Management Information System Chapter 4 Organizational Strategy, Information Systems and Completive Advantage

Learning Objectives L1: Organizational strategy determine information systems requirements. L2: Porter’s five forces model L3: Competitive strategy L4: Competitive strategy determine value chain structure L5: Value chains determine business processes and information systems L6: Information systems provide competitive advantages

L1: Organizational Strategy Determine Information Systems Structure Industry structure determines competitive strategies. Competitive strategy determines value chains and business processes. Business processes determine supporting information systems.

L2: Porter Five Forces Model Porter’s five forces Competitive Forces Competition from vendors of substitutes Competition from new competitors Competition from existing rivals Bargaining Power Forces Bargaining power of suppliers Bargaining power of customers

PORTER’S COMPETITIVE FORCES MODEL

Traditional competitors All firms share market space with competitors who are continuously devising new products, services, efficiencies, and switching costs. New market entrants Some industries have high barriers to entry, for example, computer chip business. New companies have new equipment, younger workers, but little brand recognition.

Substitute products and services Substitutes customers might use if your prices become too high, for example, iTunes substitutes for CDs Customers Can customers easily switch to competitor’s products? Can they force businesses to compete on price alone in transparent marketplace? Suppliers Market power of suppliers when firm cannot raise prices as fast as suppliers

L3: Competitive Strategy Four generic strategies for dealing with competitive forces, enabled by using IT: Low-cost leadership across the industry Product differentiation across the industry Focus low cost on an industry segment Product differentiation in an industry segment

Porter’s Four Competitive Strategies

Low-cost leadership Produce products and services at a lower price than competitors Example: Walmart’s efficient customer response system Product differentiation Enable new products or services, greatly change customer convenience and experience Example: Google, Nike, Apple

Product differentiation in an industry segment Focus on an industry segment Use information systems to enable a focused strategy on a single market niche with lowest cost. Product differentiation in an industry segment Use information systems to enable a differentiation strategy on an industry segment.

L4: Competitive Strategy Determine Value Chain Structure Competitive strategy implemented by creating value Value Margin = Value – cost Value chain

Bicycle Maker’s Value Chain

Summary of Value Chain Primary Activities

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

L5: Value Chains Determine Business Processes and Information Systems Business processes implement value chains or portions of value chains. Each value chain supported by one or more business process.

Value Chain for Bicycle Rental Company

Experiencing MIS InClass Exercise: Competitive Strategy Over the Web Industry Structure Competitive Strategy Value Chains Business Processes Information Systems Telecommunication industry in UAE Airline industry in UAE Banking industry in UAE

L6: Information Systems Provide Competitive Advantages

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?

Review Questions Q1: How does organizational strategy determine information systems requirements? Q2: What five forces determine industry structure? Q3: What is competitive strategy? Q4: How does competitive strategy determine value chain structure? Q5: How do value chains determine business processes and information systems? Q6: How do information systems provide competitive advantages?