Management Information Systems By Effy Oz & Andy Jones Chapter 2: Strategic Uses of Information Systems www. cengage. co. uk/oz Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Objectives • Explain what business strategy and strategic moves are • Illustrate how information systems can give businesses a competitive advantage • Identify basic initiatives for gaining a competitive advantage • Explain what makes an information system a strategic information system Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Objectives (continued) • Identify fundamental requirements for developing strategic information systems • Explain circumstances and initiatives that make one IT strategy succeed another fail Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Strategy and Strategic Moves • Strategy: plan to gain advantage over enemy • Business strategy is plan to outperform competitors – Done by creating new opportunities, not beating rivals • Strategic Information System: Information system that create and seize opportunities • Strategic Advantage: Using strategy to maximize company strengths Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Porter’s Five Forces Model Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Achieving a Competitive Advantage • Many initiatives used to gain competitive advantage • Strategies aim to maximize competitive advantage • Strategic moves often consist of combination of two or more initiatives • Essence of strategy is innovation Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Achieving a Competitive Advantage (continued) Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Achieving a Competitive Advantage (continued) Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Initiative 1: Reduce Costs • • Customers want to pay little for service Reduce costs to lower price Automation greatly reduces costs Web can automate customer service Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Initiative 2: Raise Barriers to Market Entrants • Less competition is better for company • Raise barriers to entrants to lower competition • Techniques include obtaining copyrights and patents on inventions, techniques, and services • Building unmatchable information systems blocks entrants Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Initiative 3: Establish High Switching Costs • Switching costs: incurred when customer stops buying from company and starts buying from another company – Explicit: charge customer for switching – Implicit: indirect costs over period of time • High switching costs locks in customers Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Initiative 4: Create New Products or Services • Having unique product or service gives competitive advantage • First mover: organisation that is first to offer a new product or service – Superior brand name, better technology, more experience • Critical mass: body of clients that is large enough to attract other clients Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Initiative 5: Differentiate Products or Services • Product differentiation: persuading customers that product is better than competitors’ – Achieved through advertising – Exemplified by brand name success – Promotes brand name Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Initiative 6: Enhance Products or Services • Enhance existing products or services to increase value to consumer • Many products and services have been enhanced by the Web Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Initiative 7: Establish Alliances • Alliance: two companies combining services – Makes product more attractive – Reduces costs – Provides one-stop shopping • Affiliate program: linking to other companies and rewarding the linker for click-throughs Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Initiative 7: Establish Alliances (continued) Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Initiative 8: Lock in Suppliers or Buyers • Accomplished by achieving bargaining power • Bargaining power: leverage to influence buyers and suppliers – Achieved by being major competitor or eliminating competitors – Uses purchase volume as leverage • Lock in clients by creating high standards Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Creating and Maintaining Strategic Information Systems • Many opportunities to accomplish competitive edge with information technology • Innovative software establishes competitive advantage • Strategic information systems created from scratch or modified from previous system – Must serve organisation goal – Must collaborate with other functional units of company Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Creating an SIS • Strategic information system must be part of the overall organisational strategic plan • Precisely measuring financial output of SIS is difficult Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Creating an SIS (continued) Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Reengineering and organisational Change • To implement SIS, organisations must rethink way of operation • Reengineering: Eliminating and rebuilding operations from the ground up – Involves new machinery and elimination of management layers – Achieves huge efficiency improvements • New SIS requires businesses to revamp processes Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Competitive Advantage as a Moving Target • Competitive advantage is often short-lived • organisations imitating leader diminishes advantage • SIS has become expected business practice • Company must modify and enhance technology to sustain competitive advantage Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Jet. Blue: A Success Story • Jet. Blue: US airline company that entered a formerly hurting market with great success – Ticketless travel – Automation with IT – Reduced costs – Improved service Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Massive Automation • Jet. Blue used Open Skies software to automate ticket handling – Greatly reduced travel agent fees • Maintenance information system logs airplane parts and time cycles • Flight planning automated with application • Training management system eliminates need for paper records Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Away from Tradition • Jet. Blue used innovative technique for routing airplanes – Take most profitable route between cities • Keeping flight manuals on laptop computers allows for paperless cockpits – Saves time associated with calculating weight of plane Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Enhanced Service • Jet. Blue offers better service – Leather seats – Real-time television – Fewest mishandled bags – Better security Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Impressive Performance • Most important metric in airline industry is cost per available seat-mile – Measures how much it costs to fly a passenger one mile • Jet. Blue has lowest or second lowest CASM – (Cost per Airline Mile Seat) – Less than 7 cents Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Late Mover Advantage • Late mover: enters the market later than other competitors – Can be viewed as advantage – Implements latest available technologies – Not burdened with legacy systems • Jet. Blue used 40% beta software Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Ford on the Web: A Failure Story • Some strategic moves end up being colossal failures • May fail because of lack of attention to details • Unable to predict customer or business partner response • Jacque Nasser, CEO of Ford: ideas failed Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
The Ideas • Nasser eager to push company to Web • Install devices in vehicles to enable drivers and passengers to access Web • Establish Web site to market parts with auctions • Push vehicle sales to Web Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Hitting the Wall • Customers not interested in Web access in vehicles • Other car companies learned to use online part auctioning • Franchising laws do not allow car companies to bypass dealers • Online sales initiative failed Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
The Retreat • Ford abandoned plan to sell directly online • Web site was used instead to select proper model only • Site sold cars but not enough to save Nasser’s job Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
The Bleeding Edge • Ford case shows being first mover is risky • Pioneers can be burned even with careful planning • Bleeding edge: failure occurring because of company trying to be on leading edge – Implementation costs are greater than anticipated – Technology ends up losing money for company Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
The Bleeding Edge (continued) • Due to bleeding edge, companies wait before implementing newer technologies • Microsoft’s approach is to seize existing idea, improve, and promote with marketing power – Also known as competing by emulating and improving Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Summary • Some information systems have become strategic tools as a result of strategic planning • Strategic information systems help companies gain strategic advantage • Company achieves strategic advantage by using strategy to maximize its strength Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Summary (continued) • Various initiatives to establishing advantage – Cost reduction, raising barriers to competitors, establishing high switching costs, new products, differentiating products, enhancing products, alliances, and locking suppliers • Creating standards establishes strategic advantage in software industry Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
Summary (continued) • Reengineering is process of designing a business process from scratch to accommodate new information systems • Strategic advances from information systems are short lived and new opportunities must always be searched for • Bleeding edge is the undesirable result of a failed innovation effort Use with Management Information Systems 1 e By Effy Oz & Andy Jones ISBN 9781844807581 © 2008 Cengage Learning
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