1 MP3 / MM740 Strategy & Information Systems Module 2: Strategy Concepts & Frameworks Fall 2002 © Copyright , John M. Gallaugher, Ph.D

2 Lecture Topics Operational Effectiveness vs. Strategic Positioning Porter’s 5 Forces / ICA Porter’s Value Chain Model Resource-based Theory –IS as resource & enabler Why Successful Firms Fail –disruptive technologies –options theory & technology experimentation

3 How Do We Know If An Asset or Assets Yield Sustainable Advantage? Rareness –Is the asset in limited supply or difficult to acquire? Value –Does the asset yield value to the firm/customers? Imperfectly Imitable –Is the asset impossible to imitate? Non-Substitutable –Is the asset without comparable substitutes?

4 SWOT Analysis Organizational Analysis Environmental Analysis Strengths Weaknesses Opportunities Threats

5 ICA: Industry & Competitive Analysis (Porter’s Five Forces) Industry Competitors Potential New Entrants Substitute products or services Power of Suppliers Power of Buyers

6 Competitor related threats –Growth industry w/above average profits –Fragmented industry - no clear leader / national brand –Low startup costs –Lack of scale economies –Low differentiation –Weak brands / low customer loyalty –Low customer switching costs –Available distribution networks –Technology & Regulatory shifts –Similar products/services/industries exist

7 Addressing Competitive Threats –Economies of Scale –Product Differentiation –Proprietary technology, learning curve/know-how, geography –Contrived Deterrence over-capacity, pre-announcements –Government Regulation –Switching Costs and Network Effects –Create / secure distribution channels –Preemptive Cannibalization –Alliances (with complementary firms & competitors)

8 Supplier related threats Small number of suppliers Suppliers sell highly differentiated products Suppliers not threatened by substitutes Firm is not an important customer for suppliers Suppliers threaten forward integration Information asymmetries

9 Addressing the supply-side Foster relationships with more suppliers Acquire & leverage information Lower product complexity - turn supplier products into commodities –be less dependent on a given supplier Integrate backwards Tightly integrate suppliers into your operations –make suppliers more dependent on your firm

10 Lowering Product Complexity Commodities Differentiated Goods PRODUCT COMPLEXITY LOW HIGH Information Systems Examples Computer Aided Design (CAD) Computer Aided Engineering (CAE) Computer Aided Manufacturing (CAM) Integrated Robotics

11 Buyer related threats Small number of buyers Buyers purchase commodity products Products sold to buyers consume a high portion of the product’s final cost Buyers are not earning significant economic profits Buyers threaten backward integration Information asymmetries

12 Addressing the buy side Seek or create new buyers / new markets Acquire & leverage information Reduce buyer costs / assist buyer in expanding markets Differentiate products Tightly integrate with buyers Integrate forwards

13 Differentiating Products Commodities Differentiated Goods LEVEL OF CUSTOMIZATION LOW HIGH Examples Customer-driven Ordering Systems Just In Time (JIT) Manufacturing Systems Information Systems

14 Value Chain InboundOperationsOutboundMarketingService logisticslogistics& Sales Infrastructure: general mgmt, planning, finance, IS HRM: recruiting, hiring, training, and development Tech. Development: R&D Procurement

15 Six Sigma Six Sigma is a highly disciplined process focusing on developing and delivering near-perfect products and services. (3.4 defects per million) DMAIC – (Define, Measure, Analyze, Improve and Control) –DEFINE the Customer, their Critical to Quality (CTQ) issues, and the Core Business Process involved. –MEASURE the performance of this defined process. –ANALYZE this information to pinpoint where things are going wrong and where improvement opportunities exist. –IMPROVE the process and eliminate the error. –CONTROL the improvements to keep the process on the new course.

16 IS as a Resource Competitive advantage is sometimes achieved through multiple resources IS can be an enabler –enabling latent advantages in an organization that are not effectively utilized IS can create new resources –reshaping market dynamics –over time (e.g. databases)

17 IS as an Enabler IS resource yields competitive advantage –(ex. Alcoa) Competitive Advantage Scale, World-leading mfg. & sales Integrated IS across plants / offices

18 Creating / Enhancing Resources Created when resources combine for additional benefit. –e.g. embedded technology Competitive Advantage Service Network Monitoring IS R & D Exceptional Service Superior Products

19 Time-Based Resources Resources may yield additional advantages/ opportunities over time Competitive Advantage Customer Database Growth Over Time

20 HyperCompetition Profits from a competitive advantage launch exploitation counter-attack Profits from a competitive advantage

21 Product Performance Time Performance demanded at the high end of the market Performance demanded at the low end of the market Progress due to sustaining technologies Disruptive technological innovation Progress due to sustaining technologies Existing profit, staffing, and customer pressures stall innovation Traditional market & financial analysis cause blindness Why Do Leaders Fail?

22 Creating the Killer-App Blindness & Pressures –existing customers & market pressure –financial performance measures Identify Technologies –external conversations (VCs, academics, technologists) –internal conversations (engineering, mktg, planning) Managing an Option Portfolio of Innovations –separate organizations –hedge financial risk, market focus, incentive