Chapter 8
Chapter 8
Value Creation
with Information Systems
What theoretical and analytical models help managers identify
opportunities to create added value with IT
1
Course Roadmap
• Part I: Foundations
• Part II: Competing in the Internet Age
• Part III: The Strategic use of Information Systems
– Chapter 6: Strategic Information Systems Planning
– Chapter 7: Value Creation and Strategic Information
Systems
– Chapter 8: Value Creation with Information Systems
– Chapter 9: Appropriating IT-Enabled Value over Time
• Part IV: Getting IT Done
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Learning Objectives
1.
2.
3.
4.
How to think in a disciplined fashion about the question of value creation
with information systems resources.
How to use traditional models of value creation with information systems
and information technology to identify and craft IT-dependent strategic
initiatives, including industry analysis, value chain analysis, and the
customer service life cycle framework.
How to incorporate information resources in your search for
opportunities for value creation using emerging frameworks, including
the virtual value chain and the customer data strategies framework.
How to devise and select initiatives that create value using organizational
data.
3
Introduction
• Chapter 6 showed you how the strategic
information systems planning process is designed
to create an overall context for information
systems decision making
• Chapter 7 laid the foundation by explaining how
you can analyze the impact of such initiatives
• Now, we get to the heart of the matter by
introducing frameworks and analytical models
use to identify opportunities, and to design and
evaluate IT-dependent strategic initiatives
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Traditional Frameworks
• Mid-1980s IS research - systematically explore
and document the role of information systems
and IT beyond automation of work and the
creation of efficiencies
• Result: strategic models focusing on competitive
positioning and competitive advantage
1. Industry analysis
2. Value chain analysis
3. Customer service life cycle analysis
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Industry Analysis
The 5-Forces Framework
• Grounded in the basic
notion that different
industries offer different
potential for profitability.
• Suggests that industry
differences can be analyzed
a priori by managers using
an analytical framework
• five forces model
• Executives can decide
whether to enter an industry
or forgo investment
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Threat of New Entrants
• How easily can
competitors enter the
market?
• Are the barriers
significant enough?
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The Threat of Substitutes
• How easily can the
product or service be
replicated in a way that
meets the same
customer needs?
VS.
8
Bargaining Power of Buyers
• How easily can
customers influence
the price of the
product or service?
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Bargaining Power of Suppliers
• How easily can
individuals and firms
sell their products and
services at high prices?
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Rivalry Among Existing Competitors
• How fierce is the battling
for position and how
aggressive is competition
in the industry?
• Hyper competition –
fierce rivalry among
existing firms and a very
rapid rate of innovation
leading to fast
obsolescence of any
competitive advantage
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Industry Analysis and the Role of
Information Systems
• Investing in IS may:
– Can the use of IT raise or increase barriers to entry
in the industry?
– Can the use of IT decrease suppliers’ bargaining
power?
– Can the use of IT decrease buyers’ bargaining
power?
– Can the use of IT change the basis of industry
competition?
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Value Chain
• As managers – you will analyze opportunities
to use strategic IS to create added value.
• The value chain model identifies:
– Primary activities
– Support activities
Support Activities
Firm Infrastructure
HR Management
Technology development
Procurement
Inbound logistics
Primary Activities
Operations
Outbound logistics
Marketing and sales
Service
Margin
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Primary Activities
• Those directly related to value creation
• They are:
– Inbound logistics
– Operations
– Outbound logistics
– Marketing and Sales
– Service
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Support Activities
• Those not directly related to the
transformation process
• They are necessary to enable it.
• They are:
– Firm infrastructure
– HR management
– Technology development
– Procurement
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Value Chain and Role of Information Systems
• Managers need to identify, understand, and analyze the
activities of the firm
• The objective is to enhance or transform them using
Information Systems
• Careful! Map a representative value chain
Marketing
& Sales
Guest Stay
Procurement
After Stay
Service
Production
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Value Network
• Firms interact with one another in the value network
• Individual value chains are therefore linked to those of
suppliers (upstream) and customers (downstream)
• These linkages offer opportunities for value creation with
Information Systems
Linkages
Suppliers
Firm
Customers
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The Customer Service Life Cycle (CSLC)
• Objective:
– To map the relationship between a firm and its
customers
– To identify the stages where customers:
• Are unsatisfied or
• Receive substandard service
– Provide ideas as to how:
• To improve customer service through the use of the
advanced IT
• or the deployment of IT-dependent strategic initiatives.
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The Four Phases of the CSLC
• The CSLC identifies four major phases mapping
the relationship between the firm and its
customers
• Stepping through the relationship in the
customer’s shoes
• Helps managers
address these needs
from the customers’
point of view
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The 13 Stages of the CSLC
• Each of the four phases is further subdivided
into stages
• These represent typical needs the customer
has when:
– Purchasing
– Using and
– Retiring a product or service.
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CSLC: Thirteen Stages
Requirements
Establish requirements
Specify
Establish a need for the product or service
Determine the product or service attributes
Acquisition
Select Source
Order
Authorize and pay for
Acquire
Evaluate and accept
Determine where to obtain the product or service
Order the product or service from a supplier
Transfer funds or extend credit
Take possession of the product or receive service
Ensure that the product or service meets specifications
Ownership
Integrate
processes
Monitor
Upgrade
Maintain
Retirement
Transfer or dispose
Account for
Add to an existing inventory or integrate with existing internal business
Control access and use of the product or service
Upgrade the product or service if conditions change
Repair the product as necessary
Move, return, or dispose of product or service
Monitor expenses related to the product or service
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Phase 1: Requirements
• Establish requirements:
– Customer identifies a
need for a firm’s
product/service
• Specify:
– Customer details the
characteristics of
product or service of
interest
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Phase 2: Acquisition
• Select a source:
– The customer identifies where to
acquire the product or service
from
– Internet is a new source that
reduces vendor’s distribution
costs
• Ordering:
– The customer requests the
product or service
• Authorize and pay for:
– The customer issues payment
• Acquire:
– The customer begins using the
product or service
• Evaluate and accept:
– The customer ensures that the
product or service meets
specifications and the stated
objectives of use
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• Integrate:
Stage 3: Ownership
– The customer adds the product
or service to the existing
inventory of resources
• Monitor use and behavior:
– The customer ensures that the
product or service remains in
working order
• Upgrade:
– The customer modifies or
improves the product or service
as needed
• Maintain:
– The customer services the
product or service as needed
– The firm can use such
opportunities to avoid
dissatisfaction and provide
outstanding service
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Stage 4: Retirement
• Transfer or dispose:
– The customer will needs to transfer, resell, return,
or dispose of the product or service
• Account for:
– The customer needs to evaluate the experience
provided by the product or service
– The customer needs to measure the costs
associate with ownership of the product or service
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Virtual Value Chain(VVC)
• Designed to map the set of
sequential activities that
enable a firm to transform:
– Raw data in input into
– Higher value information in
output
Gather
Organize
Select
• Adopts the same logic as the
physical value chain
• VVC recognizes info as the
entity being transformed (the
value of which is being
enhanced) through the chain
of activities
Synthesize
Distribute
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Five Activities
• Gather:
– Collecting and accumulating information
• Organize:
– Storing the gathered data in a way that makes later retrieval
and analysis simple and effective.
• Select:
– Identifying and extracting the needed data from the data
repository
• Synthesize:
– Packaging information so that it can be readily used by the
intended consumer for the specific purpose to which it is
directed
• Distribute:
– Transmitting the appropriately packaged information to its
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intended user or customer.
Three Classes of Strategic Initiatives
• Visibility:
– The ability to “see
through” organizational
processes previously
treated as black box
• Mirroring Capabilities:
– The ability of
transforming physical
activities into
information-based ones
• Efficiency
• Effectiveness
• Performance
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Three Classes of Strategic Initiatives
• New Digital Value:
– Creating relationship with the customer
– Increasing Customer willingness to pay
– Creating new value in the form of new information
enabled products or services.
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New Frontier: Value Matrix
Marketing
& Sales
Guest Stay
Procurement
After Stay
Service
Production
Capture
Store
Select
Synthesize
Distribute
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Creating Value with Data
Purpose of data:
Do something of value for customers
Value
 increase their customer willingness to pay
Ability for data to create value depends on two factors:
1. Theoretical Repurchase Frequency of product or service
2. Degree of Customizability of product or service
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Theoretical Repurchase Frequency
How often the customer repurchases the
goods/services
It is a function of the industry the firm
is in and the characteristics of the
value proposition it offers
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Degree Of Customizability
How much the product or service can be
tailored to the specific needs and
requirements of individual customers
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Customer Data Strategies
High
Rewards Strategy
Theoretical
Repurchase Rate
- Loyalty Rewards
- Reporting
Personalization
- Operations
- Differentiation
Acquisition Strategy
Low Payoff
- Analytics
- New Prospects
Low
Low
Degree of
Customizability
High
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Personalization Strategy
• Repeated interactions
• Returning customers
35
Rewards Strategy
• Product and service
purchased frequently.
• Products are fairly
standardized
• Difficult to tailor them
to specific customer
requests
36
Acquisition Strategy
• Low theoretical
repurchase
frequency
• High degree of
customization
37
Low Payoff
• Low theoretical
repurchase frequency
• Relatively low degree
of customizability
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The Third Dimension
Unobtrusive
Data Capture
The extent to
which – during
the normal
business cycle –
data is collected
and stored in a
readily usable
format
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Data-Driven Strategic Initiatives
• Identify relevant Transaction Processing Systems
(TPS)
– Narrow the scope of the analysis and focus on the systems
that hold relevant data
• Inventory currently available data
– Identify the underlying data tracked in the natural course
of business
– Talk to power users
• Conceptualize initiatives
– Generate and brainstorm ideas
– Don’t evaluate feasibility or financial viability yet
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Prioritize Initiatives
• Evaluate actual feasibility – make pragmatic
decisions about these initiatives
• Upside potential
– Time sensitivity
- Impact immediacy
- Aggregation requirements
- Trending requirements
• Data availability
– Accuracy
– Comprehensiveness
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Prioritize Initiatives
Imperatives:
- Projects with significant
upside potential that rely on
readily available
information
Quick wins:
- Projects without much
upside potential
- Can be readily implemented
based on immediately
available information
- Help gain momentum and
build credibility
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Prioritize Initiatives
Tradeoffs:
- Projects that rely on
information not readily
available that tends to
be costly
Losing causes:
- Projects with little
upside potential that
rely on information that
is not readily available
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The Recap
• Industry analysis, seeks to help you identify opportunities to deploy
information systems to improve the profitability of the industry
• Value chain analysis seeks to spur your thinking about how
information systems and technology can be used to introduce new
activities and/or change the way the firm’s activities are currently
performed
• The customer service life cycle (CSLC) suggests that there is ample
opportunity to create value by using information systems and
technology to enhance the relationship with customers and enable
superior customer service
• CSLC identifies four major phases and thirteen stages that offers
opportunities for value creation per the relationship between the
firm and its customer
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The Recap
• Virtual value chain (VVC) recognizes the importance of the wealth
of information available to today’s organizations in the search for
value creation
• VVC identifies five sequential activities & three classes of strategic
initiatives that a firm can use to transform raw data input into
information outputs that have more value than the inputs
• Customer data offer the potential to create value with different
strategies best fitting different organizations
• The viability of the chosen strategy depends also on the degree of
difficulty the firm encounters in collecting and using the needed
customer data
• Once the firm identifies a potentially value adding strategy, it must
ensure that it can appropriate the value created over time
45
What We Learned
1.
2.
3.
4.
How to think in a disciplined fashion about the question of value creation
with information systems resources
How to use traditional models of value creation with information systems
and information technology to identify and craft IT-dependent strategic
initiatives, including industry analysis, value chain analysis, and the
customer service life cycle framework
How to incorporate information resources in your search for
opportunities for value creation using emerging frameworks, including
the virtual value chain and the customer data strategies framework
How to devise and select initiatives that create value using organizational
data
46