Information Systems Today:
Managing in the Digital World
Ninth Edition
Chapter 2
Gaining Competitive Advantage
Through Information Systems
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Learning Objectives
2.1 Discuss how information systems can be used for
automation, organizational learning, and strategic advantage
2.2 Describe how information systems support business models
used by companies operating in the digital world
2.3 Explain why and how companies are continually looking for
innovative ways to use information systems for competitive
advantage.
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Learning Objective 2.1 (1 of 2)
• Discuss how information systems can be used for
automation, organizational learning, and strategic
advantage
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Enabling Organizational Strategy
Through Information Systems (1 of 2)
• Organizational Decision-Making Levels
• Organizational Functional Areas
• Information Systems for Automating: Doing Things Faster
• Information Systems for Organizational Learning: Doing
Things Better
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Enabling Organizational Strategy
Through Information Systems (2 of 2)
• Information Systems for Supporting Strategy: Doing
Things Smarter
• Identifying Where to Compete: Analyzing Competitive
Forces
• Identifying How to Complete: Choosing a Generic
Strategy
• Identifying How to Compete: Resources and Capabilities
• Identifying How to Compete: Analyzing the Value Chain
• The Role of Information Systems in Value Chain Analysis
• The Technology/Strategy Fit
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Organizational Decision-Making Levels
• Executive/Strategic
Level
– Upper Management
• Managerial/Tactical
Level
– Middle Management
• Operational Level
– Foreman
– Supervisors
– Operational
Employees
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Operational Level
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Managerial/Tactical Level
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Executive/Strategic Level
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Organizational Functional Areas (1 of 3)
• Organizations also have functional areas representing a
discrete area that focuses on a specific set of activities
• A functional area information system is designed to
support the unique business processes of these areas
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Organizational Functional Areas (2 of 3)
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Organizational Functional Areas (3 of 3)
• The business value added from automating, learning, and
strategizing with information systems
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Information Systems for Automation:
Doing Things Faster
Table 2.2 Activities Involved Under Three Different Loan Application Processes
Primary Activity
Manual Loan
Process (Time)
Tech-Supported
Process (Time)
Fully Automated
Process (Time)
Complete and submit loan
application
Customer takes the
application home, completes
it, and returns it (1.5 days)
Customer takes the
application home,
completes it, and returns
it (1.5 days)
Customer fills out application
from home via the web (15
minutes)
Check application for
errors
Employee does this in
batches (2.5 days)
Employee does this in
batches (2.5 days)
Computer does this as it is
being completed (1 second)
Input data from
application into the
information system
Applications are kept in paper
form, handling time involved
(1 hour)
Employee does this in
batches (2.5 days)
Done as part of the online
application process (no extra
time needed)
Assess loan applications
under $250k to determine
whether to fund them
Employee does this
completely by hand (15 days)
Employee does this with
the help of a computer (1
hour)
Computer does this
automatically (1 second)
Committee decides this
on loans over $250k
(15 days)
(15 days)
(15 days)
Applicant notified
Employee generates letters
automatically in batches (1
week)
Employee generates
letters with the help of a
computer (1 day)
System notifies applicant via
email (1 second)
Total time
25-40 days
5-20 days
15 minutes to 15 days
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Information Systems for Organizational
Learning: Doing Things Better (1 of 2)
A computer-based loan processing system enables the
bank manager to identify trends in loan applications
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Information Systems for Organizational
Learning: Doing Things Better (2 of 2)
How increasing digital density enables Uber’s business
model
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Information Systems for Supporting
Strategy: Doing Things Smarter
• The best way to use an information system is to support
the organization’s strategy
• A strategic mentality towards information systems goes
beyond automation and moves to help organizations
achieve their goals
• Information systems today should enable technology, not
just improve efficiency
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Identifying Where to Compete:
Analyzing Competitive Forces (1 of 2)
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Identifying Where to Compete:
Analyzing Competitive Forces (2 of 2)
Table 2.3 The Influence of the Internet on the Competitive Forces
Competitive Force
Implication for Firm
Influence of the Internet
Traditional rivals within your
industry
Competition in price, product
distribution, and service
Increase of competitors due to wider geographic
reach; customers can more easily compare
products, so competition focuses more on price
Threat of new entrants into
your market
Increased capacity in the
industry, reduced prices, and
decreased market share
Reduced barriers to entry, as the internet reduces
the difficulty of obtaining critical resources or
entering new markets
Customers’ bargaining
power
Reduced prices, need for
increased quality, and demand
for more services
Wider choices for customers lead to lower
switching costs and higher bargaining power of
customers
Suppliers’ bargaining power
Increased costs and reduced
quality
Companies have equal access to suppliers; easier
to find new suppliers; suppliers have access to
more potential buyers
Threat of substitute products
or services from other
industries
Product returns from customers,
decreased market share, and
losing customers for life
New substitutes are created by the internet and
other information technologies
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Identifying How to Compete: Choosing
a Generic Strategy
Five general types of
organizational strategy:
broad differentiation,
focused differentiation,
focused low-cost
leadership, overall lowcost leadership, and
best-cost provider
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Identifying How to Compete: Resources
and Capabilities (Resources)
Resources – Reflect the organization’s specific assets
that are utilized to achieve cost or differentiation from its
competitors
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Identifying How to Compete: Resources
and Capabilities (Capabilities)
Capabilities — Reflect the organization’s ability to
leverage their resources in the marketplace
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Identifying How to Compete: Analyzing
the Value Chain
• The Value Chain is used to identify opportunities where
information systems can be used to gain a competitive
advantage
• Value chain analysis is the process of analyzing an
organization’s activities to determine where value is
added to products and/or services and what costs are
incurred for doing so
– Leads to which activities need to be optimized
– Result is to ultimately gain or sustain a competitive
advantage
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The Role of Information Systems in
Value Chain Analysis
Information systems can improve an organization’s value chain
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The Technology/Strategy Fit
• Organizations are constrained by time and money to build
or acquire only those systems that add the most value
– Organizations try to maximize business/IT alignment
– Strategic necessity is something an organization must do
in order to survive
• In any significant IS implementation, there must be
commensurate, significant organizational change
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Learning Objective 2.1 (2 of 2)
• Describe how information systems support business
models used by companies operating in the digital world
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Business Models in the Digital World
• Revenue Models in the Digital World
• Platform-Based Business Models and the Sharing Economy
• Service-Based Business Models
A business model is a summary of a business’s strategic
direction that outlines how the objectives will be achieved and it
reflects the following:
– What does a company do?
– How does a company uniquely do it?
– In what way (or ways) does the company get paid for doing it?
– What are the key resources and activities needed?
– What are the costs involved?
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Revenue Models in the Digital World
Revenue Type
Description
Who is Doing This
Affiliate marketing
Paying businesses that bring or refer customers
to another business. Revenue sharing is
typically used
Amazon’s Associates program
Advertising
Free services are provided to customers and
paid for by a third party
Yahoo!, Google, Facebook, Twitter, TikTok
Subscription
Users pay a monthly or yearly recurring fee for
the use of the product/service
Netflix, World of Warcraft, Spotify,
Symantec, Norton
Licensing
Users pay a fee for using protected intellectual
property (e.g., software
Minecraft, Angry Birds, Tasker,
WolframAlpha, Face Tune, ProCamera
Transaction
fees/Brokerage
A commission is paid to the business for aiding
in the transaction
PayPal, eBay, Scottrade, Airbnb
Traditional sales
A consumer buys a product/service from the
website or makes in-app purchases
Amazon, Zappos, Nordstrom.com, iTunes,
TikTok, Honor of Kings
Freemium
Basic services are offered for free, but a
premium is charge for special features
Flickr, Skye, Dropbox.com
A revenue model describes how the firm will earn revenue, generate
profits, and produce a superior return on invested capital
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Freemium
Freemium is when an organization gives away limited versions of a
product or service for free to build a large customer base and then
charges a premium for unrestricted versions (usually on a subscription
basis
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Platform-Based Business Models and
the Sharing Economy
A digital platform enables other businesses or users to
co-create value as seen in the examples below:
Value Created/Exchanged
Examples
Products
Amazon Marketplace, eBay
Services
Airbnb, Uber
Payments
Square, PayPal
Investments and funding
Kickstarter, Lending Club
Content
Wikipedia, Twitter, YouTube
Communication
WhatsApp, Skype
Collaboration
Dropbox
Social relationships
Facebook, LinkedIn
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A Platform-Based Business Model
The value of the app store (a platform) depends on the
numbers of users on the same side and on the other side
of the platform
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A Sharing Economy
A sharing economy has been defined as “an economic system
in which assets or services are shared between private
individuals, either free or for a fee, typically by means of the
internet
(Oxford Dictionary, 2016)
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Service-Based Business Models
Under a service-based business model, a manufacturer
can offer equipment services as well as the product
For example, Rolls-Royce
might sell jet engines near
cost in a competitive
market with the real
revenue coming from the
maintenance contracts to
service those engines
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Learning Objective 2.3
• Explain why and how companies are continually looking
for innovative ways to use information systems for
competitive advantage
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Valuing Innovations (1 of 2)
• The Need for Constant IS Innovation
• Successful Innovation is Difficult
• Open Innovation
• The Innovation Process
• Innovation and the Lean Startup Methodology
• Organizational Requirements for Innovation
• Startups and Crowdfunding
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Valuing Innovations (2 of 2)
• Innovation is key for organizations attempting to gain or
sustain a competitive advantage
• Innovation involves creating new products or services
that return value to the organization
• Radical innovations, also known as disruptive
innovations, use a markedly new or different technology
to access new customer segments and significantly
greater benefits
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Ten Types of Innovation
Innovation
Description
Examples
Profit model innovation
Finding novel ways of generating
revenues from offerings
Dropbox using a freemium approach; Microsoft offering Office 365 on a
subscription basis; GE selling “thrust as a service”
Network innovation
Harnessing the capabilities and
strengths of others
GlaxoSmithKline or Marriott using open innovation for new product or
service ideas; Netflix running contests for improving movie
recommendation algorithm; luxury hotels partnering with fashion
designers
Structure Innovations
Using the company’s talent and assets in
innovative ways
Southwest Airlines focusing on one aircraft type; Google allowing
employees to use 20 percent of work time for personal projects
Process innovations
Changing primary processes used to
produce product or service
Toyota pioneering lean production; Zara moving fashion from initial
design to stores in 3 weeks
Product performance
innovations
Creating novel products or improving
existing products through differentiation
Dyson’s Airblade hand dryers; Corning’s “unbreakable” Gorilla Glass;
coke’s customizable Coke bottles
Product system
innovations
Creating bundles of complementary
offerings
Microsoft bundling individual office programs into Office suite; Apple
offering developer tools and app store to enable developers to create
novel apps; Marriott letting users test drive GoPro HERO action cams
Service innovations
Supporting and enhancing value of
offering
Zappos’s WOW philosophy of delivering excellent customer service;
Men’s Wearhouse offering its customers the ability to purchase free
lifetime pressing
Channel innovations
Using innovative ways to connect
offerings with customers
Niketown offering immersive experiences; Nespresso partnering with
hotels and airlines
Brand innovations
Positioning the brand in innovative ways
Virgin family of brands; German discount grocer Aldi’s; Trader Joe’s
markets
Customer engagement
innovations
Developing meaningful connections with
customers
Swarm encouraging users to frequently “check in” to places; apple
tying customers to it ecosystem
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New Information Technologies and
Systems on the Horizon
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Successful Innovation is Difficult
• Innovation is often fleeting
• Innovation is often risky
• Innovation choices are often difficult
Open Innovation can
prove to be beneficial
when you integrate
external stakeholders into
the innovation process
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The Innovation Process
• If IS is used to gain a competitive advantage in the area
of operational efficiencies, it is likely that your rivals an do
the same
• If you use IS to create innovative products, services, or
processes to gain a longer-lasting, sustainable
competitive advantage it is harder for your rivals to
compete
– Example: Waze developed a unique algorithm that
incorporated map date real-time traffic information
that was so successful that Google ended up
purchasing it
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Innovation and the Lean Startup
Methodology
The lean startup methodology provides a framework to gain a
competitive advantage from continuous innovation the ability to flexibly
experiment with different solutions or business models quickly
The build-measure-learn cycle that
enables validated learning
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Organizational Requirements for
Innovation
• Process Requirements (focus on success)
• Resource Requirements
– Employees with knowledge, skill, time, and resources
– Partner with appropriate resources
• Risk Tolerance Requirements (For both risk and failure)
• Thinking About Investments in Radical Innovations
– Put technology ahead of strategy
– Think in terms of problems before designing solutions
– Innovation is continuous
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Startups and Crowdfunding
• Crowdfunding is the
securing of business
financing from
individuals in the
marketplace (crowd) in
exchange for certain
benefits
• Inventors and startups
can draw on may
sources for support
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End of Chapter Content
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Managing in the Digital World:
Startups and New Business Models
• Information technology has enabled new business models:
– Operating a platform (enables other businesses/users to
co-create value)
– Cutting out the middleman (bypassing traditional retail
channels and interacting directly with customers)
▪Ex: Warby Parker (eyeglass vendor) and Casper (mattress
seller) use technology to disrupt traditional distribution
channels and directly connect with buyers
– Selling subscriptions (facilitated by technology through the
removal of friction from the transaction using online forms)
– Providing on-demand services
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Green IT: IoT, AI, and Environment
Sustainability
• Resource scarcity and global warming have given rise to
a tremendous interest in renewable energy
• This has led to an increasing need for environmental
sustainability
• Increasing digital density can help push us forward to a
more sustainable future
• Digital twins – a digital representation of physical objects
are increasingly used to remote monitoring of assets
• Remote sensing capabilities of IoT devices offer many
promises related to environmental sustainability
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Digital Density: Digital Nomads
• Digital Nomads — People who live and work wherever
they feel like, using the internet and mobile technology to
connect with their customers or employers
– Location must be appealing place to live and work
– Low cost of living
– Good weather
– Good connectivity using Wi-Fi or cellular networks
– Some changes
▪Must be conducive to the work style and skill set
▪Maintain good relationship with customers or employers
▪Must be able to build and maintain networks
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When Things Go Wrong: The Pains of
Uber in China
• Didi Kuaidi, formed by rival taxi-hauling services Alibaba
and Tencent (two of China’s internet giants) competed
directly with Uber (later renamed Didi Chuxing)
– Disrupted Uber by offering customers a choice between a
taxi, private car, shared car, shuttle van or bus
– Arranged more than 15 million daily active users in 2020
– Uber withdrew from the Chinese market in mid-2016
• The onset of the COVID-19 virus in 2019, Didi Chuxing
faced a near collapse in rider demand of only 5 million
daily active users (along with profitability)
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Ethical Dilemma: The Ethics of the
Sharing Economy
• Uber and Airbnb are providing a service bypassing the middleman
thus providing a service in the sharing economy by removing
transactional friction from markets for services that are already
permissible by law
– Unregulated like taxis and hotels are
– Not subject to controlled markets
• The challenge remains that the existing laws and regulations
framework provide for and protect existing economic stakeholders
– Some cities (London) have pressured Uber to ensure their drivers are
safe and vetted, resulting in a failure to renew some licenses to operate
in late 2019
– Are these ethical? Expect more challenges and highly public disputes to
come
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Coming Attractions: Augmented
Shopping Experiences
• Futurist Peter Diamandis foresees an artificially intelligent
“shopping” digital assistant
– The assistant know you, your likes, your styles
– Has access to your shopping history
– Has data from other shopping sources
• The assistant will leverage augmented reality (AR) to
show images of you in different styles of clothing
• This will allow shopping online without ever stepping foot
in the store
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Security Matters: SWIFT Theft
• The Society for Worldwide Interbank Financial
Telecommunications (SWIFT) is an organization that enables
banks to rapidly clear financial transactions on a global basis
– Links more than 11,000 financial institutions in more than 200
countries
• In 2016, two banks in SE Asia experienced cybertheft of
US$81 million
– Attackers penetrated the system of Bangladesh to gain entrance
– SWIFT system was no compromised as entranced was through
a member’s weakness in security
• Served as a reminder to member banks to secure their own
house
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Industry Analysis: Education
• Cost of higher education in the United States has steadily
increased
• Average college graduate owes $33,000 in student loans
• Trend in globalization—increased collaboration in research
and curriculum
• Trend in online delivery—leads to cost savings, but may be
less engaging to students
• COVID-19 was challenging for in-person students who had to
suddenly transition to an online environment
• Massively open online courses (MOOCs)—free to students
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