Using MIS 2e
Chapter 3: Information Systems
for Competitive Advantage
David Kroenke
This presentation has been
modified from the original and
should be downloaded from the
Course Documents area in
Blackboard
Study Questions

Q1 – How does organizational strategy determine information
systems structure?

Q2 – What five forces determine industry structure?

Q3 – What is competitive strategy?

Q4 – What is a value chain?

Q5 – How do business processes generate value?



Q6 – How does competitive strategy determine business
processes and the structure of information systems?
Q7 – How do information systems provide competitive
advantages?
Ethics Guide – The Digital Divide
Chapter 3: Information Systems for Competitive Advantage
3-2
Q1 – How does organizational strategy determine IS structure?
Michael Porter developed three different models (industry
structure, competitive strategy, and value chains) that laid the
groundwork to create integrated, cross-departmental
business systems. As can be seen, the structure of an
industry determines an organization’s competitive strategy,
giving rise to value chains and business processes, which
results in the structure of the information system.
Chapter 3: Information Systems for Competitive Advantage
3-3
Q2 – What Five Forces Determine Industry Structure?
The threat of threat of a new vendor
is weak for an NFL franchise; the
force is very strong if you are the
corner latte stand
The bargaining power of customers
is a strong force if you are an
appliance company selling to WalMart; it is weak if you are an oil
company selling gas to consumers
The rivalry among existing firms is
a strong force for used car dealers in
a city or town; it is weak (nonexistent) if you are the IRS
The bargaining power of suppliers
is a strong force for a PC
manufacturer dealing with Microsoft;
it is a weak force for bread
manufacturers dealing with grain
farmers in a surplus year
The threat of substitutions is strong
for an auto-rental company catering
to frequent travelers; the force is very
weak for a drug company with a
patent on the only effective drug for a
specific disease
Porter’s five forces model determines industry profitability. Organizations
examine the effects of these forces and their relative strength to arrive at a
competitive strategy. The forces may be strong or weak.
Chapter 3: Information Systems for Competitive Advantage
3-4
Q3 – What is Competitive Strategy?
Walmart provides the
lowest cost in the
retail industry
Lexus competes on
how its products are
better and more
luxurious across the
industry
Southwest Airlines is
the cost leader for
certain portions of the
airline industry
Apple’s iPhone
competes by being
different from other
cell phones
A company can choose one of four competitive strategies to help it
respond to the structure of its industry.
Chapter 3: Information Systems for Competitive Advantage
3-5
Q4 – What is a Value Chain?
A value chain is a network of activity within an organization that implements
the business strategy. Each stage of the primary chain accumulates costs
and adds value. Margin is the difference between cost and value. Support
activities enable the primary activities to take place
Chapter 3: Information Systems for Competitive Advantage
3-6
Q4 – What is a Value Chain (Primary and Support Activities)?

Primary Activities are functional areas in the organization that
process inputs and produce outputs.






Inbound Logistics – receiving and stocking of raw materials and parts
Operations/Manufacturing – processing orders and raw materials into
finished product
Outbound Logistics – distribution of the finished product to customers
Marketing and Sales – creating demand for the product (pre-sale)
Customer Service –Product or customer support (post-sale)
Support Activities contribute indirectly to the production, sale, and
service and enable the primary activities to take place:




Infrastructure – hardware and software to support primary activities
Human Resources – employee management (hiring, interview
scheduling, and benefits management)
Technology Development – the design and development of applications
that support the organization
Procurement – purchase of goods or services that are required as inputs
to primary activities
Chapter 3: Information Systems for Competitive Advantage
3-7
Q4 – What is a Value Chain; e.g., Bicycle Manufacturer?
Each stage of the primary chain accumulates costs and adds value. Margin
is the difference between cost and value. Each activity chain links to other
activities in the chain. Linkages are the interactions across the value
activities. Understanding a company’s linkages helps it succeed in
designing or redesigning its business processes.
Chapter 3: Information Systems for Competitive Advantage
3-8
Q5 – How Do Business Processes Generate Value?
A business process is a network of activities that generate value by
transforming inputs into outputs. The various activities access different
databases determine the information system.
Chapter 3: Information Systems for Competitive Advantage
3-9
Q5 – How Do Business Processes Generate Value?
The purchase-bicycleparts activity has been
redesigned to query
the finished goods
inventory to include
information about
customer demand in
the ordering decision
for raw materials.
Linkages are interactions across value activities; e.g., manufacturing systems
use linkages to reduce inventory by using sales forecasts to plan production,
then use production to plan raw materials. Understanding a company’s linkages
helps it succeed in designing or redesigning its business process.
Chapter 3: Information Systems for Competitive Advantage
3-10
Q5 – How Do Business Processes Generate Value?







Each network of activity transforms input resources into output
resources; i.e., bicycle parts are transformed into a bicycle through a
network of activities, both primary and support.
You determine the cost of each business process by adding the cost
of inputs plus the cost of activities used in the process.
You determine the margin of each business process by subtracting
the cost of the activity from the value of the output.
A company’s resources, like inventory parts, equipment, or cash,
flow between or among all the activities used to produce a product.
The key to a company’s competitive advantage is to increase the
margin of its products by adding value, reducing costs, or both.
Business process redesign helps a business streamline its activities
in order to increase its margins by creating more efficient processes.
The most difficult part of process redesign is associated with
employee resistance.
Chapter 3: Information Systems for Competitive Advantage
3-11
Q6 – How Does Competitive Strategy Determine Business Processes and
Structure of Information Systems?


A business must first analyze its industry and choose a competitive
strategy. Then it must design its business processes to span valuegenerating activities. After those decisions have been made, the
business can structure an IS that supports its business processes.
Consider two bicycle rental companies, one with a strategy of lowcost rentals to students versus one that seeks “best of breed” to
executives at a high end conference resort
Chapter 3: Information Systems for Competitive Advantage
3-12
Q6 – How Does Competitive Strategy Determine Business Processes and
Structure of Information Systems?
The competitive strategy determines the eventual information system.
The student rental business can use a “shoebox” for its data facility. The
high-service business however makes extensive use of information
systems including a CRM to monitor past customer rental activity as
well as an inventory database to “up sell” bicycle rentals as well as to
control bicycle inventory so as not to disrupt customers
Chapter 3: Information Systems for Competitive Advantage
3-13
Q6 – How Does Competitive Strategy Determine Business Processes and
Structure of Information Systems?
Fig 3-10 Business Process & Information System for Bike Rental
Chapter 3: Information Systems for Competitive Advantage
3-14
Q7 – How Do Information Systems Provide Competitive Advantages?


Information systems enable a business to gain competitive
advantage via their products and services and/or by developing
superior business processes.
A business can gain a competitive advantage via its products by:





Creating new products and services, or
Enhancing its existing products or services, or
Differentiating its products and services from its competitors
Information systems can help create a competitive advantage by being
part of the product or by providing support to the product.
A company can also gain a competitive advantage by using
business processes to





Lock in customers via high switching costs
Lock in suppliers via easy-to-use connections
Create entry barriers for new competitors; e.g., patents.
Establish alliances with other organizations
Set industry standards
Chapter 3: Information Systems for Competitive Advantage
3-15
Ethics Guide – The Digital Divide
Money and information grow exponentially



The more money you have, the easier it is to make more money (5% on
$10 million earns $500,000; 5% on $10,000 earns $500)
The more knowledge you have the easier it is to acquire additional
knowledge
Every year the disparity increases; the “have-nots” stand still, whereas the
“haves” pull further ahead
The Digital Divide refers to the gap between those with access
to the Internet compared to those without (e.g., the poor, the
elderly, and the poorly educated)
The digital divide also exists outside the US. What does this
mean for these countries’ ability to compete?



What should be done for those without Internet access?
What is the role of government?
One Laptop Per Child - www.laptop.org (Nicholas Negroponte)
Chapter 3: Information Systems for Competitive Advantage
3-16
Summary






Michael Porter developed three different models (industry structure,
competitive strategy, and value chains) that laid the groundwork to
create integrated, cross-departmental business systems.
The structure of an industry determines an organization’s competitive
strategy, giving rise to value chains and business processes,
resulting in the structure of an information system.
A value chain is a network of activity within an organization that
implements the business strategy. The value chain is comprised of
primary activities and support activities.
A business process is a network of activities that generate value by
transforming inputs into outputs.
Information systems enable a business to gain competitive
advantage via their products and services and/or by developing
superior business processes.
The digital divide refers to the gap between those with access to the
Internet compared to those without (e.g., the poor, the elderly, and
the poorly educated)
Chapter 3: Information Systems for Competitive Advantage
3-17
Review: Select the appropriate term for each item
Michael Porter – Value Chain – Business Process – Primary Activity
Five Forces Model – Linkage – Secondary Activity – Digital Divide
1.
2.
3.
4.
5.
6.
7.
8.
Infrastructure and Human Resources are considered as this type of
activity within the value chain. Secondary Activity
Inbound and Outbound logistics are considered as this type of activity
within the value chain. Primary Activity
He defined the value chain and also developed a model of competitive
strategies. Michael Porter
Term that distinguishes those that have Internet Access from those
who do not. Digital Divide
Network of activities that generate value by transforming inputs into
outputs. Business Process
Interaction across value activities Linkage
Determines industry structure and profitability Five Forces Model
Network of activity that implements the business strategy Value Chain
Chapter 3: Information Systems for Competitive Advantage
3-18