ICA Framework Strategic Information Systems Use of IT to Weaken Competitive Forces Value Chain Analysis Use of Value Chain Analysis to Explore Potential IT Uses Generic Strategies & IT IT as a Competitive Weapon

Industry & Competitor Analysis (ICA) Framework  Intended for use as a tool to analyze the competition within an industry  Assumes that a business firm is in competition with the five forces within an industry.  If the collective intensity of the five competitive forces is high, then the overall intensity of intra-industry competition is high and thus the anticipated profit margin of a business is low.  Can be used to weaken the overall intensity of competition within an industry by coping with potential influence of the individual competitive forces.

The Five Competitive Forces Threat of New Entrants Threat of Substitute Products/Services Bargain Power of Suppliers Bargain Power of Buyers Competition among Existing Rivals Five competitive forces exert influence on industry competition, and the greater the competition, the smaller the business profit.

Properties of Competitive Forces ■ Bargaining power of buyers - Can be big if the buyer is a volume purchaser. - If B.P. of buyers is big, they may threaten to switch to other suppliers or may ask for a decrease in prices or an upgrade in quality. ■ Bargaining power of suppliers - Can be big if there are one or just a few suppliers in the marketplace. - If B.P. of suppliers is big, they may demand an increase in prices or a degrade in quality. ■ Threat of new entrants - Can be big, if entry barriers are low. - Entry barriers include sophisticated technology, capital investment, government regulations, etc. ■ Threat of substitute goods or services - Can be big, if the prices of substitute goods or services are low or if original products are in short supply. - e.g.) coffee vs. tea; sugar vs. Sweet & Low; wagon vs. minivan ■ Competition among existing rivalry - Conventional competition - Bases for competition: price, advertisement, product quality, service, and time

Traditional Information Systems Vs. Strategic Information Systems Traditional Information Systems Vs. Strategic Information Systems  Traditional Information Systems e.g., transaction processing systems focused on operational efficiency  Strategic Information Systems uses IT as a competitive weapon, beyond the efficiency-oriented use. generally uses IT to manipulate the competitive forces. designed to ultimately increase sales or a market share.

American Hospital Supply 사의 ASAP - on-line order entry/processing system - uses the telecommunications network between AHS and hospitals - all orders transmitted electronically from the purchasing department of hospitals - customer benefits: improved efficiency & ease of the purchasing process - AHS’ benefits: facilitation of order processing, increase of a market share Classic SIS Example #1

United Air 사의 Apollo - an airline reservation system - telecomunication lines installed between UA and travel agencies - a travel agent can use a terminal to access information on flights and seat reservations - manipulates information access by travel agents to UA’s advantage - customer benefits: easier access to information on flights/researvations - UA’s benefits: increase of a market share Classic SIS Example #2

Using IT to Create a Competitive Edge  Creation of switching costs decrease of the bargaining power of buyers e.g., order entry/processing systems  Shift in power balance via information monitoring decrease of the bargaining power of suppliers e.g., a network permitting access to information on prices/inventory at suppliers  Creation of entry barriers decrease of the threat of potential new entrants e.g., an advanced information system based on a sophisticated technology  Creation of secondary products/services e.g., subscription fees charged to travel agents for information access

Value Chain Analysis Inbound logistics Opera- tions Outbound logistics Marketing & sales After-sale service Corporate infrastructure (acct./fin., planning, admin.) Human resource management Technology development Procurement Profit (Comp. Advan.) Support activities Primary activities Each activity contributes value to the firm, and these values are added up to yield a profit.

 Primary Activities inbound logistics: receiving and storing input materials operations: transformation of materials into finished products outbound logistics: storing, and transporting to the site of sale, finished products marketing & sales: advertising, promoting and selling products after-sale service: providing service to maintain or improve product value  Support Activities corporate infrastructure: providing support for the entire value chain human resource management: recruiting, hiring, training, and developing manpower resources technology development: developing technology both for products and for the manufacturing process produrement: purchasing input materials Value Activities of a Business Firm

Using Value Chain Analysis to Find IT Use Inbound logistics (JIT, EDI, ) Opera- tions (CAD/ CAM, CIM) Outbound logistics (EDI) Marketing & sales (DSS) After-sale service (wireless comm.) Corporate infrastructure(groupware, , OA system) Human resource mgmt (performance eval. DB; online training) Technology development (CAD) Procurement (JIT, EDI) Profit (comp. Advan.) Support activities Primary activities Information technology can impact each and every activity in the corporate value chain.

 Cost Leadership Strategy - increases profit by significantly lowering costs - e.g., CAD/CAM, on-line order entry/processing system  Differentiation Strategy - creates a unique image for customers by differentiating products/services - e.g., virtual banking, online stock trading  Focus Strategy - attempts to occupy the market by effectively attacking a specific market segment - e.g., data warehousing Generic Strategies & IT