Strategic Use of Information Resources

8/10/2019 Strategic Use of Information Resources

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Strategic Use of Information

Resources

Managing and Using Information

Systems: A Strategic Approach


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Introduction

This presentation enables a manager tounderstand the link between business strategyand information strategy.

The chapter looks at:How the strategic use of information

resources has evolved.

Highlights the difference between simply

using IS and using IS strategically.Looks at how information resources can be

used to support the strategic goals of anorganization.


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EVOLUTION OF INFORMATION

RESOURCES


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IT Eras (Figure 4.1)

IT has evolved through 4 eras since the 1960s

Era I (1960s-70s) focused on using IT toincrease efficiency

Era II (1980s) focused on using IT to increaseworker productivity through the use of PCs

Era III (1990s) used client-server technologies

to improve the competitive position of theorganization

Era IV is about using IT to create value for thecorporation.

Era V (now)IT becomes a commodity


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Fig. 4.1 Eras of information usage in organizations

Primary

Role of IT

Efficiency Effectivene

ss

Strategic Value

creation

Commodity

Justify ITexpenditure

ROI Increasingproductivityand decisionmaking

Competitive

position

Adding

Value

Maintainingmarketposition

Target ofsystems

Organization

Individualmanager/

Group

Business

processes

Customer,

supplier,

ecosystem

Collaborativeenvironments

Information

model

Application

specific

Data-driven Business-

Driven

Knowledge-

driven

Knowledge-

driven

Dominanttechnology

Mainframe-based

Minicomputer-based

Client-Serverdistributionintelligence

Internetubiquitousintelligence

Mobileintelligence

1960s 1970s 1980s 2000 2010


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INFORMATION RESOURCES AS

STRATEGIC TOOLS


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Using Information resources

to create strategic advantage

Strategic advantage must be crafted bycombining all of the firms resources

including:production resources,

human resources, and

Information resources

Information resources include not onlydata, but also technology, people andprocesses.


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Examples of information

resources available to a firm:

IS infrastructure

Information and knowledge

Proprietary technologyTechnical skills of the IT staff

End users of the IS

Relationshipbetween IT and business managersBusiness processes


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What advantages might an

information resource create?

A manager might consider the following tounderstand the type of advantage theinformation resource might create:What makes the information resource valuable?Who appropriates the value created by the

information resource?

Is the information resource equally distributed across

firms?Is the information resource highly mobile?

How quickly does the information resourcedepreciate?


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HOW CAN INFORMATION

RESOURCES BE USED

STRATEGICALLY?


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Aligning IS strategy with

business strategy

Using multiple approaches to evaluating thestrategic landscape is helpful in determiningstrategic opportunities.

Here, we look at three such approaches:Porters five forces modelof the

competitive advantage of firms

Porters value chain modelof internalorganizational operations

Wisemans theory of strategic thrustsand strategic option generator


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Porters Five Forces Model of

Competitive Advantage (Fig. 4.2)

Porters Five Forces Model divides entities in thecompetitive landscape into five groups as follows:

Threat of New Entrants: new firms that may entera companies market.

Bargaining Power of Buyers: the ability of buyersto use their market power to decrease a firmscompetitive position

Bargaining Power of Suppliers: the abilitysuppliers of the inputs of a product or service tolower a firms competitive position

Threat of Substitutes: providers of equivalent orsuperior alternative products

Industry Competitors: current competitors for the

same product.


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Potential threat

of new entrants

Bargaining

power of buyersBargaining

power of

suppliers

Industry

competitors

Threat of substitutes

Strategic useCost effectiveness

Market access

Differentiation of

product or service

Strategic use

Selection of supplier

Threat of backward

integration

Strategic use

Switching costs

Access to distribution

channels

Economics of scale

Strategic use

Redefine products and services

Improve price/performance

Strategic useBuyer selection

Switching costs

Differentiation

Figure 4.2 Porters competitive forces with potential

strategic use of information


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Porters Five Forces

Threat of New Entrants: can be lowered ifthere are barriers to entry. Sometimes IS can beused to create barriers to entry.

Bargaining Power of Buyers: can be high ifits easy to switch. Switching costsare increasedby giving buyers things they value in exchangesuch as lower costs or useful information.

Bargaining Power of Suppliers: forces isstrongest when there are few firms to choosefrom, quality is inputs is crucial or the volume ofpurchases is insignificant to the supplier.


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Porters Five Forces (cont.)

Threat of Substitutes: depends on buyerswillingness to substitute and the level ofswitching costs buyers face.

Industry Competitors: Rivalry is high when itis expensive to leave and industry, the industrysgrowth rate is declining, or products have lostdifferentiation.


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The Five Forces Model and IS

The Five Forces Model provides a way to thinkabout how information resources can createcompetitive advantage.

Using Porters Model, General Managers can:Identify key sources of competition they face.

Identify uses of information resources to

enhance their competitive position againstcompetitive threats

Consider likely changes in competitive threatsover time


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Porters Value Chain Model

Porters Value Chain Model looks at increasingcompetitive advantage by reorganizing theactivities related to create, support and deliver a

firms product or service.These activities can be divided into two broad

categories (See Figure 4.3):

Primary activitiesthat relate directly to how value

is created for a product or service.

Support activitiesthat make the primary activitiespossible and that manage the coordinate of differentactivities.


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Gaining competitive value

The Value Chain model suggest that competitioncan come from two sources:Lowering the costto perform an activity and

Adding value to a product or serviceso buyerswill be willing to pay more.

Lowering costs only achieves competitiveadvantage if the firm possesses information onthe competitors costs

Adding value is a strategic advantage if a firmpossesses accurate information regarding itscustomer such as: which products are valued?Where can improvements be made?


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The Value System (Fig 4.4)

The model can be extended by linking manyvalue chains into a value system.

Much of the advantage of supply chain

management comes from understanding howinformation is used within each value chain ofthe system.

This can lead to the formation of entire newbusinesses designed to change the informationcomponent of value-added activities.


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Suppliersvalue

chain

Firmsvalue

chain

Channels

value chainsBuyers

value

chains

Figure 4.4 The value system: interconnecting

Relationships between organizations


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The Value System and

Strategic Alliances

Many industries are experiencing the growth ofstrategic alliances that are directly linked tosharing information resources across existing

value systems.An alliance between American Airlines, Marriott

and Budget Rent-A-Car called AMRIS providestravelers with a single point of contact.

Thus, electronically pooling information servicesof several companies can create competitiveadvantage by saving customers time.


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Wisemans Strategic

Options Generator

Wisemans theory of strategic thrusts helpsidentify how a firms information resources canbe used for competitive advantage.

Wiseman asks three questions to refine theprocess of identifying strategic opportunities:What is the mode of the thrust?

What is the direction of the thrust?

What is the strategic target of the thrust?The heart of Wisemans model is built around

five strategic thrusts organizations use to gaincompetitive advantage (see next slide).


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Types of Strategic Thrusts

Differentiation Thrusts: focus resources onunfilled product or service gaps.

Cost Thrusts: focus is on reducing costs or

increasing competitors costsInnovation Thrusts: focus on creating new

products or new ways to sell, create, produceor deliver products.

Growth Thrusts: focus on increasing size ofthe market size or adding more value addingactivities in the value chain

Alliance Thrusts: combine with other groups

to create a more competitive position.


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What is the Mode?

A firm has two choices for the mode of aa strategic thrust:The firm can act offensively to improve its

competitive advantage -- orA firm can act defensively to reduce the

opportunities available to competitors.

For example, a firm can innovateoffensively to gain product leadership in amarket, while others use innovationdefensively to imitate the product leader.


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What is the Direction?

A firm also has two choices for the direction ofa a strategic thrust:The firm can use the information system to create

competitive advantage -- or

A firm can provide the system to its chosen strategictarget.

Many firms have done both: developed systemsfor internal use and then offered them to

customers or suppliers.


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What is the Strategic

Target? (Figure 4.5)

Wiseman describes three targets onwhich the firm can focus its strategicthrusts (see Figure 4.5):

Suppliers

Customers

Competitors


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Figure 4.5 Example of strategic

targets

Suppliers:

Raw materials

InformationLabor

Capital

InsuranceUtilities

Transportation

Customers:

Channel

distributorsConsumers

Industrial

Reseller

Government

International

Competitors:

Direct

PotentialSubstitute


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Figure 4.6 Strategic option

generator

What is the strategic target?

What is the strategic market?

What is the mode?

What is the direction?

Supplier Customer Competitor

Cost Innovation AllianceGrowthDifferentiation

Offensive Defensive

Use Provide


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FOOD FOR THOUGHT: TIME-BASED

COMPETITIVE ADVANTAGE

Ti B d C titi


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Time-Based Competitive

Advantage

The Internet is increasing the pace oftechnological change by refocusing competitiveefforts towards creating time-based competitiveadvantage.

Information resources are the key to creatingthose advantages.

For example, Dells direct strategy has been to

build and deliver computers in as little as 5 days.Thus, the speed at which an organization adapts

its business processes will the true measure ofits ability to maintain competitive advantage.


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Strategic Use of Information Resources