MANAGING INFORMATION SYSTEMS FOR STRATEGIC ADVANTAGE

LEARNING GOALS

 Describe the various approaches to devising corporate strategy.

 Explain how information systems can help organizations achieve a strategic advantage.

 Describe the methods organizations use to choose a strategic information systems project.

 Describe how information systems can bring about corporate change.

 Explain the concept of knowledge management and describe the technologies that comprise knowledge management systems.

Value Chain

 Value chain – activities within an organization that bring products and services to market  Primary activities – take raw materials and transform it into something of greater value   Inbound logistics Operations • Marketing and sales • Service   Outbound logistics Supporting activities – those functions that the company requires to do business but do not directly add value to a product or service   HR IT • Procurement • Firm infrastructure

Value Chain Analysis

 Process of analyzing the activities within an organization’s value chain  Companies gain strategic value by focusing on a particular portion of the value chain  IT can help reduce the costs of these processes, thus increasing profit margins

Porter’s Competitive Forces Model

   Unlike the value chain, the Competitive Forces Model deals with external factors Five components      Level of competition in industry Threat of new entrants into industry Bargaining power of customers Bargaining power of suppliers Threat of substitute products Uses for CFM  Determine position within industry  Analyze industries and market segments they might wish to enter (exit)

Competitive Advantage (CA)

 Those qualities that allow a company to earn

above-average

profits within an industry  Low cost  Unique product  Three generic strategies to achieve competitive advantage  Cost leadership strategy  Differentiation strategy  Focus strategy

Information Systems for Strategic Advantage

 How can information systems improve the value chain?

 By reducing the cost of primary and support activities  How can information systems change the way an organization reacts to its competitive forces?

    By changing the bargain power of suppliers By building closer ties with customers By increasing or decreasing barriers to entry in a market By serving as the basis for new products and/or services

Sustainable Competitive Advantage

 Four approaches lead to

sustainable

competitive advantage   Create barriers to entry through patents, monopoly, or technical expertise Be the first to develop systems with high switching costs   Develop the technologies that change the underlying nature of the industry Cultivate and hire people with excellent information systems management skills

Productivity Paradox

 “

We see computers everywhere, but in the productivity statistics.”

Robert Solow, Nobel Prize-winning economist  It is difficult to attribute cost savings directly to a specific information system  It is difficult to prove that a specific system led to certain financial outcomes  Other measures are needed  Balanced scorecard  Total cost of ownership (TCO)

The Balanced Scorecard

 Strategic planning method that translates business strategy into a comprehensive set of performance measures  Investigates strategies in four areas     Financial – e.g. improving cash flow and reducing expenses Internal business processes – e.g. decreased cycle time and improved quality Learning and growth – e.g. develop successful new products Customer – e.g. improve customer satisfaction and decrease product defects

Value of Information Systems

 Cost must

NOT

outweigh benefits  Return on investment (ROI) ROI = (Benefits – Costs) *100 / Costs  Costs include  Hardware  Software – Benefits include • Tangible benefits • Intangible benefits  Labor  Total cost of ownership (TCO)  Method to quantify long-term direct and

indirect

costs

TCO Analysis for PDA Purchase

The IS Portfolio

 Treat investments in IS assets like a portfolio of investment assets to find redundancies and achieve balance  Five steps  Put information about all the organization’s IS projects into a database     Prioritize the IS projects Divide the IS projects into three types of investments    Infrastructure Upgrades Strategic initiatives Automate the entire process Have the organization’s top finance executive perform a Modern Portfolio Theory analysis

Sample IS Portfolio

Business Process Improvement and Reengineering

 BPI – processes are good but can be better  BPR – elimination or change of business processes  “

The fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance such as cost, quality, service, and speed.

” Hammer and Champy, 1993  Automation (e.g information systems) is a key factor in both BPI and BPR

Major Themes of Successful BPR

 Several jobs are combined into one.

 Workers are empowered to make decisions.

 Work is performed where it makes the most sense.

 Checks and controls are reduced or eliminated.

 Reconciliation is minimized.

Steps in BPR

 Have a clear strategy that is aligned with the organization’s goals  Clearly defined scope that identifies exactly which processes need to be reengineered and which supporting processes need to be revised  Define measures and benchmarks for success  Develop an understanding of the current,

as is

processes  Develop a plan for transition from the

as-is

processes to the

to-be

processes  Implement the changed processes  Measure the outcomes of the changes

Knowledge Management (KM)

 Knowledge assets – the knowledge that exists within the minds of each employee and the knowledge that exists in a tangible form such as databases, documents, and reports  Companies must know how to

manage

this knowledge  Knowledge management (KM) – the process by which organizations extract value from their knowledge assets

KM Systems

 Information technologies that enable the exchange of knowledge among employees and the storage of knowledge in repositories  Types of KM systems  Expert directories     Knowledge repositories Knowledge sharing technologies Knowledge representation technologies Knowledge discovery tools

Knowledge Portals

 A single access point to the knowledge of an organization  Provides Web-based access to all of the KM technologies within an organization