TABLE OF CONTENTS
Introduction
3.1 Formation Systems and Information Technology 3.2 Is and it Strategies
3.3 Evolution of Information Systems 3.3.1 Centralization Era
3.3.2 Decentralization Era 3.3.3 Architecture Era 3.3.4 Internet Era 3.4 IT as a Strategic Resource 3.5 IT and Competitive Strategy
3.6 Competitive Advantage and Competitive Necessity
3.7 Use of IT for Competitive Advantage by Hong Kong Organizations 3.8 Risks of Using IT Strategically
3.9 Inter-Organisational Systems (IOS) 3.10 Information Partnerships
C C h h a a p p t t e e r r 3 3
X Strategic Use of Information Technology
CHAPTER LEARNING OUTCOMES
When you have completed this chapter you will be able to:
• Distinguish between the scope of IS and IT.
• Discuss the impact of IT on business organizations.
• Describe the role of IT in gaining competitive advantage.
• Discuss the growing importance of inter-organizational information systems.
• Identify strategic IT applications for an organization.
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3.11 IOS and Competitive Advantage
3.12 Opportunities for Strategic IT Application 3.13 Strategic Grid
3.14 Competitive Force Analysis 3.15 Value Chain Analysis
3.16 CustomerÊs Resource Life Cycle Analysis 3.17 Strategic Options Generator
References Glossary
Feedback on the Activities on the Self-Tests
X INTRODUCTION
This topic aims to describe how information technology (IT) affects organizations in general, and their strategies in particular.
In the 1970s, the convergence of computer and telecommunication technologies enabled organizations to consolidate a communication network among diverse geographical locations. In the 1980s, the powers of microcomputers and high-level languages for user-friendly software have enabled organizations to develop distributed processing environments. The next important issue in IT management is to transform IT into competitive advantage. Over the years, information systems developed to serve this purpose have become collectively known as Âstrategic information systemsÊ (SIS).
Strategic information systems (SIS) enable a firm to gain a competitive edge or to undermine its rivalÊs advantages. For instance, by building an online reservation system that links directly with travel agents, American Airlines enlarged its market share in the late 1960s. In contrast, those firms that cannot perceive the strategic visions of IT might risk losing their business opportunities. Delta Airlines, for example, lost US$86.7 million because it failed to anticipate the strategic use of IT (Lederer and Mendelow 1988, 73).
We have to emphasize here that the advance of IT or IS alone does not necessarily produce strategic advantages that the management desires. As the successful deployment of SIS has to align with the corporate strategy, a good understanding of the relationship between IT and the methods of gaining competitive advantage is therefore essential.
Telecommunication networks and the information systems based on them play a very important role in gaining competitive advantage. Essentially they provide external links, such as those with customers and suppliers, through which information can be captured, processed, analysed, delivered and stored. Thus, these
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Âinformation networksÊ can have several strategic uses. One such important use is that these systems are capable of linking two or more organizations (rather than individuals) to build a tighter relationships, in which case they are called inter-organizational systems (IOS).
Having understood the ways in which IT can be used to provide strategic advantage, you still need to know how and in what manner in order to identify specific applications of IT for a given organization. You, therefore, need to know how to use frameworks/models to assess the potential of IT in providing strategic advantage to any organization. As there are many of these tools, you need a framework to help you determine which tool to use and when.
INFORMATION SYSTEMS AND INFORMATION TECHNOLOGY
In order for information to flow from its source to an individual who can use it, some type of system, physical or otherwise, is required to collect, to store and then to move the information within an organization. Thus, an information system (IS) can be defined as a set of procedures that collects or retrieves, processes, stores and disseminates information to support organizational decision making and control.
Many organizations have information systems which are entirely manual. Other systems are computer-based information systems that rely on information technology as well as humans for their operations. Information systems need not be necessarily computer-based, but often they are. The determining factor is whether an information system can be improved by including IT-based processing capability. If a manual system can perform a task efficiently and without error, there may be little reason to use IT. Often, however, as the volume of work grows, procedures increase in complexity or activities become more inter-related and/or dispersed geographically, information systems can improve their efficiency and effectiveness by obtaining IT to assist them. Therefore, all subsequent references to information systems in this course refer to these computer-based systems.
Information technology (IT) refers to a powerful collection of elements, which include computer hardware, software, telecommunication networks, and related technologies. As IT is the basis of any information system, there is often confusion between IS and IT. To clarify, information systems are ÂapplicationsÊ having functionalities that can be exploited by the business, and information technology provides capabilities that enable these applications, as shown in Figure 3.1.
3.1
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Figure 3.1: The role of IS and IT
For example, telecommunication is the technology that enables a computer to communicate with a remote terminal. This communication function could be used by an organization by placing these terminals at customersÊ sites thereby allowing customers to logon remotely to the organizationÊs computer for a variety of purposes such as order entry or inquiring about order status. Here, information systems are the software applications that customers would use (including software packages on the customersÊ systems and the host computer) and information technology is the hardware supporting these applications (computers, communications devices and so on).