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Slide1
1
Chapter 2. Strategic Use of Information Resources
Jason C. H. Chen, Ph.D.
Professor of MIS
School of Business Administration
Gonzaga University
Spokane, WA 99258
chen@jepson.gonzaga.eduSlide2
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Swimming
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with
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or .
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Learning Objectives
List the identifying factors of the eras of information usage.
Know what makes an information resource valuable.
Explain how information resources are used strategically in context of the 5-forces model.
Understand how information resources can be used to alter the value chain.
Explain the importance of strategic alliances.
Know the risks of information resources.Slide4
Real World Example
Zara aligns its __________________ strategy with its _________ strategy
.
The system links demand to manufacturing and distribution.
Customers visit up to 17 times per year to check on new items that may have arrived.
Limited products lead customers to immediately purchase products they like.Zara’s business strategy leads to a loyal and satisfied customer base.information system
businessSlide5
Real World Example (Cont.)
The POS system sends daily updates to Zara’s headquarters.Managers report to designers what sold and what customers wanted but couldn’t find.The ___________ is used to determine inventory management.New designs can be ordered twice a week.
The entire process is
automated
so that new designs and products can be created quickly.
Zara uses its ___________ resources to sustain its advantages over competitorsinformationinformationSlide6
6
Discussion Questions
Q4
It has been said that there are
no
sustainable competitive advantages can be gained from IT other than the capability of the IT organization itself. Do you agree or disagree? Defend your position.
As the chapter discusses, sustainable advantage is hard to come by. Just about any advantage gained by a company seems to be copied by another at some point in the future. Slide7
7
Discussion Questions - Answer
Those who
agree
(i.e., IT does not provide
S.A.) with
this statement might argue that even the capability of the IT organization is
not
a sustainable advantage because people come and go, they can be bought by another organization as a move to create the capability elsewhere, and their skills and knowledge atrophy over time, when new capabilities arise. Witness IT organizations who excelled at managing mainframe applications, who are now struggling to keep up with web-based applications.
Those who
disagree
(i.e., IT provides S.A.) with this statement might argue that the key to sustaining any advantage comes from the way all business resources are organized and used, and ultimately that comes down to how the managers and the people are able to perform. Slide8
8
What is the
“Competitive Advantage”?
A competitive advantage is a benefit derived from something a company does or has that its customers want and its competitors cannot (or choose not to) match.
If a company can
sustain
its competitive advantage, the company will succeed in its industry – how?
Two types of people lead a company to succeed
Those know how to
innovate
the enterprise
Those know how to
execute
their strategy onto the enterprise
using IS/IT
.Slide9
9
Sustainable Competitive Advantages
Any sustainable competitive advantages?
How can an organization sustain its competitive advantage?
Firms may create/improve their competitive advantages only if they:
have ________ to learn,
employ ________ _________ approach
With the
service economy
accounting for over 70 percent of GDP in OECD (Organization for Economic Co-operation and Development) countries,
service firms
are becoming increasingly competitive with
revenue management
(RM) and
pricing
becoming central in their focus for
sustaining long term profitability
(and competitive advantage).
capacity
revenue management
learning to
learn
and learning to
change
(life-long learning environment)Slide10
Co-Creating IT and Business Strategy
Information is increasingly a core component of the product or service offered by the firm.IT strategy is ________ strategy – they cannot be created without each other.
Some company’s main product is information (financial services).
Q: Is FedEx is a package delivering company?
Y/N (and Why?)
FedEx can not function without ____ even though they are primarily a package delivering company.Other companies such as Walmart, UPS, or Zipcarbusiness
ITSlide11
11
What is Business Model?
A business model is a set of planned activities (sometimes referred to as
business processes
) designed to result in a profit in a marketplace.
Source: E-Commerce: business, technology, society, Laudon and Traver, A/W
N
The business model is at the center of the business plan.
An e-commerce business model aims to use and leverage the unique qualities of the Internet and the www.Slide12
12
Why New Models?
We need some new models
for how we go about exploring IT for competitive advantage,
for IT infrastructure how we create it and manage it
for how we acquire, manage and deploy the skills that are needed to run that infrastructure
N
Profitability (making money)Slide13
Business Model vs.
Revenue ModelBusiness model is the architectural configuration of the components of transactions designed to exploit business opportunities.
N
Revenue model refers to “the
_______ ways
in which a business model enables
revenue ___________.”
Revenue
mechanism
is a key component of the business model because it provides a sustainable financial source for the business’ effort of innovation (
Afuah
, 2004).
specific
generationSlide14
Business Model
Revenue Model
Value
_________
Value
____________
It describes the way in which a company enables transactions that create value for all participants, including
partners
,
suppliers
and
customers
.
It can be realized through a combination of
- subscription fees,
- advertising fees,
- transactional income
(
e.g., fixed transactional fees, referral fees, fixed/variable commissions,
etc
)
Business vs. Revenue Model
creation
appropriationSlide15
Revenue Management
If you are interested in the issues of RM International Journal of Revenue Managementhttp://www.inderscience.com/ijrmSlide16
16
EVOLUTION OF INFORMATION RESOURCESSlide17
Evolution Of Information Resources
IS strategy from the 1960s to the 1990s was driven by internal organizational needsLower existing transaction costsProvide support for managers by collecting and distributing information
Redesign business processes
In the 2010 era IS strategy was driven by ______ IT platforms and new capabilities
A new evolution of applications, processes, and strategic opportunities
socialSlide18
18
Information Resources
The term information resources is defined as the available data, technology, people, and processes available to perform business processes and tasks.
Organizations have moved from an “_______
model
” of the 1960’s to a “______
creation and ______ business model
” of the 2010’s.
Companies seek to utilize those technologies that give them competitive advantage.
Maximizing the effectiveness of the firm’s business strategy requires the general manager to identify and use information resources.
Figure 2.1 shows this change.
efficiency
value
social Slide19
Era I
1960s
Era II
1970s
Era III
1980s
Era IV
1990s
Era V
2000+
Era VI
2010+
Primary
role of IT
Efficiency
Automate
existing
paper-based
processes
Effectiveness
Solve
problems
and
create
opportunities
Strategic
Increase
individual
and group
effectiveness
Strategic
Transform
industry/
organization
___________
Create
collaborative
partnerships
____________
Community
and
social
business
Justify IT
expenditures
ROI
Increasing
productivity
and better
decision quality
Competitive
position
Competitive
position
Adding value
Creating
relationships
Target of
systems
Organization
Organization/
group
Individual
manager/
group
Business
processes
ecosystem
Customer/
supplier
ecosystem
Customer/employeesupplierecosystemInformationmodelsApplicationspecificData drivenUser drivenBusiness drivenKnowledge drivenPeople driven (orrelationshipdriven)DominatetechnologyMainframe,“centralizedintelligence”Minicomputer,Mostly “centralizedintelligence”Microcomputer,“decentralizedintelligence”Client Server,“distributedintelligence”Internet, global“ubiquitousintelligence”Social platforms,Social networks,mobile, cloudBasis ofvalueScarcityScarcity Scarcity PlentitudePlentitudePlentitudeUnderlyingeconomicsEconomics ofinformationbundled witheconomics ofthingsEconomics ofinformationbundled witheconomics ofthingsEconomics ofinformationbundled witheconomics ofthingsEconomics ofinformationseparatedfromeconomics ofthingsEconomics ofinformationseparatedfromeconomics ofthingsEconomics ofrelationshipsbundled witheconomics ofinformation
Value creation
Figure 2.1 – Mission statements of computer companies
Value creationSlide20
Figure 2.2
Information Resources
Type of Information Resource
Definition
Example
Anything that can be
used
by a firm in its processes for creating, producing and/or offering its products (goods or services)
- IS
infrastructure
Base foundation of the IT portfolio shared through the
firm
Hardware, software, network, data components, proprietary technology
, web-based
services
- Information
repository
Data that is logically related and organized in a structured form
accessible
and able for decision making purposes
.
Critical information about
customers
that can
be used
to gain strategic advantage. Much of this information is increasingly available on the web.
Something
that is learned or developed over time in order for the firm to create, produce or offer it products
in
IT assets
-
Technical
skill
Ability applied to designing, developing and implementing information systems
Proficiency in systems analysis and design; programming skills
- IT
management skills
Ability to managing IT function and IT projects
Being
knowledgeable
about
business processes
and managing systems to support them; evaluating technology options; envisioning creative IS solutions to
business
problems
- Relationship
skills
Ability of IS specialists to work with parties outside the IS department.
Spanning: having a good relationship between IT and
business
managers
Externally-forced
: have a good relationship with an outsourcing vendor
_________
_________
IT Asset
IT CapabilitySlide21
Advantages of Information Resource
Information resource appropriation:Determining
where
a resource’s value lies and how it can be improved in a firm’s favor.
The attributes of information resources that impact the value make it possible to create and sustain competitive advantage (i.e. Zara).
Information resource distribution across firms: Early adopters may experience a competitive advantage from using an information resource. (______________Advantage)The experience gained may lead to inequities between firms.Different experiences with a resource creates value, and a create strategic advantage
.First Mover Slide22
Advantages of Information Resource
(Cont.)Mobility of Information resource:
Reliance on the
individual
skills of IT professional
Risky as key individuals will leave the firm, taking their experience with them.Development of unique knowledge-sharing processes, and creation of an organizational memory.ThenQ: How and
what do we need to sustain organization’s competitive advantage in terms of using information resource (software)?
A
: _________________________________
Business Intelligence
(e.g., Knowledge
Management
Systems)Slide23
23
Network Externalities
Definition
-
The phenomenon whereby a
service
becomes more valuable as ______ people use it, thereby encouraging ever-increasing numbers of adopters.
Network _______
While the word-of-mouth method is often more influential in the beginning, analysis may play a significant role later in the cycle. In other words, you may adopt a service initially because someone you know uses it; later, you may adopt a service because "
everyone
" uses.
IT Role?
Network Externality
offers a reason for value derived from plentitude (Eras IV, V & VI)
more
effectsSlide24
24
Virtual Companies (Portable Computing)
A Virtual Company is an Organization composed
of several Business Partners that Uses
Information
___________ to ___________ People
,
Assets, Ideas, Costs, and Resources
for the purpose of producing a product or service.
Technology
Link/Share
Virtual Companies are Adaptable and Opportunity-
Exploiting Organizations Providing World-Class
Excellence in Their Competencies and
Technologies. Slide25
25
Characteristics of Virtual Companies
Borderless
Opportunism
Adaptability
Trust-Based
Excellence
Technology
Six
Characteristics
of Virtual
Companies
NSlide26
26
HOW CAN INFORMATION RESOURCES BE USED STRATEGICALLY?Slide27
27
Striving for Competitive Advantage
______
level: Industry & Competitive Analysis
Competitive Forces Model
Competitive Strategy
D’Aveni’s Hypercompetition Model (7-Ss)
_______
level
Value-Chain Analysis
Firm
BusinessSlide28
28
Porter’s Five Forces Model
According to Porter, there are
five competitive forces
in any industry, and the attractiveness of the industry depends on the strength of each force.
Under the perspective of market structure, Porter’s competitive forces model has been broadly adopted as the underpinning for investigating the effect of
information technology
on the relationships between suppliers, customers, and other potential threats.Slide29
29
PORTER
’
S FIVE COMPETITIVE FORCES MODEL
THE FIRM
INDUSTRY COMPETITORS
NEW MARKET ENTRANTS
SUPPLIERS
SUBSTITUTE PRODUCTS & SERVICES
CUSTOMERS
Threats
Bargaining power
N
Dr. Chen,
The Trends of the Information Systems Technology
TM -
29
Switching cost
Access to distribution channels
Economies of scale
Redefine products and services
Improve price/performance
Selection of suppler
Threat of backward integration
Buyer selection
Switching costs
Differentiation
Cost-effectiveness
Market access
Differentiation of product or serviceSlide30
Competitive Force
IT Influence on Competitive Force
Threat of New Entrants
Zara’s IT supports its tightly-knit group of designers, market specialists, production managers and production planners. New entrants are unlikely to provide IT to support relationships that have been built over time. Further it has a rich information repository about
customers
that would be hard to replicate.
Bargaining Power of Buyers
With its constant
infusion
of new products, buyers are drawn to Zara stores. Zara boasts more than 11,000 new designs a year, whereas competitors typically offer only 2,000 – 4,000. Further,
because
of the low inventory that the Zara stores stock, the regulars buy products they like when they see them
because
they are likely to be gone the next time they visit the store. More recently Zara has employed laser technology to measure 10,000 women volunteers so that it can add the measurements of ‘real’
customers
into its information repositories. This means that
the
new products will be more likely to fit Zara
customers
.
Bargaining Power of Suppliers
Its computer-controlled cutting machine cuts up to 1000 layers at a time. It then sends the cut materials to suppliers who sew the pieces together. The suppliers’ work is relatively simple and many suppliers can do the sewing.
Thus,
the pool of suppliers is expanded and Zara has greater flexibility in choosing the sewing companies. Further,
because
Zara dyes 50% of the fabric in its plant, it is less dependent on suppliers and can respond more quickly to mid-season changes in
customer
color preferences.
Threat of Substitute Products
Industry competitors long marketed the desire of durable, classic lines. Zara forces on meeting customer preferences for trendy, low-cost fashion. It has the highest sales per square foot of any of its competitors. It does so with virtually no advertising and only 10% of stock is unsold. It keeps its inventory levels very low and offers new products at an amazing pace for the industry (i.e., 15 days from idea to shelves). Zara has extremely efficient manufacturing and distribution operations.Industrial CompetitorsZara offers extremely fashionable lines that are only expected to last for approximately 10 wears. It offers trendy, appealing apparel at a hard-to-beat price.
Figure 2.4 Application of five competitive forces model for Zara.Slide31
31
The Five Forces Model and IS
The Five Forces Model provides a way to think about how information resources can create competitive advantage.
Using Porter’s Model, General Managers can:
Identify
key sources of competition they face.
Recogniz
e uses of information resources to enhance their competitive position against competitive threats
Consider likely changes in competitive threats over time
NSlide32
32
PORTER
’
S FIVE COMPETITIVE FORCES MODEL
THE FIRM
INDUSTRY COMPETITORS
NEW MARKET ENTRANTS
SUPPLIERS
SUBSTITUTE PRODUCTS & SERVICES
CUSTOMERS
Threats
Bargaining power
N
Dr. Chen,
The Trends of the Information Systems Technology
TM -
32
Cost-effectiveness
Market access
Differentiation of product or service
Internal Forces:
1.customer focus
2.communication
3.core competencies
4.complexity
5.Quality
Other forces should be considered in the e-Age:
1. Digitalization
2. Globalization
3. Deregulation/ liberalizationSlide33
33
Porter’s Value Chain Model
The
value chain model
highlights specific activities (i.e.
create, deliver, and support a company’s product or service)
in the business where
competitive
strategies
can be best applied and where
information
systems
are most likely to have a strategic impact.
Therefore, the value chain model can be employed to
identify
specific, critical leverage points where a firm can use
IT
most effectively to enhance its competitive position.Slide34
34
Competitive
Advantage
(Value)
N
Figure
2.5
Process View of the Firm: The Value Chain
Two broad categories:
Primary activities – relate directly to the value created in a product or service.
Support activities – make it possible for the primary activities to exist and remain coordinatedSlide35
35
The Value System (Fig 2.6)
Value chain analysis can be extended beyond the company to include other firms in the industry, such as suppliers and customers, in a “
value system
” analysis
.
Much of the advantage of supply chain management comes from understanding how information is used within each value chain of the system.
This can lead to the formation of entire new businesses designed to change the information component of value-added activities.
NSlide36
36
Figure 2.6: The
Value System:
Interconnecting relationships between organizations
Upstream
value
Firm
value
Downstream
value
NSlide37
New Forces in Today’s Economy
Overcapacity and hypercompetition.
Overcapacity is 25% pharmaceuticals, 30% chemicals, 35% automobiles
Leads to falling prices and margins, mergers, and company failures
Ascendant power of customers.
Customer shortage
Price transparency
Ascendant power of distributors over manufacturers.
Growth of digitalization and the Internet as major sources of efficiency and profitability.
Proliferation of channels and media.
Globalization and global interdependence.Slide38
Customer
centric
______ are
the customers?
_______are
the customers?
Their
__________ habits.
What they need/want?
How many they need/want?
When they need/want?
How to reach them?
Demands
Products
E-BUSINESS
BUSINESS FOCUS
SCM
CRM
BPR
ERP
Who
Where
purchasingSlide39
WHY CRM?
In this competitive age when product differentiation
is difficult, CRM is one of the most valuable assets a company can acquire.
The sooner a company embraces CRM the better off it will be and the harder it will be for competitors to steal loyal and devoted customers.
CRM is more than just “
Marketing” (what else?)Slide40
CUSTOMER RELATIONSHIP MANAGEMENT’S EXPLOSIVE GROWTH
CRM Business DriversSlide41
BASICS OF SUPPLY CHAIN
Organizations must embrace technologies that can effectively manage supply chains
Involvement
(integration)Slide42
FIVE
BASIC SUPPLY CHAIN MANAGEMENT COMPONENTS
Plan
Deliver
Source
Make
ReturnSlide43
INFORMATION TECHNOLOGY’S
ROLE IN THE SUPPLY CHAINIT’s primary role is to create integrations or
tight process
and information linkages between functions within a firmSlide44
44
Information Resources
Strategy:
The Strategic Landscape
Managers confront elements that influence the competitive environment.
Slim tolerance for error requires managers take multiple view of the strategic landscape, such as:
First view - Porter’s five competitive forces model.
Second view - Porter’s value chain.
Third view
focuses on the types of IS resources needed (
Resource-Based View
).Slide45
45
The Resource-Based View
The Resource-Based View (RBV) looks at gaining competitive advantage through the use of information resources.
Determining whether a firm’s strategy has created _____ .
Two subsets of information resources have been identified:
Those that enable firms to ______ competitive advantage (initially
rare and valuable resources were the communities many companies implemented using
social IT
.
)
Those that enable firms to ______ competitive advantage over the long-term (resources must be difficult to transfer or relatively immobile
and need
to continue to
innovate
and to
protect
against resource imitation, substitution, or transfer
.)
attain
sustain
valueSlide46
46
Porter’s Model/Value Chain
Resource-Based View (RBV)
Competitive Advantage (CA)
Argues that aspects of the firm’s industry create sources of CA.
Maintains that CA comes from the
information
and other
resources
at the firm
Focus (what adds value to the firm)
Firm’s
activities
_________ that firm can manage and create value
Porter’s Model vs. Resource-Based View
ResourcesSlide47
Social Capital Theory
Social capitalis the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit.The focus on the theory is not on managing individuals, but rather managing relationships.The value from networks may be derived in one of three interrelated ways
structural:
pattern of relationships in the network (who is connected to whom)
r
elational: nature of relationships among members in the network (how do connected people interact)cognitive: the way people think about things in the network (how do the connected people think).47Slide48
48
More to be discussed on the topic of “
Strategic IT Resources
”Slide49
49
STRATEGIC ALLIANCESSlide50
Strategic Alliances
An interorganizational relationship that affords one or more companies in the relationship a strategic advantage. E.g., the alliance between
Zynga
and
Facebook
helped Zynga benefit from the revenue resulting from its gamers on Facebook community.IS can be the platform upon which a strategic alliance functions.E.g., The alliance between Delta and e-Travel helped Delta reduce agency reservation fees and offered e-Travel new corporate leads.Linking value chains through SCM is another way firms build an IT-facilitated strategic alliance.Slide51
51
Aligning IS strategy with Business Strategy
Using multiple approaches to evaluating the strategic landscape is helpful in determining strategic opportunities.
Here, we look at three such approaches:
Porter’s five forces model
of the competitive advantage of firms
Porter’s value chain model
of internal organizational operations
and strategic option generator (
results in nine possible major options to secure a competitive advantage)
N
Wiseman’s theory of strategic thrustsSlide52
52
Wiseman’s theory of strategic thrusts
and strategic option generator
1. What is our strategic target?
2. What strategic thrust can be used against the target?
3. What strategic mode can be used?
offensive or defensive
4. What direction of thrust can be used?
usage or provision
5. What IS skills can we use?
processing/storage/transmission
Suppliers
Customers
Competitors
Differen-
tiation
Cost
Innovation
I. Major options to secure a competitive advantage
II. Option Generator
Results in
nine
possible major options to secure a competitive advantage.Slide53
Types of Strategic Alliances
____________: a new strategy whereby companies cooperate and compete at the same time with companies in their value net. Co-opetition is the strategy for creating the best possible outcome for a business by optimally combining competition and cooperation
.
e
.g
, Covisint and General Motors, Ford, and DaimlerChrysler.Value net includes a company and its competitors and complementors, as well as its customers and suppliers, and the interactions among all of them.
Complementor
is a company whose product or service is used in conjunction with a particular product or service to make a more useful set for the customer.
Co-
opetitionSlide54
54
Summary of Key Strategy Frameworks
Framework
Key Idea
Usefulness in Information Systems
Discussions
Porter’s generic
strategies
framework
Firms achieve
competitive advantage
through cost leadership,
differentiation, or
focus.
Understanding which strategy is chosen
by a firm is critical to choosing IS to
complement that strategy.
D’Aveni’s
hypercompetition
model
Speed and aggressive
moves and counter-
moves by a firm
create
competitive advantage.
The 7-S’s give the manager suggestions
on what moves and counter moves to
make and IS are critical to achieve the
speed needed for these moves.
Brandenberg
and
Nalebuff’s
co-
opetition
model
Companies cooperate
and compete at the
same time.
Being cooperative and competitive at the
same time requires IS that can manage
these two roles.Slide55
Social Capital Theory
Social capitalis the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit.
The focus on the theory is
not
on managing individuals, but rather managing _____________
.The value from networks may be derived in one of three interrelated ways_________: pattern of relationships in the network (who is connected to whom)_________: nature of relationships among members in the network (how do connected people interact)________: the way people think about things in the network (how do the connected people
think).
55
structural
relational
cognitive
relationshipsSlide56
Co-Creating IT and Business Strategy
Information is increasingly a core component of the product or service offered by the firm.IT strategy is ________ strategy – they cannot be created without each other.
Some company’s main product is information (financial services).
Is FedEx is a package delivering company?
Y/N (and Why?)
FedEx can not function without ____ even though they are primarily a package delivering company.businessITSlide57
57
0
50
100
150
200
250
300
Time of market introduction relative to competition (months)
Profits relative to competitions (%)
Relationship between profits and time of market introductionSlide58
58
Keen’s Six-Stage Competitive Advantage Model
Stimulus for action
First-mover expansion moves
Competitor catch-up moves
N
Commoditization
First major move
Customer acceptanceSlide59
59
When to Perform Activities
First Movers
Advantages
Build brand recognition
Control scarce resources
Establish networks
Early Economies-of-Scale
Disadvantages
Newer technology
Higher development costs
Reverse engineering by competitorsSlide60
60
Copyright 2010 John Wiley & Sons, Inc.
60
RISKSSlide61
61
Potential Risks
There are many potential risks that a firm faces when attempting to use IT to outpace their competition
.
Awakening a sleeping giant
– a large competitor with deeper pockets may be nudged into implementing IS with even better features
Demonstrating bad
timing
– sometimes customers are not ready to use the technology designed to gain strategic advantage
Implementing IS poorly
– information systems that fail because they are poorly implemented
Failing to deliver what users want
– systems that don’t meet the firm’s target market likely to fail
Web-based alternative removes advantages
–
consider risk of losing any advantage obtained by an information resource that later becomes available as a service on the web
Running afoul of the law
– Using IS strategically may promote litigation if the IS results in the violation of laws or regulations.
NSlide62
62
Summary
Using IS for strategic advantage requires more than just knowing the technology.
Remember that not just the local competition is a factor in success but the 5 competitive forces model reminds us of other issues.
Value chain analysis show us how IS add value to the primary activity of a business.
Know the risks associated with using IS to gain strategic advantage.Slide63
63
End of Chapter 2