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Essentials of Management Information Systems

Fourteenth 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?

“Strategy” can be an abstract concept to undergraduates. It's helpful to start this conversation by asking students for some examples of “business strategy.” Or ask them what they think the strategy of well-known firms might be. How about Apple, Microsoft, Ford, AT&T Wireless, Coca Cola, Google, or any well-known public company? Ultimately strategy is about performing better than the other firms in your industry. How can firms do that?

Video Cases

Case 1: G E Becomes a Digital Firm: The Emerging Industrial Internet

Case 2: National Basketball Association: Competing on Global Delivery with Akamai O S Streaming

Technology Helps Starbucks Find Better Ways to Compete

Problem

Competitive opportunities from new technology

Improve customer experience

Solutions

Wi-Fi wireless network

Smartphones

Mobile app

Illustrates use of IT to differentiate products and improve customer experience

You can ask students which company has the “better” strategy, and why. Will these firms attract them to switch their wireless provider, or to purchase some of their services?

Porter’s Competitive Forces Model

Five competitive forces shape fate of firm

Traditional competitors

New market entrants

Substitute products and services

Customers

Suppliers

Porter's model is the best-known model of competitive advantage. The model provides a nice summary of the strategic situation of firms in a larger business environment. The model focuses on industry structure (or the environment of the firm) as the main determinant of management decisions about corporate strategies. Managers don't just make up strategies out of thin air. They look at the competitive situation in their industry, and then consider ways of coping and succeeding in that environment.

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.

Long Description:

The diagram illustrates “The Firm” and “Competitors” as the major elements of Porter’s competitive forces model. It shows the firm and competitors sharing a direct relationship, denoted by a double-headed arrow. The other competitive forces of the model are “New market entrants,” “Substitute products,” “Customers,” and “Suppliers.”

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 systems often play a critical role in defining and achieving strategic objectives of the firm. Sometimes, IS is tangential: Coca Cola for instance is not an intense technology user and maintains its differentiated product through marketing and branding efforts. Other firms are intensely using IS to achieve competitive advantages, from Walmart to Facebook, Amazon, and Google.

The first step in using information systems to serve your firm is to make sure the IS objectives are lined up with the business objectives.

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 replenishment system sends orders to suppliers when purchase recorded at cash register

Minimizes inventory at warehouses, operating costs

Efficient customer response system

In the physical retail industry, including groceries, the keys to success are efficiency in moving product through your pipeline, minimizing inventory and time delays between receipt of the goods, and the customer purchase. Large regional and national grocery chains like Krogers, Walmart, Shoprite, Safeway, and Publix are competing directly with Amazon by offering online ordering and home delivery using their local stores as warehouses.

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., Google's continuous innovations, Apple's i Phone

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

E.g., Nike's NIKE i D program for customized sneakers

Ask students to help you make a list of companies that have really unique products or services. It's fun to ask students for local firms on this list. There may be a really unique pizza store, theater, or restaurant in the neighborhood to help illustrate the point about product differentiation as a competitive strategy.

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., Hilton Hotel’s On Q System

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

Ask students for web stores that appeal to a very small niche market, e.g., people with unique hobbies, special interests, or different political and cultural views. Etsy is a good example to visit in class.

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

Ask students to describe and discuss firms that they believe really “care about the customer” or offer great customer service. If this proves difficult, ask them to talk about companies with really poor customer service. Everybody knows a really poor customer service organization. In these discussions, ask students how IS could help improve the relationship with the customer.

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

Ask students to help you put together a list of industries that have been greatly impacted by the Internet and the web. Then for each industry, ask them to describe how the Internet has changed the industry. How has the Internet changed that industry from a consumer perspective? Can students think of some industries that have been destroyed by the Internet? Or greatly changed? Record stores, video stores, and small local bookstores come to mind.

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

Porter's industry analysis is not the only competitive strategy model. In the business chain (really a business process model), firms achieve competitive advantages by being more efficient. This does not mean low-priced. The gains from efficiency may be retained by the firm as greater profits, depending on the competitive situation. For instance, Walmart adopted a business value chain model to achieve the lowest prices, but not so low as to report lower profits.

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.

You can ask a single student to describe the business value chain in a business where they now work, or did work. Then ask the student to talk about how information systems were used in each step of the value chain.

Long Description:

The diagram illustrates the firm’s activities classified as “Support activities” and “Primary activities.” The support and primary activities establish the “firm value chain.” The different support activities are as follows:

Administration and Management: Electronic scheduling and messaging systems

Human Resources: Workforce planning systems

Technology: Computer-aided design systems

Procurement: Computerized purchasing systems

The different primary activities are as follows:

Inbound Logistics: Automated warehousing systems

Operations: Computer-controlled machining systems

Sales and Marketing: Computerized ordering systems

Service: Equipment maintenance systems

Outbound Logistics: Automated shipment scheduling systems

The activities of the firm value chain result in the “Industry Value Chain” divided into five phases in a continuum in which they operate as, “Suppliers’ Suppliers,” “Suppliers,” “Firm,” “Distributors,” and “Customers.” The continuum is labeled as “Sourcing and Procurement Systems” on its left and as “Customer Relationship Management Systems” on its right.

Interactive Session: Technology Smart Products Coming Your Way

Class Discussion

Describe the role of information technology in the products described in this case. How is it adding value to these products? How is it transforming these products?

How are these smart products changing operations and decision making for these organizations? How are they changing the behavior of their users?

Are there any ethical issues raised by these smart products, such as their impact on consumer privacy? Explain your answer.

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 90.

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.

Long Description:

The diagram illustrates the value web as a diverging radial with one circle at the center and four circles arranged around it on the top, right, bottom, and left. A double-headed arrow connects each circle with the circle at the center. The elements labeled in the center circle are “Industry,” “Firms,” “E R P Systems,” and “Core Transaction Systems.” The elements labeled in the right circle are “Customers” and “Customers’ Customers.” The element labeled in the bottom circle is “Indirect Suppliers.” The elements labeled in the left circle are “Suppliers” and “Suppliers’ Suppliers.” The circle on the right and on the bottom share a customer relationship management systems while the circle on the left and on the bottom share a supply chain management systems involving supplier extranets and net marketplaces.

Synergies, Core Competencies, and Network-Based Strategies

Large corporations comprised of business units

Financial returns overall are tied to performance of business units

Information systems improve performance of business units by promoting

Communication

Synergies

Core competencies

Synergies

When output of some business 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

Other competitive strategy models don't focus on business processes and value chains, but instead focus on the core competencies of a firm. Most times we don't think about what firms are really good at, but the idea is for the firm to focus on what it really does well, better than anyone else, and to succeed by being the most efficient producer of best quality products and services. At the very least, firms should not be involved in a host of businesses where they are at best mediocre players. The role of IT in these models of competition is usually as a tool for achieving best-in-class products and services. This can include using IT as a collaboration tool, coordinating tool, and knowledge aggregator or store for the firm so that knowledge can be widely shared.

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.

Network-Based Strategies

Network economics

Marginal costs of adding another participant are near zero, whereas marginal gain is much larger

E.g., larger number of participants in Internet, greater value to all participants

Virtual company

Uses networks to link people, resources, and ally with other companies to create and distribute products without traditional organizational boundaries or physical locations

Network competitive strategies focus usually on Internet opportunities and companies. Here the emphasis is on products or services that can “go viral,” that is, take advantage of the fact that there are millions of people online, and if they generate positive messages about your product, in a few hours several million people will know about it. This explains why some services like Twitter, Facebook, and YouTube have grown with truly hockey-stick curves. Another different Internet (network) strategy is to use the Internet to find partners and collaborators who can magnify the power of your smaller firm.

Disruptive Technologies

Technologies with disruptive impact on industries and businesses, rendering existing products, services and business models obsolete

Personal computers

World Wide Web

Internet music services

First movers versus fast followers

First movers of disruptive technologies may fail to see potential, allowing second movers to reap rewards (fast followers)

Many technologies throughout history have been “disruptive” in the sense that their use produces superior products and services at a fraction of the cost. Think of Gutenberg’s printing press! Certainly automobiles were a disruptive technology a hundred years ago which completely eliminated the buggy industry. The Internet is no different in rendering certain industries obsolete and unable to compete. Ask students to make a list with your help on industries that have been disrupted by the Internet.

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

Certainly one of the more disruptive impacts of the Internet has been to spread jobs out across a world labor market, with industrial jobs moving to the lowest-wage countries. In the past, communication barriers were so severe that it would be impossible to coordinate product and service development in both the United States and China, or India. Today, with instant Internet communications from email, chat, and video cameras, the cost of operating globally has fallen, and even small firms work on a global basis today.

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.

Global System Configuration

Centralized systems

Duplicated systems

Decentralized systems

Networked systems

Figure 3.5 Global Business Organization Systems Configurations

Figure 3.5, Page 96.

The large Xs show the dominant patterns, and the small Xs show the emerging patterns. For instance, domestic exporters rely predominantly on centralized systems, but there is continual pressure and some development of decentralized systems in local marketing regions.

Long Description:

The table is divided into two major columns for “System Configuration” and “Strategy.” The strategy column is further divided into four more columns for “Domestic Exporter,” “Multinational,” “Franchiser,” and “Transnational.” A few cells in the table are marked with uppercase “X.” The data presented in the table appears as follows.

Centralized: Domestic exporter, cross mark; Multinational, empty; Franchiser, empty; Transnational, empty

Duplicated: Domestic exporter, empty; Multinational, empty; Franchiser, cross mark; Transnational, empty

Decentralized: Domestic exporter, cross mark; Multinational, cross mark; Franchiser, cross mark; Transnational, empty

Duplicated: Domestic exporter, empty; Multinational, cross mark; Franchiser, empty; Transnational, cross mark

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

Six sigma

Measure of quality: 3.4 defects/million opportunities

Surely one strategy is to produce the highest quality product or service, and charge accordingly. Information systems historically have placed a key role in the quality movement by enabling the measurement of quality and helping managers model and optimize business processes. The overall customer experience is what firms are now concentrating on.

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 99.

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

Long Description:

The flowchart shows a “customer” and a “clerk” as the major actors involved in the purchasing process. The process is depicted as follows:

Customer goes to bookstore

Customer searches shelves for the book

Asks the clerk if the book is available

If clerk says “Yes,” the customer purchases the book

Customer takes the book home

If clerk says “No,” he searches for the book once

If he finds it, customer purchases the book

If he does not find it, the clerk inquires about ordering

If the clerk is not able to order, the customer goes to another store

If the clerk is able to order, the clerk places order

Clerk receives the book

Clerk notifies the customer

Customer returns to the store

Customer purchases the book

Customers takes the book home

Figure 3.7 Redesigned Process for Purchasing a Book Online

Figure 3.7, Page 100.

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.

Long Description:

The flowchart shows the first step in the process as “Access online store.” It leads the customer to “Search online catalog.” If the response to “Book Available” is “Yes” then the customer is required to “Enter order and payment data” and “Receive book in mail.” If the response to “Book Available” is “No” then the customer is required to “Select other online bookstore.”

Interactive Session – Organizations: Tommy Hilfiger Transforms Its Wholesale Sales Process with Digital Showrooms

Class discussion

How did Tommy Hilfiger’s previous wholesale sales process affect its business performance?

What people, organization, and technology factors contributed to Tommy Hilfiger’s problems with its wholesale sales business process?

Diagram Tommy’s Hilfiger’s old and redesigned business process for ordering merchandise for a retail department store.

Describe the role of technology and digital showrooms in Tommy Hilfiger’s business process changes.

How did Tommy Hilfiger’s redesigned business process change the way the company worked? What was the business impact? Explain.

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?

The Company: A+ Superior Data Quality

Position Description

Job Requirements

Interview Questions

A good opportunity for a class discussion of the new Section on careers. Would any in the class be interested in a job like this? What do they think are the most important skills the employer is looking for? How would they answer the interviewer questions?

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