1. Lecture 1
Information Systems and
Business Strategy

2. Business Objectives of
Information Systems
1. Operational excellence
2. New products, services, and business models
3. Customer and supplier intimacy
4. Improved decision making
5. Competitive advantage
6. Survival
INFORMATION SYSTEMS AND BUSINESS STRATEGY

3. Operational
Excellence:
•Improved efficiency results in higher profitability
1.
•Information systems and technologies help to improve higher levels of
efficiency and productivity
•Wal-Mart (largest retailer) is the champion of combining information
systems, best business practices, and supportive management to
achieve operational efficiency— $408 billion in sales in 2010
•Wal-Mart is the most efficient store in the world as a result of digital
links between its suppliers and stores (the first to use CRP)
INFORMATION SYSTEMS AND BUSINESS STRATEGY

4. What is CRP?
•Continuous replenishment planning system (CRP) is defined as “the
practice of partnering between distribution channel members that
changes the traditional process from distributor-generated purchase
orders based on economic order quantities to the replenishment by
the vendor of product based on actual and forecast data.” (cited in
Vergin and Barr, 1999)
•The goal of CRP is to reduce the cost of producing and moving product
thru the vendor-retailer supply chain as well as to have open
communication and seek alliances with manufacturers.
Thus, they seek manufacturers who had the capability to:
1. monitor their sales
2. react to changes in sales as quickly as they occurred
3. manage their ordering and inventories efficiently
INFORMATION SYSTEMS AND BUSINESS STRATEGY

5. CRP Benefit
Benefits of partnering with manufacturers in CRP:
◦ the distributors:
◦ Significant reduction in inventory levels and stockouts
◦ Eliminate internal activity by turning over their inventory
management to the manufacturers
◦ the manufacturer/suppliers:
◦ Faster flow of retail sales information allow more efficient
production
◦ Quick adjustment to demand changes before large inventory
deficits or excess occurs.
INFORMATION SYSTEMS AND BUSINESS STRATEGY

6. 2. New products, services,
and business models:
• Information systems and technologies enable firms to create new
products, services, and business models
• A business model includes how a company produces, delivers, and
sells its products or services to create wealth
• The music industry has seen drastic changes in business models in
recent years
• Apple Inc. transformed and old business model of music distribution
based on tapes, records, CD into an online based on iPod technology
platform.
• Apple has been very successful at introducing new products (e.g.,
iPad, iPod nano, iPod video player, iPhone).
INFORMATION SYSTEMS AND BUSINESS STRATEGY

7. 3. Customer and supplier
intimacy:
• Customers who are served well become repeat customers who
purchase more
• Close relationships with suppliers result in lower costs
•
The Mandarin Oriental in Manhattan uses information systems and
technologies to foster an intimate relationship with its customers
including keeping track of their preferences (room temperature,
check in time, frequently dialed telephone numbers, TV programs–
store these data in a large data repository.
•
JCPenney uses information systems to enhance its relationship with
its supplier in Hong Kong TAL Apparel Ltd.Everytime a shirt is bought
at JCPenny store in US, TAL decides how many replacement shirts to
make, what colors, style and sizes. TAL then sends the shirts to each
of JCPenny stores bypassing retailers.
INFORMATION SYSTEMS AND BUSINESS STRATEGY

8. •
4. Improved decision
making:managers being swamped
A company’s bottom line can be hurt by
with data that are neither timely nor helpful, forcing them rely on
forecasts, best guesses, and luck resulting in over or under production
of goods and services, misallocation of resources, and poor response
time
•
Real-time data have improved the ability of managers to make
decisions
• Web-based digital dashboard utilised by VerizonCorp. (one of the
largest telecomm co in US) can be used to update managers with realtime data on customer complaints, network performance, and line
outages
INFORMATION SYSTEMS AND BUSINESS STRATEGY

9. 5. Competitive advantage
• Achieving the previously mentioned business objectives often leads to
competitive advantage
• Advantages over competitors include charging less for superior products,
better performance, and better response to suppliers and customers
which add up to higher sales and higher profits
• Dell Computer is one of the best examples of establishing competitive
advantage as the company has continued to be profitable during a time
when PC prices have been falling steadily
INFORMATION SYSTEMS AND BUSINESS STRATEGY

10. 6. Survival
• Businesses may need to invest in information systems out of necessity
• Necessity arises from keeping up with competitors, such as when
Citibank New York introduced ATMs in 1977
• Necessity also arises from federal and state regulations, such as the
Toxic Substances Control Act and the Sarbanes-Oxley Act
INFORMATION SYSTEMS AND BUSINESS STRATEGY

11. Strategic Information Systems
(SIS)
•Certain types of systems have become especially critical to firms’ long
term prosperity and survival. Such systems are powerful tools for
staying ahead of the competition. They are called strategic information
systems (SIS)
•SIS: 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.
•Systems that have these effects may even change the business of
organizations.
INFORMATION SYSTEMS AND BUSINESS STRATEGY

12. Strategic Information Systems
(SIS)
•SIS is able to change significantly the manner in which biz is done.
How?
• Contributing to the strategic goals of the organization
• Ability to increase performance and productivity significantly.
•SIS should be distinguished from strategic level systems (executive
information system) that are used by senior managers.
•SIS can be used at all organizational levels.
•SIS profoundly alter the way a firm conducts its business or the very
business of the firm itself.
INFORMATION SYSTEMS AND BUSINESS STRATEGY

13. Different Types of SIS
1.
Outward systems: aimed to compete directly with other companies in
the industry
2.
Inward systems: directed to enhance the competitive position of an
organization by increasing employee productivity, improving
teamwork, and enhancing communications between various
components of the organization.
3.
Hybrid systems: for e.g. CAT combined both outward (EDI and CAT TV)
and inward (computer integrated manufacturing).
4.
Strategic alliances: two or more companies share a SIS. Eg. Banks
share the same ATM network.
INFORMATION SYSTEMS AND BUSINESS STRATEGY

14. Management Challenges
•Implementing SIS can
implementing SIS is high
be
risky—the
investment
involved
in
•SIS requires planning—Porter and Millar framework can be used to
plan and develop a strategy of how to use SIS
•Sustainability of competitive advantage—competitive advantage isn’t
always sustainable
INFORMATION SYSTEMS AND BUSINESS STRATEGY

15. Why SIS are difficult to build
and sustain
•Expensive
•Risky to build (time consuming)
•Easily copied by other firms
•Implementing strategic systems often requires extensive organizational
change and a transition from one sociotechnical level to another
INFORMATION SYSTEMS AND BUSINESS STRATEGY

16. Different Levels of Strategy and
Strategic Systems

There is generally no single all encompassing strategic systems, but
instead there are a number of systems operating at different levels
of strategy—the business, the firm, and the industry level.

For each level of business strategy, there are strategic uses of
systems. And for each level of business strategy, there is an
appropriate model used for analysis.
 Business-level strategy: Porter’s value chain model
 Firm-level strategy: synergy and core competency
 Industry level strategy: information partnership, competitive
forces model, network economics
INFORMATION SYSTEMS AND BUSINESS STRATEGY

17. 1. Business-Level Strategy and
the Value Chain Model
•At the business level strategy, the key question is: “How can we compete
effectively in this particular market?”
•The most common generic strategies at this level are: 1) to become lowcost producer, 2) to differentiate your product or service, and 3) to
change the scope of competition by either enlarging the market to
include global markets or narrowing the market by focusing on small
niches not well served by competitors.
•Digital firms provide new capabilities for supporting business level
strategy by managing the supply chain, building efficient customer “sense
and respond” systems, and participating in “value webs” to delivery new
products and services to market.
•At the business level the most common analytic tool is value chain
analysis.
INFORMATION SYSTEMS AND BUSINESS STRATEGY

18. 1. IS for achieving product
differentiation
•Product differentiation: competitive strategy for creating brand
loyalty by developing new and unique products and services that are
not easily duplicated by competitors.
•Firms can use IS to create unique new products and services that can
be easily distinguished from those of competitors.
•SIS for product differentiation can prevent the competition from
responding in kind so that firms with these differentiated products
and services no longer have to compete on the basis of cost.
INFORMATION SYSTEMS AND BUSINESS STRATEGY

19. 2.
IS to focus on market niche
•Focused differentiation: competitive strategy for developing new
market niches for specialized products or services where a business
can compete in the target area better than its competitors.
•Businesses can create new market niches by identifying a specific
target for a product or service that it can serve in a superior manner.
•Through focused differentiation, the firm can provide a specialized
product or service for this narrow target market better than
competitors.
INFORMATION SYSTEMS AND BUSINESS STRATEGY

20. Supply Chain Management and
Efficient Customer Response
Systems
•Digital firms have the capabilities to go far beyond traditional strategic
systems for taking advantage of digital links with other organizations.
•A powerful business-level strategy involves linking the value chains of
vendors and suppliers to the firm’s value chain. Integration of value
chains can be carried further through linking the customer’s value
chain to the firm’s value chain in an “efficient customer response
system”. E.g. Wal-Mart continuous replenishment system.
INFORMATION SYSTEMS AND BUSINESS STRATEGY

21. Porter’s Value Chain Model
•
The value chain model highlights specific activities in the business where competitive
strategies can be best applied and where IS are most likely to have a strategic impact.
•
The activities conducted in a co. can be divided into two parts: primary and support
activities
•
Primary activities: inbound logistics (inputs), operations (manufacturing and testing),
outbound logistics (storage and distribution), marketing and sales, service.
•
The primary activities are sequenced, value is added in each activity. All these
activities result in profit.
•
Support activities: the firm infrastructure, human resource management, technology
development, procurement.
•
Each support activity support any or all primary activities, and also each other.
•
Value chain model is helpful if your goal is to achieve operational excellence.
INFORMATION SYSTEMS AND BUSINESS STRATEGY

22. Using Value Chain Model
•
Evaluate a co. key processes; attention is given to strengths and
weaknesses of all activities and the value added by each activity. The
activities that add more values are those that might provide strategic
advantage
•
Investigate whether or not adding IT can add more value and where in
the chain its use is most appropriate.
•
Businesses should try to develop SIS for both the internal value chain
activities and external web activities that add the most value.
•
A strategic analysis might, for e.g. identify sales and marketing activities
where IS could provide the greatest boost. The analysis might
recommend a system to reduce marketing costs by targeting marketing
campaigns more efficiently or by providing information for developing
products more finely attuned to a firm’s target market. A series of
systems, including some linked to systems of other value web partners,
might be required to create strategic advantage.
INFORMATION SYSTEMS AND BUSINESS STRATEGY

23. Leveraging Technology in the Value
Chain
•
Organizations have competitive advantage when they provide more
value to their customers or when they provide the same value to
customers at a low price.
•
An IS could have a strategic impact if it helped the firm provide products
or services at a lower cost than competitors or if it provided products
and services at the same cost as competitors but with greater value.
•
Today the concept of a firm’s value chain also include the firm’s
suppliers and business partners into a single value web.
•
A value web: digitally-enabled network of a firm and its suppliers and
business partners.
•
A firm can achieve a strategic advantage by providing value to internal
value chain processes and through powerful, efficient ties to value web
partners.
INFORMATION SYSTEMS AND BUSINESS STRATEGY

24. 2. Firm-Level Strategy and IT
•
A business firm is typically a collection of business.
•
Important questions: How can the overall performance of the business
units be achieved? And How can IT contribute?
•
Answers: synergy and core competency.
INFORMATION SYSTEMS AND BUSINESS STRATEGY

25. Synergy
•
Synergy: when some units can be used as inputs to other units, or
two organizations can pool markets and expertise, these
relationships can lower costs and generate profits.
•
One use of IT in a synergy situation is to tie together the operations
of disparate business units so that they can act as a whole. E.g.
Citigroup can cross market the financial products of both Cititcorp
and Travelers to customers. Such systems would lower retailing
costs, increase customer access to new financial products and speed
up the process of marketing new instruments.
INFORMATION SYSTEMS AND BUSINESS STRATEGY

26. Enhancing Core Competencies
•
A second concept for firm-level strategy involves the notion of “core
competency”.
•
The argument is that the performance of all business units can increase
insofar as these business units develop, or create, a central core of
competencies.
•
Core-competency: activity at which a firm excels as a world-class leader.
•
How can IT be used to advance or create core competencies?
•
Any system that encourages the sharing of knowledge across business units enhances
competency.
INFORMATION SYSTEMS AND BUSINESS STRATEGY

27. 3. Industry-level strategy and IS:
competitive forces and network
economics
•
Key question: How and when should we compete as opposed to
cooperate with others in the industry?
•
3 principal concepts for analyzing strategy at the industry level are
information partnerships, the competitive forces model, and network
economics.
•
Information partnerships: both companies can join forces, without
actually merging, by sharing information.
INFORMATION SYSTEMS AND BUSINESS STRATEGY

28. The Competitive Forces Model
•
Competitive forces model: model used to describe the interaction of
external influences, specifically threats and opportunities, that affect an
organizations; strategy and ability to compete.
•
Most well-known model for analyzing competitiveness
•
Has been used to develop strategies for companies to increase their
competitive edge
•
Five Forces:
◦ The threat of new competitors
◦ The bargaining power of suppliers
◦ The bargaining power of customers (buyers)
◦ The threat of substitute products
◦ The rivalry among existing firms in the industry
INFORMATION SYSTEMS AND BUSINESS STRATEGY

29. The Competitive Forces
Model
SUBSTITUTE
PRODUCTS &
SERVICES
NEW MARKET
ENTRANTS
THE
INDUSTRY
THE FIRM
TRADITIONAL
INDUSTRY
COMPETITORS
SUPPLIERS
CUSTOMERS
INFORMATION SYSTEMS AND BUSINESS STRATEGY

30. The Competitive Forces
Model
INDUSTRY
SET
NEW MARKET
ENTRANTS
INDUSTRY
1
SUBSTITUTE
PRODUCTS &
SERVICES
INDUSTRY
2
INDUSTRY COMPETITORS
INDUSTRY
3
INDUSTRY
4
SUPPLIERS
CUSTOMERS
INFORMATION SYSTEMS AND BUSINESS STRATEGY

31. Network Economics
•
Model of strategic systems at the industry level based on the concept
of a network where adding another participant entails zero marginal
costs but can create much larger marginal gain.
INFORMATION SYSTEMS AND BUSINESS STRATEGY

32. SUSTAINING STRATEGIC
ADVANTAGE
•
Major problem is how to sustain competitive advantage
•
SIS of the 1970s and 1980s were primarily outward systems
•
They are visible and easily imitable
•
Advances in computerized system development methodologies,
such as CASE tools and object-oriented programming, allow
companies to duplicate visible systems in a fast manner (in months
vs years)
INFORMATION SYSTEMS AND BUSINESS STRATEGY

33. TO SUSTAIN STRATEGIC
ADVANTAGE
•
Create inward system
•
Create comprehensive, innovative, expensive system. e.g. CAT case
(250m)
•
•
Implemented a GIS, sensors in machines computers that diagnosed problems and
instruct technicians in how to make repairs and IS that ties together all its
factories, distribution centers, dealers, and large customers.
Combine SIS with structural changes
•
Attempted in BPR and organizational transformation
INFORMATION SYSTEMS AND BUSINESS STRATEGY

34. Aligning IT and Business objectives
•
Luftman (2003) reported that the more successful a firm can align IT
with biz goals, the more profitable it will be, and half of biz firm’s
profits can be explained by alignment of IT with biz.
•
Perform a strategic system analysis:
◦ What is the structure of the industry?
◦ What are the biz, firm and industry value chain for the firm?
◦ Have we align IT with our biz strategy and goals?
INFORMATION SYSTEMS AND BUSINESS STRATEGY

35. References for lecture
notes 1
INFORMATION SYSTEMS AND BUSINESS STRATEGY
Laudon, K & Laudon, J, (2014). Management Information
Systems: Managing the Digital Firm, Pearson Education.
(Laudon). Twelve Edition.
Turban, E, McLean, E & Wetherbe, J. Information
Technology for Management: Making Connections for
Strategic Advantage, John Wiley & Sons, Inc.
Laudon & Traver (2002). E-Commerce:
Technology, Society. Addison Wesley
Business,
Turban, E, Jae Lee, David King, H, Micheal Chung, Electronic
Commerce: A Managerial Perspective, Prentice Hall.