Management Information

System
Lecture - 5
by
Jamil Ahmad
 Extending the Value Chain: The Value Web
• Figure below shows that a firm’s value chain is linked to the value
chains of its suppliers, distributors, and customers.
 Extending the Value Chain: The Value Web
• After all, the performance of most firms depends not only on what goes
on inside a firm but also on how well the firm coordinates with direct
and indirect suppliers, delivery firms (logistics partners, such as FedEx
or UPS), and, of course, customers.

• How can information systems be used to achieve strategic advantage

at the industry level?

– By working with other firms, industry participants can use information

technology to develop industry-wide standards for exchanging information or
business transactions electronically, which force all market participants to
subscribe to similar standards.
 Extending the Value Chain: The Value Web
• Such efforts increase efficiency, making product substitution less likely
and perhaps raising entry costs—thus discouraging new entrants.

• Also, industry members can build industry-wide, IT-supported

consortia, symposia, and communications networks to coordinate
activities concerning government agencies, foreign competition, and
competing industries.

• Looking at the industry value chain encourages you to think about how
to use information systems to link up more efficiently with your
suppliers, strategic partners, and customers.
 Extending the Value Chain: The Value Web
• Strategic advantage derives from your ability to relate your value chain
to the value chains of other partners in the process.

• For instance, if you are Amazon.com, you want to build systems that:

– Make it easy for suppliers to display goods and open stores on the Amazon
– Make it easy for customers to pay for goods
– Develop systems that coordinate the shipment of goods to customers
 Extending the Value Chain: The Value Web
• Internet technology has made it possible to create highly synchronized
industry value chains called value webs.

• A value web is a collection of independent firms that use information

technology to coordinate their value chains to produce a product or
service for a market collectively.

• It is more customer driven and operates in a less linear fashion than

the traditional value chain.
 Extending the Value Chain: The Value Web
• Figure below shows that this value web synchronizes the business
processes of customers, suppliers, and trading partners among
different companies in an industry or in related industries.

• These value webs are flexible and adaptive to changes in supply and
demand. Relationships can be bundled or unbundled in response to
changing market conditions.

• Firms will accelerate time to market and to customers by optimizing

their value web relationships to make quick decisions on who can
deliver the required products or services at the right price and location.
Extending the Value Chain: The Value Web
 USING SYSTEMS FOR COMPETITIVEADVANTAGE:
MANAGEMENT ISSUES
• Strategic information systems often change the organization as well as
its products, services, and operating procedures, driving the
organization into new behavioral patterns.

• Successfully using information systems to achieve a competitive

advantage is challenging and requires precise coordination of
technology, organizations, and management.
 SUSTAINING COMPETITIVE ADVANTAGE

• The competitive advantages that strategic systems confer do not

necessarily last long enough to ensure long-term profitability. Because
competitors can retaliate and copy strategic systems, competitive
advantage is not always sustainable.

• Markets, customer expectations, and technology change; globalization

has made these changes even more rapid and unpredictable.

• The Internet can make competitive advantage disappear very quickly

because virtually all companies can use this technology.
 SUSTAINING COMPETITIVE ADVANTAGE

• Classic strategic systems, such as

– American Airlines’s SABRE computerized reservation system,
– Citibank’s ATM system,
– and FedEx’s package tracking system, benefited by being the first in their
industries.

• Then rival systems emerged.

– Amazon was an e-commerce leader but now faces competition from eBay,
Yahoo, and Google.
 SUSTAINING COMPETITIVE ADVANTAGE

• Information systems alone cannot provide an enduring business

advantage.

• Systems originally intended to be strategic frequently become tools for

survival, required by every firm to stay in business, or they may inhibit
organizations from making the strategic changes essential for future
success.
 ALIGNING IT WITH BUSINESS OBJECTIVES

• The research on IT and business performance has found that

a) the more successfully a firm can align information technology with its business
goals, the more profitable it will be, and

b) only one-quarter of firms achieve alignment of IT with the business. About half
of a business firm’s profits can be explained by alignment of IT with business.

• Most businesses get it wrong: Information technology takes on a life of

its own and does not serve management and shareholder interests
very well.
 ALIGNING IT WITH BUSINESS OBJECTIVES

• Instead of business people taking an active role in shaping IT to the

enterprise, they ignore it, claim not to understand IT, and tolerate
failure in the IT area as just a nuisance to work around.

• Such firms pay a hefty price in poor performance.

• Successful firms and managers understand what IT can do and how it

works, take an active role in shaping its use, and measure its impact
on revenues and profits.
 Management Checklist: Performing a Strategic
Systems Analysis
• To align IT with the business and use information systems effectively
for competitive advantage, managers need to perform a strategic
systems analysis.

• To identify the types of systems that provide a strategic advantage to

their firms, managers should ask the following questions:
 Management Checklist: Performing a Strategic
Systems Analysis
1. What is the structure of the industry in which the firm is located?
– What are some of the competitive forces at work in the industry? Are there new
entrants to the industry? What is the relative power of suppliers, customers,
and substitute products and services over prices?

– Is the basis of competition quality, price, or brand?

– What are the direction and nature of change within the industry? From where
are the momentum and change coming?

– How is the industry currently using information technology? Is the organization

behind or ahead of the industry in its application of information systems?
 Management Checklist: Performing a Strategic
Systems Analysis
2. What are the business, firm, and industry value chains for this
particular firm?
– How is the company creating value for the customer—through lower prices and
transaction costs or higher quality? Are there any places in the value chain
where the business could create more value for the customer and additional
profit for the company?

– Does the firm understand and manage its business processes using the best
practices available? Is it taking maximum advantage of supply chain
management, customer relationship management, and enterprise systems?

– Does the firm leverage its core competencies?

 Management Checklist: Performing a Strategic
Systems Analysis
2. What are the business, firm, and industry value chains for this
particular firm? (continued)

– Is the industry supply chain and customer base changing in ways that benefit or
harm the firm?

– Can the firm benefit from strategic partnerships and value webs?

– Where in the value chain will information systems provide the greatest value to
the firm?
 Management Checklist: Performing a Strategic
Systems Analysis
3. Have we aligned IT with our business strategy and goals?
– Have we correctly articulated our business strategy and goals?

– Is IT improving the right business processes and activities to promote this

strategy?

– Are we using the right metrics to measure progress toward those goals?
 MANAGING STRATEGIC TRANSITIONS

• Adopting the kinds of strategic systems described earlier generally

requires changes in business goals, relationships with customers and
suppliers, and business processes.

• These sociotechnical changes, affecting both social and technical

elements of the organization, can be considered strategic transitions —
a movement between levels of sociotechnical systems.

• Such changes often entail blurring of organizational boundaries, both

external and internal.
 MANAGING STRATEGIC TRANSITIONS

• Suppliers and customers must become intimately linked and may

share each other’s responsibilities.

• Managers will need to devise new business processes for coordinating

their firms’ activities with those of customers, suppliers, and other
organizations.

• The organizational change requirements surrounding new information

systems are so important that they merit attention.
 PROJECT PREPARATION
Make groups of maximum 8 students per group
• Every group
– Needs to choose a leader and a co-leader
– Leader and co-leader will be responsible to submit project status weekly in a
Microsoft Powerpoint presentation
– Groups will have different functions to develop and build based on real life
examples.
– This will lead to build database functions on Microsoft Access.
– Final Examination results will be based on groups project presentation/viva
and database preparation.
– 30% of total marks will be based on this project.
– Every student will be individually checked based on viva questions.
 PROJECT PREPARATION
• Project concentration is AIRPORT handling
• Every group should pick one of the following area:
1. Facility Management 10. Customs
2. Cargo Handling 11. Immigration
3. Security / Safety Management
4. Engineering & Fuel Management
5. Ground Handling
6. Flight Information
7. Ticket Handling
8. Baggage Handling
9. Customer Services
 PROJECT PREPARATION
• In a power point presentation:
– Every Page Header Should have Week#, Week Dates From - To

– Every Page Footer Should have Group No. & Selection Name
(based on selection)

– 1st Page: Group No. & Selection Name (based on selection)

Roll# and Full names of the members
 PROJECT PREPARATION
• First Week Presentation
– 2nd Page:
• What physical parameters are needed in your area? (List them)
• Any items which have duplicated characteristics? (identify them)
 REVIEW QUESTIONS
1. Which features of organizations do managers need to know about to build
and use information systems successfully? What is the impact of
information systems on organizations?
– All modern organizations are hierarchical, specialized, and impartial, using
explicit routines to maximize efficiency.

– All organizations have their own cultures and politics arising from differences in
interest groups, and they are affected by their surrounding environment.

– Organizations differ in goals, groups served, social roles, leadership styles,

incentives, types of tasks performed, and type of structure.
 REVIEW QUESTIONS
1. Which features of organizations do managers need to know about to build
and use information systems successfully? What is the impact of
information systems on organizations? (continued)
– These features help explain differences in organizations’ use of information
systems.

– Information systems and the organizations in which they are used interact with
and influence each other.

– The introduction of a new information system will affect organizational structure,

goals, work design, values, competition between interest groups, decision
making, and day-to-day behavior.
 REVIEW QUESTIONS
1. Which features of organizations do managers need to know about to build
and use information systems successfully? What is the impact of
information systems on organizations? (continued)
– At the same time, information systems must be designed to serve the needs of
important organizational groups and will be shaped by the organization’s
structure, business processes, goals, culture, politics, and management.

– Information technology can reduce transaction and agency costs, and such
changes have been accentuated in organizations using the Internet.

– New systems disrupt established patterns of work and power relationships, so

there is often considerable resistance to them when they are introduced.
 REVIEW QUESTIONS
2. How does Porter’s competitive forces model help companies develop
competitive strategies using information systems?
– In Porter’s competitive forces model, the strategic position of the firm, and its
strategies, are determined by competition with its traditional direct competitors,
but they are also greatly affected by new market entrants, substitute products
and services, suppliers, and customers.

– Information systems help companies compete by maintaining low costs,

differentiating products or services, focusing on market niche, strengthening ties
with customers and suppliers, and increasing barriers to market entry with high
levels of operational excellence.
 REVIEW QUESTIONS
3. How do the value chain and value web models help businesses identify
opportunities for strategic information system applications?
– The value chain model highlights specific activities in the business where
competitive strategies and information systems will have the greatest impact.

– The model views the firm as a series of primary and support activities that add
value to a firm’s products or services.

– Primary activities are directly related to production and distribution, whereas

support activities make the delivery of primary activities possible.

– A firm’s value chain can be linked to the value chains of its suppliers,
distributors,
– and customers.
 REVIEW QUESTIONS
3. How do the value chain and value web models help businesses identify
opportunities for strategic information system applications? (continued)
– A value web consists of information systems that enhance competitiveness at
the industry level by promoting the use of standards and industry-wide
consortia, and by enabling businesses to work more efficiently with their value
partners.
 REVIEW QUESTIONS
4. How do information systems help businesses use synergies, core
competencies, and network-based strategies to achieve competitive
advantage?
– Because firms consist of multiple business units, information systems achieve
additional efficiencies or enhance services by tying together the operations of
disparate business units.

– Information systems help businesses leverage their core competencies by

promoting the sharing of knowledge across business units.

– Information systems facilitate business models based on large networks of

users or subscribers that take advantage of network economics.
 REVIEW QUESTIONS
4. How do information systems help businesses use synergies, core
competencies, and network-based strategies to achieve competitive
advantage? (continued)
– A virtual company strategy uses networks to link to other firms so that a
company can use the capabilities of other companies to build, market, and
distribute products and services.

– In business ecosystems, multiple industries work together to deliver value to the

customer.

– Information systems support a dense network of interactions among the

participating firms.
 REVIEW QUESTIONS
5. What are the challenges posed by strategic information systems and how
should they be addressed?
– Implementing strategic systems often requires extensive organizational change
and a transition from one sociotechnical level to another.

– Such changes are called strategic transitions and are often difficult and painful
to achieve.

– Moreover, not all strategic systems are profitable, and they can be expensive to
build.

– Many strategic information systems are easily copied by other firms so that
strategic advantage is not always sustainable.
 Can This Bookstore Be Saved?
• Barnes & Noble (B&N) has been portrayed in the past as a big bully that drove
small independent bookstores out of business with aggressive pricing tactics and
an unbeatable inventory of books.

• Today, B&N finds its role reversed as the company fights a fierce battle to survive
in the inevitable era of e-books.

• Booksellers were one of the many industries disrupted by the Internet and, more
specifically, the rise of e-books and e-readers.

• B&N hopes to change its business model to adapt to this new environment before
it suffers a similar fate as many of its competitors, like Borders, B. Dalton, and
Crown Books.
 Can This Bookstore Be Saved?
• More than ever, consumers are reading books on electronic gadgets—e-readers,
iPods, tablets, and PCs—instead of physical books.

• Although B&N still depends on its physical, brick-and-mortar stores to drive its
business (B&N operates 691 bookstores in 50 states, as well as 641 college
bookstores), the company has thrown its energies behind development and
marketing of the Nook series of e-readers and tablets.

• Once simply a bookseller, B&N now styles itself as a seller of e-books, devices to
read them on, and apps that enhance the reading experience.
 Can This Bookstore Be Saved?
• The company has had success gaining market share, but at a steep cost, and to
stay afloat, it will need to contend with increased competition from Amazon, Apple,
and Google—not exactly feeble opposition.

• B&N has a market capitalization of $1 billion.

• Amazon, B&N’s current top competitor, has a market capitalization of $98 billion.

• How can B&N compete against these tech titans?

– The answer remains to be seen.
 Can This Bookstore Be Saved?
• B&N was likely the only bookseller big enough to complete the considerable task of
developing an e-reader, marketing it, and setting up manufacturing and retail
operations for the device.

• Even if its competitors had been faster to react to consumer demand for e-books,
it’s unlikely they would have made the inroads that B&N has achieved into the e-
book space.

• Reaction to the Nook has been positive, as B&N has grabbed a significant market
share from Amazon and Apple in the e-book marketplace.

• In 2011, analysts estimated that B&N controlled approximately 27 percent of the

digital book market (Amazon held 60 percent).
 Can This Bookstore Be Saved?
• B&N’s progress with e-books has come at a steep cost, however. The company
incurred a loss of $73.9 million in 2011, compared to a $36.7 million profit the
previous year.

• The investment required to launch and promote the Nook was the primary reason
for the shortfall, and expenditures are expected to continue to climb.

• In response, B&N canceled its stock dividend.

• The key questions for B&N are whether the Nook will eventually bring in revenues
that justify its steep development and marketing costs, as well as whether the Nook
can help drive traffic to B&N’s brick-and-mortar stores.
 Can This Bookstore Be Saved?
• The economics of e-book sales are very different from traditional book sales.

• Customers who visit B&N’s Web site buy three digital books for every one physical
book, but booksellers still make more money on print books than e-books.

• Still, B&N’s Nook business has been growing rapidly, and traditional bookstores are
not.

• Total e-book sales were nearly $970 million in 2011, more than double from the
previous year, and the percentage of e-books within the total number of books sold
is still on the rise, measuring 14 percent that same year.
 Can This Bookstore Be Saved?
• Ironically, one of the first companies to realize the potential of e-books was B&N
itself.

• As early as 1998, the company had partnered with software companies like
NuvoMedia to develop prototype e-reader called the Rocket, but in 2003 it nixed
the project because there didn’t appear to be any money in it.

• At the time, B&N was right, but technology has come a long way since 2003, and
so too have e-books.
 Can This Bookstore Be Saved?
• B&N clearly took notice of the fate of Borders, its chief rival.

• Borders stubbornly refused to adapt to the Internet, first handing over its entire
Internet operations to Amazon, and waiting to relaunch its own Web site until 2008,
at which point the company was already on the road to bankruptcy.

• Borders had a devoted following, but it wasn’t enough to combat the company’s
$350 million debt and dwindling profitability.

• B&N is the only national bookstore chain remaining in the United States, and while
the company saw a bump in store traffic in the immediate aftermath of the Borders
collapse, it also knew it would need to shake things up to avoid a similar fate.
 Can This Bookstore Be Saved?
• Other companies also have a stake in B&N’s transformation.

• Publishing companies have been forced to adjust their allocations of printed books
and new titles for stores, and books are beginning to be released as apps in
addition to physical books.

• Apps for books are adding more features all the time, including the ability to
manipulate and enlarge images, flip through photo albums, watch videos, read
instant messages, and listen to the music of characters within the book.

• These books, called “enhanced e-books,” are considered to be the next step in the
growth of digital books, but thus far, the performance of enhanced e-books has
been mixed.
 Can This Bookstore Be Saved?
• Publishers and e-reader manufacturers both are teaming up on enhanced e-book
projects. Penguin will release 50 enhanced e-books over the course of 2012.

• Apple is working with publishers to create interactive digital versions of textbooks.

But do readers really need these features?

• Some publishers believe that these apps cost more money than they are worth,
and worry that there is not a big enough market for enhanced e-books to justify the
expenditure of time and money.

• However, this is the same line of thought that was used about e-books themselves
in the early 2000s, and e-book skeptics turned out to be dead wrong.
 Can This Bookstore Be Saved?
• Publishers are doing anything they can to support B&N’s efforts to stay afloat,
because the survival of physical book retailers is important to effectively market
and sell books.

• Bookstores spur publisher sales with the “browsing effect.” Surveys have shown
that only one-third of the people who visit a bookstore and walk out with a book
actually arrived with the specific desire to purchase one.

• According to Madeline McIntosh, Random House president of sales, operations,

and digital, a bookstore’s display space is “one of the most valuable places that
exists in this country for communicating to the consumer that a book is a big deal.”
 Can This Bookstore Be Saved?
• Brick-and-mortar retail stores are not only essential for selling physical books, but
also stimulate sales of e-books and audio books.

• The more visibility a book has, the more likely readers will want to purchase it.

• With the demise of B. Dalton, Crown Books, and Borders, B&N is the only retailer
offering an extensive inventory of physical books.

• Book publishers need a physical presence.

 Can This Bookstore Be Saved?
• Without B&N, the likely candidate to fill the void is Amazon, and publishers are not
eager for that to happen.

• Amazon’s goal for e-books is to cut out the publishers and publish books directly,
selling books at an extremely steep discount to drive sales of its Kindle devices.

• Editors, publicists, and other entities within the publishing business view Amazon
as an enemy.

• Selling books at Amazon’s prices is not a tenable business model for publishers in
the long-term.
 Can This Bookstore Be Saved?
• Publishers received even worse news in April 2012, as the U.S. Department of
Justice (DOJ) sued Apple and five of the country’s largest publishing houses for
colluding to fix e-book prices.

• In response to Amazon’s aggressive pricing strategy, publishers and Apple had

agreed to an “agency pricing” model, in which publishers set the price and retailers
take a commission.

• (Under the wholesale arrangement with Amazon, the publishers received half of
the list price, but this gave them no control over the pricing of their product.)
 Can This Bookstore Be Saved?
• Many books would be sold by Apple for about $13, with Apple taking a 30 percent
cut.

• By increasing the price of e-books by a dollar or two, publishers stood to gain an

extra $100 million.

• Even Amazon was under investigation for striking deals with publishers that
forbade them from offering the same level of discounts provided by other e-reader
manufacturers.

• The bottom line is that the DOJ action is bad news for publishers, who need B&N
now more than ever.
 Can This Bookstore Be Saved?
• Because the Nook was booming and brick and-mortar stores had been stagnating,
B&N has been considering spinning off its digital business from its fading bookstore
business.

• On April 30, 2012, Microsoft announced that it would invest $300 million for a 17.6
percent stake in a new company consisting of B&N’s Nook tablet and e-reader
business and its College division.

• As part of the deal, a Nook application would be included in Microsoft’s Windows 8

operating system.
 Can This Bookstore Be Saved?
• This arrangement will provide B&N with additional points of distribution from
hundreds of millions of Windows users around the world, and both companies will
share revenues from sales of e-books and other content.

• B&N might eventually spin off this new company.

• The deal also furthers Microsoft’s strategy of investing in new businesses to move
beyond its Windows and Office software franchises.

• A Nook e-reading app could also enhance Microsoft efforts to establish a digital
storefront to market e-books, apps, and other content for Windows 8, which is
critical to plans for entering the tablet market.
 Can This Bookstore Be Saved?
• B&N has also experimented with ways to drive traffic to their physical stores using
apps on the Nook.

• Although this is a seemingly impossible task, they are at least coming up with
some inventive ideas.

• For example, if you connect to a Wi-Fi network in a B&N store with your Nook, you
can get free extras in many apps and games like Angry Birds, where you can
unlock a bonus character that normally costs a dollar.

• Other companies are using similar techniques to promote board games, toys,
movies, and of course, physical books. B&N has also expanded its store space for
toys and games and added new display space for its Nook devices.
 Can This Bookstore Be Saved?
• There are also plans to experiment with slightly smaller stores.

• These promotional campaigns probably won’t be enough to stop B&N’s dwindling

in-store sales.

• What will the future hold? Will B&N be able to succeed as a digital company, and is
there a future for its brick and-mortar stores? Is there a way for e-books to help sell
print books, just as print books have stimulated demand for their digital versions?

• Although B&N has made a spirited effort to revamp its business and go toe-to-toe
with several tech titans, it’s possible that it might be too tall an order for the storied
bookseller
 QUESTIONS
1. Use the value chain and competitive forces models to evaluate the impact of the
Internet on book publishers and book retail stores such as B&N.

2. How are B&N and the book publishers changing their business models to deal
with the Internet and e-book technology?

3. Will B&N’s new strategy be successful? Explain your answer.

4. Is there anything else B&N and the book publishers should be doing to stimulate
more business?