Paper 6: Management Information System

Module 9: Role of MIS in Strategic Advantage

Prof. S P Bansal
Principal Investigator Vice Chancellor
Maharaja Agrasen University, Baddi

Prof YoginderVerma
Co-Principal Investigator Pro–Vice Chancellor
Central University of Himachal Pradesh. Kangra. H.P.

Prof. Manu Sood

Paper Coordinator Chairman, Department of Computer Science
Himachal Pradesh University, Shimla.

Dr. Ashish Saihjpal

Content Writer Assistant Professor,
University Business School, Panjab University (RC), Ludhiana.
Items Description of Module
Subject Name Management
Paper Name Management Information System
Module Title Role of MIS in Strategic Advantage
Module Id Module No.-9
Pre- Requisites Basic understanding of what is competitive advantage.
Objectives To understand the role of MIS in Strategic Advantage
Keywords Competitive Advantage, Differentiation, Low Cost Leadership, Niche Market, Value
Chain, Knowledge Management.

QUADRANT-I
Module-9 Role of MIS in Strategic Advantage
1. Learning Outcome
2. Introduction
Opening Case: Case of the Apple pie.
3. Key Features of Information Systems
3.1 Using Information Systems to achieve Competitive Advantage
4. Information System Strategies for Competitive Advantage
5. Extending the value chain model
5.1 Defining the Value Chain Concept
5.2 Synergies, Core Competency and Network Based Strategies
5.3 How companies leverage IS for Competitive Advantage
6. Summary

1. Learning Outcome:
After completing this module the students will be able to:
 Understand how organizations build competitive products and services using Information
Systems.
 How companies align their Information Technology strategies to fulfill corporate goals.
 Understand key features of Strategic Information Systems.
 Understand Strategies for Competitive Advantage and factors that determine the strategic
position of a firm.
 The Value Chain Model and type of companies that leverage IS for competitive advantage.

2. Introduction

Information Systems (IS) are those systems that work on acquired data and further process it for
competitive business usage. For this, it requires a technology platform and compatible software and
hardware. These systems are used by people to acquire, store, process and interpret data.

Strategic advantage for any organization refers to the particular characteristic or way of doing things that
make an organization more successful than others. Information Systems when aligned with the business
strategy to fulfill corporate goals by way of achieving competitive advantage is referred to as IS for
Strategic Advantage. The more sustainable the competitive advantage, the more difficult it is for
competitors to neutralize the advantage. Considering and introspecting on the strategic advantage that
Apple Inc gained was by virtually forcing the Apple user to use iTunes and the AppStore and building its
products portfolio around its own software.

Apple largely spends on creating the “Apple Experience.” This is enabled when Apple observes a
customer closely to capture his mind share, his wallet share by data basing his profile and bookmarking
his past purchases and choice of content. That’s why Apple products stand as the most popular and the
best in the market. Exhibit1 showcases some of the distinct Apple Products.

Opening Case: Case of the Apple Pie

Apple Inc has had differentiation since its inception. They are masters of their software and competitive
in making equally good hardware to complement it. Steve Jobs was found quoting Alan Kay of Xerox
Parc when he said, “People who are serious about software need to also be serious about great hardware.”
What complete the package at Apple are an equally robust Operating System (OS) as well as the core
software named “iLife”. The content gatekeeper strategy is embedded in iTunes and complimented by
their retail strategy that differentiates Apple from its competitors.

iTunes & Digital Asset Management – Stepping up the ladder from a software company to a complete
Digital Asset Management company has been a big leap for Apple. As announced by Apple, it contained
critical account information of over 100 million customers who accessed iTunes. Its only when a brand is
trusted, a customer readies to provide personal information for future purchases.

Apple’s Retail Strategy – When Apple decided to step into organized retail stores, they only saw beyond
the horizon. Initially criticized by the business analysts, it, eventually, surpassed all eyes to become one of
the most competitive strategies. Apple Retailers carry all products, accessories, support and repair.

Apple always renders an ear to customers giving them assistance by placing their stores at appropriate
locations. Even in malls customers get service while they are in shopping mode. It only enhances the taste
of the Apple-pie.

Exhibit 1: Product Portfolio of Apple Inc

Image Source: www.apple.com.
3. The Key features of the Strategic Information Systems

The key features that comprise Strategic Information Systems can be stated as

Decision
Support
Systems

Database
Systems

Enterprise Real Time

Resource Information
Planning Systems

Figure 1: Features of Strategic Information Systems

1) Decision Support Systems – They essentially align the functional Information Systems with
Information Technology in synchronization with organizational goals and strategies.

2) Enterprise Resource Planning – These systems enable optimizing organizational resources to

meet business requirements.

3) Database Systems - These hold essential customer profiles and client information. This is best
utilized for business development, marketing, sales and other departments.

4) Real-time ISs – Real Time Information Systems enable query handling and reduce turnaround
time for responses and the quality indicators as per an agreed service restoration window.

3.1 Using Information Systems to achieve Competitive Advantage

Prima Facie, it is essential to understand the need for having information systems in any organization. The
basic need can be stated in the simplest of the words that the need for automation helps in doing things
accurately with greater processing speed and analytical ability. Information Systems provide strategic
advantage as a supporting tool for doing things smartly.

Automation helps in yielding useful information by mechanization of a manual process that ensures
greater accuracy and consistency. To exemplify, a manual loan application process may be automated by
use of information technology. Using a single window data entry to fill in relevant details of an applicant
greatly reduces the time taken for enrolment of application. Moreover, looking beyond automation,
organization learning is enhanced by a better understanding of routine activities. Information systems help
analyzing trends and patterns for making further improvements in the processes.
Exhibit 2: Information Systems for Competitive Advantage.

By imbibing management best practices like total quality management, balanced scorecard, six-sigma
helps the organization to improve its processes, products and services. MIS acts as an enabler of creating
a vision to set the directions for a strategy, creating performance oriented targets and creating a strategy to
achieve the set goals.

4. Information System Strategies for dealing with Competitive Forces

Let us understand the five force model coined by Michael Porter before we undertake that how
corporations leverage information systems for competitive advantage. The intensity of competition within
the industry is of utmost concern for any organisation. This framework helps the organisations to
determine this intensity of rivalry by examining the interaction of five competitive forces. According to
Michael Porter, a firm that can confront the five forces in an industry (refer Figure 2) can sustain itself in
the competitive marketplace. These forces essentially shape the fate of the firm.

These include:

1. Rivalry of competitors within its industry – More the number of players in the industry more will
be the rivalry within the industry. In a competitive environment firms keep devising new ways to
take a lead from its competitors in the market space. The intention is to expand the customer base,
enable customer loyalty and thereby increase switching cost for customers to opt out.

2. Threat of new entrants- Any industry that has the potential for growth and is perceived to be
profitable tends to attract new entrants. The higher entry barriers keeps the prospective entrants at
a distance from an industry. In some industries, there are very low barriers to entry while in some,
entry is difficult. It’s easier to open an eatery than entering a business of manufacturing smart
cards that would need technical expertise and knowledge in the specific domain.

3. Threat of substitutes – In a highly price sensitive industry, customers tend to switch from one
product to another if the pricing of the products happen to be unreasonable or easy substitutes to
 the product are available. Higher substitutes in the market only make it harder to tighten pricing
and maintain a sound market position.

For example, an online digital library of e-books and web resources is a substitute to buying hard
copy of books from a book shop.

4. Bargaining power of customers – The profitability of a company largely depends on its ability to
build new customers and retain the old ones. This allows the company to charge high prices for
their product. On the other hand, a customer becomes more powerful if they are easily able to
switch to competitors product.

5. Bargaining power of suppliers – Sourcing in any industry is amongst one of the most essential
activities of a business. The market power of suppliers can impact a firm’s profits when the firm
cannot raise prices as fast as suppliers. The increase in the number of suppliers gives the leverage
to firm to exercise more control over suppliers on parameters of price, quality, quantity and
delivery schedules.

Figure 2: Porter’s Competitive Forces Model

Having understood the five forces competitive model let us try to understand the Information Systems
strategies for dealing with competitive forces. Following are the various generic strategies being adopted
by the corporations with the help of information technology and systems to encounter competitive forces
in the business environment (Figure 3).
 Strengthen
Low Cost
Differentiation Niche Markets Innovation Customer &
Leadership
Supplier Intimacy

Figure 3: Information System Strategies

1. Low Cost Leadership Strategy – This strategy aims at aggressive cost cutting using optimization
techniques and efficient business practices. The end focus is to render the product a good value
for money to the end customer. One of the strengths that separate Dell from other companies is
customer intimacy. Dell allows customization of its computers as per individual needs that make
the product affordable, usable and performance oriented. Direct shipping of the product through
Dell avoids all intermediaries, channel partners, retailers. What customers get is a tailor made
product best suiting their requirement and budget. Exhibit 3 highlights how the Dell studio helps
in picking up features of the customers’ interest in choosing their own laptop.

Exhibit 3: Design Studio by Dell

Image Source: http://images.pcworld.com/news/graphics/173374-dell-design-studio_slide.jpg

2. Differentiation Strategy – Differentiation encompasses offering different products, services or

product features. By offering differentiated products companies can charge higher prices; sell
more products, or both. Apple Inc created the iPod, a unique portable digital music player and a
unique online music service where songs could be purchased for $0.69 to $1.29 each.
Manufacturers and retailers are using information systems to create products and services
customized or tailor made to fit the precise specifications of individual customers. Exhibit 4
explains how differentiation leads to uniqueness.

Exhibit 4: Product Differentiation

Image Source: http://branduniq.com/wp-content/uploads/2013/09/casuta-dreapta.jpg
3. Focus on Market Niche – This strategy make use of information systems to focus on a particular
segment of the market and serve this targeted segment much better than its rivals. Information
systems support this strategy by producing and analyzing data for sale and marketing with respect
to the niche market segment. Data is pooled from various sources such as customer past
purchases, demographic data, credit card transactions, checkout counter scanners and when the
prospective customer establishes online interface while surfing the websites. Software tools are
used to analyze patterns and infer rules to guide decision making in the organizations. Exhibit 5
depicts a niche market segment.

Exhibit 5: Representing a Niche Market

Image Source: https://assets.entrepreneur.com/content/3x2/1300/why-serve-a-niche-market.jpg

Let us take an example of Ferns and Petals, which reveals how the company captured the
untapped flower-retail-market by providing the visitors with the best online gifting solutions.
After giving an initial trial at some of the search engine optimization (SEO) techniques, they
engaged RoundArk so as to generate more online traffic, enhance viewer’s engagement and to
generate more revenues. Round Ark is a reputed digital marketing agency preferred by both the
corporate leaders as well as startups to explore the business opportunities available in the digital
world. RoundArk focus on drawing the perception into reality with clients, giving them an
assurance of effective digital business strategies to upgrade their growth trajectory in the market.

Exhibit 6: Fern and Petals – Online experience

Image Source: http://www.roundark.com/demo/ferns_case-study.php

The strategies adopted revolve around the customer needs. Research was undertaken to
understand the online visitor behavior and the website content to boost the traffic and revenue for
the company. The digital experts at the back end carried out the research to analyze all the
elements about the potential customers, their products and their brand. Researching the attributes
 of a particular segment helps them to design complete digital strategy that best suited their
customers. Further, a competitive plan was shaped to project the business, so as to make a
powerful impact online.

4. Innovation – The innovation strategies largely involve developing products and services using
computers that are new and appreciably different from other available offerings in the market.

Exhibit 7: EMV Cards

Image Source: http://www.cordfinancial.com/wp-content/uploads/2015/01/EMV_final-1024x534.jpg

Examples of this are EMV cards - Europay, MasterCard and Visa credit and debit cards (refer
Exhibit 7), these smart cards are embedded with a chip for user authentication, automatic credit
card handing at service stations and automatic teller machines at banks. Such an approach nestles
out new business opportunities to attract customers and cater to their demand.

5. Strengthen Customer and Supplier Intimacy - Information Systems not only make all business
related information available at the click of a mouse but also enables a better understanding and
communication between vendors and its customers. Moreover, strong linkages help establish
loyalty and increase switching costs for its suppliers and customers. Amazon, Flipkart, IndiaMart,
Urban Ladder, Fab Furnish are common names who archive customer purchases and on the bases
of that suggest recommendations to the prospective customers. They also enable easy tracking of
consignments which keep the end customer more informed.

5. Extending the Value Chain Model

5.1 Defining the Value Chain Concept

In the words of Michael Porter, as stated in his book ‘Competitive Advantage’ (1980), a value chain is the
whole series of activities that create and build value at every step. The total value delivered by the
company is the sum total of the value built up all throughout the company. Exhibit 8 represents a
diagrammatic summary of the Value Chain.

It is imperative to note that the value chain analysis helps strategists to separately evaluate each activity
and to identify the bottlenecks in the series or chain of basic activities that do not add much value to
firm’s products and services. These identified activities are the areas in the business where the
competitive strategies can be best applied with the support of Information systems. These activities are
broadly classified as primary activities and support activities.

1. Primary Activities
These are activities that occur within the periphery and around the organization. Value addition
by each activity is added to the organizations products or services. These activities are listed as
inbound logistics, outbound logistics, operations, sales and marketing and services. Inbound
logistics include receiving and storing material for distribution. Operations transform input to
finished products. Outbound logistics include storing and distributing finished products.

2. Support Activities
They facilitate the primary activities and consist of organization infrastructure (administration
and management), human resources, technology and procurement.

Implementing information systems can help achieve strategic advantage at industry level by integrating
the firm’s business processes with that of its stakeholder. For example: An enterprise may use
information systems to integrate its logistic systems with that of its suppliers. Through this system
suppliers could have a direct access to the production schedules of the firm, depending on which the
supplier could decide how and when to ship the supplies to the firm. This allows the suppliers to have
more lead time for production of goods and timely deliveries to the firm giving a competitive edge to the
firm over its rivals.

Exhibit 8: The Value Chain Concept

Image Source: http://www.cmu.edu/erm/concepts/value.html

5.2 Synergies, Core Competency and Network Based Strategies

Whether, an organisation is a small firm involved in a single business or a large, complex firm with
several different businesses, the strategy in both cases is about the basic direction of the firm as a whole.
In case of single business unit, it could mean larger focus on the functional areas that would increase the
firm’s profitability. While, in case of large firm, the strategy is not only about functional activities but
also about managing the different business units so as to maximize the contribution of each of the units
towards the overall corporate objectives. Implementation of information systems can improve the overall
performance of the organizations by creating synergies and promoting the core competencies between the
various business units or strategic alliances.

1. Synergy
Synergy happens when output of one unit can be used as an input to the other unit or two
organizations synchronize markets and expertise. This helps the firm to expand geographically
and form tie ups in rural service. Use of information systems would help the business units or
merged companies to pool in their resources, consolidate its operations and in lowering of the
production costs. The two firms together prove more profitable than the either firm could on its
own.

For example, Apple Inc leveraged on the sales and distribution network of global giant Brightstar
for its pan India logistics and customer support to gain competitive advantage.

2. Enhancing Core Competencies

A core competency is the ability that grades an organization as a leader in its field. The firm
owes this ability to the expertise and market understanding that it has developed over the years.
The practical knowledge is supplemented with long term research efforts and the commitment of
the employees. Implementations of Information systems help facilitate knowledge sharing within
the organization and not only enhances existing competencies and also help employees become
aware of new external knowledge.

For example, Airtel focuses on its core competency of sales and promotions and vendor
management. The leading telecom giant has its IT outsourced to IBM; Finance and Audit
outsourced to companies like KPMG, Wipro and Network Planning to Nokia and Ericsson.

Exhibit 9:
Image Source: www.outsourcing.com
3. Network Based Strategies

Internet and networking technologies has re-created many marketing strategies built around them.
These strategies use network economics, a virtual company model and business ecosystems.
Unlike in the traditional economics where the diminishing returns set in, once, the optimum level
of out-put is attained. On the other hand, from the network economics perspective, information
systems provide strategic benefits to commercial software vendors. Value of the software
increases as the numbers of users who use them multiply and there is a larger installed base to
justify continued use of product and vendor support.

5.3 How companies leverage IS for Competitive Advantage

Virtual Company Model

Building virtual companies have become an important strategic move in today’s global
marketplace. A virtual company operates beyond geographical boundaries and serves markets
that span continents. It uses the online space to create networks that links people, processes and
ideas. With this model, a company can quickly get to the market or exploit new market
opportunities with due diligence and collaboration; acquire products, services or capabilities from
an external vendor. It is with the help of information technology that a virtual company manages
various resources provided by its business partners and deliver products to customer across the
globe.

Business strategies of virtual companies include:

1. Risk taking ability and shared infrastructure and revenue models
2. Linking core competencies with organizations in cohesion
3. Reduce concept-to-cash time through sharing
4. Increasing facilities and market coverage
5. Gaining access to new markets and sharing market or customer loyalty
6. Re-focusing from product selling to solution provider

Exhibit10: Virtual Mirror, Lenskart

Image Source: www.lenskart.com
 Augmented Reality (AR) is the meeting of the virtual world with the real world. AR is a concept
where real-world elements are mixed with virtual video, audio or text. One of the software’s is
called 'Virtual Mirror'. Lenskart- the Company sells eyewear online and lets its prospective
customers virtually opts for different frames (Refer Exhibit 10). When the customer visits the
Lenskart website, he/she see the kind of catalogue that one sees on any e-commerce site. There,
one can click on the "Try Online" button next to every frame. Now, he/she can either upload a
saved photo from the computer or use the webcam to take a picture, and then see how the frames
look on his/her face. The customer can swap out frames and check out different looks to figure
out what looks good on his/her face, without having to go to a store.

Knowledge-Creating Company

In the age of Information Technology, companies can exist sustainably if they become knowledge
creating organizations. Their goal is to create new business knowledge, assimilate it widely
throughout the company, and quickly build the new knowledge into their products and services.

Knowledge-creating companies exploit two kinds of technology:

1. Explicit Knowledge pertaining to data, documents, things written down or stored on

computers.

2. Tactical Knowledge implying - “how-tos” of knowledge, which reside in workers.

Knowledge management capability can be tapped to build techniques and rewards for getting
employees to accumulate their knowledge and share what they know and to make better business
choices. Knowledge management has become one of the major strategic uses of information
technology. Many companies are building knowledge management systems to manage
organizational learning and business know-how.

The objective is to create, organize and make available important business knowledge, wherever
and whenever it’s needed in an organization. It implies organizing procedures, guidelines,
formulas, methodology and other practices together. Internet and intranet web sites, blogs,
databases, discussion forums and web casts are some of the key information technologies for
gathering, storing and distributing this knowledge.

Exhibit11: e-Sampark: A Multi Service Single Window Operations Project, Dept of Information Technology, UT CHD
 The Department of Information Technology of Chandigarh Administration launched the project
named e-Sampark (Refer Exhibit 11) for the residents of Chandigarh.

The objectives of this project are:

• A single window solution to citizens.
• Reduced processing time and effort in payment for utilities.
• Provide better response time, processing and issue of services.
• Transparency in delivery of services.

This project enables a single window solution for the development, integration and maintenance
across various functional departments under a single web portal. The city has created various
Sampark centers. It has not only automated all resident records but ensured easy information
counters, query handling, payment of utilities such as electricity, water, telephones through the
centers as well as mobile apps. Not only has it made residents more techno savvy but also created
a repository of information storage for all future references.

Agile Companies

An agile company is the one that can quickly adapt itself to the geography and market where it
operates. An agile company can make a profit in markets with broad product ranges and in a very
short span. Despite high volume of production, the orders are processed in different lot sizes.

Agile companies rely on information technology to offer a portfolio to customers with

customized solutions to their needs, mass customization and cooperate with other businesses to
bring products to market as rapidly and cost-efficient as possible. Vistaprint, a Dutch company is
a good example of an agile company that produces customized products as per the needs of its
customer from the convenience of their computer. The company’s customer base largely includes
small and micro-businesses, the one who could afford quality customized promotional material
because of the high order volumes. The company’s product portfolio includes printed marketing
materials, signage, photo products, embroidered apparel and promotional products.

7. Summary

Strategic Information Systems often change the organization as well as the product and service portfolio,
operating procedures and drives the organization to newer behavioral patterns. Successful mitigation with
the information system platform requires integration of technology, organizations and management.
It is inevitable to note that while adopting various kinds of strategic systems, organizations need to
change business goals, relationships with existing customers and suppliers and business processes. It is
the duty of the managers and the management to ensure smooth transition of these socio – technical
transitions by roping in experts and coordinating the activities while assessing the risks involved.