How Information Gives You Competitive Advantage

1. How Information Gives You Competitive Advantage Porter, M. and Millar, V.E. , “How information gives you competitive advantage,” Harvard Business Review, Vol. 63, No. 4, pp. 149-160,1985. 指導老師：林娟娟老師 報告人：韓忠豪99356001、褚怡涵99356022

2. Outline Introduction Strategic Significance Value Chain Transforming The Value Chain Changing The Nature Of Competition Changing industry structure Creating competitive advantage Spawning new businesses Competing In The Age Of Information Conclusions

3. Introduction • Information revolution • Data recognition equipment • Communication • Factory automation • Hardware and services • The information revolution is affecting competition in three vital ways.

4. Introduction (cont.) • Why information technology has acquired strategic significance and how it is affecting all businesses? • How the new technology changes the nature of competition? • How astute companies have exploited this? • To define investment priorities to turn the technology to their competitive advantage.

5. Strategic significance Value Chain Value Activities Value & Linkage Value System Competitive Advantage Coast Differentiation Competitive scope

6. Strategic significance (cont.) • Transforming The Value Chain • Physical and information-processing • Transforming the product • Direction & pace of change

7. Value chain Value Chain An important concept that highlights the role of information technology in competition is the “value chain”. Value Activities This concept divides a company’s activities into the technologically and economically distinct activities it performs to do business.

8. The value chain Support activities Firm infrastructure Human resource management Technology development Procurement Inbound logistics Outbound logistics Marketing and sales Operations Service Margin Primary activities

9. Value & Linkage When the way in which one activity is performed affects the cost or effectiveness of other activities. Value System The value chain for a company in a particular industry is embedded in a larger stream of activities that we term the “value system”. Ex: Candy manufacturer

10. Buyer Value chains Firm Value chains Channel Value chains Supplier Value chains Upstream value Firm value Downstream value The value system

11. Value chain’s functions • Competitive advantage • Cost • A company's cost position reflects the collective cost of performing all its value activities relative to rivals. • Differentiation • A company’s ability to differentiate itself reflects the contribution of each value activity toward fulfillment of buyer needs. • Competitive scope

12. Physical and information-processing The physical component physical tasks required to perform the activity The information-processing component encompasses the steps required to capture, manipulate, and channel the data necessary to perform the activity

13. Transforming the value chain Transforming The Value Chain Information technology is permeating the value chain at every point, transforming the way value activities are performed and the nature of the linkages among them.

14. Firm infrastructure Planning models Human resource management Automated personnel scheduling Technologydevelopment Computer-aided designElectronic market research On-line procurement of parts Procurement Margin Telemarketing Remote terminals for salespersons Supportactivities Remote servicing of equipment Computer scheduling Automated warehouse Flexible manufacturing Automated order processing Service Marketing and sales Inbound logistics Operations Outbound logistics Primary activities Information technology permeates the value chain

15. Transforming the product • Most products have always had both a physical and an information component. • Many products also processinformation in their normal functioning. • There are no longer mature industries; rather, there are mature ways of doing business.

16. Direction & pace of change • Information technology is not only transforming products and processes but also the nature of competition itself.

17. Information content of the product Low High High Banking Newspapers Airlines Oil refining Information intensity of the value chain Cement Low Information intensity matrix

18. Changing the nature of competition • Information technology is changing the rules of competition in three ways: • Changing industry structure • Creating competitive advantage • Spawning new businesses

19. Threat of new entrance Bargaining power of suppliers Rivalry among existing competitors Bargaining power of buyers Threat of substitute product orservices Changing industry structure (1/3) • Five competitive forces • The five forces varies from industry to industry, as does average profitability.

20. Changing industry structure (2/3) • Information technology can alter each of the five competitive forces. • Ex1: Company & Buyers • Ex2: Company & Suppliers • The boundaries of industries themselves have changed. • Systems that connect buyers and suppliers are spreading.

21. Changing industry structure (3/3) • Information technology is altering the relationship: • Scale • Automation • Flexibility • Large-scale production is no longer essential to achieve automation. • Automation no longer necessarily leads to inflexibility.

22. Creating competitive advantage • Lowering cost • Enhancing differentiation • Changing competitive scope

23. Lowering cost • IT can alter a company’s costs in any part of the value chain. • Ex1: Insurance companies • lowering the broker’s total cost • Ex2: Garment production • reduced the labor time for manufacturing by up to 50%

24. Enhancing differentiation • The role of a company and its product in the buyer’s value chain is the key determinant of differentiation. • Ex: XCON’s artificial intelligence system uses decision rules to develop custom computer configurations. • This dramatically reduces the time required to fill orders and increases accuracy—which enhances Digital’s image as a quality provider.

25. Changing competitive scope • Geographic scope • The technology increases a company’s ability to coordinate its activities regionally, nationally, and globally. • Industry scope • The information revolution is creating interrelationships among industries that were previously separate. • Segment scope • Broad-line companies are increasingly able to segment their offerings in ways.

26. Spawning new businesses • The information revolution is giving birth to completely new industries in three distinct ways: • IT makes new businesses technologically feasible. • IT can also spawn new businesses by creating derived demand for new products. • IT creates new businesses within old ones.

27. Competing in the age of information (1/5) • 1. Assess information intensity • A company’s first task is to evaluate the existing and potential information intensity of the products and processes of its business units. • Potentially high information intensity in the value chain & Potentially high information intensity in the product

28. Competing in the age of information (2/5) • 2. Determine the role of information technology in industry structure • Managers should predict the likely impact of information technology on their industry’s structure.

29. Competing in the age of information (3/5) • 3. Identify and rank the ways in which information technology might create competitive advantage • Managers can identify the value activities that are likely to be most affected in terms of cost and differentiation. • A fresh look at the company’s product.

30. Competing in the age of information (4/5) • 4. Investigate how information technology might spawn new businesses • Managers should consider opportunities to create new businesses from existing ones.

31. Competing in the age of information (5/5) • 5. Develop a plan for taking advantage of information technology • Unless the numerous applications of information technology inside a company are compatible with each other, many benefits may be lost.

32. Conclusions • Information technology can help in the strategy implementation process. • By using information systems, companies can measure their activities more precisely. • Companies that anticipate the power of information technology will be in control of events.

33. References • For more information on the value chain concept, see Michael E. Porter, Competitive Advantage (New York: Free Press, 1985). • For a discussion of the two basic types of competitive advantage, see Michael E. Porter, Competitive Strategy (New York: Free Press, 1980), Chapter 2. • Alfred D. Chandler, Jr., The Visible Hand (Cambridge: Belknap Press of Harvard University Press, 1977), p. 86. • James L. McKenney and F. Warren McFarlan, “The Information Archipelago—Maps and Bridges,” HBR September–October 1982, p. 109. • See Michael E. Porter, “How Competitive Forces Shape Strategy,” HBR March–April 1979, p. 137. • See F. Warren McFarlan, “Information Technology Changes the Way You Compete,” HBR May–June 1984, p. 98. • James I. Cash, Jr. and Benn R. Konsynski, “IS Redraws Competitive Boundaries,” HBR March–April 1985, p. 134. • See Gregory L. Parsons, “Information Technology: A New CompetitiveWeapon,” SloanManagement Review, Fall 1983, p. 3. • Victor E. Millar, “Decision-Oriented Information,” Datamation, January 1984, p. 159.

34. Q&A Thank you!