1. Copyright 2004 John Wiley & Sons, Inc.2 - 1 Information Technology: Strategic Decision Making For Managers Henry C. Lucas Jr. John Wiley & Sons, Inc Dinesh Mirchandani University of Missouri – St. Louis

2. Copyright 2004 John Wiley & Sons, Inc.2 - 2 Copyright 2004 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.

3. Copyright 2004 John Wiley & Sons, Inc.2 - 3 Chapter 2 A Dynamic Model of IT Strategy In A Netcentric Economy

4. Copyright 2004 John Wiley & Sons, Inc.2 - 4 Information Technology’s Ability To Change Strategy IT can –Enable new strategies –Provide new ways to reach customers –Expand the markets in which the firm participates

5. Copyright 2004 John Wiley & Sons, Inc.2 - 5 Metrics for Evaluating Strategies Market share Number of markets in which a firm participates Number of new markets Sales growth Size of the average sale Sales per employee

6. Copyright 2004 John Wiley & Sons, Inc.2 - 6 Thinking Strategically Strategy is an approach to achieving a series of objectives Corporate strategy describes how a firm will achieve the vision of its senior management Corporate strategy and IT strategy are intertwined The new economy has created threats and opportunities for corporate strategy

7. Copyright 2004 John Wiley & Sons, Inc.2 - 7 E-Business An e-business –Recognizes that IT is a fundamental driver of success –Uses technology extensively in all its operations E-commerce is one aspect of e-business –Involves using networks (primarily the Internet) for the sale and purchase of goods and services

8. Copyright 2004 John Wiley & Sons, Inc.2 - 8 E-commerce Consists of two broad categories –Business to consumer (B2C) E.g., Buying books and music CDs over the internet –Business to business (B2B) E.g., Companies buying goods from their suppliers Has stimulated much greater competition and the rapid creation of new firm-specific resources (e.g., cash flows and venture capital) In a hypercompetitive economy, successful strategies allows firms to sustain competitive advantage for over a year

9. Copyright 2004 John Wiley & Sons, Inc.2 - 9 E-Business and E-Commerce Nature of BusinessDescriptionExample Electronic businessPervasive use of technology in the firm E-mail, electronic conferencing, automated transactions processing, ERP, CRM, knowledge management systems, etc. Electronic commerce Sell side To consumers (B2C) To other businesses (B2B) Buy side (B2B) Internet online store Electronic connection vendors to customers Businesses purchasing goods from suppliers online Amazon.com Wal-mart Internet EDI with vendors Procurement auctions, free markets

10. Copyright 2004 John Wiley & Sons, Inc.2 - 10 Corporate Strategy: Porter’s Value Chain The value chain divides a firm’s activities into two types –Primary: activities associated with the mission of the firm such as inbound logistics, operations, outbound logistics, marketing and sales, and service –Support: activities represented by the firm’s infrastructure such as human resources management, technology development, and procurement The Internet and electronic commerce have impacted the traditional value chain –E.G., Amazon.com has no physical stores and hence a smaller infrastructure which is easier to manage Comparing value chains can highlight the differences among business models based on the internet and web

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12. Copyright 2004 John Wiley & Sons, Inc.2 - 12 Porter’s Five Forces Model Forces that shape a firm’s competition –Competitive rivalry –The threat of new entrants –The bargaining power of suppliers –The bargaining power of buyers –The threat of substitutes The Internet has affected the five forces by –Lowering entry barriers for new firms –Creating substitutes for traditional businesses (e.G., Stock trading and music) –Creating new markets that change the way buyers and supplies interact

13. Copyright 2004 John Wiley & Sons, Inc.2 - 13 The Five Forces Model of Competition

14. Copyright 2004 John Wiley & Sons, Inc.2 - 14 Core Competencies View of Strategy Core competencies are the collective learning in the organization about how to integrate multiple technologies and coordinate diverse production capabilities A core competency –Should provide access to a wide variety of different markets –Should make a significant contribution to the end product –Should be difficult to imitate

15. Copyright 2004 John Wiley & Sons, Inc.2 - 15 Resource-Based Views of Strategy Firm resources are all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm Categories of resources –Physical –Human –Capital A firm has competitive advantage when it creates a successful non-duplicable strategy and immobile, heterogeneous resources that are rare, valuable, inimitable, and non-substitutable

16. Copyright 2004 John Wiley & Sons, Inc.2 - 16 Competitive Advantage in the Internet Economy

17. Copyright 2004 John Wiley & Sons, Inc.2 - 17 A Dynamic Resource-Based Model of Competitive Advantage in the Internet Economy Components of the Dynamic Model –Network Externalities and Critical Mass –Other Assets that make the Innovation succeed complementary, specialized or co-specialized assets –Lock-In and Switching Costs –Additional Resources continually added resources protect and enhance existing resources that are rare, valuable, inimitable, and non-substitutable –A System of Interacting Resources that create and sustain Advantage –Knowledge and Skills gained by Managers –Feedback Loop

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19. Copyright 2004 John Wiley & Sons, Inc.2 - 19 Summary To gain competitive advantage, firms have to create resources that are rare, valuable, inimitable, and non-substitutable The objective of a firm is to create an initial advantage, sustain that advantage, and to appropriate benefits from its innovative activities

20. Copyright 2004 John Wiley & Sons, Inc.2 - 20 Summary (Continued) A firm cannot succeed with a strategy alone and must first devise a business model Executing the business model and strategy requires highly capable managers who can respond to changes in the economy, environment, technology, and competitor actions