ISM 158 Business Information Strategy Lecture 2 IT Strategy

Introductions Kevin Ross Office hours: Tuesday 3:30pm – 5pm –(or by appointment) E2 room 559

Overview and update Website now has schedule of presentations and readingsWebsite Any questions from last week? –Quizzes –Projects –Presentations –Cases/Reading

ISM 158: Lecture 2 “This class considers the role of information in business strategy. In particular, we focus on decisions regarding information technology and information systems to give a business competitive advantage over other companies” Today we focus on identifying strategies and the role of IT in strategy

The Embedding of IT IT now embedded in: –Definition and execution of strategy –Organization and leadership of businesses –Definitions of unique value propositions Every business definition is morphing before our eyes –Markets –Industries –Strategies –Firm designs Information is now a major economic good

What is a Business Model? Defines how enterprise relates to environment –Strategy aligns organization with environment –Resources in and out –How value is created for stakeholders –Sets goals and ways to achieve them

Fig 1.1 Components of a Business Model

Intra-Industry Rivalry Strategic Business Unit Bargaining Power of Buyers Bargaining Power of Suppliers Substitute Products and Services Potential New Entrants Porter Competitive Model

What is driving competition in the current or future industry? What are current or future competitors likely to do and how can a company respond? How can a company best posture itself to achieve and sustain a competitive advantage? Competitive Model Focus

Competitive Model Forces Intra-industry Rivals: Strategic Business Unit (SBU) and major rivals. Buyers: Categories of major customers. Suppliers: Categories of major suppliers that play a significant role in enabling the SBU to conduct its business. New Entrants: Companies that are new as competitors in a geographic market or existing companies that through a major shift in business strategy will now directly compete with the SBU. Substitutes: An alternative to doing business with the SBU.

Intra-Industry Rivalry SBU: UCSC Rivals: UC campuses, CSU, Private universities, Community Colleges Bargaining Power of Buyers Bargaining Power of Suppliers Substitute Products and Services Potential New Entrants Faculty Staff Equipment and Service Suppliers Alumni Foundations Governments IT Vendors Internet Distance Learning Books and Videotapes Computer-Based Training Company Education Programs Students Parents Businesses Employers Legislators Foreign Universities Shift in Strategy by Universities or Companies Porter Competitive Model Education Industry – Universities U.S. Market

Role of Technology through Porter perspective: Can we… 1. Build barriers to prevent a company from entering an industry? 2. Build in costs that would make it difficult for a customer to switch to another supplier? 3. Change the basis for competition within the industry? 4. Change the balance of power in the relationship that a company has with customers or suppliers? 5. Provide the basis for new products and services, new markets or other new business opportunities

Porter Competitive Strategies Differentiation Strategies Innovation Strategies Growth Strategies Alliance Strategies Cost Leadership Strategies Primary Strategies Supporting Strategies

Strategic Vision Service Concept What are important elements of the service to be provided, stated in terms of results produced for customers? How are these elements supposed to be perceived by the target market segment, by the market in general, by employees, by others? How do customers perceive the service concept? What efforts does this suggest in terms of the manner in which the service is designed, delivered, marketed?

Strategic Vision Operating Strategy What are important elements of the strategy: operations, financing, marketing, organization, human resources, control? On which will the most effort be concentrated? Where will investments be made? How will quality and cost be controlled: measures, incentives, rewards? What results will be expected versus competition in terms of, quality of service, cost profile, productivity, morale/loyalty of servers?

Strategic Vision Service Delivery System What are important features of the service delivery system including: role of people, technology, equipment, layout, procedures? What capacity does it provide, normally, at peak levels? To what extent does it, help insure quality standards, differentiate the service from competition, provide barriers to entry by competitors?

Seeking Out Low-cost Customers Standardizing a Custom Service Reducing the Personal Element in Service Delivery (promote self- service) Reducing Network Costs (hub and spoke) Taking Service Operations Off-line Competitive Strategies (Overall Cost Leadership)

Making the Intangible Tangible (memorable) Customizing the Standard Product Reducing Perceived Risk Giving Attention to Personnel Training Controlling Quality Note: Differentiation in service means being unique in brand image, technology use, features, or reputation for customer service. Competitive Service Strategies (Differentiation)

Strategic Focus Competitive Use of Information On-line (Real time) Off-line (Analysis) External (Customer) Creation of barriers to entry: Reservation system Frequent user club Switching costs Data base asset: Selling information Development of services Micro-marketing Internal (Operations) Revenue generation: Yield management Point of sale Expert systems Productivity enhancement: Inventory status Data envelopment analysis (DEA) Competitive Role of Information in Services

Anti-competitive (Barrier to entry) Fairness (Yield management) Invasion of Privacy (Micro-marketing) Data Security (Medical records) Reliability (Credit report) Limits in the Use of Information

Strategy Audit of Company Market/Channel position –Who are customers? –How to reach them Product position –What products/services to offer –Features, price Value chain/value network position –Role with respect to suppliers, producers, distributors, partners Boundary Position –What won’t you do?

Fig 1.2 Analyzing Competitive Forces and Strategic Positioning

Understand Customers

Understand Competitors

Understand Market and Product

Fig 1.3 Product/Market Positioning in the US Retail Financial Services Industry, 1990

Understand Partners

Understand Societal Context

Strategic Shifts Strategy changes over time Flow of information makes this possible –Enhancement (improve existing) –Expansion (launch new) –Extension (new business or business model) –Exit (drop product/category/market/channel)

Fig 1.4 Options for Evolving Strategy

Fig 1.5 Categories of Strategic Risk

Fig 1.6 McFarlan’s Strategic Grid

Fig 1.7 Strategic Alignment Model Ideally, all four quadrants align to create value

Opportunities Can IT change basis for competition? Can IT change balance of power among buyers and supplyers? Can IT build or reduce barriers to entry? Can IT increase or decrease switching costs? Can IT add value to existing products and services or create new ones?

Risks Can emerging technologies disrupt current business models? Are we too early or too late to exploit IT opportunity? Does IT lower entry barriers? Does IT trigger regulatory action?

Fig 1.8 Analyzing Disruptive Technologies

Fig 1.9 Analyzing Cash Flow Curve

Questions

Presentation: Ingrid Gain

Tips for Reading Cases