MASSACHUSETTS INSTITUTE OF TECHNOLOGY
SLOAN SCHOOL OF MANAGEMENT
15.565 Integrating eSystems:
Technology, Strategy, and Organizational Factors
15.578 Global Information Systems:
Communications & Connectivity Among Information Systems
Spring 2002
Lecture 2
INFORMATION TECHNOLOGY STRATEGY:
INTERLINKED VALUE CHAINS
1
COMPETITIVE STRATEGIES AND NEW PROCESSES – FRAMEWORKS
• ISSUES:
• Corporate strategy
• Information technology
• APPROACHES:
• Five - forces model
• Value chain model
• Transform processes
• Long-term impacts
Competitive
Advantage
Interlinked
Value Chains
2
TECHNOLOGY IMPACTS STRATEGY BY:
1. SUPPORTING COST AND DIFFERENTIATION
STRATEGIES
2. SPAWNING ENTIRELY NEW BUSINESSES
a) new business economically feasible
b) created by new demand
c) create new business within old
d) information by-products
3. ALTERING INDUSTRY STRUCTURE
3
IMPACT OF COMPETITIVE FORCES (“5 Forces”)
- BASIC MODEL: SEE PORTER, COMPETITIVE STRATEGY
4
MODIFIED 5-FORCES MODEL
I. INTER-ORGANIZATIONAL
NEW ENTRANTS/
COMPETITORS
SUPPLIER
STRATEGIC
BUSINESS
UNIT
•COORDINATE SUPPLIER
- TOYS ‘R US
• CONTROL INVENTORY SHIPPING
• RESPOND TO DEMAND
(SELL-OFF LOSERS FAST
NOTE:
POSITIVE AND NEGATIVE
LINKAGES/CONNECTIVITY
•WARD OFF COMPETITION
- DELTA
• MAILING TO FREQUENT FLYERS
MATCHING AND BEATING
COMPETITION
NEW PRODUCTS
AND SERVICES
CUSTOMER
•LOCK IN CUSTOMER
- AMERICAN HOSPITAL SUPPLY
• ORDER ENTRY
• BID PREPARATION
- AIRLINES
• FREQUENT FLYER
- RED RIVER CONSTRUCTION
• UNDERBID ON ALL CONTRACTS
•EXPAND MARKET DEFINITION
- JC PENNY
• CREDIT CARD SERVICE FOR MOBIL & GULF
- CITIBANK, MORGAN GUARANTY
•TRANSACTION PROCESSORS
2. INTRA-ORGANIZATIONAL
5
VALUE CHAIN MODEL
SUPPORT ACTIVITIES
{
INBOUND
LOGISTICS
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
MARGIN
TECHNOLOGY DEVELOPMENT
PROCUREMENT
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING
AND SALES
SERVICE
MARGIN
PRIMARY ACTIVITIES
Opportunities:
- lower cost
- add value
- within individual value chain
- through improved linkages
6
INTERLINKED VALUE CHAINS
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
MARGIN
PROCUREMENT
INBOUND
LOGISTICS
OUTBOUND
LOGISTICS
OPERATIONS
MARKETING
AND SALES
SERVICE
MARGIN
POTENTIAL NEW ENTRANT
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
MARGIN
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING
AND SALES
MARGIN
PROCUREMENT
PROCUREMENT
INBOUND
LOGISTICS
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
INBOUND
LOGISTICS
SERVICE
OPERATIONS
OUTBOUND
LOGISTICS
MARGIN
MARKETING
AND SALES
PROCUREMENT
SERVICE
INBOUND
LOGISTICS
MARGIN
YOU (A)
SUPPLIER
MARGIN
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING
AND SALES
SERVICE
MARGIN
CUSTOMER (B)
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
MARGIN
PROCUREMENT
INBOUND
LOGISTICS
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING
AND SALES
SERVICE
MARGIN
OPPORTUNITY FOR NEW PRODUCTS AND SERVICES
7
INTERDEPENDENCE OF ACTIVITIES BETWEEN VALUE CHAINS
Value Chain A
Value C
h
a
i
n
B
Inbound
Logistics
Operations
Outbound
Logistics
Marketing &
Sales
Service
Inbound
Logistics
Operations
Outbound
Logistics
Marketing &
Sales
Service
8
EXAMPLE 1
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
MARGIN
PROCUREMENT
INBOUND
LOGISTICS
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING
AND SALES
SERVICE
MARGIN
POTENTIAL NEW ENTRANT
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
MARGIN
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING
AND SALES
MARGIN
PROCUREMENT
PROCUREMENT
INBOUND
LOGISTICS
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
SERVICE
INBOUND
LOGISTICS
OPERATIONS
OUTBOUND
LOGISTICS
MARGIN
MARKETING
AND SALES
MARGIN
PROCUREMENT
SERVICE
INBOUND
LOGISTICS
MARGIN
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING
AND SALES
SERVICE
MARGIN
CUSTOMER
SUPPLIER
AMERICAN HOSPITAL
SUPPLY (BAXTER)
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
MARGIN
PROCUREMENT
INBOUND
LOGISTICS
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING
AND SALES
SERVICE
MARGIN
OPPORTUNITY FOR NEW PRODUCTS AND SERVICES
9
AMERICAN HOSPITAL SUPPLY (AHS)
• SIMPLE STORY
• Provided hospitals with direct data-entry capability
• IMPLICATIONS
• Raised barrier to entry
• Locked in customer
• Lowered clerical and inventory costs (customer and AHS)
• Volume discounts
• Better inventory control
less stock-outs
reduce costs and improve
• Better production coordination
service
reduce costs and improve service
• Reduced data entry errors
• New activities:
• Business consultants to hospitals
• Marketing information data
10
EXAMPLE 2
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
MARGIN
PROCUREMENT
INBOUND
LOGISTICS
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING
AND SALES
SERVICE
MARGIN
POTENTIAL NEW ENTRANT
(COMPETITOR)
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
MARGIN
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING
AND SALES
SUPPLIER
MARGIN
PROCUREMENT
PROCUREMENT
INBOUND
LOGISTICS
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
INBOUND
LOGISTICS
SERVICE
OPERATIONS
OUTBOUND
LOGISTICS
MARGIN
MARGIN
PROCUREMENT
MARKETING SERVICE
AND SALES
INBOUND
LOGISTICS
MARGIN
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING
AND SALES
SERVICE
MARGIN
CUSTOMER
DELTA AIR
LINES
Normal
Frequent Flyers
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
MARGIN
PROCUREMENT
INBOUND
LOGISTICS
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING
AND SALES
SERVICE
MARGIN
OPPORTUNITY FOR NEW PRODUCTS AND SERVICES
11
AIRLINE RESERVATION SYSTEMS AND
FREQUENT FLYER PROGRAMS
• SIMPLE STORY:
• Added incentive to fly on that airline
• HISTORICAL ASIDE
• "Big brother" concern
• AIRLINE RESERVATION SYSTEM INITIAL BENEFITS:
• “Lock you in” and generate revenue
• Preferential screen display
• OTHER IMPACTS
• Much better data for Yield management
increase profits
• Special deals
edge over competition
• Against new competition
protect revenues
• Generate new revenues
• INTERESTING ISSUE: Who is the "customer"?
12
MANY OTHER
EXAMPLES
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
MARGIN
PROCUREMENT
INBOUND
LOGISTICS
OUTBOUND
LOGISTICS
OPERATIONS
MARKETING
AND SALES
SERVICE
MARGIN
POTENTIAL NEW ENTRANT
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
MARGIN
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING
AND SALES
MARGIN
PROCUREMENT
PROCUREMENT
INBOUND
LOGISTICS
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
INBOUND
LOGISTICS
SERVICE
OPERATIONS
OUTBOUND
LOGISTICS
MARGIN
MARKETING
AND SALES
MARGIN
PROCUREMENT
SERVICE
INBOUND
LOGISTICS
MARGIN
SUPPLIER
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING
AND SALES
SERVICE
MARGIN
CUSTOMER
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
MARGIN
PROCUREMENT
INBOUND
LOGISTICS
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING
AND SALES
SERVICE
MARGIN
OPPORTUNITY FOR NEW PRODUCTS AND SERVICES
13
SUMMARY
• NEED TO EXPLORE NEW COMPETITIVE STRATEGIES AND
PROCESSES
• APPROACHES:
INTERLINKED
• Competitive forces (5-forces)
VALUE CHAINS
• Value chain analysis
• Changes what work gets done and by whom
• LONG-TERM IMPACTS ON COMPANY AND INDUSTRY
• Support cost and differentiation strategies
• Alters industry structure
• Spawn entirely new businesses
• NOTE INTERDEPENDENCE OF STRATEGY, TECHNOLOGY,
AND ORGANIZATION
14