Embed Size (px)
Management Information System
Competing with Information Technology
2
Judi Prajetno [email protected]
©2008
Objectives
Identify basic competitive strategies and explain how IT may be used to gain competitive advantage.
Identify strategic uses of information technology.
How does business process engineering frequently use e-business technologies for strategic purposes?
(Objectives – continued)
Identify the business value of using e-business technologies for total quality management, to become an agile competitor, or to form a virtual company.
Explain how knowledge management systems can help a business gain strategic advantage.
Section IFundamentals of
Strategic Advantage
Competitive Advantage
Competitive Advantage is an advantage over competitors in some measure such as cost, quality, or speed, leads to control of a market and to larger- than average profits.
Types of Competitive Advantage Barriers to entry that restrict supply Demand control Economies of scale Process efficiency
In the IS field, competitive advantage refers to the use of information to gain marketplace leverage
Fundamentals of Strategic Advantage
In Porter’s competitive forces model, the strategic position of the 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.
Threat of Threat of
Bargaining Power of Bargaining Power ofCompetitive Rivalry within an Industry
Threat of Threat of
Bargaining Power of Bargaining Power ofCompetitive Rivalry within an Industry
Porter’s Five Forces Model
The Determinants Of Competitive Rivalry
For most industries, this is the major determinant of the competitiveness of the industry. Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions such as
innovation, marketing, etc. number of competitors rate of industry growth intermittent industry overcapacity exit barriers diversity of competitors informational complexity and asymmetry fixed cost allocation per value added level of advertising expense
The Determinants Of The Threat Of Substitute Products
The existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases (high elasticity of demand). buyer propensity to substitute relative price performance of substitutes buyer switching costs perceived level of product differentiation
The Determinants Of The Threat Of The Entry Of New Competitors
Profitable markets that yield high returns will draw firms. The results is many new entrants, which will effectively decrease profitability. Unless the entry of new firms can be blocked by incumbents, the profit rate will fall towards a competitive level (perfect competition).
the existence of barriers to entry (patents, rights, etc.) economies of product differences brand equity switching costs or sunk costs capital requirements access to distribution absolute cost advantages learning curve advantages expected retaliation by incumbents government policies
The Determinants Of The Bargaining Power Of Customers
The ability of customers to put the firm under pressure and it also affects the customer's sensitivity to price changes.
buyer concentration to firm concentration ratio bargaining leverage buyer volume buyer switching costs relative to firm switching costs buyer information availability ability to backward integrate availability of existing substitute products buyer price sensitivity price of total purchase
The Determinants OfThe Bargaining Power Of Suppliers
Suppliers of raw materials, components, and services (such as expertise) to the firm can be a source of power over the firm. Suppliers may refuse to work with the firm, or e.g. charge excessively high prices for unique resources.
supplier switching costs relative to firm switching costs
degree of differentiation of inputs presence of substitute inputs supplier concentration to firm concentration ratio threat of forward integration by suppliers relative to
the threat of backward integration by firms cost of inputs relative to selling price of the product
Competitive Strategies
Porter argues that firms achieve competitive advantage by providing one of the following: products and services at a lower price, higher quality products and services, or meeting the special needs of certain market
segments
Competitive Strategies & the Role of IT
Cost Leadership (low cost producer) Reduce inventory (JIT) Reduce manpower costs per sale (see Real
World Case 1) Help suppliers or customers reduce costs Increase costs of competitors Reduce manufacturing costs (process control)
Competitive Strategies & the Role of IT (continued)
Differentiation Create a positive difference between your
products/services & the competition. May allow you to reduce a competitor’s
differentiation advantage. May allow you to serve a niche market.
Competitive Strategies & the Role of IT (continued)
Innovation New ways of doing business
Unique products or services New ways to better serve customers Reduce time to market New distribution models
Competitive Strategies & the Role of IT (continued)
Growth Expand production capacity Expand into global markets Diversify Integrate into related products and services.
Competitive Strategies & the Role of IT (continued)
Alliance Broaden your base of support
New linkages Mergers, acquisitions, joint ventures, “virtual
companies” Marketing, manufacturing, or distribution
agreements.
Competitive Strategies & the Role of IT (continued)
Other Competitive Strategies Locking in customers or suppliers
Build value into your relationship Creating switching costs
Extranets Proprietary software applications
Raising barriers to entry Improve operations or promote innovation
Leveraging investment in IT Allows the business to take advantage of strategic
opportunities
The Value Chain
Porter argued that firm’s opportunities to create competitive advantage occur at different steps in the value chain
The ultimate goal of any business is to provide value to its customers.
The Value chain means views a firm as a series, chain, or network of activities that add value to its products and services.
Value Chain
Business system consist of interdependent activities connected by linkages.
To gain competitive advantage a company must perform these activities to have values greater than the cost
Value Chain Thinking
Determine the firm’s competitive strengths and weaknesses
…by analysing firm’s value-added stream
Try to understand “the behaviour of cost and the existing and potential
sources of differentiation”
"value" added is the values added to the product …as it moves through the functional areas of the
business, through the distribution channels, and is finally acquired by the consumer.
Porter’s Value Chain
Margin is the value of the firm’s product and services, as perceived by the firm’s customers, less the cost
Firm Infrastructure (administrative coordination and support service)
Human Resources Management
Technology Development
Procurement
Inbound Logistics
Operations Outbound Logistics
Marketing & Sales
Service
SupportActivities
Primary Activities
cost
revenue
Margin
Mar
gin
Type Activity Definition
Primary activity: directly create the value as perceived by the customers
Inbound Logistic Material receiving, storing and distribution to manufacturing premises
Operations Transforming inputs into finish products
Outbound logistic Storing and distribution products
Marketing and sales Promotion and sales force
Service Service to maintain or enhance product value
Support activity: indirectly create value by supporting the primary processes
Corporate infrastructure
Support the entire value chain, such as general management, planning, finance, accounting, legal services, government affair, and quality management
Human resource management
Recruiting, hiring, training and development
Technology development
Improving product and manufacturing process
Procurement Purchasing input
Technological dependence: IT?
The key elements of IT dependence are its ability to: Improve market access Provide product and company differentiation Facilitate new product and service
introductions [change of focus] Introduce operational efficiencies [cost
leadership] improve decision making capabilities. increase the sharing of knowledge.
ServiceServiceMarketingand SalesMarketingand Sales
OutboundLogisticsOutboundLogisticsOperationsOperationsInbound
LogisticsInboundLogistics
EDI-BasedPurchasingSystem
Computer-IntegratedMftg.
AutomatedOrderingSystem
ExpertSystems forSalespeople
Tele-maintenanceExpertSystems
Downstream Chains of Customers
Upstream Chainsof Suppliers
Value Chain with Typical Strategic IS
Example: a hypothetical restaurant(Alter – Information Systems 4th ed. © 2002 Prentice Hall)
Based on the primary processes shown, this is probably not the value chain for the type of fast food restaurant that cooks the food before taking orders.
Value Activities
Primary ActivitiesPrimary Activities Inbound Logistics
Operations
Outbound Logistics
Marketing and Sales
Service
Support ActivitiesSupport Activities Corporate
Infrastructure
Human Resource
Management
Technology
Development
Procurement
Primary Activities: Inbound Logistics
Materials receiving, storing, and distributing to manufacturing
IT Impact: improved scheduling cut down warehousing
reduce disruptions lower price better vendor selection more flexibility
Primary Activities: Operations
Transforming inputs into finished products
IT Impact : increase product offerings new products
Primary Activities: Outbound Logistics
Storing and distributing finished products IT Impact:
influence customer behaviour through screen placement
piggy back other products on the same electronic distribution channel
Primary Activities: Marketing and Sales
Promotion and sales force
IT Impact: on-line order entry for customers ordering aids such as modelling systems for
farmers
Primary Activities: Service
Maintain or enhance product value IT Impact:
improved support via IT remote diagnostics expert systems for self-help
all reduce support cost and improve customer satisfaction
Support Activities: Corporate Infrastructure
Supports entire chain General management, planning, finance,
accounting, legal services, government affair, quality control
IT Impact: improve control via better tracking of activities enhance co-ordination better alignment of rewards with corporate
goals
Support Activities: Human Resource Management
Recruiting, hiring, training and development
IT Impact: improved staff selection and assignment tailoring benefit packages (see Resumix example in WSF lectures)
Support Activities: Technology Development
Improving product and manufacturing process
IT Impact: improved design analysis bigger and faster modelling more flexible designs
Support Activities: Procurement
Purchasing inputs IT Impact:
electronic shopping around reduced prices
Channelvaluechains
Suppliervaluechains
Buyervaluechains
Firmvaluechain
Expanded Value Chain
partssupplier
partssupplier
partssupplier
warehouse warehouse
suppliersuppliersupplier
toolmanufacturerManufacturer
workers
wholesalerwholesaler
distributordistributordistributor
retail storeretail storeretail storeretail store
Consumers
Production Chain
E Commerce in Value Chain
ManufacturerManufacturer Wholesaler/distributor
Wholesaler/distributor
Retailer Retailer Consumer Consumer
InfomediaryInfomediaryManufacturerManufacturer E-Retailer
E-Retailer
AggregatorAggregator
Portal
Portal Consumer Consumer
ManufacturerManufacturer Wholesaler/distributor
Wholesaler/distributor
Retailer Retailer Consumer Consumer
(a) Traditional Value Chain(a) Traditional Value Chain
(b) Intermediaries Eliminated (Deintermediation)(b) Intermediaries Eliminated (Deintermediation)
(b) New Intermediaries Introduced (Reintermediation)(b) New Intermediaries Introduced (Reintermediation)
Section II
Using Information Technology for Strategic Advantage
Strategic Uses Of Information Technology
Major competitive differentiatorDevelop a focus on the customer
Customer value Best value Understand customer preferences Track market trends Supply products, services, & information anytime,
anywhere Tailored customer service
Strategic Uses of IT (continued)
Business Process Reengineering (BPR) Rethinking & redesign of business processes Combines innovation and process
improvement There are risks involved. Success factors
Organizational redesign Process teams and case managers Information technology
Business Improvement vs. Business Reengineering
Business Process and Traditional Business Functions
Example of IT that Support Reengineering of sales and order management process
Strategic Uses of IT (continued)
Improve business quality Total Quality Management (TQM)
Quality from customer’s perspective Meeting or exceeding customer expectations Commitment to:
Higher quality Quicker response Greater flexibility Lower cost
Strategic Uses of IT (continued)
Becoming agile Agility in business performance is the ability of a
company to prosper in rapidly changing, continually fragmenting global markets for high quality, high performance, customer-configured products and services.
Four basic strategies Customers’ perception of product/service as solution to
individual problem Cooperate with customers, suppliers, other companies
(including competitors) Thrive on change and uncertainty Leverage impact of people and people’s knowledge
Example: Business model of AVNET Marshall to Agile Company
Leverage theImpact of People and IS Resources
Leverage theImpact of People and IS Resources
Give Customers Solutions
to Problems
Give Customers Solutions
to Problems
Cooperate with Business Partnersand Competitors
Cooperate with Business Partnersand Competitors
Organize toMasterChange
Organize toMasterChange
Strategic Uses of IT (continued)
The virtual company Uses IT to link people, assets, and ideas Forms virtual workgroups and alliances with
business partners Interorganizational information systems
Virtual Company (continued)
The Virtual Company (continued)
Strategies Share infrastructure & risk with alliance partners Link complementary core competencies Reduce concept-to-cash time through sharing
Increase facilities and market coverage Gain access to new markets and share market or
customer loyalty Migrate from selling products to selling solutions
Learning Organizations
Learning organization – knowledge creating company
Exploit two kinds of knowledge Explicit knowledge: data, document and etc. Tacit knowledge: the “how-tos” of knowledge,
which reside in workers
Learning Organizations (continued)
Knowledge Management
Learning Organizations (continued)
Knowledge management systems Help create, organize, and share business
knowledge wherever and whenever needed within the organization
Discussion Questions
You have been asked to develop e-business & e-commerce applications to gain competitive advantage. What reservations might you have about doing so?
How could a business use IT to increase switching costs and lock in its customers and suppliers?
Discussion Questions (continued)
How could a business leverage its investment in IT to build strategic IT capabilities that serve as a barrier to entry by new entrants into its markets?
What strategic role can information technology play in business process reengineering and total quality management?
Discussion Questions (continued)
How can Internet technologies help a business form strategic alliances with its customers, suppliers, and others?
How could a business use Internet technologies to form a virtual company or become an agile competitor?
Discussion Questions (continued)
IT can’t really give a company a strategic advantage, because most competitive advantages don’t last more than a few years & soon become strategic necessities that just raise the stakes of the game. Discuss.
MIS author & consultant Peter Keen says: “We have learned that it is not technology that creates a competitive edge, but the management process that exploits technology.” What does he mean?
Real World Case 1 – WESCO International, Inc.
Business-to-Business
Describe WESCO’s original system.
Describe WESCO’s new system.
Real World Case 1 (continued)
What are the business benefits to WESCO and its suppliers of its new e-procurement system?
Is WESCO’s new system a strategic use of IT?
Real World Case 1 (continued)
Does WESCO’s new system give the company a competitive advantage?
What other strategic moves could WESCO implement to gain competitive advantage?
Real World Case 2 – Staples, Inc.
What is the strategic business value to Staples and their large business clients of the new web-based procurement system?
What is the strategic business value to Staples and the value proposition to their customers of their new clicks and bricks capabilities?
Real World Case 2 (continued)
Is an integrated clicks and bricks strategy the Internet strategy that most businesses, large and small, should adopt?
What competitive strategies is Staples pursuing?
Real World Case 2 (continued)
What other e-business or e-commerce strategy would you recommend to Staples to help them gain a competitive advantage in their industry?
Real World Case 3 – Enron Corp.
What mistakes did Enron make in the use or management of IT?
Did those mistakes play a part in the failure of Enron?
Real World Case 3 (continued)
“Is it time to go back to the days when IT supported the business rather than became the business?” Explain your position.
What are the major lessons for the future use of IT in business that you gained from this case?
Real World Case 3 (continued)
How would you apply one of the lessons from this case in your present job or in your future business career?
Real World Case 4 – Delta Technology & FirstHealth Group
What are Delta Technology’s new requirements for IT investments?
What is the business value of Delta’s new requirements?
Real World Case 4 (continued)
Explain FirstHealth’s “return on opportunity” guidelines.
Is FirstHealth’s “return on opportunity” guideline for IT investments a good way to evaluate investments in IT?
Real World Case 4 (continued)
What should be the role of ROI in IT decision-making?
Are the IT investment guidelines of Delta and FirstHealth applicable to other companies, including small businesses?
Real World Case 5 – Ford, Dow Chemical, IBM, et al.
What is Six Sigma?
What do critics of Six Sigma see as its shortcomings?
Real World Case 5 (continued)
Is Six Sigma “an enterprise-wide business strategy?”
What role does information technology play in Six Sigma business initiatives?
Real World Case 5 (continued)
What are the benefits and limitations of Six Sigma as a business strategy?
Can Six Sigma make up for poor management and faulty vision?
