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Managing and Using Information Systems:

A Strategic Approach – Sixth Edition

Keri Pearlson, Carol Saunders, and Dennis Galletta

Chapter 2 Strategic Use of Information

Resources

Zara

• Chapter opening case

• How often do customers visit Zara each year?

• When do customers buy the designs? Why?

• How many designs do they make each year?

• Is this possible without IT?

Information Resources as Strategic Tools

What are information resources?

IT assets and capabilities (not just assets!)

IT Assets and Capabilities IT Assets

• IT infrastructure • Hardware • Software and company apps • Network • Data • Website

• Information Repository • Customer information • Employee information • Marketplace information • Vendor information

IT Capabilities • Technical Skills

• Proficiency in systems analysis • Programming and web design skills • Data analysis/data scientist skills • Network design and implementation

skills • IT Management Skills

• Business process knowledge • Ability to evaluate technology

options • Project management skills • Envisioning innovative IT solutions

• Relationship Skills • Spanning skills such as business-IT

relationship management • External skills such as vendor-

IT Assets

• Infrastructure • Information, technology, people and processes available

to perform business processes and tasks. (not just technology!)

• Might even include resources not owned by the firm (e.g., eBay, Facebook, LinkedIn)

• Information repository • Data captured, organized, and retrievable by the firm

IT Capabilities

• Technical Skills (designing, developing, implementing IS)

• Management Skills (managing the IT function and IT projects)

• Relationship Skills • Outside the organization (vendors, customers) • Within the organization (managers)

Examples

• Assets: • Proprietary technology (e.g., platforms) • Online community

• Customer information

• Capabilities: • Knowledge • Technical skills of IT staff

• Friendly, helping nature of IT staff

The Strategic Landscape

• Managers must take multiple views of the strategic landscape, such as:

• First view - Porter’s five competitive forces model. • Second view - Porter’s value chain.

• Third view – focuses on the types of IS resources needed (Resource Based View).

Five competitive forces with potential strategic use of information resources

Competitive Force IT Influence on Competitive Force

Threat of New Entrants Can be lowered if there are barriers to entry.

Sometimes IS can be used to create barriers to entry

Bargaining Power of Buyers Can be high if it’s easy to switch. Switching costs are

increased by giving buyers things they value in

exchange such as lower costs, effort, or time; or useful

information

Bargaining Power of Suppliers Strongest when there are few firms to choose from,

quality of inputs is crucial, or the volume of purchases

is insignificant to the supplier

Threat of Substitute Products Depends on buyers’ willingness to substitute and the

level of switching costs buyer’s face

Industrial Competitors Rivalry is high when it is expensive to leave an

industry, the industry’s growth rate is declining, or

products have lost differentiation

Application of five competitive forces model.

Competitive Force IT Influence on Competitive Force

Threat of New Entrants Zara supports its tightly knit group of designers, market

specialists, production managers, and planners. These

relationships take time. Rich customer information in its

database would take time to develop.

Bargaining Power of Buyers Recently, Zara has created a laser-created database of

sizes for 10,000 “real” women volunteers. New products

will be more likely to fit.

Bargaining Power of Suppliers Computer-controlled cutting machine can cut 1,000

layers at a time. A large number of sewers are available.

Threat of Substitute Products IT helps Zara offer extremely fashionable clothing that

would last 10 wears. The result is trendy clothes at

reasonable prices, making substitutes difficult

Industrial Competitors Zara tracks breaking trends and customer preferences.

The result is the highest sales per square foot in the

industry without much advertising, low inventories, only

10% of inventory unsold, new products from idea to

shelves in 15 days, and manufacturing efficiencies 13

Application of five competitive forces – Zara example

Porter’s Value Chain Model

• Value Chain model addresses the activities that create, deliver, and support a company’s product or service.

• Two broad categories: • Primary activities – relate directly to the value created in a

product or service. • Support activities – make it possible for the primary activities

to exist and remain coordinated.

• Competition can come from: • Lowering the cost to perform an activity, increasing profit. • Adding value to a product or service so buyers will be willing

to pay more (again, increasing profit).

Value chain of the firm.

The Value System

• The value chain model can be extended by linking many value chains into a value system.

• Much of the advantage of supply chain management comes from understanding how information is used within each value chain within the larger system.

The value system: interconnecting relationships between organizations.

Zara and Primary Activities Primary Activity Zara’s Value Chain

Inbound Logistics • IT-enabled JIT (just in time) strategy • Most dyes are purchased from Zara subsidiaries • Suppliers are located near production facilities

Operations • IT supports decisions about fabric, cut, and pricing • Products are hung on hangers to avoid ironing at stores • Price tags are already on the products • 60% of merchandise is produced in house • Fabric is cut and dyed by robots in 23 highly automated factories

Outbound Logistics • Clothes move on miles of conveyer belts • Clothes reach stores within 48 hours of the order

Marketing and Sales • Limited inventory permits low percent of unsold goods (10%) • Point-of-Sales systems linked to HQ • Managers provide information on customer needs daily via hand -

held computers

Service • No focus on service; clothes only last 10 wears

Zara and Secondary Activities

Secondary Activity

Zara’s Value Chain

Organization • Tightly-knit collaboration between designers, store managers, market specialists, production managers, production planners

Human Resources

• Managers are trained to understand customer needs and report to designers daily

• Managers help Zara keep on cutting edge of fashion

Technology • All primary activities are supported by integrated technology

• Automated conveyers speed up logistics

Purchasing • Vertical integration reduces the amount of purchasing needed

Sustainability

•Attaining competitive advantage is one thing • A firm often exploits rare and valuable resources

•But sustaining competitive advantage is another • Resources must be difficult to transfer or

relatively immobile

Sustainability Framework

Source: Piccoli & Ives

But Isn’t Sustaining an Advantage a “Deadly Distraction?”

• Some focus on sustaining would be useful • Some sustaining steps are not too difficult or expensive • It will help profitability while inventing more “disruptive”

measures • It might save the firm if disruption measures fail

• But some focus on disruption is also useful • Sometimes sustaining requires too much effort

• Disruption can have a huge payoff

The Resource Based View

IT Assets at Zara

IT Capabilities at Zara

Social Capital as an IT Resource

• Social capital: • the sum of the actual and potential resources embedded

within, available through, and derived from the individual or firm’s network of relationships

• Structural – Who is connected to whom

• Relational – How the people interact (e.g., respect, friendship)

• Cognitive – How the people think and the impact of a shared language

Relationships with Other Firms

• Strategic Alliances • Inter-organizational relationship that affords one or more

company a strategic advantage • Example: Zynga and Facebook • Business ecosystems provide abundant examples

• Co-opetition • Companies cooperate and compete at the same time

• Example: Microsoft builds laptops but also supplies operating systems to other laptop makers

Potential Risks

• There are many potential risks that a firm faces when attempting to use IT to outpace their competition.

• Executives should be aware of these risks in advance! • Awakening a sleeping giant – a large competitor with

deeper pockets may be nudged into implementing IS with even better features (Schwab/eTrade; FedX/UPS)

• Demonstrating bad timing – sometimes customers are not ready to use the technology designed to gain strategic advantage (Apple’s Newton, Shelternet)

• Implementing IS poorly – information systems can fail because they are poorly implemented (Nike; Hershey)

• Failing to deliver what users want – systems that don’t meet the firm’s target market likely to fail (Streamline.com groceries)

• Running afoul of the law – Using IS strategically may promote litigation (Airline reservation systems)

Co-Creating IT and Business Strategy

• Not just alignment, but partnership

• Example: FedEx • Are you paying only for the delivery? • Or are you also paying for information about the delivery?

• Fedex would not be able to accomplish the delivery without the IS components.

• Can you separate IT strategy from your business strategy?

• The trend is towards integrating the two.

Managing and Using Information Systems:

A Strategic Approach – Sixth Edition

Keri Pearlson, Carol Saunders, and Dennis Galletta