Compiled By Parag Gadhia

Using IS To Achieve Competitive Advantage

Porters Competitive Force Model

Value Chain Model Case Study

USING INFORMATION SYSTEMS TO ACHIEVE COMPETITIVE ADVANTAGE

Access to special resources that others do not have They are able to use commonly available resources more efficiently

They do better in terms of revenue growth, profitability, or productivity growth (efficiency)

Why do some firms do better than others and how do they achieve competitive advantage?

How can you analyze a business and identify its strategic advantages?

How can you develop a strategic advantage for your own business?

And how do information systems contribute to strategic advantages?

Traditional Competitors New Market Entrants Substitute Products and Services

Customers
Suppliers

INFORMATION SYSTEM STRATEGIES FOR DEALING WITH COMPETITIVE FORCES

low-cost leadership product differentiation focus on market niche

strengthening customer and supplier intimacy

Sears, have been spending 24.9 percent of sales on overhead

Wal-Mart pays only 16.6 percent of sales revenue for overhead. Operating costs average 20.7 percent of sales in the retail industry

Google continuously introduces new and unique search services on its Web site, such as Google Maps, Google Images, GMail. Apple created iPod, a unique portable digital music player, plus a unique online Web music service where songs can be purchased for 99 cents

Dell Computer Corporation sells directly to customers using assemble-to-order manufacturing.

Hilton Hotels uses a customer information system called OnQ

Search through 180 million records to find customer details.

The 7-Eleven improved its competitive position by wringing more value out of its customer data

Chrysler Corporation uses information systems to facilitate direct access from suppliers to production schedules Amazon.com keeps track of user preferences for book and CD purchases

Inbound logistics -receiving and storing of materials

Wal-Marts continuous replenishment system

Stockless inventory systems

Operations -transformation of inputs to finished goods or the process of providing a service

Computer controlled machinery used by Gillette for

producing razor blades

Outbound logistics -storing and distributing the product

Airline reservation system Automated shipping scheduling systems

Sales and marketing -promoting and selling the firms product

Industrial air conditioning firms provide computer-based

modeling systems to help architects determine cooling requirements for commercial properties

Otis elevator uses sensors in its equipment that

automatically notify service centers before malfunctions occur

Administration and management

Voice mail and e-mail, intranets

Human resources

Employee skills database, systems that facilitate compliance

with government regulations

Technology development -improving products and the production process

search for oil deposits

An oil company uses infrared data gathered by satellite to

CAD systems

Procurement (purchasing inputs)

On-line electronic auctions exist that provide access to

excess inventory

Retailers use on-line systems to access the inventory

files and production schedules of their suppliers

Outputs of some units can be used as inputs to other units. Two different organizations pool markets and expertise

Result Cost

& Profit

Tie together the operations of disparate business units so that they can act as a whole. E.g.

US Airways & America West Airlines

Merging of Bank One with JP Morgan Chase

A core competency is an activity for which a firm is a world-class leader. A core competency relies on:
Knowledge that is gained over many years of experience

A first-class research organization.

simply key people who follow the literature and stay abreast of new external knowledge.

Information System encourages sharing of knowledge across business units enhances competency. Help employees become aware of new external knowledge. E.g. P&G uses extranet called InnovationNet

Network Economics Virtual Company Strategy Business Ecosystems

Traditional Economics
The economics of factories and agriculture.

Production experiences diminishing returns

Law of diminishing returns does not work every time.

E.g. eBay

A virtual company uses networks to link people, assets, and ideas. One company can use the capabilities of another company without being physically tied to the company. Cheaper to acquire products, services or capabilities from external vendors.

GUESS, Levi Strauss, Reebok enroll Hong Kong based Li & Fung Li & Fung handles product development, raw material sourcing, production planning, quality assurance and shipping. Li & Fung does not own any factories, fabrics or machines. Outsources all of its work to a network of more than 7500 suppliers in 37 countries.

Traditional Porter model assumes:

A relatively static industry environment, Relatively clear-cut industry boundaries; and A relatively stable set of suppliers, substitutes, and customers.

Some of todays firm participate in industry sets collection of industries that provide related services and products.

Business ecosystem consists of loosely coupled but interdependent networks of suppliers, distributors, outsourcing firms, transportation service firms, and technology manufacturers.

Cooperation takes place across many industries rather than many firms.

Business ecosystems can be characterized as having one or a few keystone firms that dominate the ecosystem and create the platforms used by other niche firms.

E.g. Keystone Firms Microsoft, Wal-Mart, Amazon.com Niche Firms

Software application firms, that both support and rely on the Microsoft products. Wal-Marts order entry and inventory managements system used by thousands of suppliers. Fortune 500 companies using Amazon.com to sell products.

The competitive advantages strategic systems confer do not necessarily last long enough to ensure long-term profitability. Competitors can retaliate and copy strategic systems. Markets, customer expectations, and technology change

Information systems alone cannot provide an enduring business advantage. E.g. Citibanks ATM system, now most banks have ATM. Amazon.com was an e-commerce leader but now faces competition from eBay, Yahoo!, and Google.

Managers interested in using information systems for competitive advantage will need to perform a strategic systems analysis.

Managers should ask the following questions:

What is the structure of the industry in which the firm is located? What are the business, firm, and industry value chains for this particular firm?

Adopting the kinds of strategic systems requires changes in business goals, relationships with customers and suppliers, and business processes. Strategic Transition is sociotechnical changes affecting both social and technical elements of the organizations.

Using IS to Achieve Competitive Advantage Porters Competitive Force Model

Traditional Competitors New Market Entrants Substitute Products and Services Customers Suppliers

IS Strategies For Dealing With Competitive Forces

Low Cost Leadership Product Differentiation Focus on Market Niche Strengthening Customer and Supplier Intimacy

Business Value Chain Model

Primary Activities Support Activities

Synergies, Core Competencies and Network-Based Strategies.

Network Economics Virtual Company Strategy Business Ecosystems