1. Chapter 2 Gaining Competitive Advantage Through Information Systems
“You’ve got a life. TiVo gets it.”
TiVo Incorporated advertisement motto.

2. Learning Objectives
2-2
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.

3. Learning Objectives
2-3
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.

4. Decision-Making Levels of an Organization

5. Operational Level 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.

6. Operational Level (cont’d)

7. Managerial Level Functional managers Managers’ decisions
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).

8. Managerial Level (cont’d)

9. Executive Level
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.

10. Executive Level (cont’d)

11. Organizational Functional Areas

12. Business Process Supported by Functional Area IS

13. Major IS Tasks: Business Value Added
Automating: Doing Things Faster
Organizational Learning: Doing Things Better
Supporting Strategy: Doing Things Smarter

14. Competitive Forces (Pressures on the Firm)

15. Pursuit of Competitive Advantage
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

16. How IS Enhances Firm’s Competitiveness

17. Use of IS in the Value Chain

18. Learning Objectives
2-18
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.

19. International Business Strategies in the Digital World
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

20. 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

21. Global Business Strategy
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

22. Multidomestic Business Strategy
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

23. Transnational Business Strategy
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

24. Learning Objectives
2-24
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.

25. Valuing Innovations
Which new technology will make or break your business?

26. Successful Innovation Is Difficult
Innovation is often fleeting.
The advantages gained from innovations are often short lived.
Innovation 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.

27. Organizational Requirements for Innovation
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.

28. Predicting the Next New Thing
Deciding which innovations to adopt is very difficult.
Diffusion of Innovations
Classic view of adoption of innovations

29. The Innovator’s Dilemma
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

30. Disruptive Innovations
1970s: mid- and high-performance users were bulk of the market
Digital Equipment Company (DEC) tried to sell to those markets
Microcomputers seen as “toys”

31. Disruptive Innovations (cont’d)
1980s: Microcomputers focusing on low-performance users’ needs
Ignored by DEC

32. Disruptive Innovations (cont’d)
1990s: Growing performance of Microcomputers, meeting mid-performance users’ needs
DEC lost biggest market segment

33. Disruptive Innovations (cont’d)
Today, micro-computers meeting entire market’s needs
DEC out of business
Next disruptive innovation: 3G and 4G mobile phones?

34. The Innovator’s Solution
Christensen outlines a process—disruptive growth engine—that helps organizations respond to disruptive innovations more effectively.
Start early.
Executive leadership.
Build a team of expert innovators.
Educate the organization.

35. Implementing the Innovation Process
E-Business Innovation Cycle
The key to success is the extent of IS use in timely and innovative ways.
Based on: Wheeler (2002)

36. E-Business Innovation Cycle
Choosing Enabling/Emerging Technologies
Based on: Wheeler (2002)
Process/ group devoted to looking for emerging IT

37. E-Business Innovation Cycle (cont’d)
Matching Technologies to Opportunities
Based on: Wheeler (2002)
Most promising new technology matched with current economic opportunities

38. E-Business Innovation Cycle (cont’d)
Executing Business Innovation for Growth
Based on: Wheeler (2002)
Stage at which the change is actually implemented

39. E-Business Innovation Cycle (cont’d)
Assessing Value
Based on: Wheeler (2002)
Value created for customers and internal operations assessed

40. Three Ways to Think About Investments in Disruptive Innovations
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.

41. Learning Objectives
2-41
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.

42. Freeconomics
Freeconomics—The leveraging of digital technologies to provide free goods and services to customers as a business strategy for gaining competitive advantage.

43. How Does Freeconomics Work (for Yahoo!)
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).

44. The Freeconomic Value Proposition
Someone, somewhere is paying for a services.
Value proposition includes more than just buyers and sellers.
Advertisers (see Google)

45. Approaches for Applying Freeconomics
Advertising
Freemium
Cross-Subsidies
Zero Marginal Cost
Labor Exchange
Gift Economy

46. End of Chapter Content
2-46

47. NET STATS Online Searching
To “Google” has become a household verb meaning search.

48. For Sale by Owner: Your Company’s Name.Com
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
Buy and hold general domain name (e.g., candy.com)
Direct web traffic to an aggregator (middleman) who designs a web site and taps into advertising networks
Searcher clicking on the domain name; advertiser pays domainer a fee

49. ETHICAL DILEMMA Underground Gaming Economy
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?

50. WHEN THINGS GO WRONG e-Waste Is a Global Problem
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 2002.
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.

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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