Chapter 2 Strategic Role of Information Systems

Chapter

2

THE STRATEGIC ROLE OF INFORMATION SYSTEMS

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© 2003 by Prentice Hall

Chapter 2 OBJECTIVES

• Analyze the role played by the six major types of information systems in organizations. • Describe the relationship between the major types of information systems • Distinguish a strategic information system. • Describe how information systems can be used to support three levels of strategy used in business. 2.2


Chapter 2 MANAGEMENT CHALLENGES

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

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

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Different levels of management systems  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. 2.4


Different kinds of systems 1. 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

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Different kinds of system : Example

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Systems Example (Sales system) Strategic level To forecast sales trends, buying habits trends for next 5 years Management Tracks monthly sales figures, if level sales exceed or fall below expected figures Knowledge To design promotional displays for level firm’s products, i.e. to design an attractive brochure Operational To record daily sales figures, i.e. level at the cashier machine © 2003 by Prentice Hall

Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION

Types of Information Systems

Each types of systems Serve Different levels and Functions.

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Figure 2-1



6 Major Types of Systems

• Executive Support Systems (ESS) • Decision Support Systems (DSS) • Management Information Systems (MIS) • Knowledge Work Systems (KWS) • Office Automation Systems (OAS) • Transaction Processing Systems (TPS)

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Chapter 2 TYPES OF INFORMATION SYSTEMS

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Figure 2-2



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 2.10



Payroll TPS

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Figure 2-3 © 2003 by Prentice Hall


Types of TPS Systems

Figure 2-4 2.12



Knowledge Work Systems (KWS):

 Aid knowledge workers in the creation and integration of new knowledge in the org  Eg: Scientific or engineering design workstations to promote the creation of new knowledge  Office System-computer system, such as WP, E-mail systems and scheduling systems to increase the productivity of data workers by supporting the coordinating and communicating activities in an office 2.13



Management Information System (MIS):  Is that serve the function of planning, controlling and decision making by providing routine summary and exception reports  Eg: Sales Management , Inventory Control

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Management Information System (MIS)

Figure 2-5 2.15



Management Information System (MIS)

This is an annual sales data produced By the MIS

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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 sys  Eg: Production scheduling, Cost Analysis, Pricing Analysis, Budgeting 2.17



Decision Support System (DSS)

Figure 2-7 2.18


Examples of Business Decision Support software

• http://www.canadiancontent.net/tech/dow • http://www.exefind.com/cash-flowplanner-P4101.html

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Executive Support System • Executive Support System (ESS) is a reporting tool (software) that allows you to turn your organization's data into useful summarized reports. • These reports are generally used by executive level managers for quick access to reports coming from all company levels and departments such as billing, cost accounting , staffing, scheduling, and more. 2.20



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 2.21


Example of Executive information system

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Example EIS Epic

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Executive Support System (ESS)

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Figure 2-8


Chapter 2 INTERRELATIONSHIPS AMONG SYSTEMS

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Figure 2-9


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

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System

Description

Org Level

Order Processing

Enter, process & track orders

Operational

Market Analysis

Identify customers and markets using data on demo

Knowledge

Pricing analysis

Determine prices for pro & services

Management

Sales trend forecasting

Prepare 5 year forecasts

Strategic © 2003 by Prentice Hall

Systems From a Functional Perspective Manufacturing & Production System – systems that deals with the planning, development and production of products & services and with controlling the flow of production System

Description

Org Level

Machine Control Control the actions of machines & Equipment

Operational

CAD

Design new products using the computer

Knowledge

Producing planning

Decide when and how many products should be produced

Management

Facilities location

Decide where to locate new production facilities

Strategic

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

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System

Description

Org Level

Accounts receivable

Track money owed the firm

Operational

Portfolio analysis

Design the firm portfolio of investment

Knowledge

Budgeting

Prepare short-terms budgets

Management

Profit planning

Plan long-term profits

Strategic


Systems From a Functional Perspective 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 System

Description

Org Level

Training & Development

Track employee training, skills, and performance

Operational

Career pathing

Design career paths for employees

Knowledge

Compensation analysis

Monitor the range and distribution of employee wages

Management

Human resource planning

Plan the long-term labor force needs of the org

Strategic

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What is Strategic Info System?

 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 2.30


Using Information System to achieve Competitive 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.

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Using Information System to achieve Competitive Advantage

 Competitive 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

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Michael Porter’s competitive forces model

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. 2.33


Michael Porter’s competitive forces model • Entry of competitors –

How easy/difficult is it for new entrants to start competing which barriers do exist.

• Threat of substitutes – – –

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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.


Michael Porter’s competitive forces model •

Bargaining power of buyers

– – –

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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 output • The sales of the product being purchased account for a significant portion of the seller’s annual revenues. • They could switch to another product at little if any cost • The industry’s products are undifferentiated or standardized and the buyers pose a credible threat if they were to integrate backward into the seller’s industry. © 2003 by Prentice Hall

Michael Porter’s competitive forces model • Bargaining power of suppliers – – –

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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 more concentrated than the industry to which it sells. • Satisfactory substitute products are not available to industry firms. • Industry firms are not a significant customer for the supplier group Suppliers’ goods are critical to buyers’ marketplace success © 2003 by Prentice Hall

Michael Porter’s competitive forces model • Intensity of rivalry among competitors – –

–

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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 Advantage • Competitive advantage is achieved when a for-profit company increases its profits significantly, usually through increased market share • Many initiatives can be used to gain competitive advantage • Strategic moves often combine two or more initiatives • The essence of strategy is innovation 2.38


Four basic competitive strategies

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Competitive Strategies 4 basic competitive strategies to deal with competitive forces :2. 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 2.40


Competitive Strategies 2. Developing Tight Linkages to Customers &

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

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Competitive Strategies 3. 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

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Competitive Strategies • 4. 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. 2.43


The Internet’s Impact on competitive Advantage  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. 2.44


The Internet’s Impact on competitive Advantage

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Value Chain Concepts • It show how various types of information technologies might be applied to specific business processes to help a firm gain competitive advantages in the marketplace. • A value chain is a chain of activities. Products pass all activities of the chain in order and at each activity the product gains some value. • The value chain categorizes the generic valuevalue adding activities of an organization.

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

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Value Chain Concepts • The "primary activities" include: inbound logistics, operations (production), outbound logistics, marketing and sales, and services (maintenance). • The "support activities" include: administrative infrastructure management, human resource management, R&D, and procurement • Its ultimate goal is to maximize value creation while minimizing costs. 2.48


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

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AirAsia: A Success Story

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Massive 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 2.51


Away from Tradition • AirAsia 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 paperless cockpits – Saves preflight time associated with calculating weight of plane (annual savings of ~4800 hours)

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Competitive advantages • Technology helps AirAsia offer better service – 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.

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Competitive advantages • 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. 2.54


THE END.

Any questions??????

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Chapter 2 Strategic Role of Information Systems

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