Information Systems for Competitive Advantage Using MIS 4e Chapter 3 Information Systems for Competitive Advantage

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Study Questions Q1: How does organizational strategy determine information systems structure? Q2: What five forces determine industry structure? Q3: How does analysis of industry structure determine competitive strategy? Q4: How does competitive strategy determine value chain structure? Q5: How do business processes generate value? Q6: How does competitive strategy determine business processes and the structure of information systems? Q7: How do information systems provide competitive advantages? Q8: 2021? Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Q1: How Does Organizational Strategy Determine Information Systems Structure? Organizations examine the structure of their industry and determine a competitive strategy Competitive strategy determines value chains determine business processes Structure of business processes determines design of supporting information systems Figure 3-1 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Q2: What Five Forces Determine Industry Structure? Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Q2: What Five Forces Determine Industry Structure? (cont’d) Five Forces at FlexTime Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Q3: How Does Analysis of Industry Structure Determine Competitive Strategy? Porter’s Four Competitive Strategies Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

FlexTime Competitive Strategy Focus downtown Urban, city workers Sophisticated environment Adults only Provide superior product, intense, to-the-max workouts that leave clients “pumped and excited” Focus, Differentiated Strategy Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Q4 How Does Competitive Strategy Determine Value Chain Structure? Value is amount of money a customer is willing to pay for a resource, product, or service. Difference between value an activity generates and its cost is called margin. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Support Activities in the Value Chain Support Activity Description Technology R & D, New Techniques, Methods, Procedures Procurement Raw Materials Human Resources Training, Recruiting, Compensation Firm Infrastructure General Management, Finance, Accounting, Legal, Government Affairs Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Bicycle Maker’s Value Chain Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Value Chain Linkages Interactions across value activities readily supported by information systems Manufacturing systems use linkages to reduce costs Sales forecasts to plan production Production plan used to determine raw materials needs Material needs used to schedule purchases Just-in-time inventory Reduced Inventory sizes and costs Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Q5 How Do Business Processes Generate Value? Network of activities that generate value by transforming inputs into outputs Business process Cost of inputs plus cost of activities Cost of a business process Equals value of the outputs minus cost Margin of a business process Transforms input resources into output resources Activity Flow between or among activities Resources Inventories, store physical items Facilities store resources Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Three Examples of Business Processes for Bicycle Manufacturer Materials ordering process transforms cash into a raw materials inventory Manufacturing process transforms raw materials into finished goods Sales process transforms finished goods into cash Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Three Business Processes for Bicycle Manufacturer (cont’d) Notice activities get data resources from databases and put data into databases Business processes vary in cost and effectiveness. Streamlining business processes to increase margin (add value, reduce costs, or both) is key to competitive advantage Querying both databases allows purchasing department to make decisions on raw materials quantities and customer demand With this data, purchasing can reduce size of raw materials inventory, reducing production costs and add margin to value chain Example of using a linkage across business processes to improve process margin: Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Improved Ordering Process Purchase Bicycle Parts activity queries both raw materials inventory database and finished goods inventory database Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Ethics Guide: Yikes! Bikes You are the operations manager for Yikes! Bikes, a manufacturer of high-end mountain bicycles New owners being deceitful about their plans to turn company into a low-cost, low-service producer. Most employees will lose their job, but new owners not being honest with employees about that New owners say you might be promoted to new general manager. Should you trust them? Q: Should you tell employees what you know? Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Q6 How Does Competitive Strategy Determine Business Processes and Structure of Information Systems? Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Q6 How Does Competitive Strategy Determine Business Processes and Structure of Information Systems? (cont’d) Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

High-Service Business Bike Rental Extensive use of information systems Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Bottom Line Organizations analyze their industry and choose a competitive strategy Given a strategy, business processes to span value-generating activities are designed Those processes determine scope and requirements of each organization’s information systems Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Q7: How Do Information Systems Provide Competitive Advantages? Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Two Ways to Respond to the Five Competitive Forces Creating new products or services Enhancing existing products or services Differentiating By cost By quality Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Competitive Advantage via Business Processes Lock in customers By creating high switching costs Lock in suppliers Make it easy to connect to and work with your organization Create entry barriers Establish alliances Creating better business processes Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

How Does an Actual Company Use IS to Create Competitive Advantages? Superior customer service Making it easy for customers to do business by minimizing data entry: Drop-down lists, automatic fill-ins, contact lists for customers Minimizing data-entry errors ABC, Inc., an actual company, created a competitive advantage in shipping industry by: Following slides shows some web pages of ABC’s information system Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

ABC, Inc. Web Page to Select Recipient from Customer Records Fig3-14 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

ABC, Inc. Web Page to Select Contact from Customer Records Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

ABC, Inc., Web Page to Specify Email Notification Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

ABC, Inc., Web Page to Print a Shipping Label Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

How Does This System Create a Competitive Advantage? Enhancing existing products Differentiating products Locking in customers Raising barriers to market entry Increasing profit margins by decreasing costs and decreasing errors Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Q8 2021? What Does Flextime Look Like in 2021? Assume FlexTime keeps pace with emerging research on optimal workout schedules (www.angelfire.com/wa3/loserschallenge/cardio.html, www.sportsci.org/jour/0101/cf.htm) Could develop information systems to track client workouts and intensity, then relate data into net cardiovascular benefits. Could correlate workout data with dietary data and client weight loss or gain. Maybe provide data to medical insurers and help its active clients to obtain reductions in medical insurance premiums. FlexTime could, but should it? Is it worthwhile for FlexTime to develop such systems? Optimist view Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Pessimistic View No longer a single business entity. Maybe it becomes a federation of trainers, workout spaces, dieticians, and recreational sports leagues. Federation uses free data storage, data communication, and emerging collaboration tools and systems to appear as a virtual organization to clients, but is composed of independently owned and operated small business entities. Who knows? Suppose economic downturn proves too much for FlexTime and it is forced to reconfigure into a shadow of former self Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Guide: Limiting Access to Those Who Have Access Digital divide segregates “haves” and “have-nots” Using the Internet is a matter of access to knowledge Advantages accrue to those who have easy access Digital divide between those who have Internet access and those who don’t Divide deepens education, income, social differences Internet access might be available at public places, but: Not everyone served Not as convenient as home access Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Intellectual capital resides on Internet readily available Benefits of Access Intellectual capital resides on Internet readily available Cheaper product customer support Reduces warehousing costs Reduces mailings costs Benefits for businesses Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Issues to Think About What groups of people in the United States are not connected to the Internet? Does it make sense for benefactors, such as Bill and Melinda Gates, to provide access to those in poverty? What keeps the elderly from accessing the Internet? Should the government help the elderly? What could be done to provide Internet access for the poorly educated? What role, if any, could local governments have? State? Federal? United Nations? Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Issues to Think About If you are from outside the United States, what is the connectivity situation in your country? Is there a digital divide there? Are some countries more behind in connectivity trends than others? What does this mean for their ability to compete? What does this mean for citizens of those countries? Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Take Away from Guide Knowledge grows exponentially—just like capital Digital divide can create or worsen social problems Businesses and government should explore their responsibilities with respect to the digital divide Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Guide: Your Personal Competitive Advantage Who will be your competitors when you seek a job after you graduate from college? What will be your competitive advantage in the job market? What can you do before you graduate to develop your competitive advantage? Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall

Guide: Your Personal Competitive Advantage (cont’d) Switching costs? Differentiating products? Creating barriers? Establishing alliances? Reducing costs, increasing revenues? How could these concepts help you get and keep a job? Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall