Business Models and Information Systems
“A business strategy is a well articulated vision of where a business seeks to go and how it expects to get there” (Pearlson & Saunders, 2004). An organization’s decisions regarding both organizational and information systems strategies must be governed by this overarching business strategy. The information technology strategy must fit into the business strategy and be reevaluated constantly to ensure the company is meeting its strategic goals. The information systems strategy will both affect, and be affected, by the business strategy. Pearlson and Saunders (2004) discuss two important business models: the Porter generic strategies framework and D’Aveni’s hyper-competition model.
The Porter generic strategies framework can be a useful tool to help managers identify and understand the strategy options available in the search for competitive advantage. Porter (1985) identified three primary strategies that allow a business to obtain this advantage: cost leadership, differentiation, and focus. I feel that this competitive advantage is just as dependent on the competition’s strategy and execution as it is on the organization’s position in the market relative to those competitors.
Porter (1985) contends that the goal of a cost leadership strategy is to be the lowest-cost producer in a particular marketplace. By minimizing the costs associated with doing business the organization is able to obtain above average performance. “To be successful, this strategy usually requires a considerable market share advantage or preferential access to raw materials, components, labor, or some other important input. Without one or more of these advantages, the strategy can easily be mimicked by competitors” (Wikipedia.org, n.d.). The organization must also offer a product or service of comparable quality to its higher cost competition. It is only when the quality of two competing products is comparable that a customer will be able to realize the relative value of the product made by the cost leader. In order for an organization to properly execute a cost leadership strategy it must streamline operations and reduce overhead while decreasing the time it takes to get products from the idea to the customer stages. Proper design and use of information technology systems allow an organization to distribute information, coordinate efforts, share resources, automate processes, and analyze data in order to make the cost leadership strategy a market reality.
“Through differentiation, the organization qualifies its product or service in a way that allows it to appear unique in the marketplace” (Pearlson & Saunders, 2004). The organization identifies the features most important to its customers and then attempts to add value by improving upon or augmenting those facets. The differentiation strategy can only effective when the price charged to customers is judged to be fair when compared to prices across the remainder of the market. In service industries, proper use of information technology can be the facet that differentiates the service. Examples of IT being used to differentiate services include United Parcel Services mobile data stations that track and store information to predict shipment dates and minimize claims, and insurance adjusters using laptops to process claims from a customers home.
Two important variations of differentiation strategy are made apparent in study of Porter’s work: the shareholder value model and the unlimited resources model. The shareholder value model is based on the view that customers will buy products or services from a company in order to access that company’s unique knowledge. By properly timing the use of specialized knowledge an organization can create a differentiation advantage. The unlimited resources model allows an organization to outlast competitors through the use of a large resource base coupled with a differentiation strategy. This model is based on the idea that an organization with greater resources can both mange their risk and sustain losses more easily than a competitor with fewer resources.
A focus strategy allows an organization to focus on a particular market segment and tailor its products or services for that group of customers. The organization can either tailor those products or services by focusing on a cost advantage through cost focus, or distinguish its products or services from the rest of the market through a differentiation focus. An excellent example of differentiation focus is the use of frequent player cards at slot machines in certain major casinos. The casino is able to track wins, losses, visits, and service preferences through their information systems and use this information to offer customer rewards and better serve their clients.
D’Aveni (1994) does not focus on creating and sustaining a competitive advantage in his hyper-competition model. Rather, he advises using speed and aggressiveness for success in a constantly changing market. A constantly changing environment both creates and destroys advantages at a rapid rate. The hyper-competition model does not try to create long-term advantages and sustain them. Rather, it seeks to quickly bring incremental, short-term advantages to the table in order to disrupt competitor’s hard earned positions. Organizations using the hyper-competition model seek to achieve a competitive advantage in four key areas: cost/quality, timing/know-how, strongholds, and deep pockets. D’Aveni’s system suggests seven approaches to business strategy known as the Seven S’s. The Seven S’s include superior stakeholder satisfaction, strategic soothsaying, positioning for speed, positioning for surprise, shifting the rules of competition, signaling strategic intent, and simultaneous, sequential thrusts. The rise of the Internet has allowed organizations to use information technology to drive each of the Seven Ss. Companies making full use of their information assets like Google and Amazon.com rose from nothing to become top competitors in their respective fields.
A general manager cannot rely on the information systems manager to make IS decisions. The interdependence of the IS and business strategies demands that the general manager be involved in the IS decision making process and keep the IS team informed of business strategy changes. Additionally, changes in IS capability such as creation of new technology or new affordability of old technology should spur a reassessment of the business strategy in the event that new IS capabilities can offer a new advantage.
Business Models and Information Systems