Q1 – How does organizational strategy determine information systems structure? Q2 – What five forces determine industry structure? Q3 – What is competitive strategy? Q4 – What is a value chain? 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? © Pearson Prentice Hall 2009 3-1

Q4 – What is a Value Chain? Each competitive strategy requires a system whose benefits outweigh the risks and provide value to the customer. Value is defined as the amount of money a customer is willing to spend on a product, service, or resource. The difference between the value that an activity generates and the cost of the activity is the margin. A value chain is a network of value-creating activities and is divided into primary activities and support activities. © Pearson Prentice Hall 2009 3-2

Primary Activities in the value chain include: Q4 – What is a Value Chain? Primary Activities in the value chain include: Inbound logistics activities involve receiving and managing raw materials. Operations activities transform raw materials into final products or create services. Outbound logistic activities deliver finished products to customers. Marketing and Sales activities create marketing strategies and sell products or services to customers. Services activities provide after-sale customer support for products or services. © Pearson Prentice Hall 2009 3-3

Primary Activities (example) Q4 – What is a Value Chain? Primary Activities (example)

Q4 – What is a Value Chain? Support Activities in the value chain indirectly enhance production of products and services. Firm infrastructure includes general management, finance, accounting, legal, and government affairs (if necessary). Human Resources recruits, compensates, evaluates and trains employees. Technology Development includes research and development for new processes or techniques. Procurement finds suppliers and vendors for raw materials, creates contracts, and negotiates prices of raw materials. © Pearson Prentice Hall 2009 3-5

Fig 3-5 Porter’s Value Chain Model Value Chain Rundown Q4 – What is a Value Chain? Fig 3-5 Porter’s Value Chain Model Value Chain Rundown © Pearson Prentice Hall 2009 3-6

Q4 – What is a Value Chain? Each activity in a value chain links to other activities in the value chain. Linkages are the interactions across the value activities. Understanding a company’s linkages helps it succeed in designing or redesigning its business process. Rather than automating or improving existing functional systems, Porter contends companies should create new, more efficient business processes that integrate the activities of the entire value chain. © Pearson Prentice Hall 2009 3-7