Strategy PDF

Strategy This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Class Objectives productivity and innovation IS Improving Productivity Value Chain Organizational strategy Competitive Advantage This content is protected and may n...

Strategy This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Class Objectives productivity and innovation IS Improving Productivity Value Chain Organizational strategy Competitive Advantage This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Productivity and Innovation This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher The Danger of Relying on Technology Firms strive for sustainable competitive advantage. sustainable competitive advantage: Financial performance that consistently outperforms industry averages. Difficult to achieve due to the rapid emergence of new products and new competitors. In order to achieve comparative advantage, competitors: Cut costs Cut prices Increase features This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher The Danger of Relying on Technology (continued) Michael Porter’s concepts are useful for firms attempting to achieve comparative advantage: Value chain Five forces Porter states that firms defining themselves according to operational effectiveness suffer aggressive, margin-eroding competition. operational effectiveness: Performing the same tasks better than rivals. The danger lies in similarity and failure to innovate. When offerings are roughly the same, they are more commodity than differentiated. commodity: A basic good that can be interchanged with nearly identical offerings by others. This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher The Danger of Relying on Technology (continued, 2) fast follower problem exists when competitors: Watch a pioneer’s efforts. Learn from their successes and missteps. Enter the market quickly with a comparable or superior product at a lower cost before the first mover can dominate. Since tech can be copied so quickly, followers can indeed be fast. At one time, over 175 mattress firms operate in a crowded space, and almost none of them manufacture their own products. This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher The Danger of Relying on Technology (continued, 4) Operational effectiveness is critical but usually not sufficient to yield sustainable dominance over the competition. strategic positioning: Performing different activities than rivals, or the same activities in a different way. While technology can be copied, it can also play a critical role in creating and strengthening strategic differences—advantages that rivals will struggle to match. This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher But What Kinds of Differences? resource-based view of competitive advantage: The strategic thinking approach suggesting that if a firm is to maintain sustainable competitive advantage, it must control an exploitable resource, or set of resources, that have four critical characteristics. Four critical characteristics: Valuable Rare Imperfectly imitable Nonsubstitutable Resource-based thinking helps to avoid entering markets simply because growth is spotted. This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Alignment Be careful not to invest in IT for the sake of technology Successful businesses need to understand specifically what business value they are seeking and how IT can help STRATEGY DRIVES OPERATIONS ENABLES INFORMATION TECHNOLOGY Source: Salman A. Mufti, PhD. Queen’s University This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher IS Improving Productivity This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher How do Information Systems Improve Productivity? Increasing efficiency means that business processes can be accomplished either more quickly or with fewer resources and facilities (or both) “doing things right” Increased effectiveness means that the company considers offering either new or improved goods or services that the customer values “doing the right things” This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Efficiency Vs. Effectiveness May be in conflict “doing things right” will focus the organization’s energy and resources on efficiency and not things valued by customers “doing the right things” will focus on introducing new products that customers value and potentially be inefficient There has to be a balance between the two This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Example A Whole Foods store in Houston https://amp-businessinsider- com.cdn.ampproject.org/c/s/amp.businessinsider.com/whole-foods- employees-reveal-why-stores-are-facing-a-crisis-of-food-shortages- 2018-1 This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher  “Doing things right” using just the right amount of resources, facilities and information Vs. “Doing the right things” deliver something new or improved This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher To achieve either efficiency or effectiveness companies have to enhance their business processes to become more efficient; or change them to deliver a new or improved product/service Business processes exist in every part of your organization’s value chain This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Value Chain This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Business Processes and Value Chains A value chain is a network of value-creating activities Primary activities Support activities A value chain is made up of at least one and often many business processes This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher  Porter’s Value Chain https://www.smartsheet.com/value-chain-model This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Primary Activities https://www.smartsheet.com/value-chain-model Value added directly Revenue Costs accumulated through the stages This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Support Activities https://www.smartsheet.com/value-chain-model Contribute indirectly to production, sale, and service Stages accumulate costs and add value to product Produce margin is difficult to calculate This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Understanding the Value Chain Help to understand how information systems increase productivity Enable the development of more efficient or more effective supporting activities Increase the margin enjoyed by company Information systems increase productivity by offering new and improved services, primary activities This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Example of Business Processes Sales & Marketing Outbound Inbound Logistics Operations Logistics Service This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher  Downstream Upstream Forward Integration Backward Integration This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Key Framework: The Value Chain (continued) Firms may have a critical competitive asset when they have an imitation- resistant value chain. Value chain framework can be used to consider a firm’s differences and distinctiveness compared to rivals. A firm’s value chain can be a key source for competitive advantage if: It can’t be copied by competitors without engaging in painful trade-offs. It helps to create and strengthen other strategic assets over time. This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Key Framework: The Value Chain (continued, 2) Analysis of a firm’s value chain can reveal operational weaknesses and technology is of great benefit to improving the speed and quality of execution. Firms can buy software and tools: Supply chain management (SCM) Customer relationship management (CRM) Enterprise resource planning software (ERP) Potential danger: Adopting software that changes a unique process into a Source: Zapp2Photo/Shutterstock.com generic one. This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Organizational Strategy This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Organizational strategy and industry structure Organizational Strategy reflects organization’s goals and objectives Developed from organizational structure Creates the value chain for organization Establishes the structure, features, and functions of information systems A company’s strategy is influenced by the competitive structure of the industry the company is in This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Barriers To Entry, Technology, and Timing Barriers to entry for many tech-centric businesses are low. Market entry does not necessarily result in building a sustainable business. Platitudes like “follow, don’t lead” can put firms dangerously at risk, and statements about low entry barriers ignore the difficulty many firms will have in matching the competitive advantages of successful tech pioneers. private: Firms that take another company private hope to improve results so that the company can be sold to another firm or they can reissue shares on public markets. This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Barriers To Entry, Technology, and Timing (continued) Timing and technology alone will not yield sustainable competitive advantage. Both can be enablers for competitive advantage. Put simply, it’s not the time lead or the technology; it’s what a firm does with its time lead and technology. Moving first pays off when the time lead is used to create critical resources that are valuable, rare, tough to imitate, and lack substitutes. Build resources like brand, scale, network effects, switching costs, or other key assets. This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher But Google Arrived Late! Why Incumbents Must Constantly Consider Rivals Gmail is the dominant e-mail provider today, but it took Google eight years to finally top early leaders Yahoo! Mail and Hotmail. Google’s ability to succeed after being late to the search and mobile party isn’t a sign of the power of the late mover. It’s a story about the failure of incumbents to monitor their competitive landscape, recognize new rivals, and react to challenging offerings. Firms that quickly get to market with the “right” model can dominate, but it’s equally critical for leading firms to pay close attention to competition and innovate in ways that customers value. This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher A Competitive Strategy Organization’s response to structure of its industry Porter identified four competitive strategies: Cost leadership across industry Cost leadership focused on particular industry segment Differentiation across industry Differentiation focused on particular industry segment Porter says goals, objectives, culture, and activities must be consistent with strategy This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher  Competitive Advantage Cost Differentiation Better Industry Lower cost across the product/service across the Wide industry industry F o c u s Better Lower cost product/service Segment within an industry within an industry segment segment This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Competitive Advantage This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher How do information systems provide competitive advantage? Organizations respond to the five competitive forces in numerous ways For our purposes, we can distill those ways into the list of principles You can also apply these principles to a personal competitive advantage Some of these competitive techniques are created via products and services, and some are created via the development of business processes This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Principles of Competitive Advantage This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Competitive Advantage via Products Organizations gain a competitive advantage by: Creating new products or services Enhancing existing products or services Differentiating their products and services from those of their competitors Information systems can achieve these objectives This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Competitive Advantage via Business Processes Locking in customers High switching costs Locking in suppliers Making it easy to connect to and work with organization Create entry barriers Making it expensive for new competition to enter market Establish alliances Establish standards Promote product awareness Reducing costs Increased profitability This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Brand brand: The symbolic embodiment of all the information connected with a product or service. A strong brand can be an exceptionally powerful resource for competitive advantage. Consumers use brands to decide which company’s products are better, thus forming brand loyalty. Technology helps in rapidly and cost-effectively Source: garagestock/Shutterstock.com strengthening a brand. viral marketing: Leveraging consumers to promote a product or service. This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Scale scale advantages: Advantages related to size. Businesses benefit from economies of scale: When costs can be spread across increasing units of production or in serving multiple customers. Organizations are scalable if they benefit from scale economies as they develop. Developing firms may gain bargaining power with their suppliers or buyers. The scale of technology investment required to run a business can also act as a barrier to entry, discouraging new, smaller competitors. This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Switching Costs and Data switching costs: Costs incurred by consumers when switching from one product to another. Firms that seem dominant but that do not have high switching costs can be rapidly outshined by strong rivals. Data can be a strong switching cost for firms leveraging technology. Firms that have more customers can gather more data to improve their value chain by offering more accurate: Demand forecasting Product recommendations In commodity industries, data is increasingly the only substantive differentiator. This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Sources of Switching Costs Learning costs Information and data Financial commitment Contractual commitments Search costs Loyalty programs Source: Constantin Stanciu/Shutterstock.com This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Value of Service and Switching Costs This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Differentiation Commodities are products or services that are nearly identically offered from multiple vendors (e.g., gold, wheat). Consumers who buy commodities focus highly on price since they have so many similar choices. Technology is used by firms to differentiate their goods and services. Data plays a critical role in differentiation. Amazon uses browsing records, purchase patterns, and product ratings to present a custom home page featuring products they hope the visitor will like. Apple mobile and computer operating systems only run on Apple hardware—this allows the firm to tightly integrate the experience across Apple products. This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Network Effects network effects: When the value of a product or service increases as its number of users expands. Also known as network externalities or Metcalfe’s Law. The following firms are dominant due to this concept: Facebook – most dominant social network worldwide. Microsoft Windows – has a 90 percent market share in operating systems. eBay – has an 80 percent share of online auctions. Switching costs play a role in determining the strength of network effects. Strong asset for firms that can control and leverage a leading standard. This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher OpenTable: Network Effects That Fill Restaurants’ Seats OpenTable has built the world’s largest online restaurant reservation system: It can get you a reservation at over 60,000 restaurants worldwide. The system delivers high value by exposing inventory and lowering search costs. Customers are attracted to the service that has the most restaurants, and restaurants to the service with the most customers (two-sided market). Effectively creates a new distribution channel for introducing additional value-added services: Loyalty programs Payments to lower customer wait times and free up more table inventory This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher OpenTable Reservations This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Distribution Channels distribution channels: The path through which products or services get to customers—can be critical to a firm’s success. Apple Stores show firm-crafted retail distribution channels at their most effective. Apple’s key competitive strengths lies in the firm’s differentiation versus rival products. Apple also leveraged its iTunes platform as a distribution channel to launch the Apple Music subscription service. Apple has an additional distribution advantage that Spotify doesn’t—bundling: Selling products available separately as a single package. This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Top Retailers: Sales per Square Foot Rank Firm Sales/Sq. Ft. ($) 1 Apple Stores 5,546 Generation Next Franchise Brands (self-serve food 2 & printing kiosks found in malls, airports, and 3,970 theaters) 3 Murphy USA (gas & convenience store) 3,721 4 Tiffany & Co. (jewelry) 2,951 5 Lululemon (apparel) 1,560 This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher Distribution Channels (continued) Technology opens up opportunities to leverage products provided by others to create new distribution channels. Many firms offer APIs, essentially programming hooks that allow other firms to tap into their services. Through networked technology, users can be recruited to create new distribution channels. affiliates: Third parties that promote a product or service in exchange for a cut of any sales. This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher What about Patents? Protection can be granted in the form of a patent for those innovations deemed to be useful, novel, and nonobvious. Patents provide firms a degree of protection from copycats. Cut off paths to exploit an innovation. Considered to be unfairly stacked against Source: khaleddesigner/Shutterstock.com startups. non-practicing entities: Commonly known as patent trolls, these firms make money by acquiring and asserting patents, rather than bringing products and services to market. This content is protected and may not be shared, uploaded, or distributed © Ahmad Bisher