CHAPTER 7)
ROLE OF INFORMATION SYSTEMS (IS) IN ORGANIZATION
Information Systems and Business Strategy
Strategic information systems are computer systems at any level of the organization that change the goals, processes, services or environmental relationship to help the organization gain a competitive edge. They are different from strategic level systems that focus on the long-term decision making. Strategic information systems reach all levels of the organization such that they
take care of all the planning aspects of a given business firm.
Strategic Level and Information Technology
To key question at the business level of strategy is how can we compete effectively in this particular market? The most common strategies at these levels are:-
1. How to become the lowest cost producer.
2. How to differentiate your products or services form those of the competitors.
3. How to change the scope of the competition by either encouraging the markets to the global level or by narrowing such that the company focuses on a small niche not served by your competitors.
4. By establishing linkages with customers and suppliers.
This model highlights the primary and support activities that add a margil of value to products or services where information systems can be best applied to achieve competitive advantage.
Primary activities would include:-
Inbound logistics
Operations
Outbound logistics
Sales and marketing
Servicing
Support activities make to delivery of the primary activities of a firm possible e.g. the organization infrastructure, human resource management, technology and procurement.
Competitive advantages when a company provides more value to a customer or when they provide the same value at a lower cost. These can be achieved in the following way.
(i) A business can save money in the primary activities by having suppliers stick to
fight delivery schedules.
(ii) A company can make use of technologies such as CAD/CAM thus reducing the cost of producing better goods in a manufacturing firm.
(iii) By having electronic scheduling and massaging systems or making use of office automation technology to improve the company image.
(iv) By making use of information system in sales and marketing a company can explore the capabilities existing on the internet.
Information System Product and Services
Firms can use 1.5 to differentiate their products and create brand loyalty by developing a new and unique product or service that isn’t easily duplicated by the competitors. To following products and services were created or the basis of information system.
Market Focus /Niche
Companies create new market niches by identifying a specific target that they can serve in a superior manner. This is called focused market differentiation. This can be identified via data mining i.e. this is the analysis of large pools of existing data to find pattern and rules that can be sued to guide decision making and predict future behavior e.g. we can be able to extract information of people who buy a particular product such that we can be able to initiate a sales deal based on the information provided by the data mining tools e.g. a slow moving product that is normally bought by sugar manufacturing firms in
the month of April.
Supply Chain Management and Efficient Customer Response Systems.
Firms are able to use I.T. to eliminate or greatly reduce inventory by “supply claim management”. This is the integration of supplier distribution and customer logistics into one cohesive process e.g. Wall-Mart a leading supermarket in the USA has a continuous
replenishment system which surds order for new goods directly to supplier as soon as customers pay up at the cash register.
Suppliers can also access Wall-Mart sales and inventory system using the web technology.
A supply chain is a collection of physical entries e.g. manufacturer, distribution centers, retail outlets, people and information which are linked together into a process that supplies good and services from the source by integrating demand planning, forecasting.
Materials requisition, order processing and transport. Supply chain management not only lower inventory cost but can also deliver the product or service more rapidly to the customer.
It also creates customer respond system that responds to the customer demands more efficiently. The convenience and ease of using this rising the switching cost. These are the costs incurred in terms of lost time and finances when changing from one supplier
system to a competition.
Firm Level Strategy and Information Technology
A business firm is typically a collection of businesses or of strategic units. Some of the questions to ask on strategy are:-
1. How can the overall performance of this business unit be achieved.
2. How can IT contribute?
These can be answered in 2 ways i.e.
i) Synergies – when output of some units can be used as inputs to the other or when two organizations pull markets together in order to lower cost and generate profits.
ii) This is the time of two business entities so as to have a whole e.g. Kenya
Airways and KLM, COOPERS and Waterhouse, B.P and Shell.
Industry Level Strategy and I.T
The key question is how and when should we compete as opposed to corroborating with others in the industry? This can be resolved via information partnerships which are a cooperating alliance between 2 firms for the purpose of sharing information to gain advantage.
i.e. two companies can join forces without actually weighting by sharing information e.g.
Banks maintaining information for loans to share with other banks.
Five Forces Model: (Porters Model)
This is the model used to describe the interaction of the external influences, especially threat sand opportunities that affect an organization strategy and the ability to compete. Competitive advantage can be achieved by enhancing the firm’s ability to deal with customers, supplier’s e.t.c. By working with other firms the organization can use I.T. to develop and industry wide standard for exchanging information electronically whichforces all market participants to similar standards.
Network Economics
This is a model based on the concept of a network where adding another participants entails a zero marginal cost but can create much longer marginal gain e.g. the larger the number of subscribes to the interest the greater the value. Internet sites can be sued by
firms to build communities of users e.g. Microsoft Corporation uses I.T. to build a community of software developers e.g. MSDN (Microsoft Developers Network) who help in debugging, providing new application ideas and supplying customer with tips of the
new application.
In summary there are four competitive strategies i.e.
i) Market differentiation /Market focus
This is when a company is able to identify the segment of a market (Niche) which it proceeds to serve in a supervisor version. The wide may be a customer segment, a narrowly defined product or a geographical region e.g. family T.V. It relies on an extensive customer database and demographic data i.e. data related to population, as a potential tool in the niche (market identification).
ii) Cost focus /Lowest cost producer.
Threats of new entrants to the market Rivalry between traditional competitors Threat of substitute products or services Bargaining power of customer If a company serves a narrow market segment with a product or services which it offers at a significantly low cost than its competitors then this is the cost focus strategy.
Strategic information systems change the organization, its products, services and operating procedures.
iii) Product differentiation
When a company aims to distinguish its products or services from what offered by the competitors. The distinguishing features may be the superior attributes of the product itself e.g. Microsoft.
iv) Locking of customers /Suppliers
With strategy organization enhance or systems that make it difficult e.g. suppliers and customers to leave its supply chain e.g. mobile banking or banking direct where the Co-operative Bank and KCB ensure the continued loyalty of their services.
