1. 6-1 Chapter 2 Information Systems For Competitive Advantage www.pearsoned.ca/jessup Robert Riordan, Carleton University

2. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-2 Business Strategy Streamline Business Processes Solidify Business Relationships/ Improve Customer Service Maximize Technology Benefits Improve Profitability & Reduce Costs Reach Global Markets

3. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-3 Strategy and Competitive Advantage Sources of Competitive Advantage Having the best-made product on the market Delivering superior customer service Achieving lower cost than rivals Having proprietary manufacturing technology Having shorter lead-times in developing and testing new products Having a well-known brand name and reputation Giving customers more value for their money Achieving Strategy Providing support in a way that enables the firm to gain or sustain competitive advantage over rivals Achieving Strategy Providing support in a way that enables the firm to gain or sustain competitive advantage over rivals

4. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-4 The roadmap for e-business strategy implementation addresses nine interrelated issues What are the customer segment(s) to target and what is our value proposition to each segment? What is the vision for our company? Vision 1 Objectives What are the objectives of our e-business strategy? 2 Value creation What value do we want to offer through our e-business strategy? 3 Target segment(s) 4 What organisational model should we apply? Organisational model 7 External partners Should we implement our e-business strategy alone or with external partners? 6 Strategy alignment How is our e-strategy aligned with our physical strategy? Revenue and cost model What is our cost and revenue model? 8 Privacy, ethical and legal issues What kind of privacy concerns, ethical and legal issues do we need to consider? 5 9 Developing a Competitive Business Strategy

5. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-5 Developing a Competitive Business Strategy

6. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-6 Three generic strategies 1.Cost leadership 2.Differentiation 3.Focused strategy Developing a Competitive Business Strategy

7. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-7 Business process - a standardized set of activities that accomplishes a specific task, such as processing a customer’s order. Value chain - views the organization as a chain – or series – of processes, each of which adds value to the product or service for the customer. Developing a Competitive Business Strategy

8. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-8 Developing a Competitive Business Strategy

9. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-9 Use the value chain to: –Plan for a better way of meeting customer demands. –Identifying processes that add value. –Identifying processes that reduce value. Developing a Competitive Business Strategy

10. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-10 How does a business optimize its value process? Developing a Competitive Business Strategy

11. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-11 Differentiator – adding value to the process Developing a Competitive Business Strategy

12. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-12 Just-in-time - an approach that produces or delivers a product or service just at the time the customer wants it. Supply chain - consists of the paths reaching out to all of a company’s suppliers of parts and services. Collaborative planning, forecasting, and replenishment (CPFR) - a concept that encourages and facilitates collaborative processes between members of a supply chain. Developing a Competitive Business Strategy

13. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-13 Three capabilities made possible by the Internet are: 1.Mass customization and personalization 2.Disintermediation 3.Global reach Key E-Commerce Strategies

14. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-14 Mass customization - a business gives its customers the opportunity to tailor its product or service to the customer’s specifications. Personalization - a Web site can know enough about your likes and dislikes that it can fashion offers that are more likely to appeal to you. Collaborative filtering - a method of placing you in an affinity group of people with the same characteristics. Key E-Commerce Strategies

15. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-15 Key E-Commerce Strategies – Mass Customization

16. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-16 Key E-Commerce Strategies - Personalization

17. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-17 Key E-Commerce Strategies – Collaborative Filtering

18. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-18 Disintermediation – using the Internet as a delivery vehicle, intermediate players in a distribution channel can be bypassed. Key E-Commerce Strategies

19. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-19 SuppliersManufacturer Channel Partners Resellers VARS Customers “Infomediary ” Middlemania: The emergence of the “Infomediary” Key E-Commerce Strategies

20. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-20 Global reach - the ability to extend reach to customers anywhere there is an Internet connection, and at a much lower cost. Key E-Commerce Strategies

21. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-21 The U.S. Airline Industry The airlines really began using IT in a significant way when American Airlines and United Airlines introduced the first airline reservations systems. –SABRE –APPOLO

22. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-22 Frequent flyer programs are a great example of using IT to alter Porter’s five forces. –They reduced buyer power by making it less likely a traveler would choose another airline. –They reduced the threat of substitute products or services by increasing switching costs. –They erected entry barriers by making a frequent flyer program a practical necessity for any airline to compete effectively. The U.S. Airline Industry

23. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-23 Yield management systems are designed to maximize the amount of revenue that an airline generates on each flight. Yield management systems are the reason that an airfare you’re quoted over the phone can be $100 higher when you call back an hour later. The U.S. Airline Industry

24. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-24 The U.S. Airline Industry

25. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-25 Expert surveys have estimated that the number of travel agents in the U.S. will be sharply reduced as a result of disintermediation. The U.S. Airline Industry

26. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-26 Recurring/Non-Recurring and Tangible/Intangible Recurring vs. Non-Recurring Recurring - Ongoing costs or benefits identified in a business case (IT staff to support system) Non-Recurring - One-time costs or benefits identified in a business case (software purchase) Tangible vs. Intangible Tangible - Cost and benefits that are easily identified (e.g. headcount or labour cost) Intangible - Cost and benefits that are not easily identified (i.e. increased customer service) Business cases typically include both Recurring/Non- recurring and Tangible/Intangible costs and benefits

27. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-27 Sources of differentiation Tangible sources Speed of delivery Convenience Customisation Intangible sources Reputation Brand Product range Quality Tangible and intangible sources of differentiation Developing a Competitive E-Business Strategy

28. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-28 Tangible and Intangible Benefits Tangible benefitsIntangible benefits Increased sales from new sales leads giving rise to increased revenue from: new customers, new markets existing customers (repeat-selling) existing customers (cross-selling). Marketing cost reductions from: reduced time in customer service online sales reduced printing and distribution costs of marketing communications. Supply-chain cost reductions from: reduced levels of inventory increased competition from suppliers shorter cycle time in ordering. Administrative cost reductions from more efficient routine business processes such as recruitment, invoice payment and holiday authorization. Corporate image communication Enhancement of brand More rapid, more responsive marketing communications including PR Faster product development lifecycle enabling faster response to market needs Improved customer service Learning for the future Meeting customer expectations to have a web site Identifying new partners, supporting existing partners better Better management of marketing information and customer information Feedback from customers on products

29. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-29 Company Internal infrastructure Supplier network Customer network The business value chain impacts three broad areas of organization activity Source: PricewaterhouseCoopers, Gartner Group Value Chain Integration

30. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-30 Supplier network Customer network Develop products Perform marketing Superior customer service Configure and manufacture to order Capacity optimisation Real time matching of supply and demand Data visibility Perform sales Production Customer service Manage logistics Procurement Value Chain Systems Applications Opportunities Value Chain Integration

31. Information Systems Today, 2/C/e ©2008 Pearson Education Canada 6-31 Procurement Perform marketing Production Customer service Perform sales Manage logistics Develop products “The Virtual Value Network” Supplier network Customer network Value Chain Integration