Theories of Business Firms Understanding the Profit making behaviours of Firms Neoclassical Behavioural Agency Transaction Cost Value Chain Porter’s 5 forces of competition Explains what shapes the systematic structures of firms in responding to their external environments Systematic structures Cause drivers Why? Cause drivers Why? Impact drivers Why? Impact drivers Why? P/L = Revenue - Costs Customer, Performance, Scope & Scale Value Add

Neoclassical Theory Specialised Productions Inputs People Outputs Capital Products/Services The Perfect & Closed Systematic Efficiency  Perfect Competition Environment SupplySupplyDemandDemand Every decision is equal Info has little value add Little use for IT systems Maximised Profit Produce to sell to outside the firm

Behavioural Theory Behavioral Theory ResourcesPeopleProfit Satisfactory Every person contributes to Profit Info has value add HRMBudget Involvement of employees Diversity of employee’s motivations Management of employees’ performance People are irrational decision makers because of Varying different info access Varying different info access Varying decision making skills Varying decision making skills Varying time constrains Varying time constrains

Neoclassical Vs behavioural Theory QB4) What is the fundamental difference between the neoclassical view and the behavioural view of firms?

Agency Theory AgencyTheoryAgencyTheory ResourcesPeopleProfit Satisfactory People Agents ….but people are different and have different interests, motivation drivers, social status regards, profit expectations, etc Maximum Every decision is not equal Info has value add Decision support HRMBudget Full of People Issues Therefore costs because of Clashes in interests, personality, authority....

Transaction Cost Theory ResourcesPeopleProfitMaximum Cost Product/Services Capital Outputs Least for Most MarketValue Info has value add + Cost drivers Efficiency measures  productivity & budget Value drivers Market value measures  efficiency, effectiveness Efficacy Driven

Porter’s Value Chain More complex micro information needs Info has value add Managing & coordinating a firm’s activities to create Value Adds that contributes to higher Profits

Porter’s 5 Competitive Forces (Competitive Advantage of Firms) More complex micro & macro information needs Info has value add Basis for formulating Cost leadership strategies Value Differentiation strategies Niche – mix of the above

Porter’s Diamond Theory (Competitive Advantage of Nations) More complex micro & macro information needs Info has value add

Resource Based View of Firms Resources & Capabilities Skilled People Facilities Equipments Materials Methods of Work Design IP etc Products & Services Goods Production Service Provisioning InputsOutputs Short term Inputs Short term Inputs Long term Competitive Advantage Long term Competitive Advantage

Core Competencies Resources & Capabilities Skilled People Facilities Equipments Materials Methods of Work Design IP etc Products & Services Goods Production Service Provisioning InputsOutputs Core Competencies Sustainable Value Unique Difficult to imitate What are the characteristics of resources that enable competitive advantage?

Core Competencies Resources & Capabilities Skilled People Facilities Equipments Materials Methods of Work Design IP etc Products & Services Goods Production Service Provisioning InputsOutputs Core Competencies Sustainable Value Unique Difficult to imitate Can an IS by itself provide a business with sustainable competitive advantage?

Core Competencies Resources & Capabilities Skilled People Facilities Equipments Materials Methods of Work Design IP etc Products & Services Goods Production Service Provisioning InputsOutputs Core Competencies Sustainable Value Unique Difficult to imitate According to RBVF theory, whenever identical firms populate an industry, any one firm CANNOT enjoy sustained advantage? Do you agree?

TheoryInformation Requirements Neoclassical Behavioural Agency Transaction Cost Value Chain 5 Forces Resource based view of firms Class work Static  batch Dynamic  real-time

Strategy Planned Strategies Planned Strategies Accidental Strategies Accidental Strategies Intended / Deliberate Emergent Realised Realised strategies = Goals Achievements Unrealised Unrealised strategies = Goals Achievement Gaps Realised emergent Achievements A strategy is a set of coordinated actions intended to: 1.Give a firm business advantage in one or more locations 2.Achieve some underlying enterprise goals that shape this business advantage

Strategy Perspectives Also different information capture & reporting perspectives Structure – Control Frameworks Risks Enhancers Contents – The Plans SWOT patterns & leverage actions Context – The Reasons Business /social positions

Different Organisational Perspectives Market / Product Strategies Business Unit Strategies Corporate Strategies Locations IT systems need to provide information at different organisational to product level perspectives & by different locations and therefore their different currencies, legal compliance reporting systems, etc

Types of International Strategies IT systems need to cater for these different strategies’ information needs, eg: Strategy tracking systems Market intelligence systems ERP analytics CRM analytics

Assignment Case Study What challenges does Brian Smith faces in supporting Modemeter’s new business directions? CEO – John Johnson CIO Brian Smith Modmeters – North American firm globalising in 3 continents 1.Requiring ICT capacity to support global operations 2.Direct to Customer Sales Capacity 3.Name & Logo Change Deployment 1.Requiring ICT capacity to support global operations 2.Direct to Customer Sales Capacity 3.Name & Logo Change Deployment Countries ICT infrastructures are not the same: Hardware & software differences Support & maintenance differences Staff access & training differences Current systems - fragmented

Assignment Case Study CEO – John Johnson CIO Brian Smith Modmeters – North American firm globalising in 3 continents 1.Requiring ICT capacity to support global operations 2.Direct to Customer Sales Capacity 3.Name & Logo Change Deployment 1.Requiring ICT capacity to support global operations 2.Direct to Customer Sales Capacity 3.Name & Logo Change Deployment How to restructure – decentralised or centralised or both Capacity to support multi-location ICT service provisioning Multi-site coordination issues Change management issues in supporting new or terminating existing practices Different ICT infrastructure quality & capacities in countries People challenges – lacking capacities in cross culture communications and managing cultural diversity

Honda Supercub Macho man’s machine Nice people’s bike Dominant US brand & market share during the 1950s…… …. Introduced in 1959…… Now dominant brand & market share Japanese time based strategy ? Japanese emergent strategy ? 1.Is Honda’s US strategy deliberate? 2.Is this an emergent strategy? 3.What can happen if Honda promotes the budda’s eyebrow feature in the handlebar’s design in the past and NOW?