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CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems.

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1 CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems

2

3 CHAPTER OUTLINE 2.1 Business Processes 2.2 Business Process Reengineering and Business Process Management 2.3 Business Pressures, Organizational Responses, and Information Technology Support 2.4 Competitive Advantage and Strategic Information Systems 2.5 Business – Information Technology Alignment

4 Learning Objectives 1.Understand the concept of business processes, and provide examples of business processes in the functional areas of an organization. 2.Differentiate between the terms business process reengineering and business process management. 3.List and provide examples of the three types of business pressures, and describe one IT response to each.

5 Learning Objectives (continued) 4.Identify the five competitive forces described by Porter, and explain how the Web impacts each one. 5.Describe the strategies that organizations typically adopt to counter the five competitive forces and achieve competitive advantage. 6.Define business – information technology alignment, and describe the characteristics of effective alignment.

6 Chapter Opening Case Media Bakery

7 BP Had $3 billion budget (targeted to be reduced by $800 million 4,200 IT employees 8,500 software applications

8 What Happened at BP 1,000 of 1,900 contract workers were eliminated The business unit CIOs had to double report – to the BP CIO and also to the business unit leader Since much of the IT applications were contracted, they were re-bid and BP ended up with 5 major vendors 80% of the top IT leadership was replaced The BP case demonstrates the need to have the right person lead an IT organization

9 Before the Stores Before the Stores (IT’s About Business 2.1) © pocorex/iStockphoto What is the product? What did Amar Kahbuni provide that was not already available?

10 Competitive Advantage an advantage over competitors in some measure such as cost, quality, or speed; leads to control of a market and to larger-than-average profits.

11 Porter’s Value Chain 1. Rivalry among existing firms in the industry 2. Threat of entry by new competitors 3. Bargaining power of customers 4. Bargaining power of suppliers 5. Threat of substitute products

12 Competitive Advantage Photodisc/Getty Images, Inc.

13 2.1 Business Processes Business Process a collection of related activities that produce a product or a service of value to the organization, its business partners, and/or its customers Cross-Functional Business Processes one in which no single functional area is responsible for its execution

14 Example of Business Process (Figure 2.1) The next slide shows an example of a business process: Ordering an E-ticket from an airline Web site Table 2.1 on page 36 depicts many common business processes

15 Notify Traveler Receive Ticket Order Reserve Seats Charge Credit Card Confirm Flight(s) Issue e-Ticket Plan Trip Check Flights Submit Ticket Order Receive e-Ticket Seats Available Use Credit Card? Charge OK? Seats Available ? Notify Traveler Frequent Flyer Mileage Sufficient? Subtract Mileage NO YES NO YES NO YES NO YES Traveler Airline Web Site YES NO

16 2.2 Business Process Reengineering and Business Process Management Business Process Reengineering a radical redesign of a business process that improves its efficiency and effectiveness, often by beginning with a “clean sheet” Business Process Management a management technique that includes methods and tools to support the design, analysis, implementation, management, and optimization of business processes

17 2.3 Business Pressures, Organizational Responses, and IT Support Business Pressures Market/Competition Technology Societal Economic Legal Political

18 Business Pressures, Organizational Responses, and IT Support In this class we focus on IT issues

19 Market Pressures The Global Economy and Strong Competition The Changing Nature of the Workforce Powerful Customers © WAVEBREAKMEDIA LTD/Age Fotostock America, Inc. © Mike Flippo/Shutterstock (Source: Studio Frank/Image Source L imited)

20 The Stages of Globalization (From Thomas Friedman in The World is Flat) Globalization 1.0 (from 1492 to 1800) Globalization 2.0 (from 1800 to 2000) Globalization 3.0 (from 2000 to the present) © Stockbroker xtra/Age Fotostock America, Inc.

21 Christopher Columbus Globalization 1.0 * 1492 to 1800 * World went from large to medium-size * All about countries and muscles * Key agents of change: brawn and horsepower

22 Steam engine Railroads Globalization 2.0 * 1800 to 2000 * World has shrunk from medium to small-size * Key agent of change: multinational companies * First half: global integration powered by falling transportation costs (steam engine and railroad) * Second half: global integration powered by falling telecomm costs (telephone, PC, satellites, fiber-optic cable)

23 Globalization 2.0 (second half) Smart phones Tablet computers Fiber optics © PhotoEdit/Alamy © Oleksiy Makymenko/Alamy Philip Hatson/Photo Researchers, Inc© ecco/Shutterstock

24 © WAVEBREAKMEDIA/Age Fotostock America, Inc. Globalization 3.0 * 2000 – now * World is now tiny (everyone is everyone else’s close neighbor) * Competitive playing field is being leveled * Key change agent: software, in conjunction with the global fiber-optic network * Enabling people to collaborate and compete globally

25 Thomas Friedman’s Ten Flatteners Fall of the Berlin Wall Netscape goes public Development of work-flow software © Hongjiong Shi/Age Fotostock America, Inc.

26 Friedman’s Ten Flatteners (continued) Outsourcing Offshoring Uploading Call center in India © Stockbroker xtra/Age Fotostock America, Inc. © Dinodia/Age Fotostock America, Inc.

27 Friedman’s Ten Flatteners (continued) Supply chaining Insourcing Informing

28 Friedman’s Ten Flatteners (continued) The Steroids Computing Charles Babbage’s Difference Engine (1822) Modern data center © zu difeng/Shutterstock

29 The Steroids (continued) Instant messaging and file sharing Voice over Internet Protocol Cheap, easy, and democratic

30 The Steroids (continued) Videoconferencing Computer Graphics Wireless Technologies Source: PRNews Foto/Polycom, Inc./NewsCom ( Source: Marianna Day Massey/Zuma Press.) Emphasis on “professional” or “personal” connections?

31 Technology Pressures Technological Innovation and Obsolescence Information Overload Moore’s Law : the power of a computer doubles every 18 months for the same price

32 Technological Innovation and Obsolescence (continued) Innovation: Telegraph Obsolescence: Pony Express

33 Technological Innovation and Obsolescence (continued) Innovation: Ford Model T Obsolescence: Horse and Buggy

34 Information Overload ( Source: © Maria R.T. Deseo/PhotoEdit)

35 Societal/Political/Legal Pressures Social Responsibility Government Regulation and Deregulation Protection Against Terrorist Attacks Ethical Issues

36 Social Responsibility One Laptop per Child initiative Green IT See CBS video on disposal of e-wastevideo Web sites that enable generosity Source: Frederic Lucano/Stone/GettyImages, Inc.

37 Organizational Responses Strategic Systems Customer Focus Make-to-Order and mass customization See ReebokReebok See Bodymetrics videovideo E-business and E-commerce

38 2.4 Competitive Advantage and Strategic Information Systems Competitive Advantage Strategic Information Systems Photodisc/Getty Images, Inc. © zu difeng/Shutterstock An advantage over competitors in some measure such as cost, quality, or speed, leads to control of a market and to larger- than average profits provide a competitive advantage by helping an organization to implement its strategic goals and to increase its performance and productivity

39 Porter’s Competitive Forces Model

40 Threat of entry of new competitors is high when it is easy to enter a market and low when significant barriers to entry exist. A barrier to entry is a product or service feature that customers expect from organizations in a certain industry. For most organizations, the Internet increases the threat that new competitors will enter a market.

41 Porter’s Competitive Forces Model The bargaining power of suppliers is high when buyers have few choices and low when buyers have many choices. Internet impact is mixed. Buyers can find alternative suppliers and compare prices more easily, reducing power of suppliers. On the other hand, as companies use the Internet to integrate their supply chains, suppliers can lock in customers.

42 Porter’s Competitive Forces Model The bargaining power of buyers is high when buyers have many choices and low when buyers have few choices. Internet increases buyers’ access to information, increasing buyer power. Internet reduces switching costs, which are the costs, in money and time, to buy elsewhere. This also increases buyer power.

43 Porter’s Competitive Forces Model The threat of substitute products or services is high when there are many substitutes for an organization’s products or services and low where there are few substitutes. Information-based industries are in the greatest danger from this threat (e.g., music, books, software). The Internet can convey digital information quickly and efficiently.

44 Porter’s Competitive Forces Model The rivalry among firms in an industry is high when there is fierce competition and low when there is not.

45 Porter’s Value Chain Model This model identifies specific activities where organizations can use competitive strategies for greatest impact. Primary activities Support activities those business activities that relate to the production and distribution of the firm’s products and services, thus creating value for which customers are willing to pay. Primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and customer service do not add value directly to a firm’s products and services, but support the primary activities. Support activities include accounting, finance, management, human resources management, product and technology development (R&D), and procurement

46 Porter’s Value Chain Model

47 Strategies for Competitive Advantage Cost Leadership Differentiation Innovation Operational Effectiveness Customer-orientation

48 Strategies for Competitive Advantage Figure 2.5

49 2.5 Business – Information Technology Alignment © Toh Kheng Ho/Age Fotostock America,Inc

50 Chapter Closing Case The Problem The Solution The Results Consider the process of students registering for a course. 1)Who are the main entities? 2)What is to be accomplished? 3)How do you know when a solution is attained? 4)When is the process complete?


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