1. Competing through IT and the Value Chain

2. The Value Chain Support Activities Primary Activities Firm
Infrastructure
Finance
Accounting
Regulatory
Compliance
Legal
Quality
Management
Human
Resources
Management
Support Activities
Technology
Development
Procurement
Value Chain = collection of activities that are performed to design, produce, market, deliver, and support its product. Value = amount buyers are willing to pay for what a firm provides them.
Objective: provide more value or same value at a lower cost
Scope of analysis?
Value Chain versus Value System (extended value chain)
Margin = difference b/w total value (revenue) and collective cost of performing value activities.
Primary activities = core activities involved with creation of product, sales, transfer, & service
Inbound logistics = receiving, storing, and disseminating inputs to the product
Operations = transforming inputs into the final product form
Outbound logistics = physically distributing the finished product to buyers
Marketing and Sales = inducing and facilitating buyers
Service = enhance or maintain the value of the product
Support activities = purchased inputs, human resources, & technology
Infrastructure = support entire VC, “overhead” source of competitive adv; e.g., ISs
HRM = comp adv through skills and motivation; e.g., Andersen Consulting
Technology dev = knowledge, procedures, technology; e.g., steel - process technology
Procurement = function of purchasing inputs used in the firm’s VC; canning operations
Use VC to analyze where a firm can add value & create competitive advantage to implement strategy
Supply chain and demand chain; buy side, the inside, and the sell side
Functional stovepipe issues?
Each value activity also uses and creates information such as buyer data (order entry) & QA
Y2K issues
Primary Activities
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
and Sales
Service

3. Computer Reservation System and
The Value Chain for American Airlines
Firm
Infrastructure
Finance
Accounting
Regulatory
Compliance
Legal
Quality
Management
Human
Resources
Management
Recruiting, Hiring, Training, Development, Compensation, and Labor Negotiations
Margin
Technology
Development
Computer Reservation System and
Electronic Ticketing
Aircraft acquisition
Fuel
Food
People movers
Media agency services
Transportation services
Procurement
Route Selection
Flight Scheduling
Crew Scheduling
Yield Mgt.
System
Gate Operations
Ticket Counter
Operations
Aircraft
Onboard
Service
Baggage
Handling
Ticket Offices
Baggage
System
Flight
connections
Rental Car
and Hotel
Reservation
Promotion
Advertising
Frequent
Flyer
Travel Agent
Programs
Group Sales
Electronic
Tickets
Lost
Baggage
Service
Complaint
Follow-up
Margin
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
and Sales
Service

4. Analyzing the VC for IT Opportunities
Improving Effectiveness
Changing the Activity
Altering the Relationship between Activities

5. What would the Value Chain look like for Wal*Mart, according to Porter?
How can your emerging technology topics be used within Wal*Mart’s value chain?

6. The Value Chain for Wal-Mart
Firm
Infrastructure
Finance
Accounting
Regulatory
Compliance
Legal
Quality
Management
Human
Resources
Management
Recruiting, Hiring, Training, Development, Compensation, and Labor Negotiations
Margin
Technology
Development
Inventory Management System
Satellite Communications System
Transportation services
Merchandise
Property
Data
Media agency services
Transportation services
Procurement
Receive inventory
Store inventory
Distribute inventory
Cross-docking
Stock shelves
Price merchandise
Store operation
POS
Authorize payments
Advertising
Traiting
process
Process refunds
Traiting = using IS to index product movements in the store to over a thousand store and market traits - allowed merchandise to be tailored to individual markets
Training is decentralized
Cross-docking technique = direct transfer from in-bound vehicles to store-bound vehicles (10%)
Wal-Mart stores devote 10% of sq footage to inventory vs. industry ave. of 25%
IS/IT budget = 0.5% of sales versuse 1.43% industry ave.
EDI
Electronic invoicing with more than 65% of vendors
EFT
Retail Link 101 Terabyte Data Warehouse
Wal-Mart currently averages 120,000 complex data mining questions each week.
Wal-Mart Online
Samsclub.com
Margin
Inbound
Logistics
Operations
Outbound
Logistics
Marketing
and Sales
Service

7. Wal-Mart, Amazon. com and Drugstore
Wal-Mart, Amazon.com and Drugstore.com Reach Settlement Agreement – April 5, 1999
“The computer systems and business processes at Wal-Mart have been developed in-house by our associates over many years. We will continue to protect the proprietary systems and processes that provide Wal-Mart with a competitive advantage.”
Robert Rhoads, Wal-Mart Senior Vice President and General Counsel
“What we’ve built here doesn’t exist anywhere else. They’ve replicated things that are proprietary. All their ideas about retail distribution come from here.
It’s targeted raiding.”
Randy Mott, Wal-Mart CIO
Dell Engineers have more than 200 process-related patents!

8. The Virtual Enterprise Today
Buy
Make / Add Value
Sell
Suppliers
Back Office
Front Office
Customers
ERP & Electronic Commerce
Manufacturing
Finance
Engineering
Sales
Support / Service
Marketing
Supply
Chain
Front / Back-Office
Integration
Demand
Chain
Source: The Yankee Group

9. Risks of IT Success Change basis of competition Lower entry barriers
Bring on litigation
Increase partners’ power
Bad Timing
Short-term advantages
Inadequate understanding of market