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Essentials of Management Information Systems

Thirteenth Edition

Chapter 3

Achieving Competitive Advantage with Information Systems

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Learning Objectives

3.1 How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network-based strategies help companies use information systems for competitive advantage?

3.2 How do information systems help businesses compete globally?

3.3 How do information systems help businesses compete using quality and design?

3.4 What is the role of business process management (B P M) in enhancing competitiveness?

3.5 How will M I S help my career?

Porter’s Competitive Forces Model

Five competitive forces shape fate of firm

Traditional competitors

New market entrants

Substitute products and services

Customers

Suppliers

Figure 3.1 Porter’s Competitive Forces Model

Figure 3.1, Page 81.

In Porter’s competitive forces model, the strategic position of the firm and its strategies are determined not only by competition with its traditional direct competitors but also by four forces in the industry’s environment: new market entrants, substitute products, customers, and suppliers.

A good way to teach this model is to take a specific industry and ask students to fill in the boxes in the model (starting with the environmental boxes). Any industry can be analyzed: automobiles, PC computers, smartphones, and so on.

Information System Strategies for Dealing with Competitive Forces (1 of 5)

Basic strategy: Align I T with business objectives

Identify business goals and strategies

Break strategic goals into concrete activities and processes

Identify metrics for measuring progress

Determine how I T can help achieve business goals

Measure actual performance

Information System Strategies for Dealing with Competitive Forces (2 of 5)

Low-cost leadership

Use information systems to achieve the lowest operational costs and the lowest prices

E.g. Walmart

Inventory replace systems sends orders to suppliers when purchase recorded at cash register

Minimizes inventory at warehouses, operating costs

Efficient customer response system

Information System Strategies for Dealing with Competitive Forces (3 of 5)

Product differentiation

Use information systems to enable new products and services, or greatly change the customer convenience in using your existing products and services

E.g., Carriage, Apple's i Phone, Rove

Use information systems to customize, personalize products to fit specifications of individual consumers

E.g., Nike's NIKE i D program for customized sneakers, Pinterest, Net a porter.

Information System Strategies for Dealing with Competitive Forces (4 of 5)

Focus on market niche

Use information systems to enable specific market focus, and serve narrow target market better than competitors.

Analyzes customer buying habits, preferences

Advertising pitches to smaller and smaller target markets

E.g., Booking, Sephora, Tatayab

Analyzes data collected on guests to determine preferences and guest's profitability

Information System Strategies for Dealing with Competitive Forces (5 of 5)

Strengthen customer and supplier intimacy.

Strong linkages to customers and suppliers increase switching costs and loyalty

Toyota: uses I S to facilitate direct access from suppliers to production schedules

Permits suppliers to decide how and when to ship supplies to plants, allowing more lead time in producing goods.

Amazon: keeps track of user preferences for purchases, and recommends titles purchased by others

The Internet’s Impact on Competitive Advantage

Enables new products and services

Encourages substitute products

Lowers barrier to entry

Changes balance of power of customers and suppliers

Transforms some industries

Creates new opportunities for creating new markets, building brands, and large customer bases

Smart products and the Internet of Things

The Business Value Chain Model

Highlights specific activities in a business where competitive strategies can best be applied and where information systems are likely to have a strategic impact.

Primary activities

Support activities

Benchmarking

Best practices

Figure 3.2 The Value Chain Model

Figure 3.2, Page 89.

This figure provides examples of systems for both primary and support activities of a firm and of its value partners that would add a margin of value to a firm’s products or services.

The Value Web

A firm’s value chain is linked to the value chains of its suppliers, distributors, and customers.

Value web

Collection of independent firms that use information technology to coordinate their value chains to produce a product collectively.

Value webs are flexible and adapt to changes in supply and demand.

The phenomenon where several firms cooperate with one another in order to put together for the customer a single product or service goes by many names. At times it has been referred to as the extended firm, the virtual firm, the contract firm, and so on. To a large extent, business firms have always been dependent on their suppliers, logistics partners (trucking and railroads), and distributors including retailers. But in the Internet age, this kind of dependence and coordination takes place much more broadly and continuously. A small Internet company often works with a design firm thousands of miles away, a software firm on a different continent, and sells its products using Google's Ad Word program. The customer receives a single product or service which was co-produced by many firms working together closely.

Figure 3.3 The Value Web

Figure 3.3, Page 91.

The value web is a networked system that can synchronize the value chains of business partners within an industry to respond rapidly to changes in supply and demand.

Synergies, Core Competencies, and Network-Based Strategies

Information systems improve performance of business units by promoting

Communication

Synergies

Core competencies

Synergies

When output of some units can be used as inputs to other units

When two firms can pool markets and expertise (e.g., recent bank mergers)

Lower costs and generate profits

Enabled by information systems that ties together disparate units so they act as whole

Core Competency

Activities for which firm is world-class leader

E.g., world’s best miniature parts designer, best package delivery service, etc

Relies on knowledge gained over years of experience as well as knowledge research

Any information system that encourages the sharing of knowledge across business units enhances competency

E.g., Procter & Gamble uses intranet to help people working on similar problems share ideas and expertise.

The Internet and Globalization

Prior to the Internet, competing globally was only an option for huge firms able to afford factories, warehouses, and distribution centers abroad.

The Internet drastically reduces costs of operating globally.

Globalization benefits

Scale economies and resource cost reduction

Higher utilization rates, fixed capital costs, and lower cost per unit of production

Speeding time to market

Figure 3.4 Apple i Phone’s Global Supply Chain

Figure 3.4, Page 94.

Apple designs the iPhone in the United States and relies on suppliers in the United States, Germany, Italy, France, and South Korea for parts. Final assembly occurs in China.

Most of the electronic products we use today are “global” in the sense that their design, production, and distribution take place across nearly all continents. Even automobiles increasingly are global collections of parts and sub-assemblies.

Global Business and System Strategies

Domestic exporters

Multinationals

Franchisers

Transnationals

There are a lot of ways to set up a global information system. Much depends on the type of company. Most companies today have large data centers spread around the world to handle their information needs on a regional basis. Some are more centralized than others. Generally, the trend was to allow regions considerable autonomy, but this strategy backfired as firms sought the efficiencies of a single global product, service, and database. Today the trend is towards centralized global systems for financial results, and supply chain coordination, and local/regional systems for customer-facing activities.

What is Quality?

Producer perspective

Conformance to specifications and absence of variation from specs

Customer perspective

Physical quality (reliability), quality of service, psychological quality

Total quality management (T Q M)

Quality control is end in itself

All people, functions responsible for quality

How Information Systems Improve Quality

Reduce cycle time and simplify production

Benchmark

Use customer demands to improve products and services

Improve design quality and precision

Computer-aided design (C A D) systems

Improve production precision and tighten production tolerances

This slide lists some of the more common ways IS has played a central role in the quality movement.

What is Business Process Management (B P M)?

Technology alone is often not enough to improve business

Organizational changes often necessary

Minor changes in work habits

Redesigning entire business processes

Aims to continuously improve processes

Uses variety of tools and methodologies to

Understand existing processes

Design and optimize new processes

If your company has the most efficient, highest quality processes that result in few errors, you have a competitive advantage. However, this advantage can disappear pretty quickly as your competition catches up, and they will catch up. One answer is a continuous, incremental improvement process that is ongoing and results in your processes always being at the leading edge.

A major point of this book is to let students know that you can't just plug in computers and expect miracles. You need to think about your business processes and figure out how to improve, and then figure out how IT can help improve the processes even further.

Steps in B P M

Identify processes for change

Analyze existing processes

Design new process

Implement new process

Continuous measurement

Figure 3.6 As-Is Business Process for Purchasing a Book from a Physical Bookstore

Figure 3.6, Page 100.

Purchasing a book from a physical bookstore requires both the seller and the customer to perform many steps.

Figure 3.7 Redesigned Process for Purchasing a Book Online

Figure 3.7, Page 101.

Using Internet technology makes it possible to redesign the process for purchasing a book so that it only has a few steps and consumes

fewer resources.

Competing on business processes almost always means simplifying the process, reducing the number of people involved, reducing the decision time, expanding the remaining employees' job responsibilities, and using information systems to speed the flow and quality of information.

Business Process Reengineering

A radical form of fast change

Not continuous improvement, but elimination of old processes, replacement with new processes, in a brief time period

Can produce dramatic gains in productivity

Can produce more organizational resistance to change

“Reengineering” was at one point a highly regarded approach to high-speed dramatic change in business firms. It often resulted in profound simplification of antiquated business processes, resulting in severe disruptions to the work force which was decimated by layoffs. Most grand reengineering efforts did not produce the promised results, or produced results in very limited areas of the firm which had little impact on overall efficiency and productivity. Today industry and firm restructuring generally takes place through the impact of global markets on firms, and less by a planned form of social change.

How Will M I S Help My Career?

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