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Using MIS 3e Chapter 3

Information Systems for Competitive Advantage David Kroenke

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Recall from Chapter 1 that MIS is the development and use of information systems that enable organizations to achieve their goals and objectives. In Chapter 2, you learned how information systems can help people collaborate. This chapter focuses on how information systems support competitive strategy and how IS can create competitive advantages. As you will learn in your organizational behavior classes, a body of knowledge exists to help organizations analyze their industry, select a competitive strategy, and develop business processes. In the first part of this chapter, we will survey that knowledge and show how to use it, via several steps, to structure information systems. Then, in the last section, we will discuss how companies use information systems to gain a competitive advantage.

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Study Questions
Q1 How does organizational strategy determine information systems structure?
Q2 Q3 Q4 Q5 Q6 What five forces determine industry structure? How does analysis of industry structure determine competitive strategy? How does competitive strategy determine value chain structure? How do business processes generate value? How does competitive strategy determine business processes and the structure of information systems? How do information systems provide competitive advantages? 2020?

Q7 Q8

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How Does Organizational Strategy Determine Information Systems Structure?


Organization goals and objectives are determined by competitive strategy. Competitive strategy determines information system structure, features, and functions.

Fig 3-1 Organizational Strategy Determines Information Systems


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Organizational Strategy Determines Information Systems

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Study Questions
Q1 How does organizational strategy determine information systems structure?

Q2
Q3

What five forces determine industry structure?


How does analysis of industry structure determine competitive strategy? How does competitive strategy determine value chain structure? How do business processes generate value? How does competitive strategy determine business processes and the structure of information systems? How do information systems provide competitive advantages? 2020?
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Q5 Q6 Q7 Q8

Five Forces Model


Five competitive forces determine industry profitability: bargaining power of customers, threat of substitutions, bargaining power of suppliers, threat of new entrants, and rivalry among existing firms (video). Intensity of each force determines characteristics of the industry, how profitable it is, and how sustainable that profitability will be. Assessing an industry structure based on five questions:
1. 2. 3. 4. How much bargaining power do customers have? How much of a threat do substitution products or services pose? How much bargaining power do suppliers have? How great is the threat of new competitors entering the marketplace? 5. How great is the rivalry among existing firms?
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Porters Five Forces Model of Industry Structure

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Five Forces at FlexTime

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Study Questions
Q1

Q2

How does organizational strategy determine information systems structure? What five forces determine industry structure?

Q3
Q4 Q5 Q6

How does analysis of industry structure determine competitive strategy?


How does competitive strategy determine value chain structure? How do business processes generate value? How does competitive strategy determine business processes and the structure of information systems? How do information systems provide competitive advantages? 2020?
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Q8

Porters Competitive Strategy Model


Firms engage in one of four competitive strategies: (video) 1. Cost leader across a wide industry 2. Differentiate its products across a wide industry 3. Cost leader in a focused industry segment 4. Differentiate its product in a focused industry segment

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Porters Four Competitive Strategies

To be effective, organization goals, objectives, culture, and activities must be consistent with organization strategy.
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FlexTime Strategy
Focus, differentiated Focus downtown Urban, city workers Sophisticated environment Adults only Provide superior product, intense, to-themax workouts that leave clients pumped and excited

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Study Questions
Q1

Q2 Q3

How does organizational strategy determine information systems structure? What five forces determine industry structure? How does analysis of industry structure determine competitive strategy?

Q4
Q5 Q6

How does competitive strategy determine value chain structure?


How do business processes generate value? How does competitive strategy determine business processes and the structure of information systems? How do information systems provide competitive advantages? 2020?
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Value Chain
Competitive strategy implemented by creating value
Valueamount of money a customer is willing to pay for a resource, product, or service Margindifference between value an activity generates and cost of activity Value chaina network of value-creating activities Primary activities Support activities

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Inbound logisticsreceiving, handling raw materials and other inputs Value in parts, time required to contact vendors, maintaining relationships with vendors, ordering parts, receiving shipment, and so forth Operationstransform or assemble materials into finished products Outbound logisticsdeliver finished products to customers Marketing and salescreate marketing strategies and sell products or services to customers Servicesafter-sale customer support

Primary Activities in the Value Chain

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Support Activities in the Value Chain


Contribute indirectly to production, sale, and service of product
Procurementfinding vendors, setting up contractual arrangements, and negotiating prices Technology developmentresearch and development, developing new techniques, methods, and procedures Human resourcesrecruiting, compensation, evaluation, and training of full-time and part-time employees Firm infrastructuregeneral management, finance, accounting, legal, and government affairs

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Bicycle Makers Value Chain

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Summary of Value Chain Primary Activities

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Value Chain Linkages


Linkages are the interactions across the value activities.
Ex: Manufacturing systems use linkages to reduce inventory costs, sales forecasts to plan production; production plan to determine raw materials needs; material needs to schedule purchases. End result is just-in-time inventory, which reduces inventory sizes and costs.

Business process design


Organizations should not automate or improve existing functional systems. Rather, they should create new, more efficient business processes that integrate activities of all departments involved in a value chain.

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Study Questions
Q1

Q2 Q3
Q4

How does organizational strategy determine information systems structure? What five forces determine industry structure? How does analysis of industry structure determine competitive strategy? How does competitive strategy determine value chain structure?

Q5
Q6 Q7 Q8

How do business processes generate value?


How does competitive strategy determine business processes and the structure of information systems? How do information systems provide competitive advantages? 2020?
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How Do Business Processes Generate Value?


Business processnetwork of activities that generate value by transforming inputs into outputs. Cost of a business process is cost of inputs plus the cost of activities. Margin of the business process equals the value of the outputs minus the cost. Activity transforms input resources into output resources. Resources flow between or among activities. Facilities store resources; some facilities, such as inventories, store physical items.

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An Alternate Process for Bicycle Manufacturer


Fig 3-8

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Compare Three Business Processes For Bicycle Manufacturer

Notice that activities get data resources from databases and put data into databases
Business processes vary in cost and effectiveness. In fact, the streamlining of business processes to increase margin (add value, reduce costs, or both) is key to competitive advantage. Example of using a linkage across business processes to improve process margin:
Querying both databases allows purchasing department to make decisions on raw materials quantities and customer demand. By using this data, purchasing can reduce size of raw materials inventory, reducing production costs and thus adding margin to the value chain.

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Improved Material Ordering Process

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Business Process Summary


Key to a companys competitive advantage is to increase the margin of its products by adding value, reducing costs, or both. Business process redesign helps a business streamline its activities in order to increase its margins. Most difficult part of process redesign is associated with employee resistance.

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Study Questions
Q1

Q2 Q3
Q4 Q5 Q6 Q7 Q8

How does organizational strategy determine information systems structure? What five forces determine industry structure? How does analysis of industry structure determine competitive strategy? How does competitive strategy determine value chain structure? How do business processes generate value? How does competitive strategy determine business processes and the structure of information systems? How do information systems provide competitive advantages? 2020?
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Operations Value Chains for Bicycle Rental Companies

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High-Service Business Bike Rental

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Bottom Line
Organizations analyze their industry and choose a competitive strategy. Given that strategy, they design business processes that span value-generating activities. Those processes determine scope and requirements of each organizations information systems.

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Study Questions
Q1

Q2 Q3
Q4 Q5 Q6

How does organizational strategy determine information systems structure? What five forces determine industry structure? How does analysis of industry structure determine competitive strategy? How does competitive strategy determine value chain structure? How do business processes generate value? How does competitive strategy determine business processes and the structure of information systems?

Q7
Q8

How do information systems provide competitive advantages?


2020?
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Competitive Techniques

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Two Ways to Respond to the Five Competitive Forces


(video) 1. Competitive advantage via products: Creating new products or services, Enhancing existing products or services, Differentiating their products and services from those of their competitors. Information systems can help create a competitive advantage by being part of the product or by providing support to the product.

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Information Systems Create Competitive Advantages as Product or Support

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Gaining Competitive Advantage by Using Business Processes


Lock in customers via high switching costsmake it too expensive for customer to switch to a competitor.

Lock in suppliersbe easy to connect to and work with


Create entry barriersmake it difficult and expensive for new competition to enter the market. Establish alliances with other organizationsestablish standards, promote product awareness and needs, develop market size, reduce purchasing costs, and provide other benefits Reduce costsenables reducing prices and/or to increasing profitability. Increased profitability means more cash to fund further infrastructure development and greater competitive advantage.

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How Does an Actual Company Use IS to Create Competitive Advantages?


ABC, Inc, an actual company, created a competitive advantage in shipping industry by:
Superior customer service Making it easy for customers to business with by minimizing data entry:
Drop-down lists, automatic fill-ins, contact lists for customers Minimizing data-entry errors

Following slide shows some of the Web pages of ABCs information system.
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ABC, Inc Web Page to Select Recipient from Customer Records


Fig3-14

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ABC, Inc Web Page to Select Contact from Customer Records


Fig 3-15

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ABC, Inc Web Page to Specify Email Notification


Fig 3-16

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Preparation of Shipping Labels


Figure 3-17

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How Does This System Create a Competitive Advantage?


ABCs information system helps the company create a competitive advantage:
Enhances its existing servicesmaking it easy for the customer to use its system, and reducing errors. Differentiates its service from its competitors who dont have a similar service to provide to customers.

Provides new services for customers that competitors dont provide.


Locks in customers into its system based on the benefits they receive from it. Raises barriers to market entry Reduces costs

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Study Questions
Q1

Q2 Q3
Q4 Q5 Q6 Q7

How does organizational strategy determine information systems structure? What five forces determine industry structure? How does analysis of industry structure determine competitive strategy? How does competitive strategy determine value chain structure? How do business processes generate value? How does competitive strategy determine business processes and the structure of information systems? How do information systems provide competitive advantages?

Q8

2020?
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What Does Flextime Look Like in 2020?


Assume FlexTime keeps pace with emerging research on optimal workout schedules
(http://www.angelfire.com/wa3/loserschallenge/cardio.html, http://www.sportsci.org/jour/0101/cf.htm)

Optimist view
Could develop information systems that track client workouts and their intensity and relate that data into net cardiovascular benefits. Could correlate workout data with dietary data and client weight loss or gain. Maybe provide data to medical insurers and help its active clients to obtain reductions in medical insurance premiums. FlexTime could, but should it? Is it worthwhile for FlexTime to develop such systems?

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Pessimistic View
Suppose economic downturn proves too much for FlexTime and it is forced to reconfigure into a shadow of its former self
No longer a single business entity. Maybe it becomes a federation of trainers, workout spaces, dieticians, and recreational sports leagues. Federation uses free data storage, data communication, and emerging collaboration tools and systems to appear as a virtual organization to clients, but is composed of independently owned and operated small business entities. Who knows?

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Ethics Guide: Yikes! Bikes!


You are the operations manager for Yikes! Bikes!, a manufacturer of high-end mountain bicycles.

New owners are being deceitful about their plans to turn the company into a low-cost, low-service producer.
Most employees will lose their job. You know the new owners are not being truthful. You have been told you might be promoted to new general manager. Should you trust the new owners?

Should you tell employees what is going on?

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Guide: Limiting Access to Those Who Have Access


Digital divide segregates haves and have-nots Using the Internet is a matter of access to knowledge Advantages accrue to those who have easy access Digital divide between those who have Internet access and those who dont
Divide deepens education, income, social differences Internet access might be available at public places, but: Not everyone served Not as convenient as home access

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Benefits of Access
Intellectual capital resides on Internet readily available Benefits for businesses
Cheaper product customer support Reduces warehousing costs Reduces mailings costs

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Issues to Think About


What groups of people in the United States are not connected to the Internet?

Does it make sense for benefactors, such as Bill and Melinda Gates, to provide access to those in poverty?
What keeps the elderly from accessing the Internet? Should the government help the elderly? What could be done to provide Internet access for the poorly educated? What role, if any could local governments have? State? Federal? United Nations?

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Issues to Think About


If you are from outside the United States, what is the connectivity situation in your country? Is there a digital divide there? Are some countries more behind in connectivity trends than others? What does this mean for those countries ability to compete? For the citizens of those countries?

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Take Away from Guide


Knowledge grows exponentiallyjust like capital Digital divide can create or worsen social problems Businesses and government should explore their responsibilities for with respect to the digital divide

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Guide: Your Personal Competitive Advantage


Who will be your competitors when you seek a job after you graduate from college? What will be your competitive advantages in the job market? What can you do before you graduate to develop your competitive advantage?

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Guide: Your Personal Competitive Advantage


How could the following concepts help you get and keep a job?
Switching costs? Differentiating products? Creating barriers? Establishing alliances? Reducing costs, increasing revenues?

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Active Review
Q1

Q2 Q3
Q4 Q5 Q6 Q7 Q8

How does organizational strategy determine information systems structure? What five forces determine industry structure? How does analysis of industry structure determine competitive strategy? How does competitive strategy determine value chain structure? How do business processes generate value? How does competitive strategy determine business processes and the structure of information systems? How do information systems provide competitive advantages? 2020?
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Case Study 3: Bosu Balance Trainer


(Video)
1. Analyze the five competitive forces for Bosus market. 2. Visit www.bosu.com. What appears to be Bosus competitive strategy? Explain your answer. 3. Explain the nature of the five primary value chain activities for Bosu. 4. Review the principles of competitive advantage in Figure 3-8. What information systems can Bosu create to enhance its product or differentiate it from existing and emerging competition? 5. What information systems can Bosu develop to create barriers to entry to the competition? 6. What information systems can Bosu develop to lock in customers? 7. What information systems can Bosu develop to establish alliances?

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All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

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