Essentials of Management

Information Systems
Thirteenth Edition

Chapter 3
Achieving Competitive Advantage
with Information Systems

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Learning Objectives
3.1 How do Porter’s competitive forces model, the value
chain model, synergies, core competencies, and
network-based strategies help companies use
information systems for competitive advantage?
3.2 How do information systems help businesses compete
globally?
3.3 How do information systems help businesses compete
using quality and design?
3.4 What is the role of business process management (BP
M) in enhancing competitiveness?
3.5 How will M I S help my career?
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Porter’s Competitive Forces Model
• Five competitive forces shape fate of firm
– Traditional competitors
– New market entrants
– Substitute products and services
– Customers
– Suppliers

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Figure 3.1 Porter’s Competitive
Forces Model

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Information System Strategies for
Dealing with Competitive Forces
(1 of 5)

• Basic strategy: Align IT with business objectives

– Identify business goals and strategies
– Break strategic goals into concrete activities and
processes
– Identify metrics for measuring progress
– Determine how IT can help achieve business goals
– Measure actual performance

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Information System Strategies for
Dealing with Competitive Forces
(2 of 5)

• Low-cost leadership
– Use information systems to achieve the lowest
operational costs and the lowest prices
– E.g. Walmart
 Inventory replenishment system sends orders to
suppliers when purchase recorded at cash register
 Minimizes inventory at warehouses, operating costs
 Efficient customer response system

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Information System Strategies for
Dealing with Competitive Forces
(3 of 5)

• Product differentiation
– Use information systems to enable new products and
services, or greatly change the customer convenience
in using your existing products and services
– E.g., Google's continuous innovations, Apple's i Phone
– Use information systems to customize, personalize
products to fit specifications of individual consumers
 E.g., Nike's NIKE iD program for customized
sneakers

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Information System Strategies for
Dealing with Competitive Forces
(4 of 5)
• Focus on market niche
– Use information systems to enable specific market
focus, and serve narrow target market better than
competitors.
 Analyzes customer buying habits, preferences
 Advertising pitches to smaller and smaller target
markets
– E.g., Hilton Hotel’s On Q System
 Analyzes data collected on guests to determine
preferences and guest's profitability
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Information System Strategies for
Dealing with Competitive Forces
(5 of 5)
• Strengthen customer and supplier intimacy.
– Strong linkages to customers and suppliers increase
switching costs and loyalty
– Toyota: uses IS to facilitate direct access from suppliers to
production schedules
 Permits suppliers to decide how and when to ship
supplies to plants, allowing more lead time in producing
goods.
– Amazon: keeps track of user preferences for purchases,
and recommends titles purchased by others

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The Internet’s Impact on Competitive
Advantage
• Enables new products and services
• Encourages substitute products
• Lowers barrier to entry
• Changes balance of power of customers and suppliers
• Transforms some industries
• Creates new opportunities for creating new markets,
building brands, and large customer bases
• Smart products and the Internet of Things

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The Business Value Chain Model
• Highlights specific activities in a business where
competitive strategies can best be applied and where
information systems are likely to have a strategic impact.
– Primary activities
– Support activities
– Benchmarking
– Best practices

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Figure 3.2 The Value Chain Model

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The Value Web
• A firm’s value chain is linked to the value chains of its
suppliers, distributors, and customers.
• Value web
– Collection of independent firms that use information
technology to coordinate their value chains to produce
a product collectively.
– Value webs are flexible and adapt to changes in supply
and demand.

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Figure 3.3 The Value Web

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Synergies, Core Competencies, and
Network-Based Strategies
• Large corporations comprised of business units
– Financial returns overall are tied to performance of
business units
• Information systems improve performance of business
units by promoting
– Communication
– Synergies
– Core competencies

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Synergies
• When output of some units can be used as inputs to other
units
• When two firms can pool markets and expertise (e.g.,
recent bank mergers)
• Lower costs and generate profits
• Enabled by information systems that ties together
disparate units so they act as whole

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Core Competency
• Activities for which firm is world-class leader
– E.g., world’s best miniature parts designer, best
package delivery service, etc
• Relies on knowledge gained over years of experience as
well as knowledge research
• Any information system that encourages the sharing of
knowledge across business units enhances competency
– E.g., Procter & Gamble uses intranet to help people
working on similar problems share ideas and expertise.

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Network-Based Strategies
• Network economics
– Marginal costs of adding another participant are near
zero, whereas marginal gain is much larger
– E.g., larger number of participants in Internet, greater
value to all participants
• Virtual company
– Uses networks to link people, resources, and ally with
other companies to create and distribute products
without traditional organizational boundaries or physical
locations

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The Internet and Globalization
• Prior to the Internet, competing globally was only an option
for huge firms able to afford factories, warehouses, and
distribution centers abroad.
• The Internet drastically reduces costs of operating globally.
• Globalization benefits
– Scale economies and resource cost reduction
– Higher utilization rates, fixed capital costs, and lower
cost per unit of production
– Speeding time to market

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Figure 3.4 Apple i Phone’s Global
Supply Chain

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Global Business and System
Strategies
• Domestic exporters
 Heavy centralization of corporate activities in home country

• Multinationals
 Concentrates financial management at central home base while
decentralizing production, sales, and marketing to other countries

• Franchisers
 Product created, designed, financed, and initially produced in
home country but rely on foreign units for further production,
marketing, and human resources

• Transnationals
 Regional (not national) headquarters and perhaps world
headquarters; optimizing resources as needed
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Global System Configuration
• Centralized systems:
 All development and operation at domestic home base

• Duplicated systems:
 Development at home base but operations managed by
autonomous units in foreign locations

• Decentralized systems:
 Each foreign unit designs own solutions and systems

• Networked systems:
 Development and operations occur in integrated and coordinated
fashion across all units

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Figure 3.5 Global Business
Organization Systems Configurations

Last important slide

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What is Quality?
• Producer perspective
– Conformance to specifications and absence of variation
from specs
• Customer perspective
– Physical quality (reliability), quality of service,
psychological quality
• Total quality management (TQ M )
– Quality control is end in itself
– All people, functions responsible for quality
• Six sigma
– Measure of quality: 3.4 defects/million opportunities
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How Information Systems Improve
Quality
• Reduce cycle time and simplify production
• Benchmark
• Use customer demands to improve products and services
• Improve design quality and precision
– Computer-aided design (CAD) systems
• Improve production precision and tighten production
tolerances

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What is Business Process
Management (BPM )?
Technology alone is often not enough to make companies
more efficient, competitive, or quality oriented.

Organizational changes are often necessary, from minor

changes in work habits to redesigning entire business
processes.

BPM: Business process management

• Aims to continuously improve processes

• Uses variety of tools and methodologies to
– Understand existing processes
– Design and optimize new processes
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Steps in BPM
1. Identify processes for change
2. Analyze existing processes
3. Design new process
4. Implement new process
5. Continuous measurement

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Figure 3.6 As-Is Business Process for
Purchasing a Book from a Physical
Bookstore

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Figure 3.7 Redesigned Process for
Purchasing a Book Online

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Business Process Reengineering
• A radical form of fast change
• Not continuous improvement, but elimination of old
processes, replacement with new processes, in a brief
time period
• Can produce dramatic gains in productivity
• Can produce more organizational resistance to change

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How Will MIS Help My Career?
• The Company: A+ Superior Data Quality
• Position Description
• Job Requirements
• Interview Questions

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