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Chapter 12

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  1. Chapter 12 Information Systems for Strategic Advantage Alexander Hong

  2. An Advanced Chapter Focus at this point in the course on the basic competitive concepts and we will revisit the more advanced topics later in the quarter. Pay particular attention to the contents of the slides that are emphasized in this lecture.

  3. Chapter Objectives 1. Understand options for competitive strategies and be able to explain how they can be used to confront competitive forces. 2. Understand how information systems support the major business strategies of a business and be able to provide examples of how information technology can implement these roles and gain and sustain a competitive advantage. 3. Be able to provide examples of how information technology can break time, geographic, cost, and structural barriers in business.

  4. Chapter Objectives 4. Understand the importance of business process reengineering relative to the strategic use of IT. 5. Understand how total quality management (TQM) differs from business process reengineering in its relationship with information technology. 6. Understand how information technology can be used to help a company be an agile competitor, or to form a virtual company to meet strategic business opportunities. 7. Start to better understand the strategic uses of Internet technologies in business.

  5. Other Student Presentations Michael Porter and Porter’s Models - Scarlet Grant Porter Competitive Model - Victoria Santiago

  6. Fundamentals of Strategic Advantage Information technology that gives a company certain advantages over a competitor with developments in products, services and/or capabilities.

  7. Strategic IS Information Systems can be used to develop products and/or services and capabilities. Information Systems can be any kind of system that: 1. Helps to gain a competitive advantage. 2. Reduces a competitor’s advantage 3. Meets other strategic objectives.

  8. IT Significance Information Technology can change the way that an organization (business or public sector) competes. • As the foundation for organizational renewal. • As a necessary investment that should help • achieve and sustain strategic objectives. • As an increasingly important communication • network.

  9. Strategic Advantage IT has become a strategic necessity. Believe it, act on it, or become a footnote in history. James Champy 1996 At least do an objective assessment of the potential of IT both as a company resource and the likelihood of it being used against you by a competitor. Jack Callon 2000

  10. Competitive Strategy Concepts • Cost Leadership Strategy • Differentiation Strategy • Innovation Strategy • Growth Strategies • Alliance Strategies IT role relative to each of these strategies?

  11. Strategic Roles For Information Systems Specific Examples: • Lower Costs • Differentiate • Innovate • Promote Growth • Develop Alliances • Improve Quality and Efficiency • Build an IT Platform • Other Strategies

  12. Breaking Business Barriers • Time Barriers Toyota Motor Corp. • Geographic Barriers Citibank, Mobil Oil • Cost Barriers Hewlett-Packard Co. • Structural Barriers Miller Brewing and Reynolds Metals

  13. Strategic Applications Progression of Information Technology within an enterprise. • Level 1: Strategic • Level 2: Offensive • Level 3: Defensive • Level 4: Cost-Justified • Level 5: Controlled

  14. Chapter Value • IT and IS can and often will be necessary to maintain a competitive edge in the business world. • Among the applications of these information technologies are improving business quality, creating a virtual company, and building knowledge-creating systems.

  15. Possible Exam Questions • Identify several basic competitive strategies and explain how they can be used to confront the competitive forces faced by a business. • Give examples of how information technology can break time, geographic, cost and structural barriers in business.

  16. Using the Internet Strategically HIGH Global MarketPenetration Product and ServiceTransformation External Drivers Customer connectivity / competition / technology Cost andEfficiencyImprovements PerformanceImprovement inBusiness Effectiveness LOW collaboration / information and applications requirements / cost containment Internal Drivers HIGH

  17. Michael E. Porter Mr. Competition and The Father of Multiple Models (Frequently used in MBA and undergraduate business courses) By Scarlet Grant

  18. Michael E. Porter - The Man C. Roland Christensen Professor of Business Administration at the Harvard Graduate Business School Has served as a consultant on competitive strategy to many leading U.S. and international companies. Has created workshops for newly appointed chief executive officers of billion dollar corporations. World wide speaker on competitive strategy and international competitiveness. Serves as an advisor to governments both local and national. Author of 16 books and over 60 articles on competitiveness.

  19. Some Notable Quotes Awareness of competitive forces can help a company stake out a position in its industry that is less vulnerable to attack. Michael E. Porter A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade. Michael E. Porter

  20. His three models are: 1. The Porter Competitive Model 2. The Value Chain 3. The Diamond of National Advantage ** ** will not be used in this course

  21. The Point Being . . . Porter has focused on the factors that are critical for a company to compete within a specific industry through the use of the Competitive Model and Value Chain. He also led a study that produced the Diamond of National Advantage that focuses on the role of the nation as the home base for companies that have become dominant in a specific industry on a global basis.

  22. Diamond of National Advantage Firm Strategy, Structure and Rivalry Chance Factor Conditions Demand Conditions Related and Supporting Industries Government

  23. Value Chain FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT SUPPORT ACTIVITIES TECHNOLOGY DEVELOPMENT PROCUREMENT INBOUND LOGISTICS OUTBOUND LOGISTICS MARKETING AND SALES OPERATIONS SERVICE PRIMARY ACTIVITIES

  24. Value Chain While the Competitive Model deals with the environment within which a company competes, the Value Chain addresses the flow of a product through the organization. It starts with the original idea in research and tracks its progress all the way to the customers.

  25. Competitive Model • What is driving competition in my current or • future industry? • What are my current or future competitors likely • to do and how will we respond? • How can we best posture ourselves to achieve • and sustain a competitive advantage?

  26. Use of Porter’s Competitive Model • Breaks an industry into logical parts, analyzes them and puts them back together. (just like an engineer would do) • Avoids viewing the industry too narrowly. • Provides understanding of the structure of an industry’s business environment and of competitive threats within and among industries.

  27. Possible Quiz Questions 1. What is the objective in using the Porter Competitive Model? 2. Why do some people conclude that the Porter Competitive Model is no longer a valid tool?

  28. Porter Competitive Model Was not developed as an Information Systems tool. Was developed for use by people that run businesses and for those that deal with developing strategic plans for businesses.

  29. Can Information Systems: 1. Build barriers to prevent a company from entering an industry? 2. Build in costs that would make it difficult for a customer to switch to another supplier? 3. Change the basis for competition within the industry? 4. Change the balance of power in the relationship that a company has with customers or suppliers? 5. Provide the basis for new products and services, new markets or other new business opportunities

  30. Porter Competitive Model By Victoria Santiago

  31. Presentation Objective 1. To clearly understand how the Porter Competitive Model will be used in Section I of the Business Analysis Paper. 2. To remind you that it breaks an industry into logical parts, analyzes them to understand the competitive environment for a specific industry and puts them back together.

  32. Porter Competitive Model (Identify Specific Market Being Evaluated) Potential New Entrants Bargaining Power of Suppliers Intra-Industry Rivalry Strategic Business Unit Bargaining Power of Buyers Substitute Products and Services

  33. Strategy OptionsAccording to Michael Porter Primary Strategies 1. Differentiation 2. Least Cost Supporting Strategies 1. Innovation 2. Growth 3. Alliance

  34. Porter Competitive ModelEducation Industry - Universities U.S. Market Potential New Entrants • Foreign Universities • Shift in Strategy by Universities • or Companies Intra-Industry Rivalry SBU: UCSC Rivals: UC campuses, CSU, Community Colleges, etc. Bargaining Power of Suppliers Bargaining Power of Buyers • Faculty • Staff • Equipment and • Service Suppliers • Alumni • Foundations • Business • Government • Students • Parents • Business • Employers • Legislators Substitute Products and Services • Internet Distance Learning • Books and Videotapes • Computer-Based Training • Company Education Programs

  35. U.S. University Industry Structure Bargaining Power of Suppliers: Cost Pressures Bid Processes Are Common Unions and Tenure Barriers to Entry: Low entry barriers High exit barriers Substitutes: Easy to substitute Self-study success Internet-based program growth Intra-Industry Rivalry: Low and/or limited growth rate Undifferentiated product Slow to change Competition for funding and contributions Bargaining Power of Buyers: Price/cost pressures Increased mobility School while working

  36. Possible Exam Questions 1. Explain the objective for using the Porter Competition model and respond to the criticism that it is no longer a valid tool. 2. Identify and explain the five competitive strategies based on Porter’s evaluation approach.

  37. How Does IS help? • Lower operational costs. • Help to differentiation the product or service. • Help to achieve market specialization. • Strengthen the ability to build alliances. • Build inter-organizational systems. (E-business)

  38. Risks of Strategic IS • Needs to enable the company’s ability to achieve and sustain a competitive advantage. • Can get “IT-out gunned” by a larger competitor. • Can shift the balance of competition. • Can become a competitive necessity instead of sustaining a competitive advantage.

  39. Porter Model Tips 1. To incorrectly define the industry can cause major problems in doing Section I of the business analysis paper. 2. You must identify the specific market being evaluated. 3. Your analysis company is the Strategic Business Unit. 4. Identify rivals by name for majors, by category for minor rivals if needed to present the best possible profile of rivals.

  40. Porter Model 5. Be sure to address the power implications of both customers and suppliers. Power buys them what? 6. Identify buyers and suppliers by categories versus companies. 7. Summarize your Porter Model analysis.

  41. Porter Competitive Model Some additional perspective on the forces.

  42. Competitive Analysis Factors • Bargaining power of buyers. • Bargaining power of suppliers. • Threat of substitute products. • Threat of new entrants. • Expected traditional competition.

  43. Reduce the Power of Buyers • Choose a niche in which buyers are less powerful and less numerous. • Differentiate products and/or services to shift the balance of power. • Differentiate links that are truly uniquely valuable to customers. • Create switching costs.

  44. Reduce the Power of Suppliers • Use substitute products. • Develop multiple alliances. • Vertically integration, or expand backwards in industry. • Minimize the cost of the vendors products.

  45. Reduce the Potential for Substitute Products • Differentiate the product. • Differentiate the distribution channel. • Achieve low cost leadership.

  46. Reduce the Threat of New Entrants • Economies of scale. • Product differentiation. • Large capital requirements. • Access to distribution channels. • Government policy. • Expected reaction of existing firms. • Mandatory information systems capabilities.

  47. Diamond of National Advantage The playing field each nation establishes and operates plays a significant role for its home-based companies to become a dominant competitor on a global basis.

  48. Diamond of National Advantage Firm Strategy, Structure and Rivalry Chance Factor Conditions Demand Conditions Related and Supporting Industries Government

  49. Attributes of the Diamond Model Factor Conditions The nation’s position in factors of production necessary to compete in a given industry Demand Conditions The nature of home-market demand for the industries that are internationally competitive. Related and Supporting Industries The presence or absence in the nation of supplier industries and other related industries that are internationally competitive Firm Strategy, Structure and Rivalry The conditions in the nation governing how companies are created, organized and managed, as well as the nature of domestic rivalry.

  50. Porter Value Chain