Chapter2 ISM Schwab

7/25/2019 Chapter2 ISM Schwab

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Chapter 2

Information Technologys Strategic

Importance


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The Current Challenge

Walter Wriston, former Chairman of Citicorp,The essence of an information strategy isto turn the burden of burgeoning business

data into a bounty of business opportunity.The business organiation has to be rebuiltaround the goal of managing information

producti!ely. The ob"ect of the game is toget information to the person or companythat needs and can use it in a timely #ay.$


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Strategic Issues for Senior%&ecuti!es

'. (btain or maintain competiti!e ad!antage

2. )se the Web to facilitate intra* and inter*organiational lin+ing

. %nable decentralied operations #ith effecti!ecentral coordination

-. e!elop fle&ible and responsi!e infrastructures

for the firm/. Capitalie on fleeting but critical business

information


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Time Criticality of Information

0odern IT enables the creation of highlydecentralied operations that can rapidlyrespond and e&ploit high !alue information that

is short li!ed These decentralied structures must be 1uic+ly

adaptable to shifting opportunities in a highlycompetiti!e en!ironment

y enabling these agile operations, IT can bee&pected to directly contribute to the bottom line


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Strategic Information Systems

These are information systems #hoseuni1ue functions or specific applicationsshape an organiations competiti!e

strategy and pro!ide it #ith competiti!ead!antage3 These are internal or e&ternal systems

3 These systems pro!ide a firm #ith competiti!ead!antage

3 Systems range from transaction processingsystems to decision*support systems


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IS4IT for Competiti!e 5d!antage

Competiti!e 5d!antage

3 That !alue percei!ed by the customer thatma+es the customer purchase your product

instead of your competitors

Interorganiational systems


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6isualiing Competiti!e 7orces

0ichael 8orter de!eloped a model to help!isualie competition

To gain a competiti!e edge #ithin ane&isting industry competitors must9

3 iminish customer and supplier le!erage

3 :o#er the possibility of substitute productsentering the mar+etplace

3 iscourage ne# mar+et entrants


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Porters Model of Industry

Competitive Forces

Your

Firm


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Competitive Forces

Your

Firm

Threat of

New Entrants


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Competitive Forces

Your

Firm

Threat of

New Entrants

Bargaining Power

of Suppliers


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Competitive Forces

Threat of

Substitute Products

or Services

Your

Firm

Threat of

New Entrants

Bargaining Power

of Suppliers


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Competitive Forces

Threat of

Substitute Products

or Services

Your

Firm

Threat of

New Entrants

Bargaining Power

of CustomersBargaining Power

of Suppliers


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Competitive Forces

Threat of

Substitute Products

or Services

Your

Firm

Threat of

New Entrants

Bargaining Power

of Customers

Level of

Industry Rivalry

Bargaining Power

of Suppliers


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Porters Model of Competitive

Advantage StrategiesLow cost/price efficiency

Differentiation

Special market niche/Innovation


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Strategic Thrusts

In ';


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Strategic Roles of Information

SystemsImprove Operational Efficiency

Promote Business Innovation

Build Strategic IT Resources ?????????


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Strategic Roles for Information

SystemsCreate barriers to entry

Impacts new entrants

Lock In customersImpacts bargaining power of customers

Lock in suppliers

Impacts bargaining power of customersCreate switching costs


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Electronic Data

InterchangeSupplier

Decreases bargaining power of customers

Makes it difficult for competitors

Makes it more difficult to enter industry

Customer

3 ecreases bargaining po#er of suppliers

3 Impro!es efficiency * lo#ers cost


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ifferentiation

The firms products or ser!ices aredistinguished from competitors productsor ser!ices, or con!ersely a ri!als

differentiation is reduced3 7or e&ample, 5utomated Teller 0achines

>5T0s? distinguish the ser!ices of some

financial institutions from others


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Cost

5d!antage is attained either by reducingcosts to the firm, to its suppliers, orcustomers, or by increasing costs incurred

by competing firms3 7or e&ample, ad!anced order*entry systems

or business*to*business e*commerce systems

reduce both suppliers and customersbusiness costs


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Inno!ation

Introducing changes to the product orprocess causes fundamental shifts in the#ay the industry conducts its business

3 Web*based trading #as introduced by somebro+erage firms, and became #idely offeredby others as the standard le!el of ser!ice

e&pected by customers began to includeWeb*based access


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=ro#th

5d!antage is secured by e&pansion,for#ard or bac+#ard inno!ation, or bydi!ersification in product or ser!ices

3 The Wall Street @ournal and other nationalne#spapers used electronic transmission andremote printing facilities to create a national

distribution, thus e&panding the potentialmar+et


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5lliance

7irms achie!e ad!antage by establishingagreements, forming "oint !entures, orma+ing ac1uisitions

3 0any national companies use "oint !enturesfor strategic thrusts. %!en ri!als "oin togethersuch as 0icrosoft and I0 #hen it ser!es a

mutual purpose


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Time 3 a si&th strategy4thrust

Competiti!e ad!antage is secured by rapidresponse to changing mar+et conditions orby supplying a more timely flo# of

products or ser!ices3 %lectronic design automation tools, C54C50

systems, and production logistics systems are

thrusts that increase manufacturingsresponse to the mar+etplace


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Ae# %conomy 8aradigms

The Internet and the World Wide Webha!e enabled firms to capture thead!antages of all si& thrusts 1uic+ly

The Internet has reshaped the competiti!elandscape for business and industry

The Internet has created a globalmar+etplace #ith increasing internationaltrade


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Strategic Systems in 5ction

(!er the past t#o decades, information systemsha!e been used to create !alue in business.T#o industries, airlines and financial ser!ices,

created systems that ha!e resulted in significantcompetiti!e ad!antage to their o#ners.

These systems ha!e not been static, and theire!olution is impressi!e gi!en the dramatic

changes in technology and the businessen!ironment o!er time.


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5irline Beser!ation Systems

In the ';Ds, 5merican 5irlines createdS5B% >Semi*5utomated usinessBesearch %n!ironment?

Initially in!ested E/D million to create thesystem

3 8ro!ides reser!ation ser!ices for airlines,

hotels, and rental cars3 :in+s tra!el agencies, pri!ate or corporate

tra!el systems, and Internet customers


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S5B% %!olution

55 continued to e&pand the system andpro!ide outsourcing reser!ation ser!icesto competitors

3 Integrated bac+ office management for tra!elagencies

35dded a yield*management system tooptimie fare structure and load factors

35n upgraded yield*management system in';;F increased corporate profits by E2DDmillion


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Competitors

)nited 5irlines created 5pollo$ in the';FDs to compete #ith S5B%3 Initial cost of E2/D million

3 ';renamed =alileo?

3 =alileos I8( in ';;F !alued the company atE2./ billion

3 In ';;;, =alileo earned E2'< million onre!enues of E'./ billion


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Internet*ased Systems

5las+a 5ir =roup created IT0s >Instant Tra!el0achines?3 These machines use a +ios+ type interface to create

tra!el reser!ations in hotels, airports, and businesslocations

3 They bring the po#er of ad!anced reser!ationssystems to busy tra!elers in a con!enient location

3 Coupled #ith paperless tic+eting >e*tic+ets?, thesetechnologies are reducing business cost andincreasing customer access


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Stoc+ ro+erage Systems

In ';FF, 0errill :ynch introduced the C05>Cash 0anagement 5ccount?3 Combined chec+ing accounts, debit cards,

and margin*based bro+erage accounts into asingle entity

3 Customers recei!ed a consolidated accountstatement at the end of the month

3 Cash #as automatically s#ept into a moneymar+et account

3 y ';


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C05 %!olution

';


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C05 Intellectual 8roperty

0errill #as granted )S patent ----2 in5ugust ';


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Internet*ased Competitors

The bro+erage industry under#entdramatic changes #ith #idespreadInternet use

3 arriers to entry #ere remo!ed as local officeinfrastructure became less important toin!estors

3 Charles Sch#ab, %*Trade, 7idelity, and othersembraced Internet transactions to e&pand andincrease mar+et share


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Sch#ab.com 7eatures


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Strategic %*usiness Systems

Internet*based technologies can radicallyreshape mar+ets resulting in massi!erealignment of customer and partner

relationships35irlines pre!iously !ie#ed tra!el agents as

their customers. ue to Web portals, they

increasingly !ie# indi!idual tra!elers ascustomers, no# that they ha!e been gi!endirect access to boo+ing and flight information


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Where are the (pportunities

0ost commonly, opportunities presentthemsel!es asproduct or serviceofferingsthat differentiate themsel!es

from others through the application of IT Inno!ati!e use of technology in the right

application

3 :o#ers business costs

3 Beduces time barriers


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Importance of Technology

5d!anced technology shapes the productsand ser!ices of the future

IT offers opportunities for inno!ati!e

organiations to increase their !alue Information is so fundamental to business

today, that small ad!ances in information

management are magnified as theseincreases are amplified across businessprocesses


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The Time imension

Time is an irreplaceable asset and sourceof competiti!e ad!antage

Information Technology and moderntelecommunications systems are #ellsuited to le!eraging time as a strategicthrust

@ust*in*time manufacturing >@IT? is acommon e&ample


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0connell ouglas Corp

Implemented a @IT system for coordinationof #or+ flo#. The resulting systemre1uired9

3 ''' ne# programs

3 0odifications to ;F other programs

3 ';DD person hours of programming labor

3 0eetings for pro"ect planning and e&ecution

f


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@IT enefits at 0connellouglas


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0edia rea+s

0edia brea+s occur #hen informationgoes from !oice to paper, paper to digitalor other li+e transitions

3 0edia brea+s re1uire human inter!ention,incur costs, ris+ errors, and ta+e time

3 )nified information systems eliminate media

brea+s, decreasing cost in time and money


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Strategic 6alue of Aet#or+s

(ffers significant reductions in time anddistance barriers

%nhances business processes and

impro!e business efficiency igital business information reduces

errors, lo#ers costs, and impro!es control

Inno!ati!e applications of telecom and ITcan create ne# mar+ets and e&pandcustomer demand


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Aet#or+ings Strategic 6alue


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The Strategist :oo+s In#ard

Strategic systems are concei!ed by firstanalying the firms internal functions3


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%&ternal Strategic Thrusts

Ho# e&ternal factors create strategicopportunities

5 more complicated set of 1uestions

3 Be1uires a more global !ie# of the companyand its place in the industry >uppermanagement?

3 Be1uires a #ell*grounded understanding oftechnology and its strengths and limitations


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Integrating the Strategic 6ision

)sing a three dimensional model, all threegroups of strategic influences can berepresented

3 Strategic Thrusts >ifferentiation, Cost,Inno!ation, =ro#th, 5lliance, and Time?

3 Competiti!e =roups >Suppliers, Competitors,

and Customers?3 Strategic 7ocus >Internal and %&ternal?


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Integrated 0odel of Strategic Influences

Competitive ForcesNew


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C

ompetitiveS

trategies

Differentiation

Cost

Innovation

Growth

Alliance

Other

Strategies

Supplier Customer Competitor NewEntrant Substitute

O DU

!S


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O= Offensive U= Use P= ProcessingD= Defensive P= Provision S= Storage

T =Transmission


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6alue Chains for %*usiness

0odern e*business models operate innearly all the dimensions of the figure

3 )se internal >e&ample %B8? and e&ternal

>Web*based 2C and 2?3 %&ploit the si& strategic thrusts

7irms adopting e*business models

reconstruct their !alue chains aroundpo#erful ne# information technology


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(ther Considerations

Strategic information systems ha!ese!eral common characteristics #orthnoting9

3 (rganiation and %n!ironment

3 7inancial Implications

3 :egal Considerations


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(rganiation and %n!ironment

Strategic information systems alter themar+et en!ironment and createfundamental changes in the field of

competition Competitors must adapt to the ne#

landscape or face disad!antage

Sur!i!ors of this process re*establish ane1uilibrium


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7inancial Implications

Strategic information systems re1uirecontinued in!estments to sustain theirad!antages

7irst mo!ers capture time at e&pense ofcost and potential failure

%!en established firms can be beaten

#hen technology appears that is sodisrupti!e, li+e the Internet, that noad!antage e&ists for the incumbents


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:egal Considerations

Besort to the courts can be a tool forcompetitors to blunt the ad!antagesgained by technology

8rotection of intellectual property bypatents can also be a po#erful tool tofurther the ad!antages of an inno!ator by

denying the competition access to a ne#lycreated mar+et


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Cautions

0ost strategic information systems aree!olutionary. They are based on pre*e&istingsystems #ithin the firm

Successful firms focus on the details of successinstead of a grand scheme. :asting competiti!ead!antage is not found in a fe# grand stro+es

The entire firm must be competiti!e across allareas. IS alone can not deli!er a +iller app$ thateliminates the competition


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Summary

Information technology is !ital to thecontinued success of modern firms

Senior leadership understands that IT is apotent source of competiti!e ad!antage

They are prepared to in!est in neededapplications and hard#are, but e&pect a

substantial return on that in!estment

Documents

Chapter2 ISM Schwab