ISTP TU03 - IS, Organizations and Strategy 2 PDF

Agenda 1. Features of Organizations & The Impact of Information Systems on Organizations 2. Using Information Systems to Develop Competitive Strategies 39 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Using Information Systems to Develop Competitive Strate...

Agenda 1. Features of Organizations & The Impact of Information Systems on Organizations 2. Using Information Systems to Develop Competitive Strategies 39 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Using Information Systems to Develop Competitive Strategies § Why do some firms become leaders in their industry? § Michael Porter’s competitive forces model § Provides general view of firm, its competitors, and environment § Five competitive forces shape fate of firm: § Traditional competitors § New market entrants § Substitute products and services § Customers § Suppliers 40 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Using Information Systems to Develop Competitive Strategies § Traditional competitors § All firms share market space with competitors who are continuously devising new products, services, efficiencies, and switching costs. § New market entrants § Some industries have high barriers to entry, for example, computer chip business. § New companies have new equipment, younger workers, but little brand recognition. 41 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Using Information Systems to Develop Competitive Strategies Substitute products and services § Substitutes customers might use if your prices become too high, for example, iTunes substitutes for CDs Source: gabi-journal.net/wp-content/uploads/Substitution-V13F14.jpg 42 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Using Information Systems to Develop Competitive Strategies Customers § Can customers easily switch to competitor's products? Can they force businesses to compete on price alone in transparent marketplace? Source: eurocomms.com/images/ECNEW/Customers.jpg 43 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Using Information Systems to Develop Competitive Strategies Suppliers § Market power of suppliers when firm cannot raise prices as fast as suppliers Source: stran.com/wp-content/uploads/2014/06/supplier.png 44 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Porter’s Competitive Forces Model In Porter’s competitive forces model, the strategic position of the firm and its strategies are determined not FIGURE 3-8 only by competition with its traditional direct competitors but also by four other forces in the industry’s environment: new market entrants, substitute products, customers, and suppliers. 45 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Information System Strategies for Dealing with Competitive Forces Four generic strategies for dealing with competitive forces, enabled by using IT: § Low-cost leadership § Product differentiation § Focus on market niche § Strengthen customer and supplier intimacy 46 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Information System Strategies for Dealing with Competitive Forces Low-cost leadership § Produce products and services at a lower price than competitors § Example: Walmart’s efficient customer response system Source: blogs.ubc.ca/annabellechen/files/2013/11/walmart-logo1.jpg 47 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Information System Strategies for Dealing with Competitive Forces Product differentiation § Enable new products or services, greatly change customer convenience and experience § Mass customization Source: store.storeimages.cdn-apple.com 48 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Mass Customization: Nike 49 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Source: photos1.blogger.com/blogger/7802/13/1600/createshoes.jpg Information System Strategies for Dealing with Competitive Forces Focus on market niche § Use information systems to enable a focused strategy on a single market niche; specialize § Example: Hilton Hotels’ OnQ system Source: upload.wikimedia.org/wikipedia/en/thumb/3/39/HiltonHotelsLogo.svg/1280px-HiltonHotelsLogo.svg.png 50 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Information System Strategies for Dealing with Competitive Forces Strengthen customer and supplier intimacy § Use information systems to develop strong ties and loyalty with customers and suppliers § Increase switching costs § Example: Chrysler, Amazon, Starbucks Source: static1.squarespace.com/static/55b7dd26e4b039219cf962d5/t/56380f4ee4b0465c50fc331f/1326155276687/1000w/Amazon+Prime-cult.png 51 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS The Internet’s Impact on Competitive Advantage § Transformation or threat to some industries § Examples: travel agency, printed encyclopedia, media § Competitive forces still at work, but rivalry more intense § Universal standards allow new rivals, entrants to market § New opportunities for building brands and loyal customer bases 52 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Source: http://newslatefilms.com/wp-content/uploads/2015/04/market-competition.jpg Smart Products and the Internet of Things § Internet of Things (IoT) § Growing use of Internet-connected sensors in products § Smart products § Fitness equipment, health trackers § Expand product differentiation opportunities § Increasing rivalry between competitors § Raise switching costs § Inhibit new entrants § May decrease power of suppliers 53 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS The Business Value Chain Model Value chain model § Firm as series of activities that add value to products or services § Highlights activities where competitive strategies can best be applied § Primary activities vs. support activities § At each stage, determine how information systems can improve operational efficiency and improve customer and supplier intimacy § Utilize benchmarking, industry best practices 54 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS The Value Chain Model This figure provides examples of systems for both primary and support activities of a firm and of its value partners that can add a margin of value to a firm's products or services. FIGURE 3-9 55 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Extending the Value Chain: The Value Web § Firm’s value chain is linked to value chains of suppliers, distributors, customers § Industry value chain Value web: § Collection of independent firms using highly synchronized IT to coordinate value chains to produce product or service collectively § More customer driven, less linear operation than traditional value chain 56 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS The Value Web The value web is a networked system that can synchronize the value chains of business partners within an industry to respond rapidly to changes in supply and demand. FIGURE 3-10 57 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Synergies & Core Competencies § Information systems can improve overall performance of business units by promoting synergies and core competencies § Synergies § When output of some units are used as inputs to others, or organizations pool markets and expertise § Examples: merger of Bank of NY and JPMorgan Chase, Purchase of YouTube by Google 58 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Synergies & Core Competencies § Information systems can improve overall performance of business units by promoting synergies and core competencies § Core competencies § Activity for which firm is world-class leader § Relies on knowledge, experience, and sharing this across business units § Example: Procter & Gamble’s intranet and directory of subject matter experts 59 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Network-based Strategies Network-based strategies § Take advantage of firm’s abilities to network with one another § Include use of: § Network economics § Virtual company model § Business ecosystems Source: councilofnonprofits.org/sites/default/files/resources-tools/images/feature-network-approach.jpg 60 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Network Economics Traditional economics: Law of diminishing returns § The more any given resource is applied to production, the lower the marginal gain in output, until a point is reached where the additional inputs produce no additional outputs Network economics: § Marginal cost of adding new participant almost zero, with much greater marginal gain § Value of community grows with size § Value of software grows as installed customer base grows 61 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Virtual Company Model Virtual company § Uses networks to ally with other companies § Creates and distributes products without being limited by traditional organizational boundaries or physical locations Example: Li & Fung § Manages production, shipment of garments for major fashion companies § Outsources all work to thousands of suppliers 62 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Business Ecosystems and Platforms Business ecosystems § Industry sets of firms providing related services and products § Platforms § Microsoft, Facebook § Keystone firms: Dominate ecosystem and create platform used by other firms § Niche firms: Rely on platform developed by keystone firm § Individual firms can consider how IT will help them become profitable niche players in larger ecosystems Source: c.s-microsoft.com/en-us/CMSImages/icon-windows-updated-logo-blue.svg?version=cd5eedf2-8572-dd02-095f-dd596d1e150a 63 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS An Ecosystem Strategic Model The digital firm era requires a more dynamic view of the boundaries among industries, firms, FIGURE 3-11 customers, and suppliers, with competition occurring among industry sets in a business ecosystem. In the ecosystem model, multiple industries work together to deliver value to the customer. IT plays an important role in enabling a dense network of interactions among the participating firms. 64 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Using Information Systems to Develop Competitive Strategies § Sustaining competitive advantage § Competitors can retaliate and copy strategic systems § Systems may become tools for survival § Aligning IT with business objectives § Performing strategic systems analysis § Structure of industry § Firm value chains § Managing strategic transitions § Adopting strategic systems requires changes in business goals, relationships with customers and suppliers, and business processes 65 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS Homework § T3-1. Please actively read chapter 3 - including the case studies. For this week, I uploaded a PDF of chapter 3 (see folder "Downloads" below). Please make sure for the upcoming weeks that you have access to a printed copy or the eBook of the textbook. (3 hours) § T3-2. Read learning track 1 for chapter 3 (The Changing Business Environment of Information Technology) § T3-3. Five forces & Value chain model Take one example company, analyze this company by applying the five forces model and the value chain model. Where can you find influences of information systems & the Internet in your analysis? § Optional: Review Questions 3-2, 3-3, 3-4, Discussion Question 3-6, 3-7 66 | ISTP | TU 3 | INFORMATION SYSTEMS, ORGANIZATIONS AND STRATEGY | PROF. DR. PAUL DREWS CONTACT PROF. DR. PAUL DREWS Institute of Information Systems Universitätsallee 1 | 21335 Lüneburg Fon 04131.677-1993 | [email protected] www.leuphana.de/institute/iis/personen/paul-drews