Information systems could be defined as systems for processing and managing information, generally computer-based. IS, as it could be called, is also a serviceable group within an organisation that manages the operations and development of the business’s information and possible transactions. So information system strategy (ISS) could be explained as a method that brings into line information technology priorities with business strategies and defines the approach to take to achieve those business objectives.
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Since the mid 80’s, researchers and business specialists have carried out many studies and produced number of theories in feeding the world of business and may be the field of strategic studies in particular. Nowadays, those theories are counted as the support and basics of any business strategy to be adopted by any organisation.
Experts in the field of strategic management, such as Michael Porter and also Michael Earl, are both considered to be among the most influential experts in that area. Through a series of writings, Porter influenced a shift in the focus of the literature on strategies from strategic planning to strategic management. Earl’s publications also resulted in establishing a range of concepts and frameworks that were created to assist strategic planners in coming up with plans to build and sustain competitive advantage.
Michael Porter developed the original theories of the famous strategic approaches that include “The 5 forces”, “The 3 generic strategies for competitiveness” and “The value chain model”. On the other hand, Michael Earl established the “Multiple methodology”.
The Digital Era
Digital era has been used as a term since the late 1980’s. It carried the shift of transfer from a traditional industry to an industry based on the transactions of information and data through technological methods. Many old aged views of strategy are getting thrown out the window in the digital era, however, some solid views are still being found as the base of strategic thinking in the world of business. In a survey it was found that fast pace of developing e-business application only few businesses did take their time in developing their strategy properly or plan new initiatives (Wilder, 1999). We are experiencing a world that is continuously changing, where companies are being re-established and may be deregulated. New systems and ecommerce functions are providing management with a one off opportunity to rearrange the business rules and change the ways of business forever (Corcoran, 1999). In the world of today’s nature of e-business transactions, strategy is being considered to be vital than ever. Yet, many organisations are still not properly cooping with the environment of today’s business. These companies look as if they are frightened rabbits caught in the headlights of an oncoming car (Chattel, 1998).
It is considered to be important for businesses in the digital era to familiarise themselves with factors that will put them on steady steps throughout competition and run successfully. Businesses should realise that it is possible and easier nowadays to target customers and to customise products to the requirements (needs and wants) of the customer. Also comprehend the fact of being first is seen as more important than producing it well. Businesses should also realise that communication methods have opened up new opportunities for transaction and increased access to customers. For example, television adverts, radio stations, mobile SMS, emails and internet blogs. Today’s electronic applications are providing 24hours a day, 7 days a week access to businesses in anytime and from anywhere in the world. These factors have been the short term methods for new business opportunities, but in the long term, there will be a little chance of success without a clearly defined business and IT strategy.
The traditional approaches in ISS
Porter’s five forces model studies the forces that take part in an organisation and illustrates how IS can construct barriers and give competitive frame. Porter defines the competition of the organisation in the relation to the industry where high level of rivalry guides to low level of profits. The threats from new entrants are considered as the heights of the barriers in place to obstruct them and outline the profitability of the industry. Whereas threats from substitutes is the threat by others in copying the product so the margin for the definite profit decreases and consumers are more settled to change. The bargaining power of buyers counts on the price of the product and the influence or the pressure the customer possesses. Likewise the power of the suppliers is resolute by the price the consumer wants the product and how much they are willing to pay or able to spend.
Another ISS traditional approach is Porter’s 3 generic strategies. Porter’s generic strategies outline methods of achieving above standard performance. To create competitive advantage for an organisation Porter identified three generic strategies: focus and niche, cost leadership and differentiation. The suitable generic strategy will result in positioning the business to empower its strengths and guard against the unfavourable effects of the five forces. The focus or niche strategy was to find a gap in the market where a select product would fit in and do well. For example, the customised cars market, which makes the cars unique and leads in creating a niche for high class and therefore attracting big spending customers. Cost leadership involves having low level profit margins and selling big number of units of a product. Where differentiation, as it’s called, is when a business produces or provides something totally different from any other businesses in the industry.
Michael Porter also discussed that the actions that are available to be taken can be recognised by the adoption of the Value Chain Model. This model, or approach, concentrates internally within an organisation and was expanded as a systematic ground for analysing all the performance that a company carry out and how they cooperate. The value chain approach outlines that products go through several roles in an organisation, where maximising the value adding activities while minimising those that do not add value should be the objective.
A different traditional approach from a different scholar, Michael Earl, believes IS Methodology helps businesses meet their objectives fully for the reason that IS methodology is not on internal but external or outward looking. Earl established a multiple methodology with three approaches for business strategy: bottom up, top down and inside out. A bottom up approach takes into consideration the current system, afterwards investigates it for possible gaps, which can be achieved by adopting SWOT analysis. This approach outlines the current condition of the company and what does it want to achieve in the upcoming. The top down considers the organisation from a structural point of view bring into line IS with the business strategy of the organisation through studying the Critical Success Factors (CSF). CSF’s are explained through interviews, debates and current policies. And finally, the inside out approach studies different methods to carry research and business through new technologies that is done by observing the organisation in order to gain competitive advantage.
The Traditional approaches in ISS Vs The Digital Era
Strategy configuration is considered to be even more challenging in the digital era, not only because of the involvement of the developing objective, but also because of the disadvantages of practising a cleared and defined strategy in a digital industry.
Under the influence of the developing era during the last decade, traditional approaches in strategies have became more and more subject of critique. The appearing of the Internet, for example, and other electronic applications has noticeably affected almost all industries.
Considering that Porter’s theories were based on the economic situation in the late eighties. This phase was characterised by cyclical developments, strong competition and stable market structure. Porter’s approaches looks at the analysis of the current situation related to suppliers, customers and competitors. Strengthening the position itself within the five forces model has developed competitive advantage. Therefore, models in that era are unable to analyse or explain the dynamic changes in the digital era, which do have the power to change all industries. However, the analysis of industrial structures when employing Porter’s five forces model can serve as an analytical framework for outlining the distribution of resources and choice of business. This model can be adopted in the digital era and also provide a framework for employing new technologies as the internet, also as opportunities to businesses related in the direction of creating value for customers and gaining competitive advantage.
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Tackling the validity of Porter’s Five Forces could be analysed as each force by its own. The power of rivalry is assessed when knowing that the characteristics of developed technology, such as the internet, is the access to large numbers of customers, lower costs in operational or functional fields, simplicity of entry into the market, the prospective for adding value to customers, therefore gain competitive advantage. It is vital to outline that progressing competitiveness could be done by offering customers unique values and products, where it is not easy to keep the advantage gained because of the simulation of business forms, processes and technologies. Within regards to the second force, the threat of new entrants that may appear in an industry, digital methods and means has reduced barriers to entry of new businesses in the market because of the cut in numbers of employees and lower costs for required physical property. Companies that run on the internet through economies of scale can usually prevent new entry of other firms. When a company reaches critical mass and realises the influence of network externalities, can then powerfully compete with companies that have only entered the market, due to the already built relationships with clients or customers and their loyalty.
The threat of substitute goods or services is vast for ease of the entry process into the digital market. Customers can simply get on hold of information about other similar products and compare the different specifications of each product and get to a decision if the original product can be substituted at reasonable means with other alternatives and also can be done easily.
Internet empowers the bargaining power of customers. They now do not face any obstacles when seeking any information on quality, price or even detailed specifications. In addition, the existence of the web sites that offers price comparison of products and services, so that the procedure of obtaining information in the digital era has become much easier.
The fifth and last force within the five forces model is the bargaining power of suppliers. Where internet enjoys both negative and positive factors on the fifth force of the model, which is the bargaining power of suppliers. It is considered that the bargaining power of suppliers tend to provide easiness to customers to approach essential information related to prices, products and markets which limited bargaining power of suppliers. Another negative factor around involving the internet that affected the bargaining power of suppliers is the ease of entry into virtual markets that leads to an increase in competition. Suppliers are able to increase their power by applying a special procedure for supply and be well-known in or working on increasing the quality of their goods or services. The positive factor is that suppliers through technology methods and especially the internet can easily access a large number of customer and other businesses as well. And again, the internet gets rid of any possible intermediaries, which means that if suppliers were serving in the industrial sectors, the ability of intermediaries in influencing customers are reduced to a minimum.
Within regards to the Value chain model, the American guru has clearly outlined in one of his publications “Strategy and the Internet” that information technology has a penetrative effect on the value chain. The outstanding advantage of the internet is the ability to link an activity with others and making data widely available with both, the company and suppliers, customers and channels. Many of the most important applications of the internet in the value chain involve moving physical activities online, while others involve making physical activities more cost effective. To notice how these technological developments will eventually affect the value chain, some historical view is enlightening. The influence of the internet in the value chain should be kept in perspective. While internet purposes have an essential impact on the quality of activities and on the cost, they are not the main influences. Traditional factors such as the skills of personnel, process technology and investments in physical assets also play important roles. The internet is a turning point is some terms, but many traditional sources of competitive advantage remain secure (Porter, 2001).
The co-author of “Unleashing the Killer App: Digital Strategies for Market Dominance” highlights that those traditional approaches are not valid anymore. Larry Downes originated three new forces that require a new strategic framework: deregulation, globalisation and digitalisation. Deregulation happens when governments’ influence decreases several industries like communications and banking, which are fed by the new opportunities of information technology, firms in these industries were forced to restructure their businesses and to seek for other alternatives. Where globalisation is related to the developments of distribution and communications that have allowed almost all businesses to sell and buy globally. It could be added here, that networked and global markets need new requirements on organisations’ strategies. And so positioning themselves as quality leaders or price leaders, like Porter suggests in his Generic Strategies model, is not enough any more. Finally, digitalisation is explained as the influence of information technology develops, all stakeholders within a market will have access to even more information. Downes arguments are considered to be convincing. Where deregulation, globalisation and digitalisation have become powerful forces during the past years, but Porter’s models hardly ever took them into consideration. Today’s markets are strongly affected by technological developments especially in information technology. Therefore, it is not beneficial to develop a strategy exclusively on the basis of Porter’s models.
Downes concludes that the job of information technology is the main difference between the traditional strategy approaches and the digital era, which is the new world of the new forces. Where the traditional economy used information technology as an instrument for applying change, today information technology had become the vital factor for change.
Critique of Porter, by Downes, implies that Porters models concentrates too much on the economic conditions of their era of origin. Therefore, their practicality is restricted under change and developed conditions. It should be added too that Downes new forces are created from the economic conditions of their own era as well. Possibly within the next decades, they will tend to loose their importance due to other developments that took place in that future. In summary, Michael Porter’s approaches do not have the impact they used to have any more. Nevertheless, that doesn’t mean that Porter’s theories became invalid. What has to be done is to apply them with the knowledge of their limitations in mind and to use them as a part of a larger framework of theories and techniques. This approach, however, is advisable for the application of every business model, brand new or old, from Porter or from somebody else, and in every economy.
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