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Using IT for Competitive Advantage

Using IT for Competitive Advantage. MIS 320 Kraig Pencil Summer 2014. A. Game Plan. Role of Information Technology Competitive Advantage, Strategy and IS IS and the “Value Chain” Competitive Forces. B. Role of Information Technology (IT).

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Using IT for Competitive Advantage

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  1. Using IT for Competitive Advantage MIS 320 Kraig Pencil Summer 2014

  2. A. Game Plan • Role of Information Technology • Competitive Advantage, Strategy and IS • IS and the “Value Chain” • Competitive Forces

  3. B. Role of Information Technology (IT) • Conception of information technology – and status – has evolved Number Crunching Report Generation Decision Support Strategic Weapon 1950s 2000s

  4. B. Role of Information Technology (cont.) • A key goal for business (and MIS 320) • Learn to recognize and identify opportunities for strategic applications of IT • How to do this??? • Combine • Strategy concepts • Business knowledge • IS knowledge  Multiple perspectives are required

  5. C. Competition and Strategy 1. Positioning is key • Competition is fierce • Can’t be “all things to all people” • To survive, organizations adopt a specific “strategy” 2. Ways to gain competitive advantage: Examples • Cost leadership strategy: Do it cheaper. Cost efficiency, lower prices • Differentiation strategy: Do it better. Quality, speed, caché • Innovation strategy • Operational effectiveness strategy • Customer orientation strategy

  6. D. IT to Support Strategy 1. Use IT to support a business strategy Align IS projects with strategy  Support the organization’s game plan 2. Example: Two Frameworks for Analysis Value Chain Analysis Competitive Forces Analysis

  7. E. IS and the Value Chain • A popular framework to help identify useful strategic applications for IS: Value chain • Value chain • “Value”: Something that customers will pay for • Create value via a desired product or service, or • Image making (e.g., marketing of soft drinks) • Goal: Value > Costs of doing business • “Chain”: Activities are linked, interdependent 3. “VC analysis”: Identify critical business activities and linkages  Identify IS projects that can add value or decrease costs.

  8. Light green areas  Costs Dark green area  Excess value  Profits Value Chain Activities Support Activities Primary Activities The Value Chain includes nine common categories of organizational “activities”

  9. E. IS and the Value Chain (cont.) 3. Value chain: Linkages • One kind of VC linkage the information exchanged between “Activities” • Internallinkage: Information between activities within one firm • Externallinkage: Information between activities between different firms • Examples of linkages: see figures 

  10. Internal Linkages: Examples A. Sales sends production request to ProductionDept (“Operations” activity) B. Production Dept (“Operations” activity) sends raw materials request to Warehouse (“Inbound Logistics” activity)

  11. External Linkages: Examples Supplier Desk Chair, Inc. (DCI) Corporate Buyer A. DCI’s Procurement activity sends purchase orderto Supplier’s Marketing/Sales activity C. DCI’s Marketing/Sales activity sends marketing and sales related information to Buyer’s Procurement activity B. Supplier’s Outbound Logistics activity sends shipment invoice (and shipment) to DCI’s Inbound Logistics activity

  12. E. IS and the Value Chain (cont.) 4. Value chain analysis • ID the critical activitiesand linkages • Change the activities and linkages … • To add value to the product • To reduce the cost • VC analysis requires understanding … • Industry • Strategy for the firm • Activities of the firm • What is possible I.e., VC analysis for IS requires non-technical and technical employees

  13. E. IS and the Value Chain (cont.) 5. Three examples of adding value through IS. • Marketing activities: Personalized ads (see Amazon) • Internal linkage: Delivery guarantee (see Talbot Ties) • External linkage: Rapid order fulfillment (see Portland Pine Products)

  14. IS & Value Chain Analysis: Amazon – a Value-Added Activity • Problem: How to encourage follow-up purchases? How to target ads to the needs/wants of the customer? • Solution: Add value to Marketing activities through data mining. “Customers who have purchased ABC also enjoy XYZ.” Data mining can reveal patterns, such as what products certain types of consumers might be interested in.

  15. IS & Value Chain Analysis: Talbot Ties – New Live Linkages Problem: Sales people do not know inventory status and therefore cannotguarantee delivery on time. Field Rep Product Database Request Inventory Status Send Inventory Status • Solution: Add value by creating a new linkage between Sales and Warehousing. • Sales activities: In-stock guarantee: • Support better information on what products are available for the customer • How? Live linkage between Sales and Warehousing.

  16. IS & Value Chain Analysis: Portland Pine Products – Redraw Linkages Linkage between Customer and PPP for orders was a critical linkage. Problem: Time wasted via “back and forth” flows. (dotted arrows) Portland Pine Products Customer New approach: Eliminate the bottle neck by using IT to empower the Warehouse to accept/process orders. (solid arrows) Problem: Paperwork delays Solution: Rapid order fulfillment by rerouting and automating the linkage to/from external customer, bypassing Marketing

  17. E. IS and the Value Chain (cont.) 5. Application of VC analysis to IS • Conclusion: How to spend the IS budget??? • Prioritize IS projects based on VC analysis • Ensure that new IS will address critical needs and … be aligned with organization’s strategy

  18. F. Competitive Forces • The business world is a competitive place! • Many forces may be acting on the firms within an industry • Porter’s “Five Forces Model” • Examples of forces

  19. Porter’s Five Forces Model Threat of New Entrants Current Competition Supplier Bargaining Power Buyer Bargaining Power Threat of Substitutes

  20. F. Competitive Forces (cont.) • Information technology (IT) can be used to address the forces • Examples • Using IT to gain bargaining power over buyers • Using IT to gain bargaining power over suppliers • Creating entry barriers with IT

  21. Using IT as an Entry Barrier

  22. G. Strategic Information Systems 1. Strategic information system (SIS) • A system that significantly shapes or supports an organization’s strategy • A famous SIS: Dell’s “sell-source-ship” approach to the PC retailing process • Approach was enabled by IS applications

  23. Traditional Retail Model: Buy-Hold-Sell Buy: PC Retailer buys from maker/distributor Hold: PCs sit in warehouse, sit on store shelves Sell: Sell PC Note: Some PCs are sold – and some are not Direct Sell Model: Sell-Source-Ship Sell: Customer buys a PC online Source: PC components are purchased (sourced) & assembled using “Alliance Partners” Ship: PC is shipped to customer Note: No unsold PCs – only sold PCs IT for Competitive Advantage: Dell Computer Example

  24. G. Strategic Information Systems (cont.) Competitive Advantage  Competitive Necessity 2. Sustainability of Strategic Information Systems • Is a SIS going to provide competitive advantage forever??? • Not likely  Business landscape changes over time • Need to reanalyze VC and competitive forces periodically •  Modify/enhance SIS, develop new SIS, etc.

  25. Using IT as an Entry BarrierFedEx • 1979 • COSMOS: creates a centralized computer system to manage people, packages, vehicles … • 1989 •  launches an on-board communications system that uses satellite tracking to pinpoint vehicle location • 1994 • launches fedex.com as the first transportation Web site to offer online package status tracking, enabling customers to conduct business via the Internet. • 1999 • enables easy access to online merchants that offer fast, reliable FedEx express shipping http://about.fedex.designcdt.com/our_company/company_information/fedex_history/fedex_timeline

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