Informational System Strategy and Business Goals and Strategy

Executive Summary:

Information system is becoming an essential integrated part of organizations as a source of competitive advantage in this innovative and changed world. Firms’ IS strategy is designed to support their Business strategies and operations in order to produce business solutions e.g. low cost, high quality or increase market share. Effective IS strategy should be flexible and updated with the change in environment and business strategies. To support decision making and business operations IS strategies are designed at organizational, business and functional levels. Multiple methodology frameworks where managers consider multiple influences framework to develop IS strategy will lead to design better and appropriate IS strategy. Beside these internal factors some external influences also drive IS strategy.

Introduction:

Today information technology has become an essential need for organizations to survive in a highly competitive environment. Firms use information system to support their business processes and Decision making processes that leads to a competitive advantage for them (O’Brien, 2006:59). Organization is a set of people that work together to achieve a common goal with limited resources. Firms develop its long run strategies to meet those goals after analyzing its internal strengths and weaknesses and external opportunities and threats. Today information technology has change the way of decision making processes and decisions itself as firms can get real time data and communicate all over the world easily. In conclusion we can say that information system affects the long run strategies of firms that lead to achieve their organizational goal in an efficient way. So firms’ information system strategy should be deployed according to its long run strategies that lead to organizational performance.

Firms usually formulate their information system strategy to acquire, deploy and support its information system that ultimately aim to fulfill their business needs through partnership/collaboration and exploiting new opportunities available in market to compete in a global perspective (Porter & Miller, 1985). Scope of information system strategy is positively correlated with the change in size and line of business e.g. large firms with large information needs a wider information system. This paper tries to define the firms’ information system strategies and the frameworks that illustrate that how to plan these information system strategies.

Information System Strategy (ISS):

Information system strategy is a set of plans and actions to design an information system that meet the requirement of your strategic goals and increase organizational performance (Laudon & Laudon, 2006:123). IS strategy is also defined as the plan that guide in providing information services (ISS Triangle, 2011). Strategic information system changes the products & services, operations, environmental relationships and goal of organizations into new ways to gain competitive advantage. Strategic information system can be used at all organizational strategic levels i.e. organizational level, Business Level and functional level strategies. In fact IS strategy should develop at each strategic level separately as each level needed different level of flow of information (Loudon & Loudon, 2006:123). Business strategies are formulated to cater competition (customers’ needs and competitors’ actions), positioning (way of competition) and capabilities (ISS Triangle, 2011). An appropriate information system strategy increases the required firm’s capabilities in term of reduce cost, high quality or capturing high market share that help the company to fulfill their customers’ needs and response to competitors.

RBV and ISS:

According to resource based theory firms got competitive advantage when they have resources with the following characteristics (Barney, 1993)

Valuable (add value to the firm)
Rare
Imitable
No substitute

Information system brings these qualities in firms’ operations and helps Company to differentiate its products and services with respect to its competitors (Wade & Hulland, 2004). For example FedEx a courier service provider is known from its quality service. They get this milestone by using information system strategy. Information technology is divided into three assets i.e. Human Assets (Skilled Personnel), Technological Assets (physical IT assets) and relationship (Collaboration with other stockholders) that can be a source of sustainable competitive advantage (Rose et al., 1996)

Generic Strategies and ISS:

Firms can also gain competitive advantage through cost competitiveness where firms produce at lower cost than its competitors and from differentiation strategy where firms pose some distinguish quality than its competitors. Information system strategy can play a very important role in this respect. Internet is the cheap source of communication and managers can reduce their cost through internet as many companies take online orders to reduce their ordering costs. Priceline.com use internet in its operations and bring seller bidding online that reduce their auction cost. On the other hand ISS also can be used for differentiation as FedEx did in its operations and their customers can rightly track their shipment online and Google.com provides unique services like google translator or google map that differentiate it from other search engines.

Multiple Methodology Frameworks and ISS:

In developing information system managers should consider multiple methodology frameworks instead of a single one and should integrate that IS strategy with those frameworks.

Business Goals and IS strategy:

In developing IS strategy business strategy play an important role and drive to IS strategy. In developing IS strategy first of all managers should not give al authority to IS personnel as it could be insufficient to fulfill business needs (IS Triangle, 2011). Relationship of business strategy and IS strategy can be explained through Information System Triangle.

Successful businesses maintain balanced strategies between these three strategies and business objective, strategies and tactics make decision about components and application of information system. On the other hand information strategies should be change if any change occurs in business strategy. Constant innovation is the only source of leadership, if firms use information strategy to gain strategic advantage.

Current Systems:

In order to develop informational strategy firms should evaluate its current system. Firms can do so by using surveys from its and through internal audit reports. Here firms should critically define the deficiency areas that current system lacks to fulfill. In this framework we use bottom-top relationship where we identify the need first and then take appropriate actions. Business Process Reengineering is a process to redesign the business processes radically that leads to improvement in operations in the form of cost, quality, speed and service. In doing so firms called cross-functional specialists from different departments and the users of IS to find the exact need of IS. Because in many cases IS of firms become failed as IS personnel didn’t find the exact need for their operations.

IT opportunities:

New technologies came and change the way of life continuously. Information technology provides opportunities for the managers that change the way of information system. It is also found that first mover got the advantage as the time period of these new technologies are small. Many changing trends are evidenced in Information System field during last 50 years. In 1950s IS was just restricted to Data Processing systems in record keeping that converted to management reporting systems to support decision making in 1970s. 1980s era expanded the role of IS to strategic and end user support systems in designing executive information systems, knowledge based proficient recommendations to customers and strategic Information to gain competitive advantage (O’Brien & Marakas, 2004:11). So new changing trends and opportunities to become first mover from IS effect the IS strategies of a firm. Before exploiting IT opportunities managers should know their requires need that whether they want increase in productivity, profits or consumer surplus because research reveals that IT increases productivity and consumer surplus but it doesn’t mean that it will lead to very high profits (Hitt & Brynjolfsson, 1995).

Other Organizations:

Collaboration with other firms like with suppliers to make strong its value chain can change the information strategies in this respect. These collaborations can also allow the firm to leverage IS resources i.e. people, hardware, software, databases and network when firms can’t afford new requires IS. Firms are also collaborating to form a portal where a customer can find all thing he needed at one place. This led to small firms to operate in large market. For example in 2005 American West line and US Airways merged for a new collaborative firm that could better control over cost and performance (Laudon & Laudon, 2006:81).

External Drivers to Information system strategy:

External Environmental variables strongly influence the firms’ IS strategies than internal factors. In designing IS strategies these factors can play an important role. These external drivers are also integrated to each other that makes a complex relationship between these factors and firm’s IS strategy. Following are nine external drivers that can influence IS strategy.

Globalization
Industrialization to knowledge based economies
Competition
De-regulation
Up to date technologies
Transformation of the business enterprise
Changed customers’ attitude
Ethical and Environmental issues
Intellectual Assets

Competitors:

According to Porter’s five forces model firms have to construct strategies to cater five forces of (1) rivalry of competition (2) threats of new entrants (3) threats of substitute (4) bargaining power of customers and (5) suppliers’ bargaining power. As this is a world globalization and firms are expanding their operation that increases the extent of competition. Firms have to respond to these forces in order to survive themselves. In order to differentiate himself companies has to differentiate him self from its competitors. Firms make distinguish themselves from their competitors by using information technology (Bakos & Treacy, 1986). They can do so in following five ways

Cost Leadership:

By using information technology firms should become a low producer or they should find the ways to reduce the costs from their suppliers in order to decrease cost and to become cost leader to gain competitor advantage. Following cost leadership strategies information technology can play important part as in the case of DELL or E.BAY who decreases their costs by installing online order form system and online auction system respectively (O’Brien. 2004:49).

Differentiation:

Differentiating product or services through focus strategy can lead to a competitive advantage. Use IT features to differentiate product and services or focus to specific products or services at market niches or at least try to reduce the differentiation effect from competitors. For example AVNET Marshall increases their market share through developing customer/supplier E-Commerce system that differentiate AVNET from its competitors or at least minimize the differentiation effect from its competitors (O’Brien. 2004:49).

Innovation:

This kind of strategy leads to enter into unique markets or entering into unique market segments along with some unique product to gain competitive advantage over competitors. For this purpose make changes in business processes to improve quality and efficiency. Information technology plays an important role for innovation and helps to bring uniqueness in business operations (Alter, 2002:49). For example Amazaon.com has developed a fully online customer service system that makes whole the world in their range and make Amazon.com market leader.

Growth Strategy:

In this strategy firms expands their capacity of production and enters in global market with related or unrelated diversification. For example Citicorp has developed global intranet and Wal-Mart designs merchandise ordering system through global satellite system.

Developing Alliances:

Firms establish collaborations with its customers, suppliers, consultants and other companies to make efficient operations. Create virtual organization by using IT as Procter & Gamble and Wall-Mart has designed automatic inventory replenishment system that order to their suppliers automatically and reduce the ordering cost for the company (O’Brien, 2004:49).

Emergence of Global Economy:

In order to succeed in global economy real time transmission information is very important that will lead to respond to this changed world quickly. More capabilities and availabilities of internal digital communication facilities will increase the participation of economy towards globalization and its benefits. As more firms enter in globalization through alliances there is more chance that firms can get accurate and timely information. Information technology becomes more attractive in capital intensive countries like U.S where cost of labor is high and new technology might not be that mush important for labor intensive countries like China, India and Pakistan where one can find cheap labor as compared to capital incentive countries. Globalization IS allow centralized decision making as managers can assess information and made decisions more quickly. Globalization also encourages making strategic alliances to form global partnership. This global partnership also allow to small firms to contribute their small portion of products as supplement.

Transformation of Industrial Economies:

Today Western economies are using knowledge based sources to produce goods and services for their wealth creation. This transformation to knowledge based economy augmented the importance of IS as these knowledge based products and services are delivered digitally. This transformation also changes the source of competitive advantage and intangible assets of knowledge and intellect abilities act as the basic supplement to competitive advantage. On the other hand communication is found the most important operation in this respect and efficient marketing strategies are needed to find new customers. Small and medium firms can also access world wide markets as communication over internet is very cheap. Increased competition has increased innovation that leads to fade and product life cycles are becoming shorter.

Emerging Technology:

New technologies are emerging that leads to high quality with low cost that allow firms to offer low prices to increase their market share. A common agreement found among researchers that IT provides numerous opportunities for firms to grow and to compete effectively (martin et el., 1991). With today’s digital technology firms can better understand their operations and the individuals’ behavior towards those processes. Research reveals that firms do not use their information system up to that potential and a common agreement found that in many cases managers can utilize their information system more efficiently. New technology makes it harder to decide whether to act as first mover which is riskier as in many cases technology fails or to become a follower. So there is a trade off between risk from new technology or loss of competitive advantage in case of late deployment. Firms can also better control their supply chain management through new technology as Wall-Mart did and build an automatic merchandise system that inform its suppliers immediately when a customer purchase that product. Though firms are using wireless mobile media to make their operation efficient but this could lead to security issues that firms should consider.

Changed customers’ nature:

Communication media has increased the education level of their customers and customers are better known to the choices they have. This changed attitude compels the firms for competitive quality and prices. Customers respond and evaluate products and services according to its cost, quality, responsiveness (Time to response), reliability (average time of failure and compliances to order dates) and conformance to standards and regulations (rate of complaints about non-conformance) (Alter, 2002:273). On the other hand satisfied and dissatisfied customers communicate their view over internet that can be beneficial and harmful as well for a company. So firms have to perform well at all otherwise they will throw out of business. Supplier-customer relation are media based irrespective of personal but still customers respond positively and it is found that 72 percent ideas came from customer side.

Environment & conservation Issues:

Ethical and Environmental issues regarding firms operations are critical and firms should protect themselves by communicating these values (O’Brien & Marakas, 2004:493). For example managers have to decide that should they monitor personal records or mail of their employees or not. Privacy, Cyber Crime, Working conditions and health are the potential ethical issues that firm faces in real world.

Conclusion:

In conclusion managers should develop an information system strategy that fulfills their both strategic decisional and operational needs that ultimately leads to competitive advantage. A multiple methodology framework should use in this respect and not only the business goal but their current information system, IT opportunities and collaboration with other organization should also consider in developing IS strategy. Irrespective of these internal forces some external drivers also influence and lead to IS strategy. Firms can use cost leadership strategy, differentiating strategy, innovation, growth strategy or can develop alliances to compete and position themselves as a market leader. Internet provides a chance to go global to attract new customers from all over the world. In western knowledge based economies firms should use their intellect assets for competitive advantage by using appropriate marketing strategies. Adopting new technology as first mover is riskier as emerging technology fails many times but late adoption will loose the competitive advantage. Today firms have to perform better to make happy their customers otherwise they will leave as more options are available for them due to IT. At last managers should consider ethical and environmental issues arises from IS strategy and their potential consequences.

References:

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Sunday 23 June 2013

Informational System Strategy and Business Goals and Strategy

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