© Pearson Prentice Hall Q1 – How does organizational strategy determine information systems structure? Q2 – What five forces determine industry structure? Q3 – What is competitive strategy? Q4 – What is a value chain? 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?

© Pearson Prentice Hall Q7 – How Do Information Systems Provide Competitive Advantages? There are two ways businesses can respond to the five competitive forces.  They can gain a competitive advantage via their products and services.  They can gain a competitive advantage by developing superior business processes.

© Pearson Prentice Hall A business can gain a competitive advantage via its products by  Creating new products and services, or  Apple iPhone = market leader in the Smart phone market ahead of Nokia, Palm,& Blackberry  Enhancing its existing products or services, or  Stop & Shop supermarkets = grocery online shopping and home deliver (peapod online shopping)  Differentiating its products and services from its competitors  MacBook Wheel Apple = a revolutionary laptop with a sleek touch-sensitive click wheel instead of a keyboard. Q7 – How Do Information Systems Provide Competitive Advantages?

Information systems can help create a competitive advantage by being part of the product or by providing support to the product  A car rental agency that provides an information system that produces car locations and driving instructions to destinations is an example of information system as part of a car rental product  A car rental agency that adopts an information system that schedule car maintenance is an example of a system that is not part of the product, but supports the product © Pearson Prentice Hall

© Pearson Prentice Hall A company can gain a competitive advantage by using business processes to  Lock in customers via high switching costs, making it too expensive for the customer to switch to a competitor.  Companies aim to create high switching cost to lock in customers  Surgeons encounter high switching costs when after training to learn to use specific medical devices such as artificial joint products from one company, switching to a competitor product would require loss of time, money, comfort and familiarity  The more customers are locked in, the more likely a company can pass on added costs to them without risking customer loss to a competitor Q7 – How Do Information Systems Provide Competitive Advantages?

A company can gain a competitive advantage by using business processes to  Lock in suppliers via easy-to-use connections, discouraging them from changing to another business.  Toyota Auto Manufacturer leads the way in championing supplier relationships  Use of Keiretsu = close-knit network of vendors that continuously learn, improve, and prosper along with their parent companies  On-site Supply manufactures = low transportation cost, quality and delivering cars to the marketplace faster  Relationship Practices: conduct joint improvement activities through extensive training allowing suppliers to fully integrate with manufacturers’ processes, to develop technology and share information intensively.  Results = faster production times, better quality, shorter time for new car designs compared to competitors © Pearson Prentice Hall

A company can gain a competitive advantage by using business processes to Create entry barriers for new competitors, thereby raising the costs to enter the market.  ABC, Inc is shipper that invested heavily in information technology to gain a competitive advantage  Impossible for new entrants to provide similar services to customers.  ABC maintains customer account data: name, address, and billing info, but also organizations and location to which customer ships. Also data of recipients of past shipments  Customers are locked in because ABC reduces the amount of customer work when scheduling a shipment and reducing errors  ABC Locks in customers based on the benefits customer receive ABC systems generate shipping labels with bare codes for the user to print  ABC provides messages to the customer, recipients, and others when shipment is created and been delivered  ABC has extended its product from a package-delivery service to a package-and- information –delivery system .  © Pearson Prentice Hall

A company can gain a competitive advantage by using business processes to  Establish alliances with other organizations and set standards, reducing purchase costs and providing benefits for everyone.  Wal-Mart/P&G joint mission statement = to achieve the long- term business objectives of both companies by building a total system partnership to better serve mutual customers or consumers.  Wal-Mart adopts an automated reordering system linking computers between Protector & Gamble and its stores and distribution centers  Integration of POS information(actual demand) from Wal-Mart systems with P&G consumer data on why products were selling, trends, and analysis  Thus improving retailing and product development, reduced need of inventories  The interaction and coordination between the two companies allows P&G to lower costs and pass savings on to Wal-Mart contributing to its the “Every Day Low Prices” © Pearson Prentice Hall

A company can gain a competitive advantage by using business processes to Reduce costs which in turn reduces prices and increases profitability.  Del Computer Corporation PCs Just-In-Time Management made Dell the envy of the personal computer industry and allows it to grow at five times the industry rate  Dell orders components and assembles computers when an order is booked  The price of PC parts can fall rapdly in just a few months translating into profit advantage in components alone while its rivalry Compaq and IBM machines stay on dealer shelves for months  Dell’s low cost production system allows it to under price its rivals by 10% to 15%  © Pearson Prentice Hall

Information Systems That Provide Competitive advantage Hyundai Case Study - Real Time Sales Data-Unwired Enterprise © Pearson Prentice Hall