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.
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The Information Systems Strategy Triangle
Business Strategy
Organizational Strategy
Information Strategy
These need to be balanced.
© 2016 John Wiley & Sons, Inc.
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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.
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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.
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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
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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
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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.
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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.
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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.
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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
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Managerial Levers
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Information Systems Strategy
IS Strategy
• What is an IS Strategy?
- The plan an organization uses in providing
information services.
• Four key IS infrastructure components
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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.
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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.
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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.
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© 2016 John Wiley & Sons, Inc.
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Information Resources as Strategic Tools
What are information resources?
IT assets and capabilities (not just assets!)
© 2016 John Wiley & Sons, Inc.
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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.
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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.
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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.
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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.
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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.
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Five competitive forces with potential
strategic use of information resources
© 2016 John Wiley & Sons, Inc.
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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.
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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.
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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.
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Value chain of the firm.
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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.
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The value system: interconnecting
relationships between organizations.
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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.
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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.
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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
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Sustainability Framework
Source: Piccoli & Ives
© 2016 John Wiley & Sons, Inc.
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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.
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The Resource Based View
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IT Assets at Zara
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IT Capabilities at Zara
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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.
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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.
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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.
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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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