What are the challenges posed by strategic information systems, and how should they be addressed?

Strategic information systems often change the organization as well as its products, services, and operating procedures, driving the organization into new behavioral patterns. Successfully using information systems to achieve a competitive advantage is challenging and requires precise coordination of tech­nology, organizations, and management.

1. Sustaining Competitive Advantage

The competitive advantages that strategic systems confer do not necessarily last long enough to ensure long-term profitability. Because competitors can re­taliate and copy strategic systems, competitive advantage is not always sustain­able. Markets, customer expectations, and technology change; globalization has made these changes even more rapid and unpredictable. The Internet can make competitive advantages disappear very quickly because virtually all companies can use this technology. Classic strategic systems, such as American Airlines’s SABRE computerized reservation system, Citibank’s ATM system, and FedEx’s package tracking system, benefited by being the first in their industries. Then rival systems emerged. Amazon was an e-commerce leader but now faces com­petition from eBay, Walmart, and Google. Information systems alone cannot provide an enduring business advantage. Systems originally intended to be stra­tegic frequently become tools for survival, required by every firm to stay in business, or they may inhibit organizations from making the strategic changes essential for future success.

2. Aligning IT with Business Objectives

The research on IT and business performance has found that (a) the more suc­cessfully a firm can align information technology with its business goals, the more profitable it will be, and (b) only one-quarter of firms achieve alignment of IT with the business. About half of a business firm’s profits can be explained by alignment of IT with business (Luftman, 2003).

Most businesses get it wrong: Information technology takes on a life of its own and does not serve management and shareholder interests very well. Instead of businesspeople taking an active role in shaping IT to the enterprise, they ignore it, claim not to understand IT, and tolerate failure in the IT area as just a nuisance to work around. Such firms pay a hefty price in poor perfor­mance. Successful firms and managers understand what IT can do and how it works, take an active role in shaping its use, and measure its impact on rev­enues and profits.

Management Checklist: Performing a Strategic Systems Analysis

To align IT with the business and use information systems effectively for com­petitive advantage, managers need to perform a strategic systems analysis. To identify the types of systems that provide a strategic advantage to their firms, managers should ask the following questions:

1. What is the structure of the industry in which the firm is located?

• What are some of the competitive forces at work in the industry?

Are there new entrants to the industry? What is the relative power of suppliers, customers, and substitute products and services over prices?

• Is the basis of competition quality, price, or brand?
• What are the direction and nature of change within the industry? From where are the momentum and change coming?
• How is the industry currently using information technology? Is the organiza­tion behind or ahead of the industry in its application of information systems?

2. What are the business, firm, and industry value chains for this particular firm?

• How is the company creating value for the customer-through lower prices and transaction costs or higher quality? Are there any places in the value chain where the business could create more value for the customer and additional profit for the company?
• Does the firm understand and manage its business processes using the best practices available? Is it taking maximum advantage of supply chain management, customer relationship management, and enterprise systems?
• Does the firm leverage its core competencies?
• Is the industry supply chain and customer base changing in ways that benefit or harm the firm?
• Can the firm benefit from strategic partnerships, value webs, ecosystems, or platforms?
• Where in the value chain will information systems provide the greatest value to the firm?

3. Have we aligned IT with our business strategy and goals?

• Have we correctly articulated our business strategy and goals?
• Is IT improving the right business processes and activities to promote this strategy?
• Are we using the right metrics to measure progress toward those goals?

3. Managing Strategic Transitions

Adopting the kinds of strategic systems described in this chapter generally requires changes in business goals, relationships with customers and suppli­ers, and business processes. These sociotechnical changes, affecting both social and technical elements of the organization, can be considered strategic transitions—a movement between levels of sociotechnical systems.

Such changes often entail blurring of organizational boundaries, both external and internal. Suppliers and customers must become intimately linked and may share each other’s responsibilities. Managers will need to devise new business pro­cesses for coordinating their firms’ activities with those of customers, suppliers, and other organizations. The organizational change requirements surrounding new information systems are so important that they merit attention throughout this text.

Source: Laudon Kenneth C., Laudon Jane Price (2020), Management Information Systems: Managing the Digital Firm, Pearson; 16^th edition.