2-1 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Chapter 2 STRATEGIC AND COMPETITIVE OPPORTUNITIES Using IT for Competitive Advantage

2-2 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Presentation Overview Competitive Advantage Examples Competitive Advantage Examples Developing A Strategy For The Internet Age Developing A Strategy For The Internet Age Key E-Commerce Strategies Key E-Commerce Strategies The U.S. Airline Industry The U.S. Airline Industry Summing It Up Summing It Up

2-3 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Opening Case Study Zara – Fashion Fast Forward Zara sets itself apart with its computerized network that ties stores to design shops and company-owned factories in real time. Zara sets itself apart with its computerized network that ties stores to design shops and company-owned factories in real time. How can technology be used to respond quickly to shifts in consumer tastes? How can technology be used to respond quickly to shifts in consumer tastes?

2-4 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Competitive advantage – a company provides a product or service in a way that customers value more than what the competition is able to do. Competitive advantage – a company provides a product or service in a way that customers value more than what the competition is able to do. Application architect - information technology professional who can design creative technology-based business solutions. Application architect - information technology professional who can design creative technology-based business solutions. Introduction

2-5 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Competitive Advantage Examples Temporary advantage - whatever you do, sooner or later the competition duplicates what you’ve done. Temporary advantage - whatever you do, sooner or later the competition duplicates what you’ve done. First mover - the company who is first to market with a new IT-based product or service. First mover - the company who is first to market with a new IT-based product or service. Distribution chain - the path followed from the originator of a product or service to the consumer. Distribution chain - the path followed from the originator of a product or service to the consumer. Alliance partner - a company you do business with on a regular basis in a cooperative fashion. Alliance partner - a company you do business with on a regular basis in a cooperative fashion.

2-6 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Competitive Advantage Examples Information partnership - lets two or more companies cooperate by integrating their IT systems. Information partnership - lets two or more companies cooperate by integrating their IT systems. Business to Business (B2B) - companies whose customers are primarily other businesses. Business to Business (B2B) - companies whose customers are primarily other businesses. Business to Consumer (B2C) -companies whose customers are primarily individuals. Business to Consumer (B2C) -companies whose customers are primarily individuals.

2-7 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Competitive Advantage Examples Federal Express Federal Express  Access information over the Internet Charles Schwab Charles Schwab  Stock trades over the Internet Dell Computer Dell Computer  Direct sell model Cisco Systems Cisco Systems  Direct sell model over the Internet On Your Own Looking for Opportunities Close to Home

2-8 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Developing A Strategy For The Internet Age The Five Forces Model

2-9 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Developing A Strategy For The Internet Age The Five Forces Model Five forces model - determines the relative attractiveness of an industry. Five forces model - determines the relative attractiveness of an industry.  Buyer power  Supplier power  Threat of substitute products or services Switching costs - costs that can make customers reluctant to switch to another product or service. Switching costs - costs that can make customers reluctant to switch to another product or service.  Threat of new entrants  Rivalry among existing competitors

2-10 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Developing A Strategy For The Internet Age The Three Generic Strategies Three generic strategies Three generic strategies  Cost leadership  Differentiation  Focused strategy

2-11 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Developing A Strategy For The Internet Age Using the Five Forces Model Buyer power Buyer power  Loyalty programs. Supplier power Supplier power  B2B marketplace - an Internet-based service which brings together many buyers and sellers. Threat of substitute products or services Threat of substitute products or services  IT-based alternatives.

2-12 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Developing A Strategy For The Internet Age Using the Five Forces Model Threat of new entrants Threat of new entrants  Entry barrier - a product or service feature that customers have come to expect from companies in a particular industry. Rivalry among existing competitors Rivalry among existing competitors  Using IT systems to be more efficient.

2-13 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Developing A Strategy For The Internet Age Bridging the Gap Between Business People and Technical People Project team - a team designed to accomplish specific one-time goals which is disbanded once the project is complete. Project team - a team designed to accomplish specific one-time goals which is disbanded once the project is complete.

2-14 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Developing A Strategy For The Internet Age Using the Three Generic Strategies Use the three generic strategies to change the basis of competition. Use the three generic strategies to change the basis of competition. Amazon.com makes the buying experience a pleasure by using sophisticated software to personalize the site for each individual. Amazon.com makes the buying experience a pleasure by using sophisticated software to personalize the site for each individual.

2-15 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Developing A Strategy For The Internet Age Developing a Creative Design Creative design - solves the business problem in a new and highly effective way rather than the same way others have done it. Creative design - solves the business problem in a new and highly effective way rather than the same way others have done it. Team Work Finding the Best IT Strategy For Your Industry (p. 83)

2-16 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Developing A Strategy For The Internet Age The Value Chain Business process - a standardized set of activities that accomplishes a specific task, such as processing a customer’s order. Business process - a standardized set of activities that accomplishes a specific task, such as processing a customer’s order. Value chain - views the organization as a chain – or series – of processes, each of which adds value to the product or service for the customer. Value chain - views the organization as a chain – or series – of processes, each of which adds value to the product or service for the customer.

2-17 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Developing A Strategy For The Internet Age The Value Chain

2-18 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Developing A Strategy For The Internet Age The Value Chain Talbott used the value chain to: Talbott used the value chain to:  Plan for a better way of meeting customer demands.  Identifying processes that add value.  Identifying processes that reduce value.

2-19 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Developing A Strategy For The Internet Age The Value Chain

2-20 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Developing A Strategy For The Internet Age The Value Chain

2-21 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Developing A Strategy For The Internet Age Looking Beyond The Four Walls Of The Company Just-in-time - an approach that produces or delivers a product or service just at the time the customer wants it. Just-in-time - an approach that produces or delivers a product or service just at the time the customer wants it. Supply chain - consists of the paths reaching out to all of a company’s suppliers of parts and services. Supply chain - consists of the paths reaching out to all of a company’s suppliers of parts and services. Collaborative planning, forecasting, and replenishment (CPFR) - a concept that encourages and facilitates collaborative processes between members of a supply chain. Collaborative planning, forecasting, and replenishment (CPFR) - a concept that encourages and facilitates collaborative processes between members of a supply chain.

2-22 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Key E-Commerce Strategies Mass Customization and Personalization Mass customization - a business gives its customers the opportunity to tailor its product or service to the customer’s specifications. Mass customization - a business gives its customers the opportunity to tailor its product or service to the customer’s specifications. Personalization - a Web site can know enough about your likes and dislikes that it can fashion offers that are more likely to appeal to you. Personalization - a Web site can know enough about your likes and dislikes that it can fashion offers that are more likely to appeal to you. Collaborative filtering - a method of placing you in an affinity group of people with the same characteristics. Collaborative filtering - a method of placing you in an affinity group of people with the same characteristics.

2-23 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Key E-Commerce Strategies Disintermediation Disintermediation – using the Internet as a delivery vehicle, intermediate players in a distribution channel can be bypassed. Disintermediation – using the Internet as a delivery vehicle, intermediate players in a distribution channel can be bypassed.

2-24 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Key E-Commerce Strategies Global Reach Global reach - the ability to extend reach to customers anywhere there is an Internet connection, and at a much lower cost. Global reach - the ability to extend reach to customers anywhere there is an Internet connection, and at a much lower cost.

2-25 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved The U.S. Airline Industry Airline Reservation Systems The airlines really began using IT in a significant way when American Airlines and United Airlines introduced the first airline reservations systems. The airlines really began using IT in a significant way when American Airlines and United Airlines introduced the first airline reservations systems.  SABRE  APPOLO

2-26 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved The U.S. Airline Industry Frequent Flyer Programs Frequent flyer programs are a great example of using IT to alter Porter’s five forces. Frequent flyer programs are a great example of using IT to alter Porter’s five forces.  They reduced buyer power by making it less likely a traveler would choose another airline.  They reduced the threat of substitute products or services by increasing switching costs.  They erected entry barriers by making a frequent flyer program a practical necessity for any airline to compete effectively.

2-27 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved The U.S. Airline Industry Disintermediating the Travel Agent Expert surveys have estimated that the number of travel agents in the U.S. will be sharply reduced as a result of disintermediation. Expert surveys have estimated that the number of travel agents in the U.S. will be sharply reduced as a result of disintermediation. Team Work Helping the Little Guy Compete (p. 93)

2-28 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved The U.S. Airline Industry Utilizing Emerging Technologies Permission marketing - when you have given a merchant your permission to send you special offers. Permission marketing - when you have given a merchant your permission to send you special offers.

2-29 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Summing It Up On Your Own Building on the State of the Art (p. 95)

2-30 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Closing Case Studies GM Tries to Lure Customers with OnStar GM Tries to Lure Customers with OnStar  Did the OnStar system give GM a competitive advantage? Speedpass: Throw Away Your Plastic? Speedpass: Throw Away Your Plastic?  Speedpass is an alternative to a credit card.  How is Speedpass an example of a first mover?

2-31 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Summary Assignments & Exercises 1. Evaluating telemedicine 2. Comparing parcel delivery services 3. Disintermediation in the travel agent industry

2-32 Management Information Systems for the Information Age Copyright 2004 The McGraw-Hill Companies, Inc. All rights reserved Visit the Web to Learn More Auction houses Auction houses Books and music Books and music Clothing and accessories Clothing and accessories Computers Computers Automobiles Automobiles Information partnerships Information partnerships