Chapter 8 value creation with information systems
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Chapter 8. Chapter 8 Value Creation with Information Systems. What theoretical and analytical models help managers identify opportunities to create added value with IT. Course Roadmap. Part I: Foundations Part II: Competing in the Internet Age

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Chapter 8 Value Creation with Information Systems

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Chapter 8 value creation with information systems

Chapter 8

Chapter 8Value Creationwith Information Systems

What theoretical and analytical models help managers identify opportunities to create added value with IT


Course roadmap

Course Roadmap

  • Part I: Foundations

  • Part II: Competing in the Internet Age

  • Part III: The Strategic use of Information Systems

    • Chapter 6: Strategic Information Systems Planning

    • Chapter 7: Value Creation and Strategic Information Systems

    • Chapter 8: Value Creation with Information Systems

    • Chapter 9: Appropriating IT-Enabled Value over Time

  • Part IV: Getting IT Done


Learning objectives

Learning Objectives

  • How to think in a disciplined fashion about the question of value creation with information systems resources.

  • How to use traditional models of value creation with information systems and information technology to identify and craft IT-dependent strategic initiatives, including industry analysis, value chain analysis, and the customer service life cycle framework.

  • How to incorporate information resources in your search for opportunities for value creation using emerging frameworks, including the virtual value chain and the customer data strategies framework.

  • How to devise and select initiatives that create value using organizational data.


Introduction

Introduction

  • Chapter 6 showed you how the strategic information systems planning process is designed to create an overall context for information systems decision making

  • Chapter 7 laid the foundation by explaining how you can analyze the impact of such initiatives

  • Now, we get to the heart of the matter by introducing frameworks and analytical models use to identify opportunities, and to design and evaluate IT-dependent strategic initiatives


Traditional frameworks

Traditional Frameworks

  • Mid-1980s IS research - systematically explore and document the role of information systems and IT beyond automation of work and the creation of efficiencies

  • Result: strategic models focusing on competitive positioning and competitive advantage

    • Industry analysis

    • Value chain analysis

    • Customer service life cycle analysis


Industry analysis the 5 forces framework

Industry AnalysisThe 5-Forces Framework

  • Grounded in the basic notion that different industries offer different potential for profitability.

  • Suggests that industry differences can be analyzed a prioriby managers using an analytical framework

    • five forces model

  • Executives can decide whether to enteran industry or forgo investment


Threat of new entrants

Threat of New Entrants

  • How easily can competitors enter the market?

  • Are the barriers significant enough?


The threat of substitutes

The Threat of Substitutes

  • How easily can the product or service be replicated in a way that meets the same customer needs?

VS.


Bargaining power of buyers

Bargaining Power of Buyers

  • How easily can customers influence the price of the product or service?


Bargaining power of suppliers

Bargaining Power of Suppliers

  • How easily can individuals and firms sell their products and services at high prices?


Rivalry among existing competitors

Rivalry Among Existing Competitors

  • How fierce is the battling for position and how aggressive is competition in the industry?

  • Hyper competition – fierce rivalry among existing firms and a very rapid rate of innovation leading to fast obsolescence of any competitive advantage


Industry analysis and the role of information systems

Industry Analysis and the Role of Information Systems

  • Investing in IS may:

    • Can the use of IT raise or increase barriers to entry in the industry?

    • Can the use of IT decrease suppliers’ bargaining power?

    • Can the use of IT decrease buyers’ bargaining power?

    • Can the use of IT change the basis of industry competition?


Value chain

Firm Infrastructure

Support Activities

HR Management

Technology development

Procurement

Inbound logistics

Outbound logistics

Operations

Marketing and sales

Service

Primary Activities

Margin

Value Chain

  • As managers – you will analyze opportunities to use strategic IS to create added value.

  • The value chain model identifies:

    • Primary activities

    • Support activities


Primary activities

Primary Activities

  • Those directly related to value creation

  • They are:

    • Inbound logistics

    • Operations

    • Outbound logistics

    • Marketing and Sales

    • Service


Support activities

Support Activities

  • Those not directly related to the transformation process

  • They are necessary to enable it.

  • They are:

    • Firm infrastructure

    • HR management

    • Technology development

    • Procurement


Value chain and role of information systems

Marketing

& Sales

Guest Stay

After Stay

Service

Procurement

Production

Value Chain and Role of Information Systems

  • Managers need to identify, understand, and analyze the activities of the firm

  • The objective is to enhance or transform them using Information Systems

  • Careful! Map a representative value chain


Value network

Linkages

Suppliers

Firm

Customers

Value Network

  • Firms interact with one another in the value network

  • Individual value chains are therefore linked to those of suppliers (upstream) and customers (downstream)

  • These linkages offer opportunities for value creation with Information Systems


The customer service life cycle cslc

The Customer Service Life Cycle (CSLC)

  • Objective:

    • To map the relationship between a firm and its customers

    • To identify the stages where customers:

      • Are unsatisfied or

      • Receive substandard service

    • Provide ideas as to how:

      • To improve customer service through the use of the advanced IT

      • or the deployment of IT-dependent strategic initiatives.


The four phases of the cslc

The Four Phases of the CSLC

  • The CSLC identifies four major phases mapping the relationship between the firm and its customers

  • Stepping through the relationship in the customer’s shoes

  • Helps managers address these needs from the customers’ point of view


The 13 stages of the cslc

The 13 Stages of the CSLC

  • Each of the four phases is further subdivided into stages

  • These represent typical needs the customer has when:

    • Purchasing

    • Using and

    • Retiring a product or service.


Cslc thirteen stages

CSLC: Thirteen Stages


Phase 1 requirements

Phase 1: Requirements

  • Establish requirements:

    • Customer identifies a need for a firm’s product/service

  • Specify:

    • Customer details the characteristics of product or service of interest


Phase 2 acquisition

Phase 2: Acquisition

  • Select a source:

    • The customer identifies where to acquire the product or service from

    • Internet is a new source that reduces vendor’s distribution costs

  • Ordering:

    • The customer requests the product or service

  • Authorize and pay for:

    • The customer issues payment

  • Acquire:

    • The customer begins using the product or service

  • Evaluate and accept:

    • The customer ensures that the product or service meets specifications and the stated objectives of use


Stage 3 ownership

Stage 3: Ownership

  • Integrate:

    • The customer adds the product or service to the existing inventory of resources

  • Monitor use and behavior:

    • The customer ensures that the product or service remains in working order

  • Upgrade:

    • The customer modifies or improves the product or service as needed

  • Maintain:

    • The customer services the product or service as needed

    • The firm can use such opportunities to avoid dissatisfaction and provide outstanding service


Stage 4 retirement

Stage 4: Retirement

  • Transfer or dispose:

    • The customer will needs to transfer, resell, return, or dispose of the product or service

  • Account for:

    • The customer needs to evaluate the experience provided by the product or service

    • The customer needs to measure the costs associate with ownership of the product or service


Virtual value chain vvc

Organize

Gather

Synthesize

Distribute

Select

Virtual Value Chain(VVC)

  • Designed to map the set of sequential activities that enable a firm to transform:

    • Raw data in input into

    • Higher value information in output

  • Adopts the same logic as the physical value chain

  • VVC recognizes info as the entity being transformed (the value of which is being enhanced) through the chain of activities


Five activities

Five Activities

  • Gather:

    • Collecting and accumulating information

  • Organize:

    • Storing the gathered data in a way that makes later retrieval and analysis simple and effective.

  • Select:

    • Identifying and extracting the needed data from the data repository

  • Synthesize:

    • Packaging information so that it can be readily used by the intended consumer for the specific purpose to which it is directed

  • Distribute:

    • Transmitting the appropriately packaged information to its intended user or customer.


Three classes of strategic initiatives

Three Classes of Strategic Initiatives

  • Visibility:

    • The ability to “see through” organizational processes previously treated as black box

  • Mirroring Capabilities:

    • The ability of transforming physical activities into information-based ones

      • Efficiency

      • Effectiveness

      • Performance


Three classes of strategic initiatives1

Three Classes of Strategic Initiatives

  • New Digital Value:

    • Creating relationship with the customer

    • Increasing Customer willingness to pay

    • Creating new value in the form of new information enabled products or services.


New frontier value matrix

Marketing

& Sales

Guest Stay

After Stay

Service

Procurement

Production

New Frontier: Value Matrix

Capture

Store

Select

Synthesize

Distribute


Creating value with data

Creating Value with Data

Purpose of data:

Do something of value for customers

 increase their customer willingness to pay

Value

  • Ability for data to create value depends on two factors:

  • Theoretical Repurchase Frequency of product or service

  • Degree of Customizability of product or service


Theoretical repurchase frequency

Theoretical Repurchase Frequency

How often the customer repurchases the goods/services

It is a function of the industry the firm is in and the characteristics of the value proposition it offers


Degree of customizability

Degree Of Customizability

How much the product or service can be tailored to the specific needs and requirements of individual customers


Customer data strategies

Customer Data Strategies

High

Rewards Strategy

Personalization

- Loyalty Rewards

- Reporting

- Operations

- Differentiation

Theoretical Repurchase Rate

Acquisition Strategy

Low Payoff

- Analytics

- New Prospects

Low

Low

High

Degree of Customizability


Personalization strategy

Personalization Strategy

  • Repeated interactions

  • Returning customers


Rewards strategy

Rewards Strategy

  • Product and service purchased frequently.

  • Products are fairly standardized

  • Difficult to tailor them to specific customer requests


Acquisition strategy

Acquisition Strategy

  • Low theoretical repurchase frequency

  • High degree of customization


Low payoff

Low Payoff

  • Low theoretical repurchase frequency

  • Relatively low degree of customizability


The third dimension

The Third Dimension

Unobtrusive Data Capture

The extent to which – during the normal business cycle – data is collected and stored in a readily usable format


Data driven strategic initiatives

Data-Driven Strategic Initiatives

  • Identify relevant Transaction Processing Systems (TPS)

    • Narrow the scope of the analysis and focus on the systems that hold relevant data

  • Inventory currently available data

    • Identify the underlying data tracked in the natural course of business

    • Talk to power users

  • Conceptualize initiatives

    • Generate and brainstorm ideas

    • Don’t evaluate feasibility or financial viability yet


Prioritize initiatives

Prioritize Initiatives

  • Evaluate actual feasibility – make pragmatic decisions about these initiatives

  • Upside potential

    • Time sensitivity

    • Impact immediacy

    • Aggregation requirements

    • Trending requirements

  • Data availability

    • Accuracy

    • Comprehensiveness


Prioritize initiatives1

Prioritize Initiatives

Imperatives:

  • Projects with significant upside potential that rely on readily available information

    Quick wins:

  • Projects without much upside potential

  • Can be readily implemented based on immediately available information

  • Help gain momentum and build credibility


Prioritize initiatives2

Prioritize Initiatives

Tradeoffs:

  • Projects that rely on information not readily available that tends to be costly

    Losing causes:

  • Projects with little upside potential that rely on information that is not readily available


The recap

The Recap

  • Industry analysis, seeks to help you identify opportunities to deploy information systems to improve the profitability of the industry

  • Value chain analysis seeks to spur your thinking about how information systems and technology can be used to introduce new activities and/or change the way the firm’s activities are currently performed

  • The customer service life cycle (CSLC) suggests that there is ample opportunity to create value by using information systems and technology to enhance the relationship with customers and enable superior customer service

  • CSLCidentifies four major phases and thirteen stages that offers opportunities for value creation per the relationship between the firm and its customer


The recap1

The Recap

  • Virtual value chain (VVC) recognizes the importance of the wealth of information available to today’s organizations in the search for value creation

  • VVC identifies five sequential activities & three classes of strategic initiatives that a firm can use to transform raw data input into information outputs that have more value than the inputs

  • Customer data offer the potential to create value with different strategies best fitting different organizations

  • The viability of the chosen strategy depends also on the degree of difficulty the firm encounters in collecting and using the needed customer data

  • Once the firm identifies a potentially value adding strategy, it must ensure that it can appropriate the value created over time


What we learned

What We Learned

  • How to think in a disciplined fashion about the question of value creation with information systems resources

  • How to use traditional models of value creation with information systems and information technology to identify and craft IT-dependent strategic initiatives, including industry analysis, value chain analysis, and the customer service life cycle framework

  • How to incorporate information resources in your search for opportunities for value creation using emerging frameworks, including the virtual value chain and the customer data strategies framework

  • How to devise and select initiatives that create value using organizational data


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