ITM 100 Fall 2023 Class 11 - Information Systems, Organizations, and Strategy PDF

adapted from Kenneth C. Laudon, Jane P. Laudon, Management Information Systems: Managing the Digital Firm, 17th Edition Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved.  Learning Objectives  3.3 How do Porter’s competit...

adapted from Kenneth C. Laudon, Jane P. Laudon, Management Information Systems: Managing the Digital Firm, 17th Edition Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved.  Learning Objectives  3.3 How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network economics help companies develop competitive strategies using information systems?  3.4 What are the challenges posed by strategic information systems, and how should they be addressed?  Porter’s Competitive Forces Model (1 of 3)  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  Porter’s Competitive Forces Model (2 of 3)  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  Porter’s Competitive Forces Model (3 of 3)  Substitute products and services Substitutes products customers might use if your prices become too high, for example, iTunes substitutes for CD s  Customers Can customers easily switch to competitor's products? Can they force businesses to compete on price alone in transparent marketplace?  Suppliers Market power of suppliers when firm cannot raise prices as fast as suppliers Figure 3.8 Porter’s Competitive Forces Model  Application of five competitive forces model. Competitive Force IT Influence on Competitive Force Threat of New Entrants Can be lowered if there are barriers to entry. Sometimes IS can be used to create barriers to entry Bargaining Power of Buyers Can be high if it’s easy to switch. Switching costs are increased by giving buyers things they value in exchange such as lower costs, effort, or time; or useful information Bargaining Power of Suppliers Strongest when there are few firms to choose from, quality of inputs is crucial, or the volume of purchases is insignificant to the supplier Threat of Substitute Products Depends on buyers’ willingness to substitute and the level of switching costs buyer’s face Industrial Competitors Rivalry is high when it is expensive to leave an industry, the industry’s growth rate is declining, or products have lost differentiation Copyright © 2018, 2017, 2016 Pearson Education, Inc. ITM 100 Copyright © 2022, – Foundations 2020, 2018 of Management Pearson Education, Information Systems Inc. All Rights Reserved  Five competitive forces with potential strategic use of information resources Copyright © 2018, 2017, 2016 Pearson Education, Inc. ITM 100 Copyright © 2022, – Foundations 2020, 2018 of Management Pearson Education, Information Systems Inc. All Rights Reserved Information System Strategies for Dealing with Competitive Forces (1 of 3)  Four generic strategies for dealing with competitive forces, enabled by using I T: Low-cost leadership Product differentiation Focus on market niche Strengthen customer and supplier intimacy Information System Strategies for Dealing with Competitive Forces (2 of 3)  Low-cost leadership Offering products and services at a lower price than competitors Example: Walmart’s efficient customer response system  Product differentiation Enable new products or services, greatly change customer convenience and experience Example: Google Nike Mass customization; customer experience management Information System Strategies for Dealing with Competitive Forces (3 of 3)  Focus on market niche Use information systems to enable a focused strategy on a single market niche; specialize Example: Hilton Hotels’ O n Q system  Strengthen customer and supplier intimacy Use information systems to develop strong ties and loyalty with customers and suppliers Increase switching costs Examples: Toyota, Amazon  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  Smart Products and the Internet of Things  Internet of Things (I o T) 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  The Business Value Chain Model  Firm as series of activities that add value to products or services  Highlights activities where competitive strategies can be applied Primary activities – relate directly to the value created in a product or service. Support activities – make it possible for the primary activities to exist and remain coordinated.  At each stage, determine how information systems can improve operational efficiency and improve customer and supplier intimacy  Utilize benchmarking, industry best practices Figure 3.9 The Value Chain Model  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 I T to coordinate value chains to produce product or service collectively More customer driven, less linear operation than traditional value chain Figure 3.10 The Value Web  Synergies  When output of some units are used as inputs to others, or organizations pool markets and expertise  Example: Merger of Bank of NY and JP Morgan Chase  Purchase of YouTube by Google  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  Network-Based Strategies  Take advantage of firm’s abilities to network with one another  Include use of: Network economics Virtual company model Business ecosystems  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  Compare to traditional economics and law of diminishing returns  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  Business Ecosystems and Platforms  Industry sets of firms providing related services and products  Platforms Microsoft, Facebook  Keystone firms  Niche firms  Individual firms can consider how IT will help them become profitable in larger ecosystems Figure 3.11 An Ecosystem Strategic Model The digital firm era requires a more dynamic view of the boundaries among industries, firms, 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.  Challenges Posed by Strategic Information Systems  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