Chapter 2 Information Systems For Competitive Advantage prenhall/jessup

1. Chapter 2 Information Systems For Competitive Advantage www.prenhall.com/jessup

2. Three Primary Uses of IS & Value Provided in These Functions

3. Automating Automation Complete tasks faster, cheaper, with greater accuracy/ consistency • Styles of Processing • Manual Processing • No technology support • Technology Supported Processing • Both manual and technology supported steps • Fully Automated Processing • All manual steps eliminated. Effectiveness If underlying process is bad, automating with technology alone may mask process problems (GIGO/GASL)

4. Benefits of Automation – Loan Example

5. Informating Organizational Learning Improve day-to-day operations by creating, acquiring, and transferring knowledge Informating A technology that provides information about its operation and the underlying work process it supports • Effectiveness • Combined automating and learning is more effective than automating alone. • If underlying process is flawed, informating might help detect problems with the process

6. Organizational Learning Example

7. Strategizing and Competitive Advantage Achieving Strategy Enables the organization to gain or sustain competitive advantage • Sources of Competitive Advantage • Best-made product • Superior customer service • Lower cost than rivals • Proprietary manufacturing technology • Shorter lead-times • Well-known brand name/reputation • More quality/value for the money

8. Strategy

9. Traditional vs. System Support Process Example Using handheld technology combined with a reengineered business process to create a competitive advantage

10. Value Chain Analysis Value Chain Analysis (Porter 1985, 2001 ) Analyzing organization’s activities to determine where value is added and costsare incurred.

11. Information Systems Roles in the Value Chain • IS/IT plays a significant role in achieving competitive advantage and must be: • appropriate for the business strategy (e.g. cost) • coupled with Business Process Reengineering to enhance operations

12. Making the Business Case Business Case Identifying and justifying the value of information systems • The Productivity Paradox • Difficult to quantify tangible productivity gains from IS • As system based productivity increases, other forces can simultaneously reduce gains (e.g. regulation) • Unintended consequences of technology expenditures can reduce system effectiveness (e.g. web surfing) • Business Case Development Issues • Difficulty in defining business cases for information systems results from: • Measurement Problems • Time Lags • Redistribution • Mismanagement

13. Making the Business Case – Issues • Measurement Problems • The benefits of IT are difficult to pinpoint -may be measuring the wrong things • Expected benefits are not always defined in advance, so they are never seen (Must be identified to measure). • The biggest increases in productivity come from system effectiveness but metrics focus on system efficiency • Time Lags • Difference in time from IT expenditure to benefit realization • Explanations: • takes time for people to become proficient at using new technology • large systems take a long time to fully implement and integrate

14. Making the Business Case – Issues • Redistribution • IS may be beneficial to individual firms, but not for an entire industry overall economy • IS may help one firm increase market share at the expense of others (redistributing) • Expectations increase as technology becomes prevalent. We forget the gains that have been realized. • Mismanagement • IS has not been implemented and managed well • People build bad systems, implement them poorly, and rely on technology fixes rather than joint technology/ process solutions • Inappropriate IS investments can mask/increase organizational slack and inefficiency

15. Making the Business Case - Arguments Used alone or in combination to justify IS/IT investments Based on beliefs about organizational strategy, competitive advantage, industry forces, customer perceptions, market share, and so on Based on the notion that if the system is not implemented, the firm will lose out to the competition or, worse, go out of business Based on data, quantitative analysis and/or indisputable factors Based on Faith Based on Fear Based on Fact

16. Making the Business Case - Argument Examples

17. Making the Business Case - Faith Based Considerations • Argue for the use of IS/IT to strategically gain/sustain competitive advantage without supporting hard data. • Should clearly describe firm’s: • Mission and objectives • Strategy for achieving them • Types of IS/IT needed • Often not enough to justify funding

18. Making the Business Case - Fear Based Considerations Factors to take into account when business case is developed using arguments Based on Fear Industry Factors Stage of Maturity Regulation Nature of Competition What is effective in one industry may not be in another. Industry maturity can have a significant impact on necessity for investment In regulated industries, companies can use IS to control process and ensure compliance What competitors are doing can drive the necessity for IS investment

19. Making the Business Case - Fact Based Considerations Business cases include both Recurring/Non-recurring and Tangible/Intangiblecosts and benefits • Recurring vs Non-Recurring • Recurring - Ongoing costs or benefits (IT staff to support system) • Non-Recurring - One-time costs or benefits (software purchase) • Tangible vs Intangible • Tangible - Easily identified (e.g. headcount or labor cost) • Intangible - Not easily identified (i.e. increased customer service)

20. Business Case – Cost/Benefit Analysis Costs All recurring and nonrecurring costs related to the acquisition, development, and deployment of the systems project Benefits All recurring and nonrecurring increases in revenue, reduction in costs, and or increases in organizational efficiency Net Costs/Benefits Benefits minus Cost

21. Presenting the Business Case – Success Factors Success depends on thorough presentation and paying attention to the following: Know your Audience Present information that is relevant and important to all people involved in the decision making process. IS Manager - Overall responsibility for systems. Concerned about IS organizational impact Company Executives - Represent various stakeholders. May also have their own agenda in decisions about expenses Steering Committee – A collection of stakeholders who balance the needs and concerns in making a recommendation to the CEO

22. Presenting the Business Case – Success Factors Convert Benefits to Monetary Terms Try to translate all benefits into monetary terms (e.g. savings of 1 hr/day converted to annual salary $ = benefit). Have impact and are understood by all, but must be real!! Devise Proxy Variables Convert difficult-to-quantity benefits to proxy variables to demonstrate relative improvement (e.g., a 1 to 5 scalecustomer face time moves from 1 to 4 with new system) Measure What is Important to Management Measure managerial hot buttons including cycle time, downtime, customer feedback, employee morale. Explain and showhow these are achieved

23. Assessing Value for IT Infrastructure Howard Rubin, Executive Vice President of Meta Group argues a holistic approach should taken in measuring IT infrastructure value along the following lines. Economic Architectural Operational Regulatory & Compliance Use business metrics to assess contribution to profitability and economic value Assess the capability to address current and future business needs (e.g scalability) Assess performance in meeting business processing requirements Assess the extent in meeting control, security, and integrity regulatory requirements

24. Cutting Edge Competitive Advantage Being at the Cutting Edge State-of-the-art technologies can provide competitive advantage over rivals using older mainstream technologies (e.g. a new database that speeds processing) Requirements for Being at the Cutting Edge A firm must eliminate bureaucracy for tech adoption (fast track), have sufficient human capital (right numbers and skills), and have a risk tolerance (failures happen) Cutting Edge versus Bleeding Edge Choosing right emerging technologies is very difficult. Balanceopportunity for significant advantage againstrisk of total failure

25. The Need for Constant IS Innovation “ The most important discoveries of the next 50 years are likely to be the ones of which we can not even now conceive” Sir John Maddox, Physicist (Scientific American 1999)

26. E-Business Innovation Cycle Choosing Devote dedicatedresources to scan the environment for new emerging and enabling technologies that appear to be relevant to the organization

27. E-Business Innovation Cycle Matching Match the promising new technologies with current economic opportunities

28. E-Business Innovation Cycle Executing Selectopportunities using new technologies to grab customers and market share

29. E-Business Innovation Cycle Assessing Assess value of technology use to customers, and to internal clients (e.g. sales reps, marketing, CIO, etc.)

30. E-Business Innovation Cycle – Implications The E-Business Innovation Cycle presents a new way of thinking about technology. Many currently held ideas are challenged by this process Technology is so important to strategy and to success that you have to begin with technology Technology is more important than Marketing The step of “Choosing” for firms using the E-Business Innovation Cycle has to be ongoing and in search of the “next big thing” Implication One Implication Two Implication Three

31. Technology Choices – Path to Competitive Advantage? • “IT Doesn’t Matter” Car 2003 • As IT becomes more pervasive, technology becomes more standardized and ubiquitous • Competitors have access to the same technology which produces No Competitive Advantage • “The Engine that Drives Success…” Lundberg 2004 • Companies with bad business models fail regardless of IT systems or other capabilities • Companies with good business models use IT to execute successful business models and succeed • “Predicting the New, New Thing”Bakos/Treacy 1986 • Use IS to make your products and services unique or cause customers to invest in you to raise switching cost • Competitive Advantage can be more easily sustainable under these conditions

32. Summing It Up • Important considerations you should keep in mind as you work to bring an IT competitive advantage to your organization include: • Be efficient and effective. • Competition is all around you. • Push the state-of-the-art. • IT competitive advantages are only temporary.