Roles of IS in business

• Operational efficiency – achieve higher

profitability
• New products, services and business
models
• Customer and suppliers intimacy
• Improved decision making
• Competitive advantage
 Strategy and
Strategic Information
Systems
Strategic Role of Information Systems?
Strategic Advantage and IT

• Important Managerial Questions

– What is strategy?
– What is strategic advantage?
– Information Systems as a strategic resource
– How do we use Information Systems to
achieve some form of strategic advantage
over competitors?
 What is Strategy?
Strategy Definitions

• Strategy
– A plan
– Early 1990s definition:
• “A well coordinated set of objectives, policies, and plans aimed at
securing a long-term competitive advantage. A vision for the
organization that is implemented.”
– Webster’s Dictionary
• “a careful plan or method”
• “the art of devising or employing plans toward a goal”
• “the art and science of military command exercised to meet the
enemy in combat under advantageous circumstances”
 What is Strategy?
Strategy Definitions

• Strategy
– Henry Mintzberg:
• Explicitly planned: “Intended Strategy”
– Realized: planned and succeed
– Unrealized: planned but fail
• Implicit, not explicitly planned yet executed: “Emergent Strategy”

Planned Executed
Strategy Strategy

Failed Emergent
Strategy Strategy
 Strategic information system
• A strategic information system is any
information system which helps an
organization gain any kind of competitive
advantage.
 Elements of Strategic
Management
• Innovation
• Response-Management
• Long-Range Planning
– Competitive Intelligence
 Models for Understanding Strategic
Threats and Formulating Strategic
Responses
Main approaches
• Porter’s five forces model of competitive
advantage of firms
• Porters value chain model of internal
organizations operations
Porter’s Competitive Forces
Model

Michael Porter’s model of competitive strategy suggests

that any business which wants to survive and succeed
has to develop strategies to counter 5 key forces.
Rivalry of Competitors
Threat of New Entrants
Threat of Substitutes
Bargaining power of Customers
Bargaining power of Suppliers
 Porter’s Competitive Forces
Strategies use
Model
•Cost effectiveness Strategies use
•Market access Switching costs
•Differentiation of product or Threat of Access to distribution
services channels
New Entries Economies of scale

Bargaining Power Intensity Bargaining Power

of Suppliers of of Buyers
Rivalry

Strategies use
•Selection of supplier
•Threat of backward Threat of Strategies use
•Cost effectiveness
integration
Substitutes •Market access
•Differentiation of product or
services
Strategies use
•Redefine products and
services
•Improve price/performance
 Porter’s Competitive Forces Model -
“Generic Response Strategies”

Market Size
• Cost leadership Niche Broad
• Differentiation
• Focus Cost Focus Cost
Strategic
• Other dimensions …Advantage
– Strategic positioning Diff. Focus Diff.
– Customer service
– Operational Effectiveness
• Cost, Quality, Flexibility, Delivery
 Cost Leadership
• Become the low-cost producer of
products, by finding ways to lower costs,
lower customers and suppliers costs or
increase competitors costs.
– IT can drive cost reduction, such as reducing
labor costs.
– SCM systems can assist reducing suppliers
costs (Walmart).
– Online Price adjustment, to match best match
competitors prices.
 Differentiation
• Develop ways to make our product different from
our competitors (or reduce our competitors
differentiation). Focus on a niche or market
segment.
– IT can assist by introducing IT features to a product
such as a camera on a phone.
– Reduce competitors by integrating their differentiated
ideas
– Ross Operating Valves, allows customers to design
their desired valves online.
 Innovation
• Find new ways of doing business, developing
new markets or unique products. Making
changes to business processes to change the
way business is done within the industry.
– Create new products which include IT, e.g. online
stock trading
– Amazon constantly innovates introducing new
products / services
– Paypal introducing a system for making payments
online.
 Growth
• Increasing capacity to produce more
goods and services, expanding into global
markets or diversifying into new products.
– Using IT to manage global business, such as
by using a global intranet
– Using technology to increase capacity,
through automating processes.
 Alliance
• Building alliances with suppliers, customers,
competitors, consultants etc. Creating links
through mergers, acquisitions or joint ventures.
Creating ‘virtual’ organisations
– Use technology to improve communication channels
between alliance partners
– Walmart links with supplier to enable automatic
inventory replenishment – a win win alliance.
– Online inventory management for supplier, with
shipment tracking for customer.
 Other Strategies
• Building Switching Costs
– Using IT to increase the switching costs of our
customers, for instance making our customers
dependant on mutually beneficial inter-enterprise IS.
• Build Barriers to Entry
– Normally by increasing the amount of investment
required to enter an industry or market segment,
perhaps by the amount or complexity of technology
involved.
• Leverage IS Investments
– Once a competitive advantage is gained from IS,
further strategic advances become easier to introduce
(an economy of scope within IS)
• Lock in cus­tomers and suppliers (and lock out
competitors)
Investments in information technology can allow a
business to lock in cus­tomers and suppliers (and
lock out competitors) by building valuable new rela­
tionships with them. This can deter both customers and
suppliers from abandoning a firm for its competitors or
intimidating a firm into accepting less-profitable rela­
tionships.
 Competitive intelligence on the Internet
 

• The Internet can be used to help a company conduct

competitive intelligence easily, quickly, and relatively
inexpensively in the following ways:
•  Review competitor’s Web sites. Such Visits can reveal
information about new products or projects, trends in
budgeting, advertising strategies, financial strength, and
much more. Potential customers and business partners
can be found by use of the Link:URL command in search
engines to reveal what companies link to competitors’
Web sites.
 Use of Porter’s Model
• List players
• Analyze business drivers
• Devise a strategy
• Investigate supportive information
technologies
Porter’s Value Chain Model

• Porter’s Value Chain Model looks at increasing

competitive advantages by reorganizing the
activities related to create, support and deliver a
firm’s product or service.
• These activities can be divided into two broad
categories
 Primary activities that relate directly to how value is created
for a product or service
 Support activities that make the primary activities possible
and that manage the coordinate of different activities.
 Value Chain of the Firm
Porter’s “Value Chain”

Support
Firm Infrastructure
Activities
Human Resources Management
Technology Development
Procurement Profit
Margin

Inbound Outbound Marketing

Operations Service
Logistics Logistics & Sales

Primary
Activities
 Porter’s Value Chain Analysis Model -
Primary Activities

• Inbound logistics – Material handling activities

• Operations – Manufacturing and assembly
• Outbound logistics – Order processing Shipping
• Marketing / sales – Product, Pricing, Promotion,
Place
• Service – Customer Service Repair
 Gaining competitive value
The Value Chain model suggest that competition
can come from two sources:
• Lowering the cost to perform activities .
Lowering costs only achieves competitive advantage if
the firm possesses information on the competitor’s costs

• Adding value to a product or service so buyers will

willing to pay more.
Adding value is a strategic advantage if a firm
possesses accurate information regarding its
customers such as: which products are valued?
Where can improvement be made?
 Porter’s Value Chain Analysis Model

• What do you notice about the position and

role of the Information Systems
Department in this model?