MIS, book name : Valacich, Joe and Christoph Schneider. Information Systems Today: Managing in the Digital World, Seventh edition, Prentice Hall, 2015.
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MIS395Chapter2.pptxChapter 2
Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage.
Business Models in the Digital World
Describe how information systems support business models used by companies operating in the digital world.
Enabling Organizational Strategy Through Information Systems
Discuss how information systems can be used for automation, organizational learning, and strategic advantage.
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Introduction
In this chapter, we examine the strategic use of information systems, which enables organizations to gain or sustain competitive advantage.
This examination includes a look at the role of information systems in each of the levels of an organization, their role in international business strategies, and the on-going need to innovate using information systems.
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Each age has enabled the age that followed.
The Agricultural age provided the time and resources necessary for people to stay in one location and invent machines.
Table of Contents
Organizational Decision-Making Levels
Operational Level
Managerial Level
Executive Level
Organizational Functional Areas
Competitive Advantage
ISs Providing Business Value
Pursuit of Competitive Advantage (organizational strategy types & sources of competitive advantage)
Competitive Forces
Value Chain Analysis
Choosing the Right IT & ISs
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Organizational Decision-Making Levels
Executive/Strategic Level
Upper Management
Managerial/Tactical Level
Middle Management
Operational Level
Operational Employees, Foremen, Supervisors
The Organizational Decision-Making Levels slides simply follow the chapter. They are included because they provide foundational knowledge for slides that follow.
Most businesses have three levels of management, with one or more layers of managers in each level.
The executive management includes top tier management focused on long-term strategic business decisions such as how to compete, price versus quality, and what countries to do business in.
Middle or tactical management is focused on running the organization to meet the strategic goals, and typically has a management timeframe of 3 to 12 months. Typical decisions might include where additional stores in existing markets should be opened.
Operational employees and management perform the day-to-day work of the organization, making decisions on a day-by-day basis.
A shift manager at a Wal-Mart would be Operational Management, while a Store manager at a Wal-Mart would be at the lowest level of Middle or Tactical Management.
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Operational Level
Day-to-day business processes
Interactions with customers
Decisions:
structured,
recurring, and
Often automated using IS.
IS used to:
optimize processes, and
understand causes of performance problems.
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Operational information systems primarily focus on process automation. This can include automating routine activities as well as automating and optimizing structured decisions (such as employee scheduling).
Managerial Level
Functional managers
Monitor and control operational-level activities
Focus: effectively utilizing and deploying resources
Goal: achieving strategic objectives
Managers’ decisions
Semistructured
Moderately complex
Time horizon of few days
to few months
IS can help with:
performance analytics (dashboards),
predictive analysis, and
providing key performance indicators (KPI).
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Information systems at the Managerial, or Tactical level are focused on helping middle management exercise control more efficiently and effectively and on helping them make semi-structured decisions with better input and resources.
Executive Level
The president, CEO, vice presidents, board of directors
Decisions
Unstructured
Long-term strategic issues
Complex and nonroutine problems
with long-term ramifications
IS is used to:
obtain aggregate summaries of trends and projections, and
provide KPIs across the organization.
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Information systems at the Executive level are focused on helping executing managers understand the current business status through:
executive information systems that often show aggregate business performance data, and
through tools to support executing decision making such as forecasting and planning tools.
Organizational Functions and Functional Levels
Notice how various types of information systems match up with the organizational decision-making levels.
Accounting Information Systems, for example, are found at all levels; however, different accounting functions are performed at each level.
Organizations are organized along Functional boundaries as well as along managerial levels, and managers within each function at each organizational level have unique information system needs.
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Major IS Tasks: Business Value Added
Automating: Doing Things Faster
Organizational Learning: Doing Things Better
Supporting Strategy: Doing Things Smarter
As an employee, think about the information systems you use, and which category each falls into.
Many employees resist strategic (strategizing) ISs because they tend to be more complex and prone to problems; however, they can add substantial business value.
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Pursuit of Competitive Advantage
Best-made product
Superior customer service
Lower costs than rivals
Proprietary manufacturing technology
Shorter development/test lead times
Well-known brand name
More value for the money
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Notice the examples in the book. Each of the large companies, follow one organizational strategy type.
When a company does or is perceived by customers to do something distinctively better then the competition, it has a competitive advantage based on that distinctive feature.
Many firms seek unique positioning to increase the marketability of their products. Information systems that help a firm achieve a distinct position can help create competitive advantage.
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Identifying Where to Compete: Analyzing Competitive Forces
Companies need to understand the forces acting within the industry and on their organization. Michael Porter created a framework for this in 1979 that is still widely used to this day.
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Using IS to Combat Competitive Forces
| Competitive Force | Implication for Firm | Potential Use of Information Systems |
| Rivals within your industry | Competition in price, product distribution, and service | Reduce costs, use the Internet to increase service |
| New entrants | Reduced prices and market share | Inventory control to manage excess capacity, Internet to differentiate products |
| Customers’ bargaining power | Reduced prices, demand for better quality and service | CRM to improve service, CAD/CAM |
| Suppliers’ bargaining power | Increased costs and reduced quality | Use internet to work with new distant suppliers |
| Threat of substitute products | Decreased market share, customer loss | Better assess customer needs, use CAD to design better products |
Information Systems can help offset many competitive forces, such as Computer Aided Design and Manufacturing to help firms meet customer demands when customers have a high degree of bargaining power.
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Identifying How to Compete: Analyzing the Value Chain
Value chain analysis can highlight opportunities in which information systems implementation can make an organization more effective and efficient, and secure a competitive advantage.
By identifying your cost structure at each level of the value chain and benchmarking against your competitors you can identify changes that will enhance your performance.
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The Technology/Strategy Fit
There are never enough resources to implement every possible IS improvement
Therefore, organizations try to maximize business/IT alignment
This means matching the IT investment to the company’s strategy
e.g., don’t invest in IS that maximizes product differentiation if your company’s strategic focus is on being a low-cost leader
Companies that focus on the improvements and business process management that help their value creation strategy the most will see the greatest competitive benefit
It is important that when firms are choosing technologies to implement they make sure the technologies support the business strategies already in place.
While many projects may appear to be justified, limited resources require careful selection.
By making sure that the projects selected are focused on helping the company meet its core business objectives, a company can help ensure that the projects are adding value.
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Assessing Value for the IS Infrastructure
Economic Value
Direct financial impact
Architectural Value
Extending business capabilities today and in the future
Operational Value
Enhancing ability to meet business requirements
Regulatory and Compliance Value
Complying with regulatory requirements
Information systems add value to companies in several ways.
There are both direct financial impacts, and indirect impacts such as enabling an organization to make changes in the future or strengthening the business processes so organizations are readily able to meet business requirements without having to constantly make exceptional efforts. Finally there is the value of meeting current and future regulatory requirements.
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Choosing the Right IT & ISs
A company that wants to invest in the right IT and ISs can use the various models and analyses in this section to choose wisely.
Business strategy
comes first
Then figure out which IT and ISs to invest in
It is important that when firms are choosing technologies to implement they make sure the technologies support the business strategies already in place.
While many projects may appear to be justified, limited resources require careful selection.
By making sure that the projects selected are focused on helping the company meet its core business objectives, a company can help ensure that the projects are adding value.
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Chapter 2
Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage.
Business Models in the Digital World
Describe how information systems support business models used by companies operating in the digital world.
Enabling Organizational Strategy Through Information Systems
Discuss how information systems can be used for automation, organizational learning, and strategic advantage.
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Table of Contents
Introduction
Business Models
Components and E-Business Revenue of a Business Model
Freeconomics
International Business Strategies
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Business Models in the Digital World
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A business model reflects the following:
What does a company do?
How does a company uniquely do it?
In what way (or ways) does the company get paid for doing it?
What are the key resources and activities needed?
What are the costs involved?
How a company answers these questions dictates:
what industry the company is competing in,
how competitive it is in that industry,
what if any competitive advantage the company enjoys, and
how profitable the company is or can be.
Components and E-business Revenue of a Business Model
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Components
Customer segments
Value proposition
Channels
Customer relationships
Revenue streams
Key resources
Key activities
Key partners
Cost structure
Revenue Model
Affiliate marketing
Subscription
Licensing
Transaction fees and Brokerage
Traditional sales
Web advertising
A business model is a summary of a business’s strategic direction that outlines how the objectives will be achieved; a business model specifies the value proposition, as well as how a
company will create, deliver, and capture value. Each component plays a critical role in shaping all aspects of the business.
The most important ingredient for any organization is determining how to generate revenue. A revenue model describes how the firm will earn revenue, generate profits, and produce
a superior return on invested capital.
Freeconomics
Freeconomics—The leveraging of digital technologies to provide free goods and services to customers as a business strategy for gaining competitive advantage.
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While someone gets something for free in Freeconomics, that doesn’t mean no one is paying for anything. There are multiple approaches to making freeconomics work, many of which result in significant profits for successful companies. The classic example is online search engines. The functionality of the search engines is given to users for free, but the use of the search engine Web site gives the search engine companies the opportunity to sell advertising to companies. The sale of advertising by the search engine can be particularly valuable because the advertising shown can be targeted based on the content of the desired search, making it more relevant for the user exposed to it.
Applying Freeconomics in the Digital World
| Approach | What it Means | Examples |
| Advertising | Free services are provided to customers & paid for by a third party | ▪ Yahoo!’s banner ads ▪ Google’s pay-per-click |
| Freemium | Basic services are free, a premium is charged for special features | ▪ Skype ▪ Dropbox.com |
| Cross subsidies | Sale price of one item is reduced in order to sell something else of value | ▪ Free cell phone with two-year contract |
| Zero Marginal Cost | Products are distributed to customers without an appreciable cost to anyone | ▪ iTunes music distribution ▪ Software distribution ▪ YouTube Video content |
| Labor Exchange | The act of customers using free services creates value | ▪ Yahoo! Answers ▪ Answers.com |
| Gift Economy | People participate and collaborate to create value for Everyone | ▪ Open source software ▪ Wikipedia |
There are multiple ways companies implement Freeconomics, many of which still drive revenue.
Advertising is very common, such as the search engine example from the previous slide.
Cross subsidies allow one item to be given away or sold at a reduced price to drive sales of another item.
Some items have no additional cost to duplicate, such as digital music, allowing companies to give them away without incurring expense.
There are also freeconomics at play in the gift economies and labor exchanges, where people participate for various reasons which are not monetarily based.
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International Business Strategies in the Digital World
There are four international business strategies
Home Replication Strategy
Multidomestic Strategy
Global Strategy
Transnational Strategy
Each has pros and cons in terms of complexity, cost benefits, local responsiveness, and control
The four different types of international business strategy are Home Replication, Global, Multidomestic, and Transnational. These strategies are designed to address different needs for local responsiveness, simplicity, and cost minimization. We will discuss each of them in depth in the next four slides.
International Business Strategies in the Digital World
As you go through the various international business strategies, think about them from an IT perspective
Think about the strategies in terms of data
Where is the data collected?
What data is transferred to the home location?
How much data is transferred to the home location?
Think about the uniformity of information systems in use
For example, a company that employs a centralized strategy will be more likely to use the same information systems at each location
Home-Replication Strategy
Focused domestically, homogenous markets
International business an extension of home business
Focus on core home market competencies
Inability to react to local market conditions
Domestic systems, limited communication, local databases
The home replication strategy is essentially focused on making products for the domestic market, and then selling them as exports to anyone who wants to buy them internationally regardless of how the products may or may not be suited for that different market.
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Global Business Strategy
Centralized organization with standardized offerings across markets
Strengths: standardized product offerings allow achieving economies of scale
Weakness: inability to react to local market conditions
Appropriate use: homogeneous markets
Centralized systems, networks and data sharing between home office and subsidiaries
When companies are pursuing a Global business strategy, their products are deliberately developed for a global market.
This is differs from the home-replication strategy, where products are developed for the home market then offered up for export.
In the global strategy the product is intended for a global audience and designed to appeal across the global audience.
This requires subsidiaries providing extensive feedback to the home office to ensure an understanding of how the product is being received.
This strategy doesn’t allow for localization of the product to appeal to specific markets, the focus is rather a global product appealing across many markets.
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Multidomestic Business Strategy
Federation of associated business units; decentralized
Strengths: ability to quickly react to local conditions
Weakness: differing product offerings limit economies of scale, and limited inter-unit communication limits knowledge sharing
Appropriate use: very heterogeneous markets
Decentralized systems, bidirectional communications, local databases
Multidomestic companies take a decentralized approach to running different subsidiary locations. Each location typically has a great deal of latitude in meeting local market needs. While multidomestic companies can successfully operate in very different cultures, there tends to be little sharing of lessons learned and best practices throughout the company, resulting in inefficiencies. The information systems of multidomestic companies also tend to be run by individual IS departments within each subsidiary.
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Transnational Business Strategy
Some aspects centralized, others decentralized; integrated network
Strengths: can achieve benefits of multidomestic and global strategies
Weakness: difficult to manage; very complex
Appropriate use: integrated global markets
Distributed/shared systems, enterprise-wide linkages, common global data resources
Transnational companies take a federated approach to management, meaning some aspects of the company are centralized, while other aspects are decentralized. What portions of the company are centralized and which are decentralized is based on what approach is necessary to maximize the return on shareholder investment, with products requiring significant localization to be successful often decentralized, while products or business functions that gain efficiencies from economies of scale and standardization being centralized. Different parts of the company may even be centralized in different countries to take advantage of cost savings. The Transnational strategy is sophisticated and complex, requiring extensive information sharing between different subsidiaries as well as between each subsidiary and the home location or locations. This communication is facilitated by information systems and the Internet.
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Chapter 2
Enabling Organizational Strategy Through Information Systems
Discuss how information systems can be used for automation, organizational learning, and strategic advantage.
Business Models in the Digital World
Describe how information systems support business models used by companies operating in the digital world.
Valuing Innovations
Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage.
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Table of Contents
The Need for Constant Innovation
Successful Innovation is Difficult
Organizational Requirements for Innovation
Apple
Predicting the Next Big Thing
The Classic Model
Disruptive Innovations
The Innovator’s Solution
Implementing the Innovation Process
Three Ways to Think About Investments in Disruptive Innovations
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The Need for Constant IS Innovation
“The most important discoveries of the next 50 years are likely to be ones of which we cannot now even conceive” John Maddox
Transformation Technologies are difficult or even impossible to see coming
Think of the Internet in 1999
Many of the critical discoveries in the next 50 years will be in areas we don’t see coming
If a company wants to stay ahead of the competition, it needs to stay on top of the changing environment.
This can require constant innovation, as the technologies in the world we live in keep changing in new and unexpected ways.
Just as many companies in 1999 couldn’t conceive of the Internet as it is today, we may be unable to conceive of how the Internet will look in 2020 or 2025.
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Successful Innovation Is Difficult
Innovation Is Often Fleeting
The pace of change is fast
Smart rivals quickly adopt any advantage
Innovation Is Often Risky
Competing Technologies result in a winner and a looser (e.g.: Blu-Ray and HD DVD)
Innovation Choices Are Often Difficult
It is impossible to pursue all opportunities
It is hard to predict which opportunities will lead to success
Innovation can bring great rewards, but it typically isn’t easy. Some innovations only give a short term advantage, readily copied by competitors once they see it works. And when there are competing technologies, there is no guarantee that the one a company chooses to embrace will become the market standard, making large investments risky. Finally, companies often have to choose a limited set of options to pursue out of a wealth of opportunities. Resources are constrained, time is limited, and the information about the different options is imperfect.
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Organizational Requirements for Innovation
Process Requirements
Focus on success over other objectives
Resource Requirements
Employees with knowledge, skill, time & resources
Partner with appropriate requirements
Risk Tolerance Requirements
Tolerance for risk
Tolerance for failure
Innovation isn’t something every company can do. The company has to have an organization and process that allows innovation to move forward and not get caught up in office politics and competing agendas. If a company decides to pursue innovation, it either needs the resources in-house or needs to contract with a partner that has the appropriate resources. Finally, a company that doesn’t allow risk taking and the occasional failure will punish people who try to take risks and innovate, and will soon stifle any possibility of innovation.
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Predicting the Next New Thing
Many innovations can be copied
Limited time span of any advantage
May become a requirement for staying competitive
Some innovations deliver longer advantages
Unique customer service based on customer data
High levels of customer investment in proprietary systems – high switching costs
Technologies that are very difficult to copy
It is difficult to predict the next innovation that will provide a long term competitive advantage, but there are a few things to keep in mind. Innovations based on a purchased technology can often be purchased by competitors, and those based on a developed technology can be imitated or copied. To provide long term advantage the innovation needs to form the basis for or incorporate something that competitors can’t readily acquire or develop. This could be something based on customer data that competitors can’t readily acquire, such as unique customer service. Sometimes a company can develop a technology that customers buy into and then are locked into with high switching costs. While this can be effective, some customers will view it as a trap and avoid it. Finally, companies can develop sophisticated technologies that are very difficult to copy or have a very high cost to duplicate. All of these can result in a company having a long term competitive advantage.
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Predicting the Next New Thing
Deciding which innovations to adopt is very difficult.
Diffusion of Innovation
Classic view of adoption of innovations
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Typical innovations are often slow to take off, then are rapidly adopted, and finally there is a long tail of late adopters who slowly change over. The innovators may be adopting technology just to see if it’s beneficial, while the majority are adopting it to take advantage of its benefits, and the laggards are slow to adopt despite the benefits they would see. While many technologies go through this cycle, disrupting innovations, discussed next, are different.
The Innovator’s Dilemma
Disruptive innovations
New technologies, products, or services that eventually surpass dominant technologies
Undermine effective management practices
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Disruptive Innovations can completely replace the technology they are disrupting, and a failure to recognize that a disruptive innovation is changing the market can easily lead to a companies demise. With a disruptive innovation, companies may not be given the opportunity to be laggards.
In many different industries the capabilities of the lowest performing category of the market improve faster then the needs of the lowest need users. This is especially true in the computing industry, where the capabilities of computer systems continues to increase at a breakneck pace. When the lowest performing technology that is useful becomes powerful enough, it starts to meet the needs of additional users, and can often replace higher cost technology options. Thus Microcomputers pushed id-range computers out of the workplace, but some midrange computers pushed high-end computers out as well. The lowest performing technology that is useful may now itself be threatened by other technologies that couldn’t meet the needs of users in a segment before, but which now can. Cell phones and tablet computers are now powerful enough to be a disruptive technology threatening microprocessor-based computers.
The Innovator’s Solution
Christensen outlines a process—disruptive growth engine—that helps organizations respond to disruptive innovations more effectively.
Start early.
Executive leadership.
Build a team of expert innovators.
Educate the organization.
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Implementing the Innovation Process
E-Business Innovation Cycle
The key to success is the extent of IS use in timely and innovative ways.
Based on: Wheeler (2002)
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The e-business innovation cycle is based on choosing technologies, matching them to opportunities, and executing against the opportunity. After each execution there is an assessment phase where learning occurs, and then the process stares again.
The most difficult part of the cycle is in Choosing the enabling/emerging technologies, which can be exceptionally difficult. Matching the selection with business opportunities is the next most difficult phase.
Three Ways to Think About Investments in Disruptive Innovations
Put technology ahead of strategy.
Technology is so important to success, it needs to be considered first.
Strategy is developed afterwards.
Put technology ahead of marketing.
Rapid development of technology makes it impossible for people to know what they want.
Innovation is continuous.
New technologies are constantly being developed.
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