Term/Case study
Chapter 6
Exploiting Information Systems for Strategic Advantage
Outline
Achieving and Sustaining Advantages across the Value Disciplines
Exploring New Value Propositions: Informating Products and Services
Analysis of Competitive Forces to Identify IS/IT Opportunities and Threats
Value Chain Analysis
Customer Life-cycle Management and the Value Chain
From Value Chain to Value Network
The Internal Value Chain
The Uses of Value Chain Analysis
Achieving and Sustaining Advantages across the Value Disciplines
Value Discipline
Operational Excellence, Customer Intimacy or Product/Service Leadership
Don’t let a focus on one be (overall) detrimental to all three!
Strategic investments
Relate to the value dimension in which the organization seeks to excel
Key operational investment
Essential in any dimension where performance levels have fallen below those essential to success
High potential projects
‘Prototypes’ or ‘pilots’ related to specific strategic developments or evaluations of ideas in any of the deas in any of the dimensions (i.e. early, tentative steps in finding out how IS/IT might provide future opportunities).
Exploring New Value Propositions: Informating Products and Services
servitization strategies many manufacturing firms are moving from selling products to providing services.
This does not mean that the product disappears – the product is still needed to deliver the service – but that the customer buys the services rendered by the product.
Exploring New Value Propositions: Informating Products and Services
Informating is concerned with adding value to existing products and services and potentially changing the value proposition being offered to customers by harnessing information in some way
Three scenarios for Informating
Informating existing products
Informating existing services
Informating to improve product availability or reliability in use
Availability
Reliability
Capability
Co-operative Motor Insurance: pay-how-you-drive
With young drivers often facing the highest priced motor insurance premiums, The Co-op has developed a ‘pay-how-you-drive’ solution for 17- to 25-year-olds. The most recent statistics for young drivers in the UK indicate that:
One in eight driving licence holders is aged 25 or under, yet one in three drivers who die is under 25.
An 18-year-old driver is more than three times as likely to be involved in a crash as a 48-year-old.
One in five new drivers has a crash within 6 months of passing their test.
Informating Products to Improve Availability and Reliability in Use
Delivering the customer a value proposition based on availability rather than ownership generally demands collecting information about the ‘health’ of the product, usually in real time.
Using prognostic and diagnostic software and advanced analytical tools, knowledge about the performance of the product ‘in use’ can be determined.
Informating Products to Improve Availability and Reliability in Use
Reliability
Considered as the ability of a product to perform a required function under stated conditions for a specified period of time.
Capability as well as Availability
Capability can be seen as a measure of a product's ability to be available at a given point in time and its ability to achieve a specific objective (often referred to as a ‘mission’ in military terms).
Analysis of Competitive Forces to Identify IS/IT Opportunities and Threats
IS/IT implications across the five forces
Buyer power increases as more choice becomes available online
Buying groups have emerged to produce collective rather than individual buying power
Disintermediation
Cutting out existing intermediaries, such as travel agents
Re-intermediation
Such as comparison websites
Which of the 5 Forces is Critical?
Consider business-based issues, such as:
What forces are determining the future of the industry and potential success?
Who dominates the industry and why?
Who might enter the industry, why and what would the effect be?
What substitute products might affect the market for existing products?
On what basis are we currently competing and how might that change?
How much power and discretion do buyers (customers) have and what will influence their choices?
These may help narrow focus to only one or two of the forces
Follow-up with IT/IS related questions
The products/services and their life cycles
The markets, distribution channels and customer behavior
Can IS/IT enable us to reach more, or more appropriate, customers or to match our different products/services to customers more accurately, or enable the product or service to be distributed or accessed in new ways?
Can we use IS/IT to get closer to the marketplace rather than deal through intermediaries?
The economics of production, distribution or servicing
Can IS/IT enable the product/service to be produced more economically or enable production and associated logistics to be integrated to produce greater flexibility of resource use?
Can improved production or logistics efficiency and control change the basic working capital structure of the industry?
Can IS/IT enable a higher quality of product or service to be offered at a lower cost than traditionally?
Can the higher quality and reliability reduce ongoing servicing, repair and maintenance costs?
Value Chain Analysis
Michael Porter1 argues that: ‘every firm is a collection of activities that are performed to design, produce, market, deliver and support its products or services. All these activities can be represented using a value chain.
For an organization to identify the overall implications for its business in terms of opportunities and threats, the information flowing through the industry – the external value chain – needs to be analysed before the information processes can be optimized inside the business – by considering the internal value chain.
Information Systems and the Value Chain
Each key process in the chain should be assessed from two viewpoints:
How does it add value to the (next) customer in the chain?
How does it add value to those providing the input?
The flow of promotional information has been revolutionized by the Internet
Digital channels offer huge potential to gather information and intelligence about consumer and customer preferences and attitudes online
Customer behavior can be tracked in real time with greater accuracy than before and correlated with both the promotional stream and the intelligence gathering stream
Information Systems and the Value Chain
Value chain for pharmaceutical company
Customer Life-cycle Management and the Value Chain
Problem recognition
Search for information
Evaluation of alternatives
Choice/Purchase
Post-purchase behavior
Strategic Option Generator
Considers the impact of IS/IT in relation to:
Suppliers
Customers
Competitors
Alternative ‘strategic thrusts’ (options)
Differentiation
Cost
Innovation
Growth
Alliance
Customer Perceived Use Value (PUV) Matrix
From Value Chain to Value Network
A value network (or ecosystem) consists of relatively autonomous units that can be managed independently, but operate together in a framework of common principles
Companies may need to deconstruct around one of three business functions:
Customer relationships, where competitive advantages come from economies of scope, with each customer treated as an individual
Service and content innovation and commercialization, where the focus is on new innovations and on the speed-to-market for new content and services
Infrastructure management, providing network access and mediating capability, where economies of scale provide the advantage
Network Value Analysis (NVA)
Defining the network and its objectives
Identify and define network participants
Define the value each participant perceives from being a network member
Identify and map network influences
Exchange of goods and services
Affective and liking (expressive/emotional)
Information and ideas (cognitive)
Influence and power (prescriptive)
Analyze and shape the network
The Internal Value Chain
Primary activities – those that enable the enterprise to perform its role in the industry value chain, produce its revenue-earning goods or services and satisfy its customers, who see the direct effects of how well those activities are carried out.
Support activities – those which are necessary to enable, control and develop the primary business activities over time and thereby add value indirectly – the value being realized through the success of the primary activities.
The Traditional Value Chain Model
Two types of business activity
Primary activities
Support activities
5 Groups of Activities
Inbound logistics
Operations
Outbound logistics
Sales and marketing
Services
Alternative Internal Value ‘Configuration’ Models
Value Shops
‘Problem-solving’ businesses, delivering value by providing solutions for clients
Characterized by intense and extensive information exchanges
Value Networks
Businesses that provide exchanges or platforms and mediation between buyers and sellers, enabling relationships to be established
Earn revenue from either or both buyers and sellers – ‘everyone's a customer’
The Uses of Value Chain Analysis
The information that flows throughout the industry and how critical that information is to the functioning of the industry and the success of the firms in it
The information that is or could be exchanged with customers and suppliers throughout the chain to improve the performance of the business or lead to mutually improved performance by sharing the benefits
Understanding how effectively the information flows through the primary processes and is used by them to:
Optimize the performance of each activity
Link activities together and avoid unnecessary costs and delays
Enable support activities to contribute to the value-adding processes, not hinder them.