9 Role of MIS in Strategic Advantage

Dr. Ashish Saihjpal

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1. Learning Outcome:

 

After completing this module the students will be able to:

 

  • Understand how organizations build competitive products and services using Information Systems.
  • How companies align their Information Technology strategies to fulfill corporate goals.
  • Understand key features of Strategic Information Systems.
  • Understand Strategies for Competitive Advantage and factors that determine the strategic position of a firm.
  • The Value Chain Model and type of companies that leverage IS for competitive advantage.

 

2. Introduction

 

Information Systems (IS) are those systems that work on acquired data and further process it for competitive business usage. For this, it requires a technology platform and compatible software and hardware. These systems are used by people to acquire, store, process and interpret data.

 

Strategic advantage for any organization refers to the particular characteristic or way of doing things that make an organization more successful than others. Information Systems when aligned with the business strategy to fulfill corporate goals by way of achieving competitive advantage is referred to as IS for Strategic Advantage. The more sustainable the competitive advantage, the more difficult it is for competitors to neutralize the advantage. Considering and introspecting on the strategic advantage that Apple Inc gained was by virtually forcing the Apple user to use iTunes and the AppStore and building its products portfolio around its own software.

 

Apple largely spends on creating the “Apple Experience.” This is enabled when Apple observes a customer closely to capture his mind share, his wallet share by data basing his profile and bookmarking his past purchases and choice of content. That’s why Apple products stand as the most popular and the best in the market. Exhibit1 showcases some of the distinct Apple Products.

 

Opening Case: Case of the Apple Pie

 

Apple Inc has had differentiation since its inception. They are masters of their software and competitive in making equally good hardware to complement it. Steve Jobs was found quoting Alan Kay of Xerox Parc when he said, “People who are serious about software need to also be serious about great hardware.” What complete the package at Apple are an equally robust Operating System (OS) as well as the core software named “iLife”. The content gatekeeper strategy is embedded in iTunes and complimented by their retail strategy that differentiates Apple from its competitors.

 

iTunes & Digital Asset Management – Stepping up the ladder from a software company to a complete Digital Asset Management company has been a big leap for Apple. As announced by Apple, it contained critical account information of over 100 million customers who accessed iTunes. Its only when a brand is trusted, a customer readies to provide personal information for future purchases.

 

Apple’s Retail Strategy – When Apple decided to step into organized retail stores, they only saw beyond the horizon. Initially criticized by the business analysts, it, eventually, surpassed all eyes to become one of the most competitive strategies. Apple Retailers carry all products, accessories, support and repair.

 

Apple always renders an ear to customers giving them assistance by placing their stores at appropriate locations. Even in malls customers get service while they are in shopping mode. It only enhances the taste of the Apple-pie.

 

  1. The Key features of the Strategic Information Systems

 

The key features that comprise Strategic Information Systems can be stated as

 

1) Decision Support Systems – They essentially align the functional Information Systems with Information Technology in synchronization with organizational goals and strategies.

2) Enterprise Resource Planning – These systems enable optimizing organizational resources to meet business requirements.

3) Database Systems – These hold essential customer profiles and client information. This is best utilized for business development, marketing, sales and other departments.

4) Real-time ISs – Real Time Information Systems enable query handling and reduce turnaround time for responses and the quality indicators as per an agreed service restoration window.

 

3.1 Using Information Systems to achieve Competitive Advantage

 

Prima Facie, it is essential to understand the need for having information systems in any organization. The basic need can be stated in the simplest of the words that the need for automation helps in doing things accurately with greater processing speed and analytical ability. Information Systems provide strategic advantage as a supporting tool for doing things smartly.

 

Automation helps in yielding useful information by mechanization of a manual process that ensures greater accuracy and consistency. To exemplify, a manual loan application process may be automated by use of information technology. Using a single window data entry to fill in relevant details of an applicant greatly reduces the time taken for enrolment of application. Moreover, looking beyond automation, organization learning is enhanced by a better understanding of routine activities. Information systems help analyzing trends and patterns for making further improvements in the processes.

 

By imbibing management best practices like total quality management, balanced scorecard, six-sigma helps the organization to improve its processes, products and services. MIS acts as an enabler of creating a vision to set the directions for a strategy, creating performance oriented targets and creating a strategy to achieve the set goals.

 

4. Information System Strategies for dealing with Competitive Forces

 

Let us understand the five force model coined by Michael Porter before we undertake that how corporations leverage information systems for competitive advantage. The intensity of competition within the industry is of utmost concern for any organisation. This framework helps the organisations to determine this intensity of rivalry by examining the interaction of five competitive forces. According to Michael Porter, a firm that can confront the five forces in an industry (refer Figure 2) can sustain itself in the competitive marketplace. These forces essentially shape the fate of the firm.

 

These include:

 

1. Rivalry of competitors within its industry – More the number of players in the industry more will be the rivalry within the industry. In a competitive environment firms keep devising new ways to take a lead from its competitors in the market space. The intention is to expand the customer base, enable customer loyalty and thereby increase switching cost for customers to opt out.

 

2. Threat of new entrants- Any industry that has the potential for growth and is perceived to be profitable tends to attract new entrants. The higher entry barriers keeps the prospective entrants at a distance from an industry. In some industries, there are very low barriers to entry while in some, entry is difficult. It’s easier to open an eatery than entering a business of manufacturing smart cards that would need technical expertise and knowledge in the specific domain.

 

3. Threat of substitutes – In a highly price sensitive industry, customers tend to switch from one product to another if the pricing of the products happen to be unreasonable or easy substitutes to the product are available. Higher substitutes in the market only make it harder to tighten pricing and maintain a sound market position.For example, an online digital library of e-books and web resources is a substitute to buying hard copy of books from a book shop.

 

4.Bargaining power of customers – The profitability of a company largely depends on its ability to build new customers and retain the old ones. This allows the company to charge high prices for their product. On the other hand, a customer becomes more powerful if they are easily able to switch to competitors product.

 

5.Bargaining power of suppliers – Sourcing in any industry is amongst one of the most essential activities of a business. The market power of suppliers can impact a firm’s profits when the firm cannot raise prices as fast as suppliers. The increase in the number of suppliers gives the leverage to firm to exercise more control over suppliers on parameters of price, quality, quantity and delivery schedules.

 

 

Having understood the five forces competitive model let us try to understand the Information Systems strategies for dealing with competitive forces. Following are the various generic strategies being adopted by the corporations with the help of information technology and systems to encounter competitive forces in the business environment (Figure 3).

 

  1. Low Cost Leadership Strategy – This strategy aims at aggressive cost cutting using optimization techniques and efficient business practices. The end focus is to render the product a good value for money to the end customer. One of the strengths that separate Dell from other companies is customer intimacy. Dell allows customization of its computers as per individual needs that make the product affordable, usable and performance oriented. Direct shipping of the product through Dell avoids all intermediaries, channel partners, retailers. What customers get is a tailor made product best suiting their requirement and budget. Exhibit 3 highlights how the Dell studio helps in picking up features of the customers’ interest in choosing their own laptop.
  1. Differentiation Strategy – Differentiation encompasses offering different products, services or product features. By offering differentiated products companies can charge higher prices; sell more products, or both. Apple Inc created the iPod, a unique portable digital music player and a unique online music service where songs could be purchased for $0.69 to $1.29 each. Manufacturers and retailers are using information systems to create products and services customized or tailor made to fit the precise specifications of individual customers. Exhibit 4 explains how differentiation leads to uniqueness.
  1. Focus on Market Niche – This strategy make use of information systems to focus on a particular segment of the market and serve this targeted segment much better than its rivals. Information systems support this strategy by producing and analyzing data for sale and marketing with respect to the niche market segment. Data is pooled from various sources such as customer past purchases, demographic data, credit card transactions, checkout counter scanners and when the prospective customer establishes online interface while surfing the websites. Software tools are used to analyze patterns and infer rules to guide decision making in the organizations. Exhibit 5 depicts a niche market segment.

 

Let us take an example of Ferns and Petals, which reveals how the company captured the untapped flower-retail-market by providing the visitors with the best online gifting solutions. After giving an initial trial at some of the search engine optimization (SEO) techniques, they engaged RoundArk so as to generate more online traffic, enhance viewer’s engagement and to generate more revenues. Round Ark is a reputed digital marketing agency preferred by both the corporate leaders as well as startups to explore the business opportunities available in the digital world. RoundArk focus on drawing the perception into reality with clients, giving them an assurance of effective digital business strategies to upgrade their growth trajectory in the market.

 

 

The strategies adopted revolve around the customer needs. Research was undertaken to understand the online visitor behavior and the website content to boost the traffic and revenue for the company. The digital experts at the back end carried out the research to analyze all the elements about the potential customers, their products and their brand. Researching the attributes of a particular segment helps them to design complete digital strategy that best suited their customers. Further, a competitive plan was shaped to project the business, so as to make a powerful impact online.

 

Innovation – The innovation strategies largely involve developing products and services using computers that are new and appreciably different from other available offerings in the market.

Examples of this are EMV cards – Europay, MasterCard and Visa credit and debit cards (refer Exhibit 7), these smart cards are embedded with a chip for user authentication, automatic credit card handing at service stations and automatic teller machines at banks. Such an approach nestles out new business opportunities to attract customers and cater to their demand.

 

5. Strengthen Customer and Supplier Intimacy – Information Systems not only make all business related information available at the click of a mouse but also enables a better understanding and communication between vendors and its customers. Moreover, strong linkages help establish loyalty and increase switching costs for its suppliers and customers. Amazon, Flipkart, IndiaMart, Urban Ladder, Fab Furnish are common names who archive customer purchases and on the bases of that suggest recommendations to the prospective customers. They also enable easy tracking of consignments which keep the end customer more informed.

 

5. Extending the Value Chain Model

 

5.1 Defining the Value Chain Concept

 

In the words of Michael Porter, as stated in his book ‘Competitive Advantage’ (1980), a value chain is the whole series of activities that create and build value at every step. The total value delivered by the company is the sum total of the value built up all throughout the company. Exhibit 8 represents a diagrammatic summary of the Value Chain.

 

It is imperative to note that the value chain analysis helps strategists to separately evaluate each activity and to identify the bottlenecks in the series or chain of basic activities that do not add much value to firm’s products and services. These identified activities are the areas in the business where the competitive strategies can be best applied with the support of Information systems. These activities are broadly classified as primary activities and support activities.

  1. Primary Activities

 

These are activities that occur within the periphery and around the organization. Value addition by each activity is added to the organizations products or services. These activities are listed as inbound logistics, outbound logistics, operations, sales and marketing and services. Inbound logistics include receiving and storing material for distribution. Operations transform input to finished products. Outbound logistics include storing and distributing finished products.

 

2.Support Activities

 

They facilitate the primary activities and consist of organization infrastructure (administration and management), human resources, technology and procurement.

 

Implementing information systems can help achieve strategic advantage at industry level by integrating the firm’s business processes with that of its stakeholder. For example: An enterprise may use information systems to integrate its logistic systems with that of its suppliers. Through this system suppliers could have a direct access to the production schedules of the firm, depending on which the supplier could decide how and when to ship the supplies to the firm. This allows the suppliers to have more lead time for production of goods and timely deliveries to the firm giving a competitive edge to the firm over its rivals.

 

 

2. Synergies, Core Competency and Network Based Strategies

 

Whether, an organisation is a small firm involved in a single business or a large, complex firm with several different businesses, the strategy in both cases is about the basic direction of the firm as a whole. In case of single business unit, it could mean larger focus on the functional areas that would increase the firm’s profitability. While, in case of large firm, the strategy is not only about functional activities but also about managing the different business units so as to maximize the contribution of each of the units towards the overall corporate objectives. Implementation of information systems can improve the overall performance of the organizations by creating synergies and promoting the core competencies between the various business units or strategic alliances.

  1. Synergy

 

Synergy happens when output of one unit can be used as an input to the other unit or two organizations synchronize markets and expertise. This helps the firm to expand geographically and form tie ups in rural service. Use of information systems would help the business units or merged companies to pool in their resources, consolidate its operations and in lowering of the production costs. The two firms together prove more profitable than the either firm could on its own.

 

For example, Apple Inc leveraged on the sales and distribution network of global giant Brightstar for its pan India logistics and customer support to gain competitive advantage.

 

 2.Enhancing Core Competencies

 

A core competency is the ability that grades an organization as a leader in its field. The firm owes this ability to the expertise and market understanding that it has developed over the years. The practical knowledge is supplemented with long term research efforts and the commitment of the employees. Implementations of Information systems help facilitate knowledge sharing within the organization and not only enhances existing competencies and also help employees become aware of new external knowledge.

 

For example, Airtel focuses on its core competency of sales and promotions and vendor management. The leading telecom giant has its IT outsourced to IBM; Finance and Audit outsourced to companies like KPMG, Wipro and Network Planning to Nokia and Ericsson.

 

  1. Network Based Strategies

 

Internet and networking technologies has re-created many marketing strategies built around them. These strategies use network economics, a virtual company model and business ecosystems. Unlike in the traditional economics where the diminishing returns set in, once, the optimum level of out-put is attained. On the other hand, from the network economics perspective, information systems provide strategic benefits to commercial software vendors. Value of the software increases as the numbers of users who use them multiply and there is a larger installed base to justify continued use of product and vendor support.

 

5.3 How companies leverage IS for Competitive Advantage

 

Virtual Company Model

 

Building virtual companies have become an important strategic move in today’s global marketplace. A virtual company operates beyond geographical boundaries and serves markets that span continents. It uses the online space to create networks that links people, processes and ideas. With this model, a company can quickly get to the market or exploit new market opportunities with due diligence and collaboration; acquire products, services or capabilities from an external vendor. It is with the help of information technology that a virtual company manages various resources provided by its business partners and deliver products to customer across the globe.

 

Business strategies of virtual companies include:

  • Risk taking ability and shared infrastructure and revenue models
  • Linking core competencies with organizations in cohesion
  • Reduce concept-to-cash time through sharing
  • Increasing facilities and market coverage
  • Gaining access to new markets and sharing market or customer loyalty
  • Re-focusing from product selling to solution provider

 

Augmented Reality (AR) is the meeting of the virtual world with the real world. AR is a concept where real-world elements are mixed with virtual video, audio or text. One of the software’s is called ‘Virtual Mirror’. Lenskart- the Company sells eyewear online and lets its prospective customers virtually opts for different frames (Refer Exhibit 10). When the customer visits the Lenskart website, he/she see the kind of catalogue that one sees on any e-commerce site. There, one can click on the “Try Online” button next to every frame. Now, he/she can either upload a saved photo from the computer or use the webcam to take a picture, and then see how the frames look on his/her face. The customer can swap out frames and check out different looks to figure out what looks good on his/her face, without having to go to a store.

 

Knowledge-Creating Company

 

In the age of Information Technology, companies can exist sustainably if they become knowledge creating organizations. Their goal is to create new business knowledge, assimilate it widely throughout the company, and quickly build the new knowledge into their products and services.

 

Knowledge-creating companies exploit two kinds of technology:

  • Explicit Knowledge pertaining to data, documents, things written down or stored on computers.
  • Tactical Knowledge implying – “how-tos” of knowledge, which reside in workers.

 

Knowledge management capability can be tapped to build techniques and rewards for getting employees to accumulate their knowledge and share what they know and to make better business choices. Knowledge management has become one of the major strategic uses of information technology. Many companies are building knowledge management systems to manage organizational learning and business know-how.

 

The objective is to create, organize and make available important business knowledge, wherever and whenever it’s needed in an organization. It implies organizing procedures, guidelines, formulas, methodology and other practices together. Internet and intranet web sites, blogs, databases, discussion forums and web casts are some of the key information technologies for gathering, storing and distributing this knowledge.

 

 

The Department of Information Technology of Chandigarh Administration launched the project named e-Sampark (Refer Exhibit 11) for the residents of Chandigarh.

 

The objectives of this project are:

  • A single window solution to citizens.
  • Reduced processing time and effort in payment for utilities.
  • Provide better response time, processing and issue of services.
  • Transparency in delivery of services.

This project enables a single window solution for the development, integration and maintenance across various functional departments under a single web portal. The city has created various Sampark centers. It has not only automated all resident records but ensured easy information counters, query handling, payment of utilities such as electricity, water, telephones through the centers as well as mobile apps. Not only has it made residents more techno savvy but also created a repository of information storage for all future references.

 

Agile Companies

 

An agile company is the one that can quickly adapt itself to the geography and market where it operates. An agile company can make a profit in markets with broad product ranges and in a very short span. Despite high volume of production, the orders are processed in different lot sizes.

 

Agile companies rely on information technology to offer a portfolio to customers with customized solutions to their needs, mass customization and cooperate with other businesses to bring products to market as rapidly and cost-efficient as possible. Vistaprint, a Dutch company is a good example of an agile company that produces customized products as per the needs of its customer from the convenience of their computer. The company’s customer base largely includes small and micro-businesses, the one who could afford quality customized promotional material because of the high order volumes. The company’s product portfolio includes printed marketing materials, signage, photo products, embroidered apparel and promotional products.

  1. Summary

 

Strategic Information Systems often change the organization as well as the product and service portfolio, operating procedures and drives the organization to newer behavioral patterns. Successful mitigation with the information system platform requires integration of technology, organizations and management.

 

It is inevitable to note that while adopting various kinds of strategic systems, organizations need to change business goals, relationships with existing customers and suppliers and business processes. It is the duty of the managers and the management to ensure smooth transition of these socio – technical transitions by roping in experts and coordinating the activities while assessing the risks involved.

you can view video on Role of MIS in Strategic Advantage

QUADRANT – III

 

Learn More

 

1. Alter Steven L, How Effective Managers Use Information Systems, Harvard Business Review.

2. Brar Manjit, e-Sampark: A Multi Service Single Window Operations Project, e-Governance Case Studies, Department of Information Technology, UT Administration, Chandigarh.

3. Hemmatfar Mahmood, Salehi Mahdi,” Competitive Advantages and Strategic Information Systems, International Journal of Business and Management, Vol 5, No 7, July 2010.

4. Laudon Kenneth C, Laudon Jane P, Management Information Systems, Managing the Digital Firm, Pearson Education South Asia, 2013.

 

Web Resources

 

1.http://agilegamesnewengland.org/index.php/mob-programming-conference/mob-programming-sponsors/142-agile-company-vistaprint-2

2. www.lenskart.com

3. http://paginas.fe.up.pt/~als/mis10e/ch3/chpt3-3bullettext.htm

4. http://www.roundark.com/demo/ferns_case-study.php