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Chapter 2Chapter 2

Information Systems for Information Systems for Competitive AdvantageCompetitive Advantage

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Chapter 2 ObjectivesChapter 2 Objectives

Understand the IS in automation, organizational Understand the IS in automation, organizational learning, and strategic supportlearning, and strategic support

Understand IS for strategic organizational Understand IS for strategic organizational successsuccess

Understand the need for making an IS business Understand the need for making an IS business casecase

Understand technological innovations to Understand technological innovations to improve competitive advantageimprove competitive advantage

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Why Use Information Systems?Why Use Information Systems?

Automating:Automating: doing things faster doing things faster

Organizational learning:Organizational learning: doing things better doing things better

Supporting Strategy:Supporting Strategy: doing things smarter doing things smarter

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Automating: Automating: Doing Things FasterDoing Things Faster

Technology is used to automate a manual Technology is used to automate a manual processprocess Doing things faster, better, cheaperDoing things faster, better, cheaper Greater accuracy and consistencyGreater accuracy and consistency

Loan application exampleLoan application example Manual processingManual processing Technology-supported processTechnology-supported process Completely automatedCompletely automated

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ExampleExamplePrimary activity

Of Loan Processing Manual Semi-Automated Fully-automated

Complete and submit Complete and submit the applicationthe application

Customer takes the Customer takes the application home, application home,

completes it, returns completes it, returns it (1.5 days)it (1.5 days)

Customer takes the Customer takes the application home, application home,

completes it, completes it, returns it (1.5 returns it (1.5

days)days)

Customer fills out Customer fills out application from application from home via web (1 home via web (1

hour)hour)

Check errorsCheck errors Employee does this in Employee does this in batch (2.5 days)batch (2.5 days)

Employee does this Employee does this in batch (2.5 in batch (2.5

days)days)

Computer does this Computer does this as it is being as it is being

completed (3.5 s)completed (3.5 s)

Input data into ISInput data into IS Applications kept in Applications kept in paper form, this paper form, this

involve (1 h)involve (1 h)

Employee does this Employee does this in batch (2.5 in batch (2.5

days)days)

Done as part of the Done as part of the online application online application process (no extra process (no extra

time needed)time needed)

Assess loan Assess loan application to application to

determine whether determine whether to fund themto fund them

Employee does this Employee does this completely by hand completely by hand

(15 days)(15 days)

Employee does with Employee does with the help of the the help of the

computer computer (1 hour)(1 hour)

Computer does this Computer does this automatically automatically

(1 s)(1 s)

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Organizational Learning: Organizational Learning: Doing Things BetterDoing Things Better

Going beyond automationGoing beyond automation Involves learning to improve the day-to-day activities within the Involves learning to improve the day-to-day activities within the

processprocess

Organizational LearningOrganizational Learning Using acquired knowledge and insights to improve organizational Using acquired knowledge and insights to improve organizational

behaviorbehavior Looking at patterns and trendsLooking at patterns and trends

Total Quality Management (TQM)Total Quality Management (TQM) Monitoring an organization to improve quality of operations, Monitoring an organization to improve quality of operations,

products, and servicesproducts, and services

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Supporting Strategy: Supporting Strategy: Doing Things SmarterDoing Things Smarter

Strategic PlanningStrategic Planning

Create a Create a visionvision: setting the direction: setting the direction

Create a Create a standardstandard: performance targets: performance targets

Create a Create a strategystrategy: reaching the goal: reaching the goal

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Types of Competitive AdvantageTypes of Competitive Advantage

Low-Cost LeadershipLow-Cost Leadership Best prices on goods/servicesBest prices on goods/services Examples: Dell, TargetExamples: Dell, Target

DifferentiationDifferentiation Best products or servicesBest products or services Examples: Porsche, Nordstrom, IBMExamples: Porsche, Nordstrom, IBM

Best-Cost Provider (middle-of-the-road)Best-Cost Provider (middle-of-the-road) Reasonable quality, competitive pricesReasonable quality, competitive prices Example: Wal-MartExample: Wal-Mart

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Information Systems for Competitive Information Systems for Competitive AdvantageAdvantage

A clear strategy is essentialA clear strategy is essentialSources of competitive advantageSources of competitive advantage::

Best-made productBest-made product Superior customer serviceSuperior customer service Lower costsLower costs Superior manufacturing technologySuperior manufacturing technology Shorter lead timesShorter lead times Well-known brand nameWell-known brand name High value per costHigh value per cost

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Information Systems for Competitive Information Systems for Competitive AdvantageAdvantage

IS and Value Chain AnalysisIS and Value Chain Analysis VC Analysis: adding value within an organizationVC Analysis: adding value within an organization Organizations as big input/output processesOrganizations as big input/output processes IS can automate many value chain activities:IS can automate many value chain activities:

Purchased supplies inbound logisticsPurchased supplies inbound logistics OperationsOperations Outbound logisticsOutbound logistics Sales and marketingSales and marketing ServiceService

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Organizational Value ChainOrganizational Value Chain

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Information Systems for Competitive Information Systems for Competitive AdvantageAdvantage

The Role of IS in Value Chain AnalysisThe Role of IS in Value Chain Analysis IS competitive advantage in VCAIS competitive advantage in VCA::

Internet link with suppliers, dealersInternet link with suppliers, dealers Extranets: using the Internet for B2B interactionsExtranets: using the Internet for B2B interactions

Computer-aided manufacturing systemsComputer-aided manufacturing systems Web site with online product orderingWeb site with online product ordering Customer service response systemCustomer service response system Computer-aided designComputer-aided design

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Information Systems for Competitive Information Systems for Competitive AdvantageAdvantage

The Technology/Strategy FitThe Technology/Strategy FitAn IS implementation should create a significant An IS implementation should create a significant

organizational change consistent with the organizational change consistent with the business strategybusiness strategyBusiness Process Reengineering (BPR) – chapter 7.Business Process Reengineering (BPR) – chapter 7.

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Making the Business Case for a SystemMaking the Business Case for a System The Productivity Paradox: The Productivity Paradox:

Easy to quantify the costs associated with developing an ISEasy to quantify the costs associated with developing an IS Often difficult to quantify tangible productivity gains from the use of Often difficult to quantify tangible productivity gains from the use of

IS.IS.

Reasons for this:Reasons for this: Measurement problemsMeasurement problems: :

Measuring wrong thingsMeasuring wrong things Real benefits not detectedReal benefits not detected Effectiveness improvements are difficult to measureEffectiveness improvements are difficult to measure Expected benefits are not knownExpected benefits are not known Type of Systems and their problems:Type of Systems and their problems:

End-user developed systems: End-user developed systems: end-users in different business units may be end-users in different business units may be tracking and analyzing a system’s benefits and costs in different ways.tracking and analyzing a system’s benefits and costs in different ways.

Decision support systems (DSS): Decision support systems (DSS): how do we measure the impact of the how do we measure the impact of the system, difficult to measure the differences between decisions made with system, difficult to measure the differences between decisions made with and without DSSand without DSS! !

Strategic systems: time-money saved or ROI do not adequately indicate Strategic systems: time-money saved or ROI do not adequately indicate whether these strategic systems have been successful. whether these strategic systems have been successful.

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Time lags:Time lags: Lags of 3 years are typical before strong organizational Lags of 3 years are typical before strong organizational

impacts of IS investment are leftimpacts of IS investment are left RedistributionRedistribution

The IS may be beneficial for individual firms, but not for a may be beneficial for individual firms, but not for a particular industry or the economy as a wholeparticular industry or the economy as a whole

MismanagementMismanagement IS has not been implemented and managed well. Managers must be sure that they evaluate the entire

process being automated, making changes as necessary to old processes in order to truly benefit IS investment.

If Managers overlay new technology on old processes, then they will likely be disappointed in productivity gains from their investment.

……contcont

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Making the Business Case for a SystemMaking the Business Case for a System

Making a Successful Business CaseMaking a Successful Business Case Arguments Based on Arguments Based on FaithFaith::

Arguments based on beliefs about organizational strategy, competitive Arguments based on beliefs about organizational strategy, competitive advantage, industry forces, customer perceptions, market share…advantage, industry forces, customer perceptions, market share…

Arguments Based on Arguments Based on Fear:Fear:Arguments based on the notion that if the system is not implemented Arguments based on the notion that if the system is not implemented

the firm will lose out to the competition, go out of the service, losing the firm will lose out to the competition, go out of the service, losing business share…business share…

Arguments Based on Arguments Based on FactsFactsArguments based on data, quantitative analysis, or indisputable factors. Arguments based on data, quantitative analysis, or indisputable factors. Cost-benefit analysis for a web-based systemCost-benefit analysis for a web-based system

Recurring cost: salary of Webmaster – helpdesk personnel – IS manager,,,Recurring cost: salary of Webmaster – helpdesk personnel – IS manager,,, Nonrecurring costs: One-time cost not expected to continue after the Nonrecurring costs: One-time cost not expected to continue after the

system is implemented (Web server – Telecommunication equipments,,,). system is implemented (Web server – Telecommunication equipments,,,). Tangible costs (easy to identify) Tangible costs (easy to identify) Intangible costs: losing customers that are not “Web ready” – cost of Intangible costs: losing customers that are not “Web ready” – cost of

reducing traditional sales.reducing traditional sales. Tangible: increase of web customer – increase of sales – reduction of Tangible: increase of web customer – increase of sales – reduction of

errorserrors Intangible benefits: improvement of customer service – good perception of Intangible benefits: improvement of customer service – good perception of

the firmthe firm

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Presenting the Business CasePresenting the Business Case

Know the AudienceKnow the Audience The IS ManagerThe IS Manager Company Executives (VPs and higher)Company Executives (VPs and higher) Steering CommitteeSteering Committee

Convert Benefits to Monetary TermsConvert Benefits to Monetary Terms

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Presenting the Business CasePresenting the Business Case

Devise Proxy VariablesDevise Proxy Variables Measure changes in terms of perceived valueMeasure changes in terms of perceived value

Develop a Work Profile MatrixDevelop a Work Profile Matrix Time spent on each job, each type of workTime spent on each job, each type of work

Measure What Is Important to ManagementMeasure What Is Important to Management Conoco: Making a Business CaseConoco: Making a Business Case Changing Mindsets About Information SystemsChanging Mindsets About Information Systems

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Competitive Advantage Competitive Advantage in Being at the Cutting Edge in Being at the Cutting Edge

To differentiate itself, an organization often must deploy new, state-of-art

technologies.

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Competitive Advantage Competitive Advantage in Being at the Cutting Edge in Being at the Cutting Edge

The Need for Constant IS The Need for Constant IS Innovation:Innovation: Executives today are serious about Executives today are serious about

using IT in innovative ways.using IT in innovative ways. people in organization are people in organization are

continually on the lookout for new continually on the lookout for new technologies that will have impact on technologies that will have impact on their businesstheir business

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Competitive Advantage Competitive Advantage in Being at the Cutting Edgein Being at the Cutting Edge

E-Business Innovation Cycle: E-Business Innovation Cycle: The successful organizations:

1. First create jobs, groups, and processes that are all devoted to scanning the environment for new emerging and enabling technology.

2. Matching with economic opportunities3. Executing business innovation for growth4. Assessing client value

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The Cutting Edge vs. The Bleeding EdgeThe Cutting Edge vs. The Bleeding Edge

Information systems are often bought from, or Information systems are often bought from, or built by, someone elsebuilt by, someone else

An organization typically cannot patent an ISAn organization typically cannot patent an IS Rivals can copy emerging information systemsRivals can copy emerging information systems Therefore, one’s IS competitive advantage can Therefore, one’s IS competitive advantage can

be short-lived be short-lived

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Requirements for Being at the Cutting Requirements for Being at the Cutting EdgeEdge

Organization must adapt well to changeOrganization must adapt well to change Human capital available for deployment Human capital available for deployment

(knowledge, time, skills)(knowledge, time, skills) Tolerance of risk and uncertaintyTolerance of risk and uncertainty