Information Systems in

business..
WHY?
I.S. Competitive Advantage
 The Role of Information Systems in Business Today
NO IT – NO IS – It’s BIS
Business Objectives of Information Systems
• Why do we need to implement an
Information System?

• What are the major business objectives of

information systems?

• What is the role of IS in business today?

 The Role of Information Systems in Business Today

Business Objectives of Information Systems

• Operational excellence
• New products, services, and business models
• Customer and supplier intimacy
• Improved decision making
• Competitive advantage
• Survival
 The Role of Information Systems in Business Today

Operational Excellence:
 Operational excellence means higher
levels of efficiency and productivity.
 Information systems and technologies
help to improve higher levels of
efficiency and productivity hence
achieving operational excellence.

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 The Role of Information Systems in Business Today

New products, services, and business models:

• Information systems and technologies enable firms to create
new products, new services, and new business models
• A business model includes how a company produces,
delivers, and sells its products and services
• The music industry has seen drastic changes in business
models in the recent years
• Apple Inc. transformed an old business model of music
distribution based on tapes, and CDs into an online, legal
distribution model based on its own iPod technology
platform.
 The Role of Information Systems in Business Today

Customer and supplier intimacy:

• When a business really knows its customers, and serves them
well, the way they want to be served, the customers generally
respond by returning and purchasing more. This raises
revenues and profits.
• Close relationships with suppliers result in lower costs
• How to really know your customers, or suppliers, is a central
problem for businesses.
• IS has a vital role in solving this problem.
 The Role of Information Systems in Business Today

Customer intimacy:
• The Mandarin Oriental in Manhattan and other high-end hotels
use information systems and technologies to achieve
customer intimacy. These hotels use computers to keep track
of guests’ preferences, such as their preferred room, check-in
time, and television programs, and store these data in a giant
data repository. When a customer arrives at one of these
hotels, the system automatically changes the room
conditions, such as dimming the lights, setting the room
temperature, or selecting appropriate music, based on the
customer’s digital profile.
• The hotels also analyze their customer data to identify their
best customers and to develop individualized marketing
campaigns based on customers’ preferences.
 The Role of Information Systems in Business Today

Supplier intimacy:
• JC Penney benefits of information systems–
enabled supplier intimacy.
• Every time a dress or shirt is bought at a Penney
store in the United States, the record of the sale
appears immediately on computers in Hong Kong
at the TAL Apparel Ltd. supplier.
• TAL then sends the shirts to each Penney store.
• Penney’s shirt inventory is near zero, as is the cost
of storing it.
 The Role of Information Systems in Business Today

Improved decision making:

• Many business managers operate in an information fog, never
really having the right information at the right time to make an
informed decision. Instead, managers rely on forecasts, best
guesses, and luck. The result is over-or under production of
goods and services and misallocation of resources. These
poor outcomes raise costs and lose customers.

• In the past 10 years, information systems and technologies

have made it possible for managers to use real-time data from
the marketplace when making decisions.
 The Role of Information Systems in Business Today

Improved decision making:

• Verizon Corporation, one of the largest
telecommunications service companies in the United
States, uses a Web-based digital dashboard to
provide managers with precise real-time information
on customer complaints, network performance, and
storm-damaged lines.
• Using this information, managers can immediately
allocate repair resources to affected areas, inform
consumers of repair efforts, and restore service fast.
 The Role of Information Systems in Business Today

Competitive advantage:
• When firms achieve one or more of these business objectives
—
• Operational excellence; new products, services, and business
models; customer/supplier intimacy; and improved decision
making—
• Chances are they have already achieved a competitive
advantage.
• Doing things better than your competitors, charging less for
superior products, and responding to customers and
suppliers in real time all add up to higher sales and higher
profits that your competitors cannot match.
 The Role of Information Systems in Business Today

Competitive advantage:
• Perhaps no other U.S. company exemplifies all of these
attributes leading to competitive advantage more than Dell
Computer.
• In a period when PC prices have been falling at 25 percent a
year, forcing most manufacturers into losses, Dell Computer
has shown consistent profitability during its life span of 25
years.
• A large part of its operational efficiency results from “mass
customization,” staying close to the customer by using a
Web-based order entry model that can build and ship a
customized PC to any of its millions of consumers in only a
few days, even overnight if the customer is really in a hurry.
 The Role of Information Systems in Business Today

Survival:
• Business firms also invest in information systems and
technologies because they are necessities of doing business.
Sometimes these “necessities” are driven by industry-level
changes.
• For instance, after Citibank introduced the first automatic
teller machines (ATMs) in the New York region in 1977 to
attract customers through higher service levels, its
competitors rushed to provide ATMs to their customers to
keep up with Citibank.
• Today, virtually all banks in the United States have regional
ATMs and link to national and international ATM networks,
such as CIRRUS.
• Providing ATM services to retail banking customers is simply
a requirement of being in and surviving in the retail banking
business.
 The Role of Information Systems in Business Today

Interactive Session: Business Objectives

In your experience, what firms have achieved:
Operational excellence
New products, services, and business models
Customer and supplier intimacy
Improved decision making
Competitive advantage
Survival

Did information systems and technologies play a role

in these achievements?

1.14 © 2007 by Prentice Hall

Achieving Competitive
Advantage with
Information Systems
 Using Information Systems to Achieve Competitive Advantage

 In almost every industry you examine, you will find that some firms do
better than most others.
 In the automotive industry, Toyota is considered a superior performer. In
pure online retail, Amazon is the leader; In online music, Apple’s iTunes is
considered the leader with more than 75 percent of the downloaded music
market, and in the digital music players, the iPod is the leader.
In Web search, Google is considered the leader.

 Firms that “do better” than others are said to have a competitive advantage
over others:
 They either have access to special resources that others do not, or they are
able to use commonly available resources more efficiently—usually
because of superior knowledge and information assets.
 And how do information systems contribute to achieve
competitive advantages?
 Using Information Systems to Achieve Competitive Advantage

Types of Competitive Advantage

 One answer to that question is the most widely used

model for understanding competitive advantage is
Michael Porter’s competitive forces model.
5 Forces

1.18 © 2007 by Prentice Hall

Using Information Systems to Achieve Competitive Advantage

Porter’s Competitive Forces Model

Figure 3-1
 Using Information Systems to Achieve Competitive Advantage

Porter’s Competitive Forces Model

 Traditional Competitors
 All firms share market space with other competitors who are
continuously devising new, more efficient ways to introduce
new products and services, and attempting to attract
customers by imposing switching costs on their customers.

1.20 © 2007 by Prentice Hall

 Using Information Systems to Achieve Competitive Advantage

Porter’s Competitive Forces Model

 New Market Entrants
 In a free economy, new companies are always entering the
marketplace.
 It is fairly easy to start a pizza business, but it is much more
expensive and difficult to enter the computer chip business.
 But in both cases new market entrants are considered to be a
major force of effecting your firm.

1.21 © 2007 by Prentice Hall

 Using Information Systems to Achieve Competitive Advantage

Porter’s Competitive Forces Model

 Substitute Products and Services
 In just about every industry, there are substitutes that your
customers might use if your prices become too high.
 New technologies create new substitutes all the time.
 Internet telephone service can substitute for traditional
telephone service, And, of course, an Internet music service that
allows you to download music tracks to an iPod is a substitute
for CD-based music stores.
 The more substitute products and services in your industry, the
less you can control pricing and the lower your profit margins.

1.22 © 2007 by Prentice Hall

 Using Information Systems to Achieve Competitive Advantage

Porter’s Competitive Forces Model

 Customers
 A profitable company depends in large measure on
its ability to attract and retain customers (while
denying them to competitors).
 The power of customers grows if they can easily
switch to a competitor’s products and services .

1.23 © 2007 by Prentice Hall

 Using Information Systems to Achieve Competitive Advantage

Porter’s Competitive Forces Model

 Suppliers
 The power of suppliers can have a significant impact on firm
profits, especially when the firm cannot raise prices as fast as
can suppliers.
 The more different suppliers a firm has, the greater control it
can exercise over suppliers in terms of price, quality, and
delivery schedules. For instance, manufacturers of laptop PCs
always have multiple competing suppliers of key components,
such as keyboards, hard drives, and display screens.

1.24 © 2007 by Prentice Hall

Using Information Systems to Achieve Competitive Advantage

Porter’s Competitive Forces Model

Figure 3-1
 Using Information Systems to Achieve Competitive Advantage

Information System Strategies for Dealing with Competitive Forces

 So what is a firm to do when it is faced with all these competitive
forces?
 And how can the firm use IS to counteract some of these forces?
 How do you prevent substitutes and inhibit new market entrants?
 There are four generic strategies, each of which often is enabled
by using information technology and systems:
 low-cost leadership,
 product differentiation,
 focus on market niche, and
 strengthening customer and supplier intimacy.

1.26 © 2007 by Prentice Hall

 Using Information Systems to Achieve Competitive Advantage

Information System Strategies for Dealing with Competitive Forces

 Low-Cost Leadership
 Use information systems to achieve the lowest
operational costs and the lowest prices, for instance;
 Inventory control system, shall control the stock cost
 H/R to increase human productivity
 Purchasing system to get the best prices and best
quality
 Production system to minimize the operations cost and
so on.

1.27 © 2007 by Prentice Hall

 Using Information Systems to Achieve Competitive Advantage

Information System Strategies for Dealing with Competitive Forces

Wal-Mart’s continuous inventory replenishment system uses sales data captured at the checkout
counter to transmit orders to restock merchandise directly to its suppliers. The system enables Wal-
Mart to keep costs low while fine-tuning its merchandise to meet customer demands.

1.28 © 2007 by Prentice Hall

 Using Information Systems to Achieve Competitive Advantage

Information System Strategies for Dealing with Competitive Forces

 Product Differentiation
“INNOVATE AND DOMINATE”
 Use information systems to enable new products and
services, and make it differentiated.
 For instance, Google continuously introduces new and
unique search services on its Web site, such as Google Maps.
 Apple created iPod, a unique portable digital music player,
plus a unique online Web music service where songs can be
purchased for 99 cents. Continuing to innovate, Apple
recently introduced a portable iPod video player.

1.29 © 2007 by Prentice Hall

 Using Information Systems to Achieve Competitive Advantage

Information System Strategies for Dealing with Competitive Forces

The Internet makes it possible for Spacestore.com to provide a new service selling NASA
space theme products online. International sales make up fifteen percent of its business.

1.30 © 2007 by Prentice Hall

 Using Information Systems to Achieve Competitive Advantage

Information System Strategies for Dealing with Competitive Forces

 Focus on Market Niche

 Use information systems to enable a specific market focus,
and serve this narrow target market better than competitors.
Information systems support this strategy by enabling
companies to analyze customer buying patterns, tastes, and
preferences closely so that they efficiently personalize
advertising and marketing campaigns to smaller and smaller
target markets.

1.31 © 2007 by Prentice Hall

 Using Information Systems to Achieve Competitive Advantage

Information System Strategies for Dealing with Competitive Forces

Information systems make it possible for Ping Inc. to offer customers more than one million
custom golf club options with different combinations of club heads, grips, shafts, and lie
angles. Ping is able to fulfill many orders within 48 hours.

1.32 © 2007 by Prentice Hall

 Using Information Systems to Achieve Competitive Advantage

Information System Strategies for Dealing with Competitive Forces

 Strengthen Customer and Supplier Intimacy
 Use information systems to tighten linkages with suppliers and develop
intimacy with customers.
 Chrysler Corporation uses information systems to facilitate direct access
from suppliers to its production schedules, and even permits suppliers to
decide how and when to ship supplies to Chrysler factories. This allows
suppliers more lead time in producing goods.
 On the customer side, Amazon.com keeps track of user preferences for
book and CD purchases, and can recommend titles purchased by others
to its customers.
 Strong linkages to customers and suppliers increase loyalty to your firm.

1.33 © 2007 by Prentice Hall

 Using Information Systems to Achieve Competitive Advantage

Information System Strategies for Dealing with Competitive Forces

 Hilton Hotels uses a customer information system called OnQ, which
contains detailed data about repeated guests in every property across the
Hilton.
 Employees at the front desk tapping into the system instantly search
through 180 million records to find out the preferences of customers
checking in and their past experiences with Hilton so they can give these
guests exactly what they want. OnQ establishes the value of each
customer to Hilton, based on personal history and on predictions about
the value of that person’s future business with Hilton. OnQ can also
identify customers who are clearly not profitable. Profitable customers
receive extra privileges and attention, such as the ability to check out
late without paying additional fees. After Hilton started using the
system, the rate of staying at Hilton Hotels rather than at competing
hotels soared from 41 percent to 61 percent.

1.34 © 2007 by Prentice Hall

 Information systems can be used to
achieve firm’s competitive advantages.
Four Basic Competitive Strategies

Table: 3.2
1.35 © 2007 by Prentice Hall