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Introduction to Information Technology

Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

CHAPER 13
STRATEGIC
INFORMATION SYSTEMS
AND REORGANIZAITON
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Learning Objectives
Describe strategic information systems and explain their
advantages
Describe Porter’s competitive forces model and how IT
helps improve competitiveness
Describe representative strategic information systems and
the advantage they provide with the support of IT
Understand the role of business processes in
organizations and the reasons why reengineering is
necessary
Demonstrate the role of IT in supporting BPR and
especially mass customization, cycle time reduction, self-
directed teams, and empowerment
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Chapter Overview
Strategic Advantage and Porter’s Competitive Illustrative Strategic
Information Technology Forces Model and IT Information Systems
•Strategic Information •Porter’s Model •Sustaining a
Systems •Response strategies Competitive
•The Role of IT in Strategic •How the Model is Used Advantages
Systems •A Framework
•Competitive Intelligence for Global
Competition
Ineffective Organizations Business Process Virtual Corporations
in the information Age Reengineering and IT
•The Need for a •Principles of BPR •Characteristics of
Fundamental Change •The Enabling Role of Virtual Corporations
•The Need for Informative Technology •How IT Supports
Integration •Major Reengineering Virtual Corporations
Activities
•Restructuring Entire
Organizations
•Ethical and Social Issues
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization
Case: Dell’s Reengineering Efforts
Supported by Strategic Information
Systems made IT World’s Champion
 The Problem
As a result of price war with Compaq, it
had a loss from inventory write downs
 The Solution
IT-supported innovations
emergence of electronic commerce
 The Results
its stock price zoomed more than 2000 percent
increases its market share and profitability
simultaneously consistently
be considered to be one of the most well managed and
profitable corporations in the world by the 21st century
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Case (continued…)
What have we learned from this case??
competition on price, quality, speed, and
customer service can be very intense,
especially when large corporations are involved
providing quality products at a low prices is
necessary, but may not be sufficient
using conventional strategies may not be sufficient
fundamental change may be the only way to
succeed, or even to survive
using IT, a company can gain a significant
competitive advantage
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization
Strategic Advantage and
Information Technology
Strategic Information Systems (SISs)
support or shape an organization’s competitive strategy
outward: aiming at direct competition in an industry
inwardly: they are focused on enhancing the
competitive position of the firm by increasing
employee’s productivity, improving teamwork, and
enhancing communication
strategic alliances: two or more companies share an
inter-organizational system
strategic systems: one of the organization’s critical
responses to business pressures
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization
Strategic Advantage and
Information Technology (continued …)
The Role of Information Technology
IT creates applications that provide direct strategic
advantage to organizations
IT supports strategic changes such as reengineering
IT provides for technological innovations or acts as
an enabler of innovation
IT provides competitive intelligence by collecting
and analyzing information about innovations,
markets, competitors, and environmental changes
Competitive Intelligence (Industrial espionage)
drives business performance by increasing market
knowledge, improving internal relationships, and
raising the quality of strategic planning
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization
Competitive Intelligence
on the Internet
Intelligence Search Strategy Description
Review competitor’s Web sites Reveal information about marketing
information
Analyze related newsgroups Find out what people think about a
company and its products
Examine publicly available By entering a number of databases
financial documents and analyze findings
Do market research at your Pose questions to Web site visitors
own Web site
Use an information delivery service Find what is published on the Internet
to gather news on competitors and provide any desired information
Use corporate research Provide information ranging form risk
analysis to stock market analysts’
companies reports about competitors
Investigate chat rooms Enter and challenge participants to
express opinions regarding
competitors’ products
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Porter’s Competitive Forces
Model and IT
Porter’s Competitive Forces Model
competition - at the core of a firm’s success or failure
be used to develop strategies for companies to increase
their competitive edge
demonstrates how IT can enhances the
competitiveness of corporations
5 major forces:
Threat of entry of new competitors Threat of substitute products or services

Bargaining power of suppliers Bargaining power of customers (buyers)

Rivalry among existing firms in the industry
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Porter’s Five Forces Model
New Entrants
Entry Barriers Rivalry
Threat of Determinants
New Entrants
Industry
Bargaining Power
Competitors of Buyers
Suppliers Buyers
Bargaining Power
of Suppliers Intensity
of Rivalry
Threat of
Determinants of Substitutes Determinants of
Supplier Power Buyer Power
Substitute
Determinants of
Substitution Threat
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Porter’s Competitive Forces
Model and IT (continued …)
Response Strategies (Per Porter and Others)
Response strategies to competitive forces
Cost leadership strategy - producing at lowest cost
Differentiation strategy - being unique
Focus strategy - selecting a narrow-scope segment
Growth strategy - increasing market share
Alliances strategy - working with business partners
Innovation strategy - developing new products
Internal efficiency strategy - improving the manner
in which business processes are executed
Customer-oriented strategy - concentrating on
making customers happy
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization
Porter’s Competitive Forces
Model and IT (continued …)
How the Model is Used
The Players in each force are listed

An Analysis is made to relate
the determinants to each player listed
Devise a strategy to
defend a company against the forces,
based on specific players and the determinants

Look for supportive information technologies
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization
Impact of Competitive Forces
and the Role of IT
Key Forces Affecting
the Industry Business Implications Potential IT Responses
Threat of new entrants •Additional capacity Provide entry barriers/
•Reduced prices reduce access by:
•New basis for •exploiting existing
competition economies of scale
•differentiating
products/services,
•controlling distribution
channels
•segmenting markets
High power suppliers •Raise prices/costs •Implement sourcing systems
•Reduce quality of •Extend quality control into
supply suppliers’ operations
•Reduce availability •Use forward planning with
suppliers
Key Forces Affecting
the Industry Business Implications Potential IT Responses
High power buyers •Forces prices down •Differentiate products/
•Higher quality services and improve
demanded •Increase switching costs of
•Service flexibility buyers
required •Facilitate buyers product
•Encourage competition selection
Substitute products •Limits potential •Use differentiation strategy
threatened and profit •Incorporate IT into product,
•Imposes price ceilings service, or method of
provision
Intense competition •Price competition •Improve price/performance
from rivals •Need to develop new •Redefine products and
products and services services to increase value
•Distribution and •Redefine market segments
service become •Differentiate products and
critical services in distribution
•Customer loyalty channels and to consumers
required •Get closer to the end
consumer - understand the
user requirements
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Impact of Competitive Forces
and the Role of IT (continued …)
 Sustaining a Competitive Advantage
When SISs are combined with structural
changes in the organization, they can provide a
sustainable strategic advantage
Example: comprehensive strategic
information system used by Federal Express
provides a strategic advantage by building
and maintaining a first-class personnel
system
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization
Ineffective Organizations in the
Information Age
Principles and Methods that enhance the
development of the Industrial Revolution
Specialization of labor
Mass production (producing large quantities, storing
them, selling them at a later time)
Hierarchical organizational structure following
functional specialties with top-down lines of authority
Assembly lines that bring the work to the worker
whenever possible
Complex support systems for planning and budgeting,
resource allocation, coordination, and control
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization
Ineffective Organizations in the
Vendors,
Information Age (continued …)
Organization Customers
Suppliers
Logistics
Distribution Purchasing Finance R & D Production Sales Service
Distribution
Product development

Order fulfilllmetn

Planning, resourcing and control

Customer service

Business processes across
functional areas and organizational boundaries
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization
Ineffective Organizations in the
Information Age (continued …)
The Need for Integration
Integration should cross not only departmental
boundaries, but also organizational ones,
reaching suppliers and customers
Account numbers in an information systems
developed along departmental lines may not be
logically related and so cannot be used for
cross-referencing a customer’s accounts
Managers want to send letters to specific
customers
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Business Process Reengineering
- The Solution
Traditional solutions may not be effective

BPR = copy the definition
BPR = overcomes the problems cited earlier
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

BPR (continued …)
Principles of BPR
several jobs are combined into one
employees make decision
steps in the business process are performed in a natural
order, and several jobs get done simultaneously
processes may have multiple versions
work is performed where it makes the most sense
controls and checks are minimized
reconciliation is minimized
a hybrid centralized/decentralized operation is used
a single point of contact is provided to customers
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

BPR (continued …)
BPR, continuous improvement programs,
and IT support

Pressure

Continuous Rapid
improvements no intense yes BPR and
TOM, traditional unpredictable networked
strategies changes? organization

IT Support
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

BPR (continued …)
The Enabling Role of Information Technology
The IT tools for BPR
Simulation and visual simulation tools - to support
the modeling activities of BPR
Flow diagrams - made by specialized BPR tools
that are usually integrated with other tools
Work analysis - accomplished with tools that
conduct forecasting, risk analysis, and
optimization
Workflow software - places system controls in the
hands of end-user departments
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Changes in Work Rules Brought by IT
Old Rule Intervening Technology New Rule
Information appears in Shared databases, client/server Information appears
only one place at one time architecture, electronic mail simultaneously
wherever needed
Only an expert can Expert systems, neural Novices can perform
perform complex work. computing complex work.
Managers make all Decision support systems, Decision making is
decisions. enterprise support systems, part of everyone’s
expert systems job
Field personnel need Wireless communication and Field personnel can
offices to receive, send, portable computers, manage information
store, and process information highways, from any location.
information. electronic mail
You have to locate Tracking technology, Items are located
items manually. groupware, workflow software, automatically
client/server
Plans get revised High-performance computing Plans get revised
periodically. systems instantaneously
whenever needed.
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Changes in Work Rules Brought by IT
Old Rule Intervening Technology New Rule
People must come to Groupware and group support People can work together
one place to work systems, telecommunication, from different locations.
together. electronic mail, client/server
Customized products CAD-CAM, CASE tools, Customized products can be
and services are online systems for JIT made fast and inexpensively
expensive and take a decision making, expert (mass customization).
long time to develop. systems
A long period of time CAD-CAM, electronic data Time-to-market can be
is spanned between the interchange, groupware, reduced by 90 percent
inception of an idea imaging (document)
and its implementation processing
(time to market)
Work should be moved Robots, imaging Work can be also done in
to countries where labor technologies, object-oriented countries with high wages
is inexpensive (off-shore programming, expert and salaries.
production). systems
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Major Reengineering Activities
Redesign of processes
From mass production to mass customization
mass production
produces a large quantity of an identical, standard
product
mass customization
produces large volumes, yet customizes the products to
the specifications of individual customers
increases with the spread of electronic commerce,
which transforms the supply chain from a traditional
push model to a pull model
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Major Reengineering Activities
(continued …)
Cycle time reduction
IT makes a major contribution in
shortening cycle times by allowing
companies to combine or eliminate steps,
and to expedite various activities in the
business process
Cycle time reduction can result in gain a
substantial market share
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Restructuring Entire
Organizations Customer
Account
manager
Customer supported
demographics by ...

Checking Installment
accounts loans Expert system
Backed up by ...
Savings Mortgage
accounts loans

Trusts Etc Checking Loan
expect expect
Statement
Reengineered bank with Consolidate
integrated system d statement Etc
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Restructuring Entire
Organizations (continued …)
Networked organization
resemble computer networks and are supported
by computerized systems
away from the hierarchical organization toward
the networked organization due to the evolution
from an industrial-based economy to an
information-based economy
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Hierarchical vs. Networked Organization
Hierarchical Organization Networked Organization
Formal Informal
Highly structured Loosely structured
Manage Delegate/lead
Control Ownership/participation
Direct Empower
Employees a cost Employees an asset
Information Information
management-owned shared ownership
Flatter/ manageable
Hierarchical organizations organizations
Risk avoidance Risk management
Individual contributions Team contributions
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization
The Roles of Managers and
Subordinates
Hierarchical Flattened Network
Organization Organization Organization

Use of Authority
by the manager Area of Freedom
for Subordinates

Manager Manager Manager Manager Manager Manager Manager allows
makes presents presents presents defines permits situational
decisions and ideas and tentative problem, gets limits; subordinates to leadership to
announces or invites decision suggestions, asks group function within occur based on
“sells” it. questions. subject to makes to make limits defined which node of
change. decision. decision. by superior. the network is
best equipped to
solve problem.
1 2 3 4 5 6 7
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Restructuring Entire
Organizations (continued …)
Empowerment - the vesting of decision-making or
approval authority in employees in instances where such
authority traditionally was a managerial prerogative
Empowerment’s relationship to information technology
the provision of right information, at the right time
allows employees to make decisions
enhances the creativity and productivity of
employees, as well as the quality of their work
training can be enhanced by IT
enables non-managers to make decisions
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Ethical and Societal Issues
Unethical tactics
pressuring competitor’s employees to reveal
information
using software that is the intellectual property
of other companies without permission
using IT to monitor the activities of their
employees and customers, and in so doing they
may invade the privacy of individuals
Societal Issues
Reengineering efforts involve dramatic changes
in people’s jobs and working relationships
Jobs are eliminated
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Virtual Corporations
Characteristics of Virtual Corporations (VC)
Excellence. Each partner brings its core competence (area of
excellence) so an all-star winning team is created. No single
company can match what the virtual corporation can achieve.
Full utilization of resources. Some resources of the business
partners are sometimes underutilized when not in a VC.
Opportunism. The partnership is opportunistic. A VC is
organized to seize market opportunities.
Lack of borders. It redefines traditional boundaries.
Trust. Business partners in a VC must be far more reliant on
each other and more trusting than ever before.
Adaptability to change. The VC can adapt quickly to
environmental changes because its structure is relatively simple.
Technology. IT makes the VC effective and efficient.
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

Virtual Corporations (continued …)
How IT Supports Virtual Corporations
IT allows communication and collaboration among
the dispersed business partners
Standard transactions are supported by electronic
data interchange and EFT
Modern database technologies and networking
permit business partners to access each other’s
databases
Lotus Notes and other groupware tools permit
diversified interorganizational collaboration
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

What’s in IT for Me?
For Accounting
The accountant must understand these
technologies and the role of IT to collect the
data for justification of the investment
For Finance
Finance people must understand the nature of
these technologies and the manner in which
they enable organizations to seize
opportunities and solve problems
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

What’s in IT for Me? (continued …)
 For Marketing
SIS and/or BPR are likely to change
distribution channels, order fulfillment,
customer service, and many tasks that are under
the control of marketing and sales
For Production/Operations Management
BPRs are most likely to completely change
existing business processes including
production lines, materials handling, design,
and inventory systems
Introduction to Information Technology
Turban, Rainer and Potter
Chapter 13 Strategic Information Systems and Reorganization

What’s in IT for Me? (continued …)

 For Human Resource Management
What makes SIS and BPR different is the
magnitude of the organizational changes
that could disrupt the operation of the
organization if not handled properly by
management and HRM