CHAPTER 2
Organizational Strategy, Competitive
Advantage, and Information Systems
CHAPTER OUTLINE
2.1
2.2
2.3
2.4
2.5
Business Processes
Business Process Reengineering and
Business Process Management
Business Pressures, Organizational
Responses, and Information Technology
Support
Competitive Advantage and Strategic
Information Systems
Business – Information Technology
Alignment
Learning Objectives
1.
2.
3.
Understand the concept of business
processes, and provide examples of
business processes in the functional
areas of an organization.
Differentiate between the terms business
process reengineering and business
process management.
List and provide examples of the three
types of business pressures, and describe
one IT response to each.
Learning Objectives (continued)
4.
5.
6.
Identify the five competitive forces
described by Porter, and explain how the
Web impacts each one.
Describe the strategies that organizations
typically adopt to counter the five
competitive forces and achieve
competitive advantage.
Define business – information technology
alignment, and describe the
characteristics of effective alignment.
Chapter Opening Case
Media Bakery
BP Had
 $3 billion budget (targeted to be reduced by
$800 million
 4,200 IT employees
 8,500 software applications
What Happened at BP
 1,000 of 1,900 contract workers were eliminated
 The business unit CIOs had to double report – to the
BP CIO and also to the business unit leader
 Since much of the IT applications were contracted,
they were re-bid and BP ended up with 5 major
vendors
 80% of the top IT leadership was replaced
The BP case demonstrates the need to have the right
person lead an IT organization
Before the Stores (IT’s About Business 2.1)
What is the product?
What did Amar Kahbuni
provide that was not
already available?
© pocorex/iStockphoto
Competitive Advantage
an advantage over competitors in some measure such as cost, quality, or
speed; leads to control of a market and to larger-than-average profits.
Porter’s Value Chain
1. Rivalry among existing firms in the industry
2. Threat of entry by new competitors
3. Bargaining power of customers
4. Bargaining power of suppliers
5. Threat of substitute products
2.1 Business Processes
Business Process
 a collection of related activities that produce a
product or a service of value to the
organization, its business partners, and/or its
customers
Cross-Functional Business Processes
 one in which no single functional area is
responsible for its execution
Example of Business Process (Figure 2.1)
The next slide shows an example
of a business process: Ordering an
E-ticket from an airline Web site
Table 2.1 on page 36 depicts many common business processes
Traveler
Plan Trip
Receive Ticket
Order
Seats
Available
Airline Web Site
NO
Notify Traveler
YES
Check Flights
NO
Seats
Available
?
YES
Reserve Seats
Use
Credit
Card?
NO
NO
YES
Frequent
Flyer
Mileage
Sufficient?
YES
Charge Credit Card
Subtract Mileage
Submit Ticket Order
Charge
OK?
Receive e-Ticket
YES
Confirm Flight(s)
Issue e-Ticket
NO
Notify Traveler
2.2 Business Process Reengineering and
Business Process Management
Business Process Reengineering
 a radical redesign of a business process that
improves its efficiency and effectiveness,
often by beginning with a “clean sheet”
Business Process Management
 a management technique that includes
methods and tools to support the design,
analysis, implementation, management, and
optimization of business processes
2.3 Business Pressures, Organizational
Responses, and IT Support
Business Pressures
Market/Competition
Technology
Societal
Economic
Legal
Political
Business Pressures, Organizational
Responses, and IT Support
In this class we
focus on IT issues
Market Pressures
The Global Economy and
Strong Competition
© WAVEBREAKMEDIA LTD/Age
Fotostock America, Inc.
The Changing Nature of the Workforce
Powerful Customers
(Source: Studio Frank/Image Source L
imited)
© Mike Flippo/Shutterstock
The Stages of Globalization
(From Thomas Friedman in The World is Flat)
 Globalization 1.0 (from 1492 to 1800)
 Globalization 2.0 (from 1800 to 2000)
 Globalization 3.0 (from 2000 to the present)
© Stockbroker xtra/Age Fotostock
America, Inc.
Globalization 1.0
* 1492 to 1800
* World went from large to medium-size
* All about countries and muscles
* Key agents of change: brawn and horsepower
Christopher Columbus
Globalization 2.0
* 1800 to 2000
* World has shrunk from medium to small-size
* Key agent of change: multinational companies
* First half: global integration powered by falling transportation costs
(steam engine and railroad)
* Second half: global integration powered by falling telecomm costs
(telephone, PC, satellites, fiber-optic cable)
Railroads
Steam engine
Globalization 2.0 (second half)
Tablet computers
© Oleksiy Makymenko/Alamy
Philip Hatson/Photo Researchers, Inc
Fiber optics
© PhotoEdit/Alamy
© ecco/Shutterstock
Smart phones
Globalization 3.0
* 2000 – now
* World is now tiny (everyone is everyone else’s close neighbor)
* Competitive playing field is being leveled
* Key change agent: software, in conjunction with the global fiber-optic
network
* Enabling people to collaborate and compete globally
3.0
© WAVEBREAKMEDIA/Age Fotostock America, Inc.
1.0
2.0
Thomas Friedman’s Ten Flatteners
Fall of the Berlin Wall
Netscape goes public
© Hongjiong Shi/Age Fotostock America, Inc.
Development of work-flow software
Friedman’s Ten Flatteners (continued)
Uploading
Call center in India
© Stockbroker xtra/Age Fotostock America, Inc.
Outsourcing
Offshoring
© Dinodia/Age Fotostock America, Inc.
Friedman’s Ten Flatteners (continued)
Supply chaining
Insourcing
Informing
Friedman’s Ten Flatteners (continued)
The Steroids
Computing
Charles Babbage’s Difference
Engine (1822)
© zu difeng/Shutterstock
Modern data center
The Steroids (continued)
Instant messaging and file sharing
Voice over Internet Protocol
Cheap, easy, and democratic
The Steroids (continued)
Videoconferencing
Emphasis on “professional”
or “personal” connections?
Computer Graphics
Wireless Technologies
Source: PRNews Foto/Polycom, Inc./NewsCom
(Source: Marianna Day Massey/Zuma Press.)
Technology Pressures
Technological Innovation and Obsolescence
Information Overload
Moore’s Law : the power of a computer
doubles every 18 months for the same price
Technological Innovation and Obsolescence
(continued)
Innovation: Telegraph
Obsolescence: Pony Express
Technological Innovation and Obsolescence
(continued)
Obsolescence:
Horse and Buggy
Innovation: Ford Model T
Information Overload
(Source: © Maria R.T. Deseo/PhotoEdit)
Societal/Political/Legal Pressures
Social Responsibility
Government Regulation and Deregulation
Protection Against Terrorist Attacks
Ethical Issues
Social Responsibility
Green IT
See CBS video on disposal of e-waste
Web sites that
enable generosity
Source: Frederic Lucano/Stone/GettyImages, Inc.
One Laptop per
Child initiative
Organizational Responses
Strategic Systems
Customer Focus
Make-to-Order and mass customization
See Reebok
See Bodymetrics video
E-business and E-commerce
2.4 Competitive Advantage and
Strategic Information Systems
Competitive Advantage
An advantage over competitors in some
measure such as cost, quality, or speed,
leads to control of a market and to
larger- than average profits
Photodisc/Getty Images, Inc.
Strategic Information Systems
provide a competitive advantage by helping an
organization to implement its strategic goals
and to increase its performance and
productivity
© zu difeng/Shutterstock
Porter’s Competitive Forces Model
Porter’s Competitive Forces Model
 Threat of entry of new competitors is high
when it is easy to enter a market and low
when significant barriers to entry exist.
 A barrier to entry is a product or service
feature that customers expect from
organizations in a certain industry.
 For most organizations, the Internet
increases the threat that new competitors will
enter a market.
Porter’s Competitive Forces Model
 The bargaining power of suppliers is high
when buyers have few choices and low when
buyers have many choices.
 Internet impact is mixed. Buyers can find
alternative suppliers and compare prices
more easily, reducing power of suppliers.
 On the other hand, as companies use the
Internet to integrate their supply chains,
suppliers can lock in customers.
Porter’s Competitive Forces Model
 The bargaining power of buyers is high
when buyers have many choices and low
when buyers have few choices.
 Internet increases buyers’ access to
information, increasing buyer power.
 Internet reduces switching costs, which are
the costs, in money and time, to buy
elsewhere. This also increases buyer power.
Porter’s Competitive Forces Model
 The threat of substitute products or
services is high when there are many
substitutes for an organization’s products or
services and low where there are few
substitutes.
 Information-based industries are in the
greatest danger from this threat (e.g., music,
books, software). The Internet can convey
digital information quickly and efficiently.
Porter’s Competitive Forces Model
 The rivalry among firms in an industry is
high when there is fierce competition and low
when there is not.
Porter’s Value Chain Model
This model identifies specific activities where
organizations can use competitive strategies
for greatest impact.
Primary activities
those business activities that relate to the production and distribution of the
firm’s products and services, thus creating value for which customers are
willing to pay. Primary activities include inbound logistics, operations,
outbound logistics, marketing and sales, and customer service
Support activities
do not add value directly to a firm’s products and services, but support
the primary activities. Support activities include accounting, finance,
management, human resources management, product and technology
development (R&D), and procurement
Porter’s Value Chain Model
Strategies for Competitive Advantage
Cost Leadership
Differentiation
Innovation
Operational Effectiveness
Customer-orientation
Strategies for Competitive Advantage
Figure 2.5
2.5 Business – Information
Technology Alignment
© Toh Kheng Ho/Age Fotostock America,Inc
Chapter Closing Case
• The Problem
• The Solution
• The Results
Consider the process of
students registering for a
course.
1) Who are the main entities?
2) What is to be
accomplished?
3) How do you know when a
solution is attained?
4) When is the process
complete?