Management

Information Systems

Strategic Uses of Information

Systems
 Objectives

• Explain what business strategy and 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
 Objectives (continued)

• Identify fundamental requirements for

developing strategic information systems
• Explain circumstances and initiatives that
make one IT strategy succeed and another fail
 Strategy and Strategic Moves

• Strategy: plan to gain advantage over enemy

• Business strategy is plan to outperform competitors
– Done by creating new opportunities, not
beating rivals
• Strategic Information System: Information system
that create and seize opportunities
• Strategic Advantage: Using strategy to maximize
company strengths
Porter’s Five Forces Model
 Achieving a Competitive Advantage

• Many initiatives used to gain competitive

advantage
• Strategies aim to maximize competitive
advantage
• Strategic moves often consist of combination
of two or more initiatives
• Essence of strategy is innovation
Achieving a Competitive Advantage
(continued)
Achieving a Competitive Advantage
(continued)
 Initiative 1: Reduce Costs

• Customers want to pay little for service

• Reduce costs to lower price
• Automation greatly reduces costs
• Web can automate customer service
Initiative 2: Raise Barriers to Market
Entrants
• Less competition is better for company
• Raise barriers to entrants to lower competition
• Techniques include obtaining copyrights and
patents on inventions, techniques, and services
• Building unmatchable information systems
blocks entrants
Initiative 3: Establish High Switching
Costs
• Switching costs: incurred when customer stops
buying from company and starts buying from
another company
– Explicit: charge customer for switching
– Implicit: indirect costs over period of time
• High switching costs locks in customers
 Initiative 4: Create New Products or
Services
• Having unique product or service gives
competitive advantage
• First mover: organisation that is first to offer a
new product or service
– Superior brand name, better technology, more
experience
• Critical mass: body of clients that is large
enough to attract other clients
 Initiative 5: Differentiate Products or
Services
• Product differentiation: persuading
customers that product is better than
competitors’
– Achieved through advertising
– Exemplified by brand name success
– Promotes brand name
 Initiative 6: Enhance Products or
Services
• Enhance existing products or services to
increase value to consumer
• Many products and services have been
enhanced by the Web
 Initiative 7: Establish Alliances

• Alliance: two companies combining services

– Makes product more attractive
– Reduces costs
– Provides one-stop shopping
• Affiliate program: linking to other companies
and rewarding the linker for click-throughs
Initiative 7: Establish Alliances
(continued)
 Initiative 8: Lock in Suppliers or
Buyers
• Accomplished by achieving bargaining power
• Bargaining power: leverage to influence buyers
and suppliers
– Achieved by being major competitor or
eliminating competitors
– Uses purchase volume as leverage
• Lock in clients by creating high standards
 Creating and Maintaining Strategic
Information Systems
• Many opportunities to accomplish competitive edge
with information technology
• Innovative software establishes competitive advantage
• Strategic information systems created from scratch or
modified from previous system
– Must serve organisation goal
– Must collaborate with other functional units of
company
 Creating an SIS

• Strategic information system must be part of

the overall organisational strategic plan
• Precisely measuring financial output of SIS is
difficult
Creating an SIS (continued)
 Reengineering and organisational
Change
• To implement SIS, organisations must rethink
way of operation
• Reengineering: Eliminating and rebuilding
operations from the ground up
– Involves new machinery and elimination of
management layers
– Achieves huge efficiency improvements
• New SIS requires businesses to revamp processes
 Competitive Advantage as a Moving
Target
• Competitive advantage is often short-lived
• organisations imitating leader diminishes
advantage
• SIS has become expected business practice
• Company must modify and enhance technology to
sustain competitive advantage
 JetBlue: A Success Story

• JetBlue: US airline company that entered a

formerly hurting market with great success
– Ticketless travel
– Automation with IT
– Reduced costs
– Improved service
 Massive Automation
• JetBlue used Open Skies software to automate
ticket handling
– Greatly reduced travel agent fees
• Maintenance information system logs airplane
parts and time cycles
• Flight planning automated with application
• Training management system eliminates need
for paper records
 Away from Tradition

• JetBlue used innovative technique for routing

airplanes
– Take most profitable route between cities
• Keeping flight manuals on laptop computers
allows for paperless cockpits
– Saves time associated with calculating weight
of plane
 Enhanced Service

• JetBlue offers better service

– Leather seats
– Real-time television
– Fewest mishandled bags
– Better security
 Impressive Performance

• Most important metric in airline industry is

cost per available seat-mile
– Measures how much it costs to fly a passenger
one mile
• JetBlue has lowest or second lowest CASM
– (Cost per Airline Mile Seat)
– Less than 7 cents
 Late Mover Advantage

• Late mover: enters the market later than other

competitors
– Can be viewed as advantage
– Implements latest available technologies
– Not burdened with legacy systems
• JetBlue used 40% beta software
 Ford on the Web: A Failure Story

• Some strategic moves end up being colossal

failures
• May fail because of lack of attention to details
• Unable to predict customer or business partner
response
• Jacque Nasser, CEO of Ford: ideas failed
 The Ideas

• Nasser eager to push company to Web

• Install devices in vehicles to enable drivers and
passengers to access Web
• Establish Web site to market parts with
auctions
• Push vehicle sales to Web
 Hitting the Wall

• Customers not interested in Web access in

vehicles
• Other car companies learned to use online part
auctioning
• Franchising laws do not allow car companies
to bypass dealers
• Online sales initiative failed
 The Retreat

• Ford abandoned plan to sell directly online

• Web site was used instead to select proper
model only
• Site sold cars but not enough to save Nasser’s
job
 The Bleeding Edge

• Ford case shows being first mover is risky

• Pioneers can be burned even with careful
planning
• Bleeding edge: failure occurring because of
company trying to be on leading edge
– Implementation costs are greater than
anticipated
– Technology ends up losing money for company
 The Bleeding Edge (continued)

• Due to bleeding edge, companies wait before

implementing newer technologies
• Microsoft’s approach is to seize existing idea,
improve, and promote with marketing power
– Also known as competing by emulating and
improving
 Summary
• Some information systems have become strategic
tools as a result of strategic planning
• Strategic information systems help companies
gain strategic advantage
• Company achieves strategic advantage by using
strategy to maximize its strength
 Summary (continued)

• Various initiatives to establishing advantage

– Cost reduction, raising barriers to competitors,
establishing high switching costs, new
products, differentiating products, enhancing
products, alliances, and locking suppliers
• Creating standards establishes strategic
advantage in software industry
 Summary (continued)

• Reengineering is process of designing a

business process from scratch to accommodate
new information systems
• Strategic advances from information systems
are short lived and new opportunities must
always be searched for
• Bleeding edge is the undesirable result of a
failed innovation effort