1

Chapter 3Chapter 3

Strategic Information Systems

for

Competitive Advantage

Case: Rosenbluth International Rosenbluth Int. - a global player in the travel agency industry They responded with 2 strategies

Withdrawal from the leisure travel business Implementation of web-based travel technology

DACODA (Discount Analysis Containing Optimal Decision Algorithms) Electronic Messaging Services E-Ticket Tracking Solution Res-Monitor A Globalization Network Customer-Res IntelliCenters NOC (Network Operations Center)

Lessons from the Case Need for exchange business models and strategies Importance of web-based IT Global competition over service is key Large investment over time Importance of networked infrastructure for global systems Web-based applications for superior customer service Need to patent innovative systems

Strategic Advantage and IT Strategic Information System (SIS)

Definition Systems that support or shape a business unit’s competitive

strategy Competitive Advantage

An advantage over competitors in some measure such as cost, quality, or speed

A difference in the Value Chain Data

Improving Core Competency Employee productivity Operational efficiency

Approach Outwardly - Aiming at direct competition Inwardly - Focused on enhancing the competitive position of the

firm Strategic alliance

Strategic Information Systems (SISs)

SISs provide strategic solutions to the 5 Business Pressures

Any information system--EIS, OIS, TPS, KMS--that changes the goals, processes, products, or environmental relationships to help an organization gain a competitive advantage or reduce a competitive disadvantage.

strategic management

Strategic management the way an organization maps or crafts the strategy of

its future operations

3 Elements Long-range planning Response management Proactive innovation

Strategic Evaluation & Development

SWOT Analysis Product Life Cycle Quality Preference

CompetitiveAdvantage

Position,Capabilities, Cost-

Quality Curve,Sustainability Company

ARC,Coordination,

Incentives,Explorer-ExploiterValue Chain

Creation/Capture,PIE, Supplier,

Buyer

Performance

ProductDifferentiation,Substitutions

CompetitionLife Cycle, Market

Structure, Behavior,Barriers to Entry

StrategyScope, Goals,CompetitiveAdvantage,

Logic

IntroductoryStage

GrowthStage

MaturityStage

DeclineStage

TotalMarketSales

TimeLaggards

LateMajority

EarlyMajority

EarlyAdopters

Innovators

"TheChasm"

Technology Adoption Process

Weaknesses

Opportunities Threats

Strengths

targetmarket

Mental Map

SCOPE

ExitStrategy

CashCows

Stars

Marke

t grow

th rate

Relative market share

?

Time&

Action

OligopolyDominantMonopoly

NicheCompetitive

$

Low

High

High

Low

Preference

January 2002

S M T W T F S

1 2 3 4 5

6 7 8 9 10 11 12

13 14 15 16 17 18 19

20 21 22 23 24 25 26

27 28 29 30 31

Implement

G1 G2 G3 G4 G5 G6

Demand

NeedsAnalysis

Strategy Evaluation & Development

Competitors

Management

Strategy Statement

A

B

CD

E

F

G H

The role of IT in Strategic Management

Innovative applications - Create innovative applications that provide direct strategic advantage to organizations

Competitive weapons - IS(s) themselves are recognized as a competitive weapon

Changes in processes - IT supports changes in business processes that translate to strategic advantage

Links with business partners - IT links a company with its business partners effectively and efficiently

Cost reductions - IT enables companies to reduce costs Relationships with suppliers and customers -IT can be used

to lock in suppliers and customers, or to build in switching costs New products -A firm can leverage its investment in IT to create

new products that are in demand in the marketplace Competitive intelligence - by collecting and analyzing

information about products, markets, competitors, and environmental changes

Competitive Intelligence (cont.)

The Internet is central to supporting competitiveintelligence

Such activities drive business performance by

Increasing market

knowledge Improving internal

relationships Raising the quality of

strategic planning

Many companies monitor the activities of competitors

Overview One of the most important aspects in developing a competitive

advantage is to acquire information on the activities and actions of competitors

Collect information about market, technologies, and government’s actions

Analyze and interpret the information

Competitive Advantage in the Web Economy

Competitive Advantage

Look for a competitive

necessity, which will help your

company keep up with the

competitors.

Competitive Strategy

Search for a competitive

advantage in an industry, which leads to control of the market.

Sustainable Strategic

Advantage

Maintain profitable & sustainable

position against the forces that

determine industry

competition.

Internet & Competitive Intelligence

Porter’s Competitive Forces Model

The model recognizes five major forces that could endanger a company’s position in a given industry 5 major forces

The threat of entry of new competitors The bargaining power of suppliers The bargaining power of customers (buyers) The threat of substitute products or services The rivalry among existing firms in the industry

Use of the model List players in each competitive force Relate the major determinants of each competitive force Devise a strategy Look for supportive IT

External External CompetitiCompetitive Forcesve Forces

Porter’s 5 Forces Model

The analysis First Competitive Force - Competitor Analysis

What Drives them? What are they Doing and can do? What are their strengths & weaknesses? Is Competition intense?

Second Competitive Force - Entry Barriers If nothing slows entry of competitors competition will become intense. Incumbent Reaction? What Actions are required to build market share? Production Process?

Third Competitive Force - Substitute Products Products or services from another industry enter the market Customers becoming acclimated to using substitutes Is the substitute market growing?

Fourth & Fifth Competitive Force – Supply Chain Suppliers/Buyers? Who controls the transaction? Each element adds value – question who captures it?

Porter’s model for Wal-Mart

Impact of competitive forces & role of IT

Key force Business implications Potential IT effectsThreat of new entrants

Additional capacityReduced pricesNew basis for competition

Provide entry barriers/reduce access by:exploiting existing economies of scale differentiate product and servicecontrol distribution channelssegment markets

Buyer power high

Force price downDemand higher qualityRequire service flexibilityEncourage competition

Differentiate product and service Improve price/performanceIncrease switching costs of buyerFacilitate buyer product selection

Supplier power high

Raise prices/costsReduced quality of supplyReduced availability

Supplier sourcing sys.Extended quality control into supplierForward planning with supplier

Substitute products threatened

Limits potential market & profitPrice ceilings

Improve price/performanceRedefine product and service to increase value Redefine market segments

Intense competition from rivals

Price competitionProduct developmentDistribution and service criticalCustomer loyalty required

Improve price/performanceDifferentiate product and service in distribution channel and to consumerGet closer to end customer

Strategies for Competitive Advantage

Niche/FocusSelect a narrow-scope segment (niche

market) and be the best in quality, speed, or cost in that market

DifferentationBeing unique in the

industry

Cost leadershipProvide products and/or

services at the lowest cost in the industry

GrowthIncrease market share, acquire more customers or selling more products

Improve internal efficiencyTo improve employee & customer satisfaction

CRMCustomer-oriented approaches

(the customer is king)

AlliancesWorking with business partners to create synergy & provide opportunities for growth

InnovationDeveloping new

products & services

TimeTreat time as a resource, then manage it and use it to the firm’s advantage

Lock in customers/suppliers

Encourage customers/suppliers to stay with you rather than going to

competitors

Entry-barriers

Developing new products &

services

Increase switching costDiscourage

customers/suppliers from going to competitors for

economic reasons

Porter’s value chain model

The initial purpose of the value chain model was to analyze the internal operations of a corporation, in order to increase its efficiency, effectiveness, and competitiveness. We can extend that company analysis, by systematically evaluating a company’s key processes and core competencies to eliminate any activities that do not add value to the product.

The airline industry value chain

VALUE SYSTEM A firm’s value chain is part of a larger stream of activities, which Porter calls

a “Value System”. Includes the suppliers that provide the necessary inputs AND their value chains Applies to both products & services, for any organization, PUBLIC or PRIVATE Is the basis for the Supply Chain Management Many of these alliances and business partnerships are based on Internet connectivity are

called interorganizational information systems (IOSs) Used to

Evaluate a company’s process and competencies Investigate whether adding IT supports the value chain Enable managers to assess the information intensity and the role of IT

These Internet-based EDI systems offer strategic benefits Faster business cycle (PO to Receiving) Automation of business procedures (Automated Replenishment) Reduced operational costs Greater advantage in a fierce competitive environment

Consortia – Horizontal vs. Vertical

Global Competition Growth of Companies Operating in a Global Environment

Fully Global or Multinational Corporations Companies that export or import Companies facing competitions of low labor cost and high natural

resources Companies with low cost production facilities abroad Small companies that can now use EC to buy/sell internationally

Global dimensions along which management can globalize Product Markets & Placement Promotion Where value is added to the product Competitive strategy Use of non-home-country personnel - labor Multidomestic Strategy: Zero standardization along the global

dimensions. Global Strategy: Complete standardization along the seven global dimensions.

Global business drivers framework

SISs: Examples Cases

Wiring the “customer supply chain” at 1-800-Flowers Increasing Tax Collection Efforts at the Wisconsin Department of

Revenue Time-based Competitive Advantage at Cannondale Southwest Airlines Flies high with SWIFT Using ERP to Meet Strategic Challenges at Turner Industries The Port of Singapore exports its intelligent systems over its enterprise

portal Problem - The Port of Singapore, the world’s largest international port,

faced increased global competition. Solution - Implementation of Intelligent Systems Results

Reduction in Cycle Time: 4 hours versus 16 - 20 hours in neighboring ports Reduction in uploading/ loading time: 30 sec. versus 4-5 min./ truck in neighboring ports

The Summary – Table 3.2 (p. 115)

SIS Implementation & Sustaining SIS Major Issues in SIS Implementation

Justification Justifying SIS may be difficult due to the intengible nature of their benefits

Risks & Failures The magnitude, complexity, continuous changes in technology and business

environment may result in failures Finding appropriate SIS

Identifying appropriate SIS is not a simple task

Sustaining SIS & Strategic Advantage A Major problem that companies face is how to sustain their SIS competitive

advantage. 3 Major approaches

Create inward systems which are not visible to competitors Provide a comprehensive, innovative & expensive system that is difficult to

duplicate Combine SIS with structural changes. This would include business processes,

reengineering & organizational transformation

Managerial Issues

Implementing SIS Can Be Risky The investment involved in implementing SIS is high

Strategic Information Systems Requires Planning Planning for an SIS is a major concern of organizations

Sustaining Competitive Advantage Is Challenging. As companies become larger and more sophisticated, they

develop resources to duplicate the systems of their competitors quickly.

Ethical Issues Gaining competitive advantage through the use of IT may

involve unethical or even illegal actions Companies can use IT to monitor the activities of other

companies and may invade the privacy of individuals working there.