What is Strategic Information System, Advantages and Porter’s Value Chain Model

Table of Contents:-

• What is Strategic Information System?
• Define Strategic Information System
• Creating a Strategic information system
• Advantages of Strategic Information System
• Porter’s Value Chain Model

What is Strategic Information System?

A Strategic Information System (SIS) is any system that offers an organization a competitive advantage over its competitors. It is a technological system at any level of the organization that changes its operations, goals, services, products, or environmental relationships to help it gain a competitive advantage. It concerns systems whose importance to the organization extends beyond merely managing its existing routine functions efficiently or even just effectively. Strategic Information Systems (SIS) is involved with systems that play a vital role in helping organizations achieve their objectives. A Strategic Information System (SIS) is designed to manage information and support strategic decision-making processes. 

A Strategic Information System (SIS) is a type of Information System designed to align with its business strategy and structure. The alignment increases the ability to respond faster to environmental changes and thus creates a competitive advantage.

For example, American and United Airlines enjoyed advantageous positions through their reservation systems, Sabre and Apollo. These systems ensured that their flights appeared prominently on the initial screens viewed by travel agents for several years, resulting in higher bookings than their competitors.

One central point of controversy surrounding SIS is its sustainability. A Strategic Information System (SIS) is designed to support an organization in achieving its business objectives. Strategic Information Systems (SIS) are solution-oriented systems developed in response to organizations’ business initiatives.

Define Strategic Information System

Strategic Information Systems (SIS) is developed as an integrated solution of the business and directly influences the market share and profitability. SIS may also help the organization in developing new products, new markets, and new methods of doing business. These systems directly help improve the competitiveness of the organization by offering a competitive advantage over its rivals.

Strategic information systems differ from other systems in several key ways:

1. They possess an external (outward-looking) focus.
2. They embody innovation and are not easily replicable.
3. They alter the competitive landscape of the business.
4. They are linked to higher project risks.

Creating a Strategic information system

Strategic information systems integrate two different concepts:

1) Concepts aimed at leveraging information technology to execute business decisions.

2) Concepts focused on formulating potentially advantageous business decisions.

For an information system to qualify as an SIS, two conditions must be met:

1) To pursue organisational objectives, the IS unit must collaborate with managers from other functional units (such as marketing, finance, purchasing, human resources, etc.).

2) The information system must align with an organisational goal rather than solely providing information.

To develop a strategic information system, top management must be involved from the initial consideration through the development and implementation stages. In other words, the strategic information system should be integrated into the overall organisational strategic plan. There’s always a risk that a new SIS may be perceived as the exclusive property of the IS unit. However, for the project to succeed, it must be a collective corporate effort involving all managers utilising the system.

Re-Engineering and Organizational Change

Sometimes, organisations must reconsider their entire operational framework to implement an SIS and attain a competitive advantage. During strategic planning sessions, management should ask, “If we were to establish this business unit anew, what processes would we implement and how?” This inquiry often leads to decisions to overhaul existing operations and construct new ones from scratch. Such transformative changes are known as reengineering, usually involving new machinery and streamlining management layers. Information technology frequently plays a pivotal role in this restructuring process.

Reengineering aims to achieve incremental cost savings and realise significant efficiency gains—potentially reaching 100% or even 1000%. With such dramatic improvements, a company often gains a competitive edge. Interestingly, a company undertaking reengineering alongside implementing a new SIS may not always discern the SIS’s success. The reengineering process complicates the evaluation of each change’s contribution to the organisation’s enhanced position.

Implementing an SIS necessitates businesses to overhaul processes and undergo organisational change to secure an advantage. For example, when General Motors Corporation (GM) aimed to produce a new car to compete with Japanese models, it opted for a distinct production process. Management initially identified critical objectives for the new car’s manufacturing, delivery, and servicing success. Management recognised that none of its existing divisions could meet these goals due to their organizational structure, culture, and inadequate IS. However, management established Saturn as an independent company with a separate operation.

Competitive Advantage as a Moving Target

Competitive advantage is not always enduring. Over time, competitors tend to emulate the leader, thereby diminishing the advantage. Therefore, the pursuit of innovative strategies must remain dynamic. Corporations must continuously explore new ways to leverage information technology to their advantage. The competition among companies for the latest competitive edge resembles an arms race. One side develops an advanced weapon; the other side develops a similar weapon that neutralizes the advantage of the first side, and so forth, in an environment where most information technology is accessible to all. Initially developed to create a strategic advantage, SISs quickly evolved into expected standard business practices.

A notable example is the banking industry, where surveys indicate that higher investments in information systems (IS) did not yield long-term strategic advantages. The few banks that once provided services such as ATMs and online banking enjoyed a decisive strategic advantage, but now, nearly every bank offers these services. A system can only assist a company in sustaining a competitive advantage if it continually adapts and improves it, thereby creating a moving target for competitors. American Airlines Sabre, the online reservation system for travel agents, serves as a classic example.

Advantages of Strategic Information System

The advantages of Strategic Information Systems are as follows:

1) It fosters the creative utilization of information systems technology and promotes innovation in its application to meet the organization’s needs.

2) It encourages the integration of existing and future information systems to eliminate information redundancies, inconsistencies and inefficient use of information system resources.

3) It identifies avenues to gain a competitive advantage by leveraging information systems as a strategic asset.

4) It establishes priorities and time frames for the development of information systems in the future.

5) It reallocates financial and human resources towards the business’s most critical and strategic information systems projects.

Porter’s Value Chain Model

Value chain is an important concept that can help to identify opportunities for strategic information systems (SIS). It was developed by Michael Porter and is a technique which helps an organization assess its resources and in so doing determine its strengths and possible weaknesses. Value chain analysis looks at the activities that make up a product or service to ascertain how much value each activity adds. Organisations use the Porter competitive forces model to design general strategies. To identify specific activities in which they can use competitive strategies for the greatest impact, they use his value chain model. The value chain model also shows points where an organisation can use information technology to achieve a competitive advantage.

Value activities are grouped into two broad categories (in most business enterprises) as shown in the image.

1) Primary Activities

i) Inbound Logistics: Inbound logistics include various activities associated with the procurement, storage, and flow of inputs for the product (such as material handling, warehousing, inventory control, and vehicle scheduling) before returning to the suppliers.

ii) Operations: The transformations of input into the final product (such as machining, assembly, packaging, equipment maintenance, testing, and facility operation) include various activities that are termed operations.

iii) Outbound Logistics: Activities such as the collection, storage, and physical distribution of finished goods to customers are termed outbound logistics. These activities include storage or warehousing of finished goods, order processing, scheduling deliveries, and operation of delivery vehicles.

iv) Marketing and Sales: Activities such as advertising, sales promotion, sales force management, channel selection, channel relations, and pricing fall under the marketing and sales category.

v) Service: The objective of services is to enhance or maintain product value, including installation, repair, training, parts supply, and product adjustment.

2) Support Activities

The primary activities require inputs or infrastructure to be performed, provided by the support activities. These support activities must be categorized based on their technological and distinctiveness. Typically, there are four categories of support activities:

i) Procurement:  Activities such as purchasing materials and services, equipment, and machinery are termed procurement activities. In the value chain, procurement activities are essential, as an activity can only be accomplished by purchasing the necessary inputs.

ii) Technology Development:  Utilizing technology implies perfection and upgrading in product design and manufacturing processes. The various activities within the value chain related to creation and improvement are grouped under technology development.

iii) Human resource management: Activities such as recruitment, training, and development of Manpower are integral to every activity within the value chain. Additionally, a distinct set of support activities is included in this domain.

iv) Firm Infrastructure: Firm infrastructure activities are different from specific primary or support activities but are essential for the entire value chain, providing infrastructure for the whole of the firm. These include general management, accounting and finance, legal affairs, strategic planning, etc.