4Business StrategyIs it important for employees to know the organizational “business strategy”?
5Business StrategyDifference between goals and objectives
6Examples of Goals Developing new products or services Entering new marketsIncreasing customer loyaltyAttracting new customersIncreasing sales
7Examples of Objectives First, identify a particular goalFor example, increasing customer loyaltySecond, identify measurable, focused indicators of customer loyalty that can be used to determine whether you are actually meeting your goalExamples?
8Competitive Advantage A feature of a product or service that customers value very highly or more highly than they do for similar features provided by their competitorsCould be a unique product or service but doesn’t have to be uniqueHow do you determine “better”?
9Identifying Competitive Advantages Competitive intelligence –The process of gathering information about the competitive environment to improve the company’s ability to succeedFirst-mover advantage – Occurs when an organization can significantly impact its market share by being first to market with a competitive advantage
12Porter’s 5 Forces ModelA framework for analyzing the competitive forces in the environment in which an organization operatesEvaluate the attractiveness in terms of entering into a particular industryAssess potential for profit
141) Buyer/Customer Power The ability of buyers to influence the price of an itemHigh when customers have ability/power to (lower) pricesSwitching cost – Manipulating costs that make customers reluctant to switch to another productLoyalty program – Rewards customers based on the amount of business they do with a particular organizationBuyer power can also be called customer powerCalling buyer power customer power sometimes helps students understand the difference between buyer power and supplier powerTo reduce buyer power (and create a competitive advantage), an organization must make it more attractive for customers to buy from them than from their competitionOne of the best IT-based examples is the loyalty programs that many organizations offerWhich kinds of loyalty programs are you currently using?Frequent-flyer milesGrocery store discounts – “Safeway Card”Restaurant discounts such as Subway’s get your 12th sandwich freeCoffee clubs where you get your 10th cup of coffee free
152) Supplier PowerThe suppliers’ ability to influence the prices they charge for their product/serviceHigh when supplier can set their own price with little risk of losing customersFor example, a monopolistic firm has high supplier powerA supplier organization in a market will want buyer (customer) power to be lowThe supplier wants to be able to set any price it wants for its goods, and if buyers (customers) have low power, then they do not have any choice but to pay the high price since there are only one or two suppliersWhat is an example of an organization with “high” supplier power?Microsoft, Government regulated products such as energy markets and telecommunication markets in some countriesHow an organization can be both a supplier and a buyer in a supply chain?Discuss how Dell computers is both a buyer and supplier in the supply chainDell is a buyer (customer) of parts, and a supplier to its customers who buy computersIf supplier power is high, the supplier can influence the industry by:Charging higher pricesLimiting quality or servicesShifting costs to industry participants
163) Threat of Substitute Products or Services How difficult it is for a customer to switch from your product / service to one of your competitor’s (or an alternative)Threat is high when it is easy for customers to switch (there are many alternatives and switching costs are low) between different products and services and low when there are few alternativesIdeally, an organization wants to be in a market in which there are few substitutes for its products or servicesThis is difficult to achieve, and most organizations create a competitive advantage through switching costs - the more painful it is for a customer to switch suppliers, the less likely they are to switchIf a customer has to experience pain when switching to a different service provider, then they are unlikely to switchFor example, switching doctors usually involves sending all medical records and explaining all past medical history to the new doctor. Insurance also has to be transferred, along with detailed forms that the customer will be required to complete (such as family history, personal history, HIPAA, etc.) For these reasons customers have to be extremely dissatisfied with a doctor before they will endure the pain of finding or switching to a new doctorStudents typically confuse rivalry with substitute products so be sure to ask students for examples of substitute productsWhat would be a substitute product for Starbuck’s coffee?Jamba JuiceTea HouseVitamin drinkSoda
174) Threat of New Entrants How difficult it is for an organization to enter into the same industry as youHigh when it is easy for new competitors to enter a market and low when there are significant barriers to entryEntry barrier – A feature of a product or service that customers have come to expect and entering competitors must offer the same for survivalWhat is an industry that has a high entry barrier?Energy – the organization has to have the infrastructure to support energyTelecommunications – the organization has to invest in a telecommunications infrastructure prior to offering servicesBanking – the bank must offer its customers an array of IT-enabled services including ATMs and online account servicesWhat is an industry that has a low entry barrier?Restaurants – simply lease a space, obtain a license, and you can sell foodCatering – simply offer food and deliverMovie rental – simply buy the movies, pay the licensing fee, and offer the movies for rental (although if you want to be a Netflix the entry barrier is high because you have to have the facilities and systems to mimic their movie supply chain)
185) Rivalry Among Existing Competitors To what extent is your market position challenged?High when competition is fierce in a market and low when competitors are more complacentProduct differentiation – Occurs when a company develops unique differences in its products or services with the intent to influence demandWhat are a few industries where competition is high?Restaurants, products, telecommunications, bankingWhat are a few industries where competition is low?This is typically highly regulated industries such as energy markets and stock exchangesAsk your students to provide a few examples of differentiationDifferent brands of Coke, Ragu spaghetti sauce, PepsiAdditional features on a cell phoneGREAT BUSINESS DECISIONS – Henry Luce Decides to Rank Companies in the Fortune 500Henry Luce founded Time magazine in 1923 and Fortune magazine in Luce decided to create a ranking of America’s top 500 companies, called The Fortune 500, which has served as the corporate benchmark for the twentieth century – as well as being a clever marketing tactic for the magazine. The Fortune 500 remains a powerful barometer of who’s up and down in the corporate world. It is also a brilliant marketing tool since every single time its name is mentioned, so is the name of the magazine. However, being ranked on the Fortune 500 does not guarantee that the organization will achieve future success, and its measures of current achievement can also be limited and a bit confusing.BusinessWeek magazine created a similar ranking by introducing its biannual ranking of business schools. The issue routinely outsells all other issues of the magazine in the year.
19Value Chain Analysis: Executing Business Strategies What is a business process?Business process – a standardized set of activities that accomplish a specific task, such as processing a customer’s order
20Value Chain Analysis: Executing Business Strategies Value chain analysis – Viewing an organization as a series of connected business processes that each add value to the product or serviceValue chain – views an organization as a series of processes, each of which adds value to the product or service for each customerValue Chain Groups – Within a company separate the company’s activities into two categories: 1) primary value activities and 2) support value activitiesTo create a competitive advantage, the value chain must enable the organization to provide unique value to its customersExamining the organization as a value chain determines which activities add value for customersThe organization can then focus specifically on those activities
21Value Chain Analysis: Executing Business Strategies Porter’s Value ChainPrimary value activities acquire raw materials and manufacture, deliver, market, sell, and provide after-sales servicesSupport value activities support the primary value activitiesCustomers determine the extent to which each activity adds value to the product or serviceThe competitive advantage is to:Target high value-adding activities to further enhance their valueTarget low value-adding activities to increase their valuePerform some combination of the two
22Value Chain Analysis: Executing Business Strategies Primary value activitiesInbound logistics - Acquires raw materials and resources, and distributesOperations - Transforms raw materials or inputs into goods and servicesOutbound logistics - Distributes goods and services to customersMarketing and sales - Promotes, prices, and sells products to customersService - Provides customer supportOrganizations typically follow one of Porter’s three generic strategies when entering a new marketBroad cost leadershipBroad differentiationFocused strategyBroad strategies reach a large market segmentFocused strategies target a niche marketFocused strategies concentrate on either cost leadership or differentiation
23Value Chain Analysis: Executing Business Strategies Support value activitiesFirm infrastructure – Includes the company format or departmental structures, environment, and systemsHuman resource management – Provides employee training, hiring, and compensationTechnology development – Applies MIS to processes to add valueProcurement – Purchases inputs such as raw materials, resources, equipment, and supplies
24Value Chain Analysis: Executing Business Strategies Value Chain and Porter’s Five Forces ModelThe organization’s goals andvalue-chain structure directlyimpact rivalryIf an organization wants to decrease its buyer’s or customer’s power, it can construct its value chain activity of “service after the sale” by offering high levels of quality customer serviceThis will increase the switching costs for its customers, thereby decreasing their power (buyer power)
25Value Chain Analysis: Executing Business Strategies The necessity of linking ALL activities is what allows the organization to realize a profitThese linkages are essential for successThe various profits, functions, and functional areas of the organization cannot operate in isolationConcept of “whole” is greater than the sum of the individual parts
26Value Chain Analysis: Executing Business Strategies The profit margin is determined by the organization’s ability to successfully manage linkages between different processes and functions in the organizationLinks are flows of information, goods, and services including the systems and processes needed to perform these activities and assist in flow
27Value Chain Analysis: Executing Business Strategies Only if the Marketing & Sales function delivers sales forecasts for the next period to all other departments in time and in reliable accuracy, procurement will be able to order the necessary material for the correct dateAnd only if procurement does a good job and forwards order information to inbound logistics, operations will be able to schedule production in a way that guarantees the delivery of products in a timely and effective manner – as pre-determined by marketingIn the result, the linkages are about seamless cooperation and information flow between the value chain activitiesSource: Recklies, (2001)
28Value Chain and Information Systems How might the introduction of new technologies impact different parts of the value chain and integration of components?How might technology impact buyers?How might the introduction of new technologies impact costs?Value chain components might change based on new technologies and IS
29Value Chain and Information Systems Supply chain – Consists of all parties involved in the procurement, creation, and delivery of a product or raw materialValue chain –versus- supply chain?
30Summary of lectureDiscussion of business strategy and why is it importantDefining competitive advantageCost-based matrixDifferentiating between goals & objectivesDiscuss Porter’s 5 Forces ModelName 5 forcesValue ChainsName 5 primary and 4 support activitiesThe role of IS