ALIGNING INFORMATION SYSTEMS STRATEGY TO THE ORGANIZATION STRATEGY
The ability to use ICT to effectively build information system will shape what the company makes or provides customers, how it makes the products, how it competes with others in its industry, and how it cooperates with other companies and logistic partners.
It is already a fact today that what a company wants to do in the next five years will be shaped in large part by what its information systems enable it to do.
To understand how ICT fits into the business strategic thinking process, it is useful to consider the three levels of business strategy (the business level, firm level, and industry level) because at each level of strategy ICT plays an important role as follows:
1. Development of Information System Strategy at Business level
Companies achieve competitive advantage when they provide more value to their customers or when they provide the same value to customers at a lower price in their supply chain activities.
Therefore, at this business level strategy the most common analytical tool is value chain model analysis. The value chain model highlights specific activities in the business where competitive strategies can best be applied (Porter, 1985) and where information systems are most likely to have a strategic impact.
The value chain model identifies specific, critical leverage points where a firm can use information technology most effectively to enhance its competitive position.
The figure below illustrates the activities of a company value chain showing examples of information systems that could be developed to make each of the supply chain activities more cost-effective:
2. Development of Information System Strategy at Firm level
Information systems and ICT tools can improve the overall performance of the business units/departmental units by promoting synergies and core competencies as follows:
i. Promoting synergies:
✓ Synergy is achieved when the output of some units / departments can be used as inputs to other units / departments
✓ Synergy is also achieved when two organizations can merge their markets and expertise so that they create relationships that can lower costs and generate profits.
✓ For instance: Recent bank and financial firm mergers, such as the merger of JP Morgan Chase and Bank One Corporation or Bank of America and FleetBoston Financial Corporation or Deutsche Bank and Bankers Trust or Citicorp and Travelers Insurance occurred precisely for the purpose of promoting synergies.
✓ One use of information technology in these synergy situations is to tie together the operations of separate business units/departments so that they can act as a whole using cross-functional systems and enterprise systems.
✓ Examples of such cross-functional systems includes; Finance & accounting cross-functional system, Sales & marketing cross-functional system, Manufacturing & production cross-functional system, Credit management cross-functional system,
Human resource management cross-functional system etc.
ii. Enhancing Core Competencies:
• A core competency relies on knowledge that is gained over many years of experience or gained by being first-class research organization or by having key people who follow the literature and stay abreast/informed of new external knowledge about products.
• Any information system such as KMS/KWS or Expert System that encourages the sharing of knowledge across departmental units enhances core competency.
• Such systems might encourage or enhance existing competencies and help employees become aware of new external knowledge about products.
3. Development of Information System Strategy at industry level
✓ Using the Michael Porter’s Competitive Forces Model, the competitive advantage and strategic goals can be achieved through information systems and ICT by enhancing the company’s ability to deal with bargaining power of customers and suppliers, deal with substitute products and new entrants to its market
✓ For instance, the company can form information partnerships by linking their information systems to other companies in order to achieve unique synergies such that both companies can join information forces / information power without actually merging but by freely sharing information
✓ Information systems can help to achieve the Information Partnerships concept which in turn may change the balance of power between a company and other competitors in the industry in the company favor.
✓ For example, American Airline has an arrangement with Citibank to award one mile in its frequent flight programme for every dollar spent using Citibank credit cards.
✓ In this case, the American Airline benefits from increased customer loyalty, and Citibank gains new credit card subscribers and a highly creditworthy customer base.
✓ To identify the types of systems that would provide a strategic advantage to their company, managers should find answers to the following questions:
i. Are there new entrants to the industry?
ii. What is the relative power of suppliers, customers, and substitute goods and services over prices?
iii. Is the basis of competition quality, price, or brand?
iv. What are the direction and nature of change within the industry?
v. How is the industry currently using information technology?
vi. Is the organization behind or ahead of the industry in its application of information systems?
vii. Could the firm benefit from strategic partnerships and value webs?
Value Webs
✓ Value web refers to the establishment of highly efficient ties to the value chains of the industry partners such as suppliers, logistics firms, and distributors.
✓ Therefore, Companies should try to develop strategic information systems for both the internal value chain activities and the external value chain activities that add the most value to achieve a value web.
✓ Value chains and value webs are not static but instead they are flexible so that from time to time they may have to be redesigned through BPR to keep pace with changes in the competitive landscape.
✓ This means that regularly through BPR companies may need to reorganize and reshape their structural, financial, and human assets and reengineer systems to tap new sources of value.
Applications of a value web
✓ Value web is a group of digitally enabled networks that can be used not only for efficient purchase of raw material supplies but also to closely coordinate production of many independent companies.
✓ Value web uses Internet technology that has made it possible to extend the value chain so that it ties together all the company’s suppliers, business partners, and customers into a value web
✓ Value web is a collection of independent companies that use information technology to coordinate their value chains to produce goods or services for a market collectively/collaboratively thereby becoming more customer driven and operating in a less linear fashion than the traditional value chains.
✓ Value web brings synchronization / matching of the business processes of customers, suppliers, and trading partners among different companies in an industry or related industries.
✓ Value web brings flexibility and adaptability to changes in supply and demand such that business relationships can be bundled together or unbundled in response to changing market conditions
✓ Value web is used to maintain long-standing relationships with many customers over long periods or to respond immediately to individual customer transactions.
✓ Value web enable industry members to build industry-wide-ICT-supported consortia /groups, symposia/seminars, and communication networks to coordinate activities concerning government agencies, foreign competition, and competing industries thereby improving the industry’s productivity by working together to create an integrated supply chain.
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