MEIE881 Information Systems Strategy and

MEIE881

Information Systems Strategyand

Strategic Use of IS

Strategy and ISDescribe the roles of business, organizational and

IS strategyCompare and contrast key strategy frameworks:

Porter’s three generic strategies and D’Aveni’s hypercompetition model

Compare and contrast key organizational strategy frameworks: Business Diamond, Managerial Levers

Discuss evolution of Information ResourcesCompare, contrast and apply: Porter’s competitive

forces model, value chain modelDefine strategic alliances, CRM, SCM, co-opetition

Strategic Advantage

Does an organization need Information Systems to gain strategic advantage?

Information Systems Strategy Triangle

Business Strategy

Organizational Strategy

Information Strategy

Where to Go and How to Get There

Vision – describes the organization’s set of ideals and priorities and paints a picture of its future (direction) realistic, credible, attractive, future-oriented

Mission – a clear and compelling statement that unifies an organization's effort and describes what organization is all about (purpose)

Strategy – Plan with details about how to move toward the vision

Differences in Mission and Vision Statements: Quorum Health Group, Inc.

MISSION STATEMENTQuorum Health Group, Inc., is a hospital company committed to

meeting the needs of clients as an owner, manager, consultant or partner through

innovative services that enhance the delivery of quality healthcare.

VISION STATEMENTQuorum Health Group, Inc., will be valued for its expertise in

hospital management and its ability to positively impact the delivery of quality healthcare.

UCF’s Mission

The University of Central Florida is a major metropolitan research university whose mission is to deliver a comprehensive program of teaching, research, and service. It provides intellectual leadership through quality undergraduate and graduate programs. It proudly identifies with its geographic region while striving for national and international excellence in selected programs of teaching and research. It serves students who are diverse in age, ethnic, and racial identity, and socioeconomic background. It supports the cultural vitality of our region, serves as a major intellectual and creative resource, develops creative partnerships with public and private enterprise, and participates fully in the economic development of Florida.

Strategy - A PlanBusiness strategy drives organizational and

information systems strategy Information systems strategy - plan the

organization uses in providing information services Information systems strategy is affected by a firm’s

business and organizational strategiesOrganizational strategy - organization’s design as

well as the choices it makes to define, set up, coordinate and control its work processes

Remember interdependency!

Porter’s Three Generic Strategies

Cost leadership (lowest cost in industry)

Differentiation of products/servicesFocus (finding a specialized niche)

cost differentiation of product or services

Competitive Advantage and Scope

ADVANTAGE

Lower Cost Differentiation

SCOPE BroadTarget

Cost Leadership

Differentiation

NarrowTarget

Cost Focus Differentiation Focus

Basic Principles of Generic Strategies

Competitive advantage is goal of any strategy

A firm must define the type of competitive advantage it seeks to obtain

Be Low Cost Producer - IT strategic if it can:

Help reduce production costs & clerical work

Reduce inventory, accounts receivable, etc.

Use facilities and materials betterOffer interorganizational

efficiencies

Produce Unique Product - IT strategic if it can:

Offer significant component of product

Offer key aspect of value chainPermit product customization to

meet customer’s unique needsProvide higher/unique level of

customer service/satisfaction

Fill Market Niche - IT strategic if it can:

Permit identification of special needs of unique target market

Spot and respond to unusual trends

D’Aveni’s Hypercompetition ModelFocused on turbulent environmentAdvantages are rapidly created and

easily erodedSustaining an advantage can be a

deadly distractionThe goal is disruption, not

sustainability, of advantageInitiatives are achieved with a series

of small steps

Four Arenas of Competitive Advantage

Cost/qualityTiming/know-howStrongholdsDeep pockets (short-term only)

Seven S’s

Superior Stakeholder SatisfactionStrategic Soothsaying Positioning for Speed Positioning for Surprise Shifting the rules of competition Signaling strategic intent Simultaneous and Sequential Strategic

Thrusts

Organizational Strategy Frameworks

Business DiamondManagerial Levers

Business Diamond: Hammer & Champy, 1994

Business Processes

Jobs & Structures Values & Beliefs

Management & Measurement Systems

Managerial Levers

Organizational Variables Decision rights Business processes Formal Reporting Relationships Information Networks

Control Variables Data Planning Performance Measurement & Evaluation Incentives & Rewards

Cultural Variable: Values

Information TodayCostly to produce but cheap to reproduceOnce the first copy of information good has been

produced, most costs are sunk and can’t be recovered

Multiple copies can be produced at roughly constant per unit costs (especially when separating economics of things from economics of information)

There are no natural capacity limits for additional copies

Price based on value to consumer, not production costs

Information

Price based on value to consumer, not the production costs

BUT value varies how do you know value before you have experienced it?

Comparison of Economics of Things vs. InformationTHINGSWears outReplicated at

expense of manufacturer

Exist in tangible location

When sold, seller ceases to own

Price based on production costs

INFORMATIONDoesn’t wear out,

but may become obsolete or untrue

Replicated at almost zero cost without limit

May exist in etherWhen sold, seller

may still possess & sell again

Price based on value to consumer

Evolution of Information Resources

Era I (1960s)

Era II (1970s) Era III (1980s)

Role of IT Efficiency Effectiveness Strategic

IT Justification

ROI Productivity & decision qlty

CompetitivePosition

Target ofSystems

Organization

Organization/group

Individual mgr/group

InformationModels

ApplicationSpecific

Data-driven User-driven

Value Basis

Scarcity Scarcity Scarcity

Evolution of Information Resources

Era IV (1990s) Era V (2000+)

Role of IT Strategic Value Creation

IT Justification

CompetitivePosition

Adding value

Target of Systems

Business processes, ecosystem

Customer, supplier, ecosystem

Information Models

Business-driven Knowledge-driven

Value Basis Plentitude Plentitude

Strategic Information Systems

IS that help gain strategic advantageSignificantly change manner in which

business supported by the system is done

Outwardly aimed at direct competitionInwardly focus on enhancing the

competitive positionCreate strategic alliances *IS can support business strategies

Unusual Suspects: Information Resources

Information systems infrastructureInformation and knowledgeProprietary technologyTechnical skills of the IT staffEnd users of the information systemRelationship between IT and business

managersBusiness processes

Firm Infrastructure(general management, accounting, finance, strategic planning)

Human Resource Management(recruiting, training, development)

Technology Development(R&D< product and process improvement)

Procurement(purchasing of raw materials, machines, supplies)

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InboundLogistics(rawmaterialshandlingandwarehous-ing)

Operations

(machineassembling,testing)

OutboundLogistics(warehous-ing anddistributionof finishedproduct)

Service

(installation,repair,parts)

Marketingand Sales(advertising,promotion,pricing,channelrelations)

Value Chain Model

Chain of basic activities that add to firm’s products or servicesPrimary activitiesSecondary activities

Includes firm’s larger value system (i.e., suppliers, buyers, channels)

Value Chain Primary Activities

InboundOutboundOperationsMarketing and SalesAfter-Sale Services

Value Chain Support Activities

Technology developmentProcurementHuman Resources ManagementManagement Control

accounting/finance coordination general management central planning

Competitive Forces

Threat of entry of new competition

Bargaining power of suppliersBargaining power of buyersThreat of substitute products or

servicesRivalry among existing firms

Strategies for Competitive ForcesNote - strength of force is determined by

factors in industry Some industries are more competitive

than others (i.e., airlines vs.Gain a competitive edgeBuild defenses against forcesFormulate actions to influence forcesUse competitive forces to exploit

industry change; shape industry structure

Strategic Questions: Can IT create barriers to entry?

Supply-side economies of scale (firms producing larger volumes have lower costs)

Demand-side benefits of scale (network effects)

Customer switching costs (ERPs)Capital requirements (large investments)Incumbency advantages (independent of size)Unequal access to distribution channelsRestrictive government policy (regulated

industries: liquor retailing, taxis, airlines)EXPECTED RETALIATION

Strategic Questions: Power of Suppliers

Can IT change the balance of power in supplier relationships?

A supplier group is powerful if: It is more concentrated than the industry it

sell to (i.e., Microsoft’s monopoly in operating systems)

The supplier group does not depend heavily on the industry for revenues

Industry participants face switching costs in changing suppliers

Suppliers offer differentiated products There is no substitute for what supplier offers

Strategic Questions: Power of Buyers

Can IT build in switching costs? (buyers)

Can IT strengthen customer relationships?

Customer group has more negotiating leverage when there are Few buyers Buyers purchase large volumes Industry’s products are standardized Buyer threatens to integrate backward

Strategic Questions: Can IT generate new products?“A substitute performs the same or

a similar function as an industry’s product by a different means.”

The threat of a substitute is high if: It offers attractive price-performance

tradeoff Buyer’s switching cost is low

IT can often create new substitutes or shift price-performance tradeoff

Strategic Questions: Rivalry among existing competitorsCan IT change the basis of competition?

(competitors)Can IT generate new products?

competitors, substitutes)Intensity in rivalry is greatest if:

Numerous competitors or equal in power Industry growth is slow Exit barriers are high. Rivals are highly committed to business Firms cannot read each other’s signals well

Searching for Specific Opportunities

What is the mode of the thrust? (offensive, defensive)

What is the direction of the thrust? (use, provide)

What is the strategic target of the thrust? (supplier, customer, competitor)

Brandenburger and Nalebuff’s Co-opetition

Optimally combining cooperation and competition

Value Net of competitors, complementors, customer, suppliers

Risks of IS SuccessChange the Basis of CompetitionPromote Litigation or RegulationAwake Sleeping GiantReflect Bad TimingAre Too Advanced Fail to Deliver What Users WantAre Implemented Poorly

Strategic Alliances

An interorganizational relationship that affords one or more companies in the relationship a strategic advantage

Supply chain management – links company’s customers and suppliers through a single network that benefits all in the supply chain Why are they formed? How are they formed?

Interorganizational Alliances

Describe the negotiating, commitment, execution and assessment stages in the development of interorganizational alliances (IOA)

Discuss the balance between trust and contracts in IOA

Discuss the relationship between interpersonal and role relationships in IOA formation

Developing Cooperative IOAs

Ring & Van de Ven, 1994, Academy of Management Review

Cooperative IOAs are socially contrived mechanisms for collective action which are continually shaped and restructured by actions and symbolic interpretations of the parties involved

Repetitive sequence of negotiations, commitments and executions

Negotiating Stage of IOA Development

Parties develop joint expectations about motivations and investments

Formal bargaining and selectionUnderneath - psychological sensemakingIndividual choices, values, expectations

must be congruentMay emerge from preexisting friendship

ties, need for resources, institutional mandate, brokered deals, etc.

Commitment Stage of IOA Development

Terms and governance structures are established

Formal contracts or informally understood psychological contracts

Trust + Legal agreement

Execution Stage of IOA Development

Commitments are carried into effectInitially formally designated role behavior

reduces uncertaintyIncreasing reliance on interpersonal

relationshipsPsychological contracts increasingly

substitute for formal legal contractsAssessments are made about efficiency

and effectiveness of IOA

Turnover in IOAs

Replacements may not have prior relationship

Some flexibility is lost as new “agents” rely on formal agreement and role designations

Clock restarted on psychological contracts

Trust must be developed interpersonally