ISM 158 Business Information Strategy

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ISM 158 Business Information Strategy

• Lecture 2
• IT Strategy

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Introductions

• Kevin Ross
• kross_at_soe.ucsc.edu
• Office hours Tuesday 330pm 5pm
• (or by appointment)
• E2 room 559

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Overview and update

• Website now has schedule of presentations and
  readings
• Any questions from last week?
• Quizzes
• Projects
• Presentations
• Cases/Reading

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ISM 158 Lecture 2

• This class considers the role of information in
  business strategy. In particular, we focus on
  decisions regarding information technology and
  information systems to give a business
  competitive advantage over other companies
• Today we focus on identifying strategies and the
  role of IT in strategy

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The Embedding of IT

• IT now embedded in
• Definition and execution of strategy
• Organization and leadership of businesses
• Definitions of unique value propositions
• Every business definition is morphing before our
  eyes
• Markets
• Industries
• Strategies
• Firm designs
• Information is now a major economic good

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What is a Business Model?

• Defines how enterprise relates to environment
• Strategy aligns organization with environment
• Resources in and out
• How value is created for stakeholders
• Sets goals and ways to achieve them

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Fig 1.1 Components of a Business Model
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Porter Competitive Model
Potential New Entrants
Bargaining Power of Suppliers
Intra-Industry Rivalry Strategic Business Unit
Bargaining Power of Buyers
Substitute Products and Services
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Competitive Model Focus

• What is driving competition in the current or
• future industry?

• What are current or future competitors likely
• to do and how can a company respond?

• How can a company best posture itself to
• achieve and sustain a competitive advantage?

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Competitive Model Forces
Intra-industry Rivals Strategic Business Unit
(SBU) and major rivals. Buyers Categories of
major customers. Suppliers Categories of major
suppliers that play a significant role in
enabling the SBU to conduct its business. New
Entrants Companies that are new as competitors
in a geographic market or existing companies that
through a major shift in business strategy will
now directly compete with the SBU. Substitutes
An alternative to doing business with the SBU.
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Porter Competitive Model Education Industry
Universities U.S. Market

• Foreign Universities
• Shift in Strategy by Universities
• or Companies

Potential New Entrants
Intra-Industry Rivalry SBU UCSC
Rivals UC campuses, CSU, Private
universities, Community Colleges
Bargaining Power of Suppliers
Bargaining Power of Buyers

• Faculty
• Staff
• Equipment and
• Service Suppliers
• Alumni
• Foundations
• Governments
• IT Vendors

• Students
• Parents
• Businesses
• Employers
• Legislators

Substitute Products and Services

• Internet Distance Learning
• Books and Videotapes
• Computer-Based Training
• Company Education Programs

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Role of Technology through Porter perspective
Can we
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
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Porter Competitive Strategies
Cost Leadership Strategies
Primary Strategies
Differentiation Strategies
Innovation Strategies
Growth Strategies
Supporting Strategies
Alliance Strategies
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Strategic VisionService Concept

• What are important elements of the service to be
  provided, stated in terms of results produced for
  customers?
• How are these elements supposed to be perceived
  by the target market segment, by the market in
  general, by employees, by others?
• How do customers perceive the service concept?
• What efforts does this suggest in terms of the
  manner in which the service is designed,
  delivered, marketed?

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Strategic VisionOperating Strategy

• What are important elements of the strategy
  operations, financing, marketing, organization,
  human resources, control?
• On which will the most effort be concentrated?
• Where will investments be made?
• How will quality and cost be controlled
  measures, incentives, rewards?
• What results will be expected versus competition
  in terms of, quality of service, cost profile,
  productivity, morale/loyalty of servers?

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Strategic VisionService Delivery System

• What are important features of the service
  delivery system including role of people,
  technology, equipment, layout, procedures?
• What capacity does it provide, normally, at peak
  levels?
• To what extent does it, help insure quality
  standards, differentiate the service from
  competition, provide barriers to entry by
  competitors?

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Competitive Strategies (Overall Cost Leadership)

• Seeking Out Low-cost Customers
• Standardizing a Custom Service
• Reducing the Personal Element in Service
  Delivery (promote self-service)
• Reducing Network Costs (hub and spoke)
• Taking Service Operations Off-line

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Competitive Service Strategies (Differentiation)

• Making the Intangible Tangible (memorable)
• Customizing the Standard Product
• Reducing Perceived Risk
• Giving Attention to Personnel Training
• Controlling QualityNote Differentiation in
  service means being unique in brand image,
  technology use, features, or reputation for
  customer service.

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Competitive Role of Information in Services

• Strategic Focus Competitive
  Use of Information

On-line (Real time) Off-line (Analysis)
External (Customer) Creation of barriers to entry Reservation system Frequent user club Switching costs Data base asset Selling information Development of services Micro-marketing
Internal (Operations) Revenue generation Yield management Point of sale Expert systems Productivity enhancement Inventory status Data envelopment analysis (DEA)
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Limits in the Use of Information

• Anti-competitive (Barrier to entry)
• Fairness (Yield management)
• Invasion of Privacy (Micro-marketing)
• Data Security (Medical records)
• Reliability (Credit report)

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Strategy Audit of Company

• Market/Channel position
• Who are customers?
• How to reach them
• Product position
• What products/services to offer
• Features, price
• Value chain/value network position
• Role with respect to suppliers, producers,
  distributors, partners
• Boundary Position
• What wont you do?

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Fig 1.2 Analyzing Competitive Forces and
Strategic Positioning
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Understand Customers
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Understand Competitors
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Understand Market and Product
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Fig 1.3 Product/Market Positioning in the US
Retail Financial Services Industry, 1990
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Understand Partners
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Understand Societal Context
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Strategic Shifts

• Strategy changes over time
• Flow of information makes this possible
• Enhancement (improve existing)
• Expansion (launch new)
• Extension (new business or business model)
• Exit (drop product/category/market/channel)

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Fig 1.4 Options for Evolving Strategy
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Fig 1.5 Categories of Strategic Risk
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Fig 1.6 McFarlans Strategic Grid
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Fig 1.7 Strategic Alignment Model
Ideally, all four quadrants align to create value
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Opportunities

• Can IT change basis for competition?
• Can IT change balance of power among buyers and
  supplyers?
• Can IT build or reduce barriers to entry?
• Can IT increase or decrease switching costs?
• Can IT add value to existing products and
  services or create new ones?

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Risks

• Can emerging technologies disrupt current
  business models?
• Are we too early or too late to exploit IT
  opportunity?
• Does IT lower entry barriers?
• Does IT trigger regulatory action?

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Fig 1.8 Analyzing Disruptive Technologies
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Fig 1.9 Analyzing Cash Flow Curve
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Questions
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Presentation Ingrid Gain
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Tips for Reading Cases