learning objectives - gonzaga...

1

John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Chapter 2. Strategic Use of Information

Resources

Jason C. H. Chen, Ph.D.Professor of MIS

School of Business AdministrationGonzaga UniversitySpokane, WA 99258

[email protected]

John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices2

Learning Objectives

• List the identifying factors of the eras of information usage.

• Know what makes an information resource valuable.

• Explain how information resources are used strategically in context of the 5-forces model.

• Understand how information resources can be used to alter the value chain.

• Explain the importance of strategic alliances.

• Know the risks of information resources.

2


What is the “Competitive Advantage”?

• A competitive advantage is a benefit derived from something a company does or has that its customers want and its competitors cannot (or choose not to) match.

• If a company can sustain its competitive advantage, the company will succeed in its industry – how?

• Two types of people lead a company to succeed

– Those know how to innovate the enterprise

– Those know how to execute their strategy onto the enterprise using IS/IT.


4

Sustainable Competitive Advantages

• Any sustainable competitive advantages?• How can an organization sustain its competitive

advantage?• Firms may create/improve their competitive advantages

only if they:– have ________ to learn,– employ ________ _________ approach

• With the service economy accounting for over 70 percent of GDP in OECD (Organization for Economic Co-operation and Development) countries, service firms are becoming increasingly competitive withrevenue management (RM) and pricing becoming central in their focus for sustaining long term profitability (and competitive advantage).

–

capacity

revenue management

learning to learn and learning to change (life-long learning environment)

3


What is Business Model?

• A business model is a set of planned activities (sometimes referred to as business processes) designed to result in a profit in a marketplace.

Source: E-Commerce: business, technology, society, Laudon and Traver, A/WN

• The business model is at the center of the business plan.• An e-commerce business model aims to use and leverage the unique qualities of the Internet and the www.


Why New Models?

• We need some new models– for how we go about exploring IT for

competitive advantage,

– for IT infrastructure how we create it and manage it

– for how we acquire, manage and deploy the skills that are needed to run that infrastructure

N

– Profitability (making money)

4


Business Model vs. Revenue Model

• Business model is the architectural configuration of the components of transactions designed to exploit business opportunities.

N

• Revenue model refers to “the specific ways in which a business model enables revenue generation.”


Business Model Revenue Model

Value Value

It describes the way in which a company enables transactions that create value for all participants, including partners, suppliers and customers.

It can be realized through a combination of

(e.g., fixed transactional fees, referral fees, fixed/variable commissions, etc)

Business vs. Revenue Model

creation appropriation

-subscription fees,- advertising fees- transactional income

5


Revenue Management

• If you are interested in the issues of RM

• International Journal of Revenue Management

• http://www.inderscience.com/ijrm


EVOLUTION OF INFORMATION RESOURCES

6


Information Resources• The term information resources is defined as the

available data, technology, people, and processes available to perform business processes and tasks.

• Organizations have moved from an “_______ model” of the 1960’s to a “______ creation model” of the 2000’s.

• Companies seek to utilize those technologies that give them competitive advantage.

• Maximizing the effectiveness of the firm’s business strategy requires the general manager to identify and use information resources.

• Figure 2.1 shows this change.

efficiency value


Network Externalities • Definition - The phenomenon whereby a service becomes

more valuable as more people use it, thereby encouraging ever-increasing numbers of adopters.– Network effects

• While the word-of-mouth method is often more influential in the beginning, analysis may play a significant role later in the cycle. In other words, you may adopt a service initially because someone you know uses it; later, you may adopt a service because "everyone" uses.– IT Role?– Network Externality offers a reason for value derived from

plentitude (Era IV & V)

7


Primary

Role of IT

EfficiencyAutomate existing paper-based processes

EffectivenessSolve problems and create opportunities

StrategicIncrease individual and group effectiveness

StrategicTransform industry/organization Create collaborative

partnerships

Justify IT expenditure

ROI Increasing productivity and decision making

Competitive

position

Competitive

position

Adding

Value

Target of systems

Organization Individual manager/

Group

Business

processes

Business processes ecosystem

Customer,

supplier,

ecosystem

Information model

Application

specific

Data-driven User-driven Business-driven Knowledge-

driven

Dominant technology

Mainframe-based

Minicomputer-based

Microcomputer “decentralized intelligence”

Client-Server “distribution intelligence”

Internet “ubiquitous intelligence”

I: 1960s II: 1970s III: 1980s IV: 1990s V: 2000+

Basis of Value Scarcity Scarcity Scarcity Plentitude

Underlying economics

Economic of information bundled w/ economics of things



Economic of information separated f/ economics of things

Economic of information separated f/ economics of things

Figure 2.1 Eras of information usage in organizations (Eras Model)w/ (with)f/ (from)

Value creation

Plentitude


HOW CAN INFORMATION RESOURCES BE USED

STRATEGICALLY?

8


Striving for Competitive Advantage

• ______ level: Industry & Competitive Analysis– Competitive Forces Model

– Competitive Strategy

– D’Aveni’s Hypercompetition Model (7-Ss)

• _______ level – Value-Chain Analysis

Firm

Business


Porter’s Five Forces Model

• According to Porter, there are five competitive forces in any industry, and the attractiveness of the industry depends on the strength of each force.

• Under the perspective of market structure, Porter’s competitive forces model has been broadly adopted as the underpinning for investigating the effect of information technology on the relationships between suppliers, customers, and other potential threats.

9


PORTER’S FIVE COMPETITIVE FORCES MODEL

THE FIRMINDUSTRY COMPETITORS

NEW MARKET ENTRANTS

SUPPLIERS

SUBSTITUTE PRODUCTS & SERVICES

CUSTOMERS

Threats

Bargaining power

NDr. Chen, The Trends of the Information Systems Technology TM -17

•Switching cost •Access to distribution channels•Economies of scale

•Redefine products and services•Improve price/performance

•Selection of suppler•Threat of backward integration

•Buyer selection•Switching costs•Differentiation

•Cost-effectiveness•Market access•Differentiation of product or service


The Five Forces Model and IS• The Five Forces Model provides a way to think

about how information resources can create competitive advantage.

• Using Porter’s Model, General Managers can:– Identify key sources of competition they

face.– Recognize uses of information resources to

enhance their competitive position against competitive threats

– Consider likely changes in competitive threats over time

N

10


PORTER’S FIVE COMPETITIVE FORCES MODEL

THE FIRMINDUSTRY COMPETITORS

NEW MARKET ENTRANTS

SUPPLIERS

SUBSTITUTE PRODUCTS & SERVICES

CUSTOMERS

Threats

Bargaining power

NDr. Chen, The Trends of the Information Systems Technology TM -19

•Cost-effectiveness•Market access•Differentiation of product or service

Internal Forces:1.customer focus2.communication3.core competencies4.complexity5.Quality

Other forces should be considered in the e-Age:1. Digitalization2. Globalization3. Deregulation/ liberalization


Porter’s Value Chain Model

• The value chain model highlights specific activities (i.e. create, deliver, and support a company’s product or service) in the business where competitive strategies can be best applied and where information systems are most likely to have a strategic impact.

• Therefore, the value chain model can be employed to identify specific, critical leverage points where a firm can use IT most effectively to enhance its competitive position.

11


(Value)

N

Figure 2.6 Process View of the Firm: The Value Chain

Two broad categories:Primary activities – relate directly to the value created in a product or service.Support activities – make it possible for the primary activities to exist and remain coordinated


The Value System (Fig 2.5)

• The value chain model can be extended by linking many value chains into a value system.

• Much of the advantage of supply chain management comes from understanding how information is used within each value chain of the system.

• This can lead to the formation of entire new businesses designed to change the information component of value-added activities.

N

12


The Value System:Interconnecting relationships between organizations

Upstreamvalue

Firmvalue

Downstreamvalue

N


New Forces in Today’s Economy• Overcapacity and hypercompetition.

– Overcapacity is 25% pharmaceuticals, 30% chemicals, 35% automobiles

– Leads to falling prices and margins, mergers, and company failures

• Ascendant power of customers.– Customer shortage– Price transparency

• Ascendant power of distributors over manufacturers.

• Growth of digitalization and the Internet as major sources of efficiency and profitability.

• Proliferation of channels and media.

• Globalization and global interdependence.

13


Customercentric

Who are the customers?Where are the customers?Their purchasing habits

What they need/want?How many they need/want?When they need/want?How to reach them?

Demands Products

E-BUSINESS

BUSINESS FOCUS

•SCM•CRM•BPR•ERP


WHY CRM?• In this competitive age when product

differentiation is difficult, CRM is one of the most valuable assets a company can acquire.

• The sooner a company embraces CRM the better off it will be and the harder it will be for competitors to steal loyal and devoted customers.

• CRM is more than just “Marketing” (what else?)

14


CUSTOMER RELATIONSHIP MANAGEMENT’S EXPLOSIVE GROWTH

CRM Business Drivers


BASICS OF SUPPLY CHAIN

• Organizations must embrace technologies that can effectively manage supply chains

Involvement(integration)

15


FIVE BASIC SUPPLY CHAINMANAGEMENT COMPONENTS

Plan DeliverSource Make Return


INFORMATION TECHNOLOGY’S ROLE IN THE SUPPLY CHAIN

• IT’s primary role is to create integrations or tight process and information linkages between functions within a firm

16


The Resource-Based View• The Resource-Based View (RBV) looks at gaining

competitive advantage through the use of information resources.– Determining whether a firm’s strategy has created value.

• Two subsets of information resources have been identified:– Those that enable firms to attain competitive advantage

(rare and valuable resources that are not common place).– Those that enable firms to sustain competitive advantage

over the long-term (resources must be difficult to transfer or relatively immobile).


Porter’s Model/Value Chain

Resource-Based View (RBV)

Competitive Advantage (CA)

Argues that aspects of the firm’s industry create sources of CA.

Maintains that CA comes from the information and other resources at the firm

Focus (what adds value to the firm)

Firm’s activities Resources that firm can manage and create value

Porter’s Model vs. Resource-Based View

17


STRATEGIC ALLIANCES


Strategic Alliances• An interorganizational relationship that affords one or

more companies in the relationship a strategic advantage.

• IT can help produce the product developed by alliance, share information resources across the partners’ existing value systems, or facilitate communication and coordination among the partners.

• Supply Chain Management (SCM) is another type of IT-facilitated strategic alliance.

18


Aligning IS strategy with Business Strategy

• Using multiple approaches to evaluating the strategic landscape is helpful in determining strategic opportunities.

• Here, we look at three such approaches:– Porter’s five forces model of the competitive

advantage of firms– Porter’s value chain model of internal

organizational operations– and

strategic option generator (results in nine possible major options to secure a competitive advantage)

N

Wiseman’s theory of strategic thrusts


Wiseman’s theory of strategic thrustsand strategic option generator

1. What is our strategic target?2. What strategic thrust can be

used against the target?3. What strategic mode can be

used? offensive or defensive

4. What direction of thrust can be used? usage or provision

5. What IS skills can we use? processing/storage/transmission

Suppliers Customers Competitors

Differen-tiation

Cost

Innovation

I. Major options to secure a competitive advantage

II. Option Generator

19


Types of Strategic Alliances

• Supply Chain Management: improves the way a company finds raw components that it needs to make a product or service.– Technology, especially Web-based, allows the supply chain of a

company’s customers and suppliers to be linked through a single network that optimizes costs and opportunities for all companies in the supply chain

– Wal-Mart and Proctor & Gamble.

• Virtual Corporations: is a temporary (virtual) network of suppliers, customer and even rivals linked by IT to share skills, cost and access to each others’ markets

• _____________ : a new strategy whereby companies cooperate and compete at the same time with companies in their value net– Covisint and General Motors, Ford, and DaimlerChrysler.

Co-opetition

N


Summary of Key Strategy Frameworks

Framework Key IdeaUsefulness in Information SystemsDiscussions

Porter’s genericstrategiesframework

Firms achievecompetitive advantagethrough cost leadership,differentiation, orfocus.

Understanding which strategy is chosenby a firm is critical to choosing IS tocomplement that strategy.

D’Aveni’s hypercompetition model

Speed and aggressive moves and counter-moves by a firmcreatecompetitive advantage.

The 7-S’s give the manager suggestions on what moves and counter moves tomake and IS are critical to achieve the speed needed for these moves.

Brandenberg and Nalebuff’s co-opetition model

Companies cooperateand compete at the same time.

Being cooperative and competitive at the same time requires IS that can manage these two roles.

20


Keen’s Six-Stage Competitive Advantage Model

Stimulus for action

First-mover expansion movesCompetitor catch-up moves

N

Commoditization

First major move

Customer acceptance


When to Perform Activities

• First Movers

Advantages

• Build brand recognition

• Control scarce resources

• Establish networks

• Early Economies-of-Scale

Disadvantages

• Newer technology

• Higher development costs

• Reverse engineering by competitors

21


What is Web 2.0?

• "Web 2.0" refers to the second generation of web development and web design. – It is characterized as facilitating communication,

information sharing, interoperability, user-centered designand collaboration on the World Wide Web. It has led to the development and evolution of web-based communities, hosted services, and web applications.

– Examples include social-networking sites, video-sharing sites, wikis, blogs, mashups and folksonomies.

– Web 2.0 is the business revolution in the computer industry caused by the move to the Internet as a platform, and an attempt to understand the rules for success on that new platform.

Source: http://en.wikipedia.org/wiki/Web_2.0


Summary• Using IS for strategic advantage requires more than

just knowing the technology.

• Remember that not just the local competition is a factor in success but the 5 competitive forces model reminds us of other issues.

• Value chain analysis show us how IS add value to the primary activity of a business.

• Know the risks associated with using IS to gain strategic advantage.

22


End of Chapter 2

learning objectives - gonzaga...

Documents