Strategic Information System Essay Example for Free

Strategic Information System Essay 1. Introduction Given the rise of competition in the modern business industry, it is essential for firms to apply strategic use of information system (IS) to achieve competitive advantage (CA). In the recent years, top management of firms have little interest in the relationship between IS functions and corporate strategy leading to many problems because of failure in achieving strategies. According to Holsapple (2000), modern organizations are increasingly seen as knowledge-based enterprises in which proactive knowledge management is important for competitiveness. One of the major factors in competitive environment is knowledge management and companies for achieving the competitive advantage should concentrate in its IS. IS plays an important role in business operations as well as financial and non-financial aspects of the firm such as decision making as a big role of management. There has a growing realization to make ISs of strategic importance to an organization in the 80’s and 90’s. Systems that shape or support business unit’s competitive strategy are known as Strategic IS (Callon 1996, an Neumann 1994). According to Turban et al (2006), SIS is the ability to significantly change the manner in which business is conducted in order to give the firm strategic advantage. Porter (1996) believes that competitive advantage is at the core of a firm success or failure, such advantage seeks lead to control the market and to larger-than-average profits. This research paper provides information on how organizations apply strategic use of IS/It to achieve competitive advantage over its competitors. This paper pays particular attention to factors influencing the success or failure of organization attempts at gaining or enhancing competitive advantages, and how competitive advantages can be sustained. 1.1Background IS is a set of interrelated elements that collect (input), manipulate (process), store, and disseminate (output) data and information and provide a reaction (feedback mechanism) to meet an objective (refer to Figure 1). Figure 1.1: The Components of an Information System IS is a combination of people’s activities and information technologies that supports organisation’s operation and decisions making and strategies for competitive advantage. IS plays a vital role in business operation and financial and non-financial aspect such as decision-making. IS are classified either operations or management information systems. They are being grouped this way to identify the major roles each plays in the operations and managements of a business. An Information System consists of five basic resources: i) People Resources (end users and IS specialist) ii) Software Resources (programs and procedures) iii) Hardware Resources (machines and medias) iv) Data Resources (data and knowledge bases) v) Network Resources (communications media and network support) SISs are systems used to supports or shape a business unit’s competitive strategy (Callon, 1996, and Nerumann, 1944). It is characterised by its ability significantly revamp the way in which a business is conducted in order to provide the firm strategic advantage. SIS is classified by its ability to change the manner a business is conducted, in order to achieve strategic advantage for the firm (Turban et al, 2006). SISs play strategic roles helping firm to gain competitive advantage or reduces competitive disadvantage by changing goals, products or processes through information systems. A competitive strategy is a broad-based formula for how a business is going to compete, what its goals should be, and what plans and policies will be required to carry out those goals (Porter, 1985). Through its competitive strategy, firms seek a competitive advantage in the industry advantage over competitors in measures such as cost, quality, or speed. The success or failure of a firm fully depends on its competitive advantage against its competitors (Porter and Millar, 1985, and Porter, 1996), such advantage seeks to lead to control of the marker and to larger-than-average profits. Through contribution to strategic goals of an organization and ability to increase performance and productivity, SIS aids an organization gain a competitive advantage over its competitors. SISs enable firms to gain competitive advantage and benefit greatly at the expense of those subjected to competitive disadvantage (Turban et al, 2006). SIS focus on improving the firm’s competitive position through increasing employees’ productivity, streamlining business processes and making better decisions (Turban et al, 2006). An organization can survive and succeed in the long run as long as it have effectively develops strategies to go up against the five competitive forces that shape the structure of competition in its industry. The Porter five competitive forces are: Businesses can counter the threat of competitive forces in which they face by implementing one or more of the five basic competitive strategies. The five basic competitive strategies are: i) Cost Leadership Strategy ii) Differentiation Strategy iii) Innovation Strategy iv) Growth Strategies v) Alliance Strategy An organization can counter the forces of competition from its competitors by implementing one, some or all the strategies in different degrees. 2.Companies using IS/IT to gain competitive advantages 2.1Cigna HealthCare CRM System In 1999, Cigna HealthCare decided to upgrade its outdated and almost extinct CRM system to improve the efficiency of business operations and then improving customer satisfaction. Cigna was operating nearly two-decade-old CRM systems to handle its daily operation needs. It had multiple units for different roles such as membership enrollment, processing medical claims and verifying customer eligibility and they were not interconnected. Furthermore, Cigna received numerous complaints from doctors as the old and disintegrating processing systems delayed their medical benefits claim payment and was heftily slapped with a US$ 300,000 fine on 29th January 2001. Cigna’s Chief Information Officer (CIO), Andrea Anania planned to combine the information from the different information systems and develops a new integrated systems to handle all the process. Anania goal was for the CRM system to act like a â€Å"one-stop† portal, thus improving efficiency. Cigna awarded a budget of US$ 1 billion to develop the CRM system, which aims to reduce human intervention while speeding up the processing time of medical claims. During the implementation of the CRM, Cigna had a net loss of US$ 398 million for fiscal year 2002. This project had already exceeded the original budget of US$1 billion and had done substantial financial damaged to Cigna. 2.2Bank of America – MasterNet System Bank of America (BoA) developed Master Net trust accounting system in 1982 with a plan completion date of 31 December 1984. MasterNet consist of a large trust accounting system, TrustPlus, and eight smaller systems that augmented the core system. In 1986, migration process was greatly affected by technical problems such as poor response time and day long system crashes. In 1988, BoA announced that its trust business was being given to a subsidiary as it could no longer handle the operation requirements after a $78 million loss in the MasterNet project . 2.3 American Airlines – Knowledge Management System American Airlines understand the needs to analyze data collected through their computer reservation system, SABRE, an automated system with the ability to check flight and seats availability and making a reservation for customer developed in 1960s with IBM. In 1990, AA developed a knowledge management system, SMARTSTM (Sales Management and Report Tracking System) as a tool to leverage CRS reservation data and AA internal historical data on performance and bookings. SMARTS is able to run analysis for AA to develop finely tailored scheme based on AA’s market shares. The combination of SABRE and SMARTS creates the expertise exploitation capability for AA whose impact can be systematically assessed against the access to reservation system, which has become market-standard for competitive parity. 2.4 Wal-Mart – Point-of-Sale System Successful implementations of IS into daily practices have aided Wal-Mart in their quest to maintain the position of low cost leader (Thomas Wailgum, 2007). Wal-Mart had adopted the â€Å"point-of-sale† system; a computerized system which identifies sales of individual items, updates information into its server and modifies the on-hand quantity automatically. The system also analyzed data mined from the universal bar code and effectively transformed data collected from bar codes to useful information such as keeping track of sales trends for individual items as they are identified as an individual entity. 2.5Lesson Learned and Success Factors The author believed that the failure of Cigna CRM system was due to poor leadership and communication skills of Cigna’s CIO. Anania did not consulted professional to design the IT systems architecture required for transformation, instead she pooled 1400 employees from Cigna’s IT department and formed a team, made up of experienced project managers and new hires. Anania made an unethical decision to migrate 3.5 million customer’s data at one go instead of 10,000 per group to the new platform with out testing the integrity of the system due to pressing date lines leading to serious customer service problems surfacing immediately. As Cigna had lay off majority of its service center employee, believing that the new CRM will improved its productivity with lesser human input therefore leading to a shortage of experience staffs. Feedbacks and input from stakeholders was ignored by the managements during the development of the system, thus leading to the down fall of the CRM system and hitting Cigna with substantial financial damaged. The author feels if Cigna’s management culture had led to the failure of the IS. MasterNet have a leader who have a vision of technology but was not well versed technically and was too involve in other problems to focus on the project. BoA made two critical mistakes in handling of MasterNet. Firstly, BoA did not understand the difficulty involved and scope of MasterNet and sufficiently assess it risks when it was proposed. Secondly, BoA failed to take necessary fire-fighting actions when the project rolled out of control to minimize damage. The management only took notice of MasterNet when it performed so badly that it merited $23 million loss. Many mistakes made with respect to MasterNet were not specifically related to IS. The combinations of SMARTS and SABRE have assisted AA to become a market-standard for competitive parity. SMARTS is a system with ability to organize data by city, zone and territory of sales representative with analytical and presentation capabilities. SMARTS was design to provide reliable detailed information to sales representatives to influence travel agencies behavior strategically. Previously, sales representatives doesn’t have complete information about market shares and performance data of travel agencies in his territory and the job consisted mainly preserving a good working relationship with the travel agent. With the aid of SMARTS, the sales representatives are able to analyse market trends in detail and could easily identify opportunities than before, thus maximising productivity. Through the use of SMARTS system, AA’s intangible sales knowledge is enhanced as it is able to interpret movements in share and market. Aside to that, SMARTS help representatives highlight weak markets to the travel agency mangers to focus on. According to Mr. Jack Williams, Senior Vice-President of AA, SMARTS have introduced a huge culture change in their sales-force associated with the leveraging of the expertise as a result of the information in the system thus bringing an enormous advantage to AA, not easily copied by their competitors. The introduction of the barcode system have help Wal-Mart to maintain its low cost leadership. This system helped Wal-Mart to speed up its checkout cashier efficiency and eliminate problems of cashier keying in the wrong price for a product by scanning the barcode as previously the cashier have to manually key in the prices of all the goods according to the price tag. Aside to that, Wal-Mart was able to track its stock level and placed order when required. The system also has the ability to identify slow running products and prevents Wal-Mart from overstocking them. Through improving its information system, Wal-Mart has created a high barrier of entry for any company who wishes to enter the chain hyper-market industry. 3.Discussion Factors influencing organization to use IS as it business strategy are relatively dependent on internal and external forces of the business surrounding environment (Bob William, 2009). Internal forces that require considered and looked into are the current financial position of the firm. Budget required for IS implementation are considerably high, management allocating the funds for investment must be ensured minimal or perfect deployment of the IS. On top of that, employees capabilities also plays an important role during IS implementation. Firm needs to ensure that employees are at least computer literate and will have no problem operating or accessing the new system, else additional cost may be bared by the firm for training. The firm also needs to access the efficiency and effectiveness of its existing system and whether there is a need to upgrade or revise the current system to gain a competitive advantage over its competitors. Changes in consumer tastes, preference and purchasing pattern are external factors driving organization to implement IS. Consumers are becoming more IT savvy and surveys have shown customer swaying their purchasing pattern to electronic purchase due to convenient and time saving (James D. Gwartney, 2006). Companies need to understand and study consumer expectation and needs in order to analyse and implement business strategies to ensure business growth. Therefore, both internal and external factors are important consideration for implementation of IS to gain a competitive advantage as they complement each other. From the above examples, correct implementation of IS will give the firm a competitive advantage over its competition. Firms must understand their position from Porter’s five competitive forces and develop strategies and counter it to maintain competitive. As Howard et al, (1999) believed that competitive advantage could be gained if strategy development and ISs design are addressed simultaneously. Porter’s model identifies five competitive forces that affect competitive advantage in the market place. In order to establish a profitable and sustainable position, company needs to develop strategies of performing activities differently from its competitors to overcome these five forces. Strategy| Definition| Example| Strategic use of IS| Business Benefits| Cost Leadership| Produce products and/or services at the lowest cost in the industry| Dell Computer| Online build to order| Lowest-cost producer| Differentiation| Offer different products, services, or product features| Moen Inc| Online customer design| Increase in market share| Innovation| Introduce new products and services, put new features into existing products and services, or develop new ways to produce them| American Airlines| Analyse data| Market Leadership| Growth| Increase market share, acquire more customers, or sell more products| Wal-Mart| Merchandise ordering by global satellite network| Market Leadership| Alliance| Work with business partners in partnerships, alliances, joint ventures, or virtual companies| Wal-Mart/ Procter Gamble| Auto inventory replenishment by supplier| Reduced inventory cost/increased sales| Information systems can be used to help firms gain competitive advantage with the help of Porter’s competitive forces model for analyzing competitiveness and proper implementation of IS. According to Michael Porter, the main types of competitive advantage are low cost provider, differentiation and focus. Companies have use porter’s model to increase competitive edge and also demonstrated how IS can enhance competitiveness of corporation (Turban et al. 2006). Finally, firms need to sustain competitive advantages gained from the implementation of IS. In the real world, competitive advantage doesn’t normally last very long and is generally not sustainable over the long term (O’Brien 2011). When a firm gains competitive advantage over its competitors through innovation, competitors figure out how it was done through organizational learning. To neutralize the effect, competitors adopt the same or similar innovation and what was once a competitive advantage is now a competitive necessity. When these occur, firm needs to figure out new innovation to gain a competitive edge and the cycle starts. 4.Conclusion Technologies have changed the way business operates today. Manual processes in the past are now being automated and electronic communications have been heavily introduced in today’s business world. IS have evolved over the years and offer new possibilities to gain competitive advantage. Many businesses today have realized the important of technology and power it possess, but fail to understand the possible benefit achievable. The author learned that through proper planning and implementation of IS will lead to a competitive advantage gain for the organization. With the aid of IS, it will improve the efficiency and effectiveness of staff in the organization which in turn will save labor and consumable cost. 5.Reference Ahlemann Frederik. (2009). Towards a conceptual reference model for project management information system. International Journal of Project Management, Vol. 27, No.1, pp. 19-30 Ankit Bhatnagar. (2006). Strategic Information System Planning: Alignment of ‘IS/IT’ Planning and Business Planning, Unitee New Zealand. 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