Competing with Information Systems Learning Unit 2

Information Systems for Automating: Doing Things Faster Primary Activities of Loan Processing Manual Loan Process Technology-Supported Fully Automated Complete and submit application Completed at home (1.5 days) Completed online (15 minutes) Check application for errors Done in batches (2.5 days) Computerized (3.5 sec) Input data into the information system NA some paper handling (1 hr) NA (already done) Assess loan apps under $250K Done by hand (15 days) Computer assisted (1 hr) Computer processed (1 sec) Committee decides if loan over $250k Applicant notified Batches (5 days) (1 day) E-mail (3.5 sec) Total time 25 to 40 days 5 to 20 days 15 min to 15 days

Information Systems for Organizational Learning: Doing Things Better Information systems can track and identify trends and seasonality Managers can use this to plan staffing levels and cross-training Information systems can track information and identify how the business is functioning in general and at different times of the year. Managers can learn from this information and utilize it to run the business more efficiently, planning in advance how they handle seasonal demand fluctuations, or change business processes which are flawed and generating problems, such as approving loans that will be defaulted.

Information Systems for Supporting Strategy: Doing Things Smarter Firms have a competitive strategy Information systems should be implemented to support the organization’s strategy A strategic mentality towards information systems results in finding ways to use information systems to achieve a chosen strategy by innovation, streamlining operations, or optimizing the value chain A strategic view of information systems results in creating a computer based loan application process to process loans faster and better than rivals Although automating and learning are good approaches to information systems, ensuring that expenditures are for systems that match the corporate strategy is also critical. It wouldn’t make sense for a low-cost car manufacturer to implement a highly sophisticated and very expensive quality control system that rivaled the quality control systems of Mercedes, because that isn’t why customers are buying their cars, and the system wouldn’t generate an appropriate return in investment.

Identifying Where to Compete: Analyzing Competitive Forces Companies need to understand the forces acting within the industry and on their organization. Michael Porter created this framework in 1979 (Porter’s 5 Forces) that is still widely used to this day.

Porter’s Generic strategies, value chain and roles of information system Traditional competitors; Rivalry among Existing Firms in an Industry All firms share market space with competitors who are continuously devising new products, services, efficiencies, switching costs Rivalry is high when there is fierce competition and low when there is not. Identify an example of an industry with high rivalry among existing firms.

Porter’s Generic strategies, value chain and roles of information system New Market Entrants; Threat of Entry of New Competitors Some industries have high barriers to entry, e.g. computer chip business New companies have new equipment, younger workers, but little brand recognition Threat of entry of new competitors is high when it is easy to enter a market and low when significant barriers to entry exist. A barrier to entry is a product or service feature that customers expect from organizations in a certain industry. For most organizations, the Internet increases the threat that new competitors will enter a market. Identify industries with high and low barriers to entry.

Porter’s Generic strategies, value chain and roles of information system Bargaining Power of Suppliers Market power of suppliers when firm cannot raise prices as fast as suppliers The bargaining power of suppliers is high when buyers have few choices and low when buyers have many choices. Internet impact is mixed. Buyers can find alternative suppliers and compare prices more easily, reducing power of suppliers. On the other hand, as companies use the Internet to integrate their supply chains, suppliers can lock in customers. Identify industries with high and low bargaining power of suppliers.

Porter’s Generic strategies, value chain and roles of information system Bargaining Power of Customers Can customers easily switch to competitor’s products? Can they force businesses to compete on price alone in transparent marketplace? The bargaining power of buyers is high when buyers have many choices and low when buyers have few choices. Internet increases buyers’ access to information, increasing buyer power. Internet reduces switching costs, which are the costs, in money and time, to buy elsewhere. This also increases buyer power. The Internet increases buyer power. Identify industries with high and low bargaining power of customers.

Porter’s Generic strategies, value chain and roles of information system Substitute products and services Substitutes customers might use if your prices become too high, e.g. iTunes substitutes for CDs The threat of substitute products or services is high when there are many substitutes for an organization’s products or services and low where there are few substitutes. Information-based industries are in the greatest danger from this threat (e.g., music, books, software). The Internet can convey digital information quickly and efficiently. The Internet can increase the threat of substitute products and services for digital goods. Identify industries with substitute products.

Influence of the Internet on Competitive Forces Implication for Firm Internet Influence on Competitive Force Rivals within your industry Competition in price, product distribution, and service Geographic reach, ease of product comparison, price competition New entrants Increased capacity in industry, reduced prices and market share Reduced entry barriers and eased critical resource access Customers’ bargaining power Reduced prices, demand for better quality and service Wider customer choices, lower switching costs, higher customer bargaining power Suppliers’ bargaining power Increased costs and reduced quality Equalized access to suppliers Threat of substitute products Potential returns on product, decreased market share, customer loss New substitutes created by Internet and IT 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.

Sources of Competitive Advantage

Initiative 1: Reduce Costs Customers want to pay little for service Reduce costs to lower price Automation greatly reduces costs Web can automate customer service Example ?

Massive Automation Example .. JetBlue used Open Skies software to automate ticket handling Greatly reduced travel agent fees Maintenance information system logs airplane parts and time cycles Flight planning automated with application Training management system eliminates need for paper records

Initiative 2: Raise Barriers to Market Entrants Less competition is better for company Raise barriers to entrants to lower competition Techniques include obtaining copyrights and patents on inventions, techniques, and services Building unmatchable information systems blocks entrants Example ?

Initiative 3: Establish High Switching Costs Switching costs: incurred when customer stops buying from company and starts buying from another company Explicit: charge customer for switching Implicit: indirect costs over period of time High switching costs locks in customers Example ?

Enhanced Service.. Increase switching cost JetBlue offers better service Leather seats Real-time television Fewest mishandled bags Better security Example ?

Initiative 4: Create New Products or Services Having unique product or service gives competitive advantage First mover: organisation that is first to offer a new product or service Superior brand name, better technology, more experience Critical mass: body of clients that is large enough to attract other clients Example ?

Initiative 5: Differentiate Products or Services Product differentiation: persuading customers that product is better than competitors’ Achieved through advertising Exemplified by brand name success Promotes brand name Example ?

Initiative 6: Enhance Products or Services Enhance existing products or services to increase value to consumer Many products and services have been enhanced by the Web Example ?

Initiative 7: Establish Alliances Alliance: two companies combining services Makes product more attractive Reduces costs Provides one-stop shopping Affiliate program: linking to other companies and rewarding the linker for click-throughs Example ?

Initiative 7: Establish Alliances (continued)

Initiative 8: Lock in Suppliers or Buyers Accomplished by achieving bargaining power Bargaining power: leverage to influence buyers and suppliers Achieved by being major competitor or eliminating competitors Uses purchase volume as leverage Lock in clients by creating high standards Example ?

Identifying How to Compete: Choosing a Generic Strategy Determining how a company competes is one of the most important decisions an organization must make. This model will help organizations determine how best they can compete in the market place to counter the effects of the five forces.

Competitive Strategies: We can further extend these strategy to .. Cost Leadership Strategy Differentiation Strategy Innovation Strategy Growth Strategy Alliance Strategy

Using IS to Combat Competitive Forces 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

Using IT for Competitive Strategies Other Examples?

Using Information Systems to Achieve Competitive Advantage The Internet’s impact on competitive advantage Transformation, destruction, threat to some industries E.g. travel agency, printed encyclopedia, newspaper Competitive forces still at work, but rivalry more intense Universal standards allow new rivals, entrants to market New opportunities for building brands and loyal customer bases

The Value Chain and Strategic IS Value Chain – the series of activities that add value to products/services Primary Processes – directly related to manufacture of products or delivery of services Support Processes – business activities that support daily operations of the firm and indirectly contribute to products/services How does the value chain model different from the Porter model?

The Value Chain and Strategic IS The Value Chain can help identify where and how to apply strategic capabilities of IT

Identifying How to Compete: Role of IS in 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.

Becoming An Agile Company 4 Basic Strategies: Customer Perception of Goods and Services Partnering with Customers, Suppliers, and Even Competitors Organize to Thrive on Change and Uncertainty Leverage Impact of Personnel and Their Knowledge

Becoming An Agile Company

Strategic Information Technology (IT) Today technology is often the actual cause and driver of business strategies (Information) Technology Business Strategies Examples of business strategies that are driven by IT?

The Technology/Strategy Fit There are never enough resources to implement every possible IS improvement There are usually never enough resources to implement every financially beneficial IS improvement Companies that focus on the improvements and business process changes that help their value creation strategy the most will see the greatest competitive benefit

Creating and Maintaining Strategic Information Systems Many opportunities to accomplish competitive edge with information technology Innovative software establishes competitive advantage Strategic information systems created from scratch or modified from previous system Must serve organisation goal Must collaborate with other functional units of company

Creating an SIS Strategic information system must be part of the overall organisational strategic plan Precisely measuring financial output of SIS is difficult

Creating an SIS (continued)

Reengineering and organisational Change To implement SIS, organisations must rethink way of operation Reengineering: Eliminating and rebuilding operations from the ground up Involves new machinery and elimination of management layers Achieves huge efficiency improvements New SIS requires businesses to revamp processes

Competitive Advantage as a Moving Target Competitive advantage is often short-lived organisations imitating leader diminishes advantage SIS has become expected business practice Company must modify and enhance technology to sustain competitive advantage

Ford on the Web: A Failure Story Some strategic moves end up being colossal failures May fail because of lack of attention to details Unable to predict customer or business partner response Jacque Nasser, CEO of Ford: ideas failed

The Ideas Nasser eager to push company to Web Install devices in vehicles to enable drivers and passengers to access Web Establish Web site to market parts with auctions Push vehicle sales to Web

Hitting the Wall Customers not interested in Web access in vehicles Other car companies learned to use online part auctioning Franchising laws do not allow car companies to bypass dealers Online sales initiative failed

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.

Putting It All Together: Developing a Successful Business Model 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.

Using Information Systems to Achieve Competitive Advantage Information systems can improve overall performance of business units by promoting synergies and core competencies Synergies When output of some units used as inputs to others, or organizations pool markets and expertise Example: merger of Bank of NY and JPMorgan Chase Purchase of YouTube by Google

Using Information Systems to Achieve Competitive Advantage Core competencies Activity for which firm is world-class leader Relies on knowledge, experience, and sharing this across business units Example: Procter & Gamble’s intranet and directory of subject matter experts

Using Information Systems to Achieve Competitive Advantage Sustaining competitive advantage Because competitors can retaliate and copy strategic systems, competitive advantage is not always sustainable; systems may become tools for survival Performing strategic systems analysis What is structure of industry? What are value chains for this firm? Managing strategic transitions Adopting strategic systems requires changes in business goals, relationships with customers and suppliers, and business processes

Disruptive Innovations Examples Displaced or Marginalized Technology Digital photography Chemical photography Online stock brokerage Full-service stock brokerages Online retailing Brick-and-mortar retailing Distance education Classroom education Unmanned aircraft Manned aircraft Semiconductors Vacuum tubes MP3 players and music downloading Compact discs and music stores Smartphones MP3 players, dedicated GPS navigation Tablets Notebook computers Xbox, PlayStation, Smartphones Desktop computers 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 company’s demise. With a disruptive innovation, companies may not be given the opportunity to be laggards.

Real World Example- Wi-Fi in the Sky Airline passengers don’t want to be deprived of Wi-Fi- enabled digital devices So, airlines are rushing to comply Aircell’s cellular ground-based “GoGo” service has been installed on over 2,000 aircraft Row 44’s satellite service is installed in Southwest’s entire fleet Some airlines offer Internet access for free, others charge customers In 2013, the FCC lifted a ban on cell-phone use, allowing Airplane mode throughout the duration of flight Voice calls are still banned, due to annoyance, not danger of signal interference

Industry Analysis: Education Cost of higher education in the United States has steadily increased (16% every five years) Average college graduate owes $30,000 in student loans Trend in globalization—increased collaboration in research and curriculum Trend in online delivery—leads to cost savings, but may be less engaging to students Massively open online courses (MOOCs)—free to students

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