Using IT for Competitive Advantage

1. Using IT for Competitive Advantage MIS 320 Kraig Pencil Fall 2010

3. B. Role of Information Technology (IT) Conception of information technology � and status � has evolved

4. B. Role of Information Technology (cont.) A key goal for business (and MIS 320) Learn to recognize and identify opportunities for strategic applications of IT How to do this??? Combine Strategy concepts Business knowledge IS knowledge ? Multiple perspectives are required

5. 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 �Do it cheaper � or do it better� Examples of business strategy Lower Cost Cost efficiency, lower prices Differentiation Higher quality, faster, unique product/service

6. D. IT to Support Strategy Using IT to support a business strategy Examples 2. Important for businesses to keep strategy in mind when developing IS Lots of $$$ can be spent on IS � don�t waste it!!! Align IS projects with strategy ? Support the organization�s game plan

7. Two Frameworks for Analysis Value Chain Analysis Competitive Forces Analysis

8. E. IS and the Value Chain A popular framework to help identify useful strategic applications for IS: Value chain Perform �VC analysis� to ID critical business activities and linkages ? Identify high priority IS projects 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 Value chain activities (see figure)

9. Value Chain Activities

10. E. IS and the Value Chain (cont.) 3. Value chain: Linkages Internal linkage: Information/goods shared across activities within one firm External linkage: Information/goods shared across activities between different firms �Linkages� are defined by VC activities involved Information exchanged Examples of linkages: see figures ?

11. Internal Linkages: Examples

12. External Linkages: Examples

13. 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

14. E. IS and the Value Chain (cont.) 5. Application of VC analysis to IS How? Spend IS budget on projects that add value, aligning with organization�s strategy Three examples of adding value. Marketing activities: Personalized ads (Amazon) Internal linkage: Delivery guarantee (Talbot Ties) External linkage: Rapid order fulfillment (Portland Pine Products)

15. 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.

16. IS & Value Chain Analysis: Talbot Ties � New Live Linkages

17. IS & Value Chain Analysis: Portland Pine Products � Redraw Linkages

18. 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

19. F. Competitive Forces The business world is a competitive place! Many forces may be acting on the firms within an industry Porter�s �Five Forces Model� Examples of forces

20. Porter�s Five Forces Model

21. F. Competitive Forces (cont.) 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

22. Using IT to Gain Bargaining Power over Buyers

23. Using IT to Gain Bargaining Power over Suppliers

24. Using IT as an Entry Barrier

25. Using IT as an Entry BarrierFedEx 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 allows customers to process and mange shipping from their desktop 1999 enables easy access to online merchants that offer fast, reliable FedEx express shipping

26. 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

27. 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

28. G. Strategic Information Systems (cont.) 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.