Chapter 13

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

CHAPER 13

STRATEGIC INFORMATION SYSTEMS AND REORGANIZAITON

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Learning Objectives Describe strategic information systems and explain their advantages Describe Porter’s competitive forces model and how IT helps improve competitiveness Describe representative strategic information systems and the advantage they provide with the support of IT Understand the role of business processes in organizations and the reasons why reengineering is necessary Demonstrate the role of IT in supporting BPR and especially mass customization, cycle time reduction, selfdirected teams, and empowerment

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Chapter Overview Strategic Advantage and Porter’s Competitive Information Technology Forces Model and IT •Strategic Information •Porter’s Model •Response strategies Systems •The Role of IT in Strategic •How the Model is Used Systems •Competitive Intelligence Ineffective Organizations in the information Age •The Need for a Fundamental Change •The Need for Integration

Business Process Reengineering •Principles of BPR •The Enabling Role of Informative Technology •Major Reengineering Activities •Restructuring Entire Organizations •Ethical and Social Issues

Illustrative Strategic Information Systems •Sustaining a Competitive Advantages •A Framework for Global Competition Virtual Corporations and IT •Characteristics of Virtual Corporations •How IT Supports Virtual Corporations

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Case: Dell’s Reengineering Efforts

Supported by Strategic Information Systems made IT World’s Champion  The Problem As a result of price war with Compaq, it had a loss from inventory write downs

 The Solution

IT-supported innovations emergence of electronic commerce

 The Results

its stock price zoomed more than 2000 percent increases its market share and profitability simultaneously consistently be considered to be one of the most well managed and profitable corporations in the world by the 21st century

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Case (continued…) What have we learned from this case?? competition on price, quality, speed, and customer service can be very intense, especially when large corporations are involved providing quality products at a low prices is necessary, but may not be sufficient using conventional strategies may not be sufficient fundamental change may be the only way to succeed, or even to survive using IT, a company can gain a significant competitive advantage

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Strategic Advantage and Information Technology

Strategic Information Systems (SISs)

support or shape an organization’s competitive strategy outward: aiming at direct competition in an industry inwardly: they are focused on enhancing the competitive position of the firm by increasing employee’s productivity, improving teamwork, and enhancing communication strategic alliances: two or more companies share an inter-organizational system strategic systems: one of the organization’s critical responses to business pressures

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Strategic Advantage and Information Technology (continued …)

The Role of Information Technology

IT creates applications that provide direct strategic advantage to organizations IT supports strategic changes such as reengineering IT provides for technological innovations or acts as an enabler of innovation IT provides competitive intelligence by collecting and analyzing information about innovations, markets, competitors, and environmental changes

Competitive Intelligence (Industrial espionage) drives business performance by increasing market knowledge, improving internal relationships, and raising the quality of strategic planning

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Competitive Intelligence on the Internet

Intelligence Search Strategy Review competitor’s Web sites Analyze related newsgroups

Examine publicly available financial documents Do market research at your own Web site Use an information delivery service to gather news on competitors Use corporate research companies Investigate chat rooms

Description

Reveal information about marketing information Find out what people think about a company and its products By entering a number of databases and analyze findings Pose questions to Web site visitors Find what is published on the Internet and provide any desired information Provide information ranging form risk analysis to stock market analysts’ reports about competitors Enter and challenge participants to express opinions regarding competitors’ products

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Porter’s Competitive Forces Model and IT

Porter’s Competitive Forces Model

competition - at the core of a firm’s success or failure be used to develop strategies for companies to increase their competitive edge demonstrates how IT can enhances the competitiveness of corporations 5 major forces: Threat of entry of new competitors

Threat of substitute products or services

Bargaining power of suppliers

Bargaining power of customers (buyers)

Rivalry among existing firms in the industry

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Porter’s Five Forces Model New Entrants Entry Barriers

Industry Competitors Suppliers

Bargaining Power of Suppliers

Determinants of Supplier Power

Rivalry Determinants

Threat of New Entrants

Bargaining Power of Buyers

Buyers

Intensity of Rivalry Threat of Substitutes

Substitute Determinants of Substitution Threat

Determinants of Buyer Power

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Porter’s Competitive Forces Model and IT (continued …)

Response Strategies (Per Porter and Others)

Response strategies to competitive forces Cost leadership strategy - producing at lowest cost Differentiation strategy - being unique Focus strategy - selecting a narrow-scope segment Growth strategy - increasing market share Alliances strategy - working with business partners Innovation strategy - developing new products Internal efficiency strategy - improving the manner in which business processes are executed Customer-oriented strategy - concentrating on making customers happy

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Porter’s Competitive Forces Model and IT (continued …) How the Model is Used The Players in each force are listed An Analysis is made to relate the determinants to each player listed

Devise a strategy to defend a company against the forces, based on specific players and the determinants Look for supportive information technologies

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Impact of Competitive Forces and the Role of IT Key Forces Affecting the Industry Business Implications Threat of new entrants •Additional capacity •Reduced prices •New basis for competition

High power suppliers

•Raise prices/costs •Reduce quality of supply •Reduce availability

Potential IT Responses Provide entry barriers/ reduce access by: •exploiting existing economies of scale •differentiating products/services, •controlling distribution channels •segmenting markets •Implement sourcing systems •Extend quality control into suppliers’ operations •Use forward planning with suppliers

Key Forces Affecting the Industry Business Implications High power buyers •Forces prices down •Higher quality demanded •Service flexibility required •Encourage competition Substitute products •Limits potential threatened and profit •Imposes price ceilings Intense competition from rivals

•Price competition •Need to develop new products and services •Distribution and service become critical •Customer loyalty required

Potential IT Responses •Differentiate products/ services and improve •Increase switching costs of buyers •Facilitate buyers product selection •Use differentiation strategy •Incorporate IT into product, service, or method of provision •Improve price/performance •Redefine products and services to increase value •Redefine market segments •Differentiate products and services in distribution channels and to consumers •Get closer to the end consumer - understand the user requirements

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Impact of Competitive Forces and the Role of IT (continued …)  Sustaining a Competitive Advantage When SISs are combined with structural changes in the organization, they can provide a sustainable strategic advantage Example: comprehensive strategic information system used by Federal Express provides a strategic advantage by building and maintaining a first-class personnel system

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Ineffective Organizations in the Information Age

Principles and Methods that enhance the development of the Industrial Revolution

Specialization of labor Mass production (producing large quantities, storing them, selling them at a later time) Hierarchical organizational structure following functional specialties with top-down lines of authority Assembly lines that bring the work to the worker whenever possible Complex support systems for planning and budgeting, resource allocation, coordination, and control

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Ineffective Organizations in the Information Age (continued …)

Vendors, Suppliers

Organization

Distribution

Purchasing Finance R & D Production Sales Distribution

Product development Order fulfilllmetn Planning, resourcing and control Customer service Business processes across functional areas and organizational boundaries

Customers Logistics Service

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Ineffective Organizations in the Information Age (continued …) The Need for Integration Integration should cross not only departmental boundaries, but also organizational ones, reaching suppliers and customers Account numbers in an information systems developed along departmental lines may not be logically related and so cannot be used for cross-referencing a customer’s accounts Managers want to send letters to specific customers

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Business Process Reengineering - The Solution Traditional solutions may not be effective BPR = copy the definition BPR = overcomes the problems cited earlier

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

BPR (continued …) Principles of BPR several jobs are combined into one employees make decision steps in the business process are performed in a natural order, and several jobs get done simultaneously processes may have multiple versions work is performed where it makes the most sense controls and checks are minimized reconciliation is minimized a hybrid centralized/decentralized operation is used a single point of contact is provided to customers

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

BPR (continued …) BPR, continuous improvement programs, and IT support

Pressure

Continuous improvements TOM, traditional strategies

Rapid no intense yes unpredictable changes?

IT Support

BPR and networked organization

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

BPR (continued …) The Enabling Role of Information Technology The IT tools for BPR Simulation and visual simulation tools - to support the modeling activities of BPR Flow diagrams - made by specialized BPR tools that are usually integrated with other tools Work analysis - accomplished with tools that conduct forecasting, risk analysis, and optimization Workflow software - places system controls in the hands of end-user departments

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Changes in Work Rules Brought by IT Old Rule

Intervening Technology

Information appears in Shared databases, client/server only one place at one time architecture, electronic mail Only an expert can perform complex work. Managers make all decisions. Field personnel need offices to receive, send, store, and process information. You have to locate items manually. Plans get revised periodically.

Expert systems, neural computing Decision support systems, enterprise support systems, expert systems Wireless communication and portable computers, information highways, electronic mail Tracking technology, groupware, workflow software, client/server High-performance computing systems

New Rule Information appears simultaneously wherever needed Novices can perform complex work. Decision making is part of everyone’s job Field personnel can manage information from any location. Items are located automatically Plans get revised instantaneously whenever needed.

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Changes in Work Rules Brought by IT Old Rule

Intervening Technology New Rule

People must come to one place to work together.

Groupware and group support People can work together systems, telecommunication, from different locations. electronic mail, client/server

Customized products and services are expensive and take a long time to develop.

CAD-CAM, CASE tools, online systems for JIT decision making, expert systems

Customized products can be made fast and inexpensively (mass customization).

A long period of time is spanned between the inception of an idea and its implementation (time to market)

CAD-CAM, electronic data interchange, groupware, imaging (document) processing

Time-to-market can be reduced by 90 percent

Work should be moved Robots, imaging to countries where labor technologies, object-oriented is inexpensive (off-shore programming, expert production). systems

Work can be also done in countries with high wages and salaries.

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Major Reengineering Activities Redesign of processes From mass production to mass customization mass production produces a large quantity of an identical, standard product

mass customization produces large volumes, yet customizes the products to the specifications of individual customers increases with the spread of electronic commerce, which transforms the supply chain from a traditional push model to a pull model

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Major Reengineering Activities (continued …)

Cycle time reduction IT makes a major contribution in shortening cycle times by allowing companies to combine or eliminate steps, and to expedite various activities in the business process Cycle time reduction can result in gain a substantial market share

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Restructuring Entire Organizations Customer

Account manager supported by ...

Customer demographics Checking accounts

Installment loans

Savings accounts

Mortgage loans

Trusts

Etc

Expert system Backed up by ...

Statement

Reengineered bank with integrated system

Consolidate d statement

Checking expect

Loan expect

Etc

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Restructuring Entire Organizations (continued …) Networked organization

resemble computer networks and are supported by computerized systems away from the hierarchical organization toward the networked organization due to the evolution from an industrial-based economy to an information-based economy

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Hierarchical vs. Networked Organization Hierarchical Organization

Networked Organization

Formal

Informal

Highly structured

Loosely structured

Manage

Delegate/lead

Control

Ownership/participation

Direct

Empower

Employees a cost Information management-owned Hierarchical organizations

Employees an asset Information shared ownership Flatter/ manageable organizations

Risk avoidance

Risk management

Individual contributions

Team contributions

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

The Roles of Managers and Subordinates

Hierarchical Organization

Flattened Organization

Network Organization

Use of Authority by the manager

Manager makes decisions and announces or “sells” it.

1

Manager presents ideas and invites questions.

2

Area of Freedom for Subordinates

Manager presents tentative decision subject to change. 3

Manager presents problem, gets suggestions, makes decision. 4

Manager defines limits; asks group to make decision. 5

Manager permits subordinates to function within limits defined by superior. 6

Manager allows situational leadership to occur based on which node of the network is best equipped to solve problem. 7

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Restructuring Entire Organizations (continued …)

Empowerment - the vesting of decision-making or approval authority in employees in instances where such authority traditionally was a managerial prerogative Empowerment’s relationship to information technology the provision of right information, at the right time allows employees to make decisions enhances the creativity and productivity of employees, as well as the quality of their work training can be enhanced by IT enables non-managers to make decisions

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Ethical and Societal Issues Unethical tactics pressuring competitor’s employees to reveal information using software that is the intellectual property of other companies without permission using IT to monitor the activities of their employees and customers, and in so doing they may invade the privacy of individuals

Societal Issues Reengineering efforts involve dramatic changes in people’s jobs and working relationships Jobs are eliminated

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Virtual Corporations Characteristics of Virtual Corporations (VC) Excellence. Each partner brings its core competence (area of

excellence) so an all-star winning team is created. No single company can match what the virtual corporation can achieve. Full utilization of resources. Some resources of the business partners are sometimes underutilized when not in a VC. Opportunism. The partnership is opportunistic. A VC is organized to seize market opportunities. Lack of borders. It redefines traditional boundaries. Trust. Business partners in a VC must be far more reliant on each other and more trusting than ever before. Adaptability to change. The VC can adapt quickly to environmental changes because its structure is relatively simple. Technology. IT makes the VC effective and efficient.

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

Virtual Corporations (continued …) How IT Supports Virtual Corporations IT allows communication and collaboration among the dispersed business partners Standard transactions are supported by electronic data interchange and EFT Modern database technologies and networking permit business partners to access each other’s databases Lotus Notes and other groupware tools permit diversified interorganizational collaboration

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

What’s in IT for Me? For Accounting The accountant must understand these technologies and the role of IT to collect the data for justification of the investment

For Finance Finance people must understand the nature of these technologies and the manner in which they enable organizations to seize opportunities and solve problems

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

What’s in IT for Me? (continued …)  For Marketing SIS and/or BPR are likely to change distribution channels, order fulfillment, customer service, and many tasks that are under the control of marketing and sales

For Production/Operations Management BPRs are most likely to completely change existing business processes including production lines, materials handling, design, and inventory systems

Introduction to Information Technology Turban, Rainer and Potter Chapter 13 Strategic Information Systems and Reorganization

What’s in IT for Me? (continued …)  For Human Resource Management What makes SIS and BPR different is the magnitude of the organizational changes that could disrupt the operation of the organization if not handled properly by management and HRM