Presentation on theme: "Chapter 8 Value Creation with Information Systems"— Presentation transcript:
1 Chapter 8 Value Creation with Information Systems What theoretical and analytical models help managers identify opportunities to create added value with IT
2 Course Roadmap Part I: Foundations Part II: Competing in the Internet AgePart III: The Strategic use of Information SystemsChapter 6: Strategic Information Systems PlanningChapter 7: Value Creation and Strategic Information SystemsChapter 8: Value Creation with Information SystemsChapter 9: Appropriating IT-Enabled Value over TimePart IV: Getting IT Done
3 Learning ObjectivesHow to think in a disciplined fashion about the question of value creation with information systems resources.How to use traditional models of value creation with information systems and information technology to identify and craft IT-dependent strategic initiatives, including industry analysis, value chain analysis, and the customer service life cycle framework.How to incorporate information resources in your search for opportunities for value creation using emerging frameworks, including the virtual value chain and the customer data strategies framework.How to devise and select initiatives that create value using organizational data.
4 IntroductionChapter 6 showed you how the strategic information systems planning process is designed to create an overall context for information systems decision makingChapter 7 laid the foundation by explaining how you can analyze the impact of such initiativesNow, we get to the heart of the matter by introducing frameworks and analytical models use to identify opportunities, and to design and evaluate IT-dependent strategic initiatives
5 Traditional Frameworks Mid-1980s IS research - systematically explore and document the role of information systems and IT beyond automation of work and the creation of efficienciesResult: strategic models focusing on competitive positioning and competitive advantageIndustry analysisValue chain analysisCustomer service life cycle analysis
6 Industry Analysis The 5-Forces Framework Grounded in the basic notion that different industries offer different potential for profitability.Suggests that industry differences can be analyzed a priori by managers using an analytical frameworkfive forces modelExecutives can decide whether to enter an industry or forgo investment
7 Threat of New Entrants How easily can competitors enter the market? Are the barriers significant enough?
8 The Threat of Substitutes How easily can the product or service be replicated in a way that meets the same customer needs?VS.
9 Bargaining Power of Buyers How easily can customers influence the price of the product or service?
10 Bargaining Power of Suppliers How easily can individuals and firms sell their products and services at high prices?
11 Rivalry Among Existing Competitors How fierce is the battling for position and how aggressive is competition in the industry?Hyper competition – fierce rivalry among existing firms and a very rapid rate of innovation leading to fast obsolescence of any competitive advantage
12 Industry Analysis and the Role of Information Systems Investing in IS may:Can the use of IT raise or increase barriers to entry in the industry?Can the use of IT decrease suppliers’ bargaining power?Can the use of IT decrease buyers’ bargaining power?Can the use of IT change the basis of industry competition?
13 Value ChainAs managers – you will analyze opportunities to use strategic IS to create added value.The value chain model identifies:Primary activitiesSupport activitiesFirm InfrastructureHR ManagementTechnology developmentProcurementSupport ActivitiesInbound logisticsOperationsOutbound logisticsMarketing and salesServicePrimary ActivitiesMargin
14 Primary Activities Those directly related to value creation They are: Inbound logisticsOperationsOutbound logisticsMarketing and SalesService
15 Support ActivitiesThose not directly related to the transformation processThey are necessary to enable it.They are:Firm infrastructureHR managementTechnology developmentProcurement
16 Value Chain and Role of Information Systems Managers need to identify, understand, and analyze the activities of the firmThe objective is to enhance or transform them using Information SystemsCareful! Map a representative value chainMarketing& SalesProcurementProductionGuest StayAfter StayService
17 Value Network Firms interact with one another in the value network Individual value chains are therefore linked to those of suppliers (upstream) and customers (downstream)These linkages offer opportunities for value creation with Information SystemsSuppliersFirmCustomersLinkages
18 The Customer Service Life Cycle (CSLC) Objective:To map the relationship between a firm and its customersTo identify the stages where customers:Are unsatisfied orReceive substandard serviceProvide ideas as to how:To improve customer service through the use of the advanced ITor the deployment of IT-dependent strategic initiatives.
19 The Four Phases of the CSLC The CSLC identifies four major phases mapping the relationship between the firm and its customersStepping through the relationship in the customer’s shoesHelps managers address these needs from the customers’ point of view
20 The 13 Stages of the CSLCEach of the four phases is further subdivided into stagesThese represent typical needs the customer has when:PurchasingUsing andRetiring a product or service.
22 Phase 1: Requirements Establish requirements: Specify: Customer identifies a need for a firm’s product/serviceSpecify:Customer details the characteristics of product or service of interest
23 Phase 2: Acquisition Select a source: Ordering: Authorize and pay for: The customer identifies where to acquire the product or service fromInternet is a new source that reduces vendor’s distribution costsOrdering:The customer requests the product or serviceAuthorize and pay for:The customer issues paymentAcquire:The customer begins using the product or serviceEvaluate and accept:The customer ensures that the product or service meets specifications and the stated objectives of use
24 Stage 3: Ownership Integrate: Monitor use and behavior: Upgrade: The customer adds the product or service to the existing inventory of resourcesMonitor use and behavior:The customer ensures that the product or service remains in working orderUpgrade:The customer modifies or improves the product or service as neededMaintain:The customer services the product or service as neededThe firm can use such opportunities to avoid dissatisfaction and provide outstanding service
25 Stage 4: Retirement Transfer or dispose: Account for: The customer will needs to transfer, resell, return, or dispose of the product or serviceAccount for:The customer needs to evaluate the experience provided by the product or serviceThe customer needs to measure the costs associate with ownership of the product or service
26 Virtual Value Chain(VVC) Designed to map the set of sequential activities that enable a firm to transform:Raw data in input intoHigher value information in outputAdopts the same logic as the physical value chainVVC recognizes info as the entity being transformed (the value of which is being enhanced) through the chain of activitiesGatherOrganizeSynthesizeDistributeSelect
27 Five Activities Gather: Organize: Select: Synthesize: Distribute: Collecting and accumulating informationOrganize:Storing the gathered data in a way that makes later retrieval and analysis simple and effective.Select:Identifying and extracting the needed data from the data repositorySynthesize:Packaging information so that it can be readily used by the intended consumer for the specific purpose to which it is directedDistribute:Transmitting the appropriately packaged information to its intended user or customer.
28 Three Classes of Strategic Initiatives Visibility:The ability to “see through” organizational processes previously treated as black boxMirroring Capabilities:The ability of transforming physical activities into information-based onesEfficiencyEffectivenessPerformance
29 Three Classes of Strategic Initiatives New Digital Value:Creating relationship with the customerIncreasing Customer willingness to payCreating new value in the form of new information enabled products or services.
30 New Frontier: Value Matrix Marketing& SalesAfter StayServiceGuest StayProcurementProductionCaptureStoreSelectSynthesizeDistribute
31 Creating Value with Data Purpose of data: Do something of value for customers increase their customer willingness to payValueAbility for data to create value depends on two factors:Theoretical Repurchase Frequency of product or serviceDegree of Customizability of product or service
32 Theoretical Repurchase Frequency How often the customer repurchases the goods/servicesIt is a function of the industry the firm is in and the characteristics of the value proposition it offers
33 Degree Of Customizability How much the product or service can be tailored to the specific needs and requirements of individual customers
34 Customer Data Strategies HighRewards StrategyPersonalization- Loyalty Rewards- Reporting- Operations- DifferentiationTheoretical Repurchase RateAcquisition StrategyLow Payoff- Analytics- New ProspectsLowLowHighDegree of Customizability
36 Rewards Strategy Product and service purchased frequently. Products are fairly standardizedDifficult to tailor them to specific customer requests
37 Acquisition Strategy Low theoretical repurchase frequency High degree of customization
38 Low Payoff Low theoretical repurchase frequency Relatively low degree of customizability
39 The Third Dimension Unobtrusive Data Capture The extent to which – during the normal business cycle – data is collected and stored in a readily usable format
40 Data-Driven Strategic Initiatives Identify relevant Transaction Processing Systems (TPS)Narrow the scope of the analysis and focus on the systems that hold relevant dataInventory currently available dataIdentify the underlying data tracked in the natural course of businessTalk to power usersConceptualize initiativesGenerate and brainstorm ideasDon’t evaluate feasibility or financial viability yet
41 Prioritize Initiatives Evaluate actual feasibility – make pragmatic decisions about these initiativesUpside potentialTime sensitivityImpact immediacyAggregation requirementsTrending requirementsData availabilityAccuracyComprehensiveness
42 Prioritize Initiatives Imperatives:Projects with significant upside potential that rely on readily available informationQuick wins:Projects without much upside potentialCan be readily implemented based on immediately available informationHelp gain momentum and build credibility
43 Prioritize Initiatives Tradeoffs:Projects that rely on information not readily available that tends to be costlyLosing causes:Projects with little upside potential that rely on information that is not readily available
44 The RecapIndustry analysis, seeks to help you identify opportunities to deploy information systems to improve the profitability of the industryValue chain analysis seeks to spur your thinking about how information systems and technology can be used to introduce new activities and/or change the way the firm’s activities are currently performedThe customer service life cycle (CSLC) suggests that there is ample opportunity to create value by using information systems and technology to enhance the relationship with customers and enable superior customer serviceCSLC identifies four major phases and thirteen stages that offers opportunities for value creation per the relationship between the firm and its customer
45 The RecapVirtual value chain (VVC) recognizes the importance of the wealth of information available to today’s organizations in the search for value creationVVC identifies five sequential activities & three classes of strategic initiatives that a firm can use to transform raw data input into information outputs that have more value than the inputsCustomer data offer the potential to create value with different strategies best fitting different organizationsThe viability of the chosen strategy depends also on the degree of difficulty the firm encounters in collecting and using the needed customer dataOnce the firm identifies a potentially value adding strategy, it must ensure that it can appropriate the value created over time
46 What We LearnedHow to think in a disciplined fashion about the question of value creation with information systems resourcesHow to use traditional models of value creation with information systems and information technology to identify and craft IT-dependent strategic initiatives, including industry analysis, value chain analysis, and the customer service life cycle frameworkHow to incorporate information resources in your search for opportunities for value creation using emerging frameworks, including the virtual value chain and the customer data strategies frameworkHow to devise and select initiatives that create value using organizational data