MISO L006 IT Strategy

Prepared by: Jan Wong

ManagementInformation

Systemsin Organizations

IT STRATEGY

The Learning Outcomes

At the end of this session you should be able to:

the role of IT & IS in competition and Strategic Information Systems

managerial issues in IT Strategies

UNDER-STAND

DISCUSS

the Porter’s 5 Forces and Porter’s Value Chain

DESCRIBE

3 Main Eras of I.T. Evolution

• Mainframe Era• (1950’s-1970’s)

• Microcomputer Era• (late 1970’s to 1980’s)

• Network Era• (late 1980’s to present)

• Ubiquitous computing (wireless)

“Looking at how Information Systems have evolved throughout the years”

Strategic Information Systems (SISs)

“Provide strategic solutions to business pressures… in other words: inter mediation”

Role of IT in Business Innovation

• IT creates applications that provide strategic advantages to companies

• IT is a competitive weapon

• IT supports strategic change, e.g, re-engineering

• IT networks with business partners

• IT provides cost reduction

• IT provides competitive business intelligence

Competitive Intelligence?

• It drives business performance by: Increasing market

knowledge Improving internal

relationships Raising the quality of

strategic planning How?

The Internet is central to supporting competitive intelligence

“Many companies monitor their competitors… why?”

How IT / IS Affect COMPETITION

1. Changes industry structure and alters the rule of competition

Increasing the power of buyers Raising barriers of entry Influencing the threat of

substitution

2. Gives competitive advantage to out-perform their rivals

Lowering costs Enhancing differentiation Changing competitive scope

3. Spawns new businesses, even from within own operations

Creating derived demand for new products

Creating new businesses from old ones

New businesses technologically feasible

3 WAYS

Technology VS Management of

Technology• I.T. is so accessible today that organisations

cannot compete on technology alone.

• The competitive advantage is derived from how the technology is used.

• Today the management of technology has become a critical issue in competing more effectively.

• The issue is not whether to invest in I.T. but where and how.

Porter’s

1. The threat of entry of new competitors.

2. The bargaining power of suppliers.

3. The bargaining power of customers (buyers).

4. The threat of substitute products or services.

5. The rivalry among existing firms in the industry.

5 FORCES(1985

)

1. Cost Leadership Providing products /

services at the lowest cost in the industry

2. Differentiation Being unique (USP)

3. Focus Selecting a niche market

– big fish in a small pond

4. Growth Increase of market share

by acquiring more customers or by selling more products

Response Strategies“How can companies respond to the 5 forces?”

5. Improve Internal Efficiency

Improve employee and customer satisfaction

6. Alliances Working with business

partners to provide opportunities for growth

7. CRM Customer-oriented

approaches e.g. customer is king / queen

8. Innovation Development of new

products and services

Response Strategies“How can companies respond to the 5 forces?”

What is it all about? The basis for the Supply

Chain Management Includes the suppliers that

provide the necessary inputs AND their value chains

Applies to both products & services, for any organization, PUBLIC or PRIVATE

Think about UPSTREAM and DOWNSTREAM

ValueChain“A firm’s value chain is part of a larger stream of activities, which Porter calls a - Value System”

What is it used for? 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

Value Chain Model“A firm’s value chain is part of a larger stream of activities, which Porter calls a - Value System”

Porter’s Value Chain Model

• Primary Activities Inbound logistics Materials receiving, storing, and

distribution to manufacturing premises Input

Operations Transforming inputs into finished products Manufacturing & testing

Outbound logistics Storing and distributing products Storage & distribution

Marketing and Sales Promotions and sales force Service Service to maintain or enhance product value


• Support Activities Corporate infrastructure Support of entire value chain,

e.g. general management planning, financing, accounting, legal services, government affairs, and QM

Human resources management Recruiting, hiring, training, and development

Technology Development Improving product and manufacturing process

Procurement Procurement Purchasing input


“Value Chain Model for an Airline”

Mc Farlan’s Portfolio Framework (1984)

Key OperationalApplications upon which the organisation currently

depends for success

StrategicApplications that are

critical for future business strategy

SupportApplications that are

currently valuable and desirable but not critical

for future business success

High PotentialApplications that may be

important in achieving future business success

“The planning model assists companies in planning their way forward – identifies their strategy”

Mc Farlan’s Portfolio Framework (1984)

“The planning model assists companies in planning their way forward – identifies their strategy”

Key OperationalScheduling on-lineOnline parts orderingMaintenance online

Strategice-procurementElectronic ticketingAgent’s management

Supportfrequent flyer account trackingTraining on-lineWireless SMS info

High PotentialIntelligent data mininge-mail direct marketing

Currently dependin

g upon for

success

Good to have but

not critical

Important for future success

Critical for future success

STRATEGIC I.S. IMPLEMENTATION

EXAMPLES

CASE: Mobile Oil Moves to Web-based System

• Problem: Largest marketer of lubricants in the USA In 1995, introduced EDI system

• Used to place orders, submit invoices & exchange business documents

• It was too expensive, too complex to use

• Solution: In 1997, moved to web-based extranet-

supported B2B system

• Results: Reduced transaction cost from $45/order to $1.25 Fewer shortages, better customer service decline in distributor administration costs

PGM

CASE: Total Quality Management at FPL

• Florida Power & Light : largest US utility company

• Leader in implementing total quality management

• Several successful SIS programs:• Generation Equipment Management System (GEMS)

Tracks electrical generators, saving $5 million/ yr.• 20 different quality control applications

Reduced customer complaints by 50%• Trouble Call Management System

Reduced black out time from 70 to 48 min.

PGM

CASE: Geisinger Implements an Intranet

Problem:• As a result of mergers & acquisitions, Geisinger (a health

maintenance organization) had 40 different IT legacy systems in need of an upgrade & integration.

Solution:• In 1993, Geisinger implemented an innovative Intranet:

with the following features: “Tel-a-Nurse” Clinical Management System Human Resource Management

Results:• Geisinger reduced costs and unnecessary medical work.

PGM

CASE: Caltex Corporation

• Major multinational company selling gasoline & petrol products.

• In 2000, created a centralized e-purchasing corporate exchange (www.caltex.com)

• Suppliers build electronic catalogues with Ariba’s software. • Many benefits to buyers and suppliers, particularly in Asia,

Africa & the Middle East.• System enables Caltex to successfully handle complex

multinational business environments.

PGM

CASE : Port of Singapore

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

PGM

SIS Implement-ation

Major Issues to be Considered:1. Justification

Justifying SIS may be difficult due to the intangible nature of their benefits.

2. Risks & Failures The magnitude,

complexity, continuous changes in technology and business environment may result in failures.

3. Finding appropriate SIS

Identifying appropriate SIS is not a simple task.

SIS Implement-ation

4. Managerial issues: Implementing SIS Can Be

Risky. The investment

involved in implementing Strategic Information Systems (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

SIS Implement-ation

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

How to:Sustain SIS Advantage

3 Major approaches:1. Create inward systems

which are not visible to competitors.

2. Provide a comprehensive, innovative & expensive system that is difficult to duplicate.

3. Combine SIS with structural changes. This would include business processes, reengineering & organizational transformation.

THINGS TO TAKE NOTE OFF

• The role of IT / IS in businesses

• How does IT / IS affect businesses

• How can companies react to the 5 Forces

• Issues in Strategic Information Systems (SIS) implementation

E R P , S U P P L Y C H A I N S , C R M

IT’S TIME FOR SOME DISCUSSIONS!

• What has been the impact of the Internet based on Porter’s 5 Forces?

• List and discuss 5 strategies for competitive advantage

• Give 2 examples that show how IT can help a defending company reduce the impact of the 5 forces in Porter’s model

• Give 2 examples that show how an attacking company can use IT to increase the impact of the 5 forces in Porter’s model

• Discuss why having information systems itself can rarely provide a sustainable competitive advantage

IT’S TIME FOR ANIN-CLASS ACTIVITY!

• Get into groups of 5-6 members

• Using Porter’s 5 Forces, identify 3 potential risks your company may face

• Propose solutions on how your company can react to the mentioned forces

• Present your solutions in class

C o m i n g s o o n … n e x t c l a s sManagementInformation

Systemsin Organizations

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