IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/ Chapter 2 Gaining Competitive Advantage Through Information Systems “You’ve got a life. TiVo gets it.” TiVo Incorporated advertisement motto. “You’ve got a life. TiVo gets it.” TiVo Incorporated advertisement motto.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Learning Objectives 1. Discuss how information systems can be used for automation, organizational learning, and strategic advantage. 2. Describe international business and IS strategies used by companies operating in the digital world. 3. Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage. 4. Describe freeconomics and how organizations can leverage digital technologies to provide free goods and services to customers as a business strategy for gaining a competitive advantage. 2-2

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/ Discuss how information systems can be used for automation, organizational learning, and strategic advantage. 2. Describe international business and IS strategies used by companies operating in the digital world. 3. Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage. 4. Describe freeconomics and how organizations can leverage digital technologies to provide free goods and services to customers as a business strategy for gaining a competitive advantage. Learning Objectives 2-3

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Decision-Making Levels of an Organization 2-4

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Operational Level 2-5 Day-to-day business processes Interactions with customers Decisions:  structured,  recurring, and  can often be automated using IS. IS used to:  optimize processes, and  understand causes of performance problems.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Operational Level (cont’d) 2-6

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Managerial Level 2-7 Functional managers  Monitor and control operational-level activities  Focus: effectively utilizing and deploying resources  Goal: achieving strategic objectives Managers’ decisions  Semistructured  Moderately complex  Time horizon of few days to few months IS can help with:  performance analytics (dashboards),  predictive analysis, and  providing key performance indicators (KPI).

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Managerial Level (cont’d) 2-8

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Executive Level 2-9 The president, CEO, vice presidents, board of directors Decisions  Unstructured  Long-term strategic issues  Complex and nonroutine problems with long-term ramifications IS is used to:  obtain aggregate summaries of trends and projections, and  provide KPIs across the organization.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Executive Level (cont’d) 2-10

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Organizational Functional Areas 2-11

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Business Process Supported by Functional Area IS 2-12

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Major IS Tasks: Business Value Added Automating: Doing Things Faster Organizational Learning: Doing Things Better Supporting Strategy: Doing Things Smarter 2-13

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Competitive Forces (Pressures on the Firm) 2-14

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Pursuit of Competitive Advantage 2-15 Best-made product Superior customer service Lower costs than rivals Proprietary manufacturing technology Shorter development/test lead times Well-known brand name More value for the money

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 How IS Enhances Firm’s Competitiveness 2-16

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Use of IS in the Value Chain 2-17

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/ Discuss how information systems can be used for automation, organizational learning, and strategic advantage. 2. Describe international business and IS strategies used by companies operating in the digital world. 3. Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage. 4. Describe freeconomics and how organizations can leverage digital technologies to provide free goods and services to customers as a business strategy for gaining a competitive advantage. Learning Objectives 2-18

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 International Business Strategies in the Digital World 2-19 The number of exclusively domestic companies is shrinking. Today’s large companies have some international business strategy for competing in global markets.  Home Replication Strategy  Multidomestic Strategy  Global Strategy  Transnational Strategy

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Home Replication Strategy International business as an extension of home business Strengths: focus on core competencies in home market Weakness: inability to react to local market conditions Appropriate use: homogeneous markets 2-20

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Global Business Strategy 2-21 Centralized organization with standardized offerings across markets Strengths: standardized product offerings allow achieving economies of scale Weakness: inability to react to local market conditions Appropriate use: homogeneous markets

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Multidomestic Business Strategy 2-22 Federation of associated business units; decentralized Strengths: ability to quickly react to local conditions Weakness: differing product offerings limit economies of scale, and limited inter-unit communication limits knowledge sharing Appropriate use: very heterogeneous markets

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Transnational Business Strategy 2-23 Some aspects centralized, others decentralized; integrated network Strengths: can achieve benefits of multidomestic and global strategies Weakness: difficult to manage; very complex Appropriate use: integrated global markets

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/ Discuss how information systems can be used for automation, organizational learning, and strategic advantage. 2. Describe international business and IS strategies used by companies operating in the digital world. 3. Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage. 4. Describe freeconomics and how organizations can leverage digital technologies to provide free goods and services to customers as a business strategy for gaining a competitive advantage. Learning Objectives 2-24

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Valuing Innovations 2-25 Which new technology will make or break your business?

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Successful Innovation Is Difficult 2-26 Innovation is often fleeting.  The advantages gained from innovations are often short lived. I nnovation is often risky.  Sometimes even superior products can lose the race.  Blu-ray vs. HD DVD Innovation choices are often difficult.  Foreseeing the future is not always possible.  In 1994, the Internet was not given much attention.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Organizational Requirements for Innovation 2-27 Process requirements— the organization has to be willing to do whatever it takes to implement the change. Resource requirements— need to have the human capital necessary for successful deployment of the system Risk tolerance requirements— organizational members must have appropriate tolerance of risk and uncertainty.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Predicting the Next New Thing 2-28 Deciding which innovations to adopt is very difficult. Diffusion of Innovations  Classic view of adoption of innovations

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 The Innovator’s Dilemma 2-29 Disruptive innovations  New technologies, products, or services that eventually surpass dominant technologies  Online vs. brick-and-mortar retailing  Automobiles vs. horses  CDs vs. records  MP3 vs. CDs  Undermine effective management practices

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Disruptive Innovations s: mid- and high- performance users were bulk of the market Digital Equipment Company (DEC) tried to sell to those markets Microcomputers seen as “toys”

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Disruptive Innovations (cont’d) s: Microcomputers focusing on low- performance users’ needs Ignored by DEC

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Disruptive Innovations (cont’d) s: Growing performance of Microcomputers, meeting mid- performance users’ needs DEC lost biggest market segment

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Disruptive Innovations (cont’d) 2-33 Today, micro- computers meeting entire market’s needs DEC out of business Next disruptive innovation: 3G and 4G mobile phones?

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 The Innovator’s Solution 2-34 Christensen outlines a process—disruptive growth engine—that helps organizations respond to disruptive innovations more effectively. 1. Start early. 2. Executive leadership. 3. Build a team of expert innovators. 4. Educate the organization.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Implementing the Innovation Process 2-35 E-Business Innovation Cycle  The key to success is the extent of IS use in timely and innovative ways. Based on: Wheeler (2002)

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 E-Business Innovation Cycle 2-36 Choosing Enabling/Emerging Technologies Process/ group devoted to looking for emerging IT Based on: Wheeler (2002)

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 E-Business Innovation Cycle (cont’d) 2-37 Matching Technologies to Opportunities Most promising new technology matched with current economic opportunities Based on: Wheeler (2002)

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 E-Business Innovation Cycle (cont’d) 2-38 Executing Business Innovation for Growth Stage at which the change is actually implemented Based on: Wheeler (2002)

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 E-Business Innovation Cycle (cont’d) 2-39 Assessing Value Value created for customers and internal operations assessed Based on: Wheeler (2002)

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Three Ways to Think About Investments in Disruptive Innovations 2-40 Put technology ahead of strategy.  Technology is so important to success, it needs to be considered first.  Strategy is developed afterwards. Put technology ahead of marketing.  Rapid development of technology makes it impossible for people to know what they want. Innovation is continuous.  New technologies are constantly being developed.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/ Discuss how information systems can be used for automation, organizational learning, and strategic advantage. 2. Describe international business and IS strategies used by companies operating in the digital world. 3. Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage. 4. Describe freeconomics and how organizations can leverage digital technologies to provide free goods and services to customers as a business strategy for gaining a competitive advantage. Learning Objectives 2-41

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Freeconomics 2-42 Freeconomics—The leveraging of digital technologies to provide free goods and services to customers as a business strategy for gaining competitive advantage.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 How Does Freeconomics Work (for Yahoo!) 2-43 Price is set by a product/service’s marginal costs. Marginal costs for digital services decrease tremendously. Yahoo! makes millions with free service (by placing ads).

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 The Freeconomic Value Proposition 2-44 Someone, somewhere is paying for a services. Value proposition includes more than just buyers and sellers.  Advertisers (see Google)

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 Approaches for Applying Freeconomics 2-45 Advertising Freemium Cross-Subsidies Zero Marginal Cost Labor Exchange Gift Economy

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 End of Chapter Content 2-46

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 NET STATS Online Searching 2-47 To “Google” has become a household verb meaning search.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 For Sale by Owner: Your Company’s Name.Com 2-48 Domainers  Buy and sell domain names, the “real estate” of the internet  Bought $9 billion in 2006 and $23 billion in 2009  One approach: buy a name and try to sell it (e.g., fordmotorcompany.com)  Alternative approach: rent advertising space on domain name to marketers 1. Buy and hold general domain name (e.g., candy.com) 2. Direct web traffic to an aggregator (middleman) who designs a web site and taps into advertising networks 3. Searcher clicking on the domain name; advertiser pays domainer a fee

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 ETHICAL DILEMMA Underground Gaming Economy 2-49 Massive Multiplayer Online Role-Playing Game— MMORPG  Virtual world—players live through avatars Players started selling virtual tools for real money—farmers  Banned from various gaming sites due to behavior being unethical and fear of turning users away What’s your take on farmers and people “buying” tools and advancement without mastering the skills?

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 WHEN THINGS GO WRONG e-Waste Is a Global Problem 2-50 Disposal of electronics containing hazardous materials is a rising issue. U.S. exports much of its e-waste to third world countries.  China banned the import in  Other countries to follow In mid 2006, EU banned toxic ingredients.  Production of “green” hardware In the United States, no federal legislation, but several states have e-waste laws. Pace of technological changes increases problem.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 10/24/2015 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall