Information Systems for Strategic Advantage

BiMBA, Fall 1999Professor Chen

School of BusinessGonzaga UniversitySpokane, WA 99258 chen@gonzaga.edu

Innovation as a Response to Change in Market and Technology

INNOVATION

Socio-politicalChanges

Technological Opportunities

Advances in Technology

New Products and Services

Market Needs

EFFICINCY

EFFECTIVENESS

INNOVATION

Time Market

Figure 3-6 Reengineered Accounts Payable Process (from Hammer[1])

Before

Purchasing

Vendor

Receiving

Accounts Payable

Goods

Payment

Invoice

Receiving Document

Copy of Purchase Order Purchase

Order

Figure 3-6 Reengineered Accounts Payable Process (from Hammer[1])

After

Purchasing

Vendor

Receiving

Accounts Payable

Goods

Purchase Order

Payment

Database

The Information Age vs. the Computer Age

The Computer Age Time-sharing Computer 1960’s

Interactive Computing

Mini/Micro provide user with computer power (as of Mainframe) but with little cost

Advances in telecommunications(link terminals/PC mainframe)End of the computer age

Beginning of the information age

PC as DSS tool to access information stored in the center computer files to support management decision-making process.

Software advances in application packages (e.g. , DBMS, spreadsheet

THE GENERIC VALUE CHAIN

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)

Inbound Logistics(raw materials handling and warehousing)

Operations(machining, assembling, testing)

Outbound Logistics (warehousing and distribution of finished product)

Marketing and Sales (advertising, promotion, pricing, channel relations)

Service(installation, repair, parts)

ProfitMargin

Primary Activities

Support

Activities

CONSTRUCTION

DESIGN

ANALYSIS

PLANNING

Information Engineering

What is Information Engineering

The application of an interlocking set of formal techniques for the planning, analysis, design and construction of IS, applied ton an enterprise-wide basis or across a major sector of an enterprise.

An enterprise-wide set of automated disciplines for getting the right information to the right people with the right form at the right time.

ENVISION

DESIGN

BUILD

OPERATE

SDLCANALYAIS

DESIGN

IMPLEMENTATION

MAINTENANCE

MANAGMENT IS DEVELOPMENT

REENGINEERING

INFLUENCE CAPABILITY

LEADERSHIP

CONTROL

MANAGERS IS PROFESSIONALS

BUSINESS ENVIRONMENT IS CHANGING RAPIDLY RADICALLY AND PERPLEXINGLY

SDLCANALYAIS

DESIGN

IMPLEMENTATION

MAINTENANCE

ENVISION

DESIGN

BUILD

OPERATE

MANAGMENT IS DEVELOPMENT

REENGINEERING

INFLUENCE CAPABILITY

LEADERSHIP

CONTROL

MANAGERS IS PROFESSIONALS

BUSINESS ENVIRONMENT IS CHANGING RAPIDLY RADICALLY AND PERPLEXINGLY

SupportsSupports

Business Plan Strategic Factors System Project3 Decrease direct

labor and overhead by 20%

3 Increase our customer order-filing rate to 95%

3 Produce timely tracking and sales information for inventory managers

3 Increase labor productivity

3 Improve service differentiation

3 Provide managers with better information

3 A standard cost accounting system that provides online labor rate and efficiency variances

3 An inventory management system that provides reorder points, EOQ’s, quantity on hand, and sales by item and salesperson.

Figure: Relationship and linkage of proposed system projects with strategic factors and the business plan

Objective Proposal

The Emergence of a Strategic Role for IT in Organizations

IT as a strategic resource

Technology Push

t Cost-performance trends

t Connectivity capabilities

Competitive Pull

t Innovative IT-enabled applications to obtain differential benefits in the marketplace to stay competitive

Five levels of IT-induced reconfiguration

One. Localized exploitation

Two. Internal integration

Three. Business process redesign

Four. Business network redesign

Five. Business scope redefinition

HighLow

Low

Revolutionary levels

Evolutionary levels

Des

ign

of b

usin

ess t

rans

form

atio

n

High

Range of potential benefits

Localized exploitation: Enablers and Inhibitors

IT-induced reconfiguration:

Level One

Enablers

Technologicalt Favorable cost-

performance trendst Vendor push-system

solution

Organizationalt Localized impactt Ease of assessing

efficiency benefitst Minimal disturbance

to operations

Inhibitors

Technologicalt Obsolescencet Further reduction in cost-

performance

Organizationalt Lack of strategic vision

t Unwillingness to recognize the strategic role of IT and IS

Internal Integration: Enablers and Inhibitors

IT-induced reconfiguration:

Level Two

Enablers

Technologicalt Increase connectivity

capabilitiest Favorable cost-per-

formance trendst Vendor push-system

solutions

Organizationalt Strategic vision for

integration through an IT platform

t Centrality of IT to the strategic context

Inhibitors

Technologicalt Uncertaintyt Cost of integrationOrganizationalt Lack of strategic vision

for integration

t Organizational inertia

t Centralization -decentralization conflict

IT-industry business reconfiguration in level 2: Enables and Inhibitors in the tax return preparation business

IT-induced reconfiguration:tax return preparation

business

Enablerst Electronic filing

initiative by IRS

t IT-based value-added services

t Perceived benefits of an integrated platform

t IT-based strategic advantages

Inhibitorst Inability to view

IT in strategic terms

t Low economies of scale for integration

t Inexperience with IT and IT-based applications

t Mismatch with market needs

Business process redesign: Enablers and Inhibitors

IT-induced reconfiguration:

Level Three

Enablers

Technologicalt Favorable cost-

performance trends

Organizationalt Awareness of the

power of ITt Willingness to make

quantum changes to fully exploit IT power

Marketplacet Competitive pressures

Inhibitors

Technologicalt Uncertaintyt Cost of redesign Organizationalt Lack of strategic vision

for redesign

t Organizational inertia

t Costs of transforming the organization

Business network redesign: Enablers and inhibitors

IT-induced reconfiguration:

Level Four

Enablerst Ability to specify

and/or create standards for integration

t Identification of value-added services

t Recognition of mutual benefits

Inhibitorst Lack of standards

t Lack of vision and understanding

t Lack of commitment to integration

t Possible erosion of market positions

Strategic options for business network redesign

Collaborativeadvantage

Business Network redesign

Electricinfrastructure

Competitiveadvantage

Information Technology Governance

Tightlycoupled

Looselycoupled

Common role

Unique role

Business Governance

Strategic options for business network redesign

Collaborativeadvantage

Business Network redesign

Electricinfrastructure

Competitiveadvantage

Information Technology Governance

Tightlycoupled

Looselycoupled

Common role

Unique role

Business Governance

A B

C D

Business Scope Redefinition: Shifting the business domain using IT

Technology

Before After

Technology

Markets Markets

Traditional business scope

Increased role for information technology in operations

Traditional operating technology

Products Products

Business Scope Redefinition: Enlarging the business domain using IT

Technology

Before After

Technology

Markets Markets

Traditional business scope

Traditional operating technology

Traditional operating technology

Products ProductsAdditional business using IT

Information technology

Most likely quadrant-to-quadrant movementIn

terr

elat

edne

ss

L Ow

LOW HIGH

Chaotic Proliferation Preemptive Penetration

Barroom Brawl Clash of the Titans

HIGH

Exploitability

Five levels of transformation: A Summary

Level Theme Potential Impacts Major objectives Management Implications

Localized exploitation

Internal integration

Business Process redesignBusiness network redesign

Business scope redefinition

One

Two

Three

Four

Five

Potentially high savings in narrow areas of business

Integration offers both efficiency and effectiveness

Powerful in creating differential capabilities

Opportunities for creatively exploiting capabilities

Altering the business scope both proactively and reactively

Reduced costs and/ or improved serviceElevate IT as a strategic resourceReengineer the business with IT leverCreate a virtual organization and occupy a central position in the network Identify new business as well as potential treats

Identify firm-specific areas for exploitationArticulate the logic for integrationStrategy -- IT alignment

Articulate the logic of network redesign for the focal firm

Identification of new scope of business

Figure 2-1 MIT 90s framework -- Chapter 2 emphasis

EXTERNALSOCIOECONOMICENVIRONMENT

EXTERNAL

TECHNOLOGY

ENVIRONMANT

STRUCTURE

STRATEGIC

INDIVIDUALS&

ROLES

TECHNOLOGYMANAGEMENTPROCESSES

Organization

Boundary

Figure 2-2. Advances in IT provide opportunities for dramatically increased connectivity, enabling new forms of

interorganizational relationships and enhanced group

productivity 1990s business forcesi Globalizationi Worldwide competitioni Productivity requirementsi Volatile environment

Increased connectivityInterorganizational business relationshipsIntraorganizational coordination for increased efficiency and effectivityAdaptable organizational structure

1990s Information Technology (IT) opportunitiesi Continued dramatic cost/performance and capacity advancesi New IT architectures encompassing:

--extensive communications networks--accessible distributed databases--enhaced human interface workstations

Figure 5-24 The strategic alignment model

Businessscope

Distinctivecompetencies

Businessgovernment

Administrativeinfrastruction

Process Skills

Businessscope

Distinctivecompetencies

Businessgovernment

Administrativeinfrastruction

Process Skills

Functional Integration

Business domain IT domain

Strategic integration

External

Internal

Figure 5-25 Comparison of alternative patterns of alignments

Four Dominant Patterns of Alignments

Characteristics Competitive potential

Technologypotential

Businessvalue Service level

Product-market arena

Reengineer business processes

Competitive strategy frameworks

Business measures relative to competitors

Domain anchor

Manager focus

Analytical frameworks

Measures

Adapting the IT platform

IT arena

Technology scan and forecasting, scenarios

Measures of IT capability and flexibility

Transforming work and organization

Organizational domain

Business process analysis

Organizational efficiency

IS products and services

Redesigning IS portfolio

Portfolio analysis of applications

Service levels