Managing and Using Information Systems: A Strategic Approach – Sixth Edition Keri Pearlson, Carol Saunders, and Dennis Galletta © Copyright 2016 John Wiley & Sons, Inc. Chapter 1 The Information Systems Strategy Triangle Kaiser Permanente (KP) Opening Case • What was KP’s business strategy in 2015? • On what were bonuses to doctors based under the “fix me” system? • What would the new idea be called instead of a “fix me” system? • What is the new basis for end-of-year bonuses? • What goal alignment has helped KP’s success? • What IS components are part of this? • Could only the IS components be changed to achieve their success? • Could only the strategy be changed to achieve their success? © 2016 John Wiley & Sons, Inc. 3 The Information Systems Strategy Triangle Business Strategy Organizational Strategy Information Strategy These need to be balanced. © 2016 John Wiley & Sons, Inc. 4 What is a “Strategy?” • Coordinated set of actions to fulfill objectives, purposes, or goals • It sets limits on what the organization seeks to accomplish • Starts with a mission Company Mission Statement Zappos To provide the best customer service possible. Internally we call this our WOW philosophy. Amazon We seek to be Earth’s most customer-centric company for three primary customer sets: consumer customers, seller customers and developer customers. Sell good merchandise at a reasonable profit, treat your customers like human beings and they will always come back for more. L.L. Bean © 2016 John Wiley & Sons, Inc. 5 Business Strategy What is a business strategy? • It is where a business seeks to go and how it expects to get there • It is not a business model, although it includes business models as one component of a business strategy • Business models include subscriptions, advertising, licenses, etc. • Business models do not include where the business seeks to go, and only the revenue portion of how it expects to get there © 2016 John Wiley & Sons, Inc. 7 Generic Strategies Framework • Michael Porter: How businesses can build a competitive advantage • Three primary strategies for achieving competitive advantage: • Cost leadership – lowest-cost producer. • Differentiation – product is unique. • Focus – limited scope – can accomplish this via cost leadership or differentiation within the segment © 2016 John Wiley & Sons, Inc. 8 Three Strategies for Achieving Competitive Advantage Strategic Target Strategic Advantage Industry Wide Uniqueness Perceived by Customer Low Cost Position Differentiation Cost Leadership Particular Segment Only Focus © 2016 John Wiley & Sons, Inc. 9 Three Strategies for Achieving Competitive Advantage Examples Strategic Target Strategic Advantage Industry Wide Particular Segment Only Uniqueness Perceived by Customer Low Cost Position Differentiation Cost Leadership Apple Wal-Mart Marriott © 2016 John Wiley & Sons, Inc. Focus Ritz Carlton 10 Dynamic Strategies • Beware of Hypercompetition • Can lead to a “red ocean” environment • Cutthroat competition – zero sum game • Every advantage is eroded—becoming a cost. • Sustaining an advantage can be a deadly distraction from creating new ones. • D’Avenis says: Goal of advantage should be disruption, not sustainability • Initiatives are achieved through series of small steps. Get new advantage before old one erodes. • Better to adopt a “blue ocean” strategy • Change the industry; create new segments/products © 2016 John Wiley & Sons, Inc. 11 Creative Destruction • GE’s Approach under Jack Welch • Ask people to imagine how to destroy and grow your business • DYB: Imagine how competitors would want to destroy your business. • GYB: Counteract that by growing the business in some way to: • Reach new customers/markets • Better serve existing customers © 2016 John Wiley & Sons, Inc. 12 Summary Strategic Approach Key Idea Application to Information Systems Porter’s generic strategies Firms achieve competitive advantage through cost leadership, differentiation, or focus. Understanding which strategy is chosen by a firm is critical to choosing IS to complement the strategy. Dynamic environment strategies Speed, agility, and aggressive moves and countermoves by a firm create competitive advantage. The speed of change is too fast for manual response making IS critical to achieving business goals. © 2016 John Wiley & Sons, Inc. 13 Organizational Strategy Organizational Strategy • What is organizational strategy? • Organizational design and • Choices about work processes • How do you manage organizational, control, and cultural variables? • Managerial Levers © 2016 John Wiley & Sons, Inc. 15 Managerial Levers © 2016 John Wiley & Sons, Inc. 16 Information Systems Strategy IS Strategy • What is an IS Strategy? - The plan an organization uses in providing information services. • Four key IS infrastructure components © 2016 John Wiley & Sons, Inc. 18 Information systems strategy matrix. What Who Where Hardware The physical devices of the system System users and managers Physical location of devices (cloud, datacenter, etc.) Software The programs, applications, and utilities System users and managers The hardware it resides on and physical location of that hardware Networking The way hardware is connected to other hardware, to the Internet and to other outside networks. System users and managers; company that provides the service Where the nodes, wires, and other transport media are Data Bits of information stored in the system Owners of data; data administrators Where the information resides © 2016 John Wiley & Sons, Inc. 19 Illustration in a Consulting Firm What Who Where Hardware Laptops, servers to store info and back up laptops Consultants have laptops, managed by the IS Dept. Laptops are mobile; servers are centralized Software Office suite; collaboration tools Software is on consultants’ laptops but managed centrally Much resides on laptops; some only resides on servers Networking Internet; hard wired connections in office; remote lines from home, satellite, or client offices ISP offers service; Internal IS group provides servers and access Global access is needed; Nodes are managed by ISPs Data Work done for clients; personnel data Data owned by firm but made available to consultants as needed Resides on cloud and copies “pulled” into laptops as needed. © 2016 John Wiley & Sons, Inc. 20 One IS Strategy: Social Strategy • Collaboration • Extend the reach of stakeholders to find and connect with one-another • Engagement • Involve stakeholders in the business via blogs; communities • Innovation • Identify, describe, prioritize new ideas © 2016 John Wiley & Sons, Inc. 21 Managing and Using Information Systems: A Strategic Approach – Sixth Edition Keri Pearlson, Carol Saunders, and Dennis Galletta © Copyright 2016 John Wiley & Sons, Inc. Managing and Using Information Systems: A Strategic Approach – Sixth Edition Keri Pearlson, Carol Saunders, and Dennis Galletta © Copyright 2016 John Wiley & Sons, Inc. Chapter 2 Strategic Use of Information Resources Zara • Chapter opening case • How often do customers visit Zara each year? • When do customers buy the designs? Why? • How many designs do they make each year? • Is this possible without IT? © 2016 John Wiley & Sons, Inc. 3 © 2016 John Wiley & Sons, Inc. 4 Information Resources as Strategic Tools What are information resources? IT assets and capabilities (not just assets!) © 2016 John Wiley & Sons, Inc. 5 IT Assets and Capabilities IT Assets • IT infrastructure IT Capabilities • Technical Skills • Hardware • Software and company apps • Network • Data • Website • Information Repository • Customer information • Employee information • Marketplace information • Vendor information • Proficiency in systems analysis • Programming and web design skills • Data analysis/data scientist skills • Network design and implementation skills • IT Management Skills • Business process knowledge • Ability to evaluate technology options • Project management skills • Envisioning innovative IT solutions • Relationship Skills • Spanning skills such as business-IT relationship management • External skills such as vendormanagement © 2016 John Wiley & Sons, Inc. 6 IT Assets • Infrastructure • Information, technology, people and processes available to perform business processes and tasks. (not just technology!) • Might even include resources not owned by the firm (e.g., eBay, Facebook, LinkedIn) • Information repository • Data captured, organized, and retrievable by the firm © 2016 John Wiley & Sons, Inc. 7 IT Capabilities • Technical Skills (designing, developing, implementing IS) • Management Skills (managing the IT function and IT projects) • Relationship Skills • Outside the organization (vendors, customers) • Within the organization (managers) © 2016 John Wiley & Sons, Inc. 8 Examples • Assets: • Proprietary technology (e.g., platforms) • Online community • Customer information • Capabilities: • Knowledge • Technical skills of IT staff • Friendly, helping nature of IT staff © 2016 John Wiley & Sons, Inc. 9 The Strategic Landscape • Managers must take multiple views of the strategic landscape, such as: • First view - Porter’s five competitive forces model. • Second view - Porter’s value chain. • Third view – focuses on the types of IS resources needed (Resource Based View). © 2016 John Wiley & Sons, Inc. 10 Five competitive forces with potential strategic use of information resources © 2016 John Wiley & Sons, Inc. 11 Application of five competitive forces model. Competitive Force IT Influence on Competitive Force Threat of New Entrants Can be lowered if there are barriers to entry. Sometimes IS can be used to create barriers to entry Bargaining Power of Buyers Can be high if it’s easy to switch. Switching costs are increased by giving buyers things they value in exchange such as lower costs, effort, or time; or useful information Bargaining Power of Suppliers Strongest when there are few firms to choose from, quality of inputs is crucial, or the volume of purchases is insignificant to the supplier Threat of Substitute Products Depends on buyers’ willingness to substitute and the level of switching costs buyer’s face Industrial Competitors Rivalry is high when it is expensive to leave an industry, the industry’s growth rate is declining, or products have lost differentiation © 2016 John Wiley & Sons, Inc. 12 Application of five competitive forces – Zara example Competitive Force IT Influence on Competitive Force Threat of New Entrants Zara supports its tightly knit group of designers, market specialists, production managers, and planners. These relationships take time. Rich customer information in its database would take time to develop. Bargaining Power of Buyers Recently, Zara has created a laser-created database of sizes for 10,000 “real” women volunteers. New products will be more likely to fit. Bargaining Power of Suppliers Computer-controlled cutting machine can cut 1,000 layers at a time. A large number of sewers are available. Threat of Substitute Products IT helps Zara offer extremely fashionable clothing that would last 10 wears. The result is trendy clothes at reasonable prices, making substitutes difficult Industrial Competitors Zara tracks breaking trends and customer preferences. The result is the highest sales per square foot in the industry without much advertising, low inventories, only 10% of inventory unsold, new products from idea to shelves in 15 days, and manufacturing efficiencies © 2016 John Wiley & Sons, Inc. 13 Porter’s Value Chain Model • Value Chain model addresses the activities that create, deliver, and support a company’s product or service. • Two broad categories: • Primary activities – relate directly to the value created in a product or service. • Support activities – make it possible for the primary activities to exist and remain coordinated. • Competition can come from: • Lowering the cost to perform an activity, increasing profit. • Adding value to a product or service so buyers will be willing to pay more (again, increasing profit). © 2016 John Wiley & Sons, Inc. 14 Value chain of the firm. © 2016 John Wiley & Sons, Inc. 15 The Value System • The value chain model can be extended by linking many value chains into a value system. • Much of the advantage of supply chain management comes from understanding how information is used within each value chain within the larger system. © 2016 John Wiley & Sons, Inc. 16 The value system: interconnecting relationships between organizations. © 2016 John Wiley & Sons, Inc. 17 Zara and Primary Activities Primary Activity Zara’s Value Chain Inbound Logistics • IT-enabled JIT (just in time) strategy • Most dyes are purchased from Zara subsidiaries • Suppliers are located near production facilities Operations • • • • • Outbound Logistics • Clothes move on miles of conveyer belts • Clothes reach stores within 48 hours of the order Marketing and Sales • Limited inventory permits low percent of unsold goods (10%) • Point-of-Sales systems linked to HQ • Managers provide information on customer needs daily via handheld computers Service • No focus on service; clothes only last 10 wears IT supports decisions about fabric, cut, and pricing Products are hung on hangers to avoid ironing at stores Price tags are already on the products 60% of merchandise is produced in house Fabric is cut and dyed by robots in 23 highly automated factories © 2016 John Wiley & Sons, Inc. 18 Zara and Secondary Activities Secondary Activity Zara’s Value Chain Organization • Tightly-knit collaboration between designers, store managers, market specialists, production managers, production planners Human Resources • Managers are trained to understand customer needs and report to designers daily • Managers help Zara keep on cutting edge of fashion Technology • All primary activities are supported by integrated technology • Automated conveyers speed up logistics Purchasing • Vertical integration reduces the amount of purchasing needed © 2016 John Wiley & Sons, Inc. 19 Sustainability •Attaining competitive advantage is one thing • A firm often exploits rare and valuable resources •But sustaining competitive advantage is another • Resources must be difficult to transfer or relatively immobile © 2016 John Wiley & Sons, Inc. 20 Sustainability Framework Source: Piccoli & Ives © 2016 John Wiley & Sons, Inc. 21 But Isn’t Sustaining an Advantage a “Deadly Distraction?” • Some focus on sustaining would be useful • Some sustaining steps are not too difficult or expensive • It will help profitability while inventing more “disruptive” measures • It might save the firm if disruption measures fail • But some focus on disruption is also useful • Sometimes sustaining requires too much effort • Disruption can have a huge payoff © 2016 John Wiley & Sons, Inc. 22 The Resource Based View © 2016 John Wiley & Sons, Inc. 23 IT Assets at Zara © 2016 John Wiley & Sons, Inc. 24 IT Capabilities at Zara © 2016 John Wiley & Sons, Inc. 25 Social Capital as an IT Resource • Social capital: • the sum of the actual and potential resources embedded within, available through, and derived from the individual or firm’s network of relationships • Structural – Who is connected to whom • Relational – How the people interact (e.g., respect, friendship) • Cognitive – How the people think and the impact of a shared language © 2016 John Wiley & Sons, Inc. 26 Relationships with Other Firms • Strategic Alliances • Inter-organizational relationship that affords one or more company a strategic advantage • Example: Zynga and Facebook • Business ecosystems provide abundant examples • Co-opetition • Companies cooperate and compete at the same time • Example: Microsoft builds laptops but also supplies operating systems to other laptop makers © 2016 John Wiley & Sons, Inc. 27 Potential Risks • There are many potential risks that a firm faces when attempting to use IT to outpace their competition. • Executives should be aware of these risks in advance! • Awakening a sleeping giant – a large competitor with deeper pockets may be nudged into implementing IS with even better features (Schwab/eTrade; FedX/UPS) • Demonstrating bad timing – sometimes customers are not ready to use the technology designed to gain strategic advantage (Apple’s Newton, Shelternet) • Implementing IS poorly – information systems can fail because they are poorly implemented (Nike; Hershey) • Failing to deliver what users want – systems that don’t meet the firm’s target market likely to fail (Streamline.com groceries) • Running afoul of the law – Using IS strategically may promote litigation (Airline reservation systems) © 2016 John Wiley & Sons, Inc. 28 Co-Creating IT and Business Strategy • Not just alignment, but partnership • Example: FedEx • Are you paying only for the delivery? • Or are you also paying for information about the delivery? • Fedex would not be able to accomplish the delivery without the IS components. • Can you separate IT strategy from your business strategy? • The trend is towards integrating the two. © 2016 John Wiley & Sons, Inc. 29 Managing and Using Information Systems: A Strategic Approach – Sixth Edition Keri Pearlson, Carol Saunders, and Dennis Galletta © Copyright 2016 John Wiley & Sons, Inc.
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