Managing and Using Information Systems:

A Strategic Approach – Sixth Edition

Keri Pearlson, Carol Saunders,

and Dennis Galletta

© Copyright 2016
John Wiley & Sons, Inc.
 Chapter 2
Strategic Use of Information
Resources
 Zara

• Chapter opening case

• How often do customers visit Zara each year?
• When do customers buy the designs? Why?
• How many designs do they make each year?
• Is this possible without IT?

© 2016 John Wiley & Sons, Inc. 3

© 2016 John Wiley & Sons, Inc. 4
 Information Resources as
Strategic Tools

What are information resources?

IT assets and capabilities (not just assets!)

© 2016 John Wiley & Sons, Inc. 5

 IT Assets and
IT Assets
Capabilities
IT Capabilities
•Technical Skills
•IT infrastructure • Proficiency in systems analysis
• Hardware • Programming and web design skills
• Software and company apps • Data analysis/data scientist skills
• Network • Network design and implementation
• Data skills
• Website •IT Management Skills
• Business process knowledge
• Ability to evaluate technology
options
•Information Repository • Project management skills
• Customer information • Envisioning innovative IT solutions
• Employee information •Relationship Skills
• Marketplace information • Spanning skills such as business-IT
• Vendor information
relationship management
• External skills such as vendor-
management
© 2016 John Wiley & Sons, Inc. 6
 IT Assets

• Infrastructure
• Information, technology, people and processes available
to perform business processes and tasks. (not just
technology!)
• Might even include resources not owned by the firm
(e.g., eBay, Facebook, LinkedIn)
• Information repository
• Data captured, organized, and retrievable by the firm

© 2016 John Wiley & Sons, Inc. 7

 IT Capabilities
• Technical Skills (designing, developing,
implementing IS)
• Management Skills (managing the IT function and
IT projects)
• Relationship Skills
• Outside the organization (vendors, customers)
• Within the organization (managers)

© 2016 John Wiley & Sons, Inc. 8

 Examples
• Assets:
• Proprietary technology (e.g., platforms)
• Online community
• Customer information
• Capabilities:
• Knowledge
• Technical skills of IT staff
• Friendly, helping nature of IT staff

© 2016 John Wiley & Sons, Inc. 9

 The Strategic Landscape

• Managers must take multiple views of the strategic

landscape, such as:
• First view - Porter’s five competitive forces model.
• Second view - Porter’s value chain.
• Third view – focuses on the types of IS resources needed
(Resource Based View).

© 2016 John Wiley & Sons, Inc. 10

Five competitive forces with
potential
strategic use of information
resources

© 2016 John Wiley & Sons, Inc. 11

Application of five competitive forces model.
Competitive Force IT Influence on Competitive Force
Threat of New Entrants Can be lowered if there are barriers to entry.
Sometimes IS can be used to create barriers to entry

Bargaining Power of Buyers Can be high if it’s easy to switch. Switching costs are
increased by giving buyers things they value in
exchange such as lower costs, effort, or time; or useful
information
Bargaining Power of Suppliers Strongest when there are few firms to choose from,
quality of inputs is crucial, or the volume of purchases
is insignificant to the supplier

Threat of Substitute Products Depends on buyers’ willingness to substitute and the

level of switching costs buyer’s face

Industrial Competitors Rivalry is high when it is expensive to leave an

industry, the industry’s growth rate is declining, or
products have lost differentiation

© 2016 John Wiley & Sons, Inc. 12

plication of five competitive forces – Zara exam
Competitive Force IT Influence on Competitive Force
Threat of New Entrants Zara supports its tightly knit group of designers, market
specialists, production managers, and planners. These
relationships take time. Rich customer information in its
database would take time to develop.
Bargaining Power of Buyers Recently, Zara has created a laser-created database of
sizes for 10,000 “real” women volunteers. New products
will be more likely to fit.
Bargaining Power of Suppliers Computer-controlled cutting machine can cut 1,000
layers at a time. A large number of sewers are available.
Threat of Substitute Products IT helps Zara offer extremely fashionable clothing that
would last 10 wears. The result is trendy clothes at
reasonable prices, making substitutes difficult
Industrial Competitors Zara tracks breaking trends and customer preferences.
The result is the highest sales per square foot in the
industry without much advertising, low inventories, only
10% of inventory unsold, new products from idea to
shelves in 15 days, and manufacturing efficiencies

© 2016 John Wiley & Sons, Inc. 13

Porter’s Value Chain Model
• Value Chain model addresses the activities that create,
deliver, and support a company’s product or service.
• Two broad categories:
• Primary activities – relate directly to the value created in a
product or service.
• Support activities – make it possible for the primary activities
to exist and remain coordinated.
• Competition can come from:
• Lowering the cost to perform an activity, increasing profit.
• Adding value to a product or service so buyers will be willing
to pay more (again, increasing profit).

© 2016 John Wiley & Sons, Inc. 14

Value chain of the firm.
© 2016 John Wiley & Sons, Inc. 15
 The Value System
• The value chain model can be extended by linking
many value chains into a value system.
• Much of the advantage of supply chain
management comes from understanding how
information is used within each value chain within
the larger system.

© 2016 John Wiley & Sons, Inc. 16

 The value system: interconnecting
relationships between organizations.

© 2016 John Wiley & Sons, Inc. 17

 Zara and Primary Activities
Primary Activity Zara’s Value Chain
Inbound Logistics • IT-enabled JIT (just in time) strategy
• Most dyes are purchased from Zara subsidiaries
• Suppliers are located near production facilities
Operations • IT supports decisions about fabric, cut, and pricing
• Products are hung on hangers to avoid ironing at stores
• Price tags are already on the products
• 60% of merchandise is produced in house
• Fabric is cut and dyed by robots in 23 highly automated factories
Outbound Logistics • Clothes move on miles of conveyer belts
• Clothes reach stores within 48 hours of the order
Marketing and Sales • Limited inventory permits low percent of unsold goods (10%)
• Point-of-Sales systems linked to HQ
• Managers provide information on customer needs daily via hand-
held computers
Service • No focus on service; clothes only last 10 wears

© 2016 John Wiley & Sons, Inc. 18

 Zara and Secondary Activities

Secondary Zara’s Value Chain

Activity
Organization • Tightly-knit collaboration between designers, store
managers, market specialists, production managers,
production planners
Human • Managers are trained to understand customer
Resources needs and report to designers daily
• Managers help Zara keep on cutting edge of fashion
Technology • All primary activities are supported by integrated
technology
• Automated conveyers speed up logistics
Purchasing • Vertical integration reduces the amount of
purchasing needed

© 2016 John Wiley & Sons, Inc. 19

 Sustainability

• Attaining competitive advantage is one thing

• A firm often exploits rare and valuable resources
• But sustaining competitive advantage is
another
• Resources must be difficult to transfer or
relatively immobile

© 2016 John Wiley & Sons, Inc. 20

Sustainability Framework

Source: Piccoli & Ives

© 2016 John Wiley & Sons, Inc. 21

 But Isn’t Sustaining an
Advantage
a “Deadly Distraction?”
• Some focus on sustaining would be useful
• Some sustaining steps are not too difficult or expensive
• It will help profitability while inventing more “disruptive”
measures
• It might save the firm if disruption measures fail
• But some focus on disruption is also useful
• Sometimes sustaining requires too much effort
• Disruption can have a huge payoff

© 2016 John Wiley & Sons, Inc. 22

The Resource Based
View

© 2016 John Wiley & Sons, Inc. 23

IT Assets at Zara

© 2016 John Wiley & Sons, Inc. 24

IT Capabilities at Zara

© 2016 John Wiley & Sons, Inc. 25

 Social Capital as an IT
Resource

• Social capital:
• the sum of the actual and potential resources embedded
within, available through, and derived from the individual
or firm’s network of relationships
• Structural – Who is connected to whom
• Relational – How the people interact (e.g., respect,
friendship)
• Cognitive – How the people think and the impact of a
shared language

© 2016 John Wiley & Sons, Inc. 26

 Relationships with Other
Firms
• Strategic Alliances
• Inter-organizational relationship that affords one or more
company a strategic advantage
• Example: Zynga and Facebook
• Business ecosystems provide abundant examples
• Co-opetition
• Companies cooperate and compete at the same time
• Example: Microsoft builds laptops but also supplies
operating systems to other laptop makers

© 2016 John Wiley & Sons, Inc. 27

 Potential Risks
• There are many potential risks that a firm faces when attempting
to use IT to outpace their competition.
• Executives should be aware of these risks in advance!
• Awakening a sleeping giant – a large competitor with deeper
pockets may be nudged into implementing IS with even better
features (Schwab/eTrade; FedX/UPS)
• Demonstrating bad timing – sometimes customers are not
ready to use the technology designed to gain strategic
advantage (Apple’s Newton, Shelternet)
• Implementing IS poorly – information systems can fail because
they are poorly implemented (Nike; Hershey)
• Failing to deliver what users want – systems that don’t meet
the firm’s target market likely to fail (Streamline.com
groceries)
• Running afoul of the law – Using IS strategically may promote
litigation (Airline reservation systems)
© 2016 John Wiley & Sons, Inc. 28
 Co-Creating IT and
Business Strategy
• Not just alignment, but partnership
• Example: FedEx
• Are you paying only for the delivery?
• Or are you also paying for information about the delivery?
• Fedex would not be able to accomplish the delivery
without the IS components.
• Can you separate IT strategy from your business
strategy?
• The trend is towards integrating the two.

© 2016 John Wiley & Sons, Inc. 29

Managing and Using Information Systems:
A Strategic Approach – Sixth Edition

Keri Pearlson, Carol Saunders,

and Dennis Galletta

© Copyright 2016
John Wiley & Sons, Inc.