Chapter 3. Achieving competitive advantage with information systems

with Information Systems

How does Porter’s competitive forces model help companies develop competitive strategies using information systems?
How do the value chain and value web models help businesses identify opportunities for strategic information system applications?
How do information systems help businesses use synergies, core competencies, and network-based strategies to achieve competitive advantage?

competitive advantage?
What is the role of business process management (BPM) in enhancing competitiveness?

STUDENT LEARNING OBJECTIVES

Essentials of Management Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems

strategic decisions in arena of telecommunications
Solution: Verizon sells version of iPhone (once exclusive to AT&T); AT&T purchases T-Mobile USA, Microsoft purchases Skype

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Chapter 3 Achieving Competitive Advantage with Information Systems

AT&T opportunities to gain an edge
Illustrates digital technology’s role in gaining and maintaining a competitive advantage
Illustrates how difficult it is to sustain competitive advantage, especially in an arena of quickly changing technologies

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Chapter 3 Achieving Competitive Advantage with Information Systems

Verizon, AT&T, and Skype: Digital Strategy Will Prevail?

Systems

Verizon, AT&T, and Skype: Digital Strategy Will Prevail?

firm
Traditional competitors
Competitors in market space continuously devise new products, new efficiencies, switching costs
New market entrants
Some industries have low barriers to entry:
E.g., food industry versus microchip industry
Newer companies may have advantages:
Newer equipment, younger workforce, and so on.

Porter’s Competitive Forces Model

Using Information Systems to Achieve Competitive Advantage

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Chapter 3 Achieving Competitive Advantage with Information Systems

high
E.g., Internet music service versus CDs.
Customers
Can customers easily switch to competitor’s products?
Can customers force firm and competitors to compete on price alone (transparent marketplace)?
Suppliers
The more suppliers a firm has, the greater control it can exercise over suppliers.

Porter’s Competitive Forces Model

Using Information Systems to Achieve Competitive Advantage

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Chapter 3 Achieving Competitive Advantage with Information Systems

firm and its strategies are determined not only by competition with its traditional direct competitors but also by four forces in the industry’s environment: new market entrants, substitute products, customers, and suppliers.

Porter’s Competitive Forces Model

Using Information Systems to Achieve Competitive Advantage

Essentials of Management Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems

with business objectives
75 percent of businesses fail to align their IT with their business objectives, leading to lower profitability
To align IT:
Identify business goals and strategies
Break strategic goals into concrete activities and processes
Identify metrics for measuring progress
Determine how IT can help achieve business goals
Measure actual performance

Using Information Systems to Achieve Competitive Advantage

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Chapter 3 Achieving Competitive Advantage with Information Systems

to achieve the lowest operational costs and the lowest prices
E.g., Walmart
Inventory replenishment system sends orders to suppliers when purchase recorded at cash register
Minimizes inventory at warehouses, operating costs
Efficient customer response system

Using Information Systems to Achieve Competitive Advantage

Essentials of Management Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems

such as Walmart use sales data captured at the checkout counter to determine which items have sold and need to be reordered. Walmart’s continuous replenishment system transmits orders to restock directly to its suppliers. The system enables Walmart to keep costs low while fine-tuning its merchandise to meet customer demands.

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Chapter 3 Achieving Competitive Advantage with Information Systems

to enable new products and services, or greatly change the customer convenience in using your existing products and services
E.g., Google’s continuous innovations, Apple’s iPhone
Use information systems to customize, personalize products to fit specifications of individual consumers
E.g., Nike’s iD program for customized sneakers

Using Information Systems to Achieve Competitive Advantage

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information systems to enable specific market focus, and serve narrow target market better than competitors
Analyzes customer buying habits, preferences
Advertising pitches to smaller and smaller target markets
E.g., Hilton Hotel’s OnQ System
Analyzes data collected on guests to determine preferences and guest’s profitability

Using Information Systems to Achieve Competitive Advantage

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intimacy
Strong linkages to customers and suppliers increase switching costs and loyalty
Toyota: uses IS to facilitate direct access from suppliers to production schedules
Permits suppliers to decide how and when to ship supplies to plants, allowing more lead time in producing goods.
Amazon: keeps track of user preferences for purchases, and recommends titles purchased by others

Using Information Systems to Achieve Competitive Advantage

Essentials of Management Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems

Systems to Achieve Competitive Advantage

Read the Interactive Session and then discuss the following questions:
Analyze Starbucks using the competitive forces and value chain models.
What is Starbucks’ business strategy? Assess the role played by technology in this business strategy.
How much has technology helped Starbucks compete? Explain your answer.

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Chapter 3 Achieving Competitive Advantage with Information Systems

strategies at same time
Walmart, Apple, Amazon
Successfully using IS to achieve competitive advantage requires precise coordination of technology, organizations, and people

Using Information Systems to Achieve Competitive Advantage

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Chapter 3 Achieving Competitive Advantage with Information Systems

of power of customers and suppliers
Transforms some industries
Creates new opportunities for creating new markets, building brands, and large customer bases

The Internet’s Impact on Competitive Advantage

Using Information Systems to Achieve Competitive Advantage

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be applied and where information systems are likely to have a strategic impact
Primary activities
Support activities
Benchmarking
Best practices

The Business Value Chain Model

Using Information Systems to Achieve Competitive Advantage

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Chapter 3 Achieving Competitive Advantage with Information Systems

of systems for both primary and support activities of a firm and of its value partners that would add a margin of value to a firm’s products or services.

The Value Chain Model

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Chapter 3 Achieving Competitive Advantage with Information Systems

its suppliers, distributors, and customers
Value web
Collection of independent firms that use information technology to coordinate their value chains to produce a product collectively
Value webs are flexible and adapt to changes in supply and demand

Extending the Value Chain: The Value Web

Using Information Systems to Achieve Competitive Advantage

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Chapter 3 Achieving Competitive Advantage with Information Systems

a networked system that can synchronize the value chains of business partners within an industry to respond rapidly to changes in supply and demand.

The Value Web

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Chapter 3 Achieving Competitive Advantage with Information Systems

other units
When two firms can pool markets and expertise (e.g., recent bank mergers)
Lower costs and generate profits
Enabled by information systems that ties together disparate units so they act as whole

Synergies, Core Competencies, and Network-Based Strategies

Using Information Systems to Achieve Competitive Advantage

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Chapter 3 Achieving Competitive Advantage with Information Systems

miniature parts designer, best package delivery service
Relies on knowledge that is gained over many years of experience as well as knowledge research
Any information system that encourages the sharing of knowledge across business units enhances competency
E.g., Procter & Gamble uses intranet to help people working on similar problems share ideas and expertise

Synergies, Core Competencies, and Network-Based Strategies

Using Information Systems to Achieve Competitive Advantage

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Chapter 3 Achieving Competitive Advantage with Information Systems

whereas marginal gain is much larger
E.g., larger number of participants in Internet, greater value to all participants
Virtual company:
Uses networks to link people, resources, and ally with other companies to create and distribute products without traditional organizational boundaries or physical locations

Synergies, Core Competencies, and Network-Based Strategies

Using Information Systems to Achieve Competitive Advantage

Essentials of Management Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems

existing products, services and business models obsolete:
Personal computers
World Wide Web
Internet music services
First movers versus fast followers
First movers of disruptive technologies may fail to see potential, allowing second movers to reap rewards (fast followers)

Disruptive Technologies: Riding the Wave

Using Information Systems to Achieve Competitive Advantage

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Chapter 3 Achieving Competitive Advantage with Information Systems

huge firms able to afford factories, warehouses, and distribution centers abroad
The Internet drastically reduces costs of operating globally
Globalization benefits:
Scale economies and resource cost reduction
Higher utilization rates, fixed capital costs, and lower cost per unit of production
Speeding time to market

The Internet and Globalization

Competing on a Global Scale

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Chapter 3 Achieving Competitive Advantage with Information Systems

iPhone in the United States, and relies on suppliers in the United States, Germany, Italy, France, and South Korea for other parts. Final assembly occurs in China

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Chapter 3 Achieving Competitive Advantage with Information Systems

Figure 3-4

of corporate activities in home country
Multinationals
Concentrates financial management at central home base while decentralizing production, sales, and marketing to other countries
Franchisers
Product created, designed, financed, and initially produced in home country but rely on foreign units for further production, marketing, and human resources
Transnationals
Regional (not national) headquarters and perhaps world headquarters; optimizing resources as needed

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Chapter 3 Achieving Competitive Advantage with Information Systems

at domestic home base
Duplicated systems:
Development at home base but operations managed by autonomous units in foreign locations
Decentralized systems:
Each foreign unit designs own solutions and systems
Networked systems:
Development and operations occur in integrated and coordinated fashion across all units

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Chapter 3 Achieving Competitive Advantage with Information Systems

Xs show the dominant patterns, and the small Xs show the emerging patterns. For instance, domestic exporters rely predominantly on centralized systems, but there is continual pressure and some development of decentralized systems in local marketing regions.

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Chapter 3 Achieving Competitive Advantage with Information Systems

and absence of variation from specs
Customer perspective:
Physical quality (reliability), quality of service, psychological quality
Total quality management (TQM):
Quality control is end in itself
All people, functions responsible for quality
Six sigma:
Measure of quality: 3.4 defects/million opportunities

Essentials of Management Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems

products and services
Improve design quality and precision
Computer-aided design (CAD) systems
Improve production precision and tighten production tolerances

How Information Systems Improve Quality

Competing on Quality and Design

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Chapter 3 Achieving Competitive Advantage with Information Systems

design by performing much of the design and testing work on the computer.

Competing on Quality and Design

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Chapter 3 Achieving Competitive Advantage with Information Systems

competitive, or quality oriented
Organizational changes are often necessary, from minor changes in work habits to redesigning entire business processes
BPM: Business Process Management
Aims to continuously improve processes
Uses variety of tools and methodologies to:
Understand existing processes
Design and optimize new processes

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Chapter 3 Achieving Competitive Advantage with Information Systems

process
Continuous measurement

Essentials of Management Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems

Information Systems

Information Systems

Interactive Session and then discuss the following questions:
Analyze Burton using the value chain and competitive forces models.
Why are the business processes described in this case such an important source of competitive advantage for Burton?
Explain exactly how these process improvements enhance Burton’s operational performance and decision making.

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Chapter 3 Achieving Competitive Advantage with Information Systems

Competing on Business Processes

old processes, replacement with new processes, in a brief time period
Can produce dramatic gains in productivity
Can produce more organizational resistance to change

Business Process Reengineering

Competing on Business Processes

Essentials of Management Information Systems
Chapter 3 Achieving Competitive Advantage with Information Systems