Strategic Information System - Characterization of Strategic Information Systems - General Definition

General Definition

Strategic information systems are those computer systems that implement business strategies; They are those systems where information services resources are applied to strategic business opportunities in such a way that the computer systems have an impact on the organization’s products and business operations. Strategic information systems are always systems that are developed in response to corporate business initiative. The ideas in several well-known cases came from information Services people, but they were directed at specific corporate business thrusts. In other cases, the ideas came from business operational people, and Information Services supplied the technological capabilities to realize profitable results.

Most information systems are looked on as support activities to the business. They mechanize operations for better efficiency, control, and effectiveness, but they do not, in themselves, increase corporate profitability. They are simply used to provide management with sufficient dependable information to keep the business running smoothly, and they are used for analysis to plan new directions. Strategic information systems, on the other hand, become an integral and necessary part of the business, and they affect the profitability and growth of a company. They open up new markets and new businesses. They directly affect the competitive stance of the organization, giving it an advantage against the competitors.

Most literature on strategic information systems emphasizes the dramatic breakthroughs in computer systems, such as American Airlines' Sabre System and American Hospital Supply’s terminals in customer offices. These, and many other highly successful approaches are most attractive to think about, and it is always possible that an equivalent success may be attained in your organization. There are many possibilities for strategic information systems, however, which may not be dramatic breakthroughs, but which will certainly become a part of corporate decision making and will, increase corporate profitability. The development of any strategic information systems always enhances the image of information Services in the organization, and leads to information management having a more participatory role in the operation of the organization.

The three general types of information systems that are developed and in general use are financial systems, operational systems, and strategic systems. These categories are not mutually exclusive and, in fact, they always overlap to some. Well-directed financial systems and operational systems may well become the strategic systems for a particular organization.

Financial systems are the basic computerization of the accounting, budgeting, and finance operations of an organization. These are similar and ubiquitous in all organizations because the computer has proven to be ideal for the mechanization and control or financial systems; these include the personnel systems because the headcount control and payroll of a company is of prime financial concern. Financial systems should be one of the bases of all other systems because they give a common, controlled measurement of all operations and projects, and can supply trusted numbers for indicating departmental or project success. Organizational planning must be tied to financial analysis. There is always a greater opportunity to develop strategic systems when the financial systems are in place, and required figures can be readily retrieved from them.

Operational systems, or services systems, help control the details of the business. Such systems will vary with each type of enterprise. They are the computer systems that operational managers need to help run the business on a routing basis. They may be useful but mundane systems that simply keep track of inventory, for example, and print out reorder points and cost allocations. On the other hand, they may have a strategic perspective built into them, and may handle inventory in a way that dramatically impacts profitability. A prime example of this is the American Hospital Supply inventory control system installed on customer premises. Where the great majority of inventory control systems simply smooth the operations and give adequate cost control, this well-known hospital system broke through with a new version of the use of an operational system for competitive advantage. The great majority of operational systems for which many large and small computer systems have been purchased, however, simply help to manage and automate the business. They are important and necessary, but can only be put into the "strategic" category it they have a pronounced impact on the profitability of the business.

All businesses should have both long-range and short-range planning of operational systems to ensure that the possibilities of computer usefulness will be seized in a reasonable time. Such planning will project analysis and costing, system development life cycle considerations, and specific technology planning, such as for computers, databases, and communications. There must be computer capacity planning, technology forecasting, and personnel performance planning. It is more likely that those in the organization with entrepreneurial vision will conceive of strategic plans when such basic operational capabilities are in place and are well managed.

Operational systems, then, are those that keep the organization operating under control and most cost effectively. Any of them may be changed to strategic systems if they are viewed with strategic vision. They are fertile grounds for new business opportunities.

Strategic systems are those that link business and computer strategies.They are the systems where new business strategies has been developed and they can be realized using Information Technology. They may be systems where new computer technology has been made available on the market, and planners with an entrepreneurial spirit perceive how the new capabilities can quickly gain competitive advantage. They may be systems where operational management people and Information Services people have brainstormed together over business problems, and have realized that a new competitive thrust is possible when computer methods are applied in a new way.

There is a tendency to think that strategic systems are only those that have been conceived at what popular, scientific writing sometimes calls the "achtpunckt." This is simply synthetic German for "the point where you say ‘acht!’ or ‘that’s it!’" The classical story of Archimedes discovering the principle of the density of matter by getting into a full bathtub, seeing it overflow, then shouting "Eureka!" or "I have found it!" is a perfect example of an achtpuncht. It is most pleasant and profitable if someone is brilliant enough, or lucky enough, to have such an experience. The great majority of people must be content, however, to work step-by-step at the process of trying to get strategic vision, trying to integrate information services thinking with corporate operational thinking, and trying to conceive of new directions to take in systems development. This is not an impossible task, but it is a slow task that requires a great deal of communication and cooperation. If the possibilities of strategic systems are clearly understood by all managers in an enterprise, and they approach the development of ideas and the planning systematically, the chances are good that strategic systems will be result. These may not be as dramatic as American Airline’s Sabre, but they can certainly be highly profitable.

There is general agreement that strategic systems are those information systems that may be used gaining competitive advantage. How is competitive advantage gained?. At this point, different writers list different possibilities, but none of them claim that there may not be other openings to move through.

Some of the more common ways of thinking about gaining competitive advantage are:

• Deliver a product or a service at a lower cost. This does not necessarily mean the lowest cost, but simply a cost related to the quality of the product or service that will be both attractive in the marketplace and will yield sufficient return on investment. The cost considered is not simply the data processing cost, but is the overall cost of all corporate activities for the delivery of that product or service. There are many operational computer systems that have given internal cost saving and other internal advantages, but they cannot be thought of as strategic until those savings can be translated to a better competitive position in the market.
• Deliver a product or service that us differentiated. Differentiation means the addition of unique features to a product or service that are competitive attractive in the market. Generally such features will cost something to produce, and so they will be the setting point, rather than the cost itself. Seldom does a lowest cost product also have the best differentiation. A strategic system helps customers to perceive that they are getting some extras for witch they will willingly pat.
• Focus on a specific market segment. The idea is to identify and create market niches that have not been adequately filled. Information technology is frequently able to provide the capabilities of defining, expanding, and filling a particular niche or segment. The application would be quite specific to the industry.
• Innovation. Develop products or services through the use of computers that are new and appreciably from other available offerings. Examples of this are automatic credit card handing at service stations, and automatic teller machines at banks. Such innovative approaches not only give new opportunities to attract customers, but also open up entirely new fields of business so that their use has very elastic demand.

Almost any data processing system may be called "strategic" if it aligns the computer strategies with the business strategies of the organization, and there is close cooperation in its development between the information Services people and operational business managers. There should be an explicit connection between the organization’s business plan and its systems plan to provide better support of the organization’s goals and objectives, and closer management control of the critical information systems.

Many organizations that have done substantial work with computers since the 1950s have long used the term "strategic planning" for any computer developments that are going to directly affect the conduct of their business. Not included are budget, or annual planning and the planning of developing Information Services facilities and the many "housekeeping" tasks that are required in any corporation. Definitely included in strategic planning are any information systems that will be used by operational management to conduct the business more profitably. A simple test would be to ask whether the president of the corporation, or some senior vice presidents, would be interested in the immediate outcome of the systems development because they felt it would affect their profitability. If the answer is affirmative, then the system is strategic.

Strategic system, thus, attempt to match Information Services resources to strategic business opportunities where the computer systems will have an impact on the products and the business operations. Planning for strategic systems is not defined by calendar cycles or routine reporting. It is defined by the effort required to impact the competitive environment and the strategy of a firm at the point in time that management wants to move on the idea.

Effective strategic systems can only be accomplished, of course, if the capabilities are in place for the routine basic work of gathering data, evaluating possible equipment and software, and managing the routine reporting of project status. The calendarized planning and operational work is absolutely necessary as a base from which a strategic system can be planned and developed when a priority situation arises. When a new strategic need becomes apparent, Information Services should have laid the groundwork to be able to accept the task of meeting that need.

Strategic systems that are dramatic innovations will always be the ones that are written about in the literature. Consultants in strategic systems must have clearly innovative and successful examples to attract the attention of senior management. It should be clear, however, that most Information Services personnel will have to leverage the advertised successes to again funding for their own systems. These systems may not have an Olympic effect on an organization, but they will have a good chance of being clearly profitable. That will be sufficient for most operational management, and will draw out the necessary funding and support. It helps to talk about the possibilities of great breakthroughs, if it is always kept in mind that there are many strategic systems developed and installed that are successful enough to be highly praised within the organization and offer a competitive advantage, but will not be written up in the Harvard Business Review.

Another way of characterizing strategic information systems is to point out some of the key ideas of the foremost apostles of such systems.