1. PPT Slides by Dr. Craig Tyran & Kraig Pencil Using IT for Competitive Advantage MIS 320 Kraig Pencil Summer 2013

2. PPT Slides by Dr. Craig Tyran & Kraig Pencil A. Game Plan Role of Information Technology Competitive Advantage, Strategy and IS IS and the “Value Chain” Competitive Forces

3. PPT Slides by Dr. Craig Tyran & Kraig Pencil B. Role of Information Technology (IT) 1.Conception of information technology – and status – has evolved 1950s2000s Number Crunching Report Generation Decision Support Strategic Weapon

4. PPT Slides by Dr. Craig Tyran & Kraig Pencil B. Role of Information Technology (cont.) 2.A key goal for business (and MIS 320) Learn to recognize and identify opportunities for strategic applications of IT 3.How to do this??? Combine Strategy concepts Business knowledge IS knowledge  Multiple perspectives are required

5. PPT Slides by Dr. Craig Tyran & Kraig Pencil C. Competition and Strategy 1. Positioning is key Competition is fierce Can’t be “all things to all people” To survive, organizations adopt a specific “strategy” 2. Ways to gain competitive advantage: Examples Cost leadership strategy: Do it cheaper. Cost efficiency, lower prices Differentiation strategy: Do it better. Quality, speed, caché Innovation strategy Operational effectiveness strategy Customer orientation strategy

6. PPT Slides by Dr. Craig Tyran & Kraig Pencil D. IT to Support Strategy 1. Use IT to support a business strategy Align IS projects with strategy  Support the organization’s game plan 2. Example: Two Frameworks for Analysis Value Chain Analysis Competitive Forces Analysis

7. PPT Slides by Dr. Craig Tyran & Kraig Pencil E. IS and the Value Chain 1.A popular framework to help identify useful strategic applications for IS: Value chain 2.Value chain “Value”: Something that customers will pay for Create value via a desired product or service, or Image making (e.g., marketing of soft drinks) Goal: Value > Costs of doing business “Chain”: Activities are linked, interdependent 3. “VC analysis”: Identify critical business activities and linkages  Identify IS projects that can add value or decrease costs.

8. PPT Slides by Dr. Craig Tyran & Kraig Pencil Value Chain Activities The Value Chain includes nine common categories of organizational “activities” Support Activities Primary Activities Light green areas  Costs Dark green area  Excess value  Profits

9. PPT Slides by Dr. Craig Tyran & Kraig Pencil E. IS and the Value Chain (cont.) 3. Value chain: Linkages One kind of VC linkage the information exchanged between “Activities” Internal linkage: Information between activities within one firm External linkage: Information between activities between different firms Examples of linkages: see figures 

10. PPT Slides by Dr. Craig Tyran & Kraig Pencil Internal Linkages: Examples A. Sales sends production request to Production Dept (“Operations” activity) B. Production Dept (“Operations” activity) sends raw materials request to Warehouse (“Inbound Logistics” activity)

11. PPT Slides by Dr. Craig Tyran & Kraig Pencil External Linkages: Examples Supplier Desk Chair, Inc. (DCI) Corporate Buyer B. Supplier’s Outbound Logistics activity sends shipment invoice (and shipment) to DCI’s Inbound Logistics activity C. DCI’s Marketing/Sales activity sends marketing and sales related information to Buyer’s Procurement activity A. DCI’s Procurement activity sends purchase order to Supplier’s Marketing/Sales activity

12. PPT Slides by Dr. Craig Tyran & Kraig Pencil E. IS and the Value Chain (cont.) 4. Value chain analysis ID the critical activities and linkages Change the activities and linkages … To add value to the product To reduce the cost VC analysis requires understanding … Industry Strategy for the firm Activities of the firm What is possible I.e., VC analysis for IS requires non-technical and technical employees

13. PPT Slides by Dr. Craig Tyran & Kraig Pencil E. IS and the Value Chain (cont.) 5. Three examples of adding value through IS. Marketing activities: Personalized ads (see Amazon) Internal linkage: Delivery guarantee (see Talbot Ties) External linkage: Rapid order fulfillment (see Portland Pine Products)

14. PPT Slides by Dr. Craig Tyran & Kraig Pencil IS & Value Chain Analysis: Amazon – a Value-Added Activity Problem: How to encourage follow-up purchases? How to target ads to the needs/wants of the customer? Solution: Add value to Marketing activities through data mining. “Customers who have purchased ABC also enjoy XYZ.” Data mining can reveal patterns, such as what products certain types of consumers might be interested in.

15. PPT Slides by Dr. Craig Tyran & Kraig Pencil Inbound Logistics ProductionOutbound Logistics Marketing/SalesService IS & Value Chain Analysis: Talbot Ties – New Live Linkages Problem: Sales people do not know inventory status and therefore cannot guarantee delivery on time. Solution: Add value by creating a new linkage between Sales and Warehousing. Sales activities: In-stock guarantee: Support better information on what products are available for the customer How? Live linkage between Sales and Warehousing. Request Inventory Status Send Inventory Status Product Database Field Rep

16. PPT Slides by Dr. Craig Tyran & Kraig Pencil IS & Value Chain Analysis: Portland Pine Products – Redraw Linkages Portland Pine Products Customer Linkage between Customer and PPP for orders was a critical linkage. Problem: Time wasted via “back and forth” flows. (dotted arrows) New approach: Eliminate the bottle neck by using IT to empower the Warehouse to accept/process orders. (solid arrows) Problem: Paperwork delays Solution: Rapid order fulfillment by rerouting and automating the linkage to/from external customer, bypassing Marketing

17. PPT Slides by Dr. Craig Tyran & Kraig Pencil E. IS and the Value Chain (cont.) 5. Application of VC analysis to IS Conclusion: How to spend the IS budget??? Prioritize IS projects based on VC analysis Ensure that new IS will address critical needs and … be aligned with organization’s strategy

18. PPT Slides by Dr. Craig Tyran & Kraig Pencil F. Competitive Forces 1.The business world is a competitive place! Many forces may be acting on the firms within an industry 2.Porter’s “Five Forces Model” Examples of forces

19. PPT Slides by Dr. Craig Tyran & Kraig Pencil Porter’s Five Forces Model Threat of New Entrants Buyer Bargaining Power Supplier Bargaining Power Threat of Substitutes Current Competition

20. PPT Slides by Dr. Craig Tyran & Kraig Pencil F. Competitive Forces (cont.) 3.Information technology (IT) can be used to address the forces Examples Using IT to gain bargaining power over buyers Using IT to gain bargaining power over suppliers Creating entry barriers with IT

21. PPT Slides by Dr. Craig Tyran & Kraig Pencil Using IT as an Entry Barrier

22. PPT Slides by Dr. Craig Tyran & Kraig Pencil G. Strategic Information Systems 1. Strategic information system (SIS) –A system that significantly shapes or supports an organization’s strategy –A famous SIS: Dell’s “sell-source-ship” approach to the PC retailing process Approach was enabled by IS applications

23. PPT Slides by Dr. Craig Tyran & Kraig Pencil IT for Competitive Advantage: Dell Computer Example Traditional Retail Model: Buy-Hold-Sell –Buy: PC Retailer buys from maker/distributor –Hold: PCs sit in warehouse, sit on store shelves –Sell: Sell PC Note: Some PCs are sold – and some are not Direct Sell Model: Sell-Source-Ship –Sell: Customer buys a PC online –Source: PC components are purchased (sourced) & assembled using “Alliance Partners” –Ship: PC is shipped to customer Note: No unsold PCs – only sold PCs

24. PPT Slides by Dr. Craig Tyran & Kraig Pencil G. Strategic Information Systems (cont.) Competitive Advantage  Competitive Necessity 2. Sustainability of Strategic Information Systems Is a SIS going to provide competitive advantage forever??? Not likely  Business landscape changes over time Need to reanalyze VC and competitive forces periodically  Modify/enhance SIS, develop new SIS, etc.

25. PPT Slides by Dr. Craig Tyran & Kraig Pencil Using IT as an Entry Barrier FedEx 1979 –COSMOS: creates a centralized computer system to manage people, packages, vehicles … 1989 – launches an on-board communications system that uses satellite tracking to pinpoint vehicle location 1994 –launches fedex.com as the first transportation Web site to offer online package status tracking, enabling customers to conduct business via the Internet. 1999 –enables easy access to online merchants that offer fast, reliable FedEx express shipping http://about.fedex.designcdt.com/our_company/company_information/fedex_history/fedex_timeline