STRATEGIC ASSIGNMENT.docx
- 1. 1 Q1.What are the strategic applications and issues in IT? STRATEGIC APPLICATIONS IN IT IT Role in Strategic Management of the firm Information technology plays an important role in delivering value for a business and supporting organizational transformation. To achieve that, chief information officers have become key members of board teams developing and delivering strategic solutions for the business. The aim is to make an organization more competitive by aligning business strategy with IT strategy. SIS as the Strategic Application of IT Strategic Information System involves having a long-term vision, define business objectives, setting goals, and taking steps to reach those goals and address organizational issues. Strategic Information System keeps the organization focused on its vision and organizational transformation. It is used to provide information about the current situation of an individual, group or organization. It is a conceptual system that helps in understanding the present and the future environment in which an individual or organization operates. A strategic information system (SIS) is a business information system (BIS) with the features Systematic approach to collecting, storing, and retrieving data; Integration with other systems. It is essential for your company to have a clear vision, business plan, strategy and organisation structure. It’s important that your employees are aligned with these strategies, so that everyone has the same goals in mind. Applications of IT supported SIS 1. Support Innovation Organizations that want to improve their innovation capabilities and develop new products or services for the market can use cloud computing to speed up the process. Cloud computing enables organizations to rent additional IT resources during the development project on a pay-as-you-go basis, rather than investing in fixed resources. Organizations can use the additional resources to run pilot programs or speed up
- 2. 2 development. This provides an important strategic advantage by enabling the organization to get new products to market quickly, ahead of the competition. 2. Improve Responsiveness Cloud computing enables organizations to scale up their IT resources quickly in response to changing market conditions. Organizations that offer products and services online may find it difficult to handle a surge in traffic, which could result in lost business. Adding resources from the cloud provides a strategic advantage by enabling them to respond to changes in demand, increase revenue and maintain customer satisfaction. 3. Increase Collaboration IT solutions that improve collaboration in an organization can provide an important competitive advantage. Issuing field service teams with smartphones, for example, enables service engineers to provide a faster, more efficient service to customers. Engineers working on a customer site can set up voice or video conference calls with product or technical experts at headquarters to discuss and resolve a complex issue, rather than delaying a repair. Offering customer superior service provides a strategic advantage by differentiating an organization from competitors. 4. Enhance Customer Insight Collecting and analyzing data to gain greater insight into customers’ needs and preferences provides a strategic advantage. By using powerful analytics software, organizations can develop customized offers and personalized communications that help to increase customer satisfaction and foster loyalty. 5. Introduce New Business Models Organizations can use IT to make strategic changes to their business models. A company that traditionally sold products through retail outlets might use IT to develop an e-commerce model that enables it to reach a wider market, reduce its distribution costs and offer a more convenient service to customers. 6. Innovative applications. IT creates innovative applications that provide direct strategic advantage to organizations. For example, Federal Express was the first company in its industry to use IT for tracking the location of every package in its system. Next, FedEx was the first company to make this database accessible to its customers over the Internet. FedEx has gone on to providee-fulfillment solutions based on IT and is even writing software for this purpose (Bhise et al., 2000). 7. Competitive weapons. Information systems themselves have long been recognized as a competitive weapon (Ives and Learmouth, 1984, and Callon, 1996). Amazon.com’s one-
- 3. 3 click shopping system is considered so significant and important to the company’s reputation for superior customer service that it has patented the system. Michael Dell, founder of Dell Computer, puts it bluntly: “The Internet is like a weapon sitting on the table, ready to be picked up by either you or your competitors” (Dell, 1999). 8. Changes in processes. IT supports changes in business processes that translate to strategic advantage (Davenport, 1993). For example, Berri is Australia’s largest manufacturer and distributor of fruit juice products. The principal goal of its enterprise resource planning system implementation was “to turn its branch-based business into a national organization with a single set of unified business processes” in order to achieve millions of dollars in cost-savings (J.D. Edwards, 2002a). Other ways in which IT can change business processes include better control over remote stores or offices by providing speedy communication tools, streamlined product design time with computer- aided engineering tools, and better decision-making processes by providing managers with timely information reports. 9. Links with business partners. IT links a company with its business partners effectively and efficiently. For example, Rosenbluth’s Global Distribution Network allows it to connect agents, customers, and travel service providers around the globe, an innovation that allowed it to broaden its marketing range (Clemons and Hann, 1999). Other examples of interorganizational stategic information systems are presented later in this chapter. 10. Cost reductions. IT enables companies to reduce costs. For example, a BoozAllen & Hamilton study found that: a traditional bank transaction costs $1.07, whereas the same transaction over the Web costs about 1 cent; a traditional airline ticket costs $8 to process,ane-ticketcosts$1. In the customer service area, a customer call handled by a live agent costs $33, but an intelligent agent can handle the same request for less than $2 (Schwartz, 2000). 11. Relationships with suppliers and customers. IT can be used to lock in suppliers and customers, or to build in switching costs (making it more difficult for suppliers or customers to switch to competitors). For example, Master Builders sells chemical additives that improve the performance characteristics of concrete. The company offers customers MasterTrac, a tank-monitoring system that automatically notifies Master
- 4. 4 Builders when additive inventories fall below an agreed-on level. Master Builders then resupplies the tanks on a just-in-time basis. The customer benefits from an assured supply of product, less capital tied up in inventory, and reduced inventory management time and processing. Master Builders benefits because competitors face a more difficult task to convince concrete companies to switch to them (Vandenbosch and Dawar, 2002). 12. New products. A firm can leverage its investment in IT to create new products that are in demand in the marketplace. Federal Express’s package-tracking software is one example. In Australia, ICI Explosives no longer views its business model as just selling explosives; it now also writes contracts for broken rock. ICI engineers developed computer models that specify drilling procedures and explosives use for different types of rockfaces to produce rock in the sizes that the customer needs. According to Vandenbosch and Dawar (2002), “The redefinition of ICI’s role not only generated much higher margins for the business, it also gave ICI a much more defensible competitive position” (p. 38). 13. Competitive intelligence. IT provides competitive (business) intelligence by collecting and analyzing information about products, markets, competitors, and environmental changes (see Guimaraes and Armstrong, 1997). For example, if a company knows something important before its competitors, or if it can make the correct interpretation of information before its competitors, then it can act first, gaining strategic advantage through first-mover advantage (the competitive advantage gained by being the first to offer a particular product or service that customers deem to be of value). Because competitive intelligence is such an important aspect of gaining competitive advantage, we look at it in some detail next.. STRATEGIC ISSUES IN IT 1. Risk in implementing strategic information systems. The investment involved in implementing an SIS is high. Frequently these systems represent a major step forward and utilize new technology. Considering the contending business forces, the probability of success, and the cost of investment, a company considering a new strategic information system should undertake a formal risk analysis.
- 5. 5 2. Planning. Planning for an SIS is a major concern of organizations (Earl, 1993). Exploiting IT for competitive advantage can be viewed as one of four major activities of SIS planning. The other three (which will be discussed later in the book) are aligning investment in IS with business goals (Chapter 9), directing efficient and effective management of IS resources (Chapters 13 and 15), and developing technology policies and architecture (Chapter 9). 3. Sustaining competitive advantage. As companies become larger and more sophisticated, they develop sufficient resources to quickly duplicate the successful systems of their competitors. For example, Alamo Rent-a-Car now offers a frequent- renter card similar to the one offered by National car rental. Sustaining strategic systems is becoming more difficult and is related to the issue of being a risk-taking leader versus a follower in developing innovative systems. 4. Ethical issues. Gaining competitive advantage through the use of IT may involve actions that are unethical, illegal, or both. Companies use IT to monitor the activities of other companies, which may invade the privacy of individuals working there. In using business intelligence (e.g., spying on competitors), companies may engage in tactics such as pressuring competitors’ employees to reveal information or using software that is the intellectual property of other companies without the knowledge of these other companies. Companies may post questions and place remarks about their competitors with Internet newsgroups. Many such actions are technically not illegal, due to the fact that the Internet is new and its legal environment is not well developed as yet, but many people would certainly find them unethical. 5. Protecting an IT Innovation Many innovations in IT are virtually impossible to protect from copying. It is difficult to copyright or obtain a patent on an application of technology. When Barney (1991)established a Web site to let customers inquire about the status of their shipments, United Parcel followed with a similar Web service within a month. The term "regimes of appropriability" is sometimes used to describe how easy it is to protect an innovation. A strong regime means you can protect an innovation, while weak appropriability means that others can easily duplicate your innovation. Most IT initiatives seem to have weak appropriability regimes. While a firm may have the appropriate resources to create an innovation, it can be difficult or impossible to sustain
- 6. 6 it. There are, however, some conditions that favor the innovator. For example, if you have certain complementary assets (resources) that are unavailable to others, you may be able to protect your innovation. When IBM brought out its first personal computer in 1981, it had a strong complementary asset in the form of a marketing organization with contacts in major corporations around the world. A cospecialized asset is one that has mutual dependency with the innovation. A good example of a cospecialized asset is the relationship between Microsoft's Internet Explorer and Windows 98. The Explorer depends on Windows since it must run on a computer controlled by this operating system; as the Explorer interface becomes a part of Windows, the operating system develops a dependence on this browser. It has been suggested that location can be a co specialized asset in the placement of ATMs; the first banks that installed ATMs were able to get the best locations for them (Dos Santos and Peffers, 1995). 6. Implementing strategic systems often requires extensive organizational change. Such transitions are often difficult, painful, and time consuming to achieve. Moreover, not all strategic systems are profitable. They are expensive and difficult to build because they can entail massive changes within the organization. Other firms easily copy many strategic information systems, so that the strategic advantage is not always sustainable. The complex relationship between information systems, organizational performance, and decision making must be carefully managed. Sometimes, the advantages are found more in the way a management team makes decisions on the information provided by IS, than by the supposed strategic advantage of the system alone. 7. Current technical infeasibility can limit innovation In SIS conceptualization, technology is often thought of as a driver, providing the inspiration for new ideas. However, the technology to make ideas work as conceptualized must be currently available for the company to benefit. Without the proper technology available for use, even the best SIS idea cannot be brought to fruition. For example, in the 1970s a few companies tried to allow customers to pay bills by dialling digits on a telephone, an example of an Ansoff product developmenttype initiative. The bill-paying phone systems were hardto-use and error-prone, as the standard telephone is a limited input medium. Although the concept of paying from home seemed attractive, the technical difficulties of the systems limited the pay-by-phone method to only 6% of the bill-paying options as
- 7. 7 late as 198T 3. Similarly, home banking has not been widely accepted, in part due to the lack of home personal computers (PCs). 8. SISs are expensive Attempts to use SISs, whether they become successful or not, typically require large investments. Of course, finding examples of SISs that were not attempted due to inadequate funds is extremely difficult, but there is some evidence. A manufacturing firm reports that strategic systems employing leading-edge technology are not aggressively pursued because the division's funds are eaten up by software maintenance. The controller commented, 'The company needs to bring back some good ideas and work with them (if funds become available).' 9. Telecommunications can dramatically increase system complexity in today's environment The inclusion of telecommunications into an SIS dramatically increases that system's complexity in today's environment. Problems currently stemming from this complexity can be categorized into two areas, equipment problems and staffing problems. 10. SISs are complex to develop Achieving a fundable, technically feasible, and marketable SIS concept moves an organization only partly to wards success. The examination of the literature on successful SISs suggests that systems often involve one or more of the following attributes: • telecommunications • reliance on multiple vendors • inter-organizational cooperation • 'bleeding edge' technology These areas, either separately or combined, can provide sufficient difficulty during the development and implementation process to make an SIS idea unsuccessful. 11. Maintaining and adapting SISs requires constant management Even after an SIS idea has been created, and the system has been successfully developed and implemented, the success of the system can be costly for the organization 59. Strategic systems can: • be copied by competitors • create oversubscription • be expensive to maintain and/or enhance • create high exit barriers Of course, there are currently only a few systems that have reached this phase, and therefore there are relatively few current examples of these types of problems. However, the examples that follow are likely to be representative of problems that are predicted to befall other SISs attempts in the future. 12. Expensive to maintain/enhance The expense of maintaining and enhancing installed systems can be costly. As competitors begin to copy successful systems, originators are pressured to maintain their advantage. Therefore, they are burdened with the expense of
- 8. 8 continuously improving their systems and offering more features. It is estimated that United Airlines Inc. will have spent $1 billion between 1986 and 1991 to replace the Apollo Business System, an office automation package for travel agents 2~. The new system, the Enterprise Agency Management System, is needed because the old system grew haphazardly and is therefore difficult to maintain. Citicorp has implemented a separate division, the Information Bank, to develop and market new technology-based products continuously 66. The Information Bank is viewed as a long-term venture, and in 1986 it lost $34 million, according to Forbes. 13. Hazards of vendor-driven systems Developers of nearly any type of IS typically rely on vendors of one sort or another for parts of the system. But, these vendor-related problems are magnified by the scale of most SISs efforts and are compounded by the typical presence of multiple vendors on large projects. An example of a technology-supplying vendor preventing a successful SIS is provided by an executive at a consumer goods manufacturing company. A software vendor indicated that their products could handle the performance needs of a large and complex market penetration system that was being developed. However, the software did not perform to expectations. The executive stated, 'When the vendor's product expert was called in to examine the situation he remarked that he had never seen such an ambitious attempt to use the software and, that if we figured out a solution, to please let him know. Q2: What are the fundamentals of strategic advantage? FUNDAMENTALS OF STRATEGIC ADVANTAGE STRATEGIC ADVANTAGE VS COMPETITIVE ADVANTAGE Competitive Advantage is an organization’s ability to outcompete in a market, while strategic advantage is the ability to outcompete overall including returns to stakeholders. Hence strategic advantage is a broader term.
- 9. 9 STRATEGY Strategy is the pattern of resource allocation decisions made throughout an organization. These encapsulate both desired goals and beliefs about what are acceptable and, most critically, unacceptable means for achieving them. STRATEGIC MANAGEMENT Strategic management is concerned with deciding on strategy and planning how that strategy is to be put in effect through strategic analysis, strategic choice, and strategic implementation. Note that there are various levels of strategies including: Corporate strategy, Business strategy: (within business unit), and Functional strategy (Information system strategy). STRATEGIC INFORMATION SYSTEM (SIS) Strategic Information systems can be defined as “Systems that support or shape a business unit’s competitive strategy.”
- 10. 10 FUNDAMENTALS OF STRATEGIC ADVANTAGE Strategic IT IT can change the way businesses compete. A strategic information system is any information system that uses IT to help an organization gain a competitive advantage, reduce a competitive disadvantage, or meet other strategic enterprise objectives. REQUIREMENTS FOR A RELEVANT STRATEGY The strategy needs to be used proactively, recognize that there are severe limits to the predictability of the future, take account of the organizational, political, and psychological dimensions of corporate life, and be accepted by the majority of those concerned with strategy to be a realistic relevant tool for more effectively coping with the future. 1) Competitive Strategy Concepts Porter’s 5 Competitive forces: 1. The Rivalry of Competitors Within Its Industry 2. The Threat of New Entrants into An Industry and Its Markets 3. The Threat Posed by Substitute Products That Might Capture Market Share 4. The Bargaining Power of Customers 5. The Bargaining Power of Suppliers BASIC COMPETITIVE STRATEGIES: Cost Leadership Become low-cost producers –Help suppliers or customers reduce costs –Increase cost to competitors Differentiation Strategy Differentiate a firm’s products from its competitors’ –Focus on a particular segment or niche of market Innovation Strategy Unique products, services, or markets –Radical changes to business processes Growth Strategy Expand company’s capacity to produce –Expand into global markets –Diversify into new products or services
- 11. 11 Alliance Strategy Establish linkages and alliances with customers, suppliers, competitors, consultants, and other companies –Includes mergers, acquisitions, joint ventures, virtual companies. Other Competitive Strategies Lock in Customers and Suppliers Deter them from switching to competitors Build in Switching Costs Make customers and suppliers dependent on the use of innovative IS Erect Barriers to Entry Discourage or delay other companies from entering the market – Increase the technology or investment needed to enter Build Strategic IT Capabilities Take advantage of strategic opportunities when they arise –Improve efficiency of business practices Leverage Investment in IT Develop products and service that would not be possible without a strong IT capability 2) Strategic Advantage Uses of Information Technology Includes develop a focus on the customer, Business Process Reengineering (BPR), Improving business quality, becoming agile, creating a virtual company, and build learning organizations.
- 12. 12 a) Develop a Focus on the Customer This strategy involves creating customer value, having the best value, understanding customer preferences, tracking market trends, supplying products, services, & information, and providing tailored customer service. b) Business Process Reengineering (BPR) Business process reengineering involves rethinking & redesign of business processes, combines innovation and process improvement. Success of this process includes the following factors: Organizational redesign, process teams and case managers, and information technology. c) Improving Business Quality To improve business quality, Total Quality Management (TQM) principles are used. Its main tenants involve understanding quality from customer’s perspective, meeting or exceeding customer expectations, and emphasizing commitment to: Higher quality, Quicker response, Greater flexibility, and Lower cost. d) Becoming Agile To create an agile organization, one may use four basic strategies: 1) Customers’ perception of product/service as solution to individual problem, 2) Cooperate with customers, suppliers, other companies (including competitors), 3) Thrive on change and uncertainty, and 4) Leverage impact of people and people’s knowledge. e) The Virtual Company The virtual company uses IT to link people, assets, and ideas, forms virtual workgroups and alliances with business partners, Interorganizational information systems with Internet, extranets, and intranets. Its strategies include sharing infrastructure & risk with alliance partners, linking complementary core competencies, reduce concept-to-cash time through sharing, increasing facilities and market coverage, gain access to new markets and share market or customer loyalty, or migrate from selling products to selling solutions. f) Build Learning Organizations Building learning organizations entail creating, disseminating, and incorporating knowledge into products. Further, it also involves exploit two kinds of knowledge: explicit documented knowledge, and tacit internal knowledge.
- 13. 13 i. Knowledge management systems Knowledge management systems help create, organize, and share business knowledge wherever and whenever needed within the organization. 3) Building a Customer Focused Business A key strategic use of Internet technologies is to build a company that develops its business value by making customer value its strategic focus. Customer-focused companies use Internet, intranet, and extranet e-commerce Web sites and services to keep track of their customers’ preferences; to supply products, services, and information anytime, anywhere; and to provide services tailored to the individual needs of the customers. The Value Chain Views a firm as a series, chain, or network of activities that add value to its products and services. It improves administrative coordination, training, and the procurement processes. Primary processes directly relate to manufacturing or delivering products. Support processes help support the day-to- day running of the firm and indirectly contribute to products or services. It can involve joint design of products and processes, JIT inventory, and Order processing systems. Strategic Information Systems Information systems that provide a firm with competitive products and services that give it a strategic advantage over its competitors in the marketplace. Also, information systems that promote business innovation, improve business processes, and build strategic information resources for a firm.