Strategic Information Systems for Competitive …

1 89 CHAPTER3 Strategic Information Systemsfor Competitive AdvantageRosenbluth International:Competing in the Advantage andInformation s Competitive ForcesModel and s Value Chain StrategicInformation Framework for InformationSystems: Examples and SustainingSISM inicases: (1) Cisco Systems /(2) Aeronautica CivilLEARNING OBJECTIVESA fter studying this chapter, you will be able to: Describe Strategic Information Systems (SISs)and explain their advantages. Describe Porter s Competitive forces model andhow Information technology helps companiesimprove their Competitive positions. Describe 12 strategies companies can use toachieve Competitive advantage in their industry. Describe Porter s value chain model and its rela-tionship to Information technology. Describe how linking Information Systems acrossorganizations helps companies achieve competi-tive advantage.

2 Describe global competition and global businessdrivers. Describe representative SISs and the advantagethey provide to organizations. Discuss the challenges associated with sustainingcompetitive Information Technology in the Digital Economy2. Information Technologies: Concepts andManagement3. Strategic Information Systems for CompetitiveAdvantage P ART IIT in the 9/25/03 9:50 PM Page 8990 ROSENBLUTH INTERNATIONAL: COMPETINGIN THE DIGITAL ECONOMY THE PROBLEMR osenbluth International ( ) is a major global player in the extremelycompetitive travel agent industry. Rosenbluth s mission is to be the qualityleader in the development and distribution of global travel services and infor-mation. The digital revolution has introduced various threats and businesspressures to Rosenbluth and other agencies in the , hotels, and other service providers are attempting to displace travelagents by moving aggressively to electronic distribution Systems ( , airlinesare issuing electronic tickets and groups of airlines are sponsoring sellingportals for direct sale of tickets and packages).

3 Travel service providers have reduced commissions caps and have cutthe commission percentage for travel agents from 10 percent to 8 and thento 5 number of new online companies such as providingdiversified travel services as well as bargain prices, mostly to attract individ-ual travelers. These services are penetrating to the corporate travel area,which has been the bread and butter of the travel agents competition among the major players is rebate-based. The travel agen-cies basically give back to their customers part of the commission they getfrom travel service business models that were introduced by e-commerce, such as auc-tions and reverse auctions, were embraced by the providers in the industry,adding to Competitive pressures on travel agencies (see Turban et al., 2004).All of these business pressures threatened the welfare of Rosenbluth.

4 THE SOLUTIONThe company responded with two strategies. First, it decided to get out of theleisure travel business, instead becoming a purely corporate travel agency. Second,it decided to rebate customers with the entirecommission the agency receivesand instead bill customers by service provided. Rosenbluth charges fees, for ex-ample, for consultation on how to lower costs, for development of in-housetravel policies, for negotiating for their clients with travel providers, and for callsanswered by the company staff. To implement this second strategy, which com-pletely changed the company s business model, it was necessary to use severalinnovative Information uses a comprehensive Web-based business travel managementsolution that integrates Web-based travel planning technology, policy and pro-file management tools, proprietary travel management applications, andseamless front-line service/support.

5 This browser-based service allows corpo-rate travelers to book reservations any time, anywhere within corporatetravel policy in minutes. Three of the customer-facing tools that comprise thissystem 9/25/03 9:50 PM Page 90 ROSENBLUTH INTERNATIONAL: COMPETING IN THE DIGITAL ECONOMY91 DACODA (Discount Analysis Containing Optimal Decision Algorithms).Thisis a patented yield-management system that enables travel managers todecipher complex airline pricing and identify the most favorable airline con-tracts. Use of this system optimizes a client corporation s travel savings. Global Distribution network electronically links the corporatelocations and enables instant access to any traveler s itinerary, personal travelpreferences, or corporate travel policy. proprietary back-office application provides Rosenbluth sclients with consolidated, global data to enable them to negotiate betterprices with airlines, hotels, car rental companies, and other travel providers.

6 THE RESULTSU sing its IT innovations, Rosenbluth grew from sales of $40 million in 1979 toover $5 billion in 2002. Today, the company has physical offices in 57 countriesand employs over 4,700 associates. The company not only survived the threatsof elimination but has become the third-largest travel management company inthe world and a leader in customer service, travel technology, and integratedinformation :Compiled from Clemons and Hann (1999) and from Information at LESSONS LEARNED FROM THIS CASEThis opening case is a vivid example of a company that has achieved competi-tive advantage in the digital era by using IT. Rosenbluth s experience illustratesthe following points: It is sometimes necessary to completely change business models and strate-gies to succeed in the digital economy. Web-based IT enables companies to gain Competitive advantage and to sur-vive in the face of serious corporate threat.

7 Global competition is not just about price and quality; it is about service as well. IT may require a large investment over a long period of time. Extensive networked computing infrastructure is necessary to support alarge global system. Web-based applications can be used to provide superb customer service. It is necessary to patent innovative Systems to assure Competitive , competitors will copy the Systems , and the advantage most important lesson learned from this case is the double-sided poten-tial of the Internet: It can become a threat to an entire industry, yet it can alsobe an extremely important tool for gaining Strategic advantage for an innovativecompany. As a matter of fact, many executives who until 1998 were cynicalabout the Strategic advantages of IT have completely reversed their are seeing the potential of Web-based Systems to provide competitiveadvantage to organizations, and Web-based opportunities and risks are nowattracting universal attention in executive 9/25/03 9:50 PM Page 9192 CHAPTER 3 Strategic Information Systems FOR Competitive ANDINFORMATIONTECHNOLOGYS trategicInformationSystemsStrategic Information Systems (SISs),like the ones developed at RosenbluthInternational, are Systems that supportor shapea business unit s competitivestrategy (Callon, 1996, and Neumann, 1994).

8 An SIS is characterized by itsability tosignificantlychange the manner in which business is conducted, inorder to give the firm Strategic advantage. An SIS cannot be classified by or-ganizational structure, functional area, or support system as described in theprevious chapter. Any Information system EIS, OIS, TPS, KMS that changesthe goals, processes, products, or environmental relationships to help an or-ganization gain a Competitive advantage or reduce a Competitive disadvantageis a Strategic Information Competitive strategyis a broad-based formula for how a business is goingto compete, what its goals should be, and what plans and policies will be re-quired to carry out those goals (Porter, 1985). Through its Competitive strategyan organization seeks a Competitive advantagein an industry an advan-tage over competitors in some measure such as cost, quality, or advantage is at the core of a firm s success or failure (Porter andMillar, 1985, and Porter, 1996); such advantage seeks to lead to control of themarket and to larger-than-average profits.

9 A Strategic Information system helpsan organization gain a Competitive advantage through its contribution tothe Strategic goals of an organization and/or its ability to significantly increaseperformance and productivity. An SIS enables companies to gain competi-tive advantage and to benefit greatly at the expense of those that are subjectto Competitive advantage in the digital economy is even more important thanin the old economy, as will be demonstrated throughout this chapter. For somebusinesses the impact of the digital economy is revolutionary. Frequent changesin technologies and markets and the appearance of new business models canintroduce radical changes in industry structure (Deise et al., 2000) and the na-ture of competition can shift rapidly (Afuah and Tucci, 2003, and Choi andWhinston, 2000).At the same time, the digital economy has not changed the core businessofmost firms.

10 For most businesses, Internet technologies simply offer the tools,sometimes very powerful tools, that can increase their success through their tra-ditional sources of Competitive advantage be that low cost, excellent customerservice, or superior supply chain management. For the overwhelming majorityof businesses, the first step to Competitive advantage in the digital eeconomy isto ask and answer the question, Where, given my industry and position, doesmy Competitive advantage come from? Then the follow-up question, How canAs a matter of fact, computer-based Information Systems of all kinds havebeen enhancing competitiveness and creating Strategic advantage for severaldecades ( , see Griffiths et al., 1998, Galliers et al., 1999, and Ward andPeppard, 2002). Through numerous examples, this chapter demonstrates howdifferent kinds of Strategic Information Systems work.