Lecture 5 Information Systems for Competitive Advantage PDF

Announcements The group project instruction are available on Moodle. Everyone should be in a group via Group Forma ion (which can be found under Gro p Projec in moodle) by Friday 30/08/2024. Please continue your group meetings and work on the project Mid-term quiz - Is paper-based super...

Announcements The group project instruction are available on Moodle. Everyone should be in a group via Group Forma ion (which can be found under Gro p Projec in moodle) by Friday 30/08/2024. Please continue your group meetings and work on the project Mid-term quiz - Is paper-based supervised quiz (please bring pen/pencils) and in week 6. o Wollongong: during lecture (11:40am 12:30pm on 29/08/2024) o Liverpool: during computer lab (14:40pm 15: 30pm on 30/08/2024) - This quiz comprises 25 questions (Multiple choice questions,etc.). - The total time allowed is 50 minutes for the quiz. - This is a closed book individual quiz. - Based on the lecture and lab contents allocated for prior weeks. - So study and be prepared. Lecture 5: Information Systems for Competitive Advantage ISIT224 Management Information Systems  Learning Objectives What is the role of resource-based view to achieve competitive advantage? What are the strategies that organizations typically adopt to counter the competitive forces? What are the inno a or s dilemma and why new technologies sometimes cause great firms to fail? What is freeconomics and how organizations can leverage digital technologies to provide free goods and services to customers as a strategy for gaining competitive advantage? What is the role of resource-based view to achieve competitive advantage? Competitive Force vs. Competitive Advantage Competitive Force The factors and variables that threaten a compan s profitability and prevent its growth. Example: existing competitors, new entrants COGS and substitute products Competitive Advantage Anything that gives a company an edge over its competitors, helping it attract more customers and grow its market share. Example: best price guarantee, customer quality How to view Competitive Advantage Competitive Advantage An edge over rivals in attracting customers and defending against competitive forces An advantage over competitors in some measure such as cost, quality, or speed Lead to control of a market and to larger-than-average profits The necessity of competitive advantage Something the organization must do in order to survive Competitive Advantage Sources of Competitive Advantage Being the first to enter a market (first-mover advantage) Having the best-made product on the market Achieving lower costs than rivals Giving customers more value for their money Delivering superior customer service Having a proprietary manufacturing technology, formula, or algorithm Having shorter lead times in developing and testing new products Having a well-known brand name and reputation How Apple Creates it Competitive Advantage Brand Recognition? Seamless ecosystem? Design and User experience? Customer Service? Please watch the following video to understand the background of Apple s compe i i e ad an age. https://www.youtube.com/watch?v=0Ne9llOiVpc Review: Po e Five Forces Model 9 Review: Po e Five Forces Model If the company wants to survive in the market, they will have to choose a specialisation in their product Five forces model suggests: An ind structural attractiveness is determined by five underlying forces of competition. In combination, these forces determine how the economic value created is divided among these five parties: participants in a business network or industry How IT might change the relative strength of each force An interview with Michael Porter https://www.youtube.com/watch?v=mYF2_FBCvXw 10  Use of IS to Combat Competitive Forces Potential Use of Information Competitive Force Implication for Firm Systems Competition in price, Rivals within Reduce costs, use the product distribution, and your industry Internet to increase service service Inventory control to manage Reduced prices and New entrants excess capacity, Internet to market share differentiate products C ome Reduced prices, demand bargaining for better quality and CRM to improve service power service S pplie Increased costs and Use internet to work with bargaining reduced quality new distant suppliers power Better assess customer Threats of substitute Decreased market share, needs, use CAD to design products customer loss better products The Idea in Practice Position your company where the competitive forces are weakest Focus on niche market Exploit changes in the forces Technological innovation can reshape rivalry (e.g., iPod/iTunes) Reshape the forces in your favour Product differentiation Value-added offerings Buy jacker, then the site will recommend matching trousers, shoes, etc Wider product accessibility Overcome user preferences, make it more general and broad 13 Resource-based View The resource-based view (RBV) A model to achieve competitive advantage. What is a resource, See resources as key to superior firm performance. The organization should look inside the company to find the sources of competitive advantage instead of looking at competitive environment for it. Porters theory look outside from the environment, but in this model this will be looking at the company’s own environment , If a resource exhibits VRIO attributes, the resource enables the firm to gain and sustain competitive advantage Valuable, Rare, Inimitable, Organized 14 Types of Resources Tangible resources are physical things e.g., land, buildings, machinery, equipment and capital Intangible resources are everything else that have no physical presence but can still be owned by the company e.g., brand reputation, trademarks, intellectual property 15 IS Resource Examples Successful case: Ama on IT-enabled business processes Amazon's warehouse robots now more than 15,000 of them in 10 of its warehouses, which significantly increased operations efficiency Amazon's "Amazon Prime Ai a future delivery service that promises to ship packages to your door in under 30 minutes using sophisticated GPS-guided electric-powered helicopter drones 17 Assumptions of RBV Resource heterogeneity bundles of resources differ from one company to another e.g., Apple vs. Samsung Resource immobility resources tend to be ick and don move easily from firm to firm leads to sustainable competitive advantage 17 Resource-based View Valuable, rare, inimitable, organized 18 VRIO Framework 19 Challenge yourself: open questions Can you think of any online business model that is inimitable?  Five Forces Model vs. RBV Resource-based Five forces model view Focus of strategic Industry Corporation attention Types of competitive Resources, capabilities, core Low cost or differentiation advantage competencies Basic unit of competitive Core products, strategic Activities advantage architecture 22 Five Forces Model vs. RBV From ~30% to ~45% of superior organizational performance can be explained by firm effects (RBV) and ~20% by industry effects (five forces model). 23 Review: Value Chain Model Firm Analysis Analyzes the activities of a firm and identify how information systems can be used to develop a competitive advantage Strategy execution (how to compete) Value Chain A sequence of activities (processes) through which the o gani a ion inputs are transformed into more valuable outputs Primary activities Related to the production and distribution of the fi m products and services Support activities Do not add value directly to the fi m products or services Contribute to the fi m competitive advantage by supporting the primary activities 18 What are the strategies that organizations typically adopt to counter the competitive forces?  Logic of Strategy Typology Logic of positioning Logic of leverage Logic of opportunity Main Superior firm performance is Firm performance is shaped Superior firm is shaped argument the consequence of a firm s by the deployment and use of through relentless innovation strategic position and the RVIO resources and and competitive actions degree to which it executes capabilities that might be those positions through an heterogeneously distributed integrated system of across firms activities. Factors Nature of the ind s r s Procurement and Ability to continuously affecting firm competitive forces possession of RVIO innovate performance Profitability of the firms resources Ability to develop superior strategic position Ability to create market intelligence Extent of integration capabilities through Ability to coevolve assets, among the activity reconfiguration of capabilities, and systems resources knowledge Theoretical Five forces model Resource-based view, Value Organizational learning, foundation chain model dynamic capability 26 The Dynamic Capability Perspective Dynamic capabilities Refer to the ability to detect opportunities and threats, capture market opportunities, and change or revise existing substantive capabilities Are important in hypercompetitive or turbulent environments Dynamic capabilities constitute a firm s ability to sense and shape opportunities and threats respond to market opportunities maintain competitiveness through enhancing, aligning, and reconfiguring the firm s intangible and tangible resources. 27 Source: Teece, D.J., 2007 Organizational Agility Organizational agility is a fi m ability to cope with rapid, relentless, and uncertain changes and thrive in a competitive environment of continually and unpredictably changing opportunities. The implication is that firms should continually reconfigure their existing capabilities when faced with dynamic or unpredictable environments. 28 Impacts of IS on Organizational Agility IT capability is critical for a firm to realize business value and sustain competitive advantage. Challenge question: Does IT enable or hinder the organizational agility? 29 Impacts of IS on Organizational Agility IT can enable agility by speeding up decision making, facilitating communication, and responding quickly to changing conditions. e.g., Business intelligence systems SCM and CRM systems Intranet and collaborative software 30 Impacts of IS on Organizational Agility IT can hinder agility Inflexible legacy IT systems, rigid IT architectures, or complex nests of disparate technology silos Wider environmental scanning and access to more information may lead to information overload IT-based knowledge sharing may potentially reduce knowledge heterogeneity and inhibit innovative learning 31 Types of Agility - Customer Customer agility Ability to co-opt customers in exploration and exploitation of innovation opportunities. Role of IT Technologies for building and enhancing virtual customer communities for product design, feedback, and testing 32  Customer-involved Co-design Threadless: t-shirt design e-commerce website No internal design team Customers are designers, evaluators, and buyers Online platform to connect all customers and let them work for you Come up Submit your The community Win cash & with an idea design scores your design sell t-shirts 33 Crowdfunding: a force for agility Kickstarter: a global crowdfunding platform for innovation projects Publish innovation idea and let customers to fund it before development or manufacturing 6.9 million people have funded a Kickstarter project Customers as source of innovation opportunity i al ca i al 34 Types of Agility - Partnering Partnering agility Ability to leverage assets, knowledge, and competencies of suppliers, distributors, contract manufacturers and logistics providers in the exploration and exploitation of innovation opportunities Role of IT Technologies facilitating inter-firm collaboration, such as collaborative platforms and portals, supply-chain systems, etc. 35 Types of Agility - Partnering Traditional partnering Partnering within familiar network Face-to-face communication IT-enabled partnering Collaboration with start-ups, individual innovators e.g., Unilever Ventures Cross-industrial collaboration e.g., Mercedes-Benz + Facebook: Social Driving NASA + LEGO: Using LEGO as an educational tool 36 Types of Agility - Operational Operational agility Ability to accomplish speed, accuracy, and cost economy in the exploitation of innovation opportunities Role of IT Technologies for modularization, and integration of business processes 37 How Do Business Decide which Technologies to Use and When? Assess the state of competition and industry pressures affecting the organization Determine business strategies critical to success in meeting those competitive and industry pressures Identify important business processes that support the chosen business strategies Align technology tools with the important business processes 35 Competitive Strategy 36 What are the inno a o dilemma and why new technologies sometimes cause great firms to fail? Innovation as a Strategy is Difficult Successful innovation is difficult Innovation is often fleeting The pace of change is fast Smart rivals quickly adopt any advantage Innovation is often risky Competing technologies result in a winner and a looser (e.g. Blu-Ray and HD DVD) Innovation choices are often difficult It is impossible to pursue all opportunities It is hard to predict which opportunities will lead to success Innovation as a Strategy is Difficult Many innovations deliver non-sustainable competitive advantages and become competitive necessities Innovations that deliver longer lasting and sustainable competitive advantages Unique products or services based on customer data that are very difficult to copy Heavy customer investment in you in terms of time/money high switching costs The Inno a o Dilemma Sustaining Innovations New technologies, products, or services that sustain or reinforce established trajectories of product performance improvement Improve in incremental ways that the markets expect Do not create new markets and value networks Disruptive Innovations New technologies, products, or services that redefine performance trajectories Improve in different ways that markets do not expect Underperform in the existing markets Create new markets and value networks Eventually disrupt the existing markets and value networks The Inno a o Dilemma How disruptive innovations, typically ignored by established market leaders, cause these established firms to lose market dominance, often leading to failure Blindly following the maxim that good managers should keep close to their customers can sometimes be a fatal mistake Technology Mudslide Hypothesis An established firm fails because it doesn't "keep up technologically" with other firms Does not explain reality Theory of Disruptive Innovation Trajectories of Market Need Within every market, there are customers who have relatively high, moderate, or low performance requirements Trajectories of Performance Improvement Technological improvement often outpaces what the market requires 41 Theory of Disruptive Innovation As disruptive innovations and incremental improvements are introduced, product capabilities improve in all segments As product capabilities improve at the high-performance end of the market, the number of potential customers for these products gets relatively smaller As the low-end products also improve, they are increasingly able to capture more and more of the mainstream marketplace 43 Challenge Question Please watch the following video to understand the disruptive innovation and why it will sometimes cause market leaders to fail? https://www.youtube.com/watch?v=Cu6J6taqOSg What is freeconomics and how organizations can leverage digital technologies to provide free goods and services to customers as a strategy for gaining competitive advantage? Freeconomics The leveraging of digital technologies to provide free goods and services to customers as a business strategy for gaining competitive advantage Virtually any industry that utilizes digital technologies is on a path toward increasingly lower costs, ultimately toward a price of free or at least f ee for consumers 49 Freeconomics Just because products are free to consumers doe n mean that someone, somewhere, i n paying for it, and most important, that someone else i n also making a lot of money E.g., Google gets paid ad revenue from companies when someone using a Google search clicks on a sponsored link 50 Freeconomics What a business provides to a customer and what that customer is willing to pay for that product or service (value proposition) is larger than simply buyers and sellers E.g., Google value proposition includes a broad ecosystem of many participants, only some of whom exchange payments 51 Applying Freeconomics for Competitive Advantage Advertising Free services are provided to customers and paid for by a third party E.g., Yahoo banner ads, Google pay-per-click, Amazon pay-per-transaction affiliate ads Freemium Basic services are offered for free, but a premium is charged for special features E.g.,Flickr, Skype, Dropbox,Trillian 52 Applying Freeconomics for Competitive Advantage Cross subsidies Sale price of one item is reduced in order to sell something else of value E.g., Free DVR with subscription, free movie tickets with popcorn and beverage, free Wifi with five new games, free mobile phone with two-year contract Zero marginal cost Products are distributed to customers without an appreciable cost to anyone E.g., Music distribution at iTunes, software distribution, video content on at YouTube 53 Applying Freeconomics for Competitive Advantage Labour exchange Services are provided to customers;the act of using the services creates value for the company E.g., Yahoo! Answers, Answers.com Gift economy Environments are created that allow people to participate and collaborate to create something of value for everyone E.g., Open source software development, Wikipedia, Freecycle (free secondhand goods to anyone willing to haul them away) 54  Thanks for attending & thanks for your contribution!