Management Information Systems, 4 th Edition 1 Chapter 2 Strategic Uses of Information Systems

Management Information Systems, 4th Edition 1

Chapter 2Strategic Uses of

Information Systems


Learning Objectives

• Explain what business strategy and strategic moves are

• Illustrate how information systems can give businesses a competitive advantage

• Identify basic initiatives for gaining a competitive advantage


Learning Objectives (Cont.)

• Explain what makes an information system a strategic information system (SIS)

• Identify fundamental requirements for developing strategic information systems

• Explain circumstances and initiatives that make one SIS succeed and another fail


Strategy and Strategic Moves• Strategy

– A plan designed to help an organization outperform its competitors

• A best response counteracting to the competitor’s reactions

– As a plan : a guide or course of action toward the goal and into the future

– As a pattern: consistency in behavior/decision over time

– As a positioning: determining the particular value proposition in a particular market segment

– As a perspective: a concept of shaping the business

– As a ploy: a specific maneuver intended to outwit an opponent

• Strategic Information Systems– Information systems that help seize opportunities

– Can be developed from scratch, or they can evolve from existing ISs


Strategy and Strategic Moves (Cont.)

– Strategic advantage:

• Using a strategy to maximize strength/seek monopolistic rents

– Competitive advantage:

• The result of the use of a strategic advantage


Achieving a Competitive Advantage

• Increase profits through increased market share/profit margin

• Innovation results in advantage

– Strategies that no one has tried before, or conducted more efficiently than others did

– Example: Dell using the Web to take customer orders quicker than the competitors


Achieving a Competitive Advantage (Cont.)

Innovation leadership

Product proliferation

Co-option


Achieving a Competitive Advantage (Cont.)


• Lower costs results in lower price

– Economies of scale, and experience curve

• Bigger Market Share

– The spill-over effect of a common reputation/goodwill

• Implement automation to become more productive

– The Web has made this possible for many

Initiative #1: Reduce Costs


• Patenting, (rent protection enforced by the public orders, mandated monopoly)

• High capital of entering industry, high-level sunk cost

– Limit pricing/predatory pricing/raising cost for entry deterrence

– State Street, Inc. (Pension fund management business)

Initiative #2: Raise Barriers to Market Entrants


Analysis of entry/exit barrier

Exit barrier

En

try b

arrie

r

low high

hig

hlo

w e.g., 蚵仔麵線

e.g., 石化 , 製藥 ,半導體… etc

$₤₡¥e.g., 祖傳祕方

e.g., 黑道


• Explicit Switching Costs

– Fixed and nonrecurring, penalty costs expiated for breach of contract

• Implicit Switching Costs

– Indirect costs in time and money of adjusting to a new product

Initiative #3: Establish High Switching Costs


• Lasts only until competition offers an identical or similar product or service for a comparable or lower price

• First Mover: Creates assets– Brand Name– Better Technology– Delivery Methods– Cannibalization for leadership

• Critical Mass: body of clients that attracts other clients for crossing the diffusion chasm– Network externalities

Initiative #4: Create New Products or Services


• Product differentiation

• Distinctive Brand recognition, re-branding for re-positioning

• Examples of brand name success

– Levi’s jeans

– Chanel perfumes

– Gap clothes

Initiative #5: Differentiate Products or Services


• Examples

– Auto manufacturers enticing customers with a longer warranty

– Real estate agents providing useful financing information to potential buyers

– Charles Schwab moving stock trading services on-line before Merrill Lynch

Initiative #6: Enhance Products or Services

Total solutions!


• Combined services may attract customers– Lower cost

– Convenience

– The whole product/the total solution resulted from the aggregation of necessary complements

• Examples– Travel industry linking related tourist businesses

– HP and FedEx collaborated for the convenient ordering process and fast delivery/return service

Initiative #7: Establish Alliances


Establishing Alliances (Cont.)

Ref. Expedia.com


• Bargaining Power—assets specificity

• Purchase volume—monopsony or monopoly

• Strengthen perception as a leader—bandwagon effects of promotion (sunk costs as credible commitments) and market share

• Create a standard for issuing the problem of compatibility

Initiative #8: Lock in Suppliers or Buyers


Types of Lock-in and Associated Switching Costs

• Contractual commitments– Compensatory or liquidated damages

• Durable purchases– Replacement of equipment; tends to decline as the

durable ages• Brand-specific training

– Learning a new system, both direct costs and lost productivity; tends to rise over time

• Information and databases– Converting data to new format; tends to rise over

time as collection grows


Types of Lock-in and Associated Switching Costs (Cont.)

• Specialized suppliers– Funding of new supplier; may rise over time if

capabilities are hard to find/maintain

• Search costs– Combined buyer and supplier search costs; includes

learning about quality of alternatives

• Loyalty programs– Any lost benefits from incumbent supplier, plus

possible need to rebuild cumulative use


Strategic Information Systems (SIS)

• An IS that helps achieve long-term competitive advantage

• SIS embodies two types of ideas:– Potentially-winning business move

– How to harness IT to implement that move

• Two conditions for SIS:– Serve an organizational goal

– Work with the managers of the other functional units


Creating an SIS

• Top management involvement

– From initial consideration through development and implementation

• Must be a part of the overall organizational strategic plan


Steps for Considering a new SIS


Steps to Take in an SIS Idea-Generated Meeting


• To implement an SIS and achieve a competitive advantage, organization must rethink entire operation

• Goal of re-engineering

– Remove the process bottleneck, the key dead logs

– Achieve efficiency leaps of 100% or higher

Re-engineering and Organizational Change


• SISs developed as strategic advantages quickly become standard businesses

– Banking industry (ATMs and banking by phone/Internet)

• Continuous search for new ways of utilizing information technology to their advantage

– SABRE, American Airlines’ reservation system enhanced continuously by several functions including web-based travel site, Travelocity.

Competitive Advantage as Moving Target


JetBlue: A Success Story

• Gained competitive advantage where others failed

• Proper technology and management methods

– Reservation system, Electronic ticket, ticketless traveling service, revenue analysis for route management

• Reducing costs resulting in lower prices

• Improving service—on-time departures and arrivals


• Massive Automation

– Automation of services with software

• Combination reservation system and accounting system

• Supports customer services and sales tracking

JetBlue: A Success Story (Cont.)


• Massive Automation, continued

– Electronic tickets

• No paper handling or expense

• Encourages online ticket purchases

• Avoids travel agents

• Significant savings in cost




– Maintenance information system

• Logs all airplane parts and time cycles

• Reduces manual tracking costs

– Flight planning software

• Maximize seats occupied on a flight

• Reduced planning costs




– Blue Performance

• In-house software for tracking operational data

• Updated on a flight by flight basis for maximizing yield

• Accessible by airline’s 2,800 employees

– Managers are able to respond immediately to problems




– Wireless devices for employees

• Report and respond to irregular events

• Quick response

• Events recorded for future analysis

– Training records stored electronically

• Easy to update

• Efficient retrieval



• Away from Tradition

– Decision to not use the hub and spoke routing method

– Paperless Cockpits

– Laptops for Pilots

– Harnessing IT to maintain a strategic gap



• Enhanced Service

– Available on all flights and all class tickets

• Live TV through contract with DirecTV

• Leather Seating

• Excellent on-schedule arrivals and departures

• Fewest mishandled bags

• Rapid check-in time

• Security upgrades



• Impressive Performance

– Maintains excellent statistics

• 7 cent cost per available seat-mile (CASM) lesser than the industrial average

• 78% of seats are filled higher than the industrial average

• Late Mover Advantage

• New Technology vs. legacy systems



• The Ideas

– Wingcast telematics

• Technology in vehicles to enable Web access

– Business to Business: Covisint

• Joint venture with General Motors and DaimelerChrysler

• Electronic market for parts suppliers

• Vendor bidding for proposals from automakers

Ford on the Web: A Failure Story


• The Ideas (cont.)

– Business to Consumer: FordDirect.com

• Sell vehicles direct to consumers via the Web

• Bypass dealerships

• Provide service while saving dealer fees

• ConsumerConnect

– Special unit to build Web site and handle direct sales

Ford on the Web: A Failure Story (Cont.)


• Hitting the Wall

– Wingcast: Failed

• Buyers not interested (as the failure of WAP)

• Product eliminated in June 2001

– Covisint: Successful

• Now includes more automakers, Renault and Nissan



• Hitting the Wall

– FordDirect.com: Failed

• Not a result of faulty technology

• Ford failed to consider state laws and dealership relationships

• Dealership relationship was still needed for purchases not on the Web



• The Retreat

– ConsumerConnect disbanded

– FordDirect.com used by dealerships now

• Sells used cars

– Price tag for failure: $1 billion

– FordDirect.com today results in 10,000 vehicle per month, and 100,000 sales in 2001



Success and Failure on the Web

• Being first is not enough for success

• Business ideas must be sound

– An organization must carefully define what buyers want

– Establishing a recognizable brand name is important but does not guarantee success; satisfying needs is more important


The Bleeding Edge• Business owners must develop new features to keep

the system on the leading edge

• Adopting a new technology involves great risk

– No experience from which to learn

– No guarantee new technology will work or customers and employees will welcome it

– Bet on standard competition

– Wait-and-see hesitation


The Bleeding Edge (Cont.)

• The bleeding edge: failure in an organization’s effort to be on the technological leading edge

– First-mover dis-advantage?

• Allow competitors to assume the risk

– Risk losing initial rewards

– Can quickly adopt and even improve pioneer organization’s successful technology

• Second-mover advantage?


Summary

• Business strategy and strategic moves can give an organization an advantage

• Basic initiatives for gaining a competitive advantage

• Strategic information systems require fundamental elements

• Circumstances and initiatives that make one SIS succeed and another fail


Homework #1: Amazon vs. eBay

• Refer to the pp.59-62.• Please specify the differences of business

played between theses two dotcom giants.• Compare the sources of profit between these

two firms.• Analyze the sustainability of competitive

advantage among two. • Articulate the possible challenges for the

future expansion respectively.

Documents

Management Information Systems, 4 th Edition 1 Chapter 2 Strategic Uses of Information Systems