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MANAGING INFORMATIONSYSTEMS
FOR STRATEGIC ADVANTAGE
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LEARNING GOALS Describe the various approaches to devising corporate
strategy. Explain how information systems can help organizations
achieve a strategic advantage. Describe the methods organizations use to choose a
strategic information systems project. Describe how information systems can bring about
corporate change. Explain the concept of knowledge management and
describe the technologies that comprise knowledge management systems.
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Value Chain Value chain – activities within an organization that
bring products and services to market Primary activities – take raw materials and transform it
into something of greater value Inbound logistics • Marketing and sales Operations • Service Outbound logistics
Supporting activities – those functions that the company requires to do business but do not directly add value to a product or service
HR • Procurement IT • Firm infrastructure
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Value Chain Analysis
Process of analyzing the activities within an organization’s value chain
Companies gain strategic value by focusing on a particular portion of the value chain
IT can help reduce the costs of these processes, thus increasing profit margins
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Porter’s Competitive Forces Model
Unlike the value chain, the Competitive Forces Model deals with external factors
Five components Level of competition in industry Threat of new entrants into industry Bargaining power of customers Bargaining power of suppliers Threat of substitute products
Uses for CFM Determine position within industry Analyze industries and market segments they might wish
to enter (exit)
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Competitive Advantage (CA)
Those qualities that allow a company to earn above-average profits within an industry Low cost Unique product
Three generic strategies to achieve competitive advantage Cost leadership strategy Differentiation strategy Focus strategy
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Information Systems forStrategic Advantage
How can information systems improve the value chain? By reducing the cost of primary and support activities
How can information systems change the way an organization reacts to its competitive forces? By changing the bargain power of suppliers By building closer ties with customers By increasing or decreasing barriers to entry in a market By serving as the basis for new products and/or services
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Sustainable Competitive Advantage
Four approaches lead to sustainable competitive advantage Create barriers to entry through patents,
monopoly, or technical expertise Be the first to develop systems with high switching
costs Develop the technologies that change the
underlying nature of the industry Cultivate and hire people with excellent information
systems management skills
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Productivity Paradox
“We see computers everywhere, but in the productivity statistics.” Robert Solow, Nobel Prize-winning economist
It is difficult to attribute cost savings directly to a specific information system
It is difficult to prove that a specific system led to certain financial outcomes
Other measures are needed Balanced scorecard Total cost of ownership (TCO)
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The Balanced Scorecard
Strategic planning method that translates business strategy into a comprehensive set of performance measures
Investigates strategies in four areas Financial – e.g. improving cash flow and reducing expenses Internal business processes – e.g. decreased cycle time
and improved quality Learning and growth – e.g. develop successful new
products Customer – e.g. improve customer satisfaction and
decrease product defects
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Value of Information Systems
Cost must NOT outweigh benefits Return on investment (ROI)
ROI = (Benefits – Costs) *100 / Costs Costs include – Benefits include
Hardware • Tangible benefits Software • Intangible benefits Labor
Total cost of ownership (TCO) Method to quantify long-term direct and indirect costs
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TCO Analysis for PDA Purchase
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The IS Portfolio Treat investments in IS assets like a portfolio of
investment assets to find redundancies and achieve balance
Five steps Put information about all the organization’s IS projects into a
database Prioritize the IS projects Divide the IS projects into three types of investments
Infrastructure Upgrades Strategic initiatives
Automate the entire process Have the organization’s top finance executive perform a
Modern Portfolio Theory analysis
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Sample IS Portfolio
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Business Process Improvement and
Reengineering BPI – processes are good but can be better BPR – elimination or change of business
processes “The fundamental rethinking and radical redesign of
business processes to achieve dramatic improvements in critical contemporary measures of performance such as cost, quality, service, and speed.” Hammer and Champy, 1993
Automation (e.g information systems) is a key factor in both BPI and BPR
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Major Themes of Successful BPR
Several jobs are combined into one. Workers are empowered to make
decisions. Work is performed where it makes the most
sense. Checks and controls are reduced or
eliminated. Reconciliation is minimized.
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Steps in BPR Have a clear strategy that is aligned with the
organization’s goals Clearly defined scope that identifies exactly which
processes need to be reengineered and which supporting processes need to be revised
Define measures and benchmarks for success Develop an understanding of the current, as-is
processes Develop a plan for transition from the as-is processes
to the to-be processes Implement the changed processes Measure the outcomes of the changes
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Knowledge Management (KM)
Knowledge assets – the knowledge that exists within the minds of each employee and the knowledge that exists in a tangible form such as databases, documents, and reports
Companies must know how to manage this knowledge
Knowledge management (KM) – the process by which organizations extract value from their knowledge assets
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KM Systems Information technologies that enable the
exchange of knowledge among employees and the storage of knowledge in repositories
Types of KM systems Expert directories Knowledge repositories Knowledge sharing technologies Knowledge representation technologies Knowledge discovery tools
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Knowledge Portals A single access point to the knowledge
of an organization Provides Web-based access to all of the
KM technologies within an organization