Chapter 3 Strategy and Information Systems

Chapter 3 Strategy and Information Systems
Jason C. H. Chen, Ph.D. Professor of MIS School of Business Administration Gonzaga University Spokane, WA 99258

Chapter Opening Scenario: “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 making negotiating deals What are missing and needed in this scenario? Strategy and Information Systems

Chapter Preview Recall from Chapter 1 that MIS is the development and use of information systems that enable organizations to achieve their goals and objectives. In Chapter 2, you learned how information systems can help people collaborate. This chapter focuses on how information systems support competitive strategy and how IS can create competitive advantages. As you will learn in your organizational behavior classes, a body of knowledge exists to help organizations analyze their industry, select a competitive strategy, and develop business processes. In the first part of this chapter, we will survey that knowledge and show how to use it, via several steps, to structure information systems. Then, in the last section, we will discuss how companies use information systems to gain a competitive advantage.

BUSINESS VALUE & FOCUS –IS Perspective
IS/E-BUSINESS Customer centric SCM CRM BPR ERP Demands Products Value Who are the customers? Where are the customers? Their purchasing habits How to reach them? What they need/want? How many they need/want? When they need/want? How to reach them? HOW TO REACH THEM? IT/INTERNET/E-BUSINESS SCM: Supply Chain Mgt. CRM: Customer Relationship Mgt. BPR: Business Process Reengineering ERP: Enterprise Resource Planning Business Models & Strategies

What is Business Model? Why New Models?
A business model is a set of planned activities (sometimes referred to as business processes) designed to result in a profit in a marketplace. The business model is at the center of the business plan. An e-commerce business model aims to use and leverage the unique qualities of the Internet and the www. One of the major characteristics of EC is that it enables the creation of new business models. Business model -- is a means (way)of creating business value. (a subset of business plan or a business case) -- A business model is a set of planned activities (sometimes referred to as business processes) designed to result in a profit in a marketplace. -- In order to be successful and prosperous for a company, it should have a suitable, profitable model within its industry and business. The business model is at the center of the business plan. A business plan is a document that describes a firm’s business model. Why New Models? Profitability (making money) N Source: E-Commerce: business, technology, society, Laudon and Traver, A/W

Study Questions Q1 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 2022?

Planning is everything ... What are Two Major Outputs for an organization?
Vision develop Mission Customers, market, competition guide determined by Strategy create Vision statement: one that a company (or projects) would like to be Mission statement: is about where and what they portray today Knowledge ---> Intelligence ---> Wisdom Attention economy: Time and attention are the scarcest resource. The completion for available attention is heating up; investing it wisely became a competence of increasing value. Only wisdom can guide effective decisions on how we invest our attention. Experience economy: Today’s customers are looking for more than products/services; they want to have a memorable experience of buying and using them for achieving their aspirations. One of the largest buying powers in the US, “cultural creative” value transformation higher than other types of market offers. determines Goals/ Objectives Tactic Products, Services N

Q1: How Does Organizational Strategy Determine Information Systems Structure?
An organization’s goals and objectives determine its competitive strategy. Ultimately, an organization’s competitive strategy determines its information system’s Structures Features Functions Fig 3-1 Organizational Strategy Determines Information Systems

Organizational Strategy Determines Information Systems
Fig 3-1 Organizational Strategy Determines Information Systems

Study Questions Q2 What five forces determine industry structure?
Q1 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 2022?

Striving for Competitive Advantage
Firm level: Industry & Competitive Analysis Competitive Forces Model Competitive Strategy Business level Value-Chain Analysis FIRM LEVEL – EXTERNAL (AMONG THE FIRMS) BUSINESS LEVEL – INTERNAL (about business processes within the “company”

Five Forces Model Five competitive forces determine industry profitability: bargaining power of customers, threat of substitutions, bargaining power of suppliers, threat of new entrants, and rivalry among existing firms (video). Intensity of each force determines characteristics of the industry, how profitable it is, and how sustainable that profitability will be. Assessing an industry structure based on five questions: How much bargaining power do customers have? How much of a threat do substitution products or services pose? How much bargaining power do suppliers have? How great is the threat of new competitors entering the marketplace? How great is the rivalry among existing firms?

PORTER’S FIVE COMPETITIVE FORCES MODEL
Threats NEW MARKET ENTRANTS SUBSTITUTE PRODUCTS & SERVICES Switching cost Access to distribution channels Economies of scale Redefine products and services Improve price/performance Selection of suppler Threat of backward integration Buyer selection Switching costs Differentiation Cost-effectiveness Market access Differentiation of product or service THE FIRM INDUSTRY COMPETITORS According to Porter, there are five competitive forces in any industry, and the attractiveness of the industry depends on the strength of each force (Porter, 1985). Under the perspective of market structure, Porter’s competitive forces model (Porter, 1985; Applegate et al., 1999) has been broadly adopted as the underpinning for investigating the effect of information technology on the relationships between suppliers, customers, and other potential threats. Contemporary strategic planning frameworks -- 1) too narrow and pessimistic -- 2) they are based on projections of market share and market growth COMPETITIVE FORCES that SHAPE strategy -- depends on the type of the industry The ability to manage complexity and responsiveness has become a powerful source of competitive advantage. Internal Forces: 1.customer focus, 2.communication, 3.core competencies, 4.complexity, 5.Quality Due to characteristics of the instability of the markets in e-Commerce, Downes and Mui (1998) show that there are three forces that must be added to Porter’s five forces model: globalization, digitalization, and deregulation. digitalization – the improvement and cost reductions in digital technology have had significant impact in business for many years now. The Internet has simply accelerated much of what was already happening and spread it into other industries across the world (esp. the information-based industries). Deregulation and liberalization – it opened up new opportunities for many firms, and recent years have seen an increase in the number of related diversifications. (e.g., UK companies in the energy sector have branched out into related markets such as other forms of energy or telecommunications, making use of their physical distribution networks). Globalization – an international level of many industries and liberalization of many markets (e.g., Eastern Europe) have opened up new foreign markets for Western firms while bringing Western firms into competition with multinationals based in other countries., Such international competition is likely to accelerate following political moves, such as the signing of the General Agreement on Trade and Tariffs by the leading industrial nations which promise to reduce barriers to international trade. Concept of “glocalization” where organizations must be a part of the local environmental setting. That is to think global and act according to local customs to survive and thrive in local conditions. SUPPLIERS CUSTOMERS Bargaining power N Dr. Chen, The Trends of the Information Systems Technology

Fig 3-2 Porter’s Five Forces Model of Industry Structure

Q/A - Enhancing your Analytic Skill
Linda is in the computer repair businesses. Mark and Jill, two recent university graduates are unemployed, but are thinking of doing computer repairs at their homes. This is an example of which of the five forces? bargaining power of customers bargaining power of suppliers threat of new entrants threat of substitution rivalry among existing firms … and the answer is:

Fig 3-3 Examples of Five Forces

GearUp’s Competitive Strategy
Low Cost/Focused Do everything to keep costs down GearUp’s response the customer force is to provide the lowest prices for goods to be found, anywhere The response to the rivalry threat is to keep its customers’ attention focused on GearUp via compelling s. Focus within sporting goods category Focus on buyers interested in special, short-term sales

Fig 3-4: Five Forces at GearUp
Medium GearUp, organizations examine these five forces and determine how they intend to respond to them. That examination leads to competitive strategy.

Porter’s Competitive Advantage Strategies
Cost leadership: be the cheapest Differentiation: focus on making your product and/or service stand out for non-cost reasons Focus: occupy narrow market niche where the products/services can stand out by virtue of their cost leadership or differentiation.

Porter’s Competitive Strategy Model
Firms engage in one of four competitive strategies: (video) Be the cost leader across a wide industry – Wal-Mart is the lowest cost leader in the retail industry. Differentiate its products across a wide industry – Apple Computer competes on how much better its computers are than PCs. Be the cost leader in a focused industry segment – Southwest Airlines is the cost leader in certain portions of the airline industry. Differentiate its product in a focused industry segment – Apple’s iPhone competes by being different than other cell phones.

Competitive Advantage Focus
Figure 3 (Extra): Porter’s Generic Strategy Framework – 3 Strategies for achieving Competitive Advantage Competitive Advantage Uniqueness Perceived by Customer Lower Cost Position Industrywide (Broad Target) Overall Cost Leadership Differentiation Competitive Scope Three generic strategies Cost leadership differentiation (internal differentiation [e.g., stock option, bonus, salary increase] is good for building performance culture within the organization) From PRODUCT differentiation to SERVICE differentiation (BLUE OCEAN) Focus (focused strategy is to develop a new market niches for specialized products/services where a target area better than its competitors) means an appropriate position/market a. cost or b. differentiation PRODUCT differentiation  SERVICE differentiation  INNOVATION (BLUE OCEAN STRATEGY) Core concept of this strategy are two basic principles: 1. Competitive advantage is believed to be the GOAL of any strategy 2. It is to be believed that a firm must define the TYPE of CA it seeks to attain and the scope within which it will be attained. From “all things to all people” (a below-average performance) to a focus on core competencies. Particular Segment only (Narrow Target) Focus Competitive Mechanism N Dr. Chen, The Trends of the Information Systems Technology TM -22

Fig 3-4: Porter’s Four Competitive Strategies
Q3: How Does Analysis of Industry Structure Determine Competitive Strategy? Fig 3-4: Porter’s Four Competitive Strategies To be effective, organization goals, objectives, culture, and activities must be consistent with organization strategy.

In-Class-Group Work Discussion Question
Using the five competitive forces model as described in this chapter to describe how (and what) IT might be used to provide a winning position for: A global airline Use UA as an example (Group work together)

Use the five competitive forces model as described in this chapter to describe how information technology might be used to provide a winning position for each of these businesses Ans: The five forces are substitutes, supplier, buyer, new entrants, and inter-industry. The question asks the student to pick a force and describe how each of these 5 types of business might use information resources to reduce the threat of that force. An example of analyzing the substitute force is given below: Global airline-it is difficult to think of what might be a substitute threat for a global airline. Perhaps it might be a cruise ship offering "offices at sea". In that case the global airline might use information resources to offer "offices in the air".

PORTER’S FIVE COMPETITIVE FORCES MODEL
Threats NEW MARKET ENTRANTS SUBSTITUTE PRODUCTS & SERVICES Internal Forces: 1.customer focus 2.communication 3.core competencies 4.complexity 5.Quality Other forces should be considered in the e-Age: 1. Digitalization 2. Globalization 3. Deregulation THE FIRM INDUSTRY COMPETITORS Cost-effectiveness Market access Differentiation of product or service According to Porter, there are five competitive forces in any industry, and the attractiveness of the industry depends on the strength of each force (Porter, 1985). Under the perspective of market structure, Porter’s competitive forces model (Porter, 1985; Applegate et al., 1999) has been broadly adopted as the underpinning for investigating the effect of information technology on the relationships between suppliers, customers, and other potential threats. Contemporary strategic planning frameworks -- 1) too narrow and pessimistic -- 2) they are based on projections of market share and market growth COMPETITIVE FORCES that SHAPE strategy -- depends on the type of the industry The ability to manage complexity and responsiveness has become a powerful source of competitive advantage. Internal Forces: 1.customer focus, 2.communication, 3.core competencies, 4.complexity, 5.Quality Due to characteristics of the instability of the markets in e-Commerce, Downes and Mui (1998) show that there are three forces that must be added to Porter’s five forces model: globalization, digitalization, and deregulation. digitalization – the improvement and cost reductions in digital technology have had significant impact in business for many years now. The Internet has simply accelerated much of what was already happening and spread it into other industries across the world (esp. the information-based industries). Deregulation and liberalization – it opened up new opportunities for many firms, and recent years have seen an increase in the number of related diversifications. (e.g., UK companies in the energy sector have branched out into related markets such as other forms of energy or telecommunications, making use of their physical distribution networks). Globalization – an international level of many industries and liberalization of many markets (e.g., Eastern Europe) have opened up new foreign markets for Western firms while bringing Western firms into competition with multinationals based in other countries., Such international competition is likely to accelerate following political moves, such as the signing of the General Agreement on Trade and Tariffs by the leading industrial nations which promise to reduce barriers to international trade. Concept of “localization” where organizations must be a part of the local environmental setting. That is to think global and act according to local customs to survive and thrive in local conditions. SUPPLIERS CUSTOMERS Bargaining power N Dr. Chen, The Trends of the Information Systems Technology TM -26

Porter’s Five Forces Model and Value Chain
According to Porter, there are five competitive forces in any industry, and the attractiveness of the industry depends on the strength of each force. Under the perspective of market structure, Porter’s competitive forces model has been broadly adopted as the underpinning for investigating the effect of information technology on the relationships between suppliers, customers, and other potential threats. Two views that can help G.M. align IS strategy with business strategy (These views provide a G.M. with varied perspectives from which to identify strategic opportunities to apply the firm’s information resources) Porter’s five forces model -- look at the major influences on a firm’s competitive environment -- Information resources should be directed strategically to alter the competitive forces to benefit the firm’s position in the industry. Porter’s value chain model --assess the internal operations of the organization and partners in its supply chain --Information resources should be directed at altering value-creating or value-supporting activities of the firm. Wiseman’s theory of strategic thrusts Defense or offense perspective

Business Strategies and its Competitive Advantage Innovation Alliance
Uniqueness Perceived by Customer Lower Cost Position Industrywide (Broad Target) Cost Leadership Differentiation Alliance Innovation Growth Competitive Scope Particular Segment only (Narrow Target) Three generic strategies Cost leadership differentiation (internal differentiation is good for building performance culture within the organization) Focus (focused strategy is to develop a new market niches for specialized products/services where a target area better than its competitors) means an appropriate position/market a. cost b. differentiation Core concept of this strategy are two basic principles: 1. Competitive advantage is believed to be the GOAL of any strategy 2. It is to be believed that a firm must define the TYPE of CA it seeks to attain and the scope within which it will be attained. From “all things to all people” (a below-average performance) to a focus on core competencies. Cost Focus Differentiation Focus Knowledge-based economy Industrial economy Competitive Mechanism Dr. Chen, The Trends of the Information Systems Technology TM -28

PART II

Striving for Competitive Advantage
: Industry & Competitive Analysis Competitive Forces Model Competitive Strategy Value-Chain Analysis Firm level Business level FIRM LEVEL – EXTERNAL (AMONG THE FIRMS) BUSINESS LEVEL – INTERNAL (about business processes within the “company”

Q4: How Does Competitive Strategy Determine Value Chain Structure?
Business Level: The Value Chain Competitive Advantage (Value) A company’s value activities fall into nine generic categories. -- Primary activities are those involved in the physical creation of the product, its marketing and delivery to buyers, and its support and servicing after sale. -- Support activities provide the inputs and infrastructure that allow the primary activities to take place. IT can profoundly affect one or more of these activities - - sometimes simply by improving effectiveness, - sometimes by fundamentally changing the activity, and - sometimes by altering the relationship between activities. In addition, the actions of one firm can significantly affect the value chain of key customers and suppliers. Operations: Boeing -- Lean Manufacturing After-Sale Service - maintenance technology Devices identify potential problems before the customer notices a difficulty and enable the service representative to fix the elevator before it breaks down, reducing repair costs and increasing customer satisfaction. Corporate Infrastructure - on-line links to integrate remote locations (27% sales growth) MANAGEMENT CONTROL - more sophisticated reward systems software (sales commission on each product sold by its sales force; thus (a) maximum incentive: sales force; (b) NO incentive: ensure the customer continued to be satisfied with the services coordination of activities - coordination of activities airline, truck, railroad: optimizing schedule, fueling, cargoes by using , groupware, videoconferencing: a networked “workflow” system. Technology Development support for research and development; CHINA(SPARK MIS) Procurement market knowledge (purchase price, exert pressure on --> supplier Porter’s Value Chain Model N

Fig 3-7: Task Descriptions for Primary Activities of the Value Chain

Primary Activities in the Value Chain
Inbound logistics—receiving, handling raw materials and other inputs Value in parts, time required to contact vendors, maintaining relationships with vendors, ordering parts, receiving shipment, and so forth Operations—transform or assemble materials into finished products Outbound logistics—deliver finished products to customers Marketing and sales—create marketing strategies and sell products or services to customers Services—after-sale customer support

Support Activities in the Value Chain
Contribute indirectly to production, sale, and service of product Procurement—finding vendors, setting up contractual arrangements, and negotiating prices Technology development—research and development, developing new techniques, methods, and procedures Human resources—recruiting, compensation, evaluation, and training of full-time and part-time employees Example: ____________________________ Firm infrastructure—general management, finance, accounting, legal, and government affairs performance measurement IS

Value Chain Competitive strategy implemented by creating value
Value—amount of money a customer is willing to pay for a resource, product, or service Margin—difference between value an activity generates and cost of activity Value chain—a network of value-creating activities Primary activities Support activities Rather than automating or improving existing functional systems, Porter contends companies should create new, more efficient business processes that integrate the activities of the entire value chain.

Value Chain in Order Management An Existing Product
Support Activities Administrative and Other Indirect Value Added Primary Activities Sales Production and Manufacturing Distribution/ Logistics Accounting Service Firm as a value chain – describe the firm as a set of interrelated activities (value chain). -- Every firm is a collection of activities performed to design, produce, market, develop, and support its product. -- it is a reflection of its history, 2) its decision making, and 3) its approach to implementing its decisions and 4) underlying economic of the activities themselves. Primary activities are those involved in taking the raw materials and developing the products and services for the customers. There are five generic sets of primary activities. Support activities can be divided into four generic categories. Though firms in the same industry may have similar value chains, the value chains of competitors often differ. First of all, the value chains help the firm deliver products and services to its customers. From the customer’s point of view, the value delivered by a firm (to the customers) depends on the superiority of its products or service relative to the price paid by the customer. The value appropriated by the firm, on the other hand, depends on the value created by the customers, but in relationship to the firm’s cost structure. In general, the value appropriated should exceed the opportunity cost of capital. D.B. N

Value Chain in Order Management A New Product
Support Activities Administrative and Other Indirect Value Added Primary Activities D.B. Sales Finance Production and Manufacturing Marketing Distribution/ Logistics Service Firm as a value chain – describe the firm as a set of interrelated activities (value chain). -- Every firm is a collection of activities performed to design, produce, market, develop, and support its product. -- it is a reflection of its history, 2) its decision making, and 3) its approach to implementing its decisions and 4) underlying economic of the activities themselves. Primary activities are those involved in taking the raw materials and developing the products and services for the customers. There are five generic sets of primary activities. Support activities can be divided into four generic categories. Though firms in the same industry may have similar value chains, the value chains of competitors often differ. First of all, the value chains help the firm deliver products and services to its customers. From the customer’s point of view, the value delivered by a firm (to the customers) depends on the superiority of its products or service relative to the price paid by the customer. The value appropriated by the firm, on the other hand, depends on the value created by the customers, but in relationship to the firm’s cost structure. In general, the value appropriated should exceed the opportunity cost of capital.

Fig 3-6: Bicycle Maker’s Value Chain

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

Value Chain Linkages Linkages are the interactions across the value activities. Ex: Manufacturing systems use linkages to reduce inventory costs, sales forecasts to plan production; production plan to determine raw materials needs; material needs to schedule purchases. End result is just-in-time inventory, which reduces inventory sizes and costs. Business process design Organizations should not automate or improve existing functional systems. Rather, they should create new, more efficient business processes that integrate activities of all departments involved in a value chain.

Study Questions Q5 How do business processes generate value?
Q1 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 2022?

How Do Business Processes Generate Value?
Business process—network of activities that generate value by transforming inputs into outputs. Cost of a business process is cost of inputs plus the cost of activities. Margin of the business process equals the value of the outputs minus the cost (margin = value – cost) Activity transforms input resources into output resources. Resources flow between or among activities. Facilities store resources; some facilities, such as inventories, store physical items.

How Do Business Processes Generate Value?
Each company has many business processes which are networks of activities that generate value by transforming inputs into outputs. You determine the cost of each business process by adding the cost of inputs plus the cost of activities used in the process. You determine the margin of each business process by subtracting the cost of the activity from the value of the output. 3-44

An Alternate Process for Bicycle Manufacturer
Fig 3-8 Three Examples of Business Processes

Compare Three Business Processes For Bicycle Manufacturer
Notice that activities get data resources from databases and put data into databases Business processes vary in cost and effectiveness. In fact, the streamlining of business processes to increase margin (add value, reduce costs, or both) is key to competitive advantage. Example of using a linkage across business processes to improve process margin: Querying both databases allows purchasing department to make decisions on raw materials quantities and customer demand. By using this data, purchasing can reduce size of raw materials inventory, reducing production costs and thus adding margin to the value chain.

Fig 3-9: Improved Material Ordering Process

Business Process Summary
Key to a company’s competitive advantage is to increase the margin of its products by adding value, reducing costs, or both. Business process redesign helps a business streamline its activities in order to increase its margins. Most difficult part of process redesign is associated with employee resistance.

Fig 3-10: Operations Value Chains for Bicycle Rental Companies
Q6: How Does Competitive Strategy Determine Business Processes and the Structure of Information Systems? Fig 3-10: Operations Value Chains for Bicycle Rental Companies

Fig 3-10: Operations Value Chains for Bicycle Rental Companies

High-Service Business Bike Rental
[1] [3] [4] [2] Fig 3-11 Business Process & Information System (DB process) for Bike Rental

Bottom Line Each business must first analyze its industry structure and choose a competitive strategy. Will it be a low-cost provider or differentiate its products from competitors? Then it must design its business processes to span value-generating activities. Those processes determine scope and requirements of each organization’s information systems. How does competitive strategy determine business processes and the structure of information systems? Each business must first analyze its industry and choose a competitive strategy. Will it be a low-cost provider or differentiate its products from competitors? Then it must design its business processes to span value-generating activities. Once those decisions have been made, a business can structure an information system that supports its business processes For example: i) customer choose their car/model from the Internet ii) delivering the car to customer’s door or airport site w/ free service etc. for i) hiring the team (or outsourcing) to develop this special features on the existing Car Rental system for ii) re-organize a department providing this service (need time, capital and human resource)

Figure 3-12: Principles of Competitive Advantage
Q7: How Do Information Systems Provide Competitive Advantages? Product Implementation 1. Create a new product or service 2. Enhance products or services 3. Differentiate products or services System Implementation 4. Lock in customers and buyers 5. Lock in suppliers 6. Raise barriers to market entry 7. Establish alliance 8. Reduce costs Figure 3-12: Principles of Competitive Advantage

There are two ways businesses can respond to the five competitive forces.
1) They can gain a competitive advantage via their products and services by creating new products or services, Enhancing existing products or services, Differentiating their products and services from those of their competitors by cost and quality 2) They can gain a competitive advantage by developing superior business processes with Information Systems. (video) A business can gain a competitive advantage via its products by Creating new products and services, or Enhancing its existing products or services, or Differentiating its products and services from its competitors Information systems can help create a competitive advantage by being part of the product or by providing support (service) to the product. 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. Lock in suppliers via easy-to-use connections, discouraging them from changing to another business. Create entry barriers for new competitors, thereby raising the costs to enter the market. Establish alliances with other organizations and set standards, reducing purchase costs and providing benefits for everyone. Reduce costs which in turn reduces prices and increases profitability. Products/ Services N

Fig 3-13: Information Systems Create Competitive Advantages as Product or Support (Two Roles)

Gaining Competitive Advantage by Using Business Processes
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 Organizations—establish standards, promote product awareness and needs, develop market size, reduce purchasing costs, and provide other benefits Reduce costs Enables reducing prices and/or to increasing profitability. Increased profitability means more cash to fund further infrastructure development and greater competitive advantage. #5 may be ignored (removed)

How Does an Actual Company Use IS to Create Competitive Advantages?
ABC, Inc, an actual company, created a competitive advantage in shipping industry by: Superior customer service Making it easy for customers to business with by minimizing data entry: Drop-down lists, automatic fill-ins, contact lists for customers Minimizing data-entry errors Following slide shows some of the Web pages of ABC’s information system.

Fig 3-14: ABC, Inc Web Page to Select recipient from customer records

Fig 3-15: ABC, Inc Web Page to Select Contact from Customer Records

Fig 3-16: ABC, Inc Web Page to Specify Email Notification

Fig 3-17: ABC, Inc Web Page to Print a Shipping Labels

How Does This System Create a Competitive Advantage?
ABC’s information system helps the company create a competitive advantage: Enhances its existing services - making it easy for the customer to use its system, and reducing errors. Differentiates its products/services from its competitors who don’t have a similar service to provide to customers. Provides new services for customers that competitors don’t provide (i.e., innovation) Locks in customers into its system based on the benefits they receive from it. Raises barriers to market entry Increases profit margins by decreasing costs and decreasing errors

Q8 2022? Unlikely GearUp will exist
Like most startups, it will go bankrupt or Purchased by a large retailer, or It will merge with other personal shopping sites to form a supersite, or It grows into a bigger company and becomes a supersite of its own. 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

Essential Value Propositions for a Successful Company
Business ________ Model ________ Competency ________ Set corporate goals and get executive sponsorship for the initiative Core Execution First, you have to have a business model, then, the company needs to set corporate goals and get executive sponsorship for the initiative." "Start with your business objectives of the product or service the company is selling, figure out where it is in the lifecycle, and determine which phase of CRM to focus on, for example, the company should determine whether it wants to focus on acquiring customers, retaining customers or up-selling and cross selling to customers." Examples: Dell vs. Gateway and Toyota vs. GM/FORD

Enhanced Model of “Built To Last”:
Continuity and Change in Visionary Companies Strategic Competitive Advantages and creating values Preserve Core Values Core Purpose Change Culture & Operating Practices Specific Goals and Strategies Processes Create consistent, powerful alignment mechanisms to preserve the core and to simulate progress. IT Efficiency Effectiveness Innovation Safety Quality Care Management (tangible, strategic mechanism)

END OF CHAPTER 3

Chapter 3 Strategy and Information Systems

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