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Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Chapter 2. Strategic.

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Presentation on theme: "Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Chapter 2. Strategic."— Presentation transcript:

1 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Chapter 2. Strategic Use of Information Resources Jason C. H. Chen, Ph.D. Professor of MIS School of Business Administration Gonzaga University Spokane, WA

2 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 2 What is the “Competitive Advantage”? A competitive advantage is a benefit derived from something a company does or has that its customers want and its competitors cannot (or choose not to) match.

3 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 3 Sustainable Competitive Advantages However, firms may create/improve their competitive advantages only if they: –have capacity to learn. –employ revenue management approach. With the service economy accounting for over 70 percent of GDP in OECD (Organization for Economic Co-operation and Development) countries, service firms are becoming increasingly competitive with revenue management (RM) and pricing becoming central in their focus for sustaining long term profitability (and competitive advantage).

4 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 4 Copyright 2010 John Wiley & Sons, Inc. 4 Learning Objectives List the identifying factors of the eras of information usage. Know what makes an information resource valuable. Explain how information resources are used strategically in context of the 5-forces model. Understand how information resources can be used to alter the value chain. Explain the importance of strategic alliances. Know the risks of information resources.

5 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 5 5 Real World Examples The Spanish manufacturer Zara has a simple business model that provides a significant strategic advantage. Their system links demand to manufacturing and manufacturing to distribution. Customers visit up to 17 times per year to check on new items that may have arrived. Since products are limited customers will immediately purchase products they like. Loyal and satisfied customer base.

6 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 6 Zara aligns its information system strategy with its business strategy. The POS system sends daily updates to Zara’s headquarters. Managers report to designers what sold and what customers wanted but couldn’t find. The information is used to determine what to keep and what to discontinue or change. New designs can be ordered twice a week. The entire process is automated so that new designs and products can be created quickly. Real World Examples (cont.)

7 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 7 What is Business Model? A business model is a set of planned activities (sometimes referred to as business processes) designed to result in a profit in a marketplace. Source: E-Commerce: business, technology, society, Laudon and Traver, A/W N The business model is at the center of the business plan. An e-commerce business model aims to use and leverage the unique qualities of the Internet and the www.

8 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 8 Why New Models? We need some new models –for how we go about exploring IT for competitive advantage, –for IT infrastructure how we create it and manage it –for how we acquire, manage and deploy the skills that are needed to run that infrastructure N – Profitability (making money)

9 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 9 Value propositions 1. Business model 2. Core competencies competition structure/ culture Strategic intent Finance ManagementProcessH/RTechnology … Strategy Positioning on product/market Differentiation/choice of competitive advantage Competitive posture Industry characteristics , Market growth , Demand characteristics , Barrier of entry , etc. fulfill IT Role? N Consistent Essentials for a Successful Enterprise Analysis (Porter, SWOT) Corporate strategy Business strategy Functional strategy Business landscape Internal/ External future positioning Positioning 3. Execution

10 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Business Model vs. Revenue Model Business model is the architectural configuration of the components of transactions designed to exploit business opportunities. N Revenue model refers to “the specific ways in which a business model enables revenue generation.”

11 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Business ModelRevenue Model Value It describes the way in which a company enables transactions that create value for all participants, including partners, suppliers and customers. It can be realized through a combination of - subscription fees, - advertising fees, - transactional income (e.g., fixed transactional fees, referral fees, fixed/variable commissions, etc) Business vs. Revenue Model creationappropriation

12 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 12 Four Important Entities for a Successful Enterprise Capital (资本) Technical (技术) Human (人才) Information (信息)

13 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 13 EVOLUTION OF INFORMATION RESOURCES

14 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 14 Information Resources Over the past decades the use of information resources has changed. Organizations have moved from an “efficiency model” of the 1960’s to a “value creation model” of the 2000’s. Companies seek to utilize those technologies that give them competitive advantage. Maximizing the effectiveness of the firm’s business strategy requires the general manager to identify and use information resources. Figure 2.1 shows this change.

15 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 15 Primary Role of IT Efficiency Automate existing paper- based processes Effectiveness Solve problems and create opportunities Strategic Increase individual and group effectiveness Strategic Transform industry/organizatio n Value creation Create collaborative partnerships Justify IT expenditure ROIIncreasing productivity and decision making Competitive position Competitive position Adding Value Target of systems OrganizationIndividual manager/ Group Business processes Business processes ecosystem Customer, supplier, ecosystem Information model Application specific Data-drivenUser-drivenBusiness-drivenKnowledge- driven Dominant technology Mainframe- based Minicomputer- based Microcomputer “decentralized intelligence” Client-Server “distribution intelligence” Internet “ubiquitous intelligence” 1960s1970s1980s1990s2000+ Basis of Value Scarcity Plentitude Underlying economics Economic of information bundled w/ economics of things Economic of information separated f/ economics of things Figure 2.1 Eras of information usage in organizations (Eras Model) w/ (with) f/ (from)

16 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 16 Network Externalities Definition - The phenomenon whereby a service becomes more valuable as more people use it, thereby encouraging ever-increasing numbers of adopters. –Network effects While the word-of-mouth method is often more influential in the beginning, analysis may play a significant role later in the cycle. In other words, you may adopt a service initially because someone you know uses it; later, you may adopt a service because "everyone" uses. –IT Role? –Network Externality offers a reason for value derived from plentitude (Era IV & V)

17 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 17 INFORMATION RESOURCES AS STRATEGIC TOOLS

18 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 18 Copyright 2010 John Wiley & Sons, Inc. 18 Information Resources The term information resources is defined as the available data, technology, people, and processes available to perform business processes and tasks. Information resources can be either assets or capabilities. –IT asset is anything, tangible or intangible, that can be used by a firm in its processes for creating, producing and/or offering its products (IT infrastructure is an asset). –IT capability is something that is learned or developed over time in order for the firm to create, produce or offer it products.

19 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 19 IT Assets IS infrastructure: –It includes data, technology, people, and processes. –The infrastructure provides the foundation for the delivery of a firm’s products or services. Information repository. –Logically-related data that is captured, organized and retrievable by the firm. Web 2.0 assets now include resources used but not owned by the firm (eBay, Facebook, etc.). Copyright 2010 John Wiley & Sons, Inc. 19

20 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 20 IT Capabilities Three major categories of IT capabilities: –Technical skills - applied to designing, developing and implementing information systems. –IT management skills - critical for managing the IT function and IT projects. –Relationship skills - can either be externally- focused or spanning across departments. Copyright 2010 John Wiley & Sons, Inc. 20

21 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 21 Type of Information ResourceDefinitionExample IT Asset Anything that can be used by a firm in its processes for creating, producing and/or offering its products (goods or services) IS infrastructure Base foundation of the IT portfolio shared through the firm 3 Hardware, software, network, data components, proprietary technology, web-based services Information repository Data that is logically related and organized in a structured form accessible and able for decision making purposes.” Critical information about customers that can be used to gain strategic advantage. Much of this information is increasingly available on the web. IT Capability Something that is learned or developed over time in order for the firm to create, produce or offer it products using IT assets Technical skill Ability applied to designing, developing and implementing information systems Proficiency in systems analysis and design; programming skills IT management skills Ability to managing IT function and IT projects Being knowledgeable about business processes and managing systems to support them; evaluating technology options; envisioning creative IS solutions to business problems Relationship skills Ability of IS specialists to work with parties outside the IS department. Spanning: having a good relationship between IT and business managers Externally-forced: have a good relationship with an outsourcing vendor Figure 2.2 Information Resources

22 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 22 Advantages of Information Resources – What General Managers want are … General managers evaluating an information resource for competitive advantage needs to ask: –What makes the information resource valuable? –Who appropriates the value created by the information resource? –Is the information resource equally distributed across firms? –Is the information resource highly mobile? –How quickly does the information resource become obsolete? –When, where and … What tools are available to help shape their strategic use? What are the risks of using information resource to gain strategic advantage

23 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 23 Using Information resources to create strategic advantage Strategic advantage must be crafted by combining all of the firm’s resources including: –production resources, –human resources, and –Information resources Information resources include not only data, but also technology, people and processes.

24 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 24 Figure I.9 System Hierarchy Information Oversee Design and Structure Infrastructure System’s Architecture Develop PeopleTechnologyProcess Information System Management Requirements Strategies N

25 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 25 Examples of information resources available to a firm: IS infrastructure Information and knowledge Proprietary technology Technical skills of the IT staff End users of the IS Relationship between IT and business managers Business processes

26 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 26 HOW CAN INFORMATION RESOURCES BE USED STRATEGICALLY?

27 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 27 Copyright 2010 John Wiley & Sons, Inc. 27 The Strategic Landscape Managers confront elements that influence the competitive environment. Slim tolerance for error requires managers take multiple view of the strategic landscape, such as: –First view - Porter’s five competitive forces model. –Second view - Porter’s value chain. –Third view – focuses on the types of IS resources needed (Resource Based View).

28 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 28 Striving for Competitive Advantage level: Industry & Competitive Analysis –Competitive Forces Model –Competitive Strategy –D’Aveni’s Hypercompetition Model (7-Ss) level –Value-Chain Analysis Firm Business

29 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 29 Porter’s Five Forces Model and Value Chain According to Porter, there are five competitive forces in any industry, and the attractiveness of the industry depends on the strength of each force. Under the perspective of market structure, Porter’s competitive forces model has been broadly adopted as the underpinning for investigating the effect of information technology on the relationships between suppliers, customers, and other potential threats.

30 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 30 Figure Five (5) Competitive Forces with Potential Strategic Use of Information Resources (Porter) N

31 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 31 PORTER ’ S FIVE COMPETITIVE FORCES MODEL THE FIRM INDUSTRY COMPETITORS NEW MARKET ENTRANTS SUPPLIERS SUBSTITUTE PRODUCTS & SERVICES CUSTOMERS Threats Bargaining power N Dr. Chen, The Trends of the Information Systems Technology TM -31 Switching cost Access to distribution channels Economies of scale Redefine products and services Improve price/performance Selection of suppler Threat of backward integration Buyer selection Switching costs Differentiation Cost-effectiveness Market access Differentiation of product or service

32 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 32 Figure Five (5) Competitive Forces with Potential Strategic Use of Information Resources (Porter) N

33 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 33 PORTER ’ S FIVE COMPETITIVE FORCES MODEL THE FIRM INDUSTRY COMPETITORS NEW MARKET ENTRANTS SUPPLIERS SUBSTITUTE PRODUCTS & SERVICES CUSTOMERS Threats Bargaining power N Dr. Chen, The Trends of the Information Systems Technology TM -33 Cost-effectiveness Market access Differentiation of product or service Internal Forces: 1.customer focus 2.communication, 3.core competencies 4.complexity 5.Quality Other forces should be considered in the e-Age: 1. Digitalization 2. Globalization 3. Deregulation

34 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 34 The Five Forces Model and IS The Five Forces Model provides a way to think about how information resources can create competitive advantage. Using Porter’s Model, General Managers can: –Identify key sources of competition they face. –Recognize uses of information resources to enhance their competitive position against competitive threats –Consider likely changes in competitive threats over time N

35 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 35 Porter’s Value Chain Model The value chain model highlights specific activities (i.e. create, deliver, and support a company’s product or service) in the business where competitive strategies can be best applied and where information systems are most likely to have a strategic impact. Therefore, the value chain model can be employed to identify specific, critical leverage points where a firm can use IT most effectively to enhance its competitive position.

36 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 36 Competitive Advantage (Value) N Figure 2.6 Process View of the Firm: The Value Chain Two broad categories: Primary activities – relate directly to the value created in a product or service. Support activities – make it possible for the primary activities to exist and remain coordinated

37 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 37 Using Information Resources to Alter the Value Chain The Value Chain model suggest that competition can come from two sources: –Lowering the cost to perform an activity and –Adding value to a product or service so buyers will be willing to pay more. Lowering costs only achieves competitive advantage if the firm possesses information on the competitors’ cost structure Adding value is a strategic advantage if a firm possesses accurate information regarding its customer such as: which products are valued? Where can improvements be made? When to … N

38 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 38 The Value System (Fig 2.5) The value chain model can be extended by linking many value chains into a value system. Much of the advantage of supply chain management comes from understanding how information is used within each value chain of the system. This can lead to the formation of entire new businesses designed to change the information component of value-added activities. N

39 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 39 The Value System: Interconnecting relationships between organizations Upstream value Firm value Downstream value N

40 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Customer centric Who are the customers? Where are the customers? Their purchasing habits What they need/want? How many they need/want? When they need/want? How to reach them? DemandsProducts E-BUSINESS BUSINESS FOCUS SCM CRM BPR ERP

41 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 41 CRM and the Value Chain Customer Relationship Management (CRM) is a natural extension of applying the value chain model to customers. CRM includes management activities performed to obtain, enhance relationships with, and retain customers. CRM is a coordinated set of activities. CRM can lead to better customer service, which leads to competitive advantage for the business.

42 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 42 Figure 2.7 Application of Value Chain Model ActivityZara’s Value Chain PRIMARY ACTIVITIES Inbound Logistics IT-enabled Just-in-Time (JIT) strategy results in inventory being received when needed. Most dyes are purchased from its own subsidiaries to better support JIT strategy and reduce costs. Operations Information systems support decisions about the fabric, cut and price points. Cloth is ironed and products are packed on hangers so they don’t need ironing when they arrive at stores. Price tags are already on the products. Zara produces 60% of its merchandise in-house. Fabric is cut and dyed by robots in 23 highly automated Spanish factories. Outbound Logistics Clothes move on miles of automated conveyor belts at distribution centers and reach stores within 48 hours. Marketing and Sales Limited inventory allows low percentage of unsold inventory (10%); POS at stores linked to headquarters to track how items are selling; Customers ask for what they want and this information is transmitted daily from stores to designers over handheld computers. Service No focus on service on products SUPPORT ACTIVITIES Organization IT supports tightly-knit collaboration among designers, store managers, market specialists, production managers and production planners. Human Resources Technology Technology is integrated to support all primary activities. Zara’s IT staff works with vendor to develop automated conveyor to support distribution activities. Purchasing Vertical integration reduces amount of purchasing needed.

43 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 43 Figure 2.7(b) Application of Value Chain Model Inbound Logistics Operations Outbound logistics Marketing and Sales Service Analysis of buying patterns suggest items should be stocked at local stores, including amounts and optimum delivery times Automated checkout can speed checkout operations; may lead to reduced staffing of registers/ lower operating costs Analysis of b. patterns can aid development of promotional strategies/ highlight customer preference Automated checkout lanes shorten customer waiting times Analysis of buying patterns can aid grocery chains in better determining demand, leading to better forecasting for both chain and supplier Analysis of buying patterns can reduce ‘last-minute’ orders and improve suppliers processing of orders Sharing analysis of buying patterns by grocery chain can aid supplier in scheduling Suppliers may be able to offer economies of scale in its purchases Sharing analysis of b. patterns allows better supplier service ActivityGrocery Chain’s Value ChainSupplier’ Value Chain Primary Activities

44 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 44 Organization Human Resources Technology Purchasing Staffing needs for cash registers may be reduces with automated checkout Shopping card can provide data for market research Grocery chain may be able to capture more discounts for volume purchases Grocery chain can provide information to help supplier’s marketing research Supplier chain may be able to capture more discounts for volume purchases Secondary (Support) Activities Figure 2.7 (b) Application of Value Chain Model (cont.) ActivityGrocery Chain’s Value ChainSupplier’ Value Chain

45 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices WHY CRM? In this competitive age when product differentiation is difficult, CRM is one of the most valuable assets a company can acquire. The sooner a company embraces CRM the better off it will be and the harder it will be for competitors to steal loyal and devoted customers. CRM is more than just “Marketing” (what else?)

46 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices CUSTOMER RELATIONSHIP MANAGEMENT’S EXPLOSIVE GROWTH CRM Business Drivers

47 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices New Forces in Today’s Economy Overcapacity and hypercompetition. –Overcapacity is 25% pharmaceuticals, 30% chemicals, 35% automobiles –Leads to falling prices and margins, mergers, and company failures Ascendant power of customers. –Customer shortage –Price transparency Ascendant power of distributors over manufacturers. Growth of digitalization and the Internet as major sources of efficiency and profitability. Proliferation of channels and media. Globalization and global interdependence.

48 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 48 Supply Chain Management An approach that improves the way a company finds raw components it needs to make a product or service, manufactures that product or service, and delivers it to customers. Technology permits supply chains of customer’s and supplier’s to be linked. Requires collaboration and the IT to support the seamless connection. Electronic marketplaces can be used to limit information sharing.

49 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices BASICS OF SUPPLY CHAIN Organizations must embrace technologies that can effectively manage supply chains Involvement (integration)

50 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices FIVE BASIC SUPPLY CHAIN MANAGEMENT COMPONENTS PlanDeliverSource MakeReturn

51 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices INFORMATION TECHNOLOGY’S ROLE IN THE SUPPLY CHAIN IT’s primary role is to create integrations or tight process and information linkages between functions within a firm

52 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 52 The Resource-Based View The Resource-Based View (RBV) looks at gaining competitive advantage through the use of information resources. –Determining whether a firm’s strategy has created value. Two subsets of information resources have been identified: –Those that enable firms to attain competitive advantage (rare and valuable resources that are not common place). –Those that enable firms to sustain competitive advantage over the long-term (resources must be difficult to transfer or relatively immobile).

53 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 53 Porter’s Model/Value Chain Resource-Based View (RBV) Competitive Advantage (CA) Argues that aspects of the firm’s industry create sources of CA. Maintains that CA comes from the information and other resources at the firm Focus (what adds value to the firm) Firm’s activitiesResources that firm can manage Porter’s Model vs. Resource-Based View

54 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 54 More to be discussed on the topic of “Strategic IT Resources”

55 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Use the resource-based view as described in this chapter to describe how information technology might be used to provide and sustain a winning position for each of these businesses: (p.72) Ans: The resource based view The Resource-Based View (RBV) looks at gaining competitive advantage through the use of information resources. Two subsets of information resources have been identified: Those that enable firms to attain competitive advantage (rare and valuable resources that are not common place), and those that enable firms to sustain competitive advantage (resources must be difficult to transfer or relatively immobile). The question asks the student to describe how each of these 5 businesses might use information resources to add value to the activities of their company. Global airline- they could utilize their global relationships to market strategically to customers through a CRM system that would be difficult to imitate because of their global reach. They could utilize IT talent from all parts of the world to create systems that are innovative and strategic in nature (specialized billing system for example). Bank- provide a new service through their ATM machines that takes advantage of a service that is unique to that bank, and difficult to emulate.

56 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices (cont.) Web-based wine retailer – take advantage of its online presence to offer other services like wine recommendations, possibly creative cooking recipes, and other services that would enhance its services. Local dry cleaner- a customer preference system could be set up that markets to customers that have not utilized the cleaner recently. Perhaps offer coupons to these customers, etc. Appliance Service Firm- similar to the local dry cleaner, an IS system could be used that tracks repairs of appliances and determines which appliances seem to have problems with specific components. They could then use customer service to get feedback on these appliances and help customers to select appliances in the future that are more reliable, thus generating customer loyalty and service.

57 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 57 STRATEGIC ALLIANCES

58 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 58 Strategic Alliances An interorganizational relationship that affords one or more companies in the relationship a strategic advantage. IT can help produce the product developed by alliance, share information resources across the partners’ existing value systems, or facilitate communication and coordination among the partners. E.g., Delta recently formed an alliance with e-Travel Inc to promote Delta’s inline reservation system. This helps reduce Delta’s agency fees while offering e- Travel new corporate leads. Also, Supply Chain Management (SCM) is another type of IT-facilitated strategic alliance.

59 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 59 Aligning IS strategy with Business Strategy Using multiple approaches to evaluating the strategic landscape is helpful in determining strategic opportunities. Here, we look at three such approaches: –Porter’s five forces model of the competitive advantage of firms –Porter’s value chain model of internal organizational operations – and strategic option generator ( results in nine possible major options to secure a competitive advantage) N Wiseman’s theory of strategic thrusts

60 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 60 Wiseman’s theory of strategic thrusts and strategic option generator 1. What is our strategic target? 2. What strategic thrust can be used against the target? 3. What strategic mode can be used? 4. What direction of thrust can be used? 5. What IS skills can we use? Suppliers CustomersCompetitors Differen- tiation Cost Innovation I. Major options to secure a competitive advantage II. Option Generator

61 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 61 Types of Strategic Alliances Supply Chain Management: improves the way a company finds raw components that it needs to make a product or service. –Technology, especially Web-based, allows the supply chain of a company’s customers and suppliers to be linked through a single network that optimizes costs and opportunities for all companies in the supply chain –Wal-Mart and Proctor & Gamble. Virtual Corporations: is a temporary (virtual) network of suppliers, customer and even rivals linked by IT to share skills, cost and access to each others’ markets : a new strategy whereby companies cooperate and compete at the same time with companies in their value net –Covisint and General Motors, Ford, and DaimlerChrysler. Co-opetition N

62 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 62 Summary of Key Strategy Frameworks Framework Key Idea Usefulness in Information Systems Discussions Porter’s generic strategies framework Firms achieve competitive advantage through cost leadership, differentiation, or focus. Understanding which strategy is chosen by a firm is critical to choosing IS to complement that strategy. D’Aveni’s hypercompetition model Speed and aggressive moves and counter- moves by a firm create competitive advantage. The 7-S’s give the manager suggestions on what moves and counter moves to make and IS are critical to achieve the speed needed for these moves. Brandenberg and Nalebuff’s co-opetition model Companies cooperate and compete at the same time. Being cooperative and competitive at the same time requires IS that can manage these two roles.

63 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 63 Virtual Companies (Portable Computing) A Virtual Company is an Organization composed of several Business Partners that Uses Information Technology to Link/Share People, Assets, Ideas, Costs, and Resources for the purpose of producing a product or service. Virtual Companies are Adaptable and Opportunity- Exploiting Organizations Providing World-Class Excellence in Their Competencies and Technologies. A Virtual Company is an Organization composed of several Business Partners that Uses Information Technology to Link/Share People, Assets, Ideas, Costs, and Resources for the purpose of producing a product or service. Virtual Companies are Adaptable and Opportunity- Exploiting Organizations Providing World-Class Excellence in Their Competencies and Technologies.

64 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 64 Characteristics of Virtual Companies Borderless Opportunism Adaptability Trust-Based Excellence Technology Six Characteristics of Virtual Companies N

65 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 65 Copyright 2010 John Wiley & Sons, Inc. 65 RISKS

66 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 66 Potential Risks There are many potential risks that a firm faces when attempting to use IT to outpace their competition. Awakening a sleeping giant – a large competitor with deeper pockets may be nudged into implementing IS with even better features Demonstrating bad timing – sometimes customers are not ready to use the technology designed to gain strategic advantage Implementing IS poorly – information systems that fail because they are poorly implemented Failing to deliver what users want – systems that don’t meet the firm’s target market likely to fail Web-based alternative removes advantages – consider risk of losing any advantage obtained by an information resource that later becomes available as a service on the web Running afoul of the law – Using IS strategically may promote litigation N

67 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Time of market introduction relative to competition (months) Profits relative to competitions (%) Figure 7.10 (p.227) Relationship between profits and time of market introduction

68 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 68 Keen’s Six-Stage Competitive Advantage Model Stimulus for action First-mover expansion movesCompetitor catch-up moves N Commoditization First major moveCustomer acceptance

69 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 69 When to Perform Activities First Movers Advantages Build brand recognition Control scarce resources Establish networks Early Economies-of-Scale Disadvantages Newer technology Higher development costs Reverse engineering by competitors

70 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 70 The new technology adoption curve Level of Activity Time Which stage is the current e-Business? ReadinessIntensification Impact

71 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 71 FOOD FOR THOUGHT: CO-CREATING IT AND BUSINESS STRATEGY

72 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 72 Co-Creating IT and Business Strategy Is FedEx a package delivery company? What happens if FedEx’s IS goes down? What is the core of FedEx? Information is increasingly a core component of the product or service offered by the firm. IT strategy is business strategy – they cannot be created without each other. Some company’s main product is information (financial services). FedEx can not function without IT even though they are primarily a package delivering company.

73 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 73 SUMMARY

74 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 74 Summary Using IS for strategic advantage requires more than just knowing the technology. Remember that not just the local competition is a factor in success but the 5 competitive forces model reminds us of other issues. Value chain analysis show us how IS add value to the primary activity of a business. Know the risks associated with using IS to gain strategic advantage.

75 Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 75 End of Chapter 2


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