CLASS 2

SUPPLEMENTALINTRODUCTORY

MATERIALS

CSE 7360

Five Forces To Determine Industry Profitability

New Entrants

Industry Competitors

Rivalry AmongExisting Firms

Threat ofNew Entrants

Buyers

Bargaining Powerof Buyers

Suppliers

Bargaining Powerof Suppliers

Threat of SubstituteProducts or Services

Source: Porter, M., Competitive Advantage, NY: The Free Press, 1985

Substitutes

Impact on Competitive Forces

Force I mplicationPotential TechnologyI mpact

New Entrants New capacitySubstantial resourcesPrice competition

Provide entry barriers

Economies of scale

I ncrease switching costs

Product diff erentiation

Access to distributionchannels

Buyer Power Force prices downRaise quality standardsDemand servicesEncourage competition

Force buyer selectionIncrease switching costsDiff erentiationEntry barriers

Supplier Power Raise pricesReduce quality

Force supplier selectionMonitor/control quality

Source: Cash, J. I., McFarlan, F. W., McKenney, J. L., Applegate, L. M., Corporate Information Systems Management: Text and Cases, Homewood, IL, 1992.

Impact on Competitive Forces

Force ImplicationPotential TechnologyImpact

Substitute Products Limit potential returnsCeiling on prices

I mprove price/performanceRedefine products andservices

Traditional Rivals Competition

Price

Product

Distribution and service

Cost eff ectivenessMarket accessDiff erentiation

Products

Services

Firm

Source: Cash, J. I., McFarlan, F. W., McKenney, J. L., Applegate, L. M., Corporate Information Systems Management: Text and Cases, Homewood, IL, 1992.

The Value Chain

Firm Infrastructure

Human Resources Management

Technology Development

Procurement

M A R G I N

N I G R A M

InboundLogistics

Operations OutboundLogistics

Marketing& Sales

Service

Source: Porter, M., Competitive Advantage, NY: The Free Press, 1985

•How long before a response?

•Who can respond?

•Will copying help?

OTHERWISE

Be prepared to be a fast/cheap follower

The Evolution of Customer Order Entry

ONE-

WAY

COMMUNICATION

TWO-

WAY

COMMUNICATION

1957

Customer orders taken manually. Order entry and billing procedures automated

1960’s: Tel-American

IBM 1001 Dataphone and 026 card punch sped the order process and increased accuracy

1970’s: ASAP

Utilization of card reader developed by Tek-Pro with mainframe computer support widely implemented

1977: ASAP 2

Addition of Bell 43 terminal to allow customer response to orders; also allowed intra-company/ customer messaging capability

1980: ASAP 3

Enabled customers to use their internal stock numbers to order and build standing orders. Also produced inventory lists, P.O.’s and requisition forms to customer specifications

1983: ASAP 3 Plus

Enabled customers to manage inventory through the incorporation of bar code scanning

1983: ASAP 4

Computer-to-computer order entry system that merely required customer approval for processing

1985: ASAP 5

Extended capabilities of ASAP 3 by using IBM PC with tutorial software and menu-driven functions. Also provided capability to edit order off-line, thus saving telephone expenses

MULTI-

WAY

COMMUNICATION

1986: ASAP Express

Capabilities expanded to include other vendors by using electronic clearing house to enter orders. Potential for total automation of hospital logistics

Porter Industry and Competitive Analysis Framework

Prior to Introduction of ASAP Express

High

High

Medium

High High

New Entrants

Bargaining Powerof

Suppliers

Positioning ofIntraindustry

Rivals

Bargaining Powerof Buyers

Substitute Productsor Services

Information Technology Specialists EDS Perot Systems IBM GE

Competing Systems as Good or Betterthan ASAP

Direct Linkage With Hospitals Hospital Creation of Buyer GroupsImproved Access SupplierInformation

Consolidated Ordering SystemIntegrated Ordering and Material Management Systems

Porter Industry and Competitive Analysis Framework

After Introduction of ASAP Express

Medium

Low

Low

Medium High

New Entrants

Bargaining Powerof

Suppliers

Positioning ofIntraindustry

Rivals

Bargaining Powerof Buyers

Substitute Productsor Services

ASAP Express Establishes Barrier to Entry for IT Specialist

No ASAP Express Intraindustry Rivals

Consolidated System ForcesSupplier to Interface with ASAPExpress Rather than Direct Linkwith Hospitals

Hospital Creation of Buyer GroupsImproved Access SupplierInformation

Consolidated Ordering SystemIntegrated Ordering and Material Management Systems

High

Phases of IT Assimilation

PHASE 1Decision to invest

andproject initiation

PHASE 2Technology learning andadaptation

PHASE 3Rationalization

and management control

PHASE 4Widespreadtechnology

transfer

StagnationBlock A

Failure

Success

StagnationBlock B

Narrowlyfocused andnot marketed

Success

StagnationBlock C

Too efficiencydominated

Success

Source: Cash, J. I., McFarlan, F. W., McKenney, J. L., and Applegate, L. M., Corporate Information Systems Management: Text and Cases, Homewood, IL, 1992.

Architecture:A Plan for the Structure of IT

Capabilities

Why Do We Need an IT Architecture?

• Facilitate decision making on specific technology acquisitions

• Ensure compatibility of IT and business strategy

• Improve likelihood of IT integration and interconnectivity

• Define a framework for control

• Influence user decision making concerning IT

Components of an IT Architecture

Organization Structures and processes for the humansupport of computing and communications

Applications Specific computer programs and how theyare created and maintained

Tools Software packages that enable rapiddevelopment of applications

I nformation I nformation assets of the firm

TechnicalI nfrastructure

Hardware, systems software, andcommunications links

Source: Davenport, T., Budd Services, Unpublished Teaching Note, 1987.

Levels of an IT Architecture

Principles Beliefs about the way I T will bemanaged (e.g., a multi- vendorenvironment)

Models Verbal or graphic pictures of the I Tstructure (e.g., I T architecture)

Standards Preferences for particular vendors orindustry protocols

Source: Davenport, T., Budd Services, Unpublished Teaching Note, 1987.

Balancing Hardware/Data Distribution/Software

PRESSURE TOWARD I NCREASI NGTHE HUB

TOWARD I NCREASI NGDI STRI BUTI ON

Management Control More professional operation

Flexible backup

Effi cient use of personnel

User control

User responsiveness

Simpler control

I mprovement in local reliability

Technology Access to large- scale capacity

Effi cient use of capacity Effi ciency of small scale

Reduction of telecommuni-cations costs

Data Multiple access to common data

Assurance of data standards

Security control

Easier access

Fit with field needs

Data relevant to only onebranch

Professional Services Available of a specialized staff

Reduced turnover disruption Stability of work force

User career paths

Organizational Fit Corporate style: centralized

Corporate style: functional

I T centralized from the beginning

Corporate style: decentralized

Business need: transnationals

Source: Cash, J. I., McFarlan, F. W., McKenney, J. L., and Applegate, L. M., Corporate Information Systems Management: Text and Cases, Homewood, IL, 1992.

Sample IT Architecture

InformationAnalysis

(e.g., Lotus 123G)

InformationPackaging and

Delivery

(e.g., Commander EIS)

Communications

(e.g., E-Mail, Conferencing)

Knowledge-BasedSystems

(e.g., Expert System)

ApplicationDevelopment

(e.g., CASE)

Communications

Wide area networkLocal area network

Information Management

Client server architectureDB2 relational database

Data feeds from internal and external sources

TOOLS

FOUNDATION

Applications

IndustryNews/IRI

Dow Jones

SalesManu-

facturingAccounting Purchasing Logistics

External Systems Internal Business Operations and Transaction Systems

Source: Applegate, L., Frito-Lay, Inc.: A Strategic Transition (C), Harvard Business School Case #9-190-071, 1990