Companies must select a strategy and then stay with it, because a confused strategy cannot succeed.

This selection, in turn, decides how a company will utilize its information systems.

A new information system that can improve customer service but will increase costs slightly will be welcomed at a high-end retailer such as Nordstrom’s, but not at a discount store like Walmart.

The following list presents the most commonly used strategies. Below Figure provides an overview of these strategies.

1. Cost leadership strategy: Produce products and/or services at the lowest cost in the industry. An example is Walmart’s automatic inventory replenishment system, which enables Walmart to reduce inventory storage requirements. As a result, Walmart stores use floor space only to sell products, and not to store them, thereby reducing inventory costs.

2. Differentiation strategy: Offer different products, services, or product features than your competitors. Southwest Airlines, for example, has differentiated itself as a low-cost, shorthaul, express airline. This has proved to be a winning strategy for competing in the highly competitive airline industry. Also, Dell has differentiated itself in the personal computer market through its mass-customization strategy.

3. Innovation strategy: Introduce new products and services, add new features to existing products and services, or develop new ways to produce them. A classic example is the introduction of automated teller machines (ATMs) by Citibank. The convenience and costcutting features of this innovation gave Citibank a huge advantage over its competitors. Like many innovative products, the ATM changed the nature of competition in the banking industry. Today, an ATM is a competitive necessity for any bank.

4. Operational effectiveness strategy: Improve the manner in which a firm executes its internal business processes so that it performs these activities more effectively than its rivals. Such improvements increase quality, productivity, and employee and customer satisfaction while decreasing time to market.

5. Customer-orientation strategy: Concentrate on making customers happy. Web-based systems are particularly effective in this area because they can create a personalized, one-to-one relationship with each customer.