1. MANAGEMENT INFORMATION SYSTEMS (MIS) INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY LECTURE NOTES 3 SPRING 2010

2. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY Information Systems (IS) are built to serve the interest of the organizations (i,e. Business firms, Banks, Airlines. University, government, Hospitals an so on) However, Organization must be aware of and be open to the influences of Information Systems to benefit from the new technologies. The interaction between IS and Organizations is complex and is influenced by many mediating factors of Organization’s such as:  Structure,  Business Processes,  Politics,  Culture,  Surrounding Environment,  Management Decisions. You will neither be able to design new Information Systems nor understand Existing Systems without understanding the Business Organization.

3. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY.

4. WHAT IS AN ORGANIZATION An Organization is a stable, formal social structure that takes resources from the Environment and processes them to produce outputs. Organizations are also considered as Formal Legal Entities with internal Rules and Procedures that must abide by laws. Organizations are also Social Structures because they are a collection of social elements.

5. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY WHAT IS AN ORGANIZATION The Technical side of Organization focuses on three elements :  Capital  Labour  Environment Capital and Labour are primary production factors provided by the Environment. The Organization transforms these inputs into products and services in a Production function. Technical view of Organization encourages us to focus on how inputs are combined to create outputs when technology changes are introduced into the Organization.

6. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY The Behavioural View of Organization emphasizes:  Group relationships,  Values,  Structures. Behavioural definition of an Organization suggests that building new Information Systems, or rebuilding old Systems, involves much more than a technical rearrangement of machines and workers. It also cause changes to the Organization:  Balance of rights,  Privileges,  Obligations,  Responsibilities,  Feelings (that have been established over a long period of time).

7. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY The Technical and Behavioural definitions of Organizations are not contradictory but complementary in other word they complement each.

8. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY FEATURES OF ORGANIZATIONS All Modern organizations have certain characteristics. They are bureaucracies with clear-cut divisions of labour and specialization. Organizations arrange specialists in a hierarchy of authority in which everyone is accountable to someone and authority is limited to specific actions governed by abstract rules or procedures. –These rules create a system of impartial and universal Decision making. Organizations try to hire and promote people on the basis of technical qualifications and professionalism. Organization’s are devoted to the Principle of Efficiency: - Maximizing Output using limited Input.

9. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY FEATURES OF ORGANIZATIONS Features of Organizations include: –Efficiency –Routines Business Processes, –Organizational Culture, –Organizational Politics, –Environment, –Structure, –Goals, –Constituencies, –Leadership Styles. All of these features affect the kind of Information Systems used by the Organizations.

10. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY FEATURES OF ORGANIZATIONS All Organizations become efficient over the time because; individuals in the firm develop ‘’Routines’’ for producing goods and services. Routines are Rules, Procedures, and Practices. Routines have been developed to cope with all expected situations in an Organization. –As employees learn these routines, they become highly efficient. productive, and the firm is able to reduce its costs over time as efficiency increases.

11. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY FEATURES OF ORGANIZATIONS Set of the Routines form the Business Process. Collection of Business Processes forms the Business Firm.

12. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY ORGANIZATIONAL POLITICS People in Organizations occupy different positions with different specialities, have different concerns, and perspectives. People naturally have divergent viewpoints about how resources, rewards, and punishments should be distributed. These differences caused because of Law of Individualism and matter to both Managers and employees of an organization. –Differences of opinion result in Political Struggle for resources, competition, and conflict in every organization.

13. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY ORGANIZATIONAL POLITICS Political Resistance is one of the great difficulties faced with when bringing about Organizational changes, especially caused by the development of new Information Systems. Investments onto Large Information Systems bring about significant changes in Strategies, Business Objectives, Business Processes, and Business Procedures that become Politically charged events. –Managers that know how to handle the Politics of an organization will be more successful than those less-skilled managers in implementing new Information Systems.

14. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY ORGANIZATIONAL CULTURE All Organizations have bedrock, unassailable, unquestioned assumptions that define Organization Goals and Products. Organizational Culture contains this set of assumptions about what products the Organization should produce, how it should be produce them, where and for whom is to produce them. Generally Cultural Assumptions are taken for granted and are rarely publicly announced or spoken out. Business Processes are the actual way business firms produce values usually ensconced in the Organisation's Culture. Organizational Culture is a powerful unifying force that restrains Political Conflict and promotes common understanding, agreement on Business procedures, and Common practices. (i.e. If we all share the same basic Cultural assumptions, agreement on other matters is more likely.)

15. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY ORGANIZATIONAL CULTURE Organizational Culture is a powerful restraint on change, especially Technological change. Most Organizations will do almost anything to avoid making changes in basic Cultural assumptions. Technological change that threatens commonly held Cultural Assumptions usually meet a great deal of resistant. – However, there are times when only sensible way for an Organization to move forward is to employ a new technology that directly opposes an existing Organizational Culture. When this occurs, the technology is often installed while the Organizational Culture slowly adjusts itself.

16. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY ORGANIZATIONAL ENVIRONMENTS Organizations reside in Environments from which they draw resources and to which they supply goods and services. Thus, Organizations and Environments have a reciprocal relationship.  Organizations on one hand are open to and dependent on the social and physical Environment that surrounds them. e.g. Without financial and human resources organizations could not exist ) - Organization must also respond to legislative and other requirements imposed on them by government, customers and competitors.  On the other hand, Organizations can influence their Environments. (e.g. Advertise to influence Customer acceptance of their products)

17. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY ORGANIZATIONAL ENVIRONMENTS The figure below illustrates the role of Information Systems in helping Organizations perceive changes in their Environments and also in helping Organizations act on their Environments. Information Systems are key instruments for Environmental Scanning, helping Managers identify External changes that might require an Organizational response. –Environments change much faster than Organizations. Because of inability of organizations to adapt to rapidly changing environments and a lack of resources most organizations do not cope well with large environmental shifts.

18. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY ORGANIZATIONAL STRUCTURE All Organizations have a Structure or shape. Mintzberg identifies 5 basic kinds of organizations/,

19. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY ORGANIZATIONAL STRUCTURE The kind of Information Systems you find in a business firm and the nature of problems with the Information Systems. often reflects the type of Organizational Structure.  In small Entrepreneurial firms you will often find poorly designed Systems developed in a rush that often outgrow their usefulness quickly.  In large multidivisional firms operating in several locations you will often find a Single set of integrating Information Systems (i,e, MIDDLEWARE). You will find that each locale or each division has its own set of Information Systems.

20. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY OTHER ORGANIZATIONAL FEATURES Organizations have Goals and use different means to achieve them. - Some organizations have Coercive Goals (e.g. prisons); others have Utilitarian Goals (e.g Businesses). Still others have Normative Goals (e.g. universities, religious groups).. Organizations also serve different groups or have different Constituencies, some organizations primarily benefiting their members, others benefiting clients, stockholders or public. The nature of Leadership differs greatly from one organization to another – Some organizations may be more democratic or authoritarian than others. Another way organizations differ is by the Tasks they perform and Technology they use. Some organizations perform primarily routine tasks that can be reduced to formal rules that require little judgements, whereas others work primarily with non- routine tasks.

21. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND BUSINESS FIRMS? Information Systems have become integral, online, interactive tool deeply involved in the minute-to-minute operations and decision making of large Organizations. Over the last decade, Information Systems have fundamentally altered the Economics of organizations and greatly increased the possibilities for organizing work.

22. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY ECONOMIC IMPACTS IT changes both the relatively Costs of capital and the Costs of information. Information technology can be viewed as a factor of production that can be substituted for traditional capital and labour. IT obviously affects the Cost and Quality Of Information and changes the Economics of Information. It helps firms contract in size because it can reduce Transaction costs (costs incurred when a firm buys on the marketplace what it can not make itself.) –According to Transaction Cost theory; firms and individuals seek to economize on transaction costs as much as they do on production costs –Information Technology, especially the use of Networks, can help firms lower the Transaction cost of market participation, making it worthwhile for firms to contract out with external suppliers instead of using internal sources. IT also can reduce Internal Management Costs by increasing revenues while shrinking the number of middle-managers and clerical workers.

23. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY BEHAVIORAL IMPACTS Theories based on Sociology of Complex Organizations provide some understanding about how and why organizations change with the implementation of new IT Applications. Behavioural researches have theorized that Information Systems: – Facilitates flattening of Hierarchies by broadening the distribution of information to empower lower-level employees and increase management efficiency. –Can reduce the number of Management levels in an organization by providing managers with information to supervise larger number of workers and by giving lower level employees more decision making authority. –Pushes Decision-making right lower in the organizational level because lower- level employees receive the information they need to make decisions without supervision.

24. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY INFORMATION TECHNOLOGY FLATTENS ORGANIZATIONS Managers now receive so much more accurate and timely information and become much faster at making decisions, so fewer managers are required. Broadening ‘Span of Control ‘ enable high-level managers to manage and control many More workers spread over greater distances. Many companies have eliminated thousands of middle managers as a result Broadening Span of Control. Management Costs decline as a percentage of revenues, and the hierarchy becomes much more efficient.

25. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY UNDERSTANDING ORGANIZATIONAL RESISTANCE TO CHANGE Information Systems inevitably becomes bound up in Organizational Politics because they influence access to a key resource – namely ‘’Information’’. Information Systems can affect who does what, to whom, when, where, and how in an organization. Many new Information Systems require changes in personal, individual routines that can be painful for those involved and require retraining and additional effort that may or may not be compensated. Because the IS potentially change an organizations structure, culture, business processes, and strategy, there is often considerable Resistance to Information Systems when they are introduced. Organizational Resistance is so powerful that many IT investments floundered and do not increase productivity. –Research on Project implementation failures demonstrates that the most common reasons for failure of large projects to reach their objectives is not the failure of the technology, but Organizational and Political Resistance to Change.

26. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY THE INTERNET AND THE ORGANIZATIONS The Internet is beginning to have an important impact on the relationships between the Organization and the External entities such as Customers and Suppliers, and even on the Organization of Business Processes inside a firm. The Internet increases the accessibility, storage, and distribution of information and knowledge for organizations. Businesses are rapidly rebuilding some of their Key Business Processes (KBP) based on Internet technologies and making this technology a key component of their IT infrastructures.

27. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY IMPLICATIONS FOR THE DESIGN AND UNDERSTANDING OF INFORMATION SYSTEMS To deliver genuine benefits to organization, Information Systems must be built with clear understanding of the Organization in which they will be used. WHEN PLANNING A NEW INFORMATION SYSTEM, THE FOLLOWING CENTRAL ORGANIZATIONAL FACTORS ARE CONSIDERED  The Environment in which the organization must function  The Structure of the organization ( Hierarchy, specialization, routines, and Business processes)  The Organization’s Culture and Politics  The Type of Organization and its Style of Leadership  The Principle interest groups affected by the system and the attitudes of workers who will be using the System  The kinds of tasks, decisions, and business processes that the Information Systems is designed to assist.

28. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY USING INFORMATION TO ACHIEVE COMPETETIVE ADVANTAGE  Firms that do better than the others are said to have Competitive Advantage over other. - These firms have access to special resources more efficiently because of their superior knowledge and information assets. - In any event, these firms will do better in terms of revenue growth, (higher profitability), or productivity growth all of which ultimately translate into higher stock valuations than their competitors in the long run.  Michael Porter explains why some firms do better than others and achieve Competitive Advantage in his Competitive Forces Model.

29. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY PORTER’S COMPETITIVE FORCES MODEL. This model provides a general view of the Firm, its Competitors and the Firm’s Environment and the dependency of the Firms on the environments. Five Competitive forces shape the fate of the Firm  Traditional Competitors  New Market Entrants  Substitute Products and Services  Customers  Suppliers

30. INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY PORTER’S COMPETITIVE FORCES MODEL - DEPENDANCIES. 1.TRADITIONAL COMPETITORS All firms share market space with other competitors, who are continuously devising new and more efficient ways to produce and serve to their customers. Competitors are attempting to attract customers by developing new brands and imposing Switching Costs on their customers. Switching Cost : The expense a customer incurs in lost time and expenditure of resources when changing from one supplier to a competing supplier.

31. PORTER’S COMPETITIVE FORCES MODEL. - DEPENDENCIES 2. NEW MARKET ENTRANTS In a free economy with mobile labour and financial resources, new companies are always entering the marketplace. In some industry sectors there are very low barriers to entry, whereas entry is very difficult in other industries. New Companies have several possible Advantages.  They are not locked into old plants (i.e. Factories or buildings etc) and equipment)  They often hire younger workers, (At a less cost and possible are more innovative)  They are not encumbered by old, worn-out brand names  They are more motivated than traditional occupants of an industry. These Advantages are also New Companies weakness;  They depend on outside financing for new plants and equipment, which can be expensive  They have a less experienced workforce  They have little brand recognition.

32. PORTER’S COMPETITIVE FORCES MODEL.- DEPENDENCIES 3.SUBSTITUTE PRODUCTS AND SERVICES In every industry there are substitutes that a customer might use if your prices become too high. New Technologies create new Substitutes all the time. The more Substitute products and services are in the industry, the less you can control pricing and the lower profit margins. 4. CUSTOMERS A profitable company depends, in large measure. on its ability to attract and retain customers and charge them high prices. The power of Customers grows when:  Customer can easily switch to a competitor’s products and services  Customer can force a business and its competitors to compete on price along in a transparent marketplace  There is little product differentiation.,  All suppliersprices are known instantly

33. PORTER’S COMPETITIVE FORCES MODEL -DEPENDENCIES 5.SUPPLIERS The Market Power of Suppliers, can have a significant impact on Customer firm’s profits, especially when the customer firms cannot raise prices as fast as can Suppliers. The more different Suppliers a firm has (i.e. choıce of Supplıers), the greater control it can exercise over Suppliers in terms of price, quality, and delivery schedules.

34. THE FOUR GENERIC STRATEGIES TO DEAL WITH COMPETETIVE FORCES 1.Low Cost Leadership 2.Product Differentiation 3.Focus on Market Niche 4.Strengthening Customer and Supplier Intimacy Each of these Strategy is enabled by using Information Technology and Systems: 1.LOW COST LEADERSHIP Use of Information Systems to achieve the lowest operational costs and the lowest prices. (e.g. Wal-Mart’s continuous Replenishment System sends orders for new merchandise directly to Suppliers as soon as customers pays their purchase at the cash register. Thus, Wal-Mart does not need to spend much money on maintaining large inventory of goods in its own warehouse.)  Wal-Mart Replenishment System is an example of an Efficient Customer Response System.  Efficient Customer Response System directly links Customer behaviour to Distribution and Production and Supply chains..

35. 2. PRODUCT DIFFERENTIATION Use Information Systems to enable new products and Services, or greatly change the Customer convenience in using your existing products and services. (e.g. Google continuously introduces new and unique Search Services on its Web site- ebay, Paypal, also Apple computers created iPod etc.) Manufacturers and Retailers are using Information systems to create product and services that are customized and personalized to fit the precise specifications of individual customers. (e.g. Dell Computer Corporation sells directly to customers using Assemble-to-Order Manufacturing). Dell Computer Corporation’ s Assemble-to-Order Manufacturing System is also an example of Efficient Customer Response System.

36. 2. PRODUCT DIFFERENTIATION e.g. continued…… Lands’ End Customers can use its Web site to order jeans, dresses, trousers and shirts, custom-tailored to their own specifications. Customers enter their measurements into an electronic form on the Lands’ End web site. System then transmits each customer's specifications over a network to a computer that develops an electronic Made-to-measure pattern for that customer. This ability to offer individually tailored products or services using the same production resources as mass production is called Mass Customization.

37. 3.FOCUS ON MARKET NICHE Use of Information Systems enable firms to focus on a specific market and serve this narrow target market better than competitors. Information Systems support the Focus On Market Niche strategy by producing and analyzing data for finely tuned sales and marketing techniques. Information Systems enable companies to analyze customer buying patterns, tastes, and preferences closely so that they efficiently pitch Advertising and Marketing campaigns to smaller and smaller target markets. The data come from a range of sources such as from credit cards transactions. Demographic data and purchase data come from checkout scanners (EPOS) at supermarkets and retail sources, as well as data from internet when people access the web site.

38. 3. FOCUS ON MARKET NICHE Sophisticated Software tools find Customers buying patterns in these large pools of data and Infer Rules from them to guide decision making. Analysis of such data drives one-to-one marketing and the System creates personal messages based on individualized preferences. Contemporary Customer Relationship Management (CRM) Systems feature Analytical capabilities for this type of intensive data analysis.

39. 4. STRENGTHEN CUSTOMER AND SUPPLIER INTIMACY Use of Information Systems for tighten linkages with Suppliers and develop intimacy with Customers. Information Systems is used to facilitative direct access from Suppliers to production schedules and even permits Suppliers to decide how and when to ship Supplies (raw material) to factories. This approach allows Suppliers more lead time in producing goods. e.g. Chrysler Motor Car Corporation use this approach. Amazon.com on the other side, keeps track of Users Preferences and can recommend book titles purchased by others to its customers. Strong linkage to Customers and Suppliers increases Switching Cost ( the cost of switching from one product to a competing product) and loyalty to your firm.

40. Some companies focus on one of these four Competitive Forces strategies, but you will often see companies pursuing several of them simultaneously. e.g. DELL Computer Corporation tries to emphasize Low cost as well as ability to customize its personal computers. Some other Companies may try to compete with Quality of services as well as Low cost.

41. THE INTERNET’S IMPACT ON COMPETETIVE ADVANTAGE The Internet has nearly destroyed some industries and has severely threatened more. It has also created entirely new markets and formed the basis for thousands of new businesses.  The first wave of e-commerce transformed the business world of books, music and Air travel  In the second wave eight new industries are facing a similar transformation: – Telephone services, movies, television, jewellery, real estate, hotels, bill payments and software. The breadth of e-commerce offerings grows, especially in travel, information clearinghouses, entertainment, retail apparel, appliances and home furniture. Because of internet, the Traditional Competitive Forces are still at work, but Competitive rivalry has become much more intense.

42. THE INTERNET’S IMPACT ON COMPETETIVE ADVANTAGE Internet technology is based on universal standards that any company can use, making it easy for rivals to compete on price along and for new competitors to enter market. Because information is available to everyone, the Internet increases the bargaining power of customer. Customers can quickly find the lowest cost provider on the Web. Profits have been dampened. Some Industry sectors, such as Travel and the Financial Services industries have been more impacted than others. However, the Internet also creates new opportunities for building brands and forming very large and loyal customer bases that are willing to pay a premium for the brand. e.g. Yahoo!, Google, eBay, BlueNile, RedEnvelop, Overstock.com, Amazon.com etc.

43. THE BUSINESS VALUE CHAIN MODEL Although Porters Competitive Forces Model is very helpful for identifying Competitive Forces and suggesting Generic Strategies based on IT, it is not very specific about what exactly to do, and it does not provide a methodology to follow for achieving Competitive Advantages. If a firm’s goal is to Achieve Operational Excellence, where do you start? In that case, Business Value Chain Model is helpful. For Achieving Operational Excellence. The Business Value Chain highlights specific activities in the business where competitive strategies can best be applied and where Information Systems are Most likely to have strategic impact..

44. THE BUSINESS VALUE CHAIN MODEL The Business Value Chain identifies specific, critical-leverage points Where firm can use Information Technology most effectively to enhance its competitive position.  The Business Value Chain Model views the firm as a series of chain of basic Support Activities that add a margin of value to a firm’s products or services. SUPPORT ACTIVITIES: Activities that make the delivery of Primary Activities possible and Consists of: - Organization Infrastructure (Administration and Management), -Human Resources (Employee recruiting, hiring, and training) -Technology (improving products and the production process) -Procurement (Purchasing input)

45. THE BUSINESS VALUE CHAIN MODEL The figure below provides examples of Systems for both Primary and Support Activities of a firm and its Value Partners that can add a margin of value to firms Products and Services.

46. THE BUSINESS VALUE CHAIN MODEL How Information Systems can be used to improve Operational Efficiency, and Customer and Supplier Intimacy at each stage of the Business Value Chain? This question will force you to critically examine:  How you perform Value-Adding Activities at each stage;  How the Business Processes used to improve the relationship with Customers and with suppliers (who lie outside the firm’s Value chain but belong to the firm’s extended Value Chain where they are absolutely critical to a firm’s success.) The results from a Business Value Chain Analysis are  The Supply Chain Management Systems  The Customer Relationship Management Systems

47. THE BUSINESS VALUE CHAIN MODEL Using the Value Chain Model will also cause you to consider :  Benchmarking the Business Processes against the competitors or others in the related industry sectors,  Identify the Best practices. of the industry sector. Benchmarking involves comparing the efficiency and effectiveness of the business processes against strict standards and then measure performance against those standards. Best Practices are identified by Consulting firms, Research firms, Industry Associations as the most successful problem solving methods for consistently and effectively achieving Business objectives.

48. THE BUSINESS VALUE CHAIN MODEL Once you have analyzed the various stages in the Value Chain of Business, you can come up with a List of candidate Information Systems and then decide which Informatıon System you develop first. By making improvement in the Firm’s Value Chain before the competitors you can Achieve Competitive Advantage by attaining:  Operational excellence,  Lowering costs,  Improving Profit Margins  Forging a closer relationship with Customers and Suppliers. If the competitors are making similar improvements in their Firm’s Value Chains, then at least you will not be at a Competitive Disadvantage - the worst of all cases!

49. EXTENDING THE VALUE CHAIN: - THE VALUE WEB A firm’s Value Chain is linked to the Value Chains of its Suppliers, Distributors (Delivery firms), and Customers. The performance of most firms depends not only on what goes on inside a firm but also on how well the firm coordinates directly and indirectly with its Suppliers, Delivery Firms (Logistic partners) and Customers.

50. EXTENDING THE VALUE CHAIN: - THE VALUE WEB HOW CAN (IT) ACHIEVES STRATEGIC ADVANTAGE AT INDUSTYRY LEVEL? By working together, Industry Participants (Suppliers, Companies, Logistic firms and Customers) can use Information Technology to develop Industry-wide Standards for exchanging information on business transactions electronically, which force all market participants to subscribe to similar standards. Industry-wide Standards not only increases efficiency, its also make Product Substitution less likely and perhaps raises the Market Entry Costs which may discourage New Market Entrants. Industry members can also build Industry-wide IT Support Consortia, Symposia, and Communication Networks to coordinate activities concerning Government agencies, foreign competition, and competing industries.

51. THE VALUE WEB The Industry Value Chain encourages the firms to think about using Information Systems to link up more efficiently with Suppliers, Strategic partners, and Customers. Strategic Advantage is derived from a firm’s ability to relate its Value Chain to the Value Chain of other partners i.e. Suppliers, Distributors and Customers in the process. For instants a firm may want to develop Information Systems that:-  Make it easy for Suppliers to display their products and Open Stores on firm’ Web site  Make it easy for Customer's to pay the goods electronically  Coordinate the Shipment of goods to Customers  Tracking Shipment for Customers Internet Technology has made it possible to create highly synchronized Industry Value Chains called the VALUE WEB.

52. THE VALUE WEB The Value Web is a collection of Independent Firms that use Information Technology to coordinate their Value Chains to produce a product or service for a market collectively.  The Value Web is more Customer driven and operates in a less linear fashion than the traditional Value Chain. The Value Web is a Networked System that can synchronized the Value Chains of Customers, Suppliers and Business Partners among different companies in an industry or in related industries. The Value Webs are flexible and adaptive to changes in supply and demand. Value Web Relationships can be bundled or unbundled in response to changing Market conditions. Firms will accelerate Time to Market and Time to Customers, by optimizing their Value Web relationships to make quick decisions on who can deliver the required product or services at the right price and right location.

53. THE VALUE WEB

54. SYNERGIES, CORE COMPETENCEIES, AND NETWORKED-BASED STRATEGIES A large Corporation is a collection of businesses. The firm is organized financially as a collection of Strategic business units, and the returns to the firm are directly tied to the performance of all the Strategic Business units. Information Systems can improve the overall performance of these business units by promoting Synergies and Core Competencies.

55. SYNERGIES The idea of Synergies is that, when the output of some business units can be used as inputs to other business units. (e.g. Two firms pool their markets and expertise to lowers costs and generate more profits.)  One use of Information Technology in Merger Synergy situation is to tie together the Operations of disparate Business units so that they can act as a whole. And thus, lower their retailing costs and increase cross marketing of financial products.  Recent mergers of Banks and Financial firms is an example of Synergies (e.g. Mergers of JPMorgan and BankOne Corporation) Merging with BankOne Corpration provided JPMorgan with a massive Network of retail branches in the Midwest and Southwest America. America.

56. ENHANCING CORE COMPETENCIES Another way to use Information Systems for Competitive Advantage is to think about ways that Systems can Enhance Core Competencies. A Core Competency is an activity for which a firm is a World-class Leader.  Core Competency relies on knowledge that is gained over many years of experience. A first-class research organization or simply key people who follow the literature and stay abreast of new external knowledge has Core competence.  Any Information Systems that encourages the sharing of knowledge across business units enhances competency.

57. ENHANCING CORE COMPETENCIES Use of Information Systems might:  Encourage or enhance existing competencies and help employees become aware of new external knowledge;  Help a business leverage existing competencies to related markets. Example : Procter & Gamble (P & G) uses a series of Information Systems to enhance its Core Competencies. P&G uses an Intranet to help people working on similar problems facilitating the sharing of ideas and expertise. The System connects those working in Research and Development (R&D), Engineering, Purchasing, Marketing, Legal Affairs, and P&G’s Business Information Systems around the world using a portal to provide access to documents, reports, charts, videos, and other data from various sources.

58. NETWORK-BASED STRATEGIES The availability of Internet and Networking Technologies has inspired strategies that take advantage of firms’ ability to create networks. Network-based Strategies include the use of:  Network Economics,  Virtual Company Model,  Business Ecosystems.

59. NETWORK ECONOMICS Business models, based on a Network may help firms strategically by taking advantage of Network Economics. In Traditional Economics, Production experiences Diminishing Returns. The Law of Diminishing Returns states that: The more of any given resource is applied to production, the lower the marginal gain in output, until a point is reached where the additional inputs produce no additional outputs. However, the Law of Diminishing Returns in some situation does not work. For instance in a Network, the marginal cost of adding another network participant is almost zero, whereas the marginal gain is much larger. The larger the number of subscribers in an Internet, the greater the value to all participants because each user can interact with more people.

60. NETWORK ECONOMICS  From the Network Economics perspective, Information Technology can be strategically useful since:  Internet sites can be used by firms to build Communities of Users, who want to share their experiences.  It builds customer loyalty and enjoyment, and builds unique ties to customers. e.g The more people offering products on eBay site, the more valuable the eBay site is to everyone. Because more products are listed, and more competition among suppliers lower the prices.  Network Economics also provides Strategic benefits to Commercial Software Vendors. –The value of Vendors Software and its complementary products increases as more people use them, and there is a large installed base of software to justify continued use of software and Vendor support.

61. VIRTUAL COMPANY STRATEGY A Virtual company also known (Virtual Organization), uses networks to link people, assets, and ides, enabling it to ally with other companies to create and distribute products and services without being limited down by traditional organizational boundaries or physical locations. The Network-Based Strategy uses the model of Virtual Company to create a Competitive business. The Virtual Company Model is useful when a company:  Finds it cheaper to acquire products, services, or capabilities from an External Vendor;  Needs to move quickly to exploit new market opportunities and lacks the time and resources to respond on its own.

62. VIRTUAL COMPANY STRATEGY Example : Fashion Companies such as Ann Taylor, Levi Strauss, Reebok and GUESS enlist Hong Kong based Li & Fung ( A Virtual Company) to manage Production and Shipment of their garments. Li & Fung handles Product design, raw material sourcing, production planning, quality assurance and product shipment. Li & Fung does not own any factories or machines or fabrics but outsources all of its work to a network of more than 7500 Suppliers in 37 countries all over the world. Customers place their orders to LI & Fung over its Extranet. Li & Fung then sends instructions to appropriate raw material suppliers and factories where the clothing is going to be produced. Li & Fung Extranets tracks the entire production and shipment process for each order. Working as a Virtual Company keeps Li & Fung flexible and adaptable so that it can design and produce orders placed by its clients in short order to keep pace with rapidly changing fashion trends.

63. BUSINESS ECOSYSTEMS The Internet and the emerging of Digital firms call for some modification of the industry Competitive Forces Model. The Traditional Competitive Model assumes a relatively: –Static Industry environment; –Clear cut Industry environment boundaries, –Stable set of Suppliers, –Substitutions –Customers with the focus on industry players in a market environment. However, some of today’s firms are much more aware that they participate in Not a particular industry but in a Industry Sets. Business Ecosystems is another term for those loosely coupled but Interdependent networks of Suppliers, Distributors, Outsourcing firms, Transportation Service Firms and Technology Manufacturers.

64. BUSINESS ECOSYSTEMS The Concept of Business Ecosystem is based on Value Web. However, the main differences being that cooperation takes place across many industries rather than many firms. The Digital Firm era requires a more dynamic view of the boundaries among Industries, Firms, Customers, and Suppliers, with Competition occurring among Industry sets in business Ecosystems. In the Ecosystem model, multiple Industries work together to deliver value to the customer. IT plays an important role in enabling a dense network of interactions among the participating firms. Business Ecosystems can be characterized as having one or a few keystone firms that dominate the Ecosystem and create the platforms used by other niche firms.

65. BUSINESS ECOSYSTEMS

66. USING INFORMATION SYSTEMS FOR COMPETETIVE ADVANTAGE: MANAGEMENT ISSUES Strategic Information Systems often change the Organization as well as its Products, Services, and Operating Procedures and thus driving the organization into new Behavioural patterns. Successfully using Information Systems to achieve a Competitive Advantage is challenging and requires precise coordination of Technology, Organizations and Management. SUSTAINING COMPETATIVE ADVANTAGE The Competitive Advantage of Strategic Systems do not necessarily last long enough to ensure long-term profitability. Because:  Competitors can retaliate and copy Strategic Systems and thus Competitive Advantage is not always sustainable.  Markets, Customer expectations, and Technology are changed more rapidly than expected as a result of Globalization.  The Internet can also make Competitive Advantage disappear very quickly because virtually all companies can use Internet technology.

67. SUSTAINING COMPETATIVE ADVANTAGE Example: Amazon.com was an e-commerce leader but now faces competition from Yahoo! and Goggle.  Information Systems alone cannot provide an enduring Business Advantage.  Information Systems originally intended to be strategic tools for survival, required by every firm to stay in business, or they may inhibit organizations from making strategic changes essential for future success. Managers interested in using Information Systems for Competitive Advantage will need to perform a Strategic Systems Analysis.

68. PERFORMING A STRATEGIC SYSTEMS ANALYSIS Managers should ask the following questions to identify the types of Information Systems that will provide a Strategic Advantage to their firms:- 1. What is the Structure of the Industry in which my firm is located? a)What are some of the Competitive Forces at work in the Industry? Are there New Entrants to the Industry? What is the relative power of Suppliers, Customers, and Substitute products and services over price? b)Is the basis of competition Quality, price, or brand? c)What are the direction and nature of change within the Industry? d)How is the Industry currently using IT? Is the organization behind or ahead of the Industry in its application of Information Systems?

69. 2.What are the Business and Industry Value Chains for my Firm ? a)How is the company creating Value for the Customer – through lower prices and lower transaction costs or higher quality? Are there any places in the Value Chain where the business could create more value for the customer and additional profit for the company? b)Does the firm understand and manage its Business Processes using the Best Practices available? Is the firm taking maximum advantage of Supply Chain Management, Customer Relationship Management, and Enterprise Systems (ERP)? c)Does the Firm Leverage its Core Competencies? d)Is the Industry Supply Chain and Customer Base changing in ways that benefit or harm the firm? e)Can the firm benefit from Strategic Partnership and Value Webs? f)Where in the Value Chain will Information Systems provide the greatest value to the firm?

70. MANAGING STRATEGIC TRANSITIONS Adaptation of Strategic Information Systems requires changes in Business Goals, Business Processes and the Relationships with Customers and Suppliers These Sociotechnical changes, affecting both Social and Technical elements of the Organization which can be considered Strategic Transitions (i.e. a movement between the levels of Sociotechnical Systems). Such changes often entails blurring of Organizational boundaries (both internal and external). Suppliers and Customers must become intimately linked and may share each other’s responsibilities. Managers will need to devise new Business Processes for coordinating their firms activities with those of Customers, Suppliers, and other Firms when adapting new Strategic Systems.