Lecture
8
BIS4225 Competitive Advantage
from IS
(Unit 4)
1
Unit Aims:
• The nature of competitive advantage
• How do we analyse an organisation’s
competitive position in the industry?
• Can we use IS to gain and sustain
competitive advantage?
2
Relevant Texts
•
•
•
•
Turban et al.:
4th Ed.Chapter 3
5th Ed. Appendix 1A, Chapter 12
Laudon and Laudon, Chapter 3
John Ward and Joe Peppard, (2002),
Strategic Planning for Information
Systems, 3rd Edition, John Wiley & Sons,
ISBN 0470841478
Wendy Robson, (1997), Strategic
Management and Information Systems,
2nd Edition, Pitman Publishing, ISBN
0273615912
3
What is competitive advantage?
What is the defining factor?
“An advantage over a competitor such
as lower cost or quicker deliveries”.
Turban et al.: G2
4
• Lack of understanding in the process of
creating competitive advantage
• Assumption: ‘a company knows or is aware
where it is and where it wants to be’
• Pressure from the shareholders and Wall
Street
• Analysis of the critical resources
Best resources and capabilities + right
governance structure to make use of them
6
The technology onion
diagram
IS Hype
(Feeny (1989) in
Robson, 1997:257
IS Capability
Useful IS
SIS
7
Hypercompetition
“An environment characterised by intense
and rapid competitive moves, in which
competitors must move quickly to build new
advantages and [simultaneously] erode the
advantages of their rivals”
(‘Rise of Hypercompetition in the U.S. Manufacturing
Sector, 1950-2002’ by L.G.Thomas and Richard D´Avani)
High velocity competition
8
Strategic Competitive Advantage –
Traditional View
Exploitation
Profits from a
sustained
competitive
advantage
Launch
Counterattack
Time
9
Richard D’Avani and Robert Gunther
Strategic Competitive Advantage –
Hypercompetition
Exploitation
Firm has already moved to
advantage 2
Profits
from a
series of
actions
Time
Launch
Counterattack
10
Richard D’Avani and Robert Gunther
Interrelation of influences on ISS and
ITS
IS Strategy
IT Strategy
Factors external to the organisation
Competitive
forces within an
industry (Porter)
Environmental
influences on the
organisation
(PEST analysis)
CSF
Exploitation of
IT through the
value chain
(Porter)
Factors internal to the organisation
Internal stages of
growth (Earl)
Dynamic
interaction of
internal forces
Constraints
on the
exploration
of IT
Strategic grid
showing impact
of IT
applications
(McFarland)
11
Adapted from Curtis and Cobham, p50
Potential new
entrants
Threat of new entrants
Suppliers
Bargaining power of
suppliers
Industry
Competitors
Intensity of
rivalry
Buyers
Bargaining power of
buyers
Threat of substitutes
Substitutes
12
http://www.strategy4u.com/asses
sment_tools/porters_five_forces/f
ive_forces_popup.shtml
13
What factors will affect new
entrants?

Capital requirements

Patents and specialists skills required

Distribution channels available

Differentiation of brand/establishment

Access to raw material/ critical resources

Number and size of existing rivals and
intensity of competition
What is a substitute in Porter’s model?
“products or services within the industry but are
differentiated in some way”
(Curtis and Cobham, 2005:52)
direct substitutes
indirect substitutes
aluminium beverage cans
substitutes are:
glass bottles, steel cans, plastic containers
new tires Vs retreads
different types of TV transmissions
What factors do you think will
affect threat of substitutes?

The relative price and performance of
substitutes

Switching cost for customers

Buyer’s inclination to substitute
Bargaining power of suppliers
•
Supplier Concentration
•
Differentiation of inputs
•
Importance of volume to supplier
•
Switching costs of suppliers and
firms in the industry
17
POTENTIAL NEW ENTRANTS
Foreign General merchandisers or Discounters
Established retailers shifting strategy to
discounting or mega stores
Internet vendors
SUPPLIERS
INDUSTRY
RIVALRY Kmart,
Target, Toys R Us,
Speciality stores,
Small Retailers
BUYERS
SUBSTITUTES
Mail order catalogue, Home shopping (TV) Internet
18
shopping, telemarketing, door-to-door sales
Knowledge of these underlying
sources of competitive pressure:
• Highlights the critical strengths and
weaknesses of the company
• Animates its position in its industry
• Clarifies the areas where strategic changes
may yield the greatest payoff
19
• Highlights the areas where industry trends
promise to hold the greatest significance as
either opportunities or threats.
• Useful in considering areas for
diversification.
20
Assessing the competitive
position of the organisation
The model can be used:
• To assess the most significant of the five
forces
• To question what IS opportunities relate to
those significant forces
21
Does IS change
the basis of
competition
within a market?
Can IS change
the balance of
power with
suppliers?
Does new IS increase
or decrease
bargaining power?
Can organisations
switch suppliers
more or less readily?
Can IS build
barriers to
entry?
Does IS increase
or decrease the
barriers to entry to
a market sector?
Can IS change
the basis of
competition?
Can IS build in
switching
costs?
Can IS generate
new products
or services?
Does new IS increase
or decrease
bargaining power?
Are customers
switching costs or
barriers changed?
22
Robson, page 128
Excellent description of the Porter’s Model
and associated concepts
www.quickmba.com/strategy/porter.shtml
See how Porter’s Model is used in
industry at
www.brs-inc.com/porter.html
23
Environmental Influences
• The economy
– free market
– strengths of different currencies
• Society
– retired people and their relative influence
• Political
– European Union
– dismantling of trade barriers
– removal of restriction legislation
– elimination of tariff
24
Important environmental factors:
• Legal
– Data protection act
– Business and labour laws
• Ecology
– “Green” movement
• Technology
• Employees and Unions
25
The Impact of Internet on Porter’s
See Figure 12.1 on page 510 of Turban
et al., which illustrates some ways the
use of the Internet can alter the industry
structure.
21:03
26
•‘Strategy and the Internet’, Michael
E. Porter, Havard Business Review,
Volume 79, Number 3, March 2001
•A good article to read, critical analysis
of the above:
‘Fathoming Porter's five forces model
in the internet era’, G.D.
Karagiannopoulos, N. Georgopoulos, K.
Nikolopoulos, Emerald, Volume 7
Number 6 2005 pp. 66-76
27
SWOT/TOWS Analysis
•
•
•
•
Strengths
Weaknesses
Opportunities
Threats
INTERNAL
EXTERNAL
http://www.NetMBA.com/strategy/
21:03
28
21:03
Opportunity
Threat
Situation IS faces
Possible Responses on basis of
SWOT Analysis
Attack
‘go for it’
Beware
‘don’t do it’
Explore
‘if have time’
Project
‘watch yourself’
Strengths
Weaknesses
Evaluation of IS Capability
29
Robson, 2nd Edition, page 115
External Macro Environment
• SLEPT
Political
Social
Economic
Legal
• PESTEL
Socio-cultural
Economic
Technological
Political
Environmental
Legal
Technological
21:03
30
Economy at Large
Substitutes
Micro Environment
Suppliers
Substitutes
Buyers
Suppliers
Company
Company
Rival firms
21:03
Thompson and
Strickland, 2003:74
New
Entrants
Buyers
New
Entrants
31
The three generic business
strategies
• Overall cost leadership
• Overall differentiation
• Focus/ Niche
32
Generic Competitive Strategies
Differentiation
Overall cost
leadership
Differentiation
(value added)
Cost Based
Focus (Niche)
Differentiation
Based Focus
Competitive Scope
Low Cost
Broad industry-wide
Narrow selected market
33
Other Response Strategies
•
•
•
•
•
Growth
Alliances
Innovation
Improved internal efficiency
Customer-oriented approaches
and CRM
Table 1A.1, page 45: 12 general strategies
See Chapter 12 of Turban et al.
34
Value Chain
“every firm is a collection of activities
that are performed to design, produce,
market, deliver and support its product.
All these activities can be represented
using value chain.”
Michael Porter (1984), Competitive Advantage, Free Press
35
Value Chain
• Help understand the internal nature of
the organisation
• Represents the organisation as a
connected chain of activities
• Each activity adds value
36
37
http://www-mmd.eng.cam.ac.uk/people/ahr/dstools/paradigm/valuch.htm
Primary
Activities
• Contributes to
getting the
output close to
the customer
• Have a direct
relationship with
the customer
Secondary
Activities
• Supports or
facilitates the
smooth functioning
of the primary
activities
• Only have an
indirect relationship
with the value
adding process 38
Support activities
Administration and
Infrastructure
Human Resource
Management
Product and Technology
Development
General management of the enterprise
e.g.
as a business entity
Recruiting, training, developing, and
rewarding personnel
e.g.
Developing the technology of the product
and processes and business management
e.g.
Acquiring the required inputs to the value Value added
- cost
adding process
e.g.
Procurement
Inbound
logistics
Receiving,
storing and
disseminating
inputs to the
product or
service
Operations Outbound
logistics
Transforming
inputs to
outputs
Sales and
marketing
Providing ways
in which the
Distributing customer can
the output
purchase the
to
product and
customers
inducing them
to do so
Services
= margin
Enhancing
or
maintaining
the value of
the output
once
purchased
39
Primary activities
Ward & Griffiths, page 217
Admin. And Infrastructure
•
•
•
•
•
Financial management,
Planning,
Legal services,
Quality management,
Office administration, etc.
40
Human Resource Management
•
•
•
•
•
Recruiting,
Training,
Appraising,
Developing
Promoting, etc.
41
Product/Technology Development
• R & D,
• Development of technology in support
of all the organisation’s tasks
• Information Systems for:
HRM, accounting,
internal or external telecommunication
• Development of new product and
service design
42
Procurement
• Activities that support the procurement
of inputs for all activities of the value
chain
•
•
•
•
•
Raw material
Production equipment
office and factory provision
office supplies
Information Systems
43
A manufacturing company’s value chain
Support activities
General management of the enterprise as a
business entity, Planning, finance, accounting,
legal services, quality management
Administration and
Infrastructure
Human Resource
Management
Product and Technology
Development
procurement
Inbound
logistics
Personnel, Pay, Recruitment, Training,
Manpower planning, etc.
Product and process design, R & D,
Production engineering, etc.
Supplier management, funding,
subcontracting, specification
Operations Outbound
logistics
Manufacturing
packaging,
production
Quality
control,
control,
quality
receiving,
raw material control,
control, etc maintenance,
etc.
Primary activities
Finished
goods,
order
handling,
dispatch,
delivery,
invoicing,
etc.
Sales and
marketing
Customer Mgt,
order taking,
promotion,
sales analysis,
market
research, etc.
Value added
- cost
= margin
Services
Warranty,
Maintenance
education/
training
upgrade, etc
44
Ward & Griffiths, page 218
A Airline industry value chain
Administration and Infrastructure
Financial
Policy
Accounting
Regulatory
companies
Flight, Route Pilot training
Baggage
and Yield
handling
Safety
Analyst training
training
training
Computer Reservation System, Inflight system,
Flight Scheduling system, Yield management
system
E-procurement, Warehousing,
Inventory Management
•Route selection
•Passenger
services
•Pricing
•Flight
scheduling
•Crew
scheduling
•Facilities plan
•Ticket counter
operations
•Baggage
system
Legal
Community
Affairs
Agent training
Product
development
Market research
Material
handling
•Promotion
•Advertising
•Gate operations
•Flight
•Frequent flyer
Connections
• Aircraft
•Travel agent
operations
•Rental car programs
•Onboard Service and hotel
•Group sales
•Baggage handling reservation
system
•Electronic
•Ticket Offices
Inflight
training
Baggage
tracking
system
Maintenance
Profit
margin
•Lost baggage
service
•Complaint
follow up
tickets
45
(Turban et al. 4th Edition, 2004:109)
The Value System
Supplier’s
Value Chain
Company’s
Value Chain
Distributor’s
Value Chain
Buyer’s
Value Chain
46
Ward &Peppard, page 249
Informing
the market
to create
demand
Operational information exchange to
enable matching of supply and demand
SUPPLY
CONVERSION
PRODUCT
& SERVICE
LOGISTICS
Gathering
information to
understand the
demand
CONSUMPTION
47
By better information change
through the value chain we can:
• Create more demand
• Satisfy more of the available demand (gain
market share)
• Reduce the cost of satisfying the demand
48
Value chain leads to:
• CRM – Customer Relationship Management
• Strategic Alliance
• SCM – Supply Chain Management
49
Weaknesses of the traditional value
chain
• Most applicable to manufacturing products
as opposed to services
• A one-way chain pushing products to
customers
• Does not emphasise the importance of value
networks
50
Value chain of a lodging outfit
Guests
stay
Marketing
& Sales
Procurement
After-stay
service
Production
51
(Piccoli, 2008)
The Customer Service Life Cycle (CSLC)
Where do I get it?
How much?
Delivered When?
What is it?
Do I need One?
Which One?
How many?
How much am I spending?
How do I use it?
Is there a new one?
How do I fix it?
How do I return it?
(Ives and Willinger, 1999 at: www.uhisrc.com/pdf/abs9.pdf)
52
Life Cycle Phase
Stages in each phase
REQUIREMNTS
Establish requirements
Establish a need fort he product or service
Specify
Determine the product or service attributes
ACUISITION
Select source
Determine where to obtain the product or service
Order
Authorize and pay
Acquire
Evaluate and accept
OWNERSHIP
Integrate
Monitor
Upgrade
Maintain
RETIREMENT
Transfer or dispose
Account for
53
low
high
(Contribution of IS/IT to the business now)
Strategic impact of existing operation systems
Strategic impact of application development portfolio (or planned IS)
(Contribution of IS/IT to the business in the future)
high
low
Support
Turnaround (high potential)
Large chemical
company
Insurance broker
Medium sized
grocery chain
Large process
industry manufacturer
Factory (key operational)
Strategic
Major bank 1980
Major airline
$100 M
distributor
Large insurance
company
Major bank 1981
54
The Support Quadrant
Applications that are valuable but not critical to success
• provides a support activity
• not characterised by their high investment
in IT
• IT is not a part of the overall strategic
business plan
• management’s perception of IT fits that of
the DP or EDP era
55
The Factory (key Operational)
Quadrant
Applications on which the organisation currently depends
for success
• IT is crucial to existing operations but is not
critical to company’s overall strategic
direction
• IT budgets are usually significant, yet the key
goals are reliability and efficiency
• IT budget must not exceed agreed financial
limits
56
The Strategic quadrant
Applications that are critical to sustaining future business
strategy
• Important in assessing the degree to which
companies deploy IT for competitive
advantage
• Organisations will not function without IT,
i.e. IT is an integral part of the business
• IT is a major part of the corporate
infrastructure
57
• IT budget is likely to be huge
The Turnaround quadrant
Applications that may be important in achieving future
success
• companies recognise the growing
importance of IT as a means to improve
competitive position
• IT budgets are jumping up step-curves
• leadership is coming from the board
• a top IT executive is being appointed
• education programmes in information
management are being commissioned for
senior executives.
58
Improve business efficiency and management
Innovative
applicationsPortfolio
which may create
Application
Sustain
the existing
effectiveness
but, in themselves, do notWard
sustain
and Peppard, page 42)
opportunities to gain a create
future or
advantage,
but are
support
change
business
operations,
the
business
or provide any Turnaround
competitive(high
Support
as yet unproven.
in
how
the
organisation
helping
to
avoid
any
advantage
potential)
conducts
its
business,
disadvantage. E.g. EPOS,
Applications that are
Applications
that
may
with
the
aim
of
providing
ATM,
ERP. but
Most
valuable
not of them
be important in
advantage.
to success
achieving future
havecritical
become
mandatory competitive
success
for survival in the
industry.
Factory (key operational)
Applications on which
the organisation
currently depends for
success
Strategic
Applications that are
critical to sustaining
future business
strategy
59
Application Portfolio
Ward and Peppard, page 42)
Support
Improve business efficiency
and management effectiveness
but, in themselves, do not
sustain the business or provide
any competitive advantage
Factory (key operational)
Sustain the existing business
operations, helping to avoid
any disadvantage. E.g. EPOS,
ATM, ERP. Most of them have
become mandatory for survival
in the industry.
Turnaround (high
potential)
Innovative applications
which may create
opportunities to gain a future
advantage, but are as yet
unproven.
Strategic
create or support change
in how the organisation
conducts its business,
with the aim of providing
competitive advantage. 60
SWOT/TOWS Analysis
•
•
•
•
Strengths
Weaknesses
Opportunities
Threats
http://www.NetMBA.com/strategy/
61
Opportunity
Threat
Situation IS faces
Possible Responses on basis of
SWOT Analysis
Attack
‘go for it’
Beware
‘don’t do it’
Explore
‘if have time’
Project
‘watch yourself’
Strengths
Weaknesses
Evaluation of IS Capability
62
Robson, 2nd Edition, page 115