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CHAPTER PREVIEW

Recall from  Chapter 1  that MIS is the development and use of information systems that enable organizations to achieve their strategies. In  Chapter 2 , you learned how information systems can help people collaborate. This chapter focuses on how information systems support competitive strategy and how IS can create competitive advantages. As you will learn in your organizational behavior classes, a body of knowledge exists to help organizations analyze their industry, select a competitive strategy, and develop business processes. In the first part of this chapter, we will survey that knowledge and show how to use it, via several steps, to structure information systems. Then, in the last section, we will discuss how companies use information systems to gain a competitive advantage.

AllRoad Parts provides a good example. Its strategy has been to differentiate itself by having the biggest inventory of adventure-vehicle spare parts, anywhere. It has systems and processes to do that. But, as Drew states, what’s the company’s business strategy if it wants to start manufacturing? And, if it does, the company has a lot of systems and process work ahead of it.

Q1 How Does Organizational Strategy Determine Information Systems Structure?

According to the definition of MIS, information systems exist to help organizations achieve their strategies. As you will learn in your business strategy class, an organization’s goals and objectives are determined by its competitive strategy. Thus, ultimately, competitive strategy determines the structure, features, and functions of every information system.

For a real-life example illustrating the relationship of competitive strategy, business processes, and information systems, go to the PT Sails Videos in  Chapter 3  at  mymislab.com .

Figure 3-1  summarizes this situation. In short, organizations examine the structure of their industry and determine a competitive strategy. That strategy determines value chains, which, in turn, determine business processes. The structure of business processes determines the design of supporting information systems.

Michael Porter, one of the key researchers and thinkers in competitive analysis, developed three different models that can help you understand the elements of  Figure 3-1 . We begin with his five forces model.

Figure 3-1 Organizational Strategy Determines Information Systems

Figure 3-2 Porter’s Five Forces Model of Industry Structure

Source: Based on Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (The Free Press, a Division of Simon & Schuster Adult Publishing Group). Copyright © 1985, 1998 by Michael E. Porter.

Q2 What Five Forces Determine Industry Structure?

Organizational strategy begins with an assessment of the fundamental characteristics and structure of an industry. One model used to assess an industry structure is Porter’s  five forces model , 1  summarized in  Figure 3-2 . According to this model, five competitive forces determine industry profitability: bargaining power of customers, threat of substitutions, bargaining power of suppliers, threat of new entrants, and rivalry among existing firms. The intensity of each of the five forces determines the characteristics of the industry, how profitable it is, and how sustainable that profitability will be.

To understand this model, consider the strong and weak examples for each of the forces in  Figure 3-3 . A good check on your understanding is to see if you can think of different forces of each category in  Figure 3-3 . Also, take a particular industry—say, auto repair—and consider how these five forces determine the competitive landscape of that industry.

Figure 3-3 Examples of Five Forces

1Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980).

Jason is concerned that 3D printing may place AllRoad Parts at a competitive disadvantage.  Figure 3-4  shows the team’s analysis of the new competitive landscape. The larger customers from whom the company receives two-thirds of its revenue (major bike shops, motorcycle dealers, Jeep and other customization shops) will gain considerable force power if they can make parts themselves using 3D printing. The threat of new entrants from existing, local manufacturers is also strong. The other forces are not as worrisome to AllRoad. In most cases, there aren’t any substitute repair parts, and, given the reality of 3D printing, AllRoad Parts’ suppliers are likely to sell 3D designs for repair parts … to protect the sales of their gear. Jason doesn’t think the threat of 3D printing from rivals is as strong because, like AllRoad Parts, they don’t have manufacturing systems, processes, or expertise, either.

Figure 3-4 Five Forces at AllRoad Parts

Like AllRoad Parts, organizations examine these five forces and determine how they intend to respond to them. That examination leads to competitive strategy.

Q3 How Does Analysis of Industry Structure Determine Competitive Strategy?

An organization responds to the structure of its industry by choosing a  competitive strategy . Porter followed his five forces model with the model of four competitive strategies, shown in  Figure 3-5 . 2 According to Porter, firms engage in one of these four strategies. An organization can focus on being the cost leader, or it can focus on differentiating its products or services from those of the competition. Further, the organization can employ the cost or differentiation strategy across an industry, or it can focus its strategy on a particular industry segment.

See the  Ethics Guide  on  pages 86 – 87  to learn how a change in strategy can greatly affect a company’s culture.

Consider the car rental industry, for example. According to the first column of  Figure 3-5 , a car rental company can strive to provide the lowest-cost car rentals across the industry, or it can seek to provide the lowest-cost car rentals to an industry segment—say, U.S. domestic business travelers.

Figure 3-5 Porter’s Four Competitive Strategies

2Based on Michael Porter, Competitive Strategy (New York: Free Press, 1985).

Ethics Guide: YIKES! BIKES

Suppose you are an operations manager for Yikes! Bikes, an AllRoad Parts customer that manufactures high-end mountain bicycles. Yikes! has been in business more than 25 years and has an annual revenue of $35 million. The founder and sole owner recently sold the business to an investment group, Major Capital. You know nothing about the sale until your boss introduces you to Andrea Parks, a partner at Major Capital, who is in charge of the acquisition. Parks explains to you that Yikes! has been sold to Major Capital and that she will be the temporary general manager. She explains that the new owners see great potential in you, and they want to enlist your cooperation during the transition. She hints that if your potential is what she thinks it is, you will be made general manager of Yikes!

Parks explains that the new owners decided there are too many players in the high-end mountain bike business, and they plan to change the competitive strategy of Yikes! from high-end differentiation to lowest-cost vendor. Accordingly, they will eliminate local manufacturing, fire most of the manufacturing department, and import bikes from China. Further, Major Capital sees a need to reduce expenses and plans a 10 percent across-the-board staff reduction and a cut of two-thirds of the customer support department. The new bikes will be of lesser quality than current Yikes! bikes, but the price will be substantially less. The new ownership group believes it will take a few years for the market to realize that Yikes! bikes are not the same quality as they were. Finally, Parks asks you to attend an all-employee meeting with the founder and her.

At the meeting, the founder explains that, due to his age and personal situation, he decided to sell Yikes! to Major Capital and that starting today Andrea Parks is the general manager. He thanks the employees for their many years of service, wishes them well, and leaves the building. Parks introduces herself to the employees and states that Major Capital is very excited to own such a great company with a strong, quality brand. She says she will take a few weeks to orient herself to the business and its environment and plans no major changes to the company.

You are reeling from all this news when Parks calls you into her office and explains that she needs you to prepare two reports. In one, she wants a list of all the employees in the manufacturing department, sorted by their salary (or wage for hourly employees). She explains that she intends to cut the most costly employees first. “I don’t want to be inflexible about this, though,” she says. “If there is someone whom you think we should keep, let me know, and we can talk about it.”

She also wants a list of the employees in the customer support department, sorted by the average amount of time each support rep spends with customers. She explains, “I’m not so concerned with payroll expense in customer support. It’s not how much we’re paying someone, it’s how much time they’re wasting with customers. We’re going to have a bare-bones support department, and we want to get rid of the gabby chatters first.”

You are, understandably, shocked and surprised … not only at the speed with which the transition has occurred, but also because you wouldn’t think the founder would do this to the employees. You call him at home and tell him what is going on.

“Look,” he explains, “when I sold the company, I asked them to be sure to take care of the employees. They said they would. I’ll call Andrea, but there’s really nothing I can do at this point; they own the show.”

In a black mood of depression, you realize you don’t want to work for Yikes! anymore, but your wife is 6 months pregnant with your first child. You need medical insurance for her at least until the baby is born. But what miserable tasks are you going to be asked to do before then? And you suspect that if you balk at any task, Parks won’t hesitate to fire you, too.

As you leave that night, you run into Lori, the most popular customer support representative and one of your favorite employees. “Hey,” Lori asks you, “what did you think of that meeting? Do you believe Andrea? Do you think they’ll let us continue to make great bikes?”

As shown in the second column, a car rental company can seek to differentiate its products from the competition. It can do so in various ways—for example, by providing a wide range of high-quality cars, by providing the best reservation system, by having the cleanest cars or the fastest check-in, or by some other means. The company can strive to provide product differentiation across the industry or within particular segments of the industry, such as U.S. domestic business travelers.

According to Porter, to be effective, the organization’s goals, objectives, culture, and activities must be consistent with the organization’s strategy. To those in the MIS field, this means that all information systems in the organization must reflect and facilitate the organization’s competitive strategy.

AllRoad Parts has chosen the differentiation strategy of having the largest inventory of spare parts for the off-road cycling, dirt bike, and off-road vehicle markets. This strategy is threatened by 3D printing, which is why the company is investigating it.

Q4 How Does Competitive Strategy Determine Value Chain Structure?

Organizations analyze the structure of their industry, and, using that analysis, they formulate a competitive strategy. They then need to organize and structure the organization to implement that strategy. If, for example, the competitive strategy is to be cost leader, then business activities need to be developed to provide essential functions at the lowest possible cost.

A business that selects a differentiation strategy would not necessarily structure itself around least-cost activities. Instead, such a business might choose to develop more costly processes, but it would do so only if those processes provided benefits that outweighed their costs. Jason at AllRoad Parts knows his large inventory is expensive, and he judges the extra costs worthwhile. He may judge 3D printing to be worthwhile, too.

Porter defined  value  as the amount of money that a customer is willing to pay for a resource, product, or service. The difference between the value that an activity generates and the cost of the activity is called the  margin . A business with a differentiation strategy will add cost to an activity only as long as the activity has a positive margin.

A  value chain  is a network of value-creating activities. That generic chain consists of five  primary activities  and four  support activities .

Primary Activities in the Value Chain

To understand the essence of the value chain, consider one of AllRoad Parts’ suppliers, a small manufacturer—say, a bicycle maker (see  Figure 3-6 ). First, the manufacturer acquires raw materials using the inbound logistics activity. This activity concerns the receiving and handling of raw materials and other inputs. The accumulation of those materials adds value in the sense that even a pile of unassembled parts is worth something to some customer. A collection of the parts needed to build a bicycle is worth more than an empty space on a shelf. The value is not only the parts themselves, but also the time required to contact vendors for those parts, to maintain business relationships with those vendors, to order the parts, to receive the shipment, and so forth.

In the operations activity, the bicycle maker transforms raw materials into a finished bicycle, a process that adds more value. Next, the company uses the outbound logistics activity to deliver the finished bicycle to a customer. Of course, there is no customer to send the bicycle to without the marketing and sales value activity. Finally, the service activity provides customer support to the bicycle users.

Figure 3-6 Bicycle Manufacturer’s Value Chain

Each stage of this generic chain accumulates costs and adds value to the product. The net result is the total margin of the chain, which is the difference between the total value added and the total costs incurred.  Figure 3-7  summarizes the primary activities of the value chain.

Support Activities in the Value Chain

The support activities in the generic value chain contribute indirectly to the production, sale, and service of the product. They include procurement, which consists of the processes of finding vendors, setting up contractual arrangements, and negotiating prices. (This differs from inbound logistics, which is concerned with ordering and receiving in accordance with agreements set up by procurement.)

Figure 3-7 Task Descriptions for Primary Activities of the Value Chain

Source: Based on Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (The Free Press, a Division of Simon & Schuster Adult Publishing Group). Copyright © 1985, 1998 by Michael E. Porter.

Porter defined technology broadly. It includes research and development, but it also includes other activities within the firm for developing new techniques, methods, and procedures. He defined human resources as recruiting, compensation, evaluation, and training of full-time and part-time employees. Finally, firm infrastructure includes general management, finance, accounting, legal, and government affairs.

Supporting functions add value, albeit indirectly, and they also have costs. Hence, as shown in  Figure 3-6 , supporting activities contribute to a margin. In the case of supporting activities, it would be difficult to calculate the margin because the specific value added of, say, the manufacturer’s lobbyists in Washington, D.C., is difficult to know. But there is a value added, there are costs, and there is a margin, even if it is only in concept.

Value Chain Linkages

Porter’s model of business activities includes  linkages , which are interactions across value activities. For example, manufacturing systems use linkages to reduce inventory costs. Such a system uses sales forecasts to plan production; it then uses the production plan to determine raw material needs and then uses the material needs to schedule purchases. The end result is just-in-time inventory, which reduces inventory sizes and costs.

By describing value chains and their linkages, Porter started a movement to create integrated, cross-departmental business systems. Over time, Porter’s work led to the creation of a new discipline called business process design. The central idea is that organizations should not automate or improve existing functional systems. Rather, they should create new, more efficient business processes that integrate the activities of all departments involved in a value chain. You will see an example of a linkage in the next section.

Value chain analysis has a direct application to manufacturing businesses like the bicycle manufacturer. However, value chains also exist in service-oriented companies such as medical clinics. The difference is that most of the value in a service company is generated by the operations, marketing and sales, and service activities. Inbound and outbound logistics are not typically as important.

Q5 How Do Business Processes Generate Value?

A  business process  is a network of activities that generate value by transforming inputs into outputs. The  cost  of the business process is the cost of the inputs plus the cost of the activities. The margin of the business process is the value of the outputs minus the cost.

A business process is a network of activities. Each  activity  is a business function that receives inputs and produces outputs. An activity can be performed by a human, by a computer system, or by both. The inputs and outputs can be physical, like bicycle parts, or they can be data, such as a purchase order. A  repository  is a collection of something; a database is a repository of data and a raw material repository is an inventory of raw materials. We will refine and extend these definitions in  Chapter 7  and again in  Chapter 10 , but these basic terms will get us started.

Consider the three business processes for a bicycle manufacturer shown in  Figure 3-8 . The materials ordering process transforms cash 3  into a raw materials inventory. The manufacturing process transforms raw materials into finished goods. The sales process transforms finished goods into cash. Notice that the business processes span the value chain activities. The sales process involves sales and marketing as well as outbound logistics activities, as you would expect. Note, too, that while none of these three processes involve a customer-service activity, customer service plays a role in other business processes.

3For simplicity, the flow of cash is abbreviated in  Figure 3-8 . Business processes for authorizing, controlling, making payments, and receiving revenue are, of course, vital.

Figure 3-8 Three Examples of Business Processes

Also notice that activities get and put data resources from and to databases. For example, the purchase-bicycle-parts activity queries the raw materials database to determine the materials to order. The receiving activity updates the raw materials database to indicate the arrival of materials. The make-bicycle activity updates the raw materials database to indicate the consumption of materials. Similar actions are taken in the sales process against the finished goods database.

Business processes vary in cost and effectiveness. In fact, the streamlining of business processes to increase margin (add value, reduce costs, or both) is key to competitive advantage. You will learn about process design when we discuss  business process management  in  Chapter 10 . To get a flavor of process design, however, consider  Figure 3-9 , which shows an alternate process for the bicycle manufacturer. Here the purchase-bicycle-parts activity not only queries the raw materials inventory database, it also queries the finished goods inventory database. Querying both databases allows the purchasing department to make decisions not just on raw materials quantities, but also on customer demand. By using this data, purchasing can reduce the size of raw materials inventory, reducing production costs and thus adding margin to the value chain. This is an example of using a linkage across business processes to improve process margin.

As you will learn, however, changing business processes is not easy to do. Most process design requires people to work in new ways and to follow different procedures, and employees often resist such change. In  Figure 3-9 , the employees who perform the purchase-bicycle-parts activity need to learn to adjust their ordering processes to use customer purchase patterns. Another complication is that data stored in the finished goods database likely will need to be redesigned to keep track of customer demand data. As you will learn in  Chapter 10 , that redesign effort will require that some application programs be changed as well.

Figure 3-9 Improved Material Ordering Process

Q6 How Does Competitive Strategy Determine Business Processes and the Structure of Information Systems?

Figure 3-10  shows a business process for renting bicycles. The value-generating activities are shown in the top of the table, and the implementation of those activities for two companies with different competitive strategies is shown in the rows below.

The first company has chosen a competitive strategy of low-cost rentals to students. Accordingly, this business implements business processes to minimize costs. The second company has chosen a differentiation strategy. It provides “best-of-breed” rentals to executives at a high-end conference resort. Notice that this business has designed its business processes to ensure superb service. To achieve a positive margin, it must ensure that the value added will exceed the costs of providing the service.

Now, consider the information systems required for these business processes. The student rental business uses a shoebox for its data facility. The only computer/software/data component in its business is the machine provided by its bank for processing credit card transactions.

The high-service business, however, makes extensive use of information systems, as shown in  Figure 3-11 . It has a sales tracking database that tracks past customer rental activity and an inventory database that is used to select and up-sell bicycle rentals as well as to control bicycle inventory with a minimum of fuss to its high-end customers.

Figure 3-10 Operations Value Chains for Bicycle Rental Companies

Figure 3-11 Business Process and Information Systems for High-Service Bike Rental

A GROUP EXERCISE Using MIS InClass 3: Competitive Strategy Over the Web

As shown in  Figure 3-1 , information systems’ requirements are a logical consequence of an organization’s analysis of industry structure via the chain of models. Consequently, you should be able to combine your knowledge of an organization’s market, together with observations of the structure and content of its Web storefront, to infer the organization’s competitive strategy and possibly make inferences about its value chains and business processes. The process you use here can be useful in preparing for job interviews as well.

Form a three-person team (or as directed by your professor) and perform the following exercises. Divide work as appropriate, but create common answers for the team.

· 1. The following pairs of Web storefronts have market segments that overlap in some way. Briefly visit each site of each pair:

· •  www.sportsauthority.com  vs.  www.soccer.com

· •  www.target.com  vs.  www.sephora.com

· •  www.woot.com  vs.  www.amazon.com

· •  www.petco.com  vs.  www.wag.com

· •  www.llbean.com  vs.  www.rei.com

· 2. Select two pairs from the list. For each pair of companies, answer the following questions:

· a. How do the companies’ market segments differ?

· b. How do their competitive pressures differ?

· c. How do their competitive strategies differ?

· d. How is the “feel” of the content of their Web sites different?

· e. How is the “feel” of the user interface of their Web sites different?

· f. How could either company change its Web site to better accomplish its competitive strategy?

· g. Would the change you recommended in item f necessitate a change in one or more of the company’s value chains? Explain.

· 3. Use your answers in step 2 to explain the following statement: “The structure of an organization’s information system (here a Web storefront) is determined by its competitive strategy.” Write your answer so that you could use it in a job interview to demonstrate your overall knowledge of business planning.

· 4. Present your team’s answers to the rest of the class.

So the bottom line is this: Organizations analyze their industry and choose a competitive strategy. Given that strategy, they design business processes that span value-generating activities. Those processes determine the scope and requirements of each organization’s information systems. Given this background, we will now examine how information systems generate a competitive advantage.

Q7 How Do Information Systems Provide Competitive Advantages?

In your business strategy class, you will study the Porter models in greater detail than we have discussed here. When you do so, you will learn numerous ways that organizations respond to the five competitive forces. For our purposes, we can distill those ways into the list of principles shown in  Figure 3-12 . Keep in mind that we are applying these principles in the context of the organization’s competitive strategy.

You can also apply these principles to your personal competitive advantage, as discussed in the  Guide  on  pages 102 – 103 .

Some of these competitive techniques are created via products and services, and some are created via the development of business processes. Consider each.

Competitive Advantage via Products

The first three principles in  Figure 3-12  concern products or services. Organizations gain a competitive advantage by creating new products or services, by enhancing existing products or services, and by differentiating their products and services from those of their competitors.

Information systems create competitive advantages either as part of a product or by providing support to a product. Consider, for example, a car rental agency like Hertz or Avis. An information system that produces information about the car’s location and provides driving instructions to destinations is part of the car rental, and thus is part of the product itself (see  Figure 3-13a ). In contrast, an information system that schedules car maintenance is not part of the product, but instead supports the product (see  Figure 3-13b ). Either way, information systems can help achieve the first three principles in  Figure 3-12 .

The remaining five principles in  Figure 3-12  concern competitive advantage created by the implementation of business processes.

Competitive Advantage via Business Processes

Organizations can lock in customers by making it difficult or expensive for customers to switch to another product. This strategy is sometimes called establishing high  switching costs . Organizations can lock in suppliers by making it difficult to switch to another organization, or, stated positively, by making it easy to connect to and work with the organization. Finally, competitive advantage can be gained by creating entry barriers that make it difficult and expensive for new competition to enter the market.

Another means to gain competitive advantage is to establish alliances with other organizations. Such alliances establish standards, promote product awareness and needs, develop market size, reduce purchasing costs, and provide other benefits. Finally, organizations can gain competitive advantage by reducing costs. Such reductions enable the organization to reduce prices and/or to increase profitability. Increased profitability means not just greater shareholder value, but also more cash, which can fund further infrastructure development for even greater competitive advantage.

One advantage a company can create is ensuring that it has the proper security procedures in place. For more information on security, see the  Security Guide  on  pages 100 – 101 .

All of these principles of competitive advantage make sense, but the question you may be asking is, “How do information systems help to create competitive advantage?” To answer that question, consider a sample information system.

Figure 3-12 Principles of Competitive Advantage

Figure 3-13 Two Roles for Information Systems Regarding Products

How Does an Actual Company Use IS to Create Competitive Advantages?

ABC, Inc., 4  is a worldwide shipper with sales well in excess of $1 billion. From its inception, ABC invested heavily in information technology and led the shipping industry in the application of information systems for competitive advantage. Here we consider one example of an information system that illustrates how ABC successfully uses information technology to gain competitive advantage.

ABC maintains customer account data that include not only the customer’s name, address, and billing information, but also data about the people, organizations, and locations to which the customer ships.  Figure 3-14  shows a Web form that an ABC customer is using to schedule a shipment. When the ABC system creates the form, it fills the Company name drop-down list with the names of companies that the customer has shipped to in the past. Here the user is selecting Pearson Education.

When the user clicks the Company name, the underlying ABC information system reads the customer’s contact data from a database. The data consist of names, addresses, and phone numbers of recipients from past shipments. The user then selects a Contact name, and the system inserts that contact’s address and other data into the form using data from the database, as shown in  Figure 3-15 . Thus, the system saves customers from having to reenter data for people to whom they have shipped in the past. Providing the data in this way also reduces data-entry errors.

Figure 3-16  ( page 98 ) shows another feature of this system. On the right-hand side of this form, the customer can request that ABC send email messages to the sender (the customer), the recipient, and others as well. The customer can choose for ABC to send an email when the shipment is created and when it has been delivered. In  Figure 3-16 , the user has provided three email addresses. The customer wants all three addresses to receive delivery notification, but only the sender will receive shipment notification. The customer can add a personal message as well. By adding this capability to the shipment scheduling system, ABC has extended its product from a package-delivery service to a package- and information-delivery service.

4The information system described here is used by a major transportation company that did not want its name published in this textbook.

Figure 3-14 ABC, Inc., Web Page to Select a Recipient from the Customer’s Records

Figure 3-17  shows one other capability of this information system. It has generated a shipping label, complete with bar code, for the user to print. By doing this, the company not only reduces errors in the preparation of shipping labels, but it also causes the customer to provide the paper and ink for document printing! Millions of such documents are printed every day, resulting in a considerable savings to the company.

How Does This System Create a Competitive Advantage?

Now consider the ABC shipping information system in light of the competitive advantage factors in  Figure 3-12 . This information system enhances an existing service because it eases the effort of creating a shipment to the customer while reducing errors. The information system also helps to differentiate the ABC package delivery service from competitors that do not have a similar system. Further, the generation of email messages when ABC picks up and delivers a package could be considered to be a new service.

Figure 3-15 ABC, Inc., Web Page to Select a Contact from the Customer’s Records

Because this information system captures and stores data about recipients, it reduces the amount of customer work when scheduling a shipment. Customers will be locked in by this system: If a customer wants to change to a different shipper, he or she will need to rekey recipient data for that new shipper. The disadvantage of rekeying data may well outweigh any advantage of switching to another shipper.

Figure 3-16 ABC, Inc., Web Page to Specify Email Notification

This system achieves a competitive advantage in two other ways as well. First, it raises the barriers to market entry. If another company wants to develop a shipping service, it will not only have to be able to ship packages, but it will also need to have a similar information system. In addition, the system reduces costs. It reduces errors in shipping documents, and it saves ABC paper, ink, and printing costs.

Figure 3-17 ABC, Inc., Web Page to Print a Shipping Label

Of course, to determine if this system delivers a net savings in costs, the cost of developing and operating the information system will need to be offset against the gains in reduced errors and paper, ink, and printing costs. It may be that the system costs more than the savings. Even still, it may be a sound investment if the value of intangible benefits, such as locking in customers and raising entry barriers, exceeds the net cost.

Before continuing, review  Figure 3-12 . Make sure that you understand each of the principles of competitive advantage and how information systems can help achieve them. In fact, the list in  Figure 3-12  probably is important enough to memorize, because you can also use it for non-IS applications. You can consider any business project or initiative in light of competitive advantage.

Q8 2024? Models of business strategy, competitive advantages, and their relationship to processes and IS are unlikely to change in the next 10 years. They may evolve, there may be some new models that rise to the surface, but those new models are likely to be extensions of existing models, within the existing paradigms.

What is likely to change, however, is pace. Because of the Internet and related technology, the speed of business is accelerating. The Web, Twitter, Facebook, and other social sites enable the rapid spread of new ideas and innovations and require businesses to be constantly on the alert for changes that may affect their strategy in short periods of time.

AllRoad Parts is an excellent example. It has had a successful, growing business supplying parts for adventure equipment for some time. But 3D printing arises, and now, as discussed in  Figure 3-4 , it’s possible that some customers can manufacture some parts for themselves. Even more worrisome, some small manufacturers, local to AllRoad Parts’ customers, may also begin to manufacture spare parts as well. Both of these possibilities threaten AllRoad Parts’ differentiation strategy of having the largest parts inventory.

Many similar stories will occur in the next 10 years. How fast will Google Glass and copycat products be adopted? We don’t know, but if they’re as quickly adopted as, say, the iPhone or iPad, it will be fast. Businesses that depend on digital cameras, whether in phones or in other devices, need to attend to these new products. Like AllRoad Parts, they, too, need to evaluate and adapt their competitive strategies. Further, what opportunities will all that new, automatically generated image data create? What new businesses or business models become possible? We don’t know, but we do know that opportunities will abound.

So, we can reasonably assume that the pace of change and the pace of integration of new technology will be fast and increasing, possibly accelerating, in the next 10 years. We can lament this fact; we can ignore it, but doing so is like standing on the shore of the Mississippi, telling it to flow elsewhere.

Instead, we, and especially you, need to view this increased pace as rapidly creating opportunities in which you can excel. You know it’s coming; you know that, if not Google Glass, then Google Car, or Amazon TV, or some product that is today being constructed in someone’s garage, maybe with 3D printing, some new technology-based products will change the competitive landscape for the company for which you will work. Knowing that, how can you take advantage of it?

When gold was discovered along the Colorado River in Arizona in the 1850s, thousands of pioneers ran to the mine fields. The odds were slim on success, and only a few struck it rich. A much surer bet was made by those who started the clothing and supply stores, or the railroads that moved the raw ore to the smelter, or the steamships that carried goods up the Colorado from the Sea of Cortez.

Maybe you want to be a modern-day prospector and use technology to create new products like 3D printing. If so, do it. But, maybe, like AllRoad Parts, you want to attend to the innovative products that others are making and create new strategies or build new businesses that take advantage of the opportunities that new products create. You can be certain that, 10 years from now, you will have even more opportunity to do so.

Security Guide: DIFFERENTIATING ON SECURITY

Information systems and nearly free data storage and data communications have created new, valuable targets for crime. Before data was centralized in computers, data theft had limited scope. When criminals target credit card data in desk drawers in homes, a thief can steal the data for perhaps eight credit cards per day. And those thefts involve considerable physical risk. But a computer criminal can break into an organization’s database that holds data on millions of credit cards. Those millions of records can be downloaded to a computer in Africa and sold for $10 each from an Internet site in Uzbekistan to computer gamers in the United States, all within 24 hours. Or, even more graphically, a mugger waiting on a street corner can rob only a single person in a few hours; a computer criminal waiting on an Internet router ( Chapter 6 ) can mug millions of people in those same few hours.

For some, such computer crime is just a problem, but others find a way to turn that problem into an opportunity to gain a competitive advantage. Namely, professionals and organizations that take steps to protect themselves and their organizations from such threats gain an advantage over those that do not. That sounds brutal, and perhaps it is, but it is also today’s reality.

Consider yourself as an example. Suppose you send your Social Security number in an email. Unless your email system is secure, and very few are, that Social Security number is vulnerable to an electronic mugger. Suppose your Social Security number is compromised, and someone gains control over your identity. Soon criminals have piled up a mountain of debt on your accounts, and your credit rating plummets. Your credit cards are useless, and you can’t obtain replacements. With considerable work, agony, and expense, you will be able to undo most of this damage, eventually. But the near-term impact on your time and reputation is severe.

Now, compare your situation to that of one of your coworkers who learned not to send sensitive data in email. You are spending hours solving your credit problem while she is learning new skills, networking with other professionals, accomplishing extra projects at work, and so forth. Thus, knowledge of security and controls gives your coworkers a substantial competitive advantage over you.

Take this line of thought to the organizational level. Organizations that create strong security programs have a competitive advantage over those that do not. In fact, some organizations go even further to make security a differentiator of their product or service. A portion of that organization’s added value is strong security.

No organization, of course, is going to claim publicly, “We’ve never suffered a data loss due to a computer virus.” That statement is unlikely to be true, and if it were, making it would serve as a juicy invitation to every hacker in the world to attempt a break-in. But an organization can develop industry-leading security policies and procedures and use those policies and standards to support a competitive strategy of differentiation.

Consider Teleperformance, a multinational $3 billion company that provides call desk support as a service. Teleperformance employs 130,000 people in 250 data centers in 49 countries who perform customer service, technical support, telesales, and similar call desk support to their customers on a contract basis. If you visit  www.teleperformance.com , you’ll see a menu item labeled Business Model Differentiators. Click on that item and you’ll see Security listed as one of their key differentiators. Click on Security and you’ll see the certifications that Teleperformance earned for its controls and other security safeguards as well as specific measures that it takes to control fraud. Clearly, Teleperformance makes security a key part of their service offerings.

According to the value chain model, organizations add costs to activities as long as those additions generate value greater than their cost. An organization that chooses to differentiate on security will add security features as long as that improved security adds value greater than its cost. Viewed in this light, security is not just an overhead expense; it becomes a key part of the product or service. Consider viewing security the same way for yourself and make it a key part of your professional product.

 Guide: YOUR PERSONAL COMPETITIVE ADVANTAGE

Consider the following possibility: You work hard, earning your degree in business, and you graduate, only to discover that you cannot find a job in your area of study. You look for 6 weeks or so, but then you run out of money. In desperation, you take a job waiting tables at a local restaurant. Two years go by, the economy picks up, and the jobs you had been looking for become available. Unfortunately, your degree is now 2 years old; you are competing with students who have just graduated with fresh degrees (and fresh knowledge). Two years of waiting tables, good as you are at it, does not appear to be good experience for the job you want. You’re stuck in a nightmare—one that will be hard to get out of, and one that you cannot allow to happen.

Examine  Figure 3-12  again, but this time consider those elements of competitive advantage as they apply to you personally. As an employee, the skills and abilities you offer are your personal product. Examine the first three items in the list and ask yourself, “How can I use my time in school—and in this MIS class, in particular—to create new skills, to enhance those I already have, and to differentiate my skills from the competition?” (By the way, you will enter a national/international market. Your competition is not just the students in your class; it’s also students in classes in Ohio, California, British Columbia, Florida, New York, and every place else they’re teaching MIS today.)

Suppose you are interested in professional sales. Perhaps you want to sell in the pharmaceutical industry. What skills can you learn from your MIS class that will make you more competitive as a future salesperson? Ask yourself, “How does the pharmaceutical industry use MIS to gain competitive advantage?” Get on the Internet and find examples of the use of information systems in the pharmaceutical industry. How does Pfizer, for example, use a customer information system to sell to doctors? How can your knowledge of such systems differentiate you from your competition for a job there? How does Pfizer use a knowledge management system? How does the firm keep track of drugs that have an adverse effect on each other?

The fourth and fifth items in  Figure 3-12  concern locking in customers, buyers, and suppliers. How can you interpret those elements in terms of your personal competitive advantage? Well, to lock in a relationship, you first have to have one. So do you have an internship? If not, can you get one? And once you have an internship, how can you use your knowledge of MIS to lock in your job so that you get a job offer? Does the company you are interning for have a sales tracking system (or any other information system that is important to the company)? If users are happy with the system, what characteristics make it worthwhile? Can you lock in a job by becoming an expert user of this system? Becoming an expert user not only locks you into your job, but it also raises barriers to entry for others who might be competing for the job. Also, can you suggest ways to improve the system, thus using your knowledge of the company and the system to lock in an extension of your job?

Human resources personnel say that networking is one of the most effective ways of finding a job. How can you use this class to establish alliances with other students? Is there an email list server for the students in your class? What about Facebook? LinkedIn? Twitter? How can you use those facilities to develop job-seeking alliances with other students? Who in your class already has a job or an internship? Can any of those people provide hints or opportunities for finding a job?

Don’t restrict your job search to your local area. Are there regions of your country where jobs are more plentiful? How can you find out about student organizations in those regions? Search the Web for MIS classes in other cities, and make contact with students there. Find out what the hot opportunities are in other cities.

Finally, as you study MIS, think about how the knowledge you gain can help you save costs for your employers. Even more, see if you can build a case that an employer would actually save money by hiring you. The line of reasoning might be that because of your knowledge of IS you will be able to facilitate cost savings that more than compensate for your salary.

In truth, few of the ideas that you generate for a potential employer will be feasible or pragmatically useful. The fact that you are thinking creatively, however, will indicate to a potential employer that you have initiative and are grappling with the problems that real businesses have. As this course progresses, keep thinking about competitive advantage, and strive to understand how the topics you study can help you to accomplish, personally, one or more of the principles in  Figure 3-12 .

 

ACTIVE REVIEW

Use this Active Review to verify that you understand the ideas and concepts that answer the chapter’s study questions.

Q1 How does organizational strategy determine information systems structure?

Diagram and explain the relationship of industry structure, competitive strategy, value chains, business processes, and information systems. Working from industry structure to IS, explain how the knowledge you’ve gained in these first three chapters pertains to that diagram.

Q2 What five forces determine industry structure?

Name and briefly describe the five forces. Give your own examples of both strong and weak forces of each type, similar to those in  Figure 3-3 .

Q3 How does analysis of industry structure determine competitive strategy?

Describe four different strategies as defined by Porter. Give an example of four different companies that have implemented each of the strategies.

Q4 How does competitive strategy determine value chain structure?

Define the terms value, margin, and value chain. Explain why organizations that choose a differentiation strategy can use value to determine a limit on the amount of extra cost to pay for differentiation. Name the primary and support activities in the value chain and explain the purpose of each. Explain the concept of linkages.

Q5 How do business processes generate value?

Define business process, cost, and margin as they pertain to business processes. Explain the purpose of an activity and describe types of repository. Explain the importance of business process redesign and describe the difference between the business processes in  Figure 3-8  and those in  Figure 3-9 .

Q6 How does competitive strategy determine business processes and the structure of information systems?

In your own words, explain how competitive strategy determines the structure of business processes. Use the examples of a clothing store that caters to struggling students and a clothing store that caters to professional businesspeople in a high-end neighborhood. List the activities in the business process for the two companies and create a chart like that in  Figure 3-9 . Explain how the information systems’ requirements differ between the two stores.

Q7 How do information systems provide competitive advantages?

List and briefly describe eight principles of competitive advantage. Consider your college bookstore. List one application of each of the eight principles. Strive to include examples that involve information systems.

Q8 2024?

Describe the ways that business strategies are likely to change in the next 10 years. Using Google Glass as an example, describe companies whose strategy is likely to be challenged. Summarize the lesson that gold mining on the Colorado River in the 1850s can teach us.

Using Your Knowledge with Allroad Parts

Explain in your own words how AllRoad Parts’ competitive strategy is threatened by 3D printing. Describe AllRoad Parts’ planned response and summarize the problems that Drew perceives with that response. Recommend a course of action for AllRoad Parts. Use the example of Drew’s idea for using vendor cost data as part of vendor selection to illustrate your answer.