Organizational Strategy and Competitive Advantage

1. Organizational Strategy and Competitive Advantage BSAD 141 Dave Novak BDIS: 1.2 (13-26)

2. Lecture Outline • Business Strategy • Competitive Advantage • Goals versus Objectives • Porter’s 5 Forces Model • Value Chains • How do information systems fit in?

3. Business Strategy • What is a “business strategy”?

4. Business Strategy • Is it important for employees to know the organizational “business strategy”?

5. Business Strategy • Difference between goals and objectives

6. Examples of Goals • Developing new products or services • Entering new markets • Increasing customer loyalty • Attracting new customers • Increasing sales

7. Examples of Objectives • First, identify a particular goal • For example, increasing customer loyalty • Second, identify measurable, focused indicators of customer loyalty that can be used to determine whether you are actually meeting your goal • Examples?

8. Competitive Advantage • A feature of a product or service that customers value very highly or more highly than they do for similar features provided by their competitors • Could be a unique product or service but doesn’t have to be unique • How do you determine “better”?

9. Identifying Competitive Advantages • Competitive intelligence –The process of gathering information about the competitive environment to improve the company’s ability to succeed • First-mover advantage – Occurs when an organization can significantly impact its market share by being first to market with a competitive advantage

10. Competitive Strategy

11. Competitive Strategy Source: Kroenke, Experiencing MIS, 2008

12. Porter’s 5 Forces Model • A framework for analyzing the competitive forces in the environment in which an organization operates • Evaluate the attractiveness in terms of entering into a particular industry • Assess potential for profit

13. Porter’s 5 Forces Model

14. 1) Buyer/Customer Power • The ability of buyers to influence the price of an item • High when customers have ability/power to (lower) prices • Switching cost – Manipulating costs that make customers reluctant to switch to another product • Loyalty program – Rewards customers based on the amount of business they do with a particular organization

15. 2) Supplier Power • The suppliers’ ability to influence the prices they charge for their product/service • High when supplier can set their own price with little risk of losing customers • For example, a monopolistic firm has high supplier power

16. 3) Threat of Substitute Products or Services • How difficult it is for a customer to switch from your product / service to one of your competitor’s (or an alternative) • Threat is high when it is easy for customers to switch (there are many alternatives and switching costs are low) between different products and services and low when there are few alternatives

17. 4) Threat of New Entrants • How difficult it is for an organization to enter into the same industry as you • High when it is easy for new competitors to enter a market and low when there are significant barriers to entry • Entry barrier – A feature of a product or service that customers have come to expect and entering competitors must offer the same for survival

18. 5) Rivalry Among Existing Competitors • To what extent is your market position challenged? • High when competition is fierce in a market and low when competitors are more complacent • Product differentiation – Occurs when a company develops unique differences in its products or services with the intent to influence demand

19. Value Chain Analysis: Executing Business Strategies • What is a business process?

20. Value Chain Analysis: Executing Business Strategies • Value chain analysis – Viewing an organization as a series of connected business processes that each add value to the product or service

21. Value Chain Analysis: Executing Business Strategies Porter’s Value Chain

22. Value Chain Analysis: Executing Business Strategies • Primary value activities • Inbound logistics - Acquires raw materials and resources, and distributes • Operations - Transforms raw materials or inputs into goods and services • Outboundlogistics - Distributes goods and services to customers • Marketing and sales - Promotes, prices, and sells products to customers • Service - Provides customer support

23. Value Chain Analysis: Executing Business Strategies • Support value activities • Firm infrastructure – Includes the company format or departmental structures, environment, and systems • Human resource management – Provides employee training, hiring, and compensation • Technology development – Applies MIS to processes to add value • Procurement – Purchases inputs such as raw materials, resources, equipment, and supplies

24. Value Chain Analysis: Executing Business Strategies Value Chain and Porter’s Five Forces Model The organization’s goals and value-chain structure directly impact rivalry

25. Value Chain Analysis: Executing Business Strategies • The necessity of linking ALL activities is what allows the organization to realize a profit • These linkages are essential for success • The various profits, functions, and functional areas of the organization cannot operate in isolation • Concept of “whole” is greater than the sum of the individual parts

26. Value Chain Analysis: Executing Business Strategies • The profit margin is determined by the organization’s ability to successfully manage linkages between different processes and functions in the organization • Links are flows of information, goods, and services including the systems and processes needed to perform these activities and assist in flow

27. Value Chain Analysis: Executing Business Strategies • Only if the Marketing & Sales function delivers sales forecasts for the next period to all other departments in time and in reliable accuracy, procurement will be able to order the necessary material for the correct date • And only if procurement does a good job and forwards order information to inbound logistics, operations will be able to schedule production in a way that guarantees the delivery of products in a timely and effective manner – as pre-determined by marketing • In the result, the linkages are about seamless cooperation and information flow between the value chain activities Source: Recklies, (2001) http://www.fao.org/fileadmin/user_upload/fisheries/docs/ValueChain.pdf

28. Value Chain and Information Systems • How might the introduction of new technologies impact different parts of the value chain and integration of components? • How might technology impact buyers? • How might the introduction of new technologies impact costs? • Value chain components might change based on new technologies and IS

29. Value Chain and Information Systems • Supply chain – Consists of all parties involved in the procurement, creation, and delivery of a product or raw material • Value chain –versus- supply chain?

30. Summary of lecture • Discussion of business strategy and why is it important • Defining competitive advantage • Cost-based matrix • Differentiating between goals & objectives • Discuss Porter’s 5 Forces Model • Name 5 forces • Value Chains • Name 5 primary and 4 support activities • The role of IS