1. Strategy and Information Systems
Chapter 3
Strategy and Information
Systems
This chapter discusses how companies use information systems to gain a competitive advantage.
GearUp's strategy is to provide lowest priced items on the Web. To do so, it needs to keep costs as low as possible. An information system that tracks expense of working with vendors would help selecting better vendors. Thus, GearUp’s information systems are not supporting its strategy well.

2. “How Would We Do That? Where’s the Data?”
Buyers don’t communicate with operations when negotiating with vendors
Buyers need data to look at prices and costs of dealing with individual vendors
Need more data and people involved in negotiating deals
Goals
Practice using Porter’s Five Forces Model.
Understand the application of competitive strategy.
Consider the risks of changes in operations to competitive strategy.
Understand how information and IS can help inform a decision.
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Study Questions
QI: How does organizational strategy determine information systems structure? Q2: What five forces determine industry structure? Q3: How does analysis of industry structure determine competitive strategy? Q4: How does competitive strategy determine value chain structure? Q5: How do business processes generate value? Q6: How does competitive strategy determine business processes and the structure of information systems? Q7: How do information systems provide competitive advantages? Q8: 2023?
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Q1: How Does Organizational Strategy Determine Information Systems Structure?
Figure 3-1 depicts sequential process organizations follow to examine industry structure and determine a competitive strategy.
Strategy determines value chains, which, determine business processes. Structure of business processes determines supporting information systems design.
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5. Q2: What Five Forces Determine Industry Structure?
Intensity of five forces determines industry competitive characteristics, how profitable it is, and how sustainable profitability will be.
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6. Examples of Five Forces
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Five Forces at GearUp
Two strongest forces are from customers and rivalry. GearUp’s response to customer force is to provide lowest prices for goods. Its response to rivalry threat is to keep its customers’ attention focused on GearUp via compelling s.
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Q3: How Does Analysis of Industry Structure Determine Competitive Strategy?
Firms engage in one of four generic strategies. An organization can focus on being cost leader or on differentiating its products. Further, an organization can employ the low cost or differentiation strategy across an industry or a particular industry segment.
To be effective, organizational goals, objectives, culture, and activities must be consistent with competitive strategy.
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9. GearUp’s Competitive Strategy
Low Cost/Focused
Do everything to keep costs down
Focus within sporting goods category
Focus on buyers interested in special, short-term sales
GearUp has chosen a low cost strategy within the sporting goods category with further focus within the segment of buyers interested in special, short-term sales.
GearUp concentrates on keeping their costs down.
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10. Ethics Guide: Yikes! Bikes
You are operations manager for Yikes! Bikes, a manufacturer of high-end mountain bicycles.
New owners plan to pursue lowest-cost vendor strategy by importing low-cost, lower quality bikes.
New owners are not being honest with employees about cutting jobs.
Say you might be promoted to new general manager. Should you trust them?
Q: Are owners actions illegal? Unethical?
GOALS
Sensitize the students to the fact that a competitive strategy is not just an academic topic. Changing competitive strategy has dramatic impacts on personnel and company culture.
Understand practical applications of business reports.
Explore ethical questions concerning communication about sensitive topics.
This guide illustrates the uncomfortable position many managers face when they possess knowledge that cannot be communicated to others.
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11. Q4: How Does Competitive Strategy Determine Value Chain Structure?
Descriptions for value chain primary activities
Organizations analyze industry structure, then use that analysis to formulate a competitive strategy, then structure the organization to implement that strategy.
If competitive strategy is to be cost leader, value chain activities will need to provide essential functions at lowest possible cost.
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Value Chain Structure?
Each stage accumulates costs that add value to product. Net result is total margin, which is difference between total value added and total costs incurred.
Interactions or linkages connecting value activities are readily supported by information systems. For example, manufacturing systems use linkages to reduce costs.
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13. Support Activities in the Value Chain
Support Activity
Description
Technology
R & D, New Techniques, Methods, Procedures
Procurement
Raw Materials
Human Resources
Training, Recruiting, Compensation
Firm Infrastructure
General Management, Finance, Accounting, Legal, Government Affairs
Procurement is a support function for most businesses. For GearUp, procurement is more of an operations primary function because GearUp has a new event, possibly with a different vendor, every day. They have a support procurement function for items like office desks and chairs.
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14. Q5: How Do Business Processes Generate Value?
Three Examples of Business Processes
Notice activities get data resources from databases and put data into databases.
Business processes vary in cost and effectiveness. Streamlining business processes to increase margin (add value, reduce costs, or both) is key to competitive advantage.
Business processes are related by linkages to improve process margin.
For example: Querying multiple databases allows purchasing department to access data on raw materials quantities and customer demand. This data can enable purchasing to reduce size of raw materials inventory, reduce production costs, and add margin to value chain.
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15. Improved Material Ordering Process
Changing process design usually requires people to work in new ways and follow different procedures. Employees often resist such changes.
Employees who perform purchase-bicycle-parts activity need to learn to adjust their ordering processes to use customer purchase patterns.
Data stored in finished goods database likely will need to be redesigned to keep track of customer demand data.
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Q6: How Does Competitive Strategy Determine Business Processes and the Structure of Information Systems?
This figure shows low-cost business processes for renting bicycles. Value-generating activities are shown at top of table and implementation of those activities for two companies with different competitive strategies is shown in rows below.
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Operations Value Chains for Bicycle Rental Companies: High Service Rentals
This figure shows high-cost business processes for renting bicycles.
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18. Business Process and Information Systems for High-Service Bike Rental
This system makes extensive use of integrated information systems vis-à-vis database repositories.
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19. Using MIS InClass 3: Competitive Strategy Over the Web
Briefly visit each pair.
vs.
vs.
vs.
vs.
vs.
Select two pairs from the list. For each pair of companies, answer the questions on p. 84.
Form three-person teams and do these exercises. Teams may divide the work as appropriate to create team answers.
Have teams combine their knowledge of an organization’s market, together with observations of the structure and content of its Web storefront, to infer the organization’s competitive strategy and make inferences about its value chains and business processes.
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20. Q7: How Do Information Systems Provide Competitive Advantages?
Some of these competitive techniques are created via products and services, some are created via development of business processes.
Consider a car rental agency. An information system produces information about car’s location and provides driving instructions to destinations as part of car rental and part of product itself. An information system that schedules car maintenance supports the product. Either way, information systems can help achieve first three principles.
Principles 4–8 concern competitive advantage created by implementation of business processes.
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21. Competitive Advantage via Processes Implementation
Lock in customers
Create high switching costs
Lock in suppliers
Make it easy to connect to and work with your organization
Create entry barriers
Make it difficult and expensive for new competition
Create better business processes to establish alliances
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22. How Does an Actual Company Use IS to Create Competitive Advantages?
ABC, Inc. created competitive advantage in shipping industry through:
Superior customer service
Ease of customer business use by minimizing data entry:
Drop-down lists, automatic fill-ins, contact lists for customers
Minimizing data-entry errors
Following slides show Web pages of ABC’s information system.
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23. Two Roles for Information Systems Regarding Products
Information system produces information about car’s location and provides driving instructions to destinations as part of car rental and as part of the product itself (see Part a)
Information system that schedules car maintenance is not part of the product, but instead supports the product (Part b)
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24. How Does an Actual Company Use IS to Create Competitive Advantages?
Web page to select a contact from the customer’s records
ABC uses its IS to create competitive advantages. This Web form is used to schedule a shipment. When the ABC system creates the form, it fills the Company name dropdown list with the names of companies that the customer has shipped to in the past. Here, user is selecting Amazon.
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25. Automatic Retrieval of Customer Data
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26. ABC, Inc., Web Page to Specify Email Notification
Customer can choose for ABC to send an when shipment is created and when delivered. User has provided three addresses. Customer wants all three to receive delivery notification, but only sender will receive shipment notification.
Customer can add a personal message as well. ABC has extended its product from a package-delivery service to a package- and information-delivery service by adding this capability to shipment scheduling system.
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27. ABC, Inc., Web Page to Print a Shipping Label
This slide shows another information system capability. It has generated a shipping label, complete with bar code. This reduces errors in preparation of shipping labels and causes the customer to provide the paper and ink for document printing.
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28. How Does This System Create a Competitive Advantage?
Enhances existing products
Differentiates products
Locks in customers
Raises barriers to market entry
Increases profit margins by decreasing costs and decreasing errors
ABC’s information system enhances an existing service by easing effort of creating a shipment to customer while reducing errors. It differentiates ABC package delivery service from competitors lacking a similar system. Further, generating messages when ABC picks up and delivers a package could be a new service.
System captures and stores data about recipients, thus reducing amount of customer work when scheduling a shipment. Customers will be locked in by this system: To change to a different shipper, customer will need to rekey recipient data for that new shipper. Disadvantages of rekeying data may well outweigh any advantage of switching to another shipper.
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Q8: 2023?
Unlikely GearUp will exist
New opportunities for IT-based organizations
Reduce medical costs by supporting governmental functions, like Medicare and related programs
Web-based services to track medical bills, Medicare and supplemental insurance payments, track unpaid bills
Like most startups, GearUp will either go bankrupt before then, or be purchased by a large retailer, or merged with other personal shopping sites to form a supersite.
U.S. faces a daunting fiscal challenge of Baby Boomers retiring that will make exponentially increasing financial demands on Medicare and medical services. IT can provide ways to reduce medical costs.
Talk to your parents or grandparents about their data needs. Many retired Baby Boomers complain they can’t keep up with what medical bills they receive, which ones were paid by Medicare, or supplemental insurance, or haven’t been paid at all. A Web-based service to track those expenses will be thriving by 2023.
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30. Security Guide: Differentiating on Security!
Major data centers harden their sites; computer criminals turn to less strongly protected assets held by small organizations and individuals
Habit of effective security behavior easy way to gain a competitive advantage
GOALS
Raise the students’ awareness of the importance of security knowledge and skills to professionals
Practice applying the value chain model and competitive strategies to security, both for individuals and organizations
Investigate the ways that one large organization uses security as part of its differentiation strategy
Have students count number of passwords you use and compute average length of them.
Do they contain a mixture of letters, numbers, and special characters?
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31. Guide: Your Personal Competitive Advantage
Who will be your competitors when you seek a job after graduating from college?
What will be your competitive advantage in the job market?
What can you do before you graduate to develop your competitive advantage?
GOALS
Raise students’ awareness that they should be engaged in job planning/searching right now.
Show the application of the principles of competitive advantage to career planning.
Suggest innovative tasks for job searching.
Students seldom understand how their status as students gives them access to businesspeople that they will lose after they graduate. Why should students talk with businesspeople and start building their networks now?
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32. Guide: Your Personal Competitive Advantage (cont’d)
How could these concepts help you get and keep a job?
Switching costs?
Differentiating products?
Creating barriers?
Establishing alliances?
Reducing costs, increasing revenues?
Encourage students to realize they aren’t competing just with students on their campus or state, but competing with students all over the world.
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33. Case Study 3: Fulfillment by Amazon (FBA):
Primary product offerings:
Online retail store
Computing infrastructure leasing
Order fulfillment services
Amazon buys, takes ownership, physical possession, inventories good, sells from inventory
Contrast: GearUp buys items only after it has sold them at auction. It does not place an order until it knows what and how many goods sold, then places purchase orders. GearUp takes ownership and delivery, and repackages orders for shipment in small lots to customers.
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Is FBA Right for GearUp?
Outsource to Amazon, thus avoiding cost of developing own processes, facilities, and order fulfillment information systems.
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35. FBA Fees for Products Like Sporting Goods as of May 2012
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