Weds 21 January
Notes- MIS
A Map of Where We Are
Where will the firm position itself in the competitive marketplace?
What is the objective of the firm?
To maximize profit
Lower Costs, Increase Revenue
Profit= Revenue- Costs
Do this by finding a competitive advantage
Outsource areas/tasks where we don’t have Comp Advantage
Types of Decisions Faced by the Firm
-What Products to sell
-Who you will buy from, what to pay, how to pay
Types:
Structured Decisions
Unstructured
Recurring
Nonrecurring
Levels of Decision Making
Operation Level
-Worker bees,
-Typically transactional, highly structured, decisions
-GOAL: Reduce waste through op efficiency
Managerial Level
-Managers
-Semi Structured decisions focused on monitoring the day-today operations
-Ex: How and when to buy product, levels of inventory
GOAL: to improve org effectiveness
Executive Level
-CEOs, VPs
-Non-Structured decision making based around firms course
-Goal: Situate the firm within the competitive market
At an Abstract level, what is a firm??
 A bundle of capabilities and resources
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People that can do things, and the stuff that allows firm to make
product/service
The implementation of these capabilities and resources are what allows the
firm to function
Executives are responsible for enacting their strategy using these capabilities
and resources
-Parts
Accounting
Marketing
Operations
Supply Chain
Sales
Human Resources
-Information Technology is the thing that facilitates communications
between all of these different parts
-Spreading info across firm allows efficiency
Business Value Added
 What does this mean?
o $--> FIRM  $$ (Output from firm is greater than input)
o Value added comes from a firms resources and capabilities
 How can we do this at each level?
o Operational Level- Automate
 Example: Automated call centers to speed up customer
service
o Managerial- Learn
o Executive- Strategize
IS for Organizational Learning
 Information Systems is very good at tracking and identifying trends
-Example: Homes not often bought during winter, more often in
Summer
-So on Managerial level, loan officers/managers can plan
staffing, training based around this
IS for Supporting Strategy: Doing things Smarter
What is the implication of Info systems? How to use in organization?
-Carr
-IS should be implemented that support that strategy
-Low Cost strategy implies information systems to minimize expenses
Defender/Reactor
-High quality strategy implies IS to support ensuring excellent quality
and minimal defects
How to think about what strategy my firm should use?
-Should take into consideration of the competitive environment as a whole,
as well as future potential options
Porter’s Five Forces (Five Forces Model)
Buyer Power
-Amount of leverage the customer has
-Reduce Prices, Increases Quality, Increases Value add
Threat of New Entrants
-Barriers to entry= Is it hard or easy to get into the market?
-Low Barrier to entry = Reduced Prices, Lost Market Share
Supplier Power
-Bargaining power of suppliers
-If supplier has more Power = Increases Costs, Reduced Quality
Threat of substitutes of services
-Increased Threat = Product returns, Lower market share, lost
customers
Rivalry Among Existing Customers
Sources of Competitive Advantage
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Quality
 Ex: Toyota
Service
 Ex: IBM
Low Cost
 Ex: Wal-Mart
Proprietary
 Ex: Coca Cola
Innovation
 Ex: Apple
Brand
 Ex: Porsche
Value
 Ex: Nintendo
Each Successful firm has its own source of competitive advantage
 Can be born of, or assisted by, Info Technology
 Ultimately we achieve this by aligning all aspects of the firm so
that they are pushing in the exact same direction.
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Eample: KIA; If they came out with a HIGH Quality strategy,
it would be mismatched, and would create problems for the
firm
Pursuit of Competitive Advantage
What Technology enables an organization to achieve this?
Best Made Product
Robots eliminate defects. Databases give more info on
customers. Track info about products
Superior Customer Sources
Advent of Digital age has facilitated outsourcing and globalization
Why?

The reduction in communication costs and spread of the
capitalistic ideal results in the manager being able to divest
strategically to align the firm around its core competency
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International Business Strategies in
International IS Strategies
1) Home Replication
 A Locally focused strategy where the firm merely exports products
to garner additional sales
o Think Manufacturing
 Porsche is the Valacich Example. They make Porsche
for German Autobahn, and export to world. Prof
thinks this is a weak example. Jims Steaks is better
example.
 Strengths: no heterogeneity in the core competency, do same thing
everywhere
 Weaknesses- Local market condition are ignored
 No one uses this
2) Global
 A centralized organization with standard offerings across markets
-Ex: Manufacturing, Catapillar, or Music/film
 Strength: Marginal Cost, Economies of Scale
 Weakness: Ignores local market conditions
 IS funnels information to central decision making authority
(hegemony)
3) Multidomestic
Decentralized set of business units each of which locally optimize
their behavior
o Think Food Service (KFC)
 KFC sells best burger in Shanghai
 Strength: React quickly to market conditions locally
 Weakness: Cant get economies of scale
4) Transnational
 Semi centralized integrated network of firms that work a
cohesive unit
Think of firms that do everything: Ex: GE, UTC
 Strength: Can garner the benefits of both global and multidomestic through integration
 Weakness: Really really hard to do
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Difference between Home Replication and Global:
Both sell the same product in each market, but Home Replication is
selling a LOCAL PRODUCT in a different market, whereas Global is
producing a GLOBAL product for every market. Global takes into
account the needs of all markets it will enter when it develops
products.
Porter’s Puzzle
 Contains three contemporaneous factors and two forward looking
factors
 In order to internalize how the forward-looking factors will affect
the firm’s strategic position, what must we consider?
Innovation and Market evolution
Need for constant IS innovation
Moore’s Law
-Every 18 months, number of transistors on a semi conductor
can double.
-Prices of computers fall 20% each year since 1960s
Managing Innovation is difficult. Why?
Innovation is often fleeting
-Advantages from innovation are short lived because others
will quickly copy
Innovation is risky
-A better product doesn’t always win the race
-HD DVD vs BluRay
-BlueRay wins, BC Sony/ Porn adopted it
Innovation choices are often difficult
-Foreseeing the future is not always possible
What is required of the Organization to innovate?
Process requirements
-The organization has to willing to implement the change
Resource Requirements
-Need to have the capital/skills/resources for successful deployment
-Innovation is not free….
Risk Tolerance Requirement
-Organizational members must have appropriate tolerance of risk
and uncertainty
-Innovation is a risk, people don’t like to take risks
-People don’t want to abandon what has been working
This is traditionally termed the Innovators Dilemma (Christensen, 1997)
-Innovators Dilemma says you can either have a customer focus, or
innovation focus
Contrast
Customer focus- Meet present demand, but maybe not future
Innovation Focus- Doesn’t mean you will meet present or future need,
but you have a possibility to meet future needs
Predicting the Next New Thing
Deciding what innovation to adopt is hard
Should we even try?
Christensen- “Yes, if you can find disruptive innovations”
-Disruptive Innovations change the paradigm of how the
industry operates
Christensen outlines a process -Disruptive Growth Engine- that helps
organizations respond to disruptive innovations effectively
-You want to create a firm that can change quickly
-That can remove waste, quickly shift direction
Freeconomics
Traditional business operates where marginal cost = marginal Revenue
But a digital Business often has a Marginal Cost near or at Zero
-So diseconomies of scale doesn’t exist, because it is costless to produce
additional items
 EX: Studio making an additional movie, vs. Netflix selling
streaming to an additional customer
Key Difference- Information Goods
Digital Items, no physical cost to copy a file, vs. copying a DVD
Implication- Monopolies are easier to create
Ex: Google, Windows
Freeconomics Value Proposition
Free doesn’t mean no profit
-Ex: Google gives search for free, but profits from the info
learned
-Can then use sponsored links, Google sells ads.
Thought Experiment- Netflix
Problems Faced by Netflix
-Doesn’t have access to all content
-The content is not exclusive- Other companies can offer it
Solution!
-Create your own content
-Netflix looking to compete with HBO, to create content
-Recommendation system- More info, easier, quicker