Module overviewFormat of ModuleLectures ActivitiesAssignment 50%Examination 50%Moodle password management (lowercase)

Assessments Assignment2500 words - Report 1 week late 10%More than 1 week, but before the end of module 40%

Exam3 out of 4 questions

Achieving Competitive Advantage with Information Systems

STUDENT LEARNING OBJECTIVESHow does Porters 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?

How do competing on a global scale and promoting quality enhance competitive advantage?

What is the role of business process management (BPM) in enhancing competitiveness?STUDENT LEARNING OBJECTIVES

Verizon, AT&T, and Skype: Digital Strategy Will Prevail?Problem: Intense competition, difficult 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

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

Cutting-edge technologies like the iPhone and fiber-optic networks offer Verizon and AT&T opportunities to gain an edgeIllustrates digital technologys role in gaining and maintaining a competitive advantageIllustrates how difficult it is to sustain competitive advantage, especially in an arena of quickly changing technologies

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

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

One way to understand competitive advantageFive competitive forces shape fate of firmTraditional competitorsCompetitors in market space continuously devise new products, new efficiencies, switching costsNew market entrantsSome industries have low barriers to entry:E.g., food industry versus microchip industryNewer companies may have advantages:Newer equipment, younger workforce, and so on.Porters Competitive Forces ModelUsing Information Systems to Achieve Competitive Advantage

Substitute products and servicesSubstitutes customers can purchase if your prices too highE.g., Internet music service versus CDs.CustomersCan customers easily switch to competitors products?Can customers force firm and competitors to compete on price alone (transparent marketplace)?SuppliersThe more suppliers a firm has, the greater control it can exercise over suppliers.Porters Competitive Forces ModelUsing Information Systems to Achieve Competitive Advantage

Figure 3-1In Porters 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 industrys environment: new market entrants, substitute products, customers, and suppliers.Porters Competitive Forces ModelUsing Information Systems to Achieve Competitive Advantage

Information System Strategies for Dealing with Competitive ForcesBasic strategy: Align IT with business objectives 75 percent of businesses fail to align their IT with their business objectives, leading to lower profitabilityTo align IT:Identify business goals and strategiesBreak strategic goals into concrete activities and processesIdentify metrics for measuring progressDetermine how IT can help achieve business goalsMeasure actual performanceUsing Information Systems to Achieve Competitive Advantage

Information System Strategies for Dealing with Competitive ForcesLow-cost leadershipUse information systems to achieve the lowest operational costs and the lowest pricesE.g., WalmartInventory replenishment system sends orders to suppliers when purchase recorded at cash registerMinimizes inventory at warehouses, operating costsEfficient customer response systemUsing Information Systems to Achieve Competitive Advantage

Using Information Systems to Achieve Competitive AdvantageSupermarkets and large retail stores such as Walmart use sales data captured at the checkout counter to determine which items have sold and need to be reordered. Walmarts 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.

Information System Strategies for Dealing with Competitive ForcesProduct differentiationUse information systems to enable new products and services, or greatly change the customer convenience in using your existing products and servicesE.g., Googles continuous innovations, Apples iPhoneUse information systems to customize, personalize products to fit specifications of individual consumersE.g., Nikes iD program for customized sneakersUsing Information Systems to Achieve Competitive Advantage

Information System Strategies for Dealing with Competitive ForcesFocus on market nicheUse information systems to enable specific market focus, and serve narrow target market better than competitorsAnalyzes customer buying habits, preferencesAdvertising pitches to smaller and smaller target marketsE.g., Hilton Hotels OnQ SystemAnalyzes data collected on guests to determine preferences and guests profitabilityUsing Information Systems to Achieve Competitive Advantage

Information System Strategies for Dealing with Competitive ForcesStrengthen customer and supplier intimacyStrong linkages to customers and suppliers increase switching costs and loyaltyToyota: uses IS to facilitate direct access from suppliers to production schedulesPermits 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 othersUsing Information Systems to Achieve Competitive Advantage

Interactive Session: TechnologyTechnology Helps Starbucks Find New Ways to CompeteUsing Information Systems to Achieve Competitive AdvantageRead 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.

Information System Strategies for Dealing with Competitive ForcesSome companies pursue several strategies at same timeWalmart, Apple, AmazonSuccessfully using IS to achieve competitive advantage requires precise coordination of technology, organizations, and peopleUsing Information Systems to Achieve Competitive Advantage

Enables new products and servicesEncourages substitute productsLowers barrier to entryChanges balance of power of customers and suppliersTransforms some industriesCreates new opportunities for creating new markets, building brands, and large customer basesThe Internets Impact on Competitive AdvantageUsing Information Systems to Achieve Competitive Advantage

Highlights specific activities in a business where competitive strategies can best be applied and where information systems are likely to have a strategic impact Primary activities Support activitiesBenchmarkingBest practices The Business Value Chain ModelUsing Information Systems to Achieve Competitive Advantage

Using Information Systems to Achieve Competitive AdvantageFigure 3-2This figure provides examples 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 firms products or services.The Value Chain Model

Using Information Systems to Achieve Competitive AdvantageFigure 3-3The value web is 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

Synergies:When output of some units can be used as inputs to other unitsWhen two firms can pool markets and expertise (e.g., recent bank mergers)Lower costs and generate profitsEnabled by information systems that ties together disparate units so they act as whole

Synergies, Core Competencies, and Network-Based StrategiesUsing Information Systems to Achieve Competitive Advantage

Core competency: Activities for which firm is world-class leaderE.g., worlds best miniature parts designer, best package delivery serviceRelies on knowledge that is gained over many years of experience as well as knowledge researchAny information system that encourages the sharing of knowledge across business units enhances competencyE.g., Procter & Gamble uses intranet to help people working on similar problems share ideas and expertiseSynergies, Core Competencies, and Network-Based StrategiesUsing Information Systems to Achieve Competitive Advantage

Network-based strategies:Network economics:Marginal costs of adding another participant are near zero, whereas marginal gain is much largerE.g., larger number of participants in Internet, greater value to all participantsVirtual 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 StrategiesUsing Information Systems to Achieve Competitive Advantage

Disruptive technologies: Technologies with disruptive impact on industries and businesses, rendering existing products, services and business models obsolete:Personal computersWorld Wide WebInternet music servicesFirst movers versus fast followersFirst movers of disruptive technologies may fail to see potential, allowing second movers to reap rewards (fast followers)Disruptive Technologies: Riding the WaveUsing Information Systems to Achieve Competitive Advantage

Prior to the Internet, competing globally was only an option for huge firms able to afford factories, warehouses, and distribution centers abroadThe Internet drastically reduces costs of operating globallyGlobalization benefits:Scale economies and resource cost reductionHigher utilization rates, fixed capital costs, and lower cost per unit of productionSpeeding time to market

The Internet and GlobalizationCompeting on a Global Scale

Apple iPhones Global Supply ChainCompeting on a Global ScaleApple designs the 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 ChinaFigure 3-4

Global Business and System StrategiesCompeting on a Global ScaleDomestic exportersHeavy centralization of corporate activities in home countryMultinationalsConcentrates financial management at central home base while decentralizing production, sales, and marketing to other countriesFranchisersProduct created, designed, financed, and initially produced in home country but rely on foreign units for further production, marketing, and human resourcesTransnationalsRegional (not national) headquarters and perhaps world headquarters; optimizing resources as needed

Global System ConfigurationsCompeting on a Global ScaleCentralized systems:All development and operation at domestic home baseDuplicated systems:Development at home base but operations managed by autonomous units in foreign locationsDecentralized systems:Each foreign unit designs own solutions and systemsNetworked systems:Development and operations occur in integrated and coordinated fashion across all units

Global Business Organization Systems ConfigurationsCompeting on a Global ScaleFigure 3-5The large 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.

What Is Quality?Competing on Quality and DesignProducer perspective: Conformance to specifications and absence of variation from specsCustomer perspective: Physical quality (reliability), quality of service, psychological qualityTotal quality management (TQM): Quality control is end in itselfAll people, functions responsible for qualitySix sigma:Measure of quality: 3.4 defects/million opportunities

Reduce cycle time and simplify production processBenchmarkingUse customer demands to improve products and servicesImprove design quality and precisionComputer-aided design (CAD) systemsImprove production precision and tighten production tolerances

How Information Systems Improve QualityCompeting on Quality and Design

Computer-aided design (CAD) systems improve the quality and precision of product design by performing much of the design and testing work on the computer.Competing on Quality and Design

Technology alone is often not enough to make companies more efficient, competitive, or quality oriented

Organizational changes are often necessary, from minor changes in work habits to redesigning entire business processes

BPM: Business Process ManagementAims to continuously improve processesUses variety of tools and methodologies to:Understand existing processesDesign and optimize new processes

Steps in BPMIdentify processes for changeAnalyze existing processesDesign new processImplement new processContinuous measurement

Figure 3-6

Figure 3-7

A radical form of fast changeNot continuous improvement, but elimination of old processes, replacement with new processes, in a brief time periodCan produce dramatic gains in productivityCan produce more organizational resistance to change

Business Process ReengineeringCompeting on Business Processes

********************You can ask a single student to describe the business value chain in a business where they now work, or did work. Then ask the student to talk about how information systems were used in each step of the value chain. ****************