Chapter 2 Strategic Role of Information Systems

2.1 © 2003 by Prentice Hall

22

THE STRATEGIC THE STRATEGIC ROLE OF ROLE OF

INFORMATION INFORMATION SYSTEMSSYSTEMS

Chapter


• Analyze the role played by the six major Analyze the role played by the six major types of information systems in types of information systems in organizations.organizations.

• Describe the relationship between the Describe the relationship between the major types of information systemsmajor types of information systems

• Distinguish a strategic information Distinguish a strategic information system.system.

• Describe how information systems can Describe how information systems can be used to support three levels of be used to support three levels of strategy used in business.strategy used in business.

Chapter 2Chapter 2

OBJECTIVES


1.1. Integration:Integration: Different systems serve variety of Different systems serve variety of functions, and even to integrate them together as functions, and even to integrate them together as using enterprise resource planning (ERP) is much using enterprise resource planning (ERP) is much more easy but connecting organizational levels is more easy but connecting organizational levels is difficult, and costlydifficult, and costly

2.2. Sustainability of competitive advantage:Sustainability of competitive advantage: A management team in a company need to be more A management team in a company need to be more innovative to have new business strategies as innovative to have new business strategies as competitive advantage. Competitors can copy competitive advantage. Competitors can copy strategic systemsstrategic systems

Chapter 2Chapter 2

MANAGEMENT CHALLENGES


Different levels of management systemsDifferent levels of management systems

1. Operational-level systems

– support operational managers by keeping track of the elementary activities & transactions of the org such as

sales, receipts, cash deposits

2. Knowledge-level systems

– support the organization’s knowledge and data worker.

- It help the company to discover, organize and integrate new knowledge into business and to control the flow of paperwork.


Different kinds of systemsDifferent kinds of systems

3. Management-Level system- monitor, control, decision-making & administrative activities of middle managers- controlling whether everything in company is working well, whether actual costs exceed budgets

4. Strategic-Level Systems- help senior management tackle and address strategic issues and long-term trends, both in the firm and the external environment


Different kinds of system : ExampleDifferent kinds of system : Example

Systems Example (Sales system)

Strategic level To forecast sales trends, buying habits trends for next 5 years

Management level

Tracks monthly sales figures, if sales exceed or fall below expected figures

Knowledge level

To design promotional displays for firm’s products, i.e. to design an attractive brochure

Operational level

To record daily sales figures, i.e. at the cashier machine


Chapter 2Chapter 2

Types of Information Systems

Figure 2-1

KEY SYSTEM APPLICATIONS IN THE ORGANIZATION

Each types of systems

Serve Different levels

and Functions.


Chapter 2Chapter 2

6 Major Types of Systems

• Executive Support Systems (ESS)Executive Support Systems (ESS)

• Decision Support Systems (DSS)Decision Support Systems (DSS)

• Management Information Systems (MIS)Management Information Systems (MIS)

• Knowledge Work Systems (KWS)Knowledge Work Systems (KWS)

• Office Automation Systems (OAS)Office Automation Systems (OAS)

• Transaction Processing Systems (TPS)Transaction Processing Systems (TPS)



Chapter 2Chapter 2

TYPES OF INFORMATION SYSTEMS

Figure 2-2


Chapter 2Chapter 2


Transaction Processing Systems (TPS):• Basic business systems that serve the

operational level• A computerized system that performs and

records the daily routine transactions necessary to the conduct of the business

• For example, sales order entry, hotel reservation system, payroll, employee record keeping and shipping


Chapter 2Chapter 2

Payroll TPS

Figure 2-3



Chapter 2Chapter 2

Types of TPS Systems

Figure 2-4



Knowledge Work Systems (KWS):

Aid knowledge workers in the creation and Aid knowledge workers in the creation and integration of new knowledge in the orgintegration of new knowledge in the org

Eg: Scientific or engineering design Eg: Scientific or engineering design workstations to promote the creation of new workstations to promote the creation of new knowledge knowledge

Office System-computer system, such as WP, Office System-computer system, such as WP, E-mail systems and scheduling systems to E-mail systems and scheduling systems to increase the productivity of data workers by increase the productivity of data workers by supporting the coordinating and supporting the coordinating and communicating activities in an officecommunicating activities in an office

Chapter 2Chapter 2



Management Information System (MIS):

Is that serve the function of planning, Is that serve the function of planning, controlling and decision making by providing controlling and decision making by providing routine summary and exception reports routine summary and exception reports

Eg: Sales Management , Inventory ControlEg: Sales Management , Inventory Control

Chapter 2Chapter 2



Chapter 2Chapter 2

Figure 2-5


Management Information System (MIS)


Chapter 2Chapter 2


Management Information System (MIS)

This is an annual

sales data produced

By the MIS


Chapter 2Chapter 2

Decision Support System (DSS):

DSS helps managers to make decisions that are unique, rapidly changing and not easily specified in advance

DSS uses internal info (TPS & MIS) as well as external sources such as current stock prices, product prices of competitors

DSS has more analytical power than other sysEg: Production scheduling, Cost Analysis, Pricing

Analysis, Budgeting



Chapter 2Chapter 2

Figure 2-7


Decision Support System (DSS)


Examples of Business Decision Support Examples of Business Decision Support softwaresoftware

• http://www.canadiancontent.net/tech/download/Chrysanth_Inventory_Manager_2001.html

• http://www.exefind.com/cash-flow-http://www.exefind.com/cash-flow-planner-P4101.htmlplanner-P4101.html


Executive Support SystemExecutive Support System

• Executive Support System (ESS) is a Executive Support System (ESS) is a reporting tool (reporting tool (software) that allows you ) that allows you to turn your organization's to turn your organization's data into into useful summarized reports. useful summarized reports.

• These reports are generally used by These reports are generally used by executive level managers for quick executive level managers for quick access to reports coming from all access to reports coming from all company levels and departments such company levels and departments such as billing, cost accounting , staffing, as billing, cost accounting , staffing, scheduling, and more. scheduling, and more.


Executive Support System (ESS):

IS at the org strategic level designed to address unstructured decision making through advanced graphics and communication

ESS address non-routine decisions requiring judgment, evaluation since no agreed-on procedure for arriving at a solution

ESS provide a generalized computing and communications capacity that can be applied to a changing array of problems.

ESS are not designed primarily to solve specific problems


Chapter 2Chapter 2


Example of Executive information systemExample of Executive information system


Example EIS EpicExample EIS Epic



Executive Support System (ESS)

Figure 2-8

Chapter 2Chapter 2


INTERRELATIONSHIPS AMONG SYSTEMS

Figure 2-9

Chapter 2Chapter 2


Sales & Marketing Systems – system’s that help the firm Sales & Marketing Systems – system’s that help the firm identify customers for the firm’s products or services, identify customers for the firm’s products or services, develop products and services to meet their needs, develop products and services to meet their needs, promote these products and services & provide ongoing promote these products and services & provide ongoing customer supportcustomer support

SystemSystem DescriptionDescription Org LevelOrg Level

Order Order

Processing Processing

Enter, process & track Enter, process & track ordersorders

Operational Operational

Market Market

AnalysisAnalysis

Identify customers and Identify customers and markets using data on markets using data on demodemo

Knowledge Knowledge

Pricing analysisPricing analysis Determine prices for pro Determine prices for pro & services& services

ManagementManagement

Sales trend Sales trend forecastingforecasting

Prepare 5 year forecastsPrepare 5 year forecasts Strategic Strategic

Systems From a Functional PerspectiveSystems From a Functional Perspective


Manufacturing & Production System – systems that Manufacturing & Production System – systems that deals with the planning, development and production of deals with the planning, development and production of products & services and with controlling the flow of products & services and with controlling the flow of productionproduction


Machine ControlMachine Control Control the actions of Control the actions of machines & Equipmentmachines & Equipment


CADCAD Design new products Design new products using the computerusing the computer

Knowledge Knowledge

Producing Producing planningplanning

Decide when and how Decide when and how many products should be many products should be producedproduced


Facilities Facilities locationlocation

Decide where to locate Decide where to locate new production facilitiesnew production facilities

StrategicStrategic



Finance and Accounting system – systems to keep Finance and Accounting system – systems to keep track of the firm’s financial assets and fund flows track of the firm’s financial assets and fund flows such as cash, stocks, bonds and other investments such as cash, stocks, bonds and other investments


Accounts Accounts receivablereceivable

Track money owed the Track money owed the firmfirm


Portfolio Portfolio analysisanalysis

Design the firm portfolio Design the firm portfolio of investmentof investment

KnowledgeKnowledge

BudgetingBudgeting Prepare short-terms Prepare short-terms budgetsbudgets


Profit planningProfit planning Plan long-term profitsPlan long-term profits Strategic Strategic



Human Resources Systems – system’s that maintain employee records, track employee skills, job performance, and training and support planning for employee compensation and career development


Training & Training & DevelopmentDevelopment

Track employee training, Track employee training, skills, and performanceskills, and performance


Career pathingCareer pathing Design career paths for Design career paths for employeesemployees

KnowledgeKnowledge

Compensation Compensation analysisanalysis

Monitor the range and Monitor the range and distribution of employee distribution of employee wageswages


Human resource Human resource planningplanning

Plan the long-term labor Plan the long-term labor force needs of the orgforce needs of the org

Strategic Strategic



Change the goals, operations, products, services or environmental relationships of org to help them gain an edge over competitors

Used at all organizational levels 2 models of a firm and its environment have

been used to identify areas of business where IS can provide advantage over competitors

What is Strategic Info System?What is Strategic Info System?


Using Information System to achieve Using Information System to achieve Competitive AdvantageCompetitive Advantage

• A firm “do better” than others are said to have a competitive advantage over others.

• For example, Apple’s iTunes is the leader with more than 75% of the downloaded music market.

• To understand competitive advantage, Michael Porter’s competitive forces model can be used.


(a)(a) Competitive ForcesCompetitive Forces – – used to describe the interaction of external influences, specifically threats and opportunities, that affect an org’s strategy and ability to compete

Eg: Threats & Opportunities – new entrants into market, pressure from substitute products or services, customers & Suppliers bargaining power

Using Information System to achieve Competitive Using Information System to achieve Competitive AdvantageAdvantage


In Porter’s competitive forces model, the strategic position of the firm and its strategies are determined not only by competition with its traditional direct competitors but also by four forces in the industry’s environment: new market entrants, substitute products, bargaining power of customers, and bargaining power of suppliers.

Michael Porter’s competitive forces modelMichael Porter’s competitive forces model


Michael Porter’s competitive forces Michael Porter’s competitive forces modelmodel

• Entry of competitorsEntry of competitors– How easy/difficult is it for new entrants to start

competing which barriers do exist.

• Threat of substitutesThreat of substitutes– Substitutes goods or services from outside an

industry that perform the same functions as a product that the industry produces.

– For example, substitutes good for Milo might be coffee

– How easy/difficult a product or service can be substitute, especially made cheaper.



• Bargaining power of buyersBargaining power of buyers– Customers will bargain for higher quality, greater levels

of services and lower prices.– Bargaining power of buyers seems to be increased with

the used of Internet where they have more choices to compare for price from different manufacturers.

– Customers are powerful when:• They purchase a large portion of an industry’s total They purchase a large portion of an industry’s total

outputoutput• The sales of the product being purchased account for a The sales of the product being purchased account for a

significant portion of the seller’s annual revenues.significant portion of the seller’s annual revenues.• They could switch to another product at little if any costThey could switch to another product at little if any cost• The industry’s products are undifferentiated or The industry’s products are undifferentiated or

standardized and the buyers pose a credible threat if standardized and the buyers pose a credible threat if they were to integrate backward into the seller’s they were to integrate backward into the seller’s industry.industry.



• Bargaining power of suppliersBargaining power of suppliers– Increasing prices and reducing the quality of its

products are potential means used by suppliers to exert power over firms competing within an industry.

– If a firm is unable to recover cost increase by its suppliers, then their profitability level is decrease because of the suppliers’ action.

– A supplier group is powerful when;• It is dominated by a few large companies and is It is dominated by a few large companies and is

more concentrated than the industry to which it more concentrated than the industry to which it sells.sells.

• Satisfactory substitute products are not available to Satisfactory substitute products are not available to industry firms.industry firms.

• Industry firms are not a significant customer for the Industry firms are not a significant customer for the supplier groupsupplier group

– Suppliers’ goods are critical to buyers’ marketplace success



• Intensity of rivalry among competitorsIntensity of rivalry among competitors– Does a strong competition exist among the

existing competitors in the market.– Competitive rivalry intensifies when a firm is

challenged by a competitor’s actions or when an opportunity to improve its market position is recognized.

– Visible dimensions on which rivalry is based include price, quality and innovation.


Achieving a Competitive AdvantageAchieving a Competitive Advantage

• Competitive advantage is achieved Competitive advantage is achieved when a for-profit company increases its when a for-profit company increases its profits significantly, usually through profits significantly, usually through increased market shareincreased market share

• Many initiatives can be used to gain Many initiatives can be used to gain competitive advantagecompetitive advantage

• Strategic moves often combine two or Strategic moves often combine two or more initiativesmore initiatives

• The essence of strategy is innovationThe essence of strategy is innovation


Four basic competitive strategiesFour basic competitive strategies


4 basic competitive strategies to deal with competitive forces :-

1.1. Product Differentiation Product Differentiation Creating unique new products & services from

those competitors, or potential competitors can’t duplicate

Using IS to custom-tailored to fit individual customers precise specifications.

Eg: Dell Computer corporation – sells build-to-order manufacturing

Competitive Strategies Competitive Strategies


2.2. Developing Tight Linkages to Customers & Developing Tight Linkages to Customers & Suppliers Suppliers

Firms can create ties to customers and suppliers that “lock” customers into the firm’s products

This raises switching costs – cost for customer to switch to competitors products/ services and reduce customers & suppliers bargaining power

For example, Amazon.com keep track of user preferences for book and CD purchases and recommend titles purchased by other customers



3. Becoming Low-Cost Producer3. Becoming Low-Cost Producer To prevent new competitors from entering their

markets, businesses can produce goods and services at a lower price than competitors.

Eg: Supply Chain Management System – integrates supplier, distributor and customer logistics requirements into one cohesive process

SCM lower down inventory cost and create efficient customer response systems that deliver the product or services more rapidly to customers



• 4. Focus on Market Niche4. Focus on Market Niche– Using Information Systems to enable a specific market

focus and serve narrow target market better than competitors.

– IS enable companies to analyze customer preferences and taste, and then categorize them in group so that a certain advertising will only send to the relevant interests group.

– For example, Customer relationship management can be used by a hotel to find the preferences of active guest so that the staff can give what they want through past staying records.



Adopting IS requires changes in business goals, relationship with customers and suppliers, internal operations and information architecture

Socio-technical changes - both social and technical elements of the org

Internet technology challenges many traditional business models - it provides customers, suppliers and other with rich new sources of information.

The Internet’s Impact on competitive The Internet’s Impact on competitive Advantage Advantage


The Internet’s Impact on competitive The Internet’s Impact on competitive Advantage Advantage


Value Chain ConceptsValue Chain Concepts

• It show how various types of information It show how various types of information technologies might be applied to specific technologies might be applied to specific business processes to help a firm gain business processes to help a firm gain competitive advantages in the marketplace.competitive advantages in the marketplace.

• A value chain is a chain of activities. Products A value chain is a chain of activities. Products pass all activities of the chain in order and at pass all activities of the chain in order and at each activity the product gains some value.each activity the product gains some value.

• The value chain categorizes the generic The value chain categorizes the generic valuevalue-adding activities of an organization.adding activities of an organization.


The value chain of a firm. This diagram provide examples how and where The value chain of a firm. This diagram provide examples how and where information technologies can be applied to basic business processes using information technologies can be applied to basic business processes using

the value chain framework.the value chain framework.


Value Chain ConceptsValue Chain Concepts

• The "primary activities" include: The "primary activities" include: inbound logistics, operations (production), , operations (production), outbound logistics, marketing and sales, and outbound logistics, marketing and sales, and services (maintenance).services (maintenance).

• The "support activities" include: The "support activities" include: administrative infrastructure management, administrative infrastructure management, human resource management, R&D, and human resource management, R&D, and procurement

• Its ultimate goal is to maximize value creation Its ultimate goal is to maximize value creation while minimizing costs.while minimizing costs.


AirAsia: A Success Story

• AirAsia: airline company that entered a AirAsia: airline company that entered a formerly hurting market with great successformerly hurting market with great success– Ticketless travel– Automation with IT– Reduced costs– Improved service


AirAsia: A Success Story


Massive AutomationMassive Automation

• AirAsia developed Open Skies software to automate ticket handling– Avoids travel agents and their fees– Uses reservation agents who work from home

using VoIP– Encourages Internet flight booking by

customers

• Maintenance information system used to log airplane parts and time cycles for replacement


Away from TraditionAway from Tradition

• AirAsia used innovative technique for routing airplanesAirAsia used innovative technique for routing airplanes– Does not use hub-and-spokes method, only point to

point– Take most profitable route between cities

• Keeping flight manuals on laptop computers allows for Keeping flight manuals on laptop computers allows for paperless cockpitspaperless cockpits– Saves preflight time associated with calculating

weight of plane (annual savings of ~4800 hours)


Competitive advantagesCompetitive advantages• Technology helps AirAsia offer better Technology helps AirAsia offer better

serviceservice– Safety First:

Partnering with the world’s most renowned maintenance providers and complying with the with world airline operations.

– High Aircraft Utilization: Implementing the regions fastest turnaround time at only 25 minutes, assuring lower costs and higher productivity.


• Technology helps AirAsia offer better service– Low Fare, No Frills:

Providing guests with the choice of customizing services without compromising on quality and services.

– Streamline Operations: Making sure that processes are as simple as possible.

– Lean Distribution System: Offering a wide and innovative range of distribution channels to make booking and travelling easier.

– Point to Point Network: Applying the point-to-point network keeps operations simple and costs, low.

Competitive advantagesCompetitive advantages


THE END.THE END.

Any questions??????Any questions??????

Chapter 2 Strategic Role of Information Systems

Documents

Transcript of Chapter 2 Strategic Role of Information Systems