1. Competing with Information Systems
Learning Unit 2

2. Information Systems for Automating: Doing Things Faster
Primary Activities
of Loan Processing
Manual Loan Process
Technology-Supported
Fully Automated
Complete and submit
application
Completed at home (1.5 days)
Completed online (15 minutes)
Check application
for errors
Done in batches (2.5 days)
Computerized
(3.5 sec)
Input data into the
information system
NA some paper handling (1 hr)
NA (already done)
Assess loan apps under $250K
Done by hand
(15 days)
Computer assisted
(1 hr)
Computer processed (1 sec)
Committee decides if loan over $250k
Applicant notified
Batches (5 days)
(1 day)
(3.5 sec)
Total time
25 to 40 days
5 to 20 days
15 min to 15 days

3. Information Systems for Organizational Learning: Doing Things Better
Information systems can track and identify trends and seasonality
Managers can use this to plan staffing levels and cross-training
Information systems can track information and identify how the business is functioning in general and at different times of the year.
Managers can learn from this information and utilize it to run the business more efficiently, planning in advance how they handle seasonal demand fluctuations, or change business processes which are flawed and generating problems, such as approving loans that will be defaulted.

4. Information Systems for Supporting Strategy: Doing Things Smarter
Firms have a competitive strategy
Information systems should be implemented to support the organization’s strategy
A strategic mentality towards information systems results in finding ways to use information systems to achieve a chosen strategy by innovation, streamlining operations, or optimizing the value chain
A strategic view of information systems results in creating a computer based loan application process to process loans faster and better than rivals
Although automating and learning are good approaches to information systems, ensuring that expenditures are for systems that match the corporate strategy is also critical.
It wouldn’t make sense for a low-cost car manufacturer to implement a highly sophisticated and very expensive quality control system that rivaled the quality control systems of Mercedes, because that isn’t why customers are buying their cars, and the system wouldn’t generate an appropriate return in investment.

5. Identifying Where to Compete: Analyzing Competitive Forces
Companies need to understand the forces acting within the industry and on their organization. Michael Porter created this framework in 1979 (Porter’s 5 Forces) that is still widely used to this day.

6. Porter’s Generic strategies, value chain and roles of information system
Traditional competitors; Rivalry among Existing Firms in an Industry
All firms share market space with competitors who are continuously devising new products, services, efficiencies, switching costs
Rivalry is high when there is fierce competition and low when there is not.
Identify an example of an industry with high rivalry among existing firms.

7. Porter’s Generic strategies, value chain and roles of information system
New Market Entrants; Threat of Entry of New Competitors
Some industries have high barriers to entry, e.g. computer chip business
New companies have new equipment, younger workers, but little brand recognition
Threat of entry of new competitors is high when it is easy to enter a market and low when significant barriers to entry exist.
A barrier to entry is a product or service feature that customers expect from organizations in a certain industry.
For most organizations, the Internet increases the threat that new competitors will enter a market.
Identify industries with high and low barriers to entry.

8. Porter’s Generic strategies, value chain and roles of information system
Bargaining Power of Suppliers
Market power of suppliers when firm cannot raise prices as fast as suppliers
The bargaining power of suppliers is high when buyers have few choices and low when buyers have many choices.
Internet impact is mixed. Buyers can find alternative suppliers and compare prices more easily, reducing power of suppliers.
On the other hand, as companies use the Internet to integrate their supply chains, suppliers can lock in customers.
Identify industries with high and low bargaining power of suppliers.

9. Porter’s Generic strategies, value chain and roles of information system
Bargaining Power of Customers
Can customers easily switch to competitor’s products? Can they force businesses to compete on price alone in transparent marketplace?
The bargaining power of buyers is high when buyers have many choices and low when buyers have few choices.
Internet increases buyers’ access to information, increasing buyer power.
Internet reduces switching costs, which are the costs, in money and time, to buy elsewhere. This also increases buyer power.
The Internet increases buyer power.
Identify industries with high and low bargaining power of customers.

10. Porter’s Generic strategies, value chain and roles of information system
Substitute products and services
Substitutes customers might use if your prices become too high, e.g. iTunes substitutes for CDs
The threat of substitute products or services is high when there are many substitutes for an organization’s products or services and low where there are few substitutes.
Information-based industries are in the greatest danger from this threat (e.g., music, books, software). The Internet can convey digital information quickly and efficiently.
The Internet can increase the threat of substitute products and services for digital goods.
Identify industries with substitute products.

11. Influence of the Internet on Competitive Forces
Implication for Firm
Internet Influence on Competitive Force
Rivals within your
industry
Competition in price, product distribution, and service
Geographic reach, ease of product comparison, price competition
New entrants
Increased capacity in industry, reduced prices and market share
Reduced entry barriers and eased critical resource access
Customers’ bargaining power
Reduced prices, demand for better quality and service
Wider customer choices, lower switching costs, higher customer bargaining power
Suppliers’ bargaining power
Increased costs and reduced quality
Equalized access to suppliers
Threat of substitute products
Potential returns on product, decreased market share, customer loss
New substitutes created by Internet and IT
Information systems can help offset many competitive forces, such as computer-aided design and manufacturing, to help firms meet customer demands when customers have a high degree of bargaining power.

12. Sources of Competitive Advantage

13. Initiative 1: Reduce Costs
Customers want to pay little for service
Reduce costs to lower price
Automation greatly reduces costs
Web can automate customer service
Example ?

14. Massive Automation Example ..
JetBlue used Open Skies software to automate ticket handling
Greatly reduced travel agent fees
Maintenance information system logs airplane parts and time cycles
Flight planning automated with application
Training management system eliminates need for paper records

15. Initiative 2: Raise Barriers to Market Entrants
Less competition is better for company
Raise barriers to entrants to lower competition
Techniques include obtaining copyrights and patents on inventions, techniques, and services
Building unmatchable information systems blocks entrants
Example ?

16. Initiative 3: Establish High Switching Costs
Switching costs: incurred when customer stops buying from company and starts buying from another company
Explicit: charge customer for switching
Implicit: indirect costs over period of time
High switching costs locks in customers
Example ?

17. Enhanced Service.. Increase switching cost
JetBlue offers better service
Leather seats
Real-time television
Fewest mishandled bags
Better security
Example ?

18. Initiative 4: Create New Products or Services
Having unique product or service gives competitive advantage
First mover: organisation that is first to offer a new product or service
Superior brand name, better technology, more experience
Critical mass: body of clients that is large enough to attract other clients
Example ?

19. Initiative 5: Differentiate Products or Services
Product differentiation: persuading customers that product is better than competitors’
Achieved through advertising
Exemplified by brand name success
Promotes brand name
Example ?

20. Initiative 6: Enhance Products or Services
Enhance existing products or services to increase value to consumer
Many products and services have been enhanced by the Web
Example ?

21. Initiative 7: Establish Alliances
Alliance: two companies combining services
Makes product more attractive
Reduces costs
Provides one-stop shopping
Affiliate program: linking to other companies and rewarding the linker for click-throughs
Example ?

22. Initiative 7: Establish Alliances (continued)

23. Initiative 8: Lock in Suppliers or Buyers
Accomplished by achieving bargaining power
Bargaining power: leverage to influence buyers and suppliers
Achieved by being major competitor or eliminating competitors
Uses purchase volume as leverage
Lock in clients by creating high standards
Example ?

24. Identifying How to Compete: Choosing a Generic Strategy
Determining how a company competes is one of the most important decisions an organization must make. This model will help organizations determine how best they can compete in the market place to counter the effects of the five forces.

25. Competitive Strategies:
We can further extend these strategy to ..
Cost Leadership Strategy
Differentiation Strategy
Innovation Strategy
Growth Strategy
Alliance Strategy

26. Using IS to Combat Competitive Forces
Implication for Firm
Potential Use of Information Systems
Rivals within your
industry
Competition in price, product distribution, and service
Reduce costs, use the Internet to increase service
New entrants
Reduced prices and market share
Inventory control to manage excess capacity, Internet to differentiate products
Customers’ bargaining power
Reduced prices, demand for better quality and service
CRM to improve service, CAD/CAM
Suppliers’ bargaining power
Increased costs and reduced quality
Use internet to work with new distant suppliers
Threat of substitute products
Decreased market share, customer loss
Better assess customer needs, use CAD to design better products

27. Using IT for Competitive Strategies
Other Examples?

28. Using Information Systems to Achieve Competitive Advantage
The Internet’s impact on competitive advantage
Transformation, destruction, threat to some industries
E.g. travel agency, printed encyclopedia, newspaper
Competitive forces still at work, but rivalry more intense
Universal standards allow new rivals, entrants to market
New opportunities for building brands and loyal customer bases

29. The Value Chain and Strategic IS
Value Chain – the series of activities that add value to products/services
Primary Processes – directly related to manufacture of products or delivery of services
Support Processes – business activities that support daily operations of the firm and indirectly contribute to products/services
How does the value chain model different from the Porter model?

30. The Value Chain and Strategic IS
The Value Chain can help identify where and how to apply strategic capabilities of IT

31. Identifying How to Compete: Role of IS in the Value Chain
Value chain analysis can highlight opportunities in which information systems implementation can make an organization more effective and efficient, and secure a competitive advantage.
By identifying your cost structure at each level of the value chain and benchmarking against your competitors, you can identify changes that will enhance your performance.

32. Becoming An Agile Company
4 Basic Strategies:
Customer Perception of Goods and Services
Partnering with Customers, Suppliers, and Even Competitors
Organize to Thrive on Change and Uncertainty
Leverage Impact of Personnel and Their Knowledge

33. Becoming An Agile Company

34. Strategic Information Technology (IT)
Today technology is often the actual cause and driver of business strategies
(Information) Technology
Business Strategies
Examples of business strategies that are driven by IT?

35. The Technology/Strategy Fit
There are never enough resources to implement every possible IS improvement
There are usually never enough resources to implement every financially beneficial IS improvement
Companies that focus on the improvements and business process changes that help their value creation strategy the most will see the greatest competitive benefit

36. Creating and Maintaining Strategic Information Systems
Many opportunities to accomplish competitive edge with information technology
Innovative software establishes competitive advantage
Strategic information systems created from scratch or modified from previous system
Must serve organisation goal
Must collaborate with other functional units of company

37. Creating an SIS
Strategic information system must be part of the overall organisational strategic plan
Precisely measuring financial output of SIS is difficult

38. Creating an SIS (continued)

39. Reengineering and organisational Change
To implement SIS, organisations must rethink way of operation
Reengineering: Eliminating and rebuilding operations from the ground up
Involves new machinery and elimination of management layers
Achieves huge efficiency improvements
New SIS requires businesses to revamp processes

40. Competitive Advantage as a Moving Target
Competitive advantage is often short-lived
organisations imitating leader diminishes advantage
SIS has become expected business practice
Company must modify and enhance technology to sustain competitive advantage

41. Ford on the Web: A Failure Story
Some strategic moves end up being colossal failures
May fail because of lack of attention to details
Unable to predict customer or business partner response
Jacque Nasser, CEO of Ford: ideas failed

42. The Ideas Nasser eager to push company to Web
Install devices in vehicles to enable drivers and passengers to access Web
Establish Web site to market parts with auctions
Push vehicle sales to Web

43. Hitting the Wall Customers not interested in Web access in vehicles
Other car companies learned to use online part auctioning
Franchising laws do not allow car companies to bypass dealers
Online sales initiative failed

44. Assessing Value for the IS Infrastructure
Economic Value
Direct financial impact
Architectural Value
Extending business capabilities today and in the future
Operational Value
Enhancing ability to meet business requirements
Regulatory and Compliance Value
Complying with regulatory requirements
Information systems add value to companies in several ways.
There are both direct financial impacts, and indirect impacts such as enabling an organization to make changes in the future or strengthening the business processes so organizations are readily able to meet business requirements without having to constantly make exceptional efforts. Finally there is the value of meeting current and future regulatory requirements.

45. Putting It All Together: Developing a Successful Business Model
A business model reflects the following:
What does a company do?
How does a company uniquely do it?
In what way (or ways) does the company get paid for doing it?
What are the key resources and activities needed?
What are the costs involved?
How a company answers these questions dictates:
what industry the company is competing in
how competitive it is in that industry
what if any competitive advantage the company enjoys, and
how profitable the company is or can be.

46. Using Information Systems to Achieve Competitive Advantage
Information systems can improve overall performance of business units by promoting synergies and core competencies
Synergies
When output of some units used as inputs to others, or organizations pool markets and expertise
Example: merger of Bank of NY and JPMorgan Chase
Purchase of YouTube by Google

47. Using Information Systems to Achieve Competitive Advantage
Core competencies
Activity for which firm is world-class leader
Relies on knowledge, experience, and sharing this across business units
Example: Procter & Gamble’s intranet and directory of subject matter experts

48. Using Information Systems to Achieve Competitive Advantage
Sustaining competitive advantage
Because competitors can retaliate and copy strategic systems, competitive advantage is not always sustainable; systems may become tools for survival
Performing strategic systems analysis
What is structure of industry?
What are value chains for this firm?
Managing strategic transitions
Adopting strategic systems requires changes in business goals, relationships with customers and suppliers, and business processes

49. Disruptive Innovations Examples
Displaced or Marginalized Technology
Digital photography
Chemical photography
Online stock brokerage
Full-service stock brokerages
Online retailing
Brick-and-mortar retailing
Distance education
Classroom education
Unmanned aircraft
Manned aircraft
Semiconductors
Vacuum tubes
MP3 players and music downloading
Compact discs and music stores
Smartphones
MP3 players, dedicated GPS navigation
Tablets
Notebook computers
Xbox, PlayStation, Smartphones
Desktop computers
Disruptive innovations can completely replace the technology they are disrupting, and a failure to recognize that a disruptive innovation is changing the market can easily lead to a company’s demise. With a disruptive innovation, companies may not be given the opportunity to be laggards.

50. Real World Example- Wi-Fi in the Sky
Airline passengers don’t want to be deprived of Wi-Fi- enabled digital devices
So, airlines are rushing to comply
Aircell’s cellular ground-based “GoGo” service has been installed on over 2,000 aircraft
Row 44’s satellite service is installed in Southwest’s entire fleet
Some airlines offer Internet access for free, others charge customers
In 2013, the FCC lifted a ban on cell-phone use, allowing Airplane mode throughout the duration of flight
Voice calls are still banned, due to annoyance, not danger of signal interference

51. Industry Analysis: Education
Cost of higher education in the United States has steadily increased (16% every five years)
Average college graduate owes $30,000 in student loans
Trend in globalization—increased collaboration in research and curriculum
Trend in online delivery—leads to cost savings, but may be less engaging to students
Massively open online courses (MOOCs)—free to students

52. Next ..
Information Systems and Decision making