The Benefits of Strategic Information Systems - Coursework Example

 The Benefits of Strategic Information Systems Introduction The dependency of modern day organizations on information systems to perform their every day functions is increasing day by day. The use of information systems has been adopted by all manners of organizations. The primary goal of every business organization is to minimize their costs and maximize their profits, there are numerous ways in which information systems can help companies in achieving this objective however this objective can only be achieved once information systems are fully integrated into the company and the strategic objectives of the information systems used in the company are in alignment with the strategic objectives of the company as a whole. Many business organizations exist which have acquired information systems but are unable to deploy these systems in a strategic manner in order to achieve a competitive advantage in their areas of operation, these failures often result from a misalignment of the strategic objectives of the company’s information systems with the strategic objectives of the business as a whole (Fortune & Peters, 2005) (Heeks, 2002). There are a number of possible reasons for such a misalignment some of the commonly cited reasons for such a misalignment include differing personalities and outlooks of the IT people and the business managers, separate budgets for IT departments which are unrelated to the budgets for the other departments and lack of oversight and effective management of the IT departments and an absence of accountability for business results (Heeks, 2002). These problems are often caused by a misplaced belief in the power of technology to help an organization in achieving its strategic aims, in reality; the mere presence of high tech equipment is of no use until it is utilized in a proper manner. According to a recent study on the link between information technology and productivity, advancements in information technology were not the primary cause of the improvements in technology which have occurred since the mid 1990’s rather it was the changes in business processes brought on by the use of information technology that enabled these gains in productivity (Ward & Peppard, 2002).In order to have an effective information system, managers need to make clear that the computational technology is not important in itself, it is rather a tool for realizing the strategic business aims of the company (Ward & Peppard, 2002). It has been thought that the rise of communications technology would result in greater group cohesion and integration of business organizations, however there is a limit to what technology may achieve in this direction. It remains the responsibility of higher management to assign a clear direction of the organization and bring into alignment various sections of the organization in order to ensure that the organization functions smoothly (Fortune & Peters, 2005). Amazon.com In order to study the ways in which information systems can be harnessed in order to obtain strategic advantages in the business environment we shall take the example of Amazon.com, one of the most successful online businesses. In the present world the internet has become a major source of business. Amazon.com is one of the pioneering internet business ventures. It was launched in July 1995 and has since them become of the major websites on the internet. Initially conceived as an online bookstore, now it has expanded into other areas of business. Amazon.com now sells all sorts of items from CDs, toys, games, consumer products and is also a major site for online auctions. Amazon.com is a great example of a company that has used information systems in order to gain a competitive advantage (Ward & Peppard, 2002). Information Systems Strategies for Gaining Competitive Advantage As previously mentioned, the primary aim of a business organization is to maximize its profits and minimize its costs. The health of a business organization can be gauged from the share of the market it holds as compared to its competitors, its reputation among investors and its ability to survive tough economic times etc. Information systems are valuable tools in this regard, used in the correct manner, they can help an organization meet such targets as lowering its costs, achieving higher productivity, grab a larger share of the market, improve existing products and services and produce innovative new products and services (Yolles, 2009). Information systems can be utilized in order to help business organizations achieve these and other strategic objectives which improve an organization’s health and increase its competitiveness allowing it to survive and prosper in the market (Oz, 2008). According to researchers in the field of sociology, organizations possess a ‘group intelligence’ which is based on, but separate from the individual intelligences of each of the component members of the organization. One aspect of this group intelligence is what sociologists have termed ‘competitive intelligence’, this aspect of group intelligence allows organizations to compete with and defeat rival organizations (Williams & Sternberg, 1988). According to experts, competitive intelligence is a necessary component for a business organization to succeed, especially in the present climate. Information systems can be used to supplement and enhance the competitive intelligence of business organizations (Bexon et al., 2002). Amazon.com has successfully applied several strategies in order to establish and perpetuate its hold on the online retailing market. We shall now discuss some of the strategies employed by Amazon.com. Reducing Costs through Information Systems A company achieves a competitive advantage over its competitors if it is able to manufacture a product or provide a service at a cheaper cost than comparative products or services provided by its competitors. This would allow the company to gather higher profits from the product or service, by keeping its price comparable to that of its competitors or the company may decide to lower the price of the product or service over that of its competitors, allowing it to sell more units and increase its share of the market (Peteraf, 1993). Replacement of manual labour by automation is one of the most obvious ways through which business organizations can achieve competitive advantage. Automation of tasks, generally involves an increase in productivity and efficiency and a reduction in the cost of labour. When we think of automation, the obvious example which comes to mind is that of the automobile manufacturing industry where the labour force has gradually been replaced by robots; however automation need not be confined to the labour force. Common managerial and operations tasks may also be automated resulting in reductions in the human workforce. Such business functions as customer support etc. can also be largely automated as is the case with many telecommunications and shipping companies. An example of this is Fedex’s online database which allows customers to track the present locations of their parcels by entering a unique tracking code (Cranford-Petelle, 2000). An example of automation in the managerial sector is that of SCM (Supply Chain Management) systems, used to implement JIT (Just in Time) manufacturing. SCM systems involve the use of information systems to coordinate close relationships between different business organizations for a common purpose, allowing for the creation of large ‘virtual corporations’ (Sadagopan, 2003). In addition to automation there are also many other ways through which information systems can be used in order to reduce costs. Online retailers like Amazon.com have a definite advantage over ‘bricks and mortar’ retailers because they can offer any number of items for sale on their website and are not confined by the limitations of shelf space. In real life shops on the other hand, a substantial increase in inventory may require a move to larger premises. At Amazon.com users have the choice of selecting from over 2 million books whereas conventional bookstores only offer around 40,000 books on average (Clegg, 2000). Another aspect in which online retailers benefit from cost reduction as compared to real world retailers is in the costs associated with search and choosing items for purchase. In the real world this requires visits to multiple shops in order to compare prices, using online retailers the same thing can be accomplished using much less time and effort (Brynjolfsson & Smith, 2000). Using Information Systems to Close off Markets to New Entrants Companies that have successfully obtained technological or marketing superiority with the help of information systems can perpetuate their hold on the market by aggressively undermining the ability of newcomers in market to compete with them. One of the most common ways of preserving technological superiority is through patenting of e-business methods. One of the most famous cases involving this occurred between Amazon.com and the bookstore chain Barnes & Noble which entered the online market in 1997, two years after the launch of Amazon.com. Amazon.com and Barnes & Noble went to court for what Amazon.com alleged was Barnes and Noble’s infringement of their “One-click” ordering system with their “Express Lane” ordering system. After several trials and appeals, the matter was settled out of court in 2000 (Lang, 2001). Creating New Products and Services through the use of Information Systems Nowadays information systems are essential to the work of researchers, scientists, engineers and developers. Information systems can be used to gain low cost access to vast reserves of information and can allow interaction and collaboration between researchers in new and innovative ways. Information systems offer fast and simple ways for researchers to search through vast reserves of data to find the exact piece of information they need. Information systems also allow researchers to carry out complex data analysis and present data in intuitive and simpler to understand ways. All this can be of enormous benefit to a business organization. Speeded up and enhanced research allows companies to come up with innovative products and services in smaller periods of time (Howells, 1995). Another way in which information systems may be utilized in order to come up with new products and services is by the analysis of market trends and customers demands and requirements. Through the use of information systems it becomes simple for online companies to gauge what features are lost often demanded by their customers and provide greater priority to meeting these customer demands (Lieberman & Montgomery, 1987). There is a great strategic advantage to companies from being the first to offer a product or service. The ‘first mover’ has the opportunity to corner and secure the market on the new product or service by such tactics as pre-emptively acquiring assets and tying up suppliers (Kerin et al., 1992). Another way in which first movers may corner the market is by the extensive use of litigation on the basis of patent and copyright laws in order to prevent competitors from offering products or services which are similar to their own. The previously mentioned dispute between Amazon.com and Barnes and Noble and other online sellers over the ‘one click ordering’ method may be seen as an example of the use of this tactic (Morton, 2002). The use of high switching costs is another method through which first movers may gain a monopoly or a virtual monopoly over a market. To customers who are used to a certain service or product offered in a certain way by a certain company, switching to a comparative product from a different company entails a certain cost. This cost may be monetary, such as installation charges etc. as in the case of high speed internet over cable service providers, or the cost may be intangible. For example customers who are used to the layout of the Amazon.com site may find it hard to navigate the websites of Amazon.com’s competitors or they may have developed friendships with other members of the Amazon.com user’s online ‘community’ which prevent them from leaving (Mahadevan, 2000). Using Information Systems to Differentiate Products and Services One of the ways in which business organizations commonly seek a competitive advantage is by product differentiation. Product differentiation occurs when a business organization attempts to distinguish its products and services from similar products and services offered by business rivals. Differentiation may be trivial or substantial. Substantial differentiation includes an increase in quality or quantity of the product, better customer service etc. Trivial differentiation includes things like the use of different colours in packaging etc. Successful differentiation results in a competitive advantage because in the minds of the consumers there exist no competitors for the differentiated product or service (Peteraf, 1993). Amazon.com are seen as experts in differentiating strategy. Amazon.com's innovations in adding value to the online purchase experience include letting people read short excerpts of books before buying them, offering a 30% discount, on average, on all purchases and the use of advanced profiling systems to create a personalized browsing experience (Fruhling & Digman, 2000). The Use of Information Systems to Increase Sales and Gain a Monopoly over Customers Internet based retailers can use their websites to gather a lot of information about their customers’ preferences. Customers can select the layout of the Amazon.com page and other things like the number of items they receive per page in response to a query. This allows for a more satisfactory browsing experience for the user (Smyth, 2007). Companies can deploy their information systems to lock in their suppliers and customers and improve their relationship with their customers and suppliers. Information systems allow companies to maintain detailed records of their customers and gather a lot of personal details about them, which can then be used to automatically create a profile of the customer and automatically craft a marketing strategy personalized to fit the preferences of each individual customer. CRM (Customer Relationship Management) systems are the type of information systems especially designed for individualized marketing to customers (Tretter, 2003). Online retailers can also experiment with different marketing styles and advertising approaches in a manner that is impossible with tradition retail stores. DSS (Decision Support Systems) are data analysis tools which analyse large amounts of data, create complex computer based models of business environments and discover correlations between different variables in the business environment. DSS can be used to come up with ways of improving a business organization in various ways (Holsapple, 2003). Amazon.com also utilizes such a system in order to help it lock in customers and increase sales to present customers. Amazon.com information systems use sophisticated profiling technologies to classify a user as a buyer of certain types of items, based on their earlier purchases, it then select items from their inventory that a customer is likely to want to buy, based on the items bought by similar users. This system allows Amazon to position these items prominently when a customer logs onto the site (Clegg, 2000). These customized, individually tailored offers for each customer would be impossible to produce without information systems and automation of some marketing functions. It is obvious that these systems would produce far better results in terms of inciting customers to make purchases, than the general catalogues mailed by traditional bookstores to their prospective customers. The Use of Information Systems to Establish Industry Alliances With the use of information systems, new ways to communication and collaboration can be created. Information systems allow different business organizations to collaborate on projects and co-ordinate their activities in an efficient manner (Lee, 2003). Because only a small percentage of internet users actually make online purchases, online retailers require large number of visits in order to turn a profit. Online retailers therefore are especially dependent upon industry alliances for increasing their share of the market. In the late 1990’s Amazon.com entered into a 19 million dollar deal with AOL (America Online) to gain access to AOL’s 8.5 million subscribers. Over the years Amazon.com has developed close partnerships with other internet giants such as Apple and Facebook (Schneider, 2008). Dealing with Disruptive Technologies A disruptive technology is any new technology that has the potential to disrupt normal methods of doing business. Disruptive technologies offer new improvements in a product or service that are unexpected by the market and result in significant changes such as reduced cost of production, increased quality of product, more efficient production etc. Information systems help business organizations keep up with new developments in technology and adopt new technologies in a timely manner (Barlow & Li, 2010). Researchers have noted that when one competitor in a market adopts information systems in an effective manner, in order to remain competitive, other competitors in the market usually have to adopt information systems as well (Heeks, 2002). Amazon.com is an example of an online business that has evolved considerably over the years, adapting to new technologies as they came out. Amazon.com started as a website based on static HTML pages. The ordering system required online customers to phone Amazon.com to enter their credit card details. Rather than having their operations disrupted by new technologies, Amazon.com has most often been the company bringing innovation to the market to which other companies try to adapt themselves (Ward & Peppard, 2002). An example of Amazon.com’s fast adoption of disruptive technologies may be seen in their early adoption of the virtual worlds, which provide a new opportunity for companies to do business (Barlow & Li, 2010). Amazon.com seized the initiative in this regard by opening up a digital outlet and conducting extensive marketing in the popular virtual world ‘Second Life’ (Hof, 2006). Conclusions Amazon.com is an example of a smart internet retailer which has utilized information systems to its advantage in the online retailing market. In order to obtain strategic advantages from its information systems Amazon.com has not only consistently remained a technological leader and innovator but it has also always managed to keep technology subservient to its business and economic strategies. Amazon.com has utilized e-commerce strategies to reduce costs over real life stores. It has partnered with multiple online companies to create more business for itself. It has had some success in keeping out new entrants to the market by discouraging other companies from adopting its business model and coming up with clones of its propriety technologies. 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