ISM 158 Business Information Strategy

Lecture 2

IT Strategy

Introductions

• Kevin Ross• kross@soe.ucsc.edu• Office hours: Tuesday 3:30pm – 5pm

– (or by appointment)

• E2 room 559

Overview and update

• Website now has schedule of presentations and readings

• Any questions from last week?– Quizzes– Projects– Presentations– Cases/Reading

ISM 158: Lecture 2

“This class considers the role of information in business strategy. In particular, we focus on decisions regarding information technology and information systems to give a business competitive advantage over other companies”

• Today we focus on identifying strategies and the role of IT in strategy

The Embedding of IT

• IT now embedded in:– Definition and execution of strategy– Organization and leadership of businesses– Definitions of unique value propositions

• Every business definition is morphing before our eyes– Markets– Industries– Strategies– Firm designs

• Information is now a major economic good

What is a Business Model?

• Defines how enterprise relates to environment– Strategy aligns organization with

environment– Resources in and out– How value is created for stakeholders– Sets goals and ways to achieve them

Fig 1.1 Components of a Business Model

Intra-Industry RivalryStrategic Business Unit

BargainingPower of Buyers

Bargaining Power

of Suppliers

Substitute Products

and Services

PotentialNew Entrants

Porter Competitive Model

• What is driving competition in the current or

future industry?

• What are current or future competitors likely

to do and how can a company respond?

• How can a company best posture itself to

achieve and sustain a competitive advantage?

Competitive Model Focus

Competitive Model Forces

Intra-industry Rivals: Strategic Business Unit (SBU) and major rivals.

Buyers: Categories of major customers.

Suppliers: Categories of major suppliers that play a significant role in enabling the SBU to conduct its business.

New Entrants: Companies that are new as competitors in a geographic market or existing companies that through a major shift in business strategy will now directly compete with the SBU.

Substitutes: An alternative to doing business with the SBU.

Intra-Industry Rivalry SBU: UCSC Rivals: UC campuses, CSU, Private universities, Community Colleges

BargainingPower of Buyers

Bargaining Power

of Suppliers

Substitute Products

and Services

PotentialNew Entrants

• Faculty• Staff• Equipment and Service Suppliers• Alumni• Foundations• Governments• IT Vendors

• Internet Distance Learning• Books and Videotapes• Computer-Based Training• Company Education Programs

• Students• Parents• Businesses• Employers• Legislators

• Foreign Universities• Shift in Strategy by Universities or Companies

Porter Competitive Model Education Industry – Universities U.S. Market

Role of Technology through Role of Technology through Porter perspective: Can we…Porter perspective: Can we…

1. Build barriers to prevent a company from entering an industry?

2. Build in costs that would make it difficult for a

customer to switch to another supplier?3. Change the basis for competition within the

industry?4. Change the balance of power in the relationship

that a company has with customers or suppliers?5. Provide the basis for new products and services,

new markets or other new business opportunities

Porter Competitive Strategies

Differentiation StrategiesDifferentiation Strategies

Innovation StrategiesInnovation Strategies

Growth StrategiesGrowth Strategies

Alliance StrategiesAlliance Strategies

Cost Leadership StrategiesCost Leadership Strategies Primary

Strategies

Supporting

Strategies

Strategic VisionService Concept

• What are important elements of the service to be provided, stated in terms of results produced for customers?

• How are these elements supposed to be perceived by the target market segment, by the market in general, by employees, by others?

• How do customers perceive the service concept?• What efforts does this suggest in terms of the manner in

which the service is designed, delivered, marketed?

Strategic VisionOperating Strategy

• What are important elements of the strategy: operations, financing, marketing, organization, human resources, control?

• On which will the most effort be concentrated?• Where will investments be made?• How will quality and cost be controlled:

measures, incentives, rewards?• What results will be expected versus

competition in terms of, quality of service, cost profile, productivity, morale/loyalty of servers?

Strategic VisionService Delivery System

• What are important features of the service delivery system including: role of people, technology, equipment, layout, procedures?

• What capacity does it provide, normally, at peak levels?• To what extent does it, help insure quality standards,

differentiate the service from competition, provide barriers to entry by competitors?

• Seeking Out Low-cost Customers• Standardizing a Custom Service • Reducing the Personal Element in Service

Delivery (promote self-service)• Reducing Network Costs (hub and spoke)• Taking Service Operations Off-line

Competitive Strategies (Overall Cost Leadership)

• Making the Intangible Tangible (memorable)• Customizing the Standard Product• Reducing Perceived Risk• Giving Attention to Personnel Training• Controlling Quality

Note: Differentiation in service means being unique in brand image, technology use, features, or reputation for customer service.

Competitive Service Strategies (Differentiation)

Strategic Focus Competitive Use of Information

On-line

(Real time)

Off-line

(Analysis)

External

(Customer)

Creation of barriers to entry:

Reservation system

Frequent user club

Switching costs

Data base asset:

Selling information

Development of services

Micro-marketing

Internal

(Operations)

Revenue generation:

Yield management

Point of sale Expert systems

Productivity enhancement:

Inventory status

Data envelopment

analysis (DEA)

Competitive Role of Information in Services

• Anti-competitive (Barrier to entry)

• Fairness (Yield management)

• Invasion of Privacy (Micro-marketing)

• Data Security (Medical records)

• Reliability (Credit report)

Limits in the Use of Information

Strategy Audit of Company

• Market/Channel position– Who are customers?– How to reach them

• Product position– What products/services to offer– Features, price

• Value chain/value network position– Role with respect to suppliers, producers, distributors, partners

• Boundary Position– What won’t you do?

Fig 1.2 Analyzing Competitive Forces and Strategic Positioning

Understand Customers

Understand Competitors

Understand Market and Product

Fig 1.3 Product/Market Positioning in the US Retail Financial Services Industry, 1990

Understand Partners

Understand Societal Context

Strategic Shifts

• Strategy changes over time• Flow of information makes this possible

– Enhancement (improve existing)– Expansion (launch new)– Extension (new business or business

model)– Exit (drop

product/category/market/channel)

Fig 1.4 Options for Evolving Strategy

Fig 1.5 Categories of Strategic Risk

Fig 1.6 McFarlan’s Strategic Grid

Fig 1.7 Strategic Alignment Model

Ideally, all four quadrants align to create value

Opportunities

• Can IT change basis for competition?• Can IT change balance of power among

buyers and supplyers?• Can IT build or reduce barriers to entry?• Can IT increase or decrease switching

costs?• Can IT add value to existing products

and services or create new ones?

Risks

• Can emerging technologies disrupt current business models?

• Are we too early or too late to exploit IT opportunity?

• Does IT lower entry barriers?• Does IT trigger regulatory action?

Fig 1.8 Analyzing Disruptive Technologies

Fig 1.9 Analyzing Cash Flow Curve

Questions

Presentation: Ingrid Gain

Tips for Reading Cases