Using IT for Competitive Advantage
MIS 320
Kraig Pencil
Summer 2013
PPT Slides by Dr. Craig Tyran & Kraig Pencil
A. Game Plan
•
•
•
•
Role of Information Technology
Competitive Advantage, Strategy and IS
IS and the “Value Chain”
Competitive Forces
PPT Slides by Dr. Craig Tyran & Kraig Pencil
B. Role of Information Technology (IT)
1. Conception of information
technology – and status – has evolved
Number
Crunching
Report
Generation
1950s
PPT Slides by Dr. Craig Tyran & Kraig Pencil
Decision
Support
Strategic
Weapon
2000s
B. Role of Information Technology (cont.)
2. A key goal for business (and MIS 320)
•
Learn to recognize and identify opportunities
for strategic applications of IT
3. How to do this???
•
Combine
•
•
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Strategy concepts
Business knowledge
IS knowledge
 Multiple perspectives are required
PPT Slides by Dr. Craig Tyran & Kraig Pencil
C. Competition and Strategy
1. Positioning is key
•
•
•
Competition is fierce
Can’t be “all things to all people”
To survive, organizations adopt a specific “strategy”
2. Ways to gain competitive advantage: Examples
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Cost leadership strategy: Do it cheaper. Cost efficiency, lower prices
•
Differentiation strategy: Do it better. Quality, speed, caché
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Innovation strategy
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Operational effectiveness strategy
•
Customer orientation strategy
PPT Slides by Dr. Craig Tyran & Kraig Pencil
D. IT to Support Strategy
1. Use IT to support a business strategy
Align IS projects with strategy  Support the organization’s game plan
2. Example: Two Frameworks for Analysis
Value Chain Analysis
Competitive Forces Analysis
PPT Slides by Dr. Craig Tyran & Kraig Pencil
E. IS and the Value Chain
1.
A popular framework to help identify useful strategic
applications for IS: Value chain
2.
Value chain
•
•
“Value”: Something that customers will pay for
• Create value via a desired product or service, or
• Image making (e.g., marketing of soft drinks)
• Goal: Value > Costs of doing business
“Chain”: Activities are linked, interdependent
3. “VC analysis”: Identify critical business activities and linkages
 Identify IS projects that can add value or decrease costs.
PPT Slides by Dr. Craig Tyran & Kraig Pencil
Light green areas  Costs
Dark green area  Excess value  Profits
Primary Activities
Support Activities
Value Chain Activities
The Value Chain includes nine common
categories of organizational “activities”
PPT Slides by Dr. Craig Tyran & Kraig Pencil
E. IS and the Value Chain (cont.)
3. Value chain: Linkages
•
•
One kind of VC linkage the information exchanged between
“Activities”
Internal linkage: Information between activities within one firm
•
External linkage: Information between activities between different firms
•
Examples of linkages: see figures 
PPT Slides by Dr. Craig Tyran & Kraig Pencil
Internal Linkages: Examples
A. Sales sends production
request to Production Dept
(“Operations” activity)
B. Production Dept (“Operations” activity)
sends raw materials request to Warehouse
(“Inbound Logistics” activity)
PPT Slides by Dr. Craig Tyran & Kraig Pencil
External Linkages: Examples
Supplier
Desk Chair,
Inc. (DCI)
Corporate
Buyer
A. DCI’s Procurement
activity sends purchase
order to Supplier’s
Marketing/Sales activity
B. Supplier’s Outbound
Logistics activity sends
shipment invoice (and
shipment) to DCI’s Inbound
Logistics activity
C. DCI’s Marketing/Sales
activity sends marketing
and sales related
information to Buyer’s
Procurement activity
PPT Slides by Dr. Craig Tyran & Kraig Pencil
E. IS and the Value Chain (cont.)
4. Value chain analysis
•
•
ID the critical activities and linkages
Change the activities and linkages …
•
•
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To add value to the product
To reduce the cost
VC analysis requires understanding …
• Industry
• Strategy for the firm
• Activities of the firm
• What is possible
I.e., VC analysis for IS requires non-technical and technical employees
PPT Slides by Dr. Craig Tyran & Kraig Pencil
E. IS and the Value Chain (cont.)
5. Three examples of adding value through IS.
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•
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Marketing activities: Personalized ads (see Amazon)
Internal linkage: Delivery guarantee (see Talbot Ties)
External linkage: Rapid order fulfillment (see Portland
Pine Products)
PPT Slides by Dr. Craig Tyran & Kraig Pencil
IS & Value Chain Analysis:
Amazon – a Value-Added Activity
• Problem: How to encourage follow-up purchases? How to target ads
to the needs/wants of the customer?
• Solution: Add value to Marketing activities through data mining.
“Customers who have purchased ABC also enjoy XYZ.” Data
mining can reveal patterns, such as what products certain types of
consumers might be interested in.
PPT Slides by Dr. Craig Tyran & Kraig Pencil
IS & Value Chain Analysis:
Talbot Ties – New Live Linkages
Problem: Sales people do not know inventory status and therefore
cannot guarantee delivery on time.
Inbound Production Outbound
Logistics
Logistics
Product
Database
Marketing/Sales
Service
Field Rep
Request Inventory Status
Send Inventory Status
Solution: Add value by creating a new linkage between Sales and
Warehousing.
Sales activities: In-stock guarantee:
•
Support better information on what products are available for the
customer
•
How? Live linkage between Sales and Warehousing.
PPT Slides by Dr. Craig Tyran & Kraig Pencil
IS & Value Chain Analysis:
Portland Pine Products – Redraw Linkages
Portland Pine Products
Linkage between Customer
and PPP for orders was a
critical linkage. Problem:
Time wasted via “back and
forth” flows. (dotted arrows)
Customer
New approach:
Problem: Paperwork delays
Eliminate the bottle neck
Solution: Rapid order fulfillment by
by using IT to empower
rerouting and automating the linkage
the Warehouse to
to/from external customer, bypassing
accept/process orders.
Marketing
(solid
PPT
Slidesarrows)
by Dr. Craig Tyran & Kraig Pencil
E. IS and the Value Chain (cont.)
5. Application of VC analysis to IS
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Conclusion: How to spend the IS budget???
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Prioritize IS projects based on VC analysis
Ensure that new IS will
address critical needs and …
be aligned with organization’s strategy
PPT Slides by Dr. Craig Tyran & Kraig Pencil
F. Competitive Forces
1. The business world is a competitive
place!
• Many forces may be acting on the firms
within an industry
2. Porter’s “Five Forces Model”
• Examples of forces
PPT Slides by Dr. Craig Tyran & Kraig Pencil
Porter’s Five Forces Model
Threat of
New Entrants
Supplier
Bargaining
Power
Current
Competition
Threat of
Substitutes
PPT Slides by Dr. Craig Tyran & Kraig Pencil
Buyer
Bargaining
Power
F. Competitive Forces (cont.)
3. Information technology (IT) can be used
to address the forces
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Examples
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•
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Using IT to gain bargaining power over buyers
Using IT to gain bargaining power over suppliers
Creating entry barriers with IT
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Using IT as an Entry Barrier
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G. Strategic Information Systems
1. Strategic information system (SIS)
–
–
A system that significantly shapes or supports
an organization’s strategy
A famous SIS: Dell’s “sell-source-ship”
approach to the PC retailing process
•
Approach was enabled by IS applications
PPT Slides by Dr. Craig Tyran & Kraig Pencil
IT for Competitive Advantage:
Dell Computer Example
• Traditional Retail
Model: Buy-Hold-Sell
– Buy: PC Retailer buys
from maker/distributor
– Hold: PCs sit in
warehouse, sit on store
shelves
– Sell: Sell PC
Note: Some PCs are sold
– and some are not
PPT Slides by Dr. Craig Tyran & Kraig Pencil
• Direct Sell Model:
Sell-Source-Ship
– Sell: Customer buys a
PC online
– Source: PC
components are
purchased (sourced) &
assembled using
“Alliance Partners”
– Ship: PC is shipped
to customer
Note: No unsold PCs –
only sold PCs
G. Strategic Information Systems (cont.)
Competitive Advantage  Competitive Necessity
2. Sustainability of Strategic Information Systems
• Is a SIS going to provide competitive
advantage forever???
• Not likely  Business landscape
changes over time
• Need to reanalyze VC and competitive forces
periodically
•  Modify/enhance SIS, develop new
SIS, etc.
PPT Slides by Dr. Craig Tyran & Kraig Pencil
Using IT as an Entry Barrier
FedEx
• 1979
– COSMOS: creates a centralized computer system to manage
people, packages, vehicles …
• 1989
– launches an on-board communications system that uses satellite
tracking to pinpoint vehicle location
• 1994
– launches fedex.com as the first transportation Web site to offer
online package status tracking, enabling customers to conduct
business via the Internet.
• 1999
– enables easy access to online merchants that offer fast, reliable
FedEx express shipping
http://about.fedex.designcdt.com/our_company/company_information/fedex_history/fedex_timeline
PPT Slides by Dr. Craig Tyran & Kraig Pencil