TECHNOLOGY IN STRATEGIC
MANAGEMENT

COMPETITIVE INTELLIGENCE
 This refers to the process of ethically gathering and refining

enough information so that it can be used by a business
organization to make strategic business decisions.
 Competitive business intelligence is the use of IT to
continuously collect and analyze information about products,
markets, competitors and environmental changes, and
monitor the activities of competitors.
 The information gathering, analyzing and monitoring allow
business organizations to increase their market knowledge,
improve knowledge management and raise the quality of
strategic planning that then drives their business
performance.
INFORMATION SYSTEMS
STRATEGY
 Strategic IS can be seen as the use of IS to support business

strategy in which IS can help businesses gain and sustain
competitive advantage.
 Strategic IS can be conceptualized as the master plan of the
IS function with the aims of identifying the required IS assets
and allocating the existing IS assets in the most efficient way.
 IS assets include the IS staff and its capabilities, the IS
processes, the IS budget, and the IS applications and
infrastructure.
 Strategic IS can also be conceptualized as the role IS has to
play within an organization.

KEY FEATURES OF
STRATEGIC IS
 Strategic IS has the specific objective of achieving better results

than one’s competitors, which include providing new services to
customers and/or suppliers, increasing customer switching costs,
and locking in suppliers.
 The most common types of strategic IS are:
− Decision support systems (DSS)
• an interactive system used by individuals that have little experience
with IT and analytical methods
− Enterprises resource planning
• a system designed to manage and facilitate production orders,
production plans and inventories
− Database management system
• a collection of data stored together with their description and a
hardware/software system where the data are managed, modified,
retrieved and secured

BUSINESS VALUE CHAIN
 The value chain is a very useful tool when business

organizations want to investigate the design of their
business organizations, and to assess whether different
activities performed have the needed amount of value,
and if some activities should be outsourced or
terminated because they do not contribute much to the
competitiveness advantage.

BUSINESS VALUE CHAIN
(cont.)

INFORMATION TECHNOLOGY-
ENABLED CAPABILITY, AGILITY
AND FIRM PERFORMANCE
 Strategic level agility
− Emphasizes the organization’s capability to create a learning
environment that allows the organization to sense and respond to
predictable and unpredictable changes more effectively. Therefore,
strategic-level agility is a composite of three interrelated capabilities:
• Strategic decision flexibility
• Strategic execution capability
• Organizational learning capability
 Strategic decision flexibility
− This refers to the capability of the organization to pro-act or respond
quickly to changing competitive conditions and thereby develop and/or
maintain competitive advantage.
− By having the flexibility in manipulating or juggling decision choices
regarding the investment of organizational resources, organizations can
modify their course of actions when encountering unanticipated
situations.
INFORMATION TECHNOLOGY-
ENABLED CAPABILITY, AGILITY
AND FIRM PERFORMANCE
(cont.)
 Strategic execution capability
− This capability allows organizations to realize their business strategies
through long-range investments of their resources.
− By having this strategic capability, organizations can coordinate and
integrate the activities of their customers, suppliers and trading
partners.
 Organizational learning capability
− This capability allows organizations to assimilate, share and apply
knowledge.
− Thus organizations can build and renew their organizational
competences due to the ever changing business environment.

IMPLEMENTING AND
SUSTAINING STRATEGIC
INFORMATION SYSTEMS
 There are two approaches organizations use to ensure success in

the development and implementation of strategic IS:
− Reactive approach
• When organizations start with identifying the known problems or areas
where improvements to business activities and/or processes can
provide strategic advantage
− Proactive approach
• When organizations start with available IS technologies, such as web-
based EDI or e-procurement, and try to match the technologies with the
organizations’ current or proposed business models


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CHAPTER 2

INFORMATION SYSTEMS An Introduction All Rights Reserved

 Define and identify the concept of strategic information

 The purpose of this chapter is to demonstrate how IS can be used to

INFORMATION SYSTEMS An Introduction All Rights Reserved

INFORMATION SYSTEMS An Introduction All Rights Reserved

 Bargaining power of buyers

 Threat of substitute products

 Bargaining power of suppliers

INFORMATION SYSTEMS An Introduction All Rights Reserved

 In order to succeed in business, organizations need to adopt

INFORMATION SYSTEMS An Introduction All Rights Reserved

INFORMATION SYSTEMS An Introduction All Rights Reserved

INFORMATION SYSTEMS An Introduction All Rights Reserved

 This refers to the process of ethically gathering and refining

 Strategic IS can be seen as the use of IS to support business

INFORMATION SYSTEMS An Introduction All Rights Reserved

 Strategic IS has the specific objective of achieving better results

INFORMATION SYSTEMS An Introduction All Rights Reserved

 The value chain is a very useful tool when business

INFORMATION SYSTEMS An Introduction All Rights Reserved

INFORMATION SYSTEMS An Introduction All Rights Reserved

INFORMATION SYSTEMS An Introduction All Rights Reserved

 There are two approaches organizations use to ensure success in

INFORMATION SYSTEMS An Introduction All Rights Reserved

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