IInnttrroodduccttiioonn How knowledgeable must a general • mmaannaaggeerr bbee aabboouutt IISS?? CChhaptter 11 What are the ramifications of an • TThhe IInfformattiion SSysttems improperly implemented IS? SSttrraatteeggyy TTrriiaannggllee CCan IISS bbe examiinedd iin iisollattiion?? WWhhy or • whyy not? What function does IS play in the business Managing and Using Information Systems: A • SSttrraatteeggiicc AApppprrooaacchh sttrattegy off an organiizattiion?? by Keri Pearlson & Carol Saunders 2 Copyright 2006 John Wiley & Sons, Inc. TThhee IImmppaacctt ooff IISS • The Information Systems Strategy Triangle is a simpple framework for understandingg the imppact of IS on organizations. • SSuucccceessssffuull ffiirrmmss hhaavvee aann oovveerrrriiddiinngg bbuussiinneessss strategy. • This business strategy drives both OOrrggaanniizzaattiioonnaall aanndd IInnffoorrmmaattiioonn ssttrraatteeggyy.. • All decisions are driven by the firm’s business Figure 1.1 The Information Systems Strategy Triangle oobbjjeeccttiivveess. 3 4 Copyright 2006 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. IISS SSttrraatteeggyy TTrriiaannggllee • Business Strategy drives all other strategies. BBRRIIEEFF OOVVEERRVVIIEEWW OOFF • OOrrggaanniizzaattiioonnaall aanndd IInnffoorrmmaattiioonn SSttrraatteeggyy aarree then dependent upon the Business Strategy. BBUUSSIINNEESSSS SSTTRRAATTEEGGYY • Changes in any strategy requires changes in the FRAMEWORKS others to maintain balance. • IS Strategy is affected by the other strategies a ffiirrmm uusseess. • IS strategy always involves consequences. 5 Copyright 2006 John Wiley & Sons, Inc. TThhiinnkk AAbboouutt IITT GGeenneerriicc SSttrraatteeggiieess FFrraammeewoorrkk • What is a business strategy? • Michael Porter describes how businesses WWhhiichh ffacttors iinfflluences a bbusiiness can bbuiilldd a susttaiinabblle compettiittiive • strateggyy? advantagge. How does a business change its strategy • He identified three primary strategies for • wwiitthhoouutt lloossiinngg bbaallaannccee wwiitthhiinn iittss achhiieviing compettiittiive addvanttage: organization and IS structure? • CCoosstt lleeaaddeerrsshhiipp – lloowweesstt-ccoosstt pprroodduucceerr. Are there specific events that induce a • • Differentiation – product is unique. bbuussiinneessss ttoo cchhaannggee iittss ssttrraatteeggiieess aanndd wwhhaatt are they? • Focus – limited scope. 7 8 Copyright 2006 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. PPoorrtteerr’’ss CCoommppeettiittiivee AAddvaannttaaggee • Remember that a companies overall business strateggyy will drive all other strateggies. • Porter defined these competitive advantages to reppresent various business strateggies found in the marketplace. • Cost leadershipp strateggyy firms include Walmart,, Suzuki, Overstock.com, etc. • Differentiation strateggyy firms include Coca Cola,, Progressive Insurance, Publix, etc. • Focus strateggyy firms include the Ritz Carlton,, Marriott, etc. Figure 1.2 Three strategies for achieving competitive advantage. 9 10 Copyright 2006 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. IISS PPllaannnniinngg aanndd SSttrraatteeggiicc DDiiffffeerreennttiiaattiioonn SSttrraatteeggy VVaarriiaannttss AAddvvaannttaaggee MMooddeellss • Shareholder value model: create advantage througgh the use of knowledgge and timingg • General Managgers cannot afford to relyy solelyy on IS personnel to make IS decisions. (Fruhan) •• UUnnlliimmiitteedd rreessoouurrcceess mmooddeell:: ccoommppaanniieess wwiitthh aa • Business strateggyy drives IS decision makingg. large resource can sustain losses more easily • Changes in IS potential should trigger business reassessments ((i.e. the Internet)). tthhaann oonneess wwiitthh ffeewweerr rreessoouurrcceess ((CChhaaiinn SSttoorree vvss Mom & Pop). • Information Systems Strategy Triangle shows the ppropper balance of strateggies. • TThhee pprroobblleemm wwiitthh PPoorrtteerr aanndd tthheessee vvaarriiaannttss aarree • The models are helpful in discussing the role of that the rate of change is no longer easily IS in buildingg and sustainingg comppetitive mmaannaaggeedd aanndd ssuussttaaiinneedd. advantage. 11 12 Copyright 2006 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. FFrameworkk KKey IIddea AApplliicattiion tto IInfformattiion SSysttems Porter’s Firms achieve Understanding which strategy is chosen by generiic ccoommppeettiittiivvee aa ffiirrmm iiss ccrriittiiccaall ttoo cchhoooossiinngg IISS ttoo strategies advantage through complement that strategy. cost leadership, BBRRIIEEFF OOVVEERRVVIIEEWW OOFF framework ddiifffferenttiiattiion, or focus. OORRGGAANNIIZZAATTIIOONNAALL DD’’AAvenii’’s SSpeedd andd TThhe 77 SSs giive tthhe manager suggesttiions on hyper- aggressive moves what moves and countermoves to make. STRATEGIES ccoommppeettiittiioonn and countermoves IS are critical to achieve the speed needed by a firm create for these moves. model competitive advantagge Figure 1.3 Summary of key strategy frameworks. 13 14 Copyright 2006 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. OOrrggaanniizzaattiioonnaall SSttrraatteeggyy • Orgganizational strateggyy includes the organization’s design as well as the choices it makes in its work processes. • How will the company organize in order to achieve its goals and implement its business sttrattegy?? • Business Diamond – simple framework for iiddenttiiffyiing cruciiall componentts off an organization’s plan (Figure 1.4) • MManageriiall LLevers – anotthher fframeworkk ffor organizational design, states that successful eexxeeccuuttiioonn ooff tthhee ffiirrmm’ss oorrggaanniizzaattiioonnaall ssttrraatteeggyy iiss the best combination of organizational, control, Figure 1.4 The Business Diamond aanndd ccuullttuurraall vvaarriiaabblleess ((FFiigguurree 11.55)). 15 16 Copyright 2006 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. UUnnddeerrssttaannddiinngg OOrrggaanniizzaattiioonn SSttrraatteeggyy TTo unddersttandd organiizattiionall sttrattegy we mustt answer the following questions: 1. What are the important structures and reporting relationshipps within the orgganization? 2. What are the characteristics, experiences, and sskkiillll lleevveellss ooff tthhee ppeeooppllee wwiitthhiinn tthhee oorrggaanniizzaattiioonn?? 3. What are the key business processes? 44. WWhhaatt ccoonnttrrooll ssyysstteemmss aarree iinn ppllaaccee?? 5. What is the culture of the organization? Figure 1.5 Managerial Levers 17 18 Copyright 2006 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. Framework Key Idea Usefulness in IS Discussions Business There are 4 key Using IS in an organization will affect DDiiamondd ccoommppoonneennttss ooff aann eeaacchh ooff tthheessee ccoommppoonneennttss. UUssee tthhiiss organization: business framework to identify where these processes, values and impacts are likely to occur BBRRIIEEFF OOVVEERRVVIIEEWW OOFF bbelliieffs, managementt control systems, and tasks and structures. IINNFFOORRMMAATTIIOONN SSYYSSTTEEMMSS Managerial Organizational This is a more detailed model than levers variables, control the Business diamond and gives SSTTRRAATTEEGGYY variiabblles, andd culltturall speciiffiic areas whhere IISS can bbe usedd variables are the levers to manage the organization and to managers can use to change it affect change in their organizations Figure 1.6 Summary of organizational strategy frameworks 19 Copyright 2006 John Wiley & Sons, Inc. What Who Where IISS SSttrraatteeggy Hardware List of physical Individuals who use it Physical location components of the Individuals who ssyysstteemm mmaannaaggee iitt • The plan an organization uses in providing Software List of programs, Individuals who use it What hardware it iinnffoorrmmaattiioonn sseerrvviicceess. applications, and Individuals who resides upon and utilities manage it where that hardware is located • IS allows business to implement its business NNeettwwoorrkkiinngg DDiiaaggrraamm ooff hhooww IInnddiivviidduuaallss wwhhoo uussee WWhheerree tthhee nnooddeess aarree strategy. hardware and it/ Individuals who located, where the software manage it/ wires and other •• IISS hheellppss ddeetteerrmmiinnee tthhee ccoommppaannyy’ss ccaappaabbiilliittiieess. ccoommppoonneennttss aarree CCoommppaannyy sseerrvviiccee ttrraannssppoorrtt mmeeddiiaa aarree connected obtained from located • Four key IS infrastructure components are key to Data Bits of information Individuals who use it Where the IISS sttrattegy ((FFiigure 11.77)) stored in the system Individuals who information resides manage it • These keyy compponents are sufficient to allow the general manager to assess critical IS issues. Figure 1.7 Information systems strategy matrix. 21 22 Copyright 2006 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. IInnffoorrmmaattiioonn vss TThhiinnggss • Every business is in the information business FFOOOODD FFOORR TTHHOOUUGGHHTT:: ((EEvvaannss aanndd WWuurrsstteerr)).. • All forms of industry rely heavily on IS. EECCOONNOOMMIICCSS OOFF • MMerceddes cars computtiing power. INFORMATION VS. • Marketing research, logistics, advertising, inventory management all rely on IS. ECONOMICS OF THINGS • Thinggs wear out. • Information never wears out. • FFiigure 11.88 compares tthhiings wiitthh iinfformattiion. 24 Copyright 2006 John Wiley & Sons, Inc. Things Information Wear out Doesn’t wear out, but can become obsolete or untrue Are replicated at the expense of Is replicated at almost zero cost SSUUMMMMAARRYY the manufacturer without limit Exist in a tangible form May exist in the ether When sold, seller ceases to own When sold, seller may still possess and sell again PPriice bbasedd on prodducttiion costts PPriice bbasedd on vallue tto consumer Figure 1.8 Comparison of the economics of things with the economics of information 25 26 Copyright 2006 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. SSummmmaarry • Competitive advantage is gained through cost lleeaaddeerrsshhiipp, ddiiffffeerreennttiiaattiioonn, oorr ffooccuuss. • The Information Systems Strategy Triangle shows that business strategy always drives orgganizational and information strateggies. • Hypercompetition defines competitive advantage aass tteemmppoorraarryy. • Understanding the influence of IS in organizational strategy is paramount. 27 Copyright 2006 John Wiley & Sons, Inc. IInnttrroodduuccttiioonn •• HHooww hhaavvee ssuucccceessssffuull bbuussiinneesssseess uuttiilliizzeedd IISS strategically? CChhaapptteerr 22 • What resources are involved in crafting a SSttrraatteeggiicc UUssee ooff ssttrraatteeggiicc IISS ppoolliiccyy?? WWhhiicchh oonnee iiss mmoosstt important? IInnffoorrmmaattiioonn RReessoouurrcceess • MMaannyy ooff ttooddaayy’’ss mmoosstt ssuucccceessssffuull ccoommppaanniieess have created strategic alliances. How has this Managing and Using Information helped them to create strategic advantage? Systems: A Strategic Approach by Keri Pearlson & Carol Saunders 2 Copyright 2006 John Wiley & Sons, Inc. RReeaall WWoorrlldd EExxaammpplleess •• IInn 11999944 DDeellll ffiinnaallllyy ssttooppppeedd sseelllliinngg PPCCss tthhrroouugghh retail stores. EEVVOOLLUUTTIIOONN OOFF • It moved completely to using an integrated IT platform that allow the order of customized systems. IINNFFOORRMMAATTIIOONN • Strategic use of IS produced Cost savings from reduced inventories ppassed on to customers. RREESSOOUURRCCEESS • This innovation created a competitive advantage for DDeellll, wwhhiicchh uusseedd iittss iinnffoorrmmaattiioonn rreessoouurrcceess ttoo aacchhiieevvee high volumes without the high costs of the industry’s ttrraaddiittiioonnaall ddiissttrriibbuuttiioonn cchhaannnneellss ((sseeee wwwwww.ddeellll.ccoomm)) 3 4 Copyright 2006 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. 1960s 1970s 1980s 1990s 2000+ IInnffoorrmmaattiioonn RReessoouurrcceess Primary Efficiency Effectiveness Strategic Strategic Value creation AAutomate SSollve probbllems IIncrease iinddiiviidduall TTransfform CCreate Role of IT existing paper- and create and group industry/organizati collaborative based opportunities effectiveness on partnerships •• OOvveerr tthhee ppaasstt ddeeccaaddeess tthhee uussee ooff iinnffoorrmmaattiioonn processes resources has changed. Justify IT ROI Increasing Competitive Competitive Adding expenditure productivity and position position Value decision making • OOrganiizattiions hhave movedd ffrom an ““effffiiciiency Target of Organization Individual Business Business Customer, model” of the 1960’s to a “value creation model” systems manager/ processes processes supplier, Group ecosystem ecosyystem off tthhe 22000000’’s. Information Application Data-driven User-driven Business-driven Knowledge- • Companies seek to utilize those technologgies that model specific driven DDomiinantt MMaaiinnffrraammee- MMiinniiccoommppuutteerr- MMiiccrrooccoommppuutteerr CClliieenntt-SSeerrvveerr IInntteerrnneett give them competitive advantage. technology based based “decentralized “distribution “ubiquitous intelligence” intelligence” intelligence” • MMaaxxiimmiizziinngg tthhee eeffffeeccttiivveenneessss ooff tthhee ffiirrmm’ss BBaassiiss ooff Scarcityy Scarcityy Scarcityy Plentitude Plentitude business strategy requires the general manager Value ttoo iiddeennttiiffyy aanndd uussee iinnffoorrmmaattiioonn rreessoouurrcceess.. Underlying Economic of Economic of Economic of Economic of Economic of eeccoonnoommiiccss information information information bundled information information bundled w/ bundled w/ w/ economics of separated f/ separated f/ • Figure 2.1 shows this change. economics of economics of things economics of economics of things things things things FFiigure 22.11 EEras off iinfformattiion usage iin organiizattiions 5 6 Copyright 2006 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. IInnffoorrmmaattiioonn RReessoouurrcceess • IInfformattiion resources iis ddeffiinedd as tthhe avaiillabblle data, technology, and processes available to perfform bbusiiness processes andd ttaskks. INFORMATION • Relationships between general managers and IS RESOURCES AS managers. • RReessoouurrcceess aavvaaiillaabbllee iinncclluuddee:: STRATEGIC TOOLS – IS Infrastructure – IInnffoorrmmaattiioonn aanndd kknnoowwlleeddggee – Proprietary technology – TTeecchhnniiccaall sskkiillllss ooff IITT ssttaaffff – End users of the IS and more. 7 8 Copyright 2006 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. Advantagges or Information Resources • General managers evaluating an information rreessoouurrccee ffoorr ccoommppeettiittiivvee aaddvvaannttaaggee nneeeeddss ttoo ask: HOW CAN INFORMATION – WWhhaatt mmaakkeess tthhee iinnffoorrmmaattiioonn rreessoourrccee vaalluaabbllee?? RESOURCES BE USED – Who appropriates the value created by the iinnffoorrmmaattiioonn rreessoouurrccee?? STRATEGICALLY? – Is the information resource equally distributed across ffiirrmmss?? – Is the information resource highly mobile? – HHooww qquuiicckkllyy ddooeess tthhee iinnffoorrmmaattiioonn rreessoouurrccee bbeeccoommee obsolete? 9 10 Copyright 2006 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc. Usingg Information Resources to TThhee SSttrraatteeggiicc LLaannddssccaappee Influence Competitive Forces • Porter’s five forces model show the major • Managers confront elements that influence the forces that shappe the comppetitive environment ccoommppeettiittiivvee eennvviirroonnmmeenntt. of the firm. • Slim tolerance for error. 1. Threat of New Entrants: new firms that may enter a ccoommppaanniieess mmaarrkkeett. • Managers must take multiple view of the 2. Bargaining Power of Buyers: the ability of buyers to use their market power to decrease a firm’s competitive position ssttrraatteeggiicc llaannddssccaappee, ssuucchh aass:: 3. Bargaining Power of Suppliers: the ability suppliers of the – First view - Porter’s five competitive forces model. inputs of a product or service to lower a firm’s competitive position – SSecondd viiew - PPortter’’s vallue chhaiin. 4. Threat of Substitutes: providers of equivalent or superior alternative products – Third view – focuses on the types of IS resources 55.. IInndduussttrryy CCoommppeettiittoorrss:: ccuurrrreenntt ccoommppeettiittoorrss ffoorr tthhee ssaammee needed (Resource Based View). product. • Figure 2.2 and 2.3 show this model in detail. 11 12 Copyright 2006 John Wiley & Sons, Inc. Copyright 2006 John Wiley & Sons, Inc.