Strategic Information Systems

What is a Strategic Information System?

• Strategic Information Systems can be defined as computer
systems at any level of the organization that change goals,
operations, products, services or environmental relationships
to help the organization gain a competitive advantage.
• The following describes the eight basic ways to gain
competitive advantage.
Eight basic ways to gain competitive
advantage
INITIATIVE BENEFIT
A company can gain advantage if it can sell more units at a
Reduce costs lower price while providing quality and maintaining or
increasing its profit margin.
A company can gain advantage if it deters potentials entrants
Raise barriers to
into the market, leaving less competition and more market
market entrants
potentials.
A company can gain advantage if it creates high sw itching
Establish high
costs; making is economically infeasible for customers to buy
switching cost
from competitors.
Create new products A company can gain advantage if it offers a unique product or
or services service.
Differentiate A company can gain advantage if it can attract customers by
products or services convincing them its product differs from the competitors.
Enhance products or A company can gain advantage if its product or service is better
services than anyone else’s.
Companies from different industries can help each other gain
Establish alliances advantage by offering combined packages of goods or services
at special prices.
A company can gain advantage if it can lock in either suppliers
Lock in suppliers or
or buyers, making it economically impractical for su ppliers or
buyers
buyers to deal with competitors.
Strategic Information Systems
• Strategic information systems should be distinguished from strategic
level systems for senior managers that focus on long-term, decision
making systems where strategic information systems can be used at
all levels of an organization and are far-reaching and deep-rooted
than the other kinds of systems.
• Strategic information systems fundamentally change a firm’s goals,
products, services or internal and external relationships.
Contd….
• In order to use the strategic information systems
as competitive weapons, we must understand
where strategic opportunities for businesses are
like to be found based on two models of a firm
and its environment: the Competitive Forces
Models and the Value Chain Model
Competitive forces model
In the competitive forces model (a model used to describe the interaction of external influences,
specially threats and opportunities, that effects an organization’s strategy and ability to compete;
illustrates in Figure 2.2), a firm faces a number of external threats and opportunities:
 The threat of new entrants into its market
 The pressure from substitute products or services
 The bargaining power of customers
 The bargaining power of suppliers
 The positioning of traditional industry competitors
Contd….
• Competitive advantage can be achieved by enhancing
the firm’s ability to deal with customers, suppliers,
substitute products and services, and new entrants to
its market, which in turn may change the balance of
power between a firm and other competitors in the
industry in the firm’s favor.
Competitive forces model

New market Substitute products

entrants and services

The firm Traditional

competitors

Suppliers Customers
Organization can use four basic competitive strategies
to deal with these competitive forces:

Product differentiation
•Firms can develop brand loyalty by product differentiation – creating
unique new products and services that can be easily be distinguished from
those of competitors, and that existing competitors or potential new
competitors can’t duplicate. Manufacturers are starting to use information
systems to create products and services that are custom-tailored to fit the
precise of individual customers.
Focused differentiation

• Businesses can create new market niche by focused differentiation –

identifying a specific target for a product or service that it can serve in
the superior manner.
• A firm can provide a specialized product or service that serves this
narrow target market better than existing competitors and that
discourages new competitors.
• An information system can give companies advantage by producing
data to improve their sales and marketing techniques.
Focused differentiation contd….
• Sophisticated data-mining software tools find patterns in large pools
of data and infer rules from them that can be used to guide decision
making.
• Data-mining is both a powerful and profitable tool, but it poses
challenges to the protection of individual privacy.
• Data-mining technology combines information from many diverse
sources to create a detailed “data image” about individuals, such as
the income, hobbies, driving habit, and the question here is whether
companies should be allowed to collect such detailed information
about individuals
Developing tight linkages to
customers and suppliers
• Firms can create ties to customers and suppliers that “link” customers
into the firm’s products and that tie suppliers into a delivery timetable
and price structure shaped by the purchasing firm.
• This raises switching costs (the cost for customers to switch to
competitors’ product and services) and reduces customers’ bargaining
power and the bargaining power of suppliers.
• This is similar to the just-in-time delivery or inventory systems which
reduce the cost of inventory, the space required for warehousing and
construction time.
Becoming the low-cost producer

•To prevent new competitors from entering their markets, business can
produce goods and services at a lower price than competitors.
Strategically oriented information systems help firms significantly
lower their internal costs, allowing them to deliver products and
services at a lower price (and sometimes with higher quality) then what
the competitors can provide.
Contd…
• For example, organizations can use supply chain management to
integrate supplier, distributor and customer’s logistics requirements
into one cohesive process.
• Information systems make supply chain management more efficient
by integrating demand planning, forecasting, materials requisition,
order processing, inventory allocation, order fulfillment,
transportation services, receiving, invoicing and payment.
• Supply chain management can not only lower inventory costs but
also can create efficient customer response systems that deliver the
product or service more rapidly to the customer.
 The following show how the above mentioned strategic can be use on the Internet.

Strategy Internet Application

Virtual banking which allows customers to view account
Product differentiation statements, pay bills, check account balance and obtain 24-
hour customer service through the World Wide Web
Hotel room reservation tracking system which provides
electronic information on participating hotels. It can
Focused differentiation
analyze these usage patterns to tailor hospitality-related
products more closely to customer preferences
Links to customers and Access through websites to track or check the status of any
suppliers shipment
Uses EDI (electronic data interchange) to quote any
Low cost producer
quotation or charge any bills.
Leveraging Technology in the Value Chain (Value Chain Model)

• The value chain model highlights the primary or support activities that
add a margin of value to a firm’s products or services where
information systems can best be applied to achieve a competitive
advantage.
• The value chain model can supplement the competitive forces models
by identifying specific, critical leverage points where a firm can use
information technology most effectively to enhance its competitive
position.
Contd…
• This model views the firm as a series or chain or basic activities that
add a margin of value to a firm’s products or services.
• These activities can be categorized as either primary activities or
support activities.
• Primary activities are most directly related to the production and
distribution of the firm’s product and services that create value for
customer which includes inbound logistics, operations, outbound
logistics, sales and marketing, and services.
Contd…
• Support activities make the delivery of the primary activities
possible and consist of organization infrastructure
(administration and management), human resources
(employee recruiting, hiring and training), technology
(improving products and the production process) and
procurement (purchasing input).
Contd…
• Organizations have a competitive advantage when they can provide
more value to the customers or when they provide the same value to
customers at a lower price.
• Information systems could have strategic impacts if it helped the firm
provide products or services at a lower cost than competitors or if it
provides the products or services same cost as competitors but with
greater value.
Difficulties in building and sustain
strategic information system
 Not all strategic information systems make profit.
 They can be expensive and risky to build.
 Many strategic information systems are easily copied by other firms, so that
strategic advantage is not always sustainable.
 Implementing strategic systems often requires extensive organizational change
and a transition from one socio-technical level to another. Such changes are
called strategic transitions and are often difficult and painful to achieve.
How Information Systems Promote Quality

• What is Quality?
• Quality can be defined from both producer and customer
perspectives.
• From the perspective of producer, quality signifies conformance to
specifications or absence of variation form those specification. From
the perspective of customer, quality means:
Contd…..
 Concerned with the quality of physical product – its durability, safety, ease of use
and installation.
 Concerned with the quality of service – the accuracy and truthfulness of
advertising, responsiveness to warranties and ongoing product support.
 Concerned with psychological aspects – the company’s knowledge of its product,
the courtesy and sensitivity of sales and support staff, and the reputation of the
product.
• Total Quality Management (TQM) is a concept that makes quality
control a responsibility to be shared by all people in an organization.
TQM holds that the achievement of quality controls is an end in itself.
Everyone is expected to contribute to the overall improvement of
quality. TQM encompasses all of the functions within an organization.
How Information Systems Contribute to Total Quality
Management

Information systems can help firms to achieve their goals by:

 Simplifying the product, the production process or both
 Benchmark
 Use customer demands as a guide to improving products and services
 Reduce cycle time
 Improve the quality and precision of the design
 Increase the precision of production