CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems.

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CHAPTER 2 Organizational Strategy, Competitive Advantage, and Information Systems

CHAPTER OUTLINE 2.1 Business Processes 2.2 Business Process Reengineering and Business Process Management 2.3 Business Pressures, Organizational Responses, and Information Technology Support 2.4 Competitive Advantage and Strategic Information Systems 2.5 Business – Information Technology Alignment

Learning Objectives 1. Understand the concept of business processes, and provide examples of business processes in the functional areas of an organization. 2. Differentiate between the terms business process reengineering and business process management. 3. List and provide examples of the three types of business pressures, and describe one IT response to each.

Learning Objectives (continued) 4. Identify the five competitive forces described by Porter, and explain how the Web impacts each one. 5. Describe the strategies that organizations typically adopt to counter the five competitive forces and achieve competitive advantage. 6. Define business – information technology alignment, and describe the characteristics of effective alignment.

Chapter Opening Case Dana Deasy Solution: Reduce number of vendors First problem Dana Deasy Solution: Reduce number of vendors

Chapter Opening Case (continued) BP’s attempted solution BP’s second problem: Deepwater Horizon well exploded

Before the Stores (IT’s About Business 2.1)

Competitive Advantage Competitive advantage is an advantage over competitors in some measure such as cost, quality, or speed; leads to control of a market and to larger-than-average profits.

2.1 Business Processes Business Process Cross-Functional Business Processes A business process is a collection of related activities that produce a product or a service of value to the organization, its business partners, and/or its customers. A cross-functional business process is one in which no single functional area is responsible for its execution.

Example of Business Process (Figure 2.1) The next slide shows an example of a business process: Ordering an E-ticket from an airline Web site

Frequent Flyer Mileage Sufficient? Receive Ticket Order Traveler Airline Web Site Seats Available NO Notify Traveler Plan Trip YES Reserve Seats Check Flights NO Frequent Flyer Mileage Sufficient? Use Credit Card? NO Seats Available? NO YES YES Charge Credit Card YES Subtract Mileage Submit Ticket Order Charge OK? NO Notify Traveler Receive e-Ticket YES Confirm Flight(s) Issue e-Ticket

2.2 Business Process Reengineering and Business Process Management Business process reengineering is a radical redesign of a business process that improves Its efficiency and effectiveness, often by beginning with a “clean sheet.” Business process management is a management technique that includes methods and tools to support the design, analysis, implementation, management, and optimization of business processes.

2.3 Business Pressures, Organizational Responses, and IT Support Market Pressures Technology Pressures Societal Pressures Business Pressure - The business environment is the combination of social, legal, economic, physical, and political factors that affect business activities. Significant changes in any of these factor are likely to create business pressure on the organization. The three types of business pressures faced are: market, technology, and societal pressures.

Business Pressures, Organizational Responses, and IT Support

Market Pressures The Global Economy and Strong Competition The Changing Nature of the Workforce Powerful Customers

The Stages of Globalization (From Thomas Friedman in The World is Flat) Globalization 1.0 (from 1492 to 1800) Globalization 2.0 (from 1800 to 2000) Globalization 3.0 (from 2000 to the present) Globalization 1.0 * 1492 to 1800 * World went from large to medium-size * All about countries and muscles * Key agents of change: brawn and horsepower Globalization 2.0 * 1800 to 2000 * World has shrunk from medium to small-size * Key agent of change: multinational companies * First half: global integration powered by falling transportation costs (steam engine and railroad) * Second half: global integration powered by falling telecommunications costs (telephone, PC, satellites, fiber-optic cable) Globalization 3.0 * 2000 – now * World is now tiny (everyone is everyone else’s close neighbor) * Competitive playing field is being leveled * Key agent of change: software, in conjunction with the global fiber-optic network * Enabling people to collaborate and compete globally

Globalization 1.0 Christopher Columbus Christopher Columbus “discovering” the New World in 1492.

Globalization 2.0 (first half) Railroads Global integration during the first half of Globalization 2.0 was driven by falling transportation costs (for example, steam engine and the railroads). Steam engine

Globalization 2.0 (second half) Fiber optics Satellites Global integration during the second half of Globalization 2.0 was driven by falling communications costs (e.g., satellites, fiber optics, the personal computer, and wireless smart phones). Tablet computers Smart phones

Globalization 3.0 Key agent of change: software, in conjunction with the global fiber-optic network enabling people to collaborate and compete globally 3.0 2.0 1.0

Globalization 3.0 (continued) Schematic Map of the Internet

Thomas Friedman’s Ten Flatteners Fall of the Berlin Wall Netscape goes public Development of work-flow software

Friedman’s Ten Flatteners (continued) Uploading Outsourcing Offshoring Call center in India

Friedman’s Ten Flatteners (continued) Supply chaining Insourcing Informing

Friedman’s Ten Flatteners (continued) The Steroids Computing Charles Babbage’s Difference Engine (1822) Modern data center

The Steroids (continued) Instant messaging and file sharing Voice over Internet Protocol

The Steroids (continued) Videoconferencing A telepresence system in a conference room

The Steroids (continued) Computer graphics

The Steroids (continued) Wireless technologies Using smart phone in motion Geostationary satellite Bluetooth phone sunglasses

Sleek Audio (IT’s About Business 2.2) Reverse Offshoring

Technology Pressures Technological Innovation and Obsolescence Information Overload

Technological Innovation and Obsolescence Obsolescence: Slide Rule Innovation: Early calculator

Technological Innovation and Obsolescence (continued) Innovation: Telegraph Obsolescence: Pony Express

Technological Innovation and Obsolescence (continued) Obsolescence: old analog camera Innovation: digital camera

Technological Innovation and Obsolescence (continued) Horse and Buggy Innovation: Ford Model T

Information Overload

Societal/Political/Legal Pressures Social Responsibility Government Regulation and Deregulation Protection Against Terrorist Attacks Ethical Issues

Green IT See CBS video on disposal of e-waste Clicking on the Ares, Osaka, and Las Vegas logos will take you to their respective Web sites. See CBS video on disposal of e-waste

Web sites that enable generosity Collaborative Consumption Clicking on the logos will take you to the respective Web pages.

Social Responsibility (continued) Bridging the Digital Divide Getting the satellite dish to the rural hamlet * Interesting juxtaposition of Agricultural Age and Information Age

Social Responsibility (continued) One Laptop per Child initiative Bridging the Digital Divide

Organizational Responses Strategic Systems Customer Focus Make-to-Order and mass customization See Reebok See Bodymetrics video E-business and E-commerce Strategic Systems provide advantages that enable organizations to increase market share and/or profits, to better negotiate with suppliers, or prevent competitors from entering their markets. Customer Focus is the difference between attracting and keeping customers by providing superb customer service to losing them to competitors. Make-to-Order is a strategy of producing customized products and services. Mass Customization is producing a large quantity of items, but customizing them to fit the desire of each customer. Reebok and Bodymetrics provide excellent examples of mass customization. E-business and E-commerce: Buying and selling products and services electronically. E-business is a broader concept than e-commerce.

2.4 Competitive Advantage and Strategic Information Systems Competitive Advantage: An advantage over competitors in some measure such as cost, quality, or speed, leads to control of a market and to larger- than average profits. Strategic Information Systems (SIS) provide a competitive advantage by helping an organization to implement its strategic goals and to increase its performance and productivity.

Porter’s Competitive Forces Model The best-known framework for analyzing competitiveness is Michael Porter’s competitive forces model (Porter, 1985). * Model is used to develop strategies to increase their competitive edge. * Demonstrates how IT can make a company more competitive. Michael Porter

Porter’s Competitive Forces Model

Porter’s Competitive Forces Model 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.

Porter’s Competitive Forces Model 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.

Porter’s Competitive Forces Model 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.

Porter’s Competitive Forces Model 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.

Porter’s Competitive Forces Model The rivalry among firms in an industry is high when there is fierce competition and low when there is not.

Porter’s Value Chain Model This model identifies specific activities where organizations can use competitive strategies for greatest impact. Primary activities Support activities Primary activities are those business activities that relate to the production and distribution of the firm’s products and services, thus creating value for which customers are willing to pay. Primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and customer service. Support activities do not add value directly to a firm’s products and services, but support the primary activities. Support activities include accounting, finance, management, human resources management, product and technology development (R&D), and procurement.

Porter’s Value Chain Model

Strategies for Competitive Advantage Cost Leadership Differentiation Innovation Operational Effectiveness Customer-orientation 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. Customer-orientation. Concentrate on making customers happy.

Strategies for Competitive Advantage Figure 2.5

2.5 Business – Information Technology Alignment

Chapter Closing Case