Managing and Using Information Systems PDF

Managing and Using Information Systems Eighth Edition Keri E. Pearlson, Carol S. Saunders and Dennis F. Galletta Chapter 2 Strategic Use of Information Resources Zara Opening Case (1 of 2) Zara, a global retail and apparel manufacturer...

Managing and Using Information Systems Eighth Edition Keri E. Pearlson, Carol S. Saunders and Dennis F. Galletta Chapter 2 Strategic Use of Information Resources Zara Opening Case (1 of 2) Zara, a global retail and apparel manufacturer based in Spain, needed a dynamic business model to keep up with the ever-changing demands of its customers and industry The strategy at Zara stores was simply to have a continuous flow of new products that were typically in limited supply Its parent company, states on its corporate website that it wants to bring “beautiful, consciously-crafted fashion to everyone, everywhere” The entire design and production process from factory to shop floor is coordinated from Zara’s headquarters by using IS 2-2 Zara Opening Case (2 of 2) Shop managers have the option to order new designs twice a week using mobile devices Zara recognizes that the proximity of its suppliers and small batches help make it possible to get new designs quickly to its stores As the Zara example illustrates, innovative use of a firm’s information resources can provide substantial and sustainable advantages over competitors 2-3 Eras of Information Usage in Organizations 2-4 Evolution of Information Resources IS strategy from the 1960s to the 1990s was driven by internal organizational needs In Eras I through III, the value of information was tied to physical delivery mechanisms The networked economy beginning in Era IV drove a new model of value—value from plenitude In the value-creation era (Era V ) , companies sought those applications that again provided them an advantage over their competition Eras VI and VII have seemingly unlimited availability of information resources as the the Internet and processing and storage through cloud computing sparked new value sources such as community and social business, the Internet of Things, analytics, AI, machine learning and generative AI 2-5 Terms Business ecosystems are collections of interacting participants, including vendors, customers, and other related parties, acting in concert to do business Network effects are the value of a network node to a person or organization in the network increased when others joined the network 2-6 Information Resources as Strategic Tools An IT asset is anything, tangible or intangible, that can be used by a firm to create, produce, and/or offer its products An IT capability is something that is learned or developed over time for the firm to create, produce, or offer its products An IS infrastructure is an IT asset o The infrastructure provides the foundation for the delivery of a firm’s products or services Information repositories are logically related data captured, organized, and retrieved by the firm 2-7 Three Major Categories of IT Capabilities 1. Technical skills are applied to designing, developing, and implementing IS 2. IT management skills are critical for managing the IS department and IS projects 3. Relationship skills can be focused either externally or internally o An externally-focused relationship skill includes the ability to respond to the firm’s market, to collaborate with platform partners, and to work with customers and suppliers o An internally-focused relationship between a firm’s IS managers and its business managers is a spanning relationship skill and includes the ability of IS to manage partnerships with the business units 2-8 Information Resources IT Assets IT Capabilities IT Infrastructure Technical Skills Platforms Proficiency in systems analysis Company apps Programming and web design skills Network Developing apps and integrating them with platforms Data Data analysis/data scientist skills Website Network design and implementation skills Information Repository IT Management Skills Customer information Business process knowledge Employee information Ability to evaluate technology options Marketplace information Project management skills Vendor information Envisioning innovative IT solutions Platform partner information Relationship Skills Spanning skills such as business-IT relationship management External skills such as vendor and platform management 2-9 How Can Information Resources Be Used Strategically? Overlooking a single element can bring about disastrous results for the firm Three views can help a general manager align IS strategy with business strategy 1. The first view uses the five competitive forces model by Michael Porter to look at the major influences on a firm’s competitive environment 2. The second view uses Porter’s value chain model to assess the organization’s internal operations and partners in its supply chain 3. The third view specifically focuses on the types of IS resources needed to gain and sustain competitive advantage 2-10 Using Information Resources to Influence Competitive Forces (1 of 2) Potential threat of new entrants o Existing firms within an industry often try to reduce the threat of new entrants to the marketplace by erecting barriers to entry o Established firms can diversify their business models and begin to compete in the space occupied by existing firms o Enterprising entrepreneur can create a new business that changes the game for existing firms Bargaining power of buyers o Customers often have substantial power to affect the competitive environment o This power can take the form of easy consumer access to several retail outlets to purchase the same product or the opportunity to purchase in large volumes at superstores 2-11 Using Information Resources to Influence Competitive Forces (2 of 2) Bargaining power of suppliers o Suppliers’ bargaining power can reduce a firm’s options and ultimately its profitability o Suppliers often strive to “lock in” customers through the use of systems o The force of bargaining power is strongest when a firm has few suppliers from which to choose, the quality of supplier inputs is crucial to the finished product, or the volume of purchases is insignificant to the supplier Threat of substitute products o The potential of a substitute product in the marketplace depends on the buyers’ willingness to substitute, the relative price-to-performance ratio of the substitute, and the level of switching costs a buyer faces o Information resources can create advantages by reducing the threat of substitution 2-12 Using Information Resources to Influence Competitive Forces: Industry Competitors Rivalry among the firms competing within an industry is high when it is expensive for a firm to leave the industry, the growth rate of the industry is declining, or products have lost differentiation The processes that firms use to manage their operations and to lower costs or increase efficiencies can provide an advantage for cost-focused firms One-way competitors differentiate themselves with an otherwise undifferentiated product is through creative use of IS o iTunes The five competitive forces model has been a game changer for strategic thinking for managers 2-13 Applying the Five Competitive Forces Model to Zara Competitive Force IT Influence on Competitive Force Threat of new entrants Zara’s rich information repository about customers is hard for new entrants to replicate. Bargaining power of buyers Zara’s augmented reality app helps customers see virtual fashion models showcasing its products and Zara’s AI tool helps customers navigate its products. Thus, Zara gains control over buyers. Bargaining power of suppliers Zara’s computer-controlled cutting machine cuts up to 1,000 layers at a time. Sewing together the pieces is a simple task that can be done by many sewing suppliers from which it chooses. Thus, Zara gains bargaining power over its suppliers. Industry competitors To achieve its sustainability goals and transform the industry. Zara is reducing the use of energy in its operations so that it can achieve Net Zero Emissions and making its stores more efficient using renewable energy. Threat of substitute products IT helps Zara offer extremely fashionable lines at hard-to-beat prices making substitutes difficult. 2-14 Using Information Resources to Alter the Value Chain (1 of 3) A second lens for describing the strategic use of IS is Porter’s value chain He divided the activities that create, deliver, and support a company’s product or service into two broad categories: support and primary activities o Primary activities relate directly to the value created in a product or service o Support activities make it possible for the primary activities to exist and remain coordinated 2-15 Using Information Resources to Alter the Value Chain (2 of 3) The value chain framework suggests that competition stems from two sources 1. Lowering the cost to perform activities 2. Adding value to a product or service so that buyers will pay more Lowering activity costs achieves an advantage only if the firm possesses information about its competitors’ cost structures The value chain framework emphasizes the activities of the individual firm, it can be extended to include the firm in a larger value system Opportunity also exists in the transfer of information across value chains 2-16 The Value System: Interconnecting Relationships Between Organizations 2-17 Using Information Resources to Alter the Value Chain (3 of 3) Optimizing a company’s internal processes can be another source of competitive advantage o Supply chain management (SCM) to source materials for operations o Enterprise resource planning (ERP) systems to automate functions of the operations activities of the value chain o Customer relationship management (CRM) systems to optimize the processing of customer information Unlike the competitive forces model, which explores industry dynamics, the value chain focuses on the firm’s activities as well as value chains of other firms in its supply chain 2-18 Sustaining Competitive Advantage with Information Resources (1 of 2) It might seem obvious that a firm would try to sustain its competitive advantage However, there is some controversy about trying to sustain a competitive advantage On one side are those who warn of hyper competition o ATMs o Bank-by-phone Rather than arguing that sustaining a competitive advantage is a deadly distraction, Piccoli and Ives provided a framework that outlines the ways in which a firm can provide barriers to competitors 2-19 Barriers to Competition and Building Sustainability Barrier Definition Examples IT project barrier It would be a large undertaking for a Requires a large investment competitor to build the system to copy Requires a long time to build the capability. Complicated to build IT assets and capabilities barrier Competitors might lack the IT Database of customers that cannot be resources to copy the capability. copied Expert developers or project managers Complementary resources barrier The firm has other resources that Respected brand create a synergy with the IT that Partnership agreements provides competitive advantage. Exclusivity arrangements Good location Preemption barrier The firm “got there first.” Loyal customer base built at the beginning Firm known as “the” source 2-20 Sustaining Competitive Advantage with Information Resources (2 of 2) A firm might simultaneously 1. Seek ways to build sustainability by looking into each of the four potential barriers to identify promising ways to block the competition, and at the same time 2. Continue to innovate and change the industry Focusing only on building sustainability has the potential effect of fighting a losing battle Focusing only on new business models might be too risky and striking gold too infrequent as the sole source of growth 2-21 Using the Resource-Based View (RBV) The resource-based view (RBV) is useful for determining whether a firm’s strategy has created value by using IT Like the value chain model, the RBV concentrates on areas that add value to the firm o However, the RBV focuses on the resources that it can manage strategically in a rapidly changing competitive environment The RBV has been applied to IS as a way of identifying two types of information resources 1. Those that enable a firm to attain competitive advantage 2. Those that enable a firm to sustain the advantage over the long term 2-22 Resources to Attain Competitive Advantage Valuable and rare resources that firms must leverage to establish a superior resource position help companies attain competitive advantage A resource is considered valuable when it enables the firm to become more efficient, effective, or innovative Table stakes are resources required just to be in the business 2-23 Resources to Sustain Competitive Advantage Many firms that invested in systems learned that gaining a competitive advantage does not automatically mean that they could sustain it over the long term o Must continue to innovate To sustain competitive advantage, resources must be difficult to transfer or replicate, or relatively immobile Some IT management skills are general enough in nature to make them easier to transfer and imitate Other skills are unique to a firm and require considerable time and resources to develop The resource-based view has received its share of criticism 2-24 Information Resources at Zara, by Attribute 2-25 Using Dynamic Capabilities (1 of 2) A view that is considered an alternative or complement to RBV is the Dynamic Capabilities view (DCV) The DCV does take into account the firm’s dynamic environment DCV considers two types of capabilities 1. Ordinary capabilities are those abilities that are necessary for a firm to operate, but which do not propel change or offer competitive advantage 2. Dynamic capabilities (DCs) are the firm’s ability to create, extend, and alter the firm’s resources to respond to its rapidly changing environment 2-26 Applying Dynamic Capabilities to Zara Zara's Capabilities Type Ordinary IT skills to keep equipment running Dynamic Analytics to maximize sales by sending the most appropriate sizes and customer-centric trends to neighborhood stores Capacities Sensing Daily report of sales managers to designers to identify new trends; Training of sales managers to listen to what customers want Seizing Strategic agility of collaborative teams to act on the latest trends. Transforming Proximal manufacturing plants to gel latest trends to stores within 48 h; Agile supply chain 2-27 Using Dynamic Capabilities (2 of 2) Dynamic capabilities must encompass one or more of these three capacities: 1. A sensing capacity allows firms to see signs of change in their environment and ferret out opportunities 2. A seizing capacity to take advantage of those opportunities by making decisions to support action and commitment such as laying the groundwork for change and mobilizing resources 3. Transforming capacities to change their resource configurations in such a way as to take advantage of the sensed opportunity DCV is particularly salient for understanding the many ways in which firms can use IT to renew their value-creating mechanisms and to strategically leverage change in dynamic environments 2-28 Risks Awakening a sleeping giant Encountering bad timing Implementing IS poorly Failing to deliver what users want Creating predatory partnerships Running afoul of the law 2-29 External Relationships A strategic alliance is an interorganizational relationship that affords one or more companies in the relationship a strategic advantage o Can take many forms, including joint ventures, joint projects, trade associations, buyer– supplier partnerships, or cartels A business ecosystem is a group of strategic alliances in which a number of partners provide important services to each other and jointly create value for customers o IS often provide the platform upon which a strategic alliance functions Co-opetition is a strategy whereby companies cooperate and compete at the same time with companies in their value net o A complementor is a company whose product or service is used in conjunction with a particular product or service to make a more useful set for the customer 2-30 Co-creating IT and Business Strategy IT and business strategies must be carefully choreographed to ensure receiving maximum value from IT investments and obtaining the maximum opportunity to achieve the business strategy For companies whose main product is information, information management is the core of the business strategy itself With the increasing number of IS applications on platforms, firms increasingly co-create value with their platform partners 2-31 Copyright Copyright © 2024 John Wiley & Sons, Inc. 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