Chapter 2 Organizational Strategy, Competitive Advantage, and Information Systems Photodisc/Getty Images, Inc.

Chapter Outline 2.1 Business Pressures, Organizational Responses, and IT Support 2.2 Competitive Advantage and Strategic Information Systems 2.3 Business-IT Alignment

Learning Objectives 1.Identify effective IT responses to different kinds of business pressures. 2.Describe the strategies that organizations typically adopt to counter Porter’s five competitive forces. 3.Describe the characteristics of effective business-IT alignment.

Introduction Opening Case: Sharing Bicycles Strategically, information systems can provide a competitive advantage. Competitive advantage An advantage over competitors in some measure such as cost, quality, or speed It leads to market control and larger-than- average profits. © Julian Rovagnati/iStockphoto

2.1 Business Pressures, Organizational Responses, and IT Support Business environment Social, legal, economic, physical, and political factors in which businesses operate Changes in the business environment creates business pressures on organizations. Three types of business pressures: 1.Market pressures Caused by global economy, intense competition, changing nature of the workforce, and powerful customers 2.Technology pressures Technological innovation and information overload 3.Societal/political/legal pressures Social responsibility, government regulation/deregulation, spending for social programs, spending to protect against terrorism, and ethics

Figure 2.1 Business Pressures, Organizational Performance and Responses, and IT Support

Market Pressures Globalization The integration and interdependence of economic, social, cultural, and ecological facets of life, made possible by IT Table 2.1 Thomas Friedman’s Ten Flatteners Globalization increases competition The changing nature of the workforce Workforce is becoming more diversified Women, single parents, minorities, and persons with disabilities IT helps integrate all employees into traditional workforce Powerful customers Consumers are more knowledgeable Customer intimacy: Organization study customers to predict their needs

Technology Pressures Technological innovation and obsolescence Today’s state-of-the-art products may be obsolete tomorrow. Rapid changes force businesses to keep up with consumer demands. Information overload The amount of information doubles almost every year. Organizations need tools that can handle these data processing demands. Source: © Maria R.T. Deseo/PhotoEdit

Societal/Political/Legal Pressures Social responsibility Organizations and individuals spend resources to address various social problems Green IT Disposal of e-wasteDisposal of e-waste Digital divide One Laptop per ChildOne Laptop per Child Compliance with government regulations Regulations place constraints on organizational activities Deregulation intensifies competition Protection against terrorist attacks IT provides security systems IT helps identify behavioral patterns associated with terrorist activities including cyberattacks Ethical issues What are examples of ethical issues involving IT? Must be properly managed or they could damage organization’s image and destroy employee morale

Organizational Responses Strategic systems Help organizations increase market share and profits to better negotiate with suppliers and to prevent competitors from entering their markets Customer focus Organizations strive to keep customers happy or risk losing them to competitors Examples: CRM, self-service Make-to-order and Mass customization Make-to-order: Producing customized products and services Mass customization: Producing customized products and services in large quantity Examples: Reebok, BodymetricsReebokBodymetrics E-business and E-commerce Electronic commerce (EC or e-commerce): Buying, selling, transferring, or exchanging products, services, or information via computer networks, including the Internet E-business (broader concept): Servicing customers, collaborating with business partners, and performing electronic transactions within an organization

2.2 Competitive Advantage and Strategic Information Systems Competitive strategy A statement that identifies a business’s approach to compete, goals, and plans and policies required to carry out those goals Strategic information system (SIS) Provides a competitive advantage by helping an organization implement its strategic goals and increase its performance and productivity Use Michael Porter’s Competitive Forces Model to analyze an organization’s competitiveness and to design general strategies

Porter’s Competitive Forces Model What is the impact of the Internet on each of these threats? ThreatsHighLow New market entrantsMarket entry is easySignificant barrier to enter the market Suppliers (bargaining power) Buyers (companies) have few choices Buyers (companies) have many choices Customers (bargaining power) Buyers (customers) have many choices Buyers (customers) have few choices Substitute products/services There are many substitutes There are few substitutes (Established) competitorsIntense competition among many firms Less intense competition among few firms

Figure 2.2 Porter’s Competitive Forces Model

Porter’s Value Chain Model Identifies specific activities where organizations can use competitive strategies for greatest impact Primary activities Relate to the production and distribution of the firm’s products and services, thus creating value for which customers are willing to pay Examples: Inbound logistics, operations, outbound logistics, marketing and sales, and services Support activities Do not add value directly to a firm’s products and services, but support the primary activities Examples: Infrastructure (accounting, finance, management), human resources management, research and development, procurement

Figure 2.3 Porter’s Value Chain Model

Strategies for Competitive Advantage Cost leadership Produce products and/or services at the lowest cost in the industry Differentiation Offer different products, services, or product features Innovation Introduce new products and services, add new features to existing products and services, or develop new ways to produce them Operational effectiveness Improve the manner in which internal business processes are executed so that a firm performs similar activities better than its rivals can Customer orientation Concentrate on making customers happy

Strategies for Competitive Advantage

2.3 Business-IT Alignment Business-IT Alignment Tight integration of the IT functions with the strategy, mission, and goals of the organization Characteristics of good business-IT alignment: Organizations view IT as an engine of innovation Customers and customer service functions are important Rotations among business and IT professionals Organizations provide clear goals to IT and other business functions IT employees understand how the company operates Vibrant and inclusive company culture Only 16% of executives reported that they had adequate business-IT alignment. Why? Business manager and IT managers have different objectives They ignored each other’s expertise Lack of communication

What’s in IT for ME? All majors should Understand business pressures facing their areas and the organizations overall Work together to respond quickly to business pressures Utilize strategic information systems to gain competitive advantage

Closing Case 1: A Tool to Combat Terrorism and Fight Crime The Problem The Solution Questions Palantir states that it has privacy protection technology. Is this technology sufficient to protect against the misuse of Palantir technology? Why or why not? Provide specific examples to support your answer. Describe possible applications of Palantir in the health care industry.

Closing Case 2: The IT Behind the World’s Largest Airline The Problem The Solution Questions Provide two specific examples of why it was so important for United and Continental to integrate their information systems to ensure the success of the merger. Provide two specific examples of difficulties the companies experienced in integrating their information systems.