261446 Information Systems

Dr. Kenneth Cosh

Lecture 2

Review

What is MIS? What types of information system are we

dealing with? How has the role of information systems

changed? Business Pull factors Technology Push factors

What distinct era’s has IS been through?

Today’s Topic

Strategic Information Systems Five Forces How IS drives alternative strategies The Value Chain Using IT for Strategic Advantage

Strategic Information Systems

No longer is IS an afterthought when considering corporate strategy, now it is often either the ‘cause’ or the ‘driver’ of strategy. Cause;

Taking advantage of some core competency within the organisation’s IT.

Driver; Using IT to realise the organisation’s strategy.

Strategic Information Systems A strategic information system is any information

system which helps an organisation gain any kind of competitive advantage.

Michael Porter’s model of competitive strategy suggests that any business which wants to survive and succeed has to develop strategies to counter 5 key forces. Rivalry of Competitors Threat of New Entrants Threat of Substitutes Bargaining power of Customers Bargaining power of Suppliers

Porter’s 5 Forces

Threat ofNew Entries

Bargaining Powerof Buyers

Bargaining Powerof Suppliers

Threat ofSubstitutes

Intensityof

Rivalry

Bargaining Power of Customers

Buyer concentration vs Firm Concentration Buyer Volume Buyer switching costs Ability to backward integrate Price Sensitivity Product Differences Brand Identity Impact of quality / performance Buyer Profits

Bargaining Power of Suppliers

Differentiation of Inputs Switching costs of suppliers Supplier Concentration Ability to forward integrate

Threat of Substitutes

Impact on Supplier & Buyer Power

Threat of New Entries

Economies of Scale Brand Identity Switching costs Capital Requirements Access to Distribution Cost Advantages Government Policy Expected Retaliation

Intensity of Rivalry

Industry Growth Product Differences Brand Identity Switching Costs Diversity of Competitors Exit Barriers

Determining Strategy

Combine Porter’s Analysis with SWOT Reduce Costs Raise Barriers to Market Entrants Establish High Switching Costs Create New Products or Services Differentiate Products or Services Enhance Products or Services Establish Alliances Lock-in Suppliers or Buyers

Reduce Costs

Gain advantage by selling more units at a lower price while maintaining/increasing it’s profit margin Automation

Production using robots Web based customer service

FAQs

Convert task from being labour intensive to being technology intensive.

Raise Barriers to Market Entrants

Deters competition, thus increasing market potential Gaining legal protection

Intellectual Property Amazon.com owns a patent for one-click online purchasing

until 2017 It also owns a patent for techniques to predict what the

customer may buy in the future. Expense of entering market

Essential, but bespoke software.

Establish High Switching Costs

Economically infeasible for customers to switch to a new supplier Direct

Contracts which are expensive to break (e.g. mobile phone contract).

Indirect Time and money expense of learning how to use

Open Office. Consider printers! Cheap printer, but expensive

ink catridges.

Create New Products / Services

Gain first mover advantage Be the first to deliver a new product (that the

customers want) Lotus 1-2-3 Spreadsheet program

But how long did this advantage last? E-Bay – the first online auction

But how long will it last? Netscape?

Differentiate Products or Services

Persuading customers my product is better than anyone elses. Skype

Not the first internet telephone service, but better than competitors

Differentiated by adding video and other features such as mobile…

Enhance Products / Services

Add value to existing products / services Perhaps by adding information / help to a web

portal Offering traditionally physical transactions via the

internet

Establish Alliances

Focus on our core competency, but work closely with experts in symbiotic markets. Strategic Alliances allow the tourism industry to

offer complete vacation packages; Combining flights, hotels, car rental, restaurant,

mobile phones etc. Affiliate programs?

The web allows anyone to create an alliance with another service provider or retailer.

Lock-in Suppliers / Buyers

Depends entirely on bargaining power. Walmart has power to influence its suppliers, such that

they are locked in to them Software industry

often customers fear high switching costs, and if the software provider continues to improve their product…

Flash Free to download, but buy the development tool. The more

people who download the player, the more companies are willing to invest in the development kit – and the more companies who invest, the more people download…

Competitive Strategies

5 key strategies (and some others) have been developed to counter the threats of competitive forces. Cost Leadership Differentiation Innovation Growth Alliance

Cost Leadership

Become the low-cost producer of products, by finding ways to lower our costs, lower our customers and suppliers costs or increase our competitors costs. IT can drive cost reduction, such as reducing

labour costs. SCM systems can assist reducing suppliers costs

(Walmart). Online Price adjustment, to match best match

competitors prices.

Differentiation

Develop ways to make our product different from our competitors (or reduce our competitors differentiation). Focus on a niche or market segment. IT can assist by introducing IT features to a product such

as a camera on a phone. Reduce competitors by integrating their differentiated ideas

(adding a camera to our phone too!) Ross Operating Valves, allows customers to design their

desired valves online.

Innovation

Find new ways of doing business, developing new markets or unique products. Making changes to business processes to change the way business is done within the industry. Create new products which include IT, e.g. online stock

trading Amazon constantly innovates introducing new products /

services Paypal introducing a system for making payments online.

Growth

Increasing capacity to produce more goods and services, expanding into global markets or diversifying into new products. Using IT to manage global business, such as by

using a global intranet Using technology to increase capacity, through

automating processes.

Alliance

Building alliances with suppliers, customers, competitors, consultants etc. Creating links through mergers, acquisitions or joint ventures. Creating ‘virtual’ organisations Use technology to improve communication channels

between alliance partners Walmart links with supplier to enable automatic inventory

replenishment – a win win alliance. Online inventory management for supplier, with shipment

tracking for customer.

The Traditional Value Chain

InboundLogistics

Operations OutboundLogistics

Marketing& Sales

Services

Core Operating Activities

Support Activities

Human Resource Management, Infrastructure, Information Technology

The Value Chain

R & D Procurement Production Marketing& Sales

After SalesServices

Core Operating Activities

Infrastructure

Facilities & Equipment Technology People

Information

Data Information Knowledge

Adding Value

Companies make their profits by adding value at some stage in the value chain.

Gaining Economies of Scale Gaining Economies of Scope

Economies of Scale

Occur when mass producing a product, a lower average cost is attained. Technical Managerial Financial Marketing Commercial R & D

Network Economies of Scale

A “Community” of firms share infrastructure, capabilities, customer base etc. to produce and distribute products faster and cheaper etc.

Economies of Scope

The average total cost of production decreases as a result of increasing the number of different goods produced. For Example, McDonalds can produce

Hamburgers & Fries cheaper than other companies could produce either individually.

Network Economies of Scope

The “Community” shares infrastructure to produce and distribute new products and services, enter new markets etc. quicker and cheaper etc.

Further ways IS can impact on Strategy

Building a Customer-Focused Business Business Process Re-engineering Improving Business Quality Becoming an ‘Agile’ company Creating a Virtual Company Building a Knowledge Creating Company

Building a Customer Focused Business

CustomerDatabase

TransactionDatabase

Give all employees a

complete view of each customer

Allow Customers toPlace orders

directly

Let customersPlace orders

Through Partners

Link employeesAnd partners

With databasesAnd customers

Let customersCheck orderHistory and

Delivery statusIntranet

Intranet, Extranet

Internet

Internet, Extranet

Internet

Website

MakeCustomersSpecial with

Personalisation

Build a Community ofCustomers,Employees& Partners

Business Process Reengineering (BPR)

Improving Business typically offers small increments in performance, Re-engineering involves complete, radical redesign of business processes.

As process is often an alternative word for system (a process is comprised of hardware, software, people, communication & data), so Systems Analysts often play a key role in re-engineering. Normally the re-engineered business will include new computer based information systems.

Most processes include multiple business functions, so for effective re-engineering multiple functions need to be included – IS plays a major role in co-ordinating BPR.

Improving Business Quality

IT can be used in many ways to improve quality; Statistical Quality Control Machine Calibration Extranet Customer Complaint Reporting Tools

Becoming an ‘Agile’ Company Agile companies are able to react quickly to changes.

Typically Large organisations have rigid structures and long communication channels

Entrepreneurial organisations have shorter communication channels and empowered employees.

Over the last decades large organisations have tried many ways to improve their agility – downsizing, rightsizing, outsourcing etc.

Recently improvements within networked communication technologies have enabled organisations to introduce novel organisational structures to improve communications, making them more ‘agile’.

Creating a Virtual Company

Virtual Companies are where interenterprise alliances are formed electronically linking distinct organisations to achieve common goals.

Business functions can be further broken down, outsourced with shared infrastructure, systems and technologies.

The Cunningham car company manufactures and retails cars (sporty type cars), but they don’t actually do any of the work themselves, the entire supply chain is outsourced.

Building a Knowledge Creating Company

Knowledge Management Systems (KMS) are now commonly being built to generate and share organisational knowledge.

A learning organisation rewards employees who contribute to systems their knowledge about their business and industry.