Information Systems for

Competitive Advantage

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Objective

 Why we use information system?

 What are Business challenges of information system?
 What is the role of information system for competitive
advantage?
 What are fundamentals of strategic advantage?
 What is the contribution of information system for
strategic advantage?

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2.1 WHY USE INFORMATION SYSTEM
 Automating: doing things faster
 Technology is used to automate a manual process
 Doing things faster, better, cheaper

 Greater accuracy and consistency

 Loan application example:

 Manual processing, Technology-supported process, Completely

automated
 Organizational learning: doing things better
 Going beyond automation
 Involves learning to improve the day-to-day activities within the process

 Looking at patterns and trends

 Organizational Learning
 Using acquired knowledge and insights to improve organizational

behavior
 Total Quality Management (TQM)
 Monitoring an organization to improve quality of operations, products,
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and services.
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 Supporting Strategy: doing things smarter
Strategic Planning
1. Create a vision: setting the direction
2. Create a standard: performance targets
3. Create a strategy: reaching the goal

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2.1.1 Business Challenges of the Information Society
The competitive environment of the information society presents new and
serious challenges that organizations have to meet to prevent their decline.
These challenges include:
1. Increasingly keep global competition calls for rapid product and
process innovation.
Business globalization is the emergence of global markets as the arena of
competition and cooperation among firms.
Product innovation results in the development of a new product or service.
Process innovation deals with ways to redesign business processes by
exploiting the capabilities of information technologies.

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2. Dramatic increases in knowledge that can affect your business call
for organizational knowledge management supported by information
technology.
Information systems have to enable knowledge workers to access the
information necessary for their work without being swamped by
information overload.
Information systems should be able to perform routine and non-critical
decision making, subject to human approval when appropriate.
 The basic support to a knowledge worker is delivered by a personal
workstation.
Many firms have made the Internet part of their vital knowledge resource.
Knowledge management is the operation of the organizational methods,
procedures, and information systems that are used to collect the knowledge
and experience of the members of the organization and bring them to bear
on problems and opportunities.

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3. Faster pace of business events - the cause and the result of time-based
competition
The pace of events in an information society is set by technologies.
• The speeds of today's computer and telecommunications technologies
have resulted in a dramatic increase in the number of events occurring
within a given time.
• This time compression calls for faster decisions during business problem
solving.
Time-based competition takes place where those first to market have a
change to preempt it.

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 Four eras of the development of information systems are:

1. Operational Support

2. Support of Management and Knowledge Work

3. Support of Business Transformation and Competition

4. Ubiquitous Computing

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OPERATIONAL SUPPORT
 Mid 1950's to the mid-1970s - Used to support business operations in
order to raise their efficiency –
 Management support began to emerge in the form of voluminous reports
 Systems were designed to serve the needs of major corporate units rather
than individual users.
 Companies generally had a single data processing department which was
responsible for all application development.
 End users did not have direct access to computer technology –
 A large backlog of applications development requests (3 or more years)
access to computing was severely restricted.

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 SUPPORT FOR MANAGEMENT AND
KNOWLEDGE WORK
 Late 1970s - Designed to support management and knowledge work - End-
user computing began.
 Knowledge workers began using software packages, which they customized
to meet their needs, and even began developing systems of their own.
 Users took more control of the information systems.
 Support of managerial functions became the primary objective; with some
information systems directly support the decision-making process, relying
on corporate databases.
 Raising management effectiveness replaced operational efficiency as the
primary justification for the new systems.
 Systems were designed to support the individual needs of managers and
professionals. 10
SUPPORT OF BUSINESS TRANSFORMATION
AND COMPETITION
 Mid 1980's - Strategic information systems gained importance as systems
expected to help a company compete.
 Effectiveness of systems was measured in terms of market share and
corporate profits.
 Strategic information systems were developed to interact with customers,
suppliers, or other external stakeholders.
 Strategic information systems were also developed to support business
transformation through a firm's extensively redesigned internal business
processes.
 Information systems supported line-of-business units.
 Close interaction between systems developers and users became
mandatory.
 End users initiate and participate in the development of systems.
 They also develop systems themselves.
 Line-of-business units control their own information systems.
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UBIQUITOUS COMPUTING
 Since 1990's- it is recognition that the pursuit of competitive
advantage cannot be based on a single information system.
 Competing with information systems has to be based on a
broad and continually enhanced corporate platform of
information technology linked to a successful business
strategy.
 Client/server computing and the Internet
 Networked computers of various power are found in business
organizations
 A virtual workplace.
 Electronic integration of the entire organization.
 Organizational effectiveness is the result of both competitive
initiatives based on new products and services in the
marketplace and on redesigned business processes, enabled
by the capabilities of information systems.
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2.1.2 Information System for Competitive Advantage

An IS is strategic if its objectives are to improve the competitive position
of the organization.
Such a system helps the firm attract customers profitably and for an
extended period of time.
Strategic IS are distinguished by the following characteristics.

1. External focus

2. Innovative use of information technology.

3. High degree of project risk.

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 Relatively few strategic information systems enable their owner firms to
gain lasting competitive advantage over their rivals.
 The principal competitive thrusts for seeking competitive advantage with
strategic systems are:

1. Creating products and services based on information

2. Transforming a company's products and processes with

information systems

3. redefining a company's business in terms of information

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2.2 FUNDAMENTAL OF STRATEGIC
ADVANTAGE

 All successful organizations compete.

 Moreover, in the information society, businesses compete
globally.
 Four fundamental competitive strategies can be employed.
 These strategies are designed to combat the competitive
forces operating in the marketplace.

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Competitive Strategies
The first two strategies (differentiation and cost leadership)
can be pursued by companies with a broad scope of products,
which they market across a number of customer segments.
The other two strategies (focused differentiation and cost
focus) apply to firms that focus on a narrow customer segment.
 Four competitive strategies include:
 Differentiation
 Cost leadership
 Focused differentiation
 Cost focus
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Differentiation
When a company aims to distinguish its product or service
from that offered by the competition, it is pursuing the
differentiation strategy.
Distinguishing features include: the superior attributes of
the product itself or the blurring of differences between
products and services offered by competitors.
Cost Leadership
Ifa company is able to offer its product or service at a cost
significantly lower than its competitors, it is exercising cost
leadership.
This is usually the effect of highly efficient internal
operations.
Basedon economies of scale, this strategy is accessible to
companies with large market shares.
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Focused Differentiation
When a company is able to identify a segment of the market (a

niche) which is can serve in a superior fashion, it is engaging in

focused differentiation.
Smaller firms in particular compete by specializing a product or a

service for a limited-size niche.

IS may be used to contribute to this goal by helping identify the

customers to be served and then customizing the product for their

needs.
Cost Focus
If a company serves a narrow market segment with a product or

service that it offers at a significantly lower cost than its

competitors, that company is employing the cost focus strategy.
Relatively difficulty to pursue for small companies, this strategy

may be built on the advantage of geographic proximity combined

with the use of information technology to achieve operational
effectiveness.
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Competitive Forces
Competitive strategies of differentiation, cost leadership,
focused differentiation, or cost focus may be deployed.
Sucha strategy may be used to combat some of the five
competitive forces that some firm faces.
These include:
 Threat of new competitors - erect barriers to entry
 Intensifying rivalry among existing competitors - change
the basis of competition
 Pressures from potential substitute products - deliver
products of surpassing value
 Bargaining power of customers - introduce switching costs
 Bargaining power of suppliers - develop alternatives
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Competitive Tactics
The combination of competitive strategies, the market forces they target,
and the tactics used to implement the strategies can be mapped into a
framework called the strategic cube.

The strategic cube does not tell the company exactly where it may apply
information systems in its activities in order to seek competitive advantage.

Competitive tactics include internal growth or innovation, mergers or

acquisitions, or strategic alliances with other companies.

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 2.3 USING INFORMATION SYSTEMS FOR
STRATEGIC ADVANTAGE
 Strategic deployment of information systems is aimed at changing
both company operations and its products.
 To establish targets of opportunity, companies need to track the
chain of activities through which the company transforms its input
resources, such as raw materials, into the products and services it
delivers to its customers.
 The value chain concept views a firm as a series, or chain, of basic
activities that add value to its products and services and thus add a
margin of value to the firm.

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 The stages of a value chain include:
1. Inbound logistics

2. Operations

3. Outbound logistics

4. Marketing and sales

5. Service
 In the value chain concept, some business activities are
primary activities, and others are support activities.
 This framework can be used to highlight where
competitive strategies can best be applied in a business
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 Inbound Logistics - The activities include obtaining raw materials,
subassemblies, and other input products from the suppliers, warehousing
them, and delivering them to the production site.
 Supported by information systems that deal with the company's
suppliers.
 Operations - during operations, the input resources are transformed into
finished products.
 The nature of operations depends on the firm's line of business.
 In manufacturing companies, operations are more clearly defined than
in service companies - this is where the goods are made.
 The operations of service companies are highly information-intensive.
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 Outbound Logistics - involves storing the firm's products and delivering
them to customers against orders.
 Note that the ultimate buyer may actually receive the product from an intermediary,
such as a distributor.

 Marketing and Sales - establishing customers need for the product and
assisting the customer in specifying the assortment and quantities are the
tasks of marketing.
 Sales personnel are better able to serve their customers, and customers are able to
establish their requirements for products.

 Service - after-sales continuation of customer relationship through superior

service is sometimes a contractual requirement and always a good business
practice.
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 SUCCESS WITH STRATEGIC
INFORMATION SYSTEMS
 Keys to success of a strategic information system:
1. Active support of senior company management in the discovery of strategic
opportunities and in the implementation process

2. Integration of planning for the strategic use of information systems into the
overall company strategic planning process.

3. Direct reporting by those responsible for strategic use of information systems to

the business managers of the area to be affected by the new system.

4. Placement of control mechanisms in the hands of these business managers.

5. Readiness for strategic use of information systems, implying successful use of

the technological platform already in place and experience with technological
innovation.

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…CON’T
 Identifying opportunities for strategic deployment of IS is
part of the larger process of strategic planning.
 A strategic information system has to be built on the
strengths of the company that cannot be easily imitated.
 It has been determined that lasting, sustainable
competitive advantage can be gained with IS only if an
organization possesses other resources as well.
 Such resources include:
1. A well-developed and flexible IS platform or a
database reflecting the marketplace experience
with the firm's products, accumulated over several
years.
2. Continual investment is required to maintain the
advantage
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