The Current Modern Business Environment

Published Date: 02 Nov 2017

Information system (IS) should no longer be viewed in its traditional role, rather it should be used in terms of a strategic role for accomplishing IS based competitive advantages. This literature review is basically based on a strategic role perspective of the IS/IT integrating with other management strategies of an organization. The aim of the report is to conclude the strategic use of IS/IT in the current modern business.

"Don’t rely on the POS system. Information technology is merely a tool to achieve business strategy. We shouldn’t use the technology unless we can understand what the information means on paper." Toshifumi Suzuki, CEO of Seven-Eleven Japan (SEJ) (Weill and Nagayama, 2004)

Introduction

This paper reviews the recent literature and popular research to explain the strategic role of Information System (IS) in modern business. Based on literature point of view, the aim of the strategic management of information system is to determine the role of general managers in terms of taking decisions regarding IS strategy. A Strategic Information System can be any IS at any level of an organization that change the goals, processes, products, services, or environmental relationships to help the organization gain a competitive advantage. Peterson & Saunders, (2009) believes that decision about the IS strategy cannot be made totally relaying on information accumulated from the highly skilled professionals assigned in the field of IS. The analysis of IS strategy procedure done by Porter and Miller (1985) stresses that management of information systems can no longer be the individual aspect of the EDP function such as accounting and record keeping, focused on cost control and reduction Benova and Gregus(2006). General Managers are required to have a good insight about the IS strategy for proper alignment with organizational and business strategy. GM often have to demonstrate a clear understating of the information system of the company compare with those of their competitors, they must be prudent about the consequences of improper use of IS/IT.

Recent research and literature on strategic management stresses that the modern business is becoming a dynamic and unstable environment due to rapid change in technology and the shifting customers and industry demands, so the sustainable competitive advantages are argued to be mainly depended on company resources and capabilities. According to (Hemmatfar et al, 2010), the burgeoning information provision have made an organization surge to develop strategies in IS/IT which integrate with their business strategies and together carry on their corporate missions. The daily lives of many people have been affected by the advances in IT, at the time like that the IS strategies tend to deliver the innovative product and services at lower cost, and differentiated from other product which focuses on targeted market segment.

Nowadays, all most all organizations depend on information resources to maximise the effectiveness of the firm’s business strategy, which can be either IT assets or IT capabilities of firm to use the available information resources effectively to reduce the firm’s cost of the production and increase efficiency in production and add value to the products and services to gain competitive advantages over competitors. This report further explain how some of the successful business such as Seven Eleven Japan (total information system to support their corporate strategy), Glanbia plc (Radio frequency voice control reducing errors and labour hours) & Home Depot (Special Projects Support Team) uses the information system strategically to gain competitive advantages. This paper summarises briefly about the Michel Porter’s model of five competitive forces of firm’s to evaluate the firm’s competitive environment and the Porter’s value chain model to show how firms create value for an organization.

Linking IS/IT strategy with organizational and business strategies

The Information System Strategy Triangle (ISST) is a framework that helps to understand the impact of IS on the organization and appropriate alignment. The framework shows the relationship between the IS strategy with organisational and business strategy within an organization. Generally an IS strategy and organization strategy are driven by business strategy. These three strategies are fundamentally linked with each other. The consequences of failing to understand this relation can be substantially detrimental to a business. IS strategy can affect or be affected by any change in other business strategies. There must be constant adjustment between all three strategies. (Hemmatfar et al, 2010) explains that, the IS plays an important role in financial and non-financial and business operation features such as decision making as a big role of management. That’s why, the GMs are often required to make a prudent decision while deploying the IS decision with organizational decisions by taking into consideration the accountability of the organization’s capabilities and resources available.

Home Depot

Home Depot -one among the world’s largest home improvement retailer that operate over 1134 retail locations with information system. In 2000, it made the record fiscal year sales of $45.7 billion. Their information system annually processed nearly one billion cash register transactions and supported over 450,000 pieces of technology Albers, B. (2001).

According to Albers, B. (2001), Home Depot’s created a unique IS strategy, known as the Special Projects Support Team (SPST). This information system team was initially created by comprising three members, in 1997 when the organization was involved in a large-scale legal case. Home Depot required to process and present information in terabyte (one trillion characters). The software system capable of handling this amount of data was developed by the help new innovative SPST, as a result the objective was achieved within six and a half weeks. The SPST then took on a growing number of other projects until in 1999 its 40 members were involved in the research, implementation and prototype application development across the business. In June of that year, they faced a massive change as the Home Depot Web site was developed. It was at this point that SPST members gravitated towards the Internet initiative. Home Depot’s Web site was far from typical of the dotcoms springing up at that time. The online products were available in all stores, online purchases could be returned to any outlet and Web site information was readily available for any customer who entered the bricks and mortar establishment. Home Depot’s new approach resulted very profitable. It was also selected by Computerworld magazine for three out of the past four years as number one place to work in information services. Home Depot understood the potential of aligning its IS strategy with wider organizational objectives. That’s the fundamental reason why they succeeded at a time when so many other dotcoms were logging off and going home. By aligning its information systems with the rest of its organizational goals, Home Depot was able to integrate IT successfully with the rest of the business. This meant that not only did senior management develop a heightened awareness and use of IS, but it was also possible to monitor and assess this investment in line with other projects and not simply look for a physical return on investment (ROI) Albers, B. (2001).

Michel Porter’s Model of Competitive Advantages

The concept of "Value Chain" was used by Michael Porter (1985) as cited by Hemmatfar et al, (2010). They believe: Value chain analysis describes the activities within and around an organization, and relates them to an analysis of the competitive strength of the organization. Therefore, it evaluates which value each particular activity adds to the organizations products or services. Hemmatfar et al (2010) believes that primary activities are directly concerned with the creation or delivery of a product or service, as primary activities and support activities are distinguished by Michel Porter (1985). The major problem that companies now face is how to sustain their competitive advantage. Implementing strategic ISs may be a complex undertaking due to the magnitude and the complex nature of the systems (turban et al, 2006) cited by Hemmatfar et al, (2010) . Strategic ISs are designed to establish a profitable and sustainable position against the forces that determine industry competition.

Hemmatfar et al, (2010) says that the use of advanced information systems in value chain activities allows companies to enhance competitive differentiation as well as attain cost leadership and consequently gain sustainable competitive advantage. In other words, the ability to pursue cost reduction and differentiation simultaneously should be a criterion for IS utilization. Earl (1998) asserts that IS must have the potential to be a strategic weapon in gaining competitive advantage, improving productivity and performance, enabling new ways of managing and organizing and developing new businesses Benova and Gregus(2006). (Soo 2002) as cited by Benova and Gregus(2006) describes that the above view suggest the utilization of IS in strategic and managerial activities is more important than their use in operational contexts. This paper analyzes and critically evaluates the company’s practice in addressing the issue of low internal and external integration of its information systems and its negative impact on upstream and downstream value creation.

Strategic use of Information System in modern businesses

Seven Eleven Japan

This example is taken from the research 7-ELEVEN Japan Co., Ltd.: Reinventing the Retail Business Model by (Weill and Nagayama, 2004). The case study describes how the Seven Eleven Japan (SEJ) one of the world’s largest convenience store chain headquartered in Japan strategically implemented Information system to become the leader of the retail business in Japan. SEJ has expanded its business internationally over 18 countries with 24,912 stores. SEJ has been very successful that it has never experienced any deficit since its first operation in 1974. By 2003 SEJ became the Japan largest convenience store chain with $17.5 billion revenue and 5061 workers. The case study also describes that how Seven Eleven Japan (SEJ) has effectively developed new business model to transform the retail sector in Japan. According to the case, the reason behind the success of the SEJ as a top performing Japanese retailer to sells the high class products via its wide supply chain network was implementing the initiative of Information based strategies. SEJ pursues an integrated strategy between its Information resources and other business department to have an effective control over their operation. SEJ has been able to achieve competitive advantages over competitors because of the pursuing such IS/IT initiative.

According to the research SEJ stores serve 9.5 million customers in a daily basis, 5 million orders are processed daily and 35 million sales transactions are transferred to the Information systems centre (ISC) the whole process of data collecting, integrating and analysing is carried on. The research indicates that the product selection and appropriate order quantity is not guaranteed by the accuracy of the data itself for strong sustainable sales rather the decision should be relied on analysis of the order variance upon whether and the temperature. SEJ have 700 private whether centres individually covering a radius of 13 miles, which sent 5 reports electronically every day at store terminals. (Weill and Nagayama, 2004) says that such an advance and sophisticated Information system in Japan is very important because the temperature gap within small distance is too high and the report forecasted by TV are unreliable. SEJ started its first store system in 1978, since then they continued to develop total information system. SEJ invested $500 million fifth generation total information system in 1999. The system has four major features; 1) High efficiency, maintainability and reliability of the total network system, 2) Internet shopping site, 3) In store intelligent copy machine and 4) The store information system which encourages all store staff to participate in ordering.

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Graph taken from (Weill and Nagayama, 2004, p.17)

SEJ has market driving business strategy of high density, consolidated store openings which is the key to efficiency and stability. SEJ have a different franchise strategy unlike others franchiser SEJ doesn’t buy the business property or build new one rather they modified the old family owned stores. According to the case 43% of SEJ’s gross profit is generated from the royalty that the franchisee pays to the franchiser. The main point here is that the alliance between the business partner and SEJ includes shared information systems and knowledge about operational management. The highly integrated analysis system provided by the fifth generation total information system collects mass quantities of data and created value added information for original product development and store support services.

One of the salesmen from their franchisee said: "[Their] information system is so good that we instantly find out which goods of ours are selling at what types of customers and how much".

The Information resources of SEJ – IT assets like fifth generation of total information system and the IT capabilities of appropriately aliening them with business strategy (such as Merchandising, franchise strategy) is the key to SEJ success.

It gives a fair idea about how much had SEJ invested in information system and how they used it strategically to reach where they are today.

Glanbia plc.

This example taken from (Business and Leadership Ltd, 2008-2013) illustrate that strategic use of Information resources can maximise the effectiveness of the firm’s business strategy. Glanbia plc. Invested €1 million in radio frequency based voice control of its logistic and warehousing. The radio frequency based voice control device automatically converts the electronic orders in to speech which further transferred to the warehouse staff that uses secured wireless technology. The traditional manual system of paper based warehouse transaction and inventory management has been replaced with the advanced technologies in two warehousing sites, as well as two manufacturing sites, where it is integrated with the company’s SAP system. Since the implementation the company has reported 80pc reduction in inventory errors. The system has boosted productivity by up to 95% and has improved stock picking accuracy by 600%, resulting in a reduction of credit claims by 45%. The speed of the product pickup has improved from 160 to 260 cases per hour. Warehouse operatives in Glanbia say that operation now has been much straight forward as they don’t have to spend time checking stuffs repeatedly. The usual duties and orders are performed by using speech recognition and handheld terminals, replicating the old paper system for different warehouse transaction. The company’s productivity and accuracy has improved due to movement of its operator from order to order with the capability of such technology. (Handling-Network.com, Monday 4th march 2013)

Glanbia plc. in the example have demonstrated the Firm’s strategic capabilities to use new IT assets that helped them to replicate the traditional inventory management which reduced the stock errors, labour hours and increases the efficiency in supply chain management to achieve the ultimate competitive advantages.

Conclusion

As such information system has become known as an driving force of integration and the enabler of new competitiveness for current modern business in the global marketplace and the reason strategic IS supports or shapes competitive strategies, the notion of Strategic Information System is very crucial, IS can be used for cost leadership, differentiation strategy, creation of innovative applications, changes in business processes, collaborate business partners, reduction of costs, acquiring competitive intelligence, and others. This literature review is prepared assessing the research and case study of some scholars and authors and reviewed the literature of strategic ISs, competitive advantage and porter's model for competitive situations. According to above subject the important factors in new burgeoning business environment is emphasis on strategic implication of IS/IT. So for achieving successfulness, every general manager must understand the true nature of Information resources and should have enough know how to align appropriately with corporate business strategy.