David Kroenke

1. Using MIS 2e Chapter 3 Information Systems for Competitive Advantage David Kroenke 01/30 – 7:15AM

2. Study Questions • Q1 – How does organizational strategy determine information systems structure? • Q2 – What five forces determine industry structure? • Q3 – What is competitive strategy? • Q4 – What is a value chain? • Q5 – How do business processes generate value? • Q6 – How does competitive strategy determine business processes and the structure of information systems? • Q7 – How do information systems provide competitive advantages?

3. Q1 – How does organizational strategy determine information systems structure? • Q2 – What five forces determine industry structure? • Q3 – What is competitive strategy? • Q4 – What is a value chain? • Q5 – How do business processes generate value? • Q6 – How does competitive strategy determine business processes and the structure of information systems? • Q7 – How do information systems provide competitive advantages?

4. Q1 – How does organizational strategy determine information systems structure? Business processes determine every information system’s • Structure • Features • Functions

5. Q1 – How does organizational strategy determine information systems structure? • Q2 – What five forces determine industry structure? • Q3 – What is competitive strategy? • Q4 – What is a value chain? • Q5 – How do business processes generate value? • Q6 – How does competitive strategy determine business processes and the structure of information systems? • Q7 – How do information systems provide competitive advantages?

6. Q2 – What Five Forces Determine Industry Structure? Fig 3-2 Porter’s Five Forces Model of Industry Structure

7. Q2 – What Five Forces Determine Industry Structure? • You can use Porter’s Five Forces Model to assess an industry’s structure: • Bargaining powerof customers and suppliers • New entrants • Substitutes • Intensity of rivalry • The strength of each force determines the characteristics of the industry such as: • the degree of consolidation within the industry, • the degree of government regulation • the business models used • how profitable it is, and • how sustainable that profitability will be. • An organization develops its competitive strategy based on how it intends to respond to these forces given the characteristicsof a specific industry.

8. Q2 – What Five Forces Determine Industry Structure? Fig 3-3 Examples of Five Forces

9. Q1 – How does organizational strategy determine information systems structure? • Q2 – What five forces determine industry structure? • Q3 – What is competitive strategy? • Q4 – What is a value chain? • Q5 – How do business processes generate value? • Q6 – How does competitive strategy determine business processes and the structure of information systems? • Q7 – How do information systems provide competitive advantages?

10. Q3 – What is Competitive Strategy? Fig 3-4 Porter’s Four Competitive Strategies Different features To be effective, the organization’s goals, objectives, culture, and processes must be aligned with an organization’s competitive strategy. The IS must enable the organization’s competitive strategy.

11. Q3 – What is Competitive Strategy? • A company can choose one of four competitive strategies to help it respond to the structure of its industry. • Be the low cost/high quality leaderacross its industry – Wal-Mart is the lowest cost leader in the retail industry. • Differentiate its products/servicesfrom the low cost alternativesacross its industry – Apple Computer competes by offering significantly different features than the low cost, commodity PCs. • Be the low cost/high quality leader in an industry segment – Southwest Airlines is the cost leader in the low cost, commodity segment of the airline industry. • Differentiate its products/servicesin an industry segment – Apple’s iPhone competes by offering significantly different features than the low cost, commodity alternatives in its segment.

12. Q1 – How does organizational strategy determine information systems structure? • Q2 – What five forces determine industry structure? • Q3 – What is competitive strategy? • Q4 – What is a value chain? • Q5 – How do business processes generate value? • Q6 – How does competitive strategy determine business processes and the structure of information systems? • Q7 – How do information systems provide competitive advantages?

13. Q4 – What is a Value Chain? • Each competitive strategy requires a systemto integrate manpower, materials, methods, machinery, time, technology, feedback, and the environment into a product or service which has value to the customer, relative to its cost. • Value is defined as the amount of money a customer is willing to spend on a product, service, or resource. • The difference between the value that an activity generates and the cost of producing this value is the margin. • A value chain is a network of value-creating activities and is divided into five primary activities and four support activities. • Each stage of this generic chain accumulates costs and adds value to the product or service. • The net result is the total margin of the chain, which is the difference between the total value added and the total costs incurred.

14. Q4 – What is a Value Chain? Fig 3-5 Porter’s Value Chain Model

15. Q4 – What is a Value Chain? • Primary Activities in the value chain include: • Inbound logistics activities involve receiving and managing raw materials. • Operations activities transform raw materials into final products or create services. • Outbound logistic activities deliver finished products to customers. • Marketing and Sales activities create marketing strategies and sell products or services to customers. • Services activities provide after-sale customer support for products or services.

16. Q4 – What is a Value Chain? • Support Activities in the value chain indirectly enhance production of products and services but they also add costs. • Firm infrastructure includes general management, finance, accounting, legal, and government affairs (if necessary). • Human Resources recruits, compensates, evaluates and trains employees. • Technology Development includes research and development for new processes or techniques. • Procurement finds suppliers and vendors for raw materials, creates contracts, and negotiates prices of raw materials.

17. Q4 – What is a Value Chain? • Each activity in a value chain links to other activities in the value chain. Linkages are the interactions between the activities performed across the value chain. • Understanding a company’s linkages helps it succeed in designing or redesigning its business processes – business process design. • Rather than automating or improving existing separate, departmental systems (sub-optimization of departmental activities), Porter contends companies should create new, more efficient business processes that integrate the activities of the entire value chain to provide integrated, cross-departmental business systems (holistic synergies across symbiotic activities to optimize the firm).

18. Q1 – How does organizational strategy determine information systems structure? • Q2 – What five forces determine industry structure? • Q3 – What is competitive strategy? • Q4 – What is a value chain? • Q5 – How do business processes generate value? • Q6 – How does competitive strategy determine business processes and the structure of information systems? • Q7 – How do information systems provide competitive advantages?

19. Q5 – How Do Business Processes Generate Value? • Each company has many business processes which make up a network of processes that generate value by transforming inputs into outputs. • Each process transforms input resources (manpower, material, methods, machinery, time, technology, feedback, environment) into outputs (products and services). • Resources flow between or among processes and activities in the processes. • Facilities store resources. • You determine the cost of each business process by adding the cost of inputs plus the cost of activities used in the process. • You determine the margin of each business process by subtracting the total cost of the activities from the value of the products and services.

20. Q5 – How Do Business Processes Generate Value? Processes Fig 3-7 Three Examples of Business Processes Information System Activities

21. Q5 – How Do Business Processes Generate Value? • The key to a company’s competitive advantage is to increase the margin of its products by adding value, reducing costs, or both. • Business process redesign helps a business streamline its activities in order to increase its margins. • The most difficult part of process redesign is associated with employee resistance.

22. Q5 – How Do Business Processes Generate Value? Easy IS/Business Process Redesign Hard Fig 3-8 Improved Materials Ordering Process

23. Q1 – How does organizational strategy determine information systems structure? • Q2 – What five forces determine industry structure? • Q3 – What is competitive strategy? • Q4 – What is a value chain? • Q5 – How do business processes generate value? • Q6 – How does competitive strategy determine business processes and the structure of information systems? • Q7 – How do information systems provide competitive advantages?

24. Q6 – How Does Competitive Strategy Determine Business Processes and Structure of Information Systems? • Each business must first analyze its industry and choose a competitive strategy. Will it be a low-cost provider or will it differentiate its products/services with customer valued features from competitors, either in a focused market niche or across the industry? • Then it must design its business processes to span the value-generating processes. • Those processes and their activities determine the scope and requirements of each organization’s IS. • Once those process design decisions have been made, a business can design and develop an information system that supports and enables its business processes.

25. Q6 – How Does Competitive Strategy Determine Business Processes and Structure of Information Systems? Database Fig 3-10 Business Process & Information System for Bike Rental Database

26. Q1 – How does organizational strategy determine information systems structure? • Q2 – What five forces determine industry structure? • Q3 – What is competitive strategy? • Q4 – What is a value chain? • Q5 – How do business processes generate value? • Q6 – How does competitive strategy determine business processes and the structure of information systems? • Q7 – How do information systems provide competitive advantages?

27. Q7 – How Do Information Systems Provide Competitive Advantages? • There are two ways businesses can respond to the five competitive forces. • They can gain a competitive advantage via their products and services. • They can gain a competitive advantage by developing superior business processes.

28. Q7 – How Do Information Systems Provide Competitive Advantages? • A business can gain a sustainable competitive advantage via its products and services by continuously innovating in: • Creating new products and services, or • Enhancing its existing products or services, or • Differentiating its products and services from its competitors • Information systems can help create a competitive advantage by being part of the product or by providing support to the product.

29. Q7 – How Do Information Systems Provide Competitive Advantages? • A company can gain a sustainable competitive advantage by using business processes to continuously innovate in: • Creatively locking in customers via high switching costs, making it too expensive for the customer to switch to a competitor. • Creatively locking in suppliers via easy-to-use connections, discouraging them from changing to another business. • Creating entry barriers for new competitors, thereby raising the costs to enter the market. • Establishing alliances with other organizations and setting standards, reducing purchase costs and providing benefits for everyone. • Reducing costs of production which in turn reduces prices and increases profitability.

30. Q7 – How Do Information Systems Provide Competitive Advantages? • ABC, Inc, an actual company, used information systems to create a competitive advantages by • Investing heavily in information technology from the beginning and • Leading the shipping industry in application of information systems. • The following slide shows some of the Web pages ABC, Inc uses within its information system.

31. Q7 – How Do Information Systems Provide Competitive Advantages? Fig3-13 ABC, Inc Web Page to Select recipient from customer records

32. Q7 – How Do Information Systems Provide Competitive Advantages? Fig 3-14 ABC, Inc Web page to select contact from customer records

33. Q7 – How Do Information Systems Provide Competitive Advantages? Fig 3-15 ABC, Inc Web page to specify email notification

34. Q7 – How Do Information Systems Provide Competitive Advantages? • ABC’s information system helps the company create a competitive advantage by • Enhancing its existing services - making it easy for the customer to use its system, and reducing errors. • Differentiating its servicefrom its competitors who don’t have a similar service to provide to customers. • Providing new servicesfor customers that competitors don’t provide. • Locking customers into its system based on the benefits they receive from it, thus creating switching costs. • Raising barriers for new competitors to enter the market. They will have to provide similar services to customers. • Reducing the costs associated with data input and information output.