chapter 2 - duong huu phuchuman resource management administration and management 1/12/20 cs501045...

Chapter 2Gaining Competitive Advantage Through Information Systems

Phuc Duong

Outline

1. Enabling organizational strategy through information systems

2. Business models in the digital world3. International business strategies in the digital world4. Valuing innovations

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Enabling Organizational Strategy through IS

• Learning objective:• Discuss how information systems can be used for

automation, organizational learning, and strategic advantage• Then analyze competitive forces

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Organizational Decision-Making Levels (1)

• Executive/Strategic Level• Upper Management

• Managerial/Tactical Level• Middle Management

• Operational Level• Operational Employees,

Foremen, Supervisors

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• Operational Level:• Perform the day-to-day work of the organization• Making structured decisions on a day-by-day basis for

automate repetitive activities• Using IS to increase efficiency (accomplish faster, at lower

cost, with little time and effort)

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• Managerial/Tactical Level:• Typically focus on 3 to 12 months strategies.• IS helps make semi-structured decisions.• Using IS to increase effectiveness (goals or tasks are

accomplish well).

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• Executive/Strategic Level:• Focus on long-term strategies• IS helps make unstructured decisions and understand the

current business status

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Organizational Functions and Functional Levels (1)

• Organizations are organized along functional boundaries as well as along managerial levels• Managers within each function at each organizational

level have unique IS needs.

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• When deploying IS across organizational levels and functions, there are 3 ways the IS can provide value:• Automate ® Faster• Learn ® Better• Execute organizational strategy ® Smarter


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• Information Systems for Automating:• Doing things faster• Computers can automate existing business processes to

varying degrees• Depending on the process, this may or may not be significant


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• Information Systems for Organizational Learning:• Doing things better• Information systems can track and identify trends and

seasonality• Managers can use this to plan staffing levels and cross-

training


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• Information Systems for Supporting Strategy:• Doing things smarter• Information Systems should be implemented for:

• Low cost strategy implies information systems to minimize expenses• High quality strategy implies information systems to support ensuring

excellent quality and minimal defects

Analyzing Competitive Forces

• Porter's competitive forces model (1985):• develop strategies to increase their competitive edge• demonstrate how IT can make a company more competitive

• Porter's model identifies 5 major forces that can endanger or enhance a company's position in a givenindustry:• The threat of entry of new competitors• The bargaining power of suppliers• The bargaining power of customers (buyers)• The threat of substitute products or services• The rivalry among existing firms in the industry

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Porter's competitive forces model (1)

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• The threat of entry of new competitors:• The threat is high when entry is easy, example:

• Capital requirements to start the business are less• Few economies of scale are in place• Customers can easily switch (low switching cost)• Your key technology isn't hard to acquire or isn't protected well• Your product is not differentiated

• The threat is low when significant barriers to entry exist• Entry barrier is a feature that customers have known in a

certain industry, and a competing organization must offer this feature in order to survive in the marketplace.


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• The bargaining power of suppliers (seller):• It means how strong is the position of a supplier• Supplier power is high when organizations have few choices

from whom to buy, example:• Suppliers are concentrated and well organized• A few substitutes available to supplies• Their product is most effective or unique• Switching cost, from one suppliers to another, is high

• Organizations would rather have more potential suppliers so they will be in a stronger position to negotiation


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• The bargaining power of customers (buyers):• It means how much control the buyers have to drive down

your products price• Buyer power is high when buyers have many choices from

whom to buy, example:• Few buyers chasing too many goods• Buyer purchases in bulk quantities• Product is not differentiated• Buyer's cost of switching to a competitors' product is low


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• The threat of substitute products or services:• It means how easily your customers can switch to your

competitors product• Threat of substitute is high when:

• There are many substitute products available• Customer can easily find the product or service that you’re offering

at the same or less price• Quality of the competitors' product is better• Substitute product is by a company who is earning high profits and

can reduce prices to the lowest level


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• The rivalry among existing firms in the industry:• It means the intensity of competition among the existing

competitors in the market• Intensity of rivalry depends on the number of competitors

and their capabilities• Industry rivalry is high when:

• There is intense competition among many firms in an industry• Customers have low switching costs• Industry is growing

Porter's Value Chain Model (1)

• The Porter competitive forces model to design general strategies• To identify specific activities for greatest impact, using

value chain model• It also shows the points where can apply IT to achieve

competitive advantage

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Primary activities

Inbound logistics Operations Outbound logistics

Marketing and sales

Customer service

Support activities

Procurement

Product and technology development

Human resource management

Administration and management

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• The activities conducted in any organization are divided into 2 categories:• Primary activities• Support activities


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• The primary activities are those business activities that relate to the production and distribution, thus creating value for which customers are willing to pay• Primary activities involve purchasing materials,

processing materials into products, and delivering products to customers


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• Primary activities:• Inbound logistics (inputs): the incoming materials are

processed (in receiving, storage, and so on)• Operations (manufacturing and testing): the materials are

used in operations, where value is added by turning raw materials into products• Outbound logistics (storage and distribution): These products

then need to be prepared for delivery (packaging, storing, and shipping)


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• Primary activities:• Marketing and sales: sell the products to customers,

increasing product value by creating demand for the company’s products• After-sales services: such as warranty service or upgrade

notification, is performed for the customer, further adding value


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• The primary activities are buttressed by support activities• Support activities don't add value directly to the firm's

products or services• They contribute to the firm's competitive advantage by

supporting the primary activities


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• Support activities:• The firm's infrastructure (accounting, finance, management)• Human resources management• Product and technology development (R&D)• Procurement

Assessing Value for the IS Infrastructure

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• Economic Value• Direct financial impact

• Architectural Value• Extending business capabilities today and in the future

• Operational Value• Enhancing ability to meet business requirements

• Regulatory and Compliance Value• Complying with regulatory requirements

Case-study

• Download case-study and answer the questions

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https://www.duonghuuphuc.com/download/cs501045/Ch_02_CS_01.pdf

Outline



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Business models in the digital world (1)

• Business model:• Summary of a business's strategic direction that outlines how

the objectives will be achieved• Specifies the value proposition, as well as how a company

will create, deliver, and capture value• Identifies its customer segments, channels, customer

relationships, revenue streams, key resources, key activities, key partners, and cost structure

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• Components of a Business Model:1. Customer segments2. Value propositions3. Channels4. Customer relationships5. Revenue streams6. Key resources7. Key activities8. Key partners9. Cost structure

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• Putting it all together, a business model reflects the following:• What does a company do?• How does a company uniquely do it?• In what way (or ways) does the company get paid for doing

it?• What are the key resources and activities needed?• What are the costs involved?

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Revenue Models in the Digital World (1)

• The most important ingredient for any organization is determining how to generate revenue• Revenue model describes how the firm will earn

revenue, generate profits, and produce a superior return on invested capital

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• Some revenue types:• Affiliate marketing• Subscription• Licensing• Transaction fees / Brokerage• Traditional sales• Web advertising

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Case-study

• Download case-study and answer the questions

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https://www.duonghuuphuc.com/download/cs501045/Ch_02_CS_02.pdf

Outline



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International IS Strategies

• There are four international business strategies• Home Replication• Global• Multi-domestic• Transnational

• Each has pros and cons in terms of complexity, cost benefits, local customer responsiveness, and control

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Home Replication

• Focused domestically• Exporting products to generate additional sales• International operations is secondary emphasis• Information Systems not a significant factor in

facilitating international export sales

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Global Business Strategy (1)

• Products are deliberately developed for a global market and global audience• Requiring subsidiaries providing extensive feedback to

the home office to understand of how the product is being received• The focus is a global product appealing across many

markets, not to appeal to specific markets

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Global Business Strategy (2)

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Multi-domestic Business Strategy (1)

• Multi-domestic companies take a decentralized approach to running different subsidiary locations• Focus its products to each country in which it does

business, to meet local market needs• Tailoring to the local domestic environment, taking into

account the characteristics that define the locality• The information systems tend to be run by individual IS

departments within each subsidiary

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Multi-domestic Business Strategy (2)

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Transnational Business Strategy (1)

• Combining global reach, coordination of operations and leveraging unique advantages of local markets• Some aspects of the company are centralized, while

other aspects are decentralized• This strategy is sophisticated and complex, requiring

extensive information sharing between different subsidiaries, and subsidiary and the home location• This communication is facilitated by information

systems and the Internet

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Transnational Business Strategy (2)

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Outline



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The Need for Constant IS Innovation

• If a company wants to stay ahead of the competition, it needs to stay on top of the changing environment• This can require constant innovation, as the

technologies in the world we live in keep changing in new and unexpected ways

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Successful Innovation Is Difficult

• Innovation Is Often Fleeting• The pace of change is fast• Smart rivals quickly adopt any advantage

• Innovation Is Often Risky• Competing Technologies result in a winner and a looser (e.g.:

Blu-Ray and HD DVD)

• Innovation Choices Are Often Difficult• It is impossible to pursue all opportunities• It is hard to predict which opportunities will lead to success

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Organizational Requirements for Innovation

• Process Requirements• Focus on success over other objectives

• Resource Requirements• Employees with knowledge, skill, time & resources• Partner with appropriate requirements

• Risk Tolerance Requirements• Tolerance for risk• Tolerance for failure

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Challenges of Innovation

• Innovations based on a purchased technology can often be purchased by competitors• Innovations based on a developed technology can be

imitated or copied• Example:• A company can develop a technology that customers buy into• Then are locked into with high switching costs

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The Innovator's Dilemma (1)

• When an innovation is brought to market:• The innovators may be adopting technology just to see if it’s

beneficial• The majority are adopting it to take advantage of its benefits• The laggards are slow to adopt despite the benefits they

would see

• Some innovations are more disruptive, turning entire industries upside down• Disruptive innovations are new technologies, products, or

services that eventually surpass the existing dominant technology or product in a market

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The Innovator's Dilemma (2)

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Implementing the Innovation Process

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Exercises

• Visit course homepage to read and do the exercise.• URL: https://tinyurl.com/v74484s

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https://tinyurl.com/v74484s

End of ChapterGaining Competitive Advantage Through Information Systems

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chapter 2 - duong huu phuchuman resource management administration and management 1/12/20 cs501045...

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