Strategic Information Systems

for
Competitive Advantage

1
 Strategic Advantage and IT
q Strategic Information System (SIS)
Ø Definition
u Systems that support or shape a business unit’s competitive
strategy
Ø Competitive Advantage
u An advantage over competitors in some measure such as cost, quality, or
speed
u A difference in the Value Chain Data
Ø Improving Core Competency
u Employee productivity
u Operational efficiency
Ø Approach
u Outwardly - Aiming at direct competition
u Inwardly - Focused on enhancing the competitive position of the
firm
u Strategic alliance
 IS Support of strategic
competitive advantage
q Strategic Information System (SIS)
• IT – an important means of gaining a competitive
advantage when a company has an edge over its
competitors by :
(1) having the lowest price
(2) highest quality product
(3) best customer service
(4) offering the most value for your money
(5) dominating the region
(6) develop the tight linkages between suppliers
and customers
 Strategic Information Systems (SISs)
Any information system--EIS, OIS, TPS, KWS-- that changes the goals,
processes, products, or environmental relationships to help an organization gain
a competitive advantage or reduce a competitive disadvantage.

SISs provide strategic solutions to the 5 Business Pressures

Strategic Management

q Strategic management
Ø the way an organization maps or crafts the strategy of
its future operations
q 3 Elements :
Ø Long-range planning
Ø Response management
Ø Proactive innovation
Strategic Evaluation & Development

q SWOT Analysis
q Product Life Cycle
q Quality Preference
The role of IT in Strategic Management
q Innovative applications - Create innovative applications
that provide direct strategic advantage to organizations
q Competitive weapons - IS(s) themselves are recognized
as a competitive weapon
q Changes in processes - IT supports changes in business
processes that translate to strategic advantage
q Links with business partners - IT links a company with
its business partners effectively and efficiently
The role of IT in Strategic Management

q Cost reductions - IT enables companies to reduce costs

q Relationships with suppliers and customers -IT can
be used to lock in suppliers and customers, or to build in
switching costs
q New products -A firm can leverage its investment in IT to
create new products that are in demand in the marketplace
q Competitive intelligence - by collecting and analyzing
information about products, markets, competitors, and
environmental changes
Competitive Intelligence (cont.)
q Overview
Ø One of the most important aspects in developing a competitive
advantage is to acquire information on the activities and actions of
competitors
u Collect information about market, technologies, and government’s
actions
u Analyze and interpret the information

Such activities drive

Many business performance by The Internet
companies ü Increasing market is central to
monitor the knowledge supporting
ü Improving internal
activities of relationships
competitive
competitors ü Raising the quality of intelligence
strategic planning
Competitive Advantage in the Web Economy

Competitive Competitive Sustainable

Strategy Advantage Strategic
Advantage

Search for a Look for a Maintain

profitable &
competitive competitive sustainable
advantage in an necessity, which position against
industry, which will help your the forces that
leads to control company keep up determine
of the market. with the industry
competitors. competition.
Internet & Competitive Intelligence
 Porter’s Competitive Forces Model
q The model recognizes five major forces that could
endanger a company’s position in a given industry
5 major forces (Porter 5 Forces)
External
Ø

u The threat of entry of new competitors

u The bargaining power of suppliers
Competitive
u The bargaining power of customers (buyers) Forces
u The threat of substitute products or services
u The rivalry among existing firms in the industry
q Use of the model
Ø List players in each competitive force
Ø Relate the major determinants of each competitive force
Ø Devise a strategy
Ø Look for supportive IT
Porter’s 5 Forces Model
 The analysis
q First Competitive Force - Competitor Analysis
Ø What Drives them?
Ø What are they Doing and can do?
Ø What are their strengths & weaknesses?
Ø Is Competition intense?
q Second Competitive Force - Entry Barriers
Ø If nothing slows entry of competitors competition will become intense.
Ø Incumbent Reaction?
Ø What Actions are required to build market share?
Ø Production Process?
q Third Competitive Force - Substitute Products
Ø Products or services from another industry enter the market
Ø Customers becoming acclimated to using substitutes
Ø Is the substitute market growing?
q Fourth & Fifth Competitive Force – Supply Chain
Ø Suppliers/Buyers? Who controls the transaction?
Ø Each element adds value – question who captures it?
Example : Porter’s model for Wal-Mart
 Impact of competitive forces & role of IT
Key force Business implications Potential IT effects
Threat of §Additional capacity §Provide entry barriers/reduce access by:
new entrants §Reduced prices üexploiting existing economies of scale
§New basis for competition üdifferentiate product and service
ücontrol distribution channels
üsegment markets

Buyer power §Force price down §Differentiate product and service

high §Demand higher quality § Improve price/performance
§Require service flexibility §Increase switching costs of buyer
§Encourage competition §Facilitate buyer product selection

Supplier §Raise prices/costs §Supplier sourcing sys.

power high §Reduced quality of supply §Extended quality control into supplier
§Reduced availability §Forward planning with supplier

Substitute §Limits potential market & §Improve price/performance

products profit §Redefine product and service to increase value
threatened §Price ceilings §Redefine market segments

Intense §Price competition §Improve price/performance

competition §Product development §Differentiate product and service in
from rivals §Distribution and service distribution channel and to consumer
critical §Get closer to end customer
§Customer loyalty required
 Strategies for Competitive Advantage

Cost leadership Niche/Focus

Differentation Select a narrow-scope segment (niche
Provide products and/or Being unique in the market) and be the best in quality,
services at the lowest cost in industry speed, or cost in that market
the industry

Growth Improve internal efficiency CRM

Increase market share, Customer-oriented approaches
To improve employee &
acquire more customers
or selling more products customer satisfaction (the customer is king)

Alliances Innovation Time

Working with business partners Developing new Treat time as a resource,
then manage it and use it
to create synergy & provide products & services to the firm’s advantage
opportunities for growth
Lock in customers/suppliers Entry-barriers Increase switching cost
Developing new Discourage
Encourage customers/suppliers to products & customers/suppliers from
stay with you rather than going to going to competitors for
competitors services
economic reasons
 Porter’s value chain model

The initial purpose of the value chain model was to analyze the internal operations of a corporation,
in order to increase its efficiency, effectiveness, and competitiveness. We can extend that company
analysis, by systematically evaluating a company’s key processes and core competencies to
eliminate any activities that do not add value to the product.
Example : The airline industry value chain
 VALUE SYSTEM
q A firm’s value chain is part of a larger stream of activities, which
Porter calls a “Value System”.
Ø Includes the suppliers that provide the necessary inputs AND their value chains
Ø Applies to both products & services, for any organization, PUBLIC or PRIVATE
Ø Is the basis for the Supply Chain Management
Ø Many of these alliances and business partnerships are based on Internet
connectivity are called interorganizational information systems (IOSs)
Ø Used to
u Evaluate a company’s process and competencies
u Investigate whether adding IT supports the value chain
u Enable managers to assess the information intensity and the role of IT
 VALUE SYSTEM
q These Internet-based EDI systems offer strategic
benefits
Ø Faster business cycle (PO to Receiving)
Ø Automation of business procedures (Automated
Replenishment)
Ø Reduced operational costs
Ø Greater advantage in a fierce competitive environment
q Consortia – Horizontal vs. Vertical
Global Competition
q Growth of Companies Operating in a Global
Environment
Ø Fully Global or Multinational Corporations
Ø Companies that export or import
Ø Companies facing competitions of low labor cost and high
natural resources
Ø Companies with low cost production facilities abroad
Ø Small companies that can now use EC to buy/sell
internationally
Global Competition
q Global dimensions along which management can
globalize
Ø Product
Ø Markets & Placement
Ø Promotion
Ø Where value is added to the product
Ø Competitive strategy
Ø Use of non-home-country personnel - labor
Ø Multidomestic Strategy: Zero standardization along the
global dimensions. Global Strategy: Complete
standardization along the seven global dimensions.
Global business drivers framework
SISs: Examples
q Cases
Ø Wiring the “customer supply chain” at 1-800-Flowers
Ø Increasing Tax Collection Efforts at the Wisconsin Department of
Revenue
Ø Time-based Competitive Advantage at Cannondale
Ø Southwest Airlines Flies high with SWIFT
Ø Using ERP to Meet Strategic Challenges at Turner Industries
Ø The Port of Singapore exports its intelligent systems over its enterprise
portal
u Problem - The Port of Singapore, the world’s largest international port,
faced increased global competition.
u Solution - Implementation of Intelligent Systems
u Results
l Reduction in Cycle Time: 4 hours versus 16 - 20 hours in neighboring ports
l Reduction in uploading/ loading time: 30 sec. versus 4-5 min./ truck in neighboring port
SIS Implementation & Sustaining SIS
q Major Issues in SIS Implementation
Ø Justification
u Justifying SIS may be difficult due to the intengible nature of
their benefits
Ø Risks & Failures
u The magnitude, complexity, continuous changes in technology
and business environment may result in failures
Ø Finding appropriate SIS
u Identifying appropriate SIS is not a simple task
SIS Implementation & Sustaining SIS
q Sustaining SIS & Strategic Advantage
Ø A Major problem that companies face is how to
sustain their SIS competitive advantage.
Ø 3 Major approaches
u Create inward systems which are not visible to
competitors
u Provide a comprehensive, innovative & expensive

system that is difficult to duplicate

u Combine SIS with structural changes. This would

include business processes, reengineering &

organizational transformation
Managerial Issues
q Implementing SIS Can Be Risky
Ø The investment involved in implementing SIS is high
q Strategic Information Systems Requires Planning
Ø Planning for an SIS is a major concern of organizations
q Sustaining Competitive Advantage Is Challenging.
Ø As companies become larger and more sophisticated, they
develop resources to duplicate the systems of their competitors
quickly.
q Ethical Issues
Ø Gaining competitive advantage through the use of IT may involve
unethical or even illegal actions
Ø Companies can use IT to monitor the activities of other
companies and may invade the privacy of individuals working
there.