Intro to BIS
Reason for information: Managers at various levels within a business can make informed decisions
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the information has to be accurate, timely (available), complete and relevant
If not => an organisation is at a distinct disadvantage.
R elevant depends on the organisation’s strategy (trying to achieve)
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Organization’s goal: to make a profit / to help its member (RACV)/ to provide humanitarian aid (WorldVision) or a charity => Goals and Objectives =>
Develop organisational strategy to create value (ways of making money/ helping members/ providing aid)
Hence, the structure, features and functions of the IS used in an organisation are established => IS must align w organisation’s goals. ( Technology, computer, hardware, people, procedures)
The organisational goals and objectives and the organisational structure of a business is determined by its competitive strategy. (A business must be competitive to be successful)
How to determine organisational strategy of a business? Examine the industry or environment within which the business operates (highly competitive, expensive to enter, specialist, international in nature) => Porter’s
Five Forces
Model:
Organisation examine their industry’s structure => develop a competitive strategy => which determine value chains => which determine business process => its nature determines the requirements and functions of IS

Purpose of the model :
 to help organizations determine the potential profitability of an industry
 to determine the characteristics of an industry/ how profitable it is/ how sustainable that profitability will be
 to identify sources of strong competition and use that knowledge to create a competitive strategy to combat those strong forces.
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As a way of understanding organizations’ competitive environments
Porter’s five competitive forces can be grouped into two types: o Competitive forces: (concerns w thedanger of customers using other business)
 from vendors of substitutes (high if price is lower and benefits are similar)
 from new competitors
 from existring rivals
2 strength factors: Switching costs (switching to another vendor is costly => strength of competitive force is low) and customer royalty (customers are loyal
=> strength of competitive forces is low).
o Bargaining power forces: (strengths depends on the availability of substitutes and the relative size of the firm compared to the size of suppliers/ customers)
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Of suppliers
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Of customers
A Nobel prize–winning scientist has strong bargaining supplier power at your university because such scientists are rare. In contrast, a temporary part-time instructor has little bargaining power because many people can fill that role. If such instructors were to form a union, however, then that union would have greater bargaining power because of its relative size.
Similarly, you, as an individual, have little bargaining power as a customer to your university. Your application can be readily replaced with another, and you are an individual attempting to bargain

with a large organization. In contrast, a large organization such as Oracle, Microsoft, or Google would have much stronger bargaining power for its employees at your university.
EXAMPLES
Force
Bargaining power of customer
Threat substitutions of
Example of Strong Force
Retail stores stocking Apple products
Patients choice of over the counter pain killers and home remedies
Example of Weak Force
Your power over the prices of
Apple products
Patients using the only prescription drug effective for their type of illness

Bargaining power of suppliers
Threat of new entrants
Rivalry
Force
Bargaining power of customers
High when buyers have more sellers to choose from (Low la tot)
Threat of substitutes
High when many alternatives
Bargaining suppliers power
High when power over an industry (High la tot)
Threat of new entrants
Fruit farmers in a drought year
Local coffee shop
Used car dealers of
High when easy to enter industry (u can make barrier as high as u can to prevent new entrant/ substitution = investment, RnD)
Rivalry within the industry
High when competition is fierce
Example
Force of Strong
White goods during the
GFC
Purchase of white goods or furniture during the global financial crisis
Dairy industry
Margarine/olive oil spreads are a substitute for butter
Car industry
Steel manufacturer in high environment demand
Coffee houses
Easy to set up, easy to exit
Used car dealers
No dominant player, no formal competition rules of
Fruit farmers in a surplus year
3 hat seafood restaurant
Lamborghini car dealers
Example of Weak Force
University Administration
Your power over the procedures and policies at this university
Refrigerator industry
It is very difficult to imagine another way to keep things cold
Grain industry
Wheat farmers in a surplus year
Car Manufacturer
Very expensive to enter market
Superbrands
Google Pixel iPhone – very hard to compete: only 3(?) main players: iPhone, Samsung,

When an organisation has assessed the competitive situation for their industry it can then decide where it wants to position itself within that industry.
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This determines its competitive strategy

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An organization responds to the structure of its industry by choosing a competitive strategy.
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In an industry, if a business wants to make a profit then it has to have some of the market share => To make more profit it has to take more market share o The same w non-profit organisations: If a charity wants to raise money then it has to somehow get it from citizens, or governments =>This often means making people prefer your charity over another
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After analysing industry structure, the organisation then determines the best competitive strategy . The organisation’s goals, objectives, culture, and activities must be consistent with strategy. = All business processes and information systems in the organization must facilitate the organization’s competitive strategy.
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Porter identified four generic competitive strategies :
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Cost leadership (lowest price) across industry
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Cost leadership focused on particular industry segment
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Differentiation (adding value to its product) across industry
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Differentiation (from those of the competition) focused on particular industry segment
For example of a car rental industry. It can strive to provide the lowest-cost rental across the industry or seek to provide lowest-cost rental to a focused sector .// It can differentiate its products from competition by providing a wide range of highquality cars, by providing the best reservation system, by having the cleanest cars or the fastest checkin, etc. ( across the industry or within a particular sector ).
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Competitive advantages are typically temporary BECAUSE Competitors are quick to copy competitive advantages.
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First-mover advantage : occurs when an organisation can significantly affect its market share by being first to market with a competitive advantage
 What’s happened to these first-movers?
AltaVista -> Google // VisiCalc -> Lotus
123 -> Excel // Word Perfect -> Word // Netscape -> Internet Explorer -> Firefox,

Chrome // Blackberry –> iPhone// Friendster –> Myspace ->Facebook (By replaced by the successor)
=> These were first-movers with innovation & market leaders. Yet, they were eclipsed by fast followers, in some cases multiple times.
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Following are a few companies that have achieved success through competitive advantages. o Sony had a competitive advantage with its portable stereo systems
(this first-mover advantage was temporary). o Microsoft had a competitive advantage with its unique Windows operating system.
Does Microsoft still have a competitive advantage with its Windows operating system?
Perhaps – primarily due to its first-mover advantage, since it is difficult to switch operating systems and users face interoperability if they are using different operating systems at the same organisation.
After analysing industry structure, organisation determines the best competitive strategy => organise and structure the business to implement that strategy.
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For example, a cost leader strategy have to develop activities that make them economically as advantageous as possible to provide essential functions at the lowest possible cost .
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A differentiation strategy might choose to develop more costly systems, if those systems provided benefits outweighed their costs => develop activities that ensure the highest quality of their products = ADDING VALUE
Value = the amount of money that a customer is willing to pay for a resource/ product/ service, product, or service.
Margin (Net result) = Revenue (Value added) – Cost of the activity
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A differentiation strategy will add cost to an activity only as long as the activity has a positive margin .

A value chain is a network of value-creating activities (it adds value to the product provided by the business); consists of 5 primary activities and 4 support activities:
Primary activities are business functions that relate directly to the production of the organization’s products or services: Inbound logistics; Operations; Outbound logistics;
Marketing and sales; Service
Support activities are business functions that assist and facilitate the primary activities: Firm infrastructure; Human resources; Accounting and Infrastructure;
Procurement and Technological; Linkages
PRIMARY ACTIVITIES IN THE VALUE CHAIN = activities that moves the finished product to the buyer, including storage, transport, sale, advertise
Inbound Logistics
Operations
Outbound logistics
Sales and Marketing =
Promotion, discount
Customer service
Manufacturer acquires raw materials = Receive and
Handle Inputs
Transform inputs into final product
Collecting, storing, and physically distributing the product to buyers
Inducing buyers to purchase the product and providing a means for them to do so
Assisting customer’s use of the product and thus maintaining and enhancing the product’s value
For example: o A collection of the parts needed to build a bicycle is worth more than an empty space on a shelf.
The value is the parts themselves, the time required to contact vendors for those parts, to maintain business relationships with those vendors, to order the parts, to receive the shipment, etc.. o In the operations activity, the bicycle maker transforms raw materials into a finished bicycle, a process that adds more value. o The company uses the outbound logistics activity to deliver the finished bicycle to a customer.

o There is no customer to send the bicycle to without the marketing and sales value activity. o Finally, the service activity provides customers support to the bicycle users.
=> Each stage of this generic chain accumulates costs and adds value to the product.
SUPPORT ACTIVITIES IN THE VALUE CHAIN = Faciliate the primary activities and Contribute indirectly to production, sale, service => Add value and costs =>
Produce margin (involves intangible costs and benefits => difficult to calculate)
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Human resources: recruiting, compensation, evaluation, training (full-time/ part-time employee)
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Accounting and infrastructure: general management, finance, accounting, legal, government affairs
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Procurement (This differs from inbound logistics, which is concerned with ordering and receiving in accordance with agreements set up by procurement.): finding vendors, negotiating prices, setting up contractual arrangements
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Technology: R & D, other activities within the firm for developing new techniques, methods and procedures

VALUE CHAIN LINKAGES
Porter’s idea
Create integrated, cross-departmental business systems
Do not automate or improve existing systems
Instead, create new processes
Integrate activities of all departments
Across entire value chain
Sources of efficiencies over all activities in the value chain
Readily supported by information systems linkages , which are interactions across value activities. For example, manufacturing systems use linkages to reduce inventory costs. Such a system uses sales forecasts to plan production; it then uses the production plan to determine raw material needs and then uses the material needs to schedule purchases. The end result is just-intime inventory, which reduces inventory sizes and costs.
Value chains in service oriented companies is generated by the operations, marketing, sales and service activities. Inbound and outbound logistics are not typically as important.

We know that a business process is a network of activities, resources, facilities, and information that accomplish a business function
We now know that they implement value chains or portions of value chains to add
Value
Thus each value chain activity consists of one or more business processes
Note that the value chain activities are the same for both companies. Both greet the customer, determine the customer’s needs, rent a bike, and return the bike. However, each company implements these activities in ways that are consistent with its competitive strategy.

The low-cost vendor has created bare-bones, minimum processes to support its value chain. The high-service vendor has created more elaborate business processes
(supported by information systems) that are necessary to differentiate its service from that of other vendors. As Porter says, however, these processes and systems must create sufficient value that they will more than cover their costs. If not, the margin of those systems will be negative.
If a value chain’s margin is negative, the company must make some change. Either the value must be increased or the costs of the value chain need to be reduced.
But of course we now know that a business process is supported by an information system
And so better information systems now help add value at various stages within the value chain
In either primary activities, support activities or in linkages
VIA PRODUCTS
Creating new products or services
Apple iPod
Enhancing existing products or services
New model of a car, stereo with smartphone connectivity
Differentiating their products or services
Quality or better customer service
VIA BUSINESS PROCESSES lock in customers by making it difficult or expensive for customers to switch to another product. (=establishing high switching costs (e.g. break the contract w
Vodafone) . Organizations can lock in suppliers by making it difficult to switch to another organization, or, stated positively, by making it easy to connect to and work with the organization.
Competitive advantage can be gained by creating entry barriers that make it difficult and expensive for new competition to enter the market.
Another means to gain competitive advantage is to establish alliances with other organizations. Such alliances establish standards, promote product awareness and needs, develop market size, reduce purchasing costs, and provide other benefits.
Finally, by creating better business processes, organizations can gain competitive advantage by reducing costs. Such reductions enable the organization to reduce prices and/or to increase profitability. Increased profitability means not just greater

shareholder value, but also more cash, which can fund further infrastruc- ture development for even greater competitive advantage.
This system achieves a competitive advantage in two other ways as well. First, it raises the barriers to market entry. If another company wants to develop a shipping service, it will not only have to be able to ship packages, but it will also need to have a similar information system. In addition, the system reduces costs. It reduces errors in shipping documents, and it saves ABC paper, ink, and printing costs. (Of course, to determine if this system delivers a net savings in cost, the cost of developing and operating the information system will need to be offset against the gains in reduced errors and paper, ink, and printing costs. It may be that the system costs more than the savings. Even still, it may be a sound investment if the value of intangible benefits, such as locking in customers and raising entry barriers, exceeds the net cost.)
The important thing to take from this lecture is that information systems have an important role to play in fulfilling an organisation’s strategy
HOWEVER, they do not lead that strategy, they are designed to fit it – that is, they must be appropriate
This is one reason why no single information system suits every organisation
(because they have different strategies)
One way to gain competitive advantage is to alliance w other company
To create profit is to create more value than cost
If u have strategy, u have aim, to lead ur organization
Product value depends on the customer’s eyes