Chapter 4 – Gaining Strategic Value from Information Information Systems, First Edition John Wiley & Sons, Inc by France Belanger and Craig Van Slyke Contributor:

Copyright 2012 John Wiley & Sons, Inc.

Chapter 4 – Gaining Strategic Value from Information

Information Systems, First Edition John Wiley & Sons, Inc

by France Belanger and Craig Van SlykeContributor: Brian West, University of Louisiana at

Lafayette

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Learning Objectives

• Present the main steps in the strategic planning process.

• Identify competitive advantage frameworks and discuss their purposes.

• Discuss methods for evaluating strategic initiatives.

• Explain the concept of hyper-competition.

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Healthcare on My Cell Phone

It is often possible to also get competitive advantages from creative uses of existing technologies. One of these exciting newer trends in the world of medicine is mobile health, also called mHealth. Mobile health care services can include compliance (ensuring that patients follow their medication plan), information dissemination (providing caloric information for obesity or sugar content for diabetes), or monitoring (measuring hypertension, cholesterol, etc.), for example.A survey by Pyramid Research (www.pyr.com) in December 2010 reveals that there are actually over 200 million mHealth applications available today, and that 70% of individuals around the world would be willing to pay for using at least one such application

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Focusing Questions

• Identify other potential applications of mHealth?

• Would you be more likely to follow a health program if it was offered on your mobile device?

• What are the benefits of mHealth for existing health care organizations?

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Strategic Information Systems

• Today, organizations need a wide variety of information systems for conducting their day-to-day business.

• For example, some information systems can be used for basic accounting services, such as payroll systems, or for communication support services, like electronic mail.

• We are interested in those information systems that are more specifically meant to provide organizations with competitive advantages.

• We call those business initiatives strategic information systems.

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Strategic Planning Process

• The identification of strategic information systems should follow a structured set of steps, or planning process.

• The goal of the strategic planning effort is to identify how the organization will use and manage their resources for strategic purposes (think competitive advantage).

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Strategic Planning Process

Notice how the process is iterative, with later steps in the process requiring managers to revisit earlier steps.

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Strategic Business Planning

Information Systems

Assessment

Strategic Initiatives

Identification

Information Systems Vision

Information Systems

Architecture

Figure 4.1 Information Systems Strategic Planning Process


Step 1:

“Know Who You Are.” • Before an organization can decide what IT initiatives

can be used to gain competitive advantage, it has to clearly identify what the mission of the organization is, and how it is going to achieve this mission.

• Should be performed on a regular basis by the executives or leaders of the organization

• Outcomes should include the mission and vision of the organization, its goals for the future, and the strategies that will be used to achieve those goals.

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Step 1:

• Strategic business planning is not specifically focused on information systems

• It is essential to the IS strategic planning process because the organization needs

• The goal is to achieve a high level of alignment between the business side of the organization and its information systems

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Step 2:

“Know where you start”• Identify the current state of information

systems resources in the organization• Conduct a proper assessment of resources

because these resources could enable information systems managers to meet or surpass some strategic objectives

• Lack of certain resources may constrain what an organization can achieve

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Step 2:

There are three categories of resources:• Technical resources, which include hardware,

software, and networks• Data and information resources, such as

databases• Human resources, which would include the

skills and personal characteristics of the information systems employees, the user community

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Step 3:

“Know Where They Want To Go”• Given those statements and the IS resources

identified in the second phase, information systems managers must now develop a vision specifically for IS

• The senior information systems person in the organization must gather not only employees of the information systems group, including individuals with technical skills, but also functional managers

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Step 3:

• The IS vision should be a broad statement of how the organization should use and manage its information systems for strategic purposes

• The IS vision has to be aligned with the organization’s mission, vision, and strategies, which may require revisiting the organization’s strategies

• The statement should define what the role that information systems should be for the organization.

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Step 4:

“Know How You Are Going To Get There” • The selected information systems architecture will provide some

guidelines for future uses, acquisitions, and the management of information resources.

• Architectural guidelines could include statements about all information resources including – hardware,– software– networks

• It should also include way data is stored, protected, and managed, and how information systems human resources are managed, such as whether information systems work can be outsourced.

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Step 5:

• The ultimate goal of the information systems strategic planning process is to identify strategic information systems initiatives that will provide competitive advantages to the organization.

• These initiatives tend to be longer term (two to five years) but some strategic initiatives can be launched rapidly.

• Strategic initiatives can be about systems, but most of the time involve much more than technology, which may result in a new strategic direction for the organization.

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Advantages of IS Strategic Planning Process

• – Providing documented discussions of the advantages and

disadvantages of each initiative, overall communication inside the organization is improved.

• – The improved overall coordination of the efforts related to

the initiative, both before and during the implementation.•

– Decision making is more consistent over time with respect to which strategic initiatives are supported and more importantly, why.

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Frameworks for Strategic Information Systems

Tools that can be used to identify strategic information systems initiatives

• • • •

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Information Systems SWOT Analysis

SWOT (Strengths, Weaknesses, Opportunities, and Threats)

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Component Description Example for Amazon.com

Strengths

Leadership position in online retailing

Weaknesses

Increased size of the company requires more investments

Opportunities

Expand to services instead of just retailing

Threats

Increasing global competition from online retailers

Table 4.1 SWOT Analysis Components


Porter’s Five Competitive Forces Model

Analyze how competitive an industry is and therefore determine if a particular market could be attractive for an organization to consider.

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Potential Threat of

New Entrants

Bargaining Power of Buyers

Bargaining Power of Suppliers

Potential Threat of

Substitutes

Industry Competitive

Rivalry

Figure 4.2 Porter’s Five Competitive Forces Model



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Competitive Force Description Desired Level Strategic Information Systems

Examples

Potential Threat of New Entrants

How easy is it for new companies to enter the market in which the organization operates.

How could you use information systems to increase barriers to entry in the organization’s market?

Create barriers to entry - leverage data about customers that others cannot access, creating information asymmetry.

Bargaining Power of Buyers

What is the ability (or market power) of the organization’s buyers (customers) to reduce its competitive position (e.g., by bringing prices down).

How could you use information systems to reduce the power of negotiation of buyers?

Create switching costs – give customers value added services such as personalization or lower costs (through economies of scale) that will make them loyal to the organization.

Table 4.2 Porter’s Five Competitive Forces Model and Strategic Information Systems



Competitive Force

Description Desired Level Strategic Information Systems

Examples

Bargaining Power of Suppliers

What is the ability (or market power) of the organization’s suppliers to reduce its competitive position (e.g., by bringing prices up).

How could you use information systems to reduce the power of negotiation of suppliers?

When there are few suppliers, this tends to be a high barrier. Use information systems to aggregate buying power with others (for example, online exchanges) or reduce the cost of buying (electronic procurement).

Potential Threat of Substitutes

What is the likelihood that other products of equal of superior value will be available?

How could you use information systems to make your products unique or make customers unwilling to use substitutes?

Create switching costs so customers will not be willing to use substitutes (personalization, lower costs, etc.) or use information systems to create unique or patented products such as proprietary systems (like Google applications or Apple products).

Industry Competitive Rivalry

What is the current level of competition in the industry?

How could you use information systems to ensure that competition is limited in the industry?

Use information systems to differentiate the organization’s products so that there are few or no competitors.

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Table 4.2 Porter’s Five Competitive Forces Model and Strategic Information Systems


Porter’s Value Chain

• Managers identify all of the activities that the organization must perform to conduct its business

• Two broad categories of activities in the value chain, primary and support. – _______ activities are directly related to the creation,

processing or delivery of the product or service. – ________ activities are those overall tasks that make it

possible for the organization to function, but that are not directly involved in the product or service.

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Inbound Logistics

Manufacturing Assembly

Outbound Logistics

Marketing and Sales

ServicePrimary Activities

Support Activities

Human Resources

Information Technology

Administrative Support

Procurement

Figure 4.3 Porter’s Value Chain in Manufacturing Firm



• Porter identified two major ways to create competitive advantages in the value chain– lower the costs of performing an activity– add more value to the final products and services

in an activity• Managers can ask themselves for every

activity in their value chain– –

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Virtual Value Chain

The virtual value chain looks at activities that turn raw data into useful information • What ways can information systems make

gathering, organization, selecting, synthesizing and distributing less expensive

• How can more value can be added to the firm’s information using information systems

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Virtual Value Chain

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AccountingLegal Department

PersonnelTelecommunications

Gathering Data &

Information

Organizing Data &

Information

Selecting Information

Synthesizing Information

Distributing Information

Figure 4.4 Virtual Value Chain: Handling Information


Evaluating Strategic Initiatives

• Not all Strategic initiatives are doable (for example requiring technology that does not exist yet), and others are not worth doing (for example, too costly with limited benefits)

• We therefore need to rank the initiatives, or at least eliminate those that cannot or should not be considered.– –

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Critical Success Factors

Critical success factors (CSF) are those few important considerations that must be achieved for the organization to survive and be successful.• These are not about technology (in general),

but more about business objectives• CSFs must be in line with the organization’s

vision and mission• Organizations usually should have just a few

critical success factors4-28


Critical Success Factors

The key questions asked to start the discussion are similar to these• What needs to happen for our organization to

increase its revenues?• What are the most important actions we

need to take to be more competitive? • What is needed for us to be more successful?

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What does Yahoo need for success?

The purpose of the activity is to get some practice identifying critical success factors. Your instructor will assign you to groups, and each group of student will act as a top management team from the company Yahoo! Your job is to brainstorm critical success factors for the company.

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Priority Matrix

The priority matrix allows managers to evaluate potential initiatives and prioritize them along two key dimensions• ease of implementation

– costs, time required, efforts required, or the actual complexity of the system

• Potential returns– revenues, market shares, savings, reputation

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Priority Matrix

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Imperatives

Quick WinsStay Away

Evaluate

High

Low HighEase of Implementation (Low cost, effort, etc.)

Po

ten

tial R

etu

rns

(Re

ven

ue

s, m

ark

et,

etc

.)

Initiative 1

Initiative 2

Initiative 3

Initiative 4

Initiative 5

Figure 4.5 Sample Priority Matrix


Priority Matrix

• __________ are initiatives that should be relatively easy to implement

• __________ represent initiatives that do not have much upside potential but are easy to implement

• __________ quadrant needs to be discussed and evaluated thoroughly by managers

• __________ quadrant includes what many say are lost causes, initiatives that would be difficult to implement with limited potential returns

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Competitive Advantage at Outrigger Hotels and Resorts

This activity requires you to complete a competitive analysis of Outrigger Hotels and Resorts (Piccoli, 2005). Use one of the frameworks we discussed to • Identify the competitive position of Outrigger

Hotels and Resorts• Identify three strategic information systems

initiatives you believe the company should consider.

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Hyper-competition: Sustainability of Competitive Advantage

• Some individuals to question how sustainable is any competitive advantage a firm obtains through its initiatives.

• This is the concept of hyper-competition. • D’Avenis suggests that organizations should

seek to create disruptions in the market through a series of initiatives.

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D’Avenis’ 7SsSuperior stakeholder satisfaction Maximizing customer satisfaction by adding value strategically.

Strategic soothsaying

Positioning for speed

Positioning for surprise

Shifting the rules of competition

Signaling strategic intent

Simultaneous and sequential strategic thrusts

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Table 4.3 D’Avenis’ 7Ss


Google vs. Yahoo

Your team is tasked with selecting one of the 7Ss from the D’Aveni’s framework, specifically targeted at finding a way for Yahoo! to better compete with Google. • The team must then identify a specific strategic

initiative that will be used to implement the selected strategy.

• Once this activity is completed, all initiatives proposed by the groups in the class should be prioritized using the Critical Success Factors

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Summary

• There are five main steps in the strategic planning process

• We discussed four frameworks that can be used to identify strategic information systems initiatives

• We discussed two methods for evaluating strategic initiatives: the Critical Success Factors method, and the Priority Matrix.

• Hyper-competition is when competitive advantages are rapidly eroded by competitors so that organizations should focus on market disruptions instead of trying to sustain competitive advantages.

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Copyright 2012 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.

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Chapter 4 – Gaining Strategic Value from Information Information Systems, First Edition John Wiley & Sons, Inc by France Belanger and Craig Van Slyke Contributor: