IN 320 Strategic Use of Information Technology:
January 14, 2000
We classify IT systems and group them into major types because
there is a need to plan the overall information artchitecture
Why must we plan information architectues?
- The IT systems are more important to the basic operations
of the firm today then previously. If they do not function,
the firm will not exist long.
- IT systems have become more difficutl to implement.
The systems are large scale, consisting of many parts, and
oftem operating in a multidimentional environment.
- During all phases: building, implementation, and use:
the IT systems of today require more interaction between
technical management and general management.
To develop an information architecture, we must begin with
some views of the structue of the organization.
Robert Anthony's Control Levels (ref. Anthony, R.N.,
Planning and Control Systems: A Framework for Analysis,
Boston, Harvard University Press, 1965.)
- Strategic Planning
- long term and large scope
- deals with corporate goals, external factors
- Tasks are non-redundant, not well understood, not
- handled by senior management
- purpose is to set company goals
- support IT is DSS, like a financial planning system
- Management Control
- scope is medium range, acquiring resources to meet
long term goals
- Tasks are more frequent, more structured, well defined,
but functions are not highly redundant
- handled by middle management, department management
- purpose is to initiate procedures to meet company goals
- support IT is MIS, like ASAP Express, or CRIS
- Operational Control
- scope is short range, goals are implemented,
performing daily tasks effectively
- Tasks are highly redundant, well understood, repetitive,
highly defined process
- handled by project managers or general employees
- each transaction uses same information and same process
- support IT is TPS, like older ASAP, or SABRE
Henry Fayol's 5 Managerial Functions (ref. Fayol, H.,
General and Industrial Management, trans. C. Storrs. London:
Sir Isaac Pitman and Sons, 1949.)
We can combine the two
frameworks. Laudon and Laudon also grouped systems by
organizational level and by function. Also see figure 2.2.
- Planning - what to do, what activities are needed
- Organizing - how to do it, the activities, structure
- Staffing - who will do it, the activities, persons
- Directing - who will do what activity, commanding staff
towards the accomplishment of the plans
- Controlling - what to do now, keeping activities on
track to meet objectives
The six major types of systems that are described
in Laudon and Laudon are as follows:
- TPS: connect the customer to the firm's warehouse,
factory and management. If the TPS fails, the firm cannot
receive inputs from the outside environment (orders) and
the firm cannot deliver outputs (assembled goods). TPS
systems are often critical to the existance of the firm.
TPS systems supply data to other systems: MIS,OAS,DSS.
- KWS: promote the creation of new knowledge by
knowledge workers, and they integrate the new knowledge
into the business. They can speed product design. An
example would be a simulation tool, or CAD system.
- OAS: support data workers, increase productivity
through coordination and communication. Three types of
these systems are (1) document managers (Word Perfect,
desktop publishing, digital filing), (2) schedulers
(electronic calendars), and (3) communication tools
(email, voice mail, video conferencing).
- MIS: reports and history, incorporate internal data,
depend on TPS, not very flexible (report on planned
questions), but allow customized reports (presentation
- DDS: these help with less structured questions,
are more flexible to unplanned questions, use external
information, have more analytical power, should allow
users to interact by being able to change assumptions
and use new data, must have a quick enough response
to be able to be used in decision making, makes
use of modeling tools.
- ESS: have little analytical power, but great
summary power, use visual capabilties, use outside
and inside information, help decision makers handle
- Although systems can be classified by
the Level of Groups served, or by Functional Area
of the organization served (sales, manufacturing,
finance, accounting, human resources), the IT systems
are actually used by workers from many levels and
across functional areas.
The system types that we outlined in the last class can
also be viewed along a historical development timeline.
- Transaction Processing Systems (TPS)
- Time introduced: 1960s
- Functions: highly routine, well understood, repetitive decisions
- Example of tasks: payroll, general ledger
- Technology: mainframes, I/O punchcard or online batch
- Goals: make centralized computer system work
- Problems: huge maintenance costs, duplication of
data, user dissatisfaction.
- Management Information Systems (MIS)
- Time introduced: 1970s
- Functions: less structured, general problem solving
- Example of tasks: high level reports on large databases
- Technology: minis with online access, high level programming
language, real time systems, single transactions, centralized
databases, integration of systems
- Goals: integration of systems, share data, observe trends
- Problems: high software development costs, high personel
traning costs, need for standards
- Decision Support Systems (DSS)
- Time introduced: 1980 and 1990s
- Functions: support one shot, ill structured policy decisions
- Example of tasks: investment portfolio management (stocks,
equity funds), air-pilot support systems
- Technology: minis, workstations, PC access, remote
communications, distributed databases, integrated processing
(voice, data, video), distributed processing
- Goals: quick and meaningful reports to offer support to
- Problems: managing distributed data bases in real time,
high development costs for creating the system, executive personel
training often required
- Strategic Information Systems (SIS)
- innovative use of old and new technologies
In the first class we listed these differences..
- they change the way the firm competes.
- they have an external (outward looking) focus.
- they are associated with higher project risk.
- they are innovative (and not easily copied).
Laudon and Laudon similarly say SIS change the firms...
- goals (how compete with rivals)
- operations (internal procedures)
- products and services
- environmental relationships (between customers and suppliers)
- business that the firm is in (change the market).
SIS are desirable because they can be used to gain a
Competitive Advantage means a firm can provide MORE VALUE to its
customers and the same price as its rivals.
Or, a firm can provide the SAME VALUE to its customers at a LOWER
price than its rivals.
Frameworks can be used by managers to understand the firms business
environment and to seek opportunities for improvement.
This is one way to create categories of frameworks. The book
distinguishes some frameworks by Levels of Strategy.
- Foundation Frameworks - Porter's Forces Model (Porter,1980),
InterOrganization Systems (Cash, Konsynski, 1980),
Wiseman's Strategic Thrusts (Wisemann, 1988). These help to
understand the industry structure.
- SIS Opportunity Seeking Frameworks - Value Chain Analysis
(Porter, Miller, 1985), Strategic Options Generator (Wiseman,1988).
These examine where the firm fits within the industry and searches
for strategic opportunities.
- Strategic Impact/Value Framework - Strategic Grid (McFarlan,
1983). This Assesses the value and cost of adding IT. What will
IT do the the firms position in the industry?
- Contingency Factors Framework - Critical Success Factors
(Rockart, 1979), Sustainability Analysis (Feeny and Ives, 1989).
These identify factors which are unique or specifically significant
to an individual firm or industry.
An alternative to using the stategy formulation approachs listed
above is to use a more unplanned approach called Innovative Process.
Two types of Innovative Processes are:
- Bricolage (Learning by doing) - Bricolage means to Look-in.
This process is characterized by incremental decision making,
muddling through, using local information, and tinkering close
to the daily operations. This approach has the advantage of
drawing on the unique expertise of the firm, and is flexible.
It has the disadvantage of (1) the possibility of getting
stuck on old ideas, routine solutions,(2) ideas need to be
taken beyond tinkering to be integrated into the firm, (3) one
still needs an analysis of competitors.
- Radical Learning - restructure the cognitive or organizational
background of the people of the firm. Change the context of the
business and reflect in action. (big changes = big risks) must
change the people and practises of the firm. This is more a
concept than a method.
The benefits of the more formal strategy formulation
frameworks is that they are (1) organized so the management
can make a fair evaluation of many complex factors, (2)
other people can look back and see the basis for managements
decisions. Management can be accountable for their actions.
The disadvantage of the stategy formualtion frameworks is
they can be inflexible, they sometimes do not account for
non-monitary gains to the firm, and using the frameworks can
sometimes be seen as immitating the textbook solutions.
- firms can use their leadership position to invest
in new innovations.
- Good image can help maintain a competitive advanatage.
- Compete on cost and quality at the same time, use
- Share the discovery and development of innovations
with others. For example, partnerships share data and
information to allow access to new customers. They create
opportunities for new products, and can target products
to new customers. The participants can share investment
costs and risks in new technologies.
Strategy Levels and IT Models
In Table 2.4 of the book (6th ed.) there are many
strategic information systems and they operate at
all different levels of strategy. The three levels of
strategy are:Industry, Firm, and Business.
For each level of strategy there are models that
can be used to analysis the interactions at that level.
We discuss some of the strategic models, that can
also be refered to as strategic frameworks.
This model is by Porter and Miller, 1985. It seeks to
identify areas where value is created for the customer.
The value created for the customer must exceed the cost to
the customer. This is a business level model.
The role of IT at the business level is to help firms
reduce costs, differentiate products, serve new markets
to change the scope of competition. Examples of IT that
has been used is
- data mining - for product differentiation and focused
- supply chain management - for lowering operating costs.
- interorganizationa networks - to reach new customers.
- Primary Activities relate to production and
distribution of products. They create value for the
customer. They include:
- Inbound Logistics - receiving and storing materials for
distribution and product development,
- Operations - changes to inputs, to manufacture and finish products,
- Outbound Logistics - storing and distributing products,
- Marketing and Sales - promoting and selling products,
- Support Services - maintenance and repair of the firms
products and services.
- Support Activities provide structure for the
primary activities. These activities include:
- Organization Infrastructure - administration and management,
such as general
management activities, legal services, finance
services, public relations;
- Human Resources - employee recruiting, hiring, and training,
- Technology Development Activities such as research and
development, improving products and production processes,
- Procurement Activities - purchasing inputs for processes.
Enhancing core competnencies is a firm level model.
It involves becoming a world class leader in a particular area.
The question asked is how can IT be used to create and maintain
a core competency? The IT must help in
accessing the embedded knowledge gained from experience and
accessing the tacit knowledge (implicit in the industry) and making that
knowledege shareable and explicit to everyone within the organization.
IT systems that share knowledge across business units help improve
core competencies. Also systems that help to take in new external
knowledge help to gain core competencies.
Knowledge Management systems by Enigma is an example of IT that can
help in this area.
The Porter Competitive Forces Model is an industry level
analytical model used to describe the external influences
on the firm, especially the theats and opportunities.
The model links
- buyers (bargaining power),
- suppliers (bargaining power),
- competitiors (position of competitors),
- substitutes (products and services),
- industry rivalry (new entrants).
Potential New Entrants:
Sources of barriers to entry are:
- can lower profit margins,
- lower prices to consumers,
- decrease the size of market shares,
- the threat
of new entry can encourage existing firms to put up
barriers to entry.
- raising switching costs,
- economies of scale,
- high investment in IT base,
- economies of experience,
- limited access to a choice of distribution channels,
- government policy, and asymetric treatment of firms.
Industry Rivalry: can be invoked through efforts to
compete on low cost strategies, or by differentiation
of product or service.
- Rivalry invokes counter moves.
- Rivalry can result in lower prices, long run reduced
profit margins, and weaker industry.
- Or it can result
in quality improvements, diverse products.
Substitutes or new products: put pressure on providers
to improve products. Price can increase if the new
product in non-standard. Substitutes can raise the
cost to compete. Often they introduce a non-sustainable
advantage because others will try to imitate.
Powerful Buyers: can force prices down, can bargain
for better service, can improve quality.
A buyers strength is characterized by:
- the percent of its suppliers
sales that it is responsible for,
- if they purchase standard products,
- if they face few switching costs,
- if they can buy (integrate) its supplier firm.
Powerful Suppliers can demand higher prices, or
decrease quantity or quality.
Suppliers are powerful if
- they can lock-in buyers,
- provide differentiated products,
- pre-select buyers that are not in a position to threaten,
- if they can merge with customers.
Network Economics is an area of study that is useful for
understanding interactions at the industry level. It is
based on the idea that the marginal cost of adding another
user to the system (or network) is not as great as the
marginal gain of adding the additional user. We will use
the example of the public switch telephone networks.
The individual advantages of the firm determine the firms
ability to deal with threats from the market. In other words,
how do firms compete?
Porter has outlined several Competitive Strategies:
- Product Differentiation: use of innovation to produce
different products or services that cannot be easily copied.
The firm attempts to develop brand loyalty. This strategy can
address threats such as: position of competitors and substitutes.
- Focused Differentiation (niche): the firm uses a niche strategy,
it targets its product for a specific section of the market.
It tries to serve the market segment better than the competition.
This addresses: position of cometitors and new entrants.
- Develop tight links to customers and suppliers: the firm
can try to lockin either suppliers or customers. They try to
lock suppliers into a delivery time table and price structure.
They also can try to lock buyers into a price structure.
The idea is to raise the switching costs of the supplier/buyer
or try to lower the bargaining power of the supplier/buyer.
This addresses: bargaining power theats and position of the
- Become the Low Cost producer: Offer the same quality
or level of service as competitors at a lower price. This
addresses: threat of new entrants and the position of the
- Establish Partnerships: participants in partnerships
can share costs, benefits and risks. Often this redefines the
firms relationship with competitors. This addresses: position
of competitors and the threat of new entrants.
Adopting SIS will require both social and technical changes
in an organization. What are the effects of these Strategic
- Suppliers and customers become linked and share
responsibilities. For example, in the Baxter ASAP example,
the vendors take on the responsibility of managing inventory.
This is no longer the hospitals (customer) job.
- Systems can be shared across functional areas.
- Training for new SIS will be required.
- New SIS may require new organizational strucures.