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Management Information Systems

Unit 5

Unit 5
Structure: 5.1

Information Needs for Strategic Planning

Introduction Objectives

5.2

Value Streams 5.2.1 5.2.2 5.2.3 Michael Porter's Value Chains Michael Porter's Competitive Force Model Michael Porter's Generic Strategies for Competitive Advantage

5.3

Information and Organizational Strategy 5.3.1 5.3.2 Strategy Strategies for Competitive Advantage 5.3.2.1 5.3.2.2 5.3.2.3 5.3.2.4 5.3.2.5 Differentiation Cost Leadership Focus Linkage Information Leadership

5.4

Information and the Situational Analysis 5.4.1 Major issues to consider in situational analysis 5.4.1.1 5.4.1.2 5.4.1.3 5.4.1.4 5.4.2 Potential Internal Strengths Potential External Opportunities Potential Internal Weaknesses Potential External Threats

Using Information for Strategic Advantage 5.4.2.1 5.4.2.2 5.4.2.3 5.4.2.4 5.4.2.5 Reacting to Market Conditions Improving Customer Service Controlling Costs Improving Quality Expanding Globally
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5.4.2.6

Creating Strategic Alliances

5.4.3 Self Assessment Questions (for Section 5.4) 5.5 Organization Structure and Information 5.5.1 International Strategy 5.5.1.1 5.5.1.2 5.5.1.3 5.5.1.4 5.6 Multinational Corporation Global Corporation International Corporation Transnational Corporation

Organizational Requirements of Information 5.6.1 5.6.2 5.6.3 5.6.4 Cost Accessibility Reliability Security

5.7 5.8 5.9

The Strategic Use of Information Systems Summary Terminal Questions

5.10 Multiple Choice Questions 5.11 Answers to SAQs, TQs and MCQs

5.1 Introduction
With this unit, we shall start with the concept of value chain and discuss the Porters Model of competitive advantage. We will look into what ways the organisational strategy and information needs to be linked. How the organisation could use strategy as competitive advantage. We shall conclude by highlighting the organisational need for information and strategic use of information in organisation.

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Objectives: At the end of this unit, you should be able to Explain the competitive force model by Porter What are the strategies for competitive advantage Explain the various international strategy What are the information needs of the organisation

5.2 Value Streams


Value Stream is an end-to-end set of activities, which collectively create value for a customer. Value streams are often cross-functional. For example: Insurance Industry Value Stream: Customer Engagement Processes: Settle claims, Bill and collect, Satisfy customer inquiry Basis for value added or differentiation strategies Who is our customer? What is valued by customer? Who are our competitors? How difficult is our product to imitate?

Problems with value chains No owner for value stream Nobody focuses on customer satisfaction Long time delays Pass on problems to each other Seepages through the cracks Considerable rework

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5.2.1 Michael Porter's Value Chains Value chains help in developing leverage points where the costs needs to be contained and the value can be enhanced. Value activities do not operate independently. They have linkages amongst themselves. IS can add value by supporting the linkages. 5.2.2 Michael Porter's Competitive Force Model

Fig. 5.1

Illustrations for overcoming threats Reduce bargaining power of customers e.g. putting terminals into customer's offices Reduce bargaining power of suppliers e.g. having alternative sources of supply Threat of new entrants e.g. putting in a high cost of IS support system
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Threat of substitute products e.g. putting up flexible manufacturing facilities

5.2.3 Michael Porter's Generic Strategies for Competitive Advantage Strategy 1: Perform value activities at lower costs Example: Automating a manual process to reduce costs Reducing inventory carrying cost Strategy 2: Differentiate own products by value activities Example: Putting terminals in customers' offices (for locking the customer) Providing name for each adopted doll Strategy 3: Fill niche markets by value activities Example: Special plans for luxury car buyers Home PC sales (additional market) to network customers (existing customers)

5.3 Information and Organizational Strategy


Each organization must develop a strategy-its long-term direction or intended set of activities for attaining its goals. An organization needs extensive information to determine and then implement its strategy. Strategic-level decisions include plans for accomplishing long-term goals of market share, profitability, return on investment, service, and performance. They require determining the organization's distinctive competence by answering questions such as What kind of business should we be in? What should be the organization's markets? What market niches exist in which the organization can compete? What products or services should the organization offer? What technological investment is required? What human resources are available and required?
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What financial, time, material, or other resources are available and required? Where should the company allocate its resources and energies?

Answering these questions calls for obtaining information from both outside and inside the organization. Successful pharmaceutical companies, for example, must remain informed about changes within an array of scientific disciplines and integrate, the knowledge throughout the organization to maintain innovation. Hyatt Hotels needed information to help shorten checkin lines as a way of improving customer service and becoming more competitive; Wal-Mart needed information to assist in improving its purchasing and distribution systems so that it could compete more effectively against larger rivals. 5.3.1 Strategy Corporate level strategy addresses which lines of business a company should pursue. It views an organization as a portfolio, agglomeration, federation, or amalgam of businesses or subunits. Strategic management at the corporate level focuses on decisions about acquiring new businesses, divesting old businesses, establishing joint ventures, and creating alliances with other organizations. Determining its corporate-level strategy requires top management to obtain information about business growth rate-the speed of industry growth-and market share-the portion of the industry market captured by the business unit, among other information. Information on industry growth and market share is often public, due to the disclosures required of companies issuing stocks and bonds. Industry lobbyists, stock market researchers, trade magazine journalists, and other researchers also act as sources of this information. Information systems can regularly provide organizations with
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such information by tapping into commercially sold databases that offer extensive economic, technological, demographic, and even legal

information. This ongoing availability of information allows organizations to determine their strategic position as well as the appropriate actions for maintaining or changing this position. Information systems can provide the information for making resource allocation and other investment decisions. Information about market share, profit margins, patent ownership, technical capability, competitive strengths and weaknesses, quality of the management team, ability to compete on price and quality, customer requirements, and markets helps management determine its investment strategy. For example, business units with high ratings on both industry attractiveness and business strength make good financial investments; those low on both dimensions have no growth potential, and managers should consider divesting or liquidating them. Strategic management also involves business-level strategy, matching the strengths and weaknesses of each business unit or product line to the external environment to determine how each unit can best compete for customers. Strategic decisions include what products or services the company should offer, what customers it should service, and how it will deploy resources for advertising, research and development, customer service, equipment, and staffing. 5.3.2 Strategies for Competitive Advantage Firms can adopt five strategies to reap a competitive advantage: differentiation, cost leadership, focus, linkage, and information leadership. Information systems can provide the information required to support one of these strategies.

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5.3.2.1 Differentiation A differentiation strategy seeks to distinguish the products and services of a business unit from those of its competitors through unique design, features, quality, or other characteristics and thereby enable the business to charge a premium for its product or service. Companies pursuing a differentiation strategy need current and accurate information about the market, including detailed information about competitors' products,

customers' requirements, and changing environmental conditions. 5.3.2.2 Cost Leadership A cost leadership strategy seeks to achieve competitive advantage by allowing the business unit to make more profit than its competitors when selling to customers at the same price. Complete information about costs makes costs easier to control and creates a competitive advantage. The company requires quality internal information to reduce costs by achieving efficiencies in production, distribution, and sales. Even hospitals can use information technology to reduce costs by eliminating paperwork and improving services. Bedside terminals can store patient records; electronic conferencing can bring the expertise of a team of physicians in remote locations to a single problem; home health terminals allow patients to consult with doctors online; and diagnostic systems can support physicians' diagnoses, identify preferred treatments, and specify their cost benefits. 5.3.2.3 Focus A focus strategy achieves competitive advantage by concentrating on a single market segment. Companies following the focus strategy concentrate their resources to become big players in small markets rather than small players in larger markets. They require information about the nature of available markets and the characteristics of the players in them.

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5.3.2.4 Linkage A linkage strategy obtains a competitive advantage by establishing special, exclusive relationships with customers, suppliers, and even competitors. Organizations require detailed information about customers' needs, special arrangements with suppliers, and potential synergies with competitors. 5.3.2.5 Information Leadership An information leadership strategy increases the value of a product or service by infusing it with expertise and information. Managers can also supplement products with summary and activity reports for an account or customer, product and market information relevant to the customer, or information about related products and services. Informationalizing refers to this strategy of using information-based enhancements to revitalize mature businesses by enabling them to create or sell information as a core product. For example, airlines can electronically track baggage in airports in ways that can correct problems before customers discover they have missing baggage; other examples of informationalizing include producing "smarter" cars and allowing customers to design desired features on computers in dealers' showrooms. Strategic management also addresses how functions such as finance, marketing, research and development, operations, and human resource management can best support the organization's strategies. Functional strategies direct the way individual departments perform their tasks to accomplish organizational objectives. Marketing strategies focus on product development, promotion, sales, and pricing. Finance strategies focus on the acquisition, allocation, and management of capital. Operations strategies include decisions about plant size, plant location, equipment, inventory, and wages. Research and development strategies emphasize basic, applied, or developmental research. Human resource strategies revolve around the
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deployment management.

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5.4 Information and the Situational Analysis


Strategic management includes situational analysis-the process of collecting and analyzing information about a company's strengths, weaknesses, opportunities, and threats. The acronym SWOT is often used for these four components of situational analysis. Strengths and weaknesses are internal characteristics of the organization that enhance and impede its ability to compete. A reputation for quality exemplifies a strength, while having costs above the industry average typifies a weakness. Opportunities and threats are external or environmental factors that may help or hinder an organization in meeting its strategic goals. Weak competitors illustrate an opportunity, while adverse regulatory rulings represent a threat. 5.4.1 Major issues to consider in situational analysis 5.4.1.1 Potential Internal Strengths A distinctive competence Adequate financial resources Good competitive skill Well thought of by buyers An acknowledged market leader Well-conceived functional area strategies Access to economies of scale Insulated (at least somewhat) from strong competitive pressures Proprietary technology Cost advantages Better advertising campaigns Product innovation skills
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Proven management Ahead on experience curve Better manufacturing capability Superior technological skills

5.4.1.2 Potential External Opportunities Serve additional customer groups Enter new markets or segments Expand product line to meet broader range of customer needs Diversify into related products Vertical integration Falling trade barriers in attractive foreign markets Complacency among rival firms Faster market growth

5.4.1.3 Potential Internal Weaknesses No clear strategic direction Obsolete facilities Lack of managerial depth and talent Missing key skills or competence Poor track record in implementing strategy Plagued with internal operating problems Falling behind in R&D Too narrow a product line Weak market image Weaker distribution network Below-average marketing skills Unable to finance needed changes in strategy Higher overall unit costs relative to key competitors
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5.4.1.4 Potential External Threats Entry of lower-cost foreign competitors Rising sales of substitute products Slower market growth Adverse shifts in foreign exchange rates and trade policies of foreign governments Costly regulatory requirements Vulnerability to recession and business cycle Growing bargaining power of customers or suppliers Changing buyer needs and tastes Adverse demographic changes

Situational analysis requires extensive internal and external data. To evaluate internal strengths and weaknesses, for example, reputation for quality or above-average costs, a company must compare data on its internal condition with industry and competitor averages. Some firms go to extensive lengths to obtain information about the market and their competitors, including hiring employees from competitors, suppliers, and customers, and even buying competitors' garbage. Quality information systems can assist organizations in securing comprehensive information for the SWOT analysis. Organizations can use them to maintain, update, or access environmental and organizational data, such as demographic trends, potential customer lists, financial data, or staffing patterns. 5.4.2 Using Information for Strategic Advantage In many, if not most, organizations, information management is a backroom operation intended to support the other functions of the business. Information systems assist managers in communicating, planning, and monitoring. Information systems help individuals plan, schedule, and communicate. Information systems can also be used proactively and strategically as competitive weapons. In a survey of 200 CEOs and CFOs,
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75 percent agreed with the statement I believe that information systems hold the key to competitive advantage for my organization in the 1990s. Ways Information Systems Help Achieve a Competitive Advantage Company Gains a Competitive Advantage by: Reacting to market conditions Improving customer service Controlling costs Improving quality Expanding globally Creating strategic alliances

IS Assists by Helping Organization to: Reduce excess inventory Tailor prices to the market React quickly to lagging sales Leverage cash Introduce new products Set prices Maintain appropriate inventory Respond to customers' needs Monitor customer service Classify expenditures Monitor spending Control budgets Provide feedback Give production workers immediate access to analyses Ease communication Support coordination Share information with suppliers, customers, competitors
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Provide information links Create electronic markets

5.4.2.1 Reacting to Market Conditions A firm that can respond quickly to market conditions has an advantage over its slower competitors in a number of ways. It can keep its costs lower by reducing excess inventory and eliminating mistakes in purchasing or manufacturing products that will not sell. It can tailor its prices more accurately to what the market will bear. It can react more quickly to lagging sales by adjusting advertising and price promotions. It can leverage its cash better, taking long or short positions and moving money quickly to where the opportunity for profit is the greatest. It can more quickly introduce products that the consumer wants; being first in market gives a company the opportunity to be a market share leader, with resulting scale efficiencies in manufacturing and marketing. Companies can also use competitive pricing to give them a strategic advantage. Information from computer systems can assist. Restaurants can assess the impact of various pricing and promotion strategies on their profit margins. A resort hotel can evaluate the success of special promotional packages by tracking an individual guest's expenditures by revenue center (e.g., golf course, restaurant, health club) and then adjusting the promotions offered to increase their effectiveness. Delta Airlines in USA, maintained a list of competitors' prices and could respond to changes within two hours. 5.4.2.2 Improving Customer Service The travel service industry in general has used technology extensively to meet customers' needs. Automatic call distributors, automatic ticket machines, satellite printers, travel management software, including

databases, user-friendly terminals, programmable work stations, interfaces


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between personal computers and mainframes, and expert systems have together had a significant impact on the American travel industry. Even in India, the India Railways had developed various options so that a passenger need not have to wait for a long time to get a ticket. Proposal of having a ticket counter in the ATM machines and other kiosks are under process. 5.4.2.3 Controlling Costs Recall that one of the competitive strategies is to become a low-cost producer. Nevertheless, how does a firm keep costs below its industry's average? Organizations can do so by achieving economies of scale in production, distribution, and sales. However, as volume increases, keeping track of and rationalizing business activities becomes more complex. The ability to handle, process, and summarize large amounts of information is, therefore, a prerequisite to achieving cost reduction through volume growth. Information systems can easily serve this function. Systems to classify, monitor, and limit spending also facilitate cost control. To set budgets, managers need information about previous spending and about new plans and objectives. Budgetary information, in turn, permits managers to optimize their resources within prescribed limits. 5.4.2.4 Improving Quality Having a reputation for quality offers a strategic advantage for any organization. Consumers will usually be willing to pay more for a product or service that they know will always meet their expectations than for one whose quality will vary. Improving quality has also been shown to decrease costs as it reduces waste, eliminates rework, and permits more orderly processing. Achieving quality requires production workers to have constant feedback about the production process so that they can spot problems immediately
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and correct them. In the past systems were built so that production workers collected and entered data about production but did not have immediate access to analyses performed on the data that they had collected. Management information systems were built to provide summary and exception reports to the managers, who would then intervene in the process. Generally, managers would know about production problems before the production workers did. Companies operating in this fashion necessarily shipped inferior goods and provided inferior services. To improve quality, information about the goods and services being produced must be processed immediately, analyzed, and made available to production workers, who can intervene in a timely fashion to improve the process. 5.4.2.5 Expanding Globally Prior to the 1980s, the inability of a company to obtain information about its foreign operations time to compete with foreign companies operating in their own countries prevented organizations from operating globally. Most global corporations were holding companies that bought and sold regional companies in different parts of the world; each remote company, after acquisition, would continue to operate in its own realm with minimal management by the holding company. Todays competitive technology has reduced the barrier of distance. Now companies operating around the globe can exchange information with nearly the same ease as if they were in the same country. Toys "R" Us has expanded globally into Canada, England, Singapore, Hong Kong, and other locations since 1984. Its overseas stores are identical to American stores and rely on the same information processing systems as they do in the United States.

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Although language differences, regulation of information flows, and lack of a communication infrastructure remain barriers to the exchange of

information, in general, companies of all sizes now have the resources and information systems to allow them to operate globally. Information systems meet the need for coordination of diverse enterprises in distant locations. Going global remains one of the easiest ways for a company to expand its market. A company pursuing the strategy of rapid growth and high market share increases its opportunities for success by considering the entire world as its market and using information systems to help it attain the information it requires functioning internationally. Information technology helps

multinational companies compete internationally by supporting foreign subsidiaries, better integrating worldwide operations, allowing greater flexibility in responding to local market needs, and serving clients more innovatively. Creating a mature technological environment abroad helps meet customer needs for new products and management's needs for consistency and control in worldwide locations. 5.4.2.6 Creating Strategic Alliances The competitive advantage achieved by a company using information to react quickly to market conditions, improve customer service, control costs, improve quality, or expand globally will be short-lived if competitors can copy its strategy. Because the development of information systems typically takes several years, a company using information for strategic advantage needs time to establish its market share. Because its competitive advantage may be tenuous, an organization must be constantly vigilant for new strategic opportunities. Companies can also secure a competitive advantage by forming alliances with customers, suppliers, distributors, and producers of similar products, among others. If an alliance can be cemented by the exchange of information and information technology, the strategic advantages achieved will last longer.
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Inter-organizational information systems (lOSs) can meet information needs by serving as information links or electronic markets. Information links pathways for communication between two organizations-meet the need for coordination among an organization and its customers and suppliers. Information links enable or improve the collection and communication of information regarding inventory, sales, or other areas in which the two organizations interface. Electronic market systems are electronic, rather than physical, stores where products and services can be described, shown, sold, and purchased. They increase competition and efficiency in vertical markets by providing information about industry players and prices; buyers' ability to comparison shop reduces a seller's power in the market and creates lower prices. In Japan, used-car dealers buy and sell cars using their computers to participate in electronic auctions. A seller of surgical gauze in New York City found a low-cost supplier in China through an electronic bulletin board and now sells to, rather than buys from, U.S. wholesalers. American Airlines provides a well-known case of lasting competitive advantage achieved through sharing information and information services. In 1963 and the years immediately following, American Airlines provided travel agents with direct links to American's SABRE reservation system. Because studies indicate that an airline that supplies a travel agency's computerized reservation system is as much as 30 percent more likely to have tickets on its flights sold to the agency's customers, the basic marketing strategic of major airlines such as American, Delta, United, and TWA has emphasized these systems. By sharing access to its reservation information, American encouraged travel agents to book their clients on American flights. One developer of SABRE argues, for example, that agency use of computer reservation systems is the primary reason that
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passengers now book more than 80 percent of their tickets through agencies compared with less than 40 percent in 1976. Allegations of favoritism in the presentation of flight information was a basis for several lawsuits that have been filed against American Airlines by other airlines seeking relief from such anticompetitive practices. American denies that flights are presented by SABRE in such a way as to favor the choice of American Airlines. In the 1990s SABRE has lost its ability to control alliances to some degree because the increasing standardization of microcomputer and network hardware makes it relatively easy for an agency to switch partners. Computer information systems and communications technology form the backbone of such alliances and allow the joint ventures to operate effectively. Of all information technologies, high-speed networking was rated in one survey of IS managers as the one most likely to have the greatest impact on their company's strategy over the next five years.

5.4.3 Self assessment Questions (for Section 5.4)


1. List down the potential internal strengths and weaknesses that organisations face. 2. List down the external opportunities and threats that an organisation can have. 3. Explain how information can be used for strategic advantage

5.5 Organization Structure and Information


An organization's structure refers to the division of labor, coordination of positions, and formal reporting relationships that exist in the organization. Effective organizations have a structure that is congruent with their strategy. The structure chosen may promote specific information needs for the
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organization. We can characterize the organizations of the next century in two ways. First, increasing decentralization of decision making replaces centralization of this managerial function. A faster response to a dynamic and unpredictable environment requires that lower-level managers assume greater responsibility and accountability in an organization. Empowering of workers to make decisions calls for ensuring the ready availability of diverse types of information throughout the organization. Second, organizations more frequently assume a more organic structure. In addition to pushing decision making down in the organization, this structure involves more flexible interactions among parts of the organization. A bank manager may serve on a task force to develop new products for the bank and several months later participate in a reorganization of the sales functions in the bank. Project and product management structures group workers according to the project or product on which they work; the matrix structure simultaneously groups workers functionally and by project or product. These structures create intense information needs for workers throughout the organization to ensure the coordination of activities. In more bureaucratic structures, in contrast, such coordination occurs through the hierarchy or by standard rules and procedures rather than through the widespread dissemination of information. The more organic structures also have a high information-processing capacity, which reduces barriers to lateral communication. Electronic media can further increase the information processing capacity of such organizations. These flatter, more decentralized organizations will become more information based, that is, "composed of specialists who direct and discipline their own performance through organized feedback from colleagues, customers, and headquarters. Such a structure can replace managers, service staffs (e.g., legal, public relations), and central
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management with systems that make information readily available to workers at all levels in the organization. In information-based organizations individuals take responsibility for identifying their information needs and creating links to the sources of the required information. A recent study suggests that information technology will eventually result in more individuals acting as sources of information, fewer individuals formally included in an organizational subunit, fewer organizational levels involved in processing information, and more rapid decision making. 5.5.1 International Strategy In a global market, an organization may adopt a variety of strategies, including multinational, global, international, or transnational, to deal with its foreign subsidiaries. 5.5.1.1 Multinational Corporation A multinational corporation has built or acquired a portfolio of national companies that it operates and manages with sensitivity to its subsidiaries' local environments. The subsidiaries operate autonomously, often in different business areas. A company that follows a multinational strategy has little need to share data among its subsidiaries or between the parent and subsidiaries except to consolidate financial positions at year's end. 5.5.1.2 Global Corporation A global corporation has rationalized its international operations to achieve greater efficiencies through central control. Although its strategy and marketing are based on the concept of a global market, a headquarters organization makes all major decisions. A company pursuing a global strategy needs to transfer the operational and financial data of its foreign subsidiaries to headquarters in real time or on a frequent basis. A high level of information flows from subsidiary to parent, while limited data move from parent to subsidiary.
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5.5.1.3 International Corporation An international corporation exports the expertise and knowledge of the parent company to subsidiaries. Here subsidiaries operate more autonomously than in global corporations. Ideally, information flows from the parent to its subsidiaries. In practice, subsidiaries often rely on the parent to exercise its knowledge for the subsidiaries' benefit rather than simply to export it to the subsidiaries. For example, a subsidiary without a great deal of human resources expertise may "pay" its parent to operate its human resources function. Although the information theoretically should stay within the subsidiary, in this case it may flow back and forth between the parent's location and the subsidiary's location. 5.5.1.4 Transnational Corporation A transnational corporation incorporates and integrates multinational, global, and international strategies. By linking local operations to one another and to headquarters, a transnational company attempts to retain the flexibility to respond to local needs and opportunities while achieving global integration. Because transnational operate on the premise of teamwork, they demand the ability to share both information and information services.

5.6 Organizational Requirements of Information


The information that an organization develops and retains should provide value to the company. Diagnosing the required information is the first step of the four-step approach to information management. Then collecting and maintaining the information in a cost-effective manner make up part of the subsequent steps of evaluation and design. We define net value of information as the difference between the value and the cost of information. Companies attempt to maximize the net value of information they collect organizationally. To do this, they consider four characteristics of information: cost, accessibility, reliability, and security.
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5.6.1 Cost The cost of acquiring, manipulating, and maintaining information can affect its net value. Reducing such costs allows information to add more value to the firm. Although the budget for information systems at most organizations falls between 1 and 3 percent of sales, the real cost of information is usually much higher. The overall cost of information tends to be high, so small percentage reductions in the cost of information can have a large impact on its net value and on the profit of the firm. Information systems specialists need to focus on the tasks of collecting and maintaining information as well as on the value of the outputs of an information system when justifying its cost. Designers of information systems should minimize the time and effort required to collect or enter data. User-friendly touch screens offer one way to address this problem. 5.6.2 Accessibility Designers of information systems seek to make the appropriate information available to users at the right time, in the right place, and in the right format. Nevertheless, designers cannot foresee every possible need for information. As a result, the value of information as an organizational asset can be maximized by making it as widely available as possible to all those who might need it and who have authority to see and use it. 5.6.3 Reliability The improper design and use of information systems can create unreliable data. A recent study of end-user data at 21 random Fortune 500 companies showed that data pollution - faulty, flawed, or unreliable data or data processing-existed in every company. Users regularly generated reports and made decisions based on incomplete, inconsistent, or incorrect information. The problems in this study were caused by users who
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incorrectly entered data from reports generated by an MIS department into personal computers and then used these data as a source for further analysis. Improper use of information systems can also motivate organizational conflict, which in turn results in the generation of unreliable data. One multidivisional company created a stateof-the-art information system to provide managers with real-time summaries of sales and distribution data at the touch of a button. Given the availability of these data, top management periodically confronted lower management with problems they had identified. Divisional managers considered this behaviour to be meddling, and they quickly learned how to hide or delay the reporting of poor results. Not surprisingly, the data lost their accuracy and their value. The impact of "dirty data" on organizational performance can be immense. A 1992 Computer world survey found that more than 60 percent of companies are aware of occasions when corrupted data negatively affected their operations. For example, the U.S. General Accounting Office determined that data about student loan payments entered incorrectly into the U.S. Department of Education database had cost taxpayers $2 billion. The incorrect information was relayed to banks, which then allowed deadbeat students to continue to get loan renewals while deserving students were refused assistance. A New York securities firm missed a big trading opportunity that cost it more than $200 million. The firm eventually traced the problem to its employees' failure to enter key data into a new risk management system. 5.6.4 Security Security means protection against theft, manipulation, and loss of data. Theft of data should concern members of an organization because data theft is not as easily detected as theft of other corporate resources: Stealing
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data means taking only copies of data and leaving the original copy undisturbed. Burglars thus can continue to raid an organization's data, causing damage over an extended period. Despite the potential damage and difficulty of detection, most organizations assume that their information is relatively secure and take insufficient measures to protect against theft. The widespread use of personal computers has compounded the difficulty of security against corporate espionage. Competitors and foreign governments can pay employees to Surreptitiously steal key information on diskettes or portable computers or disgruntled employees may steal or modify essential information. For example, foreign intelligence agencies have used sophisticated technology to intercept data transmissions. Information such as proprietary technology, production methodologies, product data, and research and development breakthroughs may be sent directly to national laboratories or to competing organizations within the foreign country. Foreign and U.S. competitors can also use stolen information about production schedules, costs, margins, salaries, and performance reports as competitive tools. Many firms protect against the loss of data to fire or natural disaster by creating copies of the data, called backups, and keeping them at another location. Companies that fail to retain backups off site as well as provide for backup processing run the risk of suffering significant damage if they lose information about their customers, outstanding invoices, inventory, or financial status. Both technical and organizational measures can be used to promote data security.

5.7 The Strategic Use of Information Systems


Computerized information systems can assist and improve strategic management in organizations. Information systems can be used

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strategically to support the strategic planning process and provide competitive advantage. In the first case, a strategic decision support system addresses strategic problems, directly supports strategic decision making, recognizes the lack of structure in strategic decisions, and has the characteristics of a decision support system. For example, some organizations use strategic decision support systems as tools that collate and analyse information to assist their strategic planning. In the second case, information systems act as a resource similar to capital and labor in determining strategic plans. Information systems can change a business's or an industry's products and services, markets, and economics of production. For example, airlines used their information systems as a resource in implementing their strategy of increasing market share by obtaining a greater percentage of ticket sales from ticket agents and quickly revising prices to respond to price changes by competitors.

5.8 Summary
Organizations need information to make strategic decisions and can use it to develop an advantage over their competitors. Firms can adopt the following strategies to obtain a competitive advantage: differentiation, cost leadership, focus, linkage, and information leadership. Strategic

management often includes a SWOT analysis. Top management requires information to determine an organization's strengths, weaknesses,

opportunities, and threats.

5.9 Terminal Questions


1. What do you understand by Multinational corporation, Global corporation, International corporation, Transnational corporation. 2. What are the four characteristics of information.
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3. Take an organisation of your knowledge and determine how information could be used for strategic advantage in that organisation

5.10 Multiple choice questions


1. Value chains help in developing ________ where the costs needs to be contained and the value can be enhanced. A. leverage points B. Break even point C. Mid point D. All of the above 2. A ________ strategy seeks to achieve competitive advantage by allowing the business unit to make more profit than its competitors when selling to customers at the same price. A. Differentiation B. cost leadership C. Focus D. Linkage 3. There are characteristics of information A. 4 B. 5 C. 6 D. 7

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Unit 5

5.11 Answers to SAQs, TQs and MCQs


Self Assessment Questions Section 5.4.3 1. This has been mentioned in section 5.4.1.1 and 5.4.1.3 2. This has been mentioned in section 5.4.1.2 and 5.4.1.4 3. This has been mentioned in section 5.4.2 Terminal Questions 1. This has been mentioned in section 5.5.1.1, 5.5.1.2, 5.5.1.3, 5.5.1.4 2. This has been mentioned in section 5.6.1, 5.6.2, 5.6.3, 5.6.4 3. Apply to the organisation mentioned in section 5.4.2 Multiple Choice Questions 1. A 2. B 3. A

Sikkim Manipal University

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