Chapter 2. Strategic Use of Information Resources

Transcription

1 Chapter 2. Strategic Use of Information Resources Jason C. H. Chen, Ph.D. Professor of MIS School of Business Administration Gonzaga University Spokane, WA Learning Objectives List the identifying factors of the eras of information usage. Know what makes an information resource valuable. Explain how information resources are used strategically in context of the 5-forces model. Understand how information resources can be used to alter the value chain. Explain the importance of strategic alliances. Know the risks of information resources. 2 1

2 What is the Competitive Advantage? A competitive advantage is a benefit derived from something a company does or has that its customers want and its competitors cannot (or choose not to) match. If a company can sustain its competitive advantage, the company will succeed in its industry how? Two types of people lead a company to succeed Those know how to innovate the enterprise Those know how to execute their strategy onto the enterprise using IS/IT. 3 Sustainable Competitive Advantages Any sustainable competitive advantages? How can an organization sustain its competitive advantage? Firms may create/improve their competitive advantages only if they: have capacity to learn, employ revenue management approach With the service economy accounting for over 70 percent of GDP in OECD (Organization for Economic Co-operation and Development) countries, service firms are becoming increasingly competitive with revenue management (RM) and pricing becoming central in their focus for sustaining long term profitability (and competitive 4 advantage). learning to learn and learning to change (life-long learning environment) 2

3 What is Business Model? A business model is a set of planned activities (sometimes referred to as business processes) designed to result in a profit in a marketplace. The business model is at the center of the business plan. An e-commerce business model aims to use and leverage the unique qualities of the Internet and the www. Source: E-Commerce: business, technology, society, Laudon and Traver, A/W N 5 Why New Models? We need some new models for how we go about exploring IT for competitive advantage, for IT infrastructure how we create it and manage it for how we acquire, manage and deploy the skills that are needed to run that infrastructure Profitability (making money) N 6 3

4 Business Model vs. Revenue Model Business model is the architectural configuration of the components of transactions designed to exploit business opportunities. Revenue model refers to the specific ways in which a business model enables revenue generation. N Business vs. Revenue Model Business Model Revenue Model Value creation It describes the way in which a company enables transactions that create value for all participants, including partners, suppliers and customers. Value appropriation It can be realized through a combination of -subscription fees, - advertising fees - transactional income (e.g., fixed transactional fees, referral fees, fixed/variable commissions, etc) 4

5 Revenue Management If you are interested in the issues of RM International Journal of Revenue Management com/ijrm EVOLUTION OF INFORMATION RESOURCES 10 5

6 Information Resources The term information resources is defined as the available data, technology, people, and processes available to perform business processes and tasks. Organizations have moved from an efficiency model of the 1960 s to a value creation model of the 2000 s. Companies seek to utilize those technologies that give them competitive advantage. Maximizing the effectiveness of the firm s business strategy requires the general manager to identify and use information resources. Figure 2.1 shows this change. 11 Network Externalities Definition - The phenomenon whereby a service becomes more valuable as more people use it, thereby encouraging ever-increasing numbers of adopters. Network effects While the word-of-mouth method is often more influential in the beginning, analysis may play a significant role later in the cycle. In other words, you may adopt a service initially because someone you know uses it; later, you may adopt a service because "everyone" uses. IT Role? Network Externality offers a reason for value derived from plentitude (Era IV & V) 12 6

7 I: 1960s II: 1970s III: 1980s IV: 1990s V: Primary Role of IT Efficiency Automate existing paperbased processes Effectiveness Solve problems and create opportunities Strategic Increase individual and group effectiveness Strategic Transform industry/organization Value creation Create collaborative partnerships Justify IT expenditure ROI Increasing productivity and decision making Competitive position Competitive position Adding Value Target of systems Information model Dominant technology Organization Application specific Individual manager/ Group Business processes Business processes ecosystem Customer, supplier, ecosystem Data-driven User-driven Business-driven Knowledgedriven Mainframebased Minicomputerbased Microcomputer decentralized intelligence Client-Server distribution intelligence Basis of Value Scarcity Scarcity Scarcity Plentitude Internet ubiquitous intelligence Plentitude Underlying economics Economic of information bundled w/ economics of things Economic of information bundled w/ economics of things Economic of information bundled w/ economics of things Economic of information separated f/ economics of things Economic of information separated f/ economics of things w/ (with) f/ (from) Figure 2.1 Eras of information usage in organizations (Eras Model) 13 HOW CAN INFORMATION RESOURCES BE USED STRATEGICALLY? 14 7

8 Striving for Competitive Advantage Firm level: Industry & Competitive Analysis Competitive Forces Model Competitive Strategy D Aveni s Hypercompetition Model (7-Ss) Business level Value-Chain Analysis 15 Porter s Five Forces Model According to Porter, there are five competitive forces in any industry, and the attractiveness of the industry depends on the strength of each force. Under the perspective of market structure, Porter s competitive forces model has been broadly adopted as the underpinning for investigating the effect of information technology on the relationships between suppliers, customers, and other potential threats. 16 8

9 PORTER S FIVE COMPETITIVE FORCES MODEL NEW MARKET ENTRANTS Threats SUBSTITUTE PRODUCTS & SERVICES Switching cost Access to distribution channels Economies of scale THE FIRM INDUSTRY COMPETITORS Redefine products and services Improve price/performance Selection of suppler Threat of backward integration Cost-effectiveness Market access Differentiation of product or service Buyer selection Switching costs Differentiation SUPPLIERS Bargaining power CUSTOMERS 17N John Wiley Dr. & Sons, Chen, Inc. The & Trends Dr. Chen, of the Information Systems Technology Theory and Practices TM -17 The Five Forces Model and IS The Five Forces Model provides a way to think about how information resources can create competitive advantage. Using Porter s Model, General Managers can: Identify key sources of competition they face. Recognize uses of information resources to enhance their competitive position against competitive threats Consider likely changes in competitive threats over time N 18 9

10 PORTER S FIVE COMPETITIVE FORCES MODEL NEW MARKET ENTRANTS Threats SUBSTITUTE PRODUCTS & SERVICES Internal Forces: 1.customer focus 2.communication 3.core competencies 4.complexity 5.Quality THE FIRM Cost-effectiveness Market access Differentiation of product or service INDUSTRY COMPETITORS Other forces should be considered in the e-age: 1. Digitalization 2. Globalization 3. Deregulation/ liberalization SUPPLIERS Bargaining power CUSTOMERS 19N John Wiley Dr. & Sons, Chen, Inc. The & Trends Dr. Chen, of the Information Information Systems Systems Theory Technology and Practices TM -19 Porter s Value Chain Model The value chain model highlights specific activities (i.e. create, deliver, and support a company s product or service) in the business where competitive strategies can be best applied and where information systems are most likely to have a strategic impact. Therefore, the value chain model can be employed to identify specific, critical leverage points where a firm can use IT most effectively to enhance its competitive position

11 Figure 2.6 Process View of the Firm: The Value Chain (Value) Two broad categories: Primary activities relate directly to the value created in a product or service. Support activities make it possible for the primary activities to exist and remain coordinated N 21 The Value System (Fig 2.5) The value chain model can be extended by linking many value chains into a value system. Much of the advantage of supply chain management comes from understanding how information is used within each value chain of the system. This can lead to the formation of entire new businesses designed to change the information component of value-added activities. 22 N 11

12 The Value System: Interconnecting relationships between organizations Upstream value Firm value Downstream value N 23 New Forces in Today s Economy Overcapacity and hypercompetition. Overcapacity is 25% pharmaceuticals, 30% chemicals, 35% automobiles Leads to falling prices and margins, mergers, and company failures Ascendant power of customers. Customer shortage Price transparency Ascendant power of distributors over manufacturers. Growth of digitalization and the Internet as major sources of efficiency and profitability. Proliferation of channels and media. Globalization and global interdependence. 12

13 BUSINESS FOCUS E-BUSINESS SCM CRM BPR ERP Customer centric Who are the customers? Where are the customers? Their purchasing habits Demands Products What they need/want? How many they need/want? When they need/want? How to reach them? WHY CRM? In this competitive age when product differentiation is difficult, CRM is one of the most valuable assets a company can acquire. The sooner a company embraces CRM the better off it will be and the harder it will be for competitors to steal loyal and devoted customers. CRM is more than just Marketing (what else?) 13

14 CUSTOMER RELATIONSHIP MANAGEMENT S EXPLOSIVE GROWTH CRM Business Drivers BASICS OF SUPPLY CHAIN Organizations must embrace technologies that can effectively manage supply chains Involvement (integration) 14

15 FIVE BASIC SUPPLY CHAIN MANAGEMENT COMPONENTS Plan Source Make Deliver Return INFORMATION TECHNOLOGY S ROLE IN THE SUPPLY CHAIN IT s primary role is to create integrations or tight process and information linkages between functions within a firm 15

16 The Resource-Based View The Resource-Based View (RBV) looks at gaining competitive advantage through the use of information resources. Determining whether a firm s strategy has created value. Two subsets of information resources have been identified: Those that enable firms to attain competitive advantage (rare and valuable resources that are not common place). Those that enable firms to sustain competitive advantage over the long-term (resources must be difficult to transfer or relatively immobile). 31 Porter s Model vs. Resource-Based View Competitive Advantage (CA) Focus (what adds value to the firm) Porter s Model/Value Chain Argues that aspects of the firm s industry create sources of CA. Firm s activities Resource-Based View (RBV) Maintains that CA comes from the information and other resources at the firm Resources that firm can manage and create value 32 16

17 STRATEGIC ALLIANCES 33 Strategic Alliances An interorganizational relationship that affords one or more companies in the relationship a strategic advantage. IT can help produce the product developed by alliance, share information resources across the partners existing value systems, or facilitate communication and coordination among the partners. Supply Chain Management (SCM) is another type of IT-facilitated strategic alliance

18 Aligning IS strategy with Business Strategy Using multiple approaches to evaluating the strategic landscape is helpful in determining strategic opportunities. Here, we look at three such approaches: Porter s five forces model of the competitive advantage of firms Porter s value chain model of internal organizational operations Wiseman s theory of strategic thrusts and strategic option generator (results in nine possible major options to secure a competitive advantage) 35 N Differentiation Cost Innovation Wiseman s theory of strategic thrusts and strategic option generator I. Major options to secure a competitive advantage Suppliers Customers Competitors II. Option Generator 1. What is our strategic target? 2. What strategic thrust can be used against the target? 3. What strategic mode can be used? offensive or defensive 4. What direction of thrust can be used? usage or provision 5. What IS skills can we use? processing/storage/transmission 36 18

19 Types of Strategic Alliances Supply Chain Management: improves the way a company finds raw components that it needs to make a product or service. Technology, especially Web-based, allows the supply chain of a company s customers and suppliers to be linked through a single network that optimizes costs and opportunities for all companies in the supply chain Wal-Mart and Proctor & Gamble. Virtual Corporations: is a temporary (virtual) network of suppliers, customer and even rivals linked by IT to share skills, cost and access to each others markets Co-opetition : a new strategy whereby companies cooperate and compete at the same time with companies in their value net Covisint and General Motors, Ford, and DaimlerChrysler. 37 N Summary of Key Strategy Frameworks Framework Porter s generic strategies framework D Aveni s hypercompetition model Brandenberg and Nalebuff s co-opetition model Key Idea Firms achieve competitive advantage through cost leadership, differentiation, or focus. Speed and aggressive moves and countermoves by a firm create competitive advantage. Companies cooperate and compete at the same time. Usefulness in Information Systems Discussions Understanding which strategy is chosen by a firm is critical to choosing IS to complement that strategy. The 7-S s give the manager suggestions on what moves and counter moves to make and IS are critical to achieve the speed needed for these moves. Being cooperative and competitive at the same time requires IS that can manage these two roles

20 Keen s Six-Stage Competitive Advantage Model Stimulus for action First major move Customer acceptance Competitor catch-up moves First-mover expansion moves Commoditization N39 When to Perform Activities First Movers Advantages Build brand recognition Control scarce resources Establish networks Early Economies-of-Scale Disadvantages Newer technology Higher development costs Reverse engineering by competitors 40 20

21 What is Web 2.0? "Web 2.0" refers to the second generation of web development and web design. It is characterized as facilitating communication, information sharing, interoperability, user-centered design and collaboration on the World Wide Web. It has led to the development and evolution of web-based communities, hosted services, and web applications. Examples include social-networking sites, video-sharing sites, wikis, blogs, mashups and folksonomies. Web 2.0 is the business revolution in the computer industry caused by the move to the Internet as a platform, and an attempt to understand the rules for success on that new platform. Source: Summary Using IS for strategic advantage requires more than just knowing the technology. Remember that not just the local competition is a factor in success but the 5 competitive forces model reminds us of other issues. Value chain analysis show us how IS add value to the primary activity of a business. Know the risks associated with using IS to gain strategic advantage

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