Strategic Uses of Information Systems
This week we examine the strategic uses of
information systems, primarily as a tool for gaining competitive advantage.
The outline presented here is intended to help point out important topics
and terms. It is not intended to replace lecture (or reading the chapter).
If you are following along in the text, this topic is covered in chapter two.
- identify terms and acronyms associated with SIS (such as SIS)
- describe and discuss techniques used to gain a competitive advantage
- discuss the advantages and disadvantages of creating and deploying strategic information systems
Terms used in chapter 2
These terms are listed in roughly the order encountered in the text.
- SIS: strategic information system (an IS used to provide information
which could be of strategic value)
- first mover: an organization which pioneers the use of a technique or
technology before their competitors; this can be risky, but if successful,
can leave all competitors scrambling to catch up
- late mover: an organization which waits to see what competitors do,
and then implements those technologies and processes which it deems
most successful; this approach has less risk unless the competitors manage
to gain a large competitive advantage quickly with their pioneering techniques
- critical mass: used to describe when an organization or system
has enough usage or success to achieve a specific result
- tipping point: used to describe when a number of small changes
have accumulated and can now cause a big change
- bleeding edge: used to describe organizations that use the latest
technology which puts them in a risky position
- strategic: describes planning which suggests critical or opportune
steps which can be used to achieve longer term goals; strategy concerns a
big-picture attitude and is the domain of higher-level managers
- tactical: concerns the implementation of techniques to achieve goals;
tactical is short-term as opposed to long-term strategy; tactical planning
is used by lower-level managers to implement some of the steps defined by
longer-term strategic plans
- reengineering: when a process or organization is redesigned from the
ground up, generally with the hope of huge productivity gains
- DMCA: Digital Millennium Copyright Act [not in text]
Strategic Information Systems (SIS)
SIS are generally differentiated from other BIS because they are
used to seize opportunities rather than just solve problems. SIS
are often used to try to gain a strategic advantage over rivals,
leading to a competitive advantage in the market. SIS may also
be used to enter new markets. It is also important to remember that
gaining a competitive advantage is not a static, unchanging event.
Competitors will almost certainly seek to reduce, eliminate, or
reverse any competitive advantage you have. Maintaining a
competitive advantage is an ongoing process.
Eight ways to gain competitive advantage
- reduce costs: This involves reducing your costs relative to your competition.
Some ways you can do this include lowering the cost of raw materials, lowering the
cost of labor, and increasing productivity. This is the primary reason
why companies automate production or move production overseas.
- raise barriers to market entrants: This makes it more difficult for
competitors to get started in your market. This is often done using
"intellectual property" tools such as patents and
copyrights. It can also be done by making it extremely expensive for
competitors to enter a market, often due to a massive investment in some
technology or other infrastructure that gives your organization a large
- establish high switching costs: This involves making it costly for your
customers to switch to a competitor. A good example of this is the
reluctance of companies to switch from using one software package to another
because of the time and expense of training and working out compatibility
problems. Other common examples that are mentioned in the text are cell phones
and printers. Cell phone users often have penalties for ending a contract early
and often have to buy a new phone to switch service. Printer manufacturers
sell their printers cheap and make their profit by selling high profit margin
toner and ink cartridges. A user who decides to switch has to buy a new
- create new products and services: Being the first to market (first mover)
with a new product or service can draw new customers and help keep existing customers.
One example is eBay, which was the first major online auction service.
Another example was Visicalc, the first major spreadsheet application. Visicalc
not only helped themselves by creating a new product, but also helped Apple become
the early dominant microcomputer. It is important to keep on improving, however.
Some companies try to keep competitors away using copyright and patent law, but you
have to keep on improving to stay in the lead. Lotus 1-2-3 took over the lead from
Visicalc, and then lost the lead to Excel. Apple lost the lead to the IBM PC.
- differentiate products or services: People buy famous brand names even when they
cost more than lesser known brands because they perceive that they will get a
higher quality product. Being able to differentiate yourself in a positive way
from your competition is a big advantage. A good example of this is Apple's iPod.
Apple has a reputation for great products. This has helped them marginalize Microsoft's
attempt to take away market share with the Zune.
- enhance products or services: One strategy is to make your products more enticing to
customers by adding something of value. This can range from having longer warranty
periods, to offering discounts, to giving rewards to frequent customers. We can see
this all over with things like frequent flier miles, preferred customer cards,
satisfaction guarantees, etc.
- establish alliances: Businesses can partner with each other to enhance each others
products and/or services. The text gives the example of combining an airline, hotel,
car rental, and restaurants together to create a one-stop vacation planning service.
You can see the same type of alliances when you see a Starbucks inside a Meijer's,
a TCF bank inside a Jewel, or a fast food or doughnut store inside a gas station.
Amazon provides an online marketplace for many, many other businesses, including
- lock in suppliers or buyers: You can do this a number of different ways. One of the most
common is for large businesses to use their size to negotiate favorable contracts with
suppliers. Wal-Mart is famous (notorious?) for this. In fact, Wal-Mart's negotiations
with their suppliers has been a major force in driving jobs out of the U.S. and into
China. It is difficult to impossible for Wal-Mart's competitors to negotiate such
favorable contracts because they don't have the same size advantage. One way to lock in a
customer is to create a standard that makes it difficult to break away from using your
product. Some software examples of this are Microsoft Windows, Microsoft Office,
Adobe PDFs, and Flash animation.
Questions involving development of an SIS
- What would be the most effective way to gain an advantage?
- Would having some information more accessible or timely help
establish a significant advantage?
- Can an SIS be developed that provides what the organization wants?
- Will the development costs be justified?
- Will competitors be able to do the same thing?
- How long will it take competitors to catch up?
- Can the new system be continually enhanced to extend the
organization's competitive advantage?
- What is the risk of not pursuing this SIS development?
- Are there alternatives? If so, what are their advantages and disadvantages?
Copyrights, patents, and the DMCA
Competitive advantage is a moving target.
Once a competitive advantage has been achieved, action must be taken
to maintain it or competitors will quickly try to eliminate it. One
of the techniques used by organizations to prevent competitors from
catching up is to protect what is know as "intellectual property".
The primary vehicles for such protection are trade secrets,
copyrights, and patents. Copyrights and patents give the claim holder
exclusive rights to a concept, idea, or product for a length of time.
During that time, the claim holder can prevent competitors from
using the protected concepts, ideas, or products.
Copyrights and patents have become a controversial subject in recent
years. Governments have been increasingly strengthening copyrights
and patents. At the same time it has become clear that many copyrights
and patents have suppressed innovation. This has led many to question
what the real purpose of "intellectual property" laws are and should
be. The DMCA (Digital Millennium Copyright Act) has become a focal point
of this argument by making many
formerly legal activities involving copyrights into criminal acts.
Expect to see questions on this topic in the discussion forums.
Design by buzzword
If you stay in the IT field you will always hear about the latest and
greatest trends. Just as in retail, "new" sells. That's one reason
why it is easy to get everyone excited about being up-to-date and using
all the new "buzzword" technologies. Unfortunately, it is also often
the case that tried-and-true older technologies are a better choice
for many solutions. Beware of the "buzzwords".
Closely associated with such buzzwords are jargon. Jargon is used in
most professions for a few reasons. First, jargon helps to communicate
ideas very quickly and accurately without the need for going into detail.
Second, jargon signals that the people engaged in discussion are fluent
enough in the given field to use jargon. Third, jargon is sometimes used
by people in the field to discourage outsiders from asking questions.
This may be due to annoyance, or sometimes because the outsider has asked
a question the "expert" should know but doesn't. In this case the use
of jargon is a defensive measure by the expert.
Automation's Retroencabulator sales video is a good example of the use of jargon.