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Information Systems for

Competitive Advantage

David Kroenke

Using MIS 3e

Chapter 3

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Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-2

Recall from Chapter 1 that MIS is the development and use ofinformation 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 knowledgeexists 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 informationsystems to gain a competitive advantage.

Chapter Preview

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Q1 How does organizational strategy determineinformation systems structure?

Q2 What five forces determine industry structure?

Q3 How does analysis of industry structure determine competitive

strategy?

Q4 How does competitive strategy determine value chain

structure?

Q5 How do business processes generate value?

Q6 How does competitive strategy determine business processes

and the structure of information systems?Q7 How do information systems provide competitive advantages?

Q8 2020?

Study Questions

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Organization goals and objectives are determined by

competitive strategy.

Competitive strategy determines information systemstructure, features, and functions.

How Does Organizational Strategy

Determine Information Systems

Structure?

Fig 3-1 Organizational Strategy Determines Information Systems

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Organizational Strategy

Determines Information Systems

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Q1 How does organizational strategy determine informationsystems structure?

Q2 What five forces determine industry

structure?

Q3 How does analysis of industry structure determine

competitive strategy?


structure?


Q6 How does competitive strategy determine businessprocesses and the structure of information systems?

Q7 How do information systems provide competitive

advantages?

Q8 2020?

Study Questions

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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. How much bargaining power do customers have?

2. How much of a threat do substitution products or services pose?

3. How much bargaining power do suppliers have?

4. How great is the threat of new competitors entering the

marketplace?

5. How great is the rivalry among existing firms?

Five Forces Model
http://media.pearsoncmg.com/ph/bp/bp_akamai/kroenke/videos.php?title=Chapter%203-%20What%20five%20forces%20determine%20industry%20structure?&clip=pandc/kroenke/Ch_03_1.flvhttp://media.pearsoncmg.com/ph/bp/bp_akamai/kroenke/videos.php?title=Chapter%203-%20What%20five%20forces%20determine%20industry%20structure?&clip=pandc/kroenke/Ch_03_1.flv

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Porters Five Forces Model of Industry Structure

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Five Forces at FlexTime

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Q3 How does analysis of industry structure

determine competitive strategy?


structure?


Q6 How does competitive strategy determine business

processes and the structure of information systems?Q7 How do information systems provide competitive

advantages?

Q8 2020?

Study Questions

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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

Porters Competitive Strategy

Model
http://media.pearsoncmg.com/ph/bp/bp_akamai/kroenke/videos.php?title=Chapter%203-%20What%20is%20competitive%20strategy?&clip=pandc/kroenke/Ch_03_2.flvhttp://media.pearsoncmg.com/ph/bp/bp_akamai/kroenke/videos.php?title=Chapter%203-%20What%20is%20competitive%20strategy?&clip=pandc/kroenke/Ch_03_2.flv

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To be effective, organization goals, objectives, culture, and activities

must be consistent with organization strategy.

Porters Four Competitive

Strategies

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Focus, differentiated Focus downtown

Urban, city workers

Sophisticated environment

Adults only

Provide superior product, intense, to-the-

max workouts that leave clients pumped

and excited

FlexTime Strategy

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Q4 How does competitive strategy determinevalue chain structure?



processes and the structure of information systems?Q7 How do information systems provide competitive

advantages?

Q8 2020?

Study Questions

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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

Value Chain

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Inbound logisticsreceiving, handling raw materials and otherinputs

Value in parts, time required to contact vendors, maintainingrelationships with vendors, ordering parts, receivingshipment, and so forth

Operationstransform or assemble materials into finishedproducts

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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Contribute indirectly to production, sale, and serviceof 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

Support Activities in the Value

Chain

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Bicycle Makers Value Chain

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Summary of Value Chain

Primary Activities

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Linkages are the interactions across the valueactivities.

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 reducesinventory 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.

Value Chain Linkages

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Q4 How does competitive strategy determine value chainstructure?

Q5 How do business processes generate

value?

Q6 How does competitive strategy determine businessprocesses and the structure of information systems?


advantages?

Q8 2020?

Study Questions

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Business processnetwork of activities that generate value bytransforming 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.

How Do Business Processes

Generate Value?

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Fig 3-8

An Alternate Process for Bicycle

Manufacturer

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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.

Compare Three Business

Processes For Bicycle

Manufacturer

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Improved Material Ordering

Process

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Key to a companys competitive advantage is toincrease the margin of its products by adding value,reducing costs, or both.

Business process redesign helps a businessstreamline its activities in order to increase itsmargins.

Most difficult part of process redesign is associated

with employee resistance.

Business Process Summary

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processes and the structure of information systems?


advantages?

Q8 2020?

Study Questions

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Operations Value Chains

for Bicycle Rental Companies

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High-Service Business Bike

Rental

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Organizations analyze their industry andchoose a competitive strategy.

Given that strategy, they design business

processes that span value-generatingactivities.

Those processes determine scope and

requirements of each organizations

information systems.

Bottom Line

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Q7 How do information systems provide

competitive advantages?

Q8 2020?

Study Questions

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Competitive Techniques

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(video)1. Competitive advantage via products:

Creating new products or services,

Enhancing existing products or services,

Differentiating their products and services fromthose of their competitors.

Information systems can help create a competitive

advantage by being part of the product or byproviding support to the product.

Two Ways to Respond to the Five

Competitive Forces
http://media.pearsoncmg.com/ph/bp/bp_akamai/kroenke/videos.php?title=Chapter%203-%20How%20do%20information%20systems%20provide%20competitive%20advantage?&clip=pandc/kroenke/Ch_03_3.flvhttp://media.pearsoncmg.com/ph/bp/bp_akamai/kroenke/videos.php?title=Chapter%203-%20How%20do%20information%20systems%20provide%20competitive%20advantage?&clip=pandc/kroenke/Ch_03_3.flv

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Lock in customers via high switching costsmake it tooexpensive 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 furtherinfrastructure development and greater competitive advantage.

Gaining Competitive Advantage

by Using Business Processes

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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.

How Does an Actual Company

Use IS to Create Competitive

Advantages?

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Fig3-14

ABC, Inc Web Page to Select

Recipient from Customer Records

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Fig 3-15

ABC, Inc Web Page to Select

Contact from Customer Records

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Fig 3-16

ABC, Inc Web Page to Specify

Email Notification

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Figure 3-17

Preparation of Shipping Labels

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ABCs information system helps the company create acompetitive 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

How Does This System Create a

Competitive Advantage?

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advantages?

Q8 2020?

Study Questions

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Assume FlexTime keeps pace with emergingresearch 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?

What Does Flextime Look Like in

2020?
http://www.angelfire.com/wa3/loserschallenge/cardio.htmlhttp://www.sportsci.org/jour/0101/cf.htmhttp://www.sportsci.org/jour/0101/cf.htmhttp://www.angelfire.com/wa3/loserschallenge/cardio.html

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Suppose economic downturn proves too much forFlexTime 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?

Pessimistic View

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You are the operations manager for Yikes! Bikes!, amanufacturer 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?

Ethics Guide: Yikes! Bikes!

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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 Internetaccess 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

Guide: Limiting Access to Those

Who Have Access

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Intellectual capital resides on Internetreadily available

Benefits for businesses

Cheaper product customer support

Reduces warehousing costs

Reduces mailings costs

Benefits of Access

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

Issues to Think About
http://www.gatesfoundation.org/%20topics/pages/libraries.aspxhttp://www.gatesfoundation.org/%20topics/pages/libraries.aspxhttp://www.gatesfoundation.org/%20topics/pages/libraries.aspxhttp://www.gatesfoundation.org/%20topics/pages/libraries.aspx

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Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall3-49

If you are from outside the United States, whatis the connectivity situation in your country?

Is there a digital divide there?

Are some countries more behind inconnectivity trends than others?

What does this mean for those countries

ability to compete? For the citizens of thosecountries?

Issues to Think About

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G id Y P l C titi

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Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall3-51

Who will be your competitors when you seeka 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?

Guide: Your Personal Competitive

Advantage

G id Y P l C titi

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How could the following concepts help you getand keep a job?

Switching costs?

Differentiating products?

Creating barriers?

Establishing alliances?

Reducing costs, increasing revenues?

Guide: Your Personal Competitive

Advantage

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Q7 How do information systems provide competitiveadvantages?

Q8 2020?

Active Review

C St d 3

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(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. Whatinformation 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?

Case Study 3:

Bosu Balance Trainer
http://media.pearsoncmg.com/ph/bp/bp_akamai/kroenke/videos.php?title=Chapter%204-Case%20Study:%20BOSU%20Balance%20Trainer&clip=pandc/kroenke/Ch_03_4.flvhttp://www.bosu.com/http://www.bosu.com/http://media.pearsoncmg.com/ph/bp/bp_akamai/kroenke/videos.php?title=Chapter%204-Case%20Study:%20BOSU%20Balance%20Trainer&clip=pandc/kroenke/Ch_03_4.flv

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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.

Copyright 2011 Pearson Education, Inc.Publishing as Prentice Hall

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