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MANAGEMENT INFORMATION SYSTEMS (MIS) INFORMATION SYSTEMS, ORGANIZATIONS , AND STRATEGY LECTURE NOTES 3 SPRING 2010

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Title: MANAGEMENT INFORMATION SYSTEMS (MIS) INFORMATION SYSTEMS, ORGANIZATIONS , AND STRATEGY LECTURE NOTES 3 SPRING 2010


1
MANAGEMENT INFORMATION SYSTEMS
(MIS)INFORMATION SYSTEMS, ORGANIZATIONS , AND
STRATEGYLECTURE NOTES 3SPRING 2010
2
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • Information Systems (IS) are built to serve the
    interest of the organizations
  • (i,e. Business firms, Banks, Airlines.
    University, government, Hospitals an so on)
  • However, Organization must be aware of and
    be open to the influences of Information Systems
    to benefit from the new technologies.
  • The interaction between IS and Organizations is
    complex and is influenced
  • by many mediating factors of Organizations
    such as
  • Structure ,
  • Business Processes,
  • Politics,
  • Culture,
  • Surrounding Environment,
  • Management Decisions.
  • You will neither be able to design new
    Information Systems nor understand Existing
    Systems without understanding the Business
    Organization.

3
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • .

4
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • WHAT IS AN ORGANIZATION
  • An Organization is a stable, formal social
    structure that takes resources from the
    Environment and processes them to produce
    outputs.
  • Organizations are also considered as Formal Legal
    Entities with internal Rules and Procedures that
    must abide by laws.
  • Organizations are also Social Structures because
    they are a collection of social elements.

5
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • WHAT IS AN ORGANIZATION
  • The Technical side of Organization focuses on
    three elements
  • Capital
  • Labour
  • Environment
  • Capital and Labour are primary production factors
    provided by the Environment. The Organization
    transforms these inputs into products and
    services in a Production function.
  • Technical view of Organization encourages us to
    focus on how inputs are combined to create
    outputs when technology changes are introduced
    into the Organization.

6
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • The Behavioural View of Organization emphasizes
  • Group relationships,
  • Values,
  • Structures.
  • Behavioural definition of an Organization
    suggests that building new Information Systems,
    or rebuilding old
  • Systems , involves much more than a technical
    rearrangement of machines and workers. It also
    cause changes to the Organization
  • Balance of rights,
  • Privileges,
  • Obligations,
  • Responsibilities,
  • Feelings (that have been established over a
    long period of time).

7
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • The Technical and Behavioural definitions of
    Organizations are not contradictory but
    complementary in other word they complement each.

8
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • FEATURES OF ORGANIZATIONS
  • All Modern organizations have certain
    characteristics. They are bureaucracies with
    clear-cut divisions of labour and specialization.
  • Organizations arrange specialists in a hierarchy
    of authority in which everyone is accountable to
    someone and authority is limited to specific
    actions governed by abstract rules or procedures.
  • These rules create a system of impartial and
    universal Decision making.
  • Organizations try to hire and promote people on
    the basis of technical qualifications and
    professionalism.
  • Organizations are devoted to the Principle of
    Efficiency - Maximizing Output
    using limited Input.

9
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • FEATURES OF ORGANIZATIONS
  • Features of Organizations include
  • Efficiency
  • Routines Business Processes ,
  • Organizational Culture,
  • Organizational Politics,
  • Environment,
  • Structure,
  • Goals,
  • Constituencies,
  • Leadership Styles.
  • All of these features affect the kind of
    Information Systems used by the Organizations.

10
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • FEATURES OF ORGANIZATIONS
  • All Organizations become efficient over the time
    because individuals in the firm develop
    Routines for producing goods and services.
  • Routines are Rules, Procedures, and Practices.
  • Routines have been developed to cope with all
    expected situations in an Organization.
  • As employees learn these routines, they become
    highly efficient. productive , and the firm is
    able to reduce its costs over time as efficiency
    increases.

11
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • FEATURES OF ORGANIZATIONS
  • Set of the Routines form the Business Process.
  • Collection of Business Processes forms the
    Business Firm.

12
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • ORGANIZATIONAL POLITICS
  • People in Organizations occupy different
    positions with different specialities, have
    different concerns, and perspectives.
  • People naturally have divergent viewpoints about
    how resources, rewards, and punishments should be
    distributed.
  • These differences caused because of Law of
    Individualism and matter to both Managers and
    employees of an organization.
  • Differences of opinion result in Political
    Struggle for resources, competition, and conflict
    in every organization.

13
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • ORGANIZATIONAL POLITICS
  • Political Resistance is one of the great
    difficulties faced with when bringing about
    Organizational changes , especially caused by the
    development of new Information Systems.
  • Investments onto Large Information Systems bring
    about significant
  • changes in Strategies, Business Objectives,
    Business Processes, and
  • Business Procedures that become Politically
    charged events.
  • Managers that know how to handle the Politics of
    an organization
  • will be more successful than those
    less-skilled managers in implementing new
    Information Systems.

14
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • ORGANIZATIONAL CULTURE
  • All Organizations have bedrock, unassailable,
    unquestioned assumptions that define Organization
    Goals and Products.
  • Organizational Culture contains this set of
    assumptions about what products the Organization
    should produce, how it should be produce them,
    where and for whom is to produce them.
  • Generally Cultural Assumptions are taken for
    granted and are rarely publicly announced or
    spoken out.
  • Business Processes are the actual way business
    firms produce values usually ensconced in the
    Organisation's Culture.
  • Organizational Culture is a powerful unifying
    force that restrains Political Conflict and
    promotes common understanding, agreement on
    Business procedures, and Common practices. (i.e.
    If we all share the same basic Cultural
    assumptions, agreement on other matters is more
    likely.)

15
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • ORGANIZATIONAL CULTURE
  • Organizational Culture is a powerful restraint on
    change, especially Technological change.
  • Most Organizations will do almost anything to
    avoid making changes in
  • basic Cultural assumptions.
  • Technological change that threatens commonly held
    Cultural Assumptions usually meet a great deal
    of resistant.
  • However, there are times when only sensible way
    for an Organization to move forward is to
    employ a new technology that directly opposes an
    existing Organizational Culture. When this
    occurs, the technology is often installed
    while the Organizational Culture slowly adjusts
    itself.

16
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • ORGANIZATIONAL ENVIRONMENTS
  • Organizations reside in Environments from which
    they draw resources and to which they supply
    goods and services. Thus, Organizations and
    Environments have a reciprocal relationship.
  • Organizations on one hand are open to and
    dependent on the social and physical
    Environment that surrounds them.
  • e.g. Without financial and human resources
    organizations could not exist )
  • - Organization must also respond to legislative
    and other requirements imposed on them by
    government, customers and competitors.
  • On the other hand, Organizations can influence
    their Environments.
  • (e.g. Advertise to influence Customer
    acceptance of their products)

17
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • ORGANIZATIONAL ENVIRONMENTS
  • The figure below illustrates the role of
    Information Systems in helping Organizations
  • perceive changes in their Environments and also
    in helping Organizations act on their
  • Environments.
  • Information Systems are key instruments for
    Environmental Scanning, helping Managers identify
    External changes that might require an
    Organizational response.
  • Environments change much faster than
    Organizations. Because of inability of
    organizations to adapt to rapidly changing
    environments and a lack of resources most
    organizations do not cope well with large
    environmental shifts.

18
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • ORGANIZATIONAL STRUCTURE
  • All Organizations have a Structure or shape.
    Mintzberg identifies 5 basic kinds of
    organizations/,

19
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • ORGANIZATIONAL STRUCTURE
  • The kind of Information Systems you find in a
    business firm and the nature of problems with the
    Information Systems. often reflects the type of
    Organizational Structure.
  • In small Entrepreneurial firms you will often
    find poorly designed Systems developed in a rush
    that often outgrow their usefulness quickly.
  • In large multidivisional firms operating in
    several locations you will often find a Single
    set of integrating Information Systems
  • (i,e, MIDDLEWARE). You will find that each
    locale or each division has its own set of
    Information Systems.

20
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • OTHER ORGANIZATIONAL FEATURES
  • Organizations have Goals and use different means
    to achieve them.
  • - Some organizations have Coercive
    Goals (e.g. prisons) others have Utilitarian
    Goals (e.g Businesses). Still others have
    Normative Goals (e.g. universities,
    religious groups)..
  • Organizations also serve different groups or have
    different Constituencies, some organizations
    primarily benefiting their members , others
    benefiting clients, stockholders or public.
  • The nature of Leadership differs greatly from
    one organization to another Some organizations
    may be more democratic or authoritarian than
    others.
  • Another way organizations differ is by the Tasks
    they perform and Technology they use. Some
    organizations perform primarily routine tasks
    that can be reduced to formal rules that require
    little judgements , whereas others work primarily
    with non-routine tasks.

21
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • HOW INFORMATION SYSTEMS IMPACT ORGANIZATIONS AND
  • BUSINESS
    FIRMS?
  • Information Systems have become integral, online,
    interactive tool deeply
  • involved in the minute-to-minute operations and
    decision making of large
  • Organizations.
  • Over the last decade , Information Systems have
    fundamentally altered the
  • Economics of organizations and greatly increased
    the possibilities for
  • organizing work.

22
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • ECONOMIC IMPACTS
  • IT changes both the relatively Costs of capital
    and the Costs of information.
  • Information technology can be viewed as a factor
    of production that can
  • be substituted for traditional capital and
    labour.
  • IT obviously affects the Cost and Quality Of
    Information and changes the Economics of
    Information. It helps firms contract in size
    because it can reduce Transaction costs (costs
    incurred when a firm buys on the marketplace what
    it can not make itself.)
  • According to Transaction Cost theory firms and
    individuals seek to economize on transaction
    costs as much as they do on production costs
  • Information Technology, especially the use of
    Networks, can help firms lower the Transaction
    cost of market participation, making it
    worthwhile for firms to contract out with
    external suppliers instead of using internal
    sources.
  • IT also can reduce Internal Management Costs by
    increasing revenues while shrinking the number of
    middle-managers and clerical workers.

23
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • BEHAVIORAL IMPACTS
  • Theories based on Sociology of Complex
    Organizations provide some
  • understanding about how and why organizations
    change with the
  • implementation of new IT Applications.
  • Behavioural researches have theorized that
    Information Systems
  • Facilitates flattening of Hierarchies by
    broadening the distribution of information to
    empower lower-level employees and increase
    management efficiency.
  • Can reduce the number of Management levels in an
    organization by providing managers with
    information to supervise larger number of workers
    and by giving lower level employees more decision
    making authority.
  • Pushes Decision-making right lower in the
    organizational level because lower-level
    employees receive the information they need to
    make decisions without supervision.

24
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • INFORMATION TECHNOLOGY FLATTENS ORGANIZATIONS
  • Managers now receive so much more accurate and
    timely information and become
  • much faster at making decisions, so fewer
    managers are required.
  • Broadening Span of Control enable high-level
    managers to manage and control many
  • More workers spread over greater distances.
  • Many companies have eliminated thousands of
    middle managers as a result Broadening
  • Span of Control . Management Costs decline as a
    percentage of revenues, and the
  • hierarchy becomes much more efficient.

25
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • UNDERSTANDING ORGANIZATIONAL RESISTANCE TO
    CHANGE
  • Information Systems inevitably becomes bound up
    in Organizational Politics because
  • they influence access to a key resource namely
    Information.
  • Information Systems can affect who does what, to
    whom, when, where, and how in an organization.
  • Many new Information Systems require changes in
    personal, individual routines that can be painful
    for those involved and require retraining and
    additional effort that may or may not be
    compensated.
  • Because the IS potentially change an
    organizations structure , culture, business
    processes , and strategy, there is often
    considerable Resistance to Information Systems
    when they are introduced.
  • Organizational Resistance is so powerful that
    many IT investments floundered and do not
    increase productivity.
  • Research on Project implementation failures
    demonstrates that the most common reasons for
    failure of large projects to reach their
    objectives is not the failure of the technology,
    but Organizational and Political Resistance to
    Change.

26
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • THE INTERNET AND THE ORGANIZATIONS
  • The Internet is beginning to have an important
    impact on the relationships between the
    Organization and the External entities such as
    Customers and Suppliers, and even on the
    Organization of Business Processes inside a firm.
  • The Internet increases the accessibility,
    storage, and distribution of information and
    knowledge for organizations.
  • Businesses are rapidly rebuilding some of their
    Key Business Processes (KBP) based on Internet
    technologies and making this technology a key
    component of their IT infrastructures.

27
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • IMPLICATIONS FOR THE DESIGN AND UNDERSTANDING OF
    INFORMATION SYSTEMS
  • To deliver genuine benefits to organization ,
    Information Systems must be built
  • with clear understanding of the Organization in
    which they will be used.
  • WHEN PLANNING A NEW INFORMATION SYSTEM, THE
    FOLLOWING CENTRAL
    ORGANIZATIONAL FACTORS ARE CONSIDERED
  • The Environment in which the organization must
    function
  • The Structure of the organization ( Hierarchy,
    specialization , routines, and Business
    processes)
  • The Organizations Culture and Politics
  • The Type of Organization and its Style of
    Leadership
  • The Principle interest groups affected by the
    system and the attitudes of workers who will be
    using the System
  • The kinds of tasks, decisions, and business
    processes that the Information Systems is
    designed to assist.

28
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • USING INFORMATION TO ACHIEVE COMPETETIVE
    ADVANTAGE
  • Firms that do better than the others are said to
    have Competitive Advantage
  • over other.
  • - These firms have access to special
    resources more efficiently because of
    their superior knowledge and information assets.
  • - In any event, these firms will do
    better in terms of revenue growth,
  • (higher profitability), or
    productivity growth all of which ultimately
    translate into higher stock valuations than their
    competitors in the long run.
  • Michael Porter explains why some firms do better
    than others and achieve
  • Competitive Advantage in his Competitive
    Forces Model.

29
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • PORTERS COMPETITIVE FORCES MODEL.
  • This model provides a general view of the Firm,
    its Competitors and the Firms
  • Environment and the dependency of the Firms on
    the environments.
  • Five Competitive forces shape the fate of the
    Firm
  • Traditional Competitors
  • New Market Entrants
  • Substitute Products and Services
  • Customers
  • Suppliers

30
INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY
  • PORTERS COMPETITIVE FORCES MODEL -
    DEPENDANCIES.
  • TRADITIONAL COMPETITORS
  • All firms share market space with other
    competitors, who are continuously devising new
    and more efficient ways to produce and serve to
    their customers.
  • Competitors are attempting to attract
    customers by developing new brands and imposing
    Switching Costs on their customers.
  • Switching Cost The expense a customer
    incurs in lost time and
    expenditure of resources when changing
    from one
    supplier to a competing supplier.

31
  • PORTERS COMPETITIVE FORCES MODEL. - DEPENDENCIES
  • 2. NEW MARKET ENTRANTS
  • In a free economy with mobile labour and
    financial resources, new companies are
  • always entering the marketplace.
  • In some industry sectors there are very low
    barriers to entry, whereas entry is very
    difficult in other
  • industries.
  • New Companies have several possible
    Advantages.
  • They are not locked into old plants (i.e.
    Factories or buildings etc) and equipment)
  • They often hire younger workers, (At a less cost
    and possible are more innovative)
  • They are not encumbered by old, worn-out brand
    names
  • They are more motivated than traditional
    occupants of an industry.
  • These Advantages are also New Companies
    weakness
  • They depend on outside financing for new plants
    and equipment, which can be expensive

32
  • PORTERS COMPETITIVE FORCES MODEL.- DEPENDENCIES
  • SUBSTITUTE PRODUCTS AND SERVICES
  • In every industry there are substitutes
    that a customer might use if your prices
  • become too high. New Technologies
    create new Substitutes all the time.
  • The more Substitute products and
    services are in the industry, the less you can
    control pricing and the lower profit margins.
  • 4. CUSTOMERS
  • A profitable company depends, in large
    measure. on its ability to attract and retain
    customers and charge them high prices.
  • The power of Customers grows when
  • Customer can easily switch to a competitors
    products and services
  • Customer can force a business and its competitors
    to compete on price along in a transparent
    marketplace
  • There is little product differentiation.,

33
  • PORTERS COMPETITIVE FORCES MODEL -DEPENDENCIES
  • SUPPLIERS
  • The Market Power of Suppliers, can
    have a significant impact on Customer firms
    profits, especially when the customer firms
    cannot raise prices as fast as can Suppliers.
  • The more different Suppliers a firm has
    (i.e. choice of Suppliers), the greater control
    it can exercise over Suppliers in terms of price,
    quality, and delivery schedules.

34
  • THE FOUR GENERIC STRATEGIES TO DEAL WITH
    COMPETETIVE FORCES
  • Low Cost Leadership
  • Product Differentiation
  • Focus on Market Niche
  • Strengthening Customer and Supplier Intimacy
  • Each of these Strategy is enabled by using
    Information Technology and Systems
  • LOW COST LEADERSHIP
  • Use of Information Systems to achieve the lowest
    operational costs and
  • the lowest prices.
  • (e.g. Wal-Marts continuous Replenishment System
    sends orders for new merchandise directly to
    Suppliers as soon as customers pays their
    purchase at the cash register. Thus, Wal-Mart
    does not need to spend much money on maintaining
    large inventory of goods in its own warehouse.)
  • Wal-Mart Replenishment System is an example of an
    Efficient Customer Response System.
  • Efficient Customer Response System directly links
    Customer behaviour to Distribution and Production
    and Supply chains..

35
  • 2. PRODUCT DIFFERENTIATION
  • Use Information Systems to enable new products
    and Services , or greatly
  • change the Customer convenience in using your
    existing products and
  • services.
  • (e.g. Google continuously introduces new and
    unique Search Services on its Web site-
    ebay, Paypal , also Apple computers created iPod
    etc.)
  • Manufacturers and Retailers are using
    Information systems to create product and
    services that are customized and personalized to
    fit the precise specifications of individual
    customers.
  • (e.g. Dell Computer Corporation sells
    directly to customers using
  • Assemble-to-Order Manufacturing).
  • Dell Computer Corporation s Assemble-to-Order
    Manufacturing System is also an example of
    Efficient Customer Response System.

36
  • 2. PRODUCT DIFFERENTIATION
  • e.g. continued
  • Lands End Customers can use its Web site to
    order jeans, dresses, trousers and shirts,
    custom-tailored to their own specifications.
  • Customers enter their measurements into an
    electronic form on the Lands End web site.
    System then transmits each customer's
    specifications over a network to a computer that
    develops an electronic
  • Made-to-measure pattern for that
    customer.
  • This ability to offer individually
    tailored products or services using the same
    production resources as mass production is called
    Mass Customization.

37
  • FOCUS ON MARKET NICHE
  • Use of Information Systems enable firms
    to focus on a specific market and serve this
    narrow target market better than competitors.
  • Information Systems support the Focus On Market
    Niche strategy by producing and analyzing data
    for finely tuned sales and marketing techniques.
  • Information Systems enable companies to analyze
    customer buying patterns , tastes, and
    preferences closely so that they efficiently
    pitch Advertising and Marketing campaigns to
    smaller and smaller target markets.
  • The data come from a range of sources such as
    from credit cards transactions. Demographic data
    and purchase data come from checkout scanners
    (EPOS) at supermarkets and retail sources, as
    well as data from internet when people access the
    web site.

38
  • 3. FOCUS ON MARKET NICHE
  • Sophisticated Software tools find Customers
    buying patterns in these large pools of data and
    Infer Rules from them to guide decision making.
  • Analysis of such data drives one-to-one marketing
    and the System creates personal messages based
    on individualized preferences.
  • Contemporary Customer Relationship Management
    (CRM) Systems feature Analytical capabilities for
    this type of intensive data analysis .

39
  • 4. STRENGTHEN CUSTOMER AND SUPPLIER INTIMACY
  • Use of Information Systems for tighten
    linkages with Suppliers and
  • develop intimacy with Customers.
  • Information Systems is used to facilitative
    direct access from Suppliers to production
    schedules and even permits Suppliers to decide
    how and when to ship Supplies (raw material) to
    factories.
  • This approach allows Suppliers more lead time in
    producing goods.
  • e.g. Chrysler Motor Car Corporation
    use this approach .
  • Amazon.com on the other side, keeps
    track of Users Preferences and can
    recommend book titles purchased by others to its
    customers.
  • Strong linkage to Customers and Suppliers
    increases Switching Cost ( the cost of switching
    from one product to a competing product) and
    loyalty to your firm.

40
  • Some companies focus on one of these four
    Competitive Forces strategies, but you will often
    see companies pursuing several of them
    simultaneously.
  • e.g. DELL Computer Corporation tries
    to emphasize Low cost as well as
    ability to customize its personal computers.
  • Some other Companies may try to
    compete with Quality of services as
    well as Low cost.

41
THE INTERNETS IMPACT ON COMPETETIVE ADVANTAGE
  • The Internet has nearly destroyed some industries
    and has severely threatened
  • more. It has also created entirely new markets
    and formed the basis for
  • thousands of new businesses.
  • The first wave of e-commerce transformed the
    business world of books, music and Air travel
  • In the second wave eight new industries are
    facing a similar transformation Telephone
    services, movies, television, jewellery, real
    estate, hotels, bill payments and software.
  • The breadth of e-commerce offerings grows,
    especially in travel, information
  • clearinghouses, entertainment, retail apparel,
    appliances and home furniture.
  • Because of internet, the Traditional Competitive
    Forces are still at work, but
  • Competitive rivalry has become much more intense.

42
  • THE INTERNETS IMPACT ON COMPETETIVE ADVANTAGE
  • Internet technology is based on universal
    standards that any company can use,
  • making it easy for rivals to compete on price
    along and for new competitors
  • to enter market.
  • Because information is available to everyone,
    the Internet increases the
  • bargaining power of customer. Customers can
    quickly find the lowest cost
  • provider on the Web.
  • Profits have been dampened. Some Industry
    sectors, such as Travel and the
  • Financial Services industries have been more
    impacted than others.
  • However, the Internet also creates new
    opportunities for building brands and
  • forming very large and loyal customer bases that
    are willing to pay a
  • premium for the brand.
  • e.g. Yahoo!, Google, eBay, BlueNile,
    RedEnvelop, Overstock.com,
  • Amazon.com etc.

43
  • THE BUSINESS VALUE CHAIN MODEL
  • Although Porters Competitive Forces Model is very
    helpful for identifying
  • Competitive Forces and suggesting Generic
    Strategies based on IT, it is not
  • very specific about what exactly to do, and it
    does not provide a methodology
  • to follow for achieving Competitive Advantages.
  • If a firms goal is to Achieve Operational
    Excellence, where do you start?
  • In that case, Business Value Chain
    Model is helpful. For Achieving Operational
    Excellence.
  • The Business Value Chain highlights specific
    activities in the business where
  • competitive strategies can best be applied and
    where Information Systems are
  • Most likely to have strategic impact.
  • .

44
  • THE BUSINESS VALUE CHAIN MODEL
  • The Business Value Chain identifies specific,
    critical-leverage points
  • Where firm can use Information Technology most
    effectively to
  • enhance its competitive position.
  • The Business Value Chain Model views the firm as
    a series of chain of basic Support Activities
    that add a margin of value to a firms products
    or services.
  • SUPPORT ACTIVITIES
  • Activities that make the delivery of Primary
    Activities possible and Consists of
  • - Organization Infrastructure
    (Administration and Management),
  • Human Resources (Employee recruiting, hiring, and
    training)
  • Technology (improving products and the production
    process)
  • Procurement (Purchasing input)

45
THE BUSINESS VALUE CHAIN MODEL
  • The figure below provides examples of Systems for
    both Primary and Support
  • Activities of a firm and its Value Partners that
    can add a margin of value to
  • firms Products and Services.

46
THE BUSINESS VALUE CHAIN MODEL
  • How Information Systems can be used to improve
    Operational Efficiency, and
  • Customer and Supplier Intimacy at each stage of
    the Business Value Chain?
  • This question will force you to critically
    examine
  • How you perform Value-Adding Activities at each
    stage
  • How the Business Processes used to improve the
    relationship with Customers and with suppliers
    (who lie outside the firms Value chain but
    belong to the firms extended Value Chain where
    they are absolutely critical to a firms
    success.)
  • The results from a Business Value Chain Analysis
    are
  • The Supply Chain Management Systems
  • The Customer Relationship Management Systems

47
THE BUSINESS VALUE CHAIN MODEL
  • Using the Value Chain Model will also cause you
    to consider
  • Benchmarking the Business Processes against the
    competitors or others in the related industry
    sectors,
  • Identify the Best practices. of the industry
    sector.
  • Benchmarking involves comparing the
    efficiency and effectiveness of the
    business processes against strict standards and
    then measure performance against those
    standards.
  • Best Practices are identified by
    Consulting firms, Research firms, Industry
    Associations as the most successful problem
    solving methods for consistently and
    effectively achieving Business objectives.

48
THE BUSINESS VALUE CHAIN MODEL
  • Once you have analyzed the various stages in the
    Value Chain of Business,
  • you can come up with a List of candidate
    Information Systems and then decide
  • which Information System you develop first.
  • By making improvement in the Firms Value Chain
    before the competitors you
  • can Achieve Competitive Advantage by attaining
  • Operational excellence,
  • Lowering costs,
  • Improving Profit Margins
  • Forging a closer relationship with Customers and
    Suppliers.
  • If the competitors are making similar
    improvements in their Firms Value
  • Chains , then at least you will not be at a
    Competitive Disadvantage - the worst
  • of all cases!

49
EXTENDING THE VALUE CHAIN - THE VALUE WEB
  • A firms Value Chain is linked to the Value
    Chains of its
  • Suppliers, Distributors (Delivery firms), and
    Customers.
  • The performance of most firms depends not only on
    what
  • goes on inside a firm but also on how well the
    firm
  • coordinates directly and indirectly with its
    Suppliers,
  • Delivery Firms (Logistic partners) and Customers.

50
EXTENDING THE VALUE CHAIN - THE VALUE WEB
  • HOW CAN (IT) ACHIEVES STRATEGIC ADVANTAGE AT
    INDUSTYRY LEVEL?
  • By working together, Industry Participants
    (Suppliers, Companies,
  • Logistic firms and Customers) can use Information
    Technology to develop
  • Industry-wide Standards for exchanging
    information on business transactions
  • electronically, which force all market
    participants to subscribe to similar
  • standards.
  • Industry-wide Standards not only increases
    efficiency, its also make Product Substitution
    less likely and perhaps raises the Market Entry
    Costs which may discourage New Market Entrants.
  • Industry members can also build Industry-wide IT
    Support Consortia,
  • Symposia, and Communication Networks to
    coordinate activities concerning
  • Government agencies, foreign competition, and
    competing industries.

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THE VALUE WEB
  • The Industry Value Chain encourages the firms to
    think about using
  • Information Systems to link up more efficiently
    with Suppliers, Strategic
  • partners, and Customers.
  • Strategic Advantage is derived from a
    firms ability to relate its Value Chain to the
    Value Chain of other partners i.e. Suppliers ,
    Distributors and Customers in the process.
  • For instants a firm may want to develop
    Information Systems that-
  • Make it easy for Suppliers to display their
    products and Open Stores on firm Web site
  • Make it easy for Customer's to pay the goods
    electronically
  • Coordinate the Shipment of goods to Customers
  • Tracking Shipment for Customers
  • Internet Technology has made it possible to
    create highly
  • synchronized Industry Value Chains called the
    VALUE WEB.

52
THE VALUE WEB
  • The Value Web is a collection of Independent
    Firms that use Information
  • Technology to coordinate their Value Chains to
    produce a product or service for
  • a market collectively.
  • The Value Web is more Customer driven and
    operates in a less linear fashion than the
    traditional Value Chain.
  • The Value Web is a Networked System that can
    synchronized the Value Chains
  • of Customers, Suppliers and Business Partners
    among different companies in
  • an industry or in related industries.
  • The Value Webs are flexible and adaptive to
    changes in supply and demand.
  • Value Web Relationships can be bundled or
    unbundled in response to changing
  • Market conditions.
  • Firms will accelerate Time to Market and Time to
    Customers, by optimizing their
  • Value Web relationships to make quick decisions
    on who can deliver the
  • required product or services at the right price
    and right location.

53
THE VALUE WEB
54
SYNERGIES, CORE COMPETENCEIES, AND
NETWORKED-BASED STRATEGIES
  • A large Corporation is a collection of
    businesses.
  • The firm is organized financially as a collection
    of Strategic business units, and the returns to
    the firm are directly tied to the performance of
    all the Strategic Business units.
  • Information Systems can improve the overall
    performance of these business units by promoting
    Synergies and Core Competencies.

55
SYNERGIES
  • The idea of Synergies is that, when the output of
    some business
  • units can be used as inputs to other business
    units. (e.g. Two firms
  • pool their markets and expertise to lowers costs
    and generate more profits.)
  • One use of Information Technology in Merger
    Synergy situation is to tie together the
    Operations of disparate Business units so that
    they can act as
  • a whole. And thus, lower their
    retailing costs and increase cross marketing of
    financial products.
  • Recent mergers of Banks and Financial firms is
    an example of Synergies (e.g. Mergers of
    JPMorgan and BankOne Corporation)
  • Merging with BankOne Corpration
    provided JPMorgan with a massive Network of
    retail branches in the Midwest and Southwest
    America. America.

56
ENHANCING CORE COMPETENCIES
  • Another way to use Information Systems for
    Competitive
  • Advantage is to think about ways that Systems
    can Enhance Core
  • Competencies.
  • A Core Competency is an activity for which a firm
    is a
  • World-class Leader.
  • Core Competency relies on knowledge that is
    gained over many years of
  • experience . A first-class research
    organization or simply key people who
    follow the literature and stay abreast of new
    external knowledge has Core competence.
  • Any Information Systems that encourages the
    sharing of knowledge across
  • business units enhances competency.

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ENHANCING CORE COMPETENCIES
  • Use of Information Systems might
  • Encourage or enhance existing competencies and
    help employees become aware of new external
    knowledge
  • Help a business leverage existing competencies
    to related markets.
  • Example Procter Gamble (P G) uses a series
    of Information Systems to enhance
    its Core Competencies.
  • PG uses an Intranet to help people
    working on similar problems
    facilitating the sharing of ideas and
    expertise. The System connects those
    working in Research and Development (RD) ,
    Engineering, Purchasing, Marketing,
    Legal Affairs , and PGs Business
    Information Systems around the world using a
    portal to provide access to documents,
    reports, charts, videos, and other data from
    various sources.

58
NETWORK-BASED STRATEGIES
  • The availability of Internet and Networking
    Technologies has
  • inspired strategies that take advantage of
    firms ability to create
  • networks.
  • Network-based Strategies include the use of
  • Network Economics,
  • Virtual Company Model,
  • Business Ecosystems.

59
NETWORK ECONOMICS
  • Business models, based on a Network may help
    firms strategically
  • by taking advantage of Network Economics.
  • In Traditional Economics, Production experiences
    Diminishing Returns.
  • The Law of Diminishing Returns states
    that
  • The more of any given resource is
    applied to production, the lower the marginal
    gain in output, until a point is reached where
    the additional inputs produce no additional
    outputs.
  • However, the Law of Diminishing Returns in some
    situation does not work.
  • For instance in a Network, the marginal cost of
    adding another network
  • participant is almost zero, whereas the marginal
    gain is much larger.
  • The larger the number of subscribers in an
    Internet , the greater the value to all
    participants because each user can interact with
    more people.

60
NETWORK ECONOMICS
  • From the Network Economics perspective,
    Information Technology can be
  • strategically useful since
  • Internet sites can be used by firms to build
    Communities of Users ,
  • who want to share their experiences.
  • It builds customer loyalty and enjoyment, and
    builds unique ties to customers.
  • e.g The more people offering products
    on eBay site, the more valuable
  • the eBay site is to everyone.
    Because more products are listed, and
    more competition among suppliers lower the
    prices.
  • Network Economics also provides Strategic
    benefits to Commercial Software Vendors.
  • The value of Vendors Software and its
    complementary products increases as more people
    use them, and there is a large installed base of
    software to justify continued use of
  • software and Vendor support.

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VIRTUAL COMPANY STRATEGY
  • A Virtual company also known (Virtual
    Organization) , uses networks to link
  • people, assets, and ides, enabling it to ally
    with other companies to create and
  • distribute products and services without being
    limited down by traditional
  • organizational boundaries or physical locations.
  • The Network-Based Strategy uses the model
    of Virtual Company to create
  • a Competitive business.
  • The Virtual Company Model is useful when a
    company
  • Finds it cheaper to acquire products, services,
    or capabilities from an External Vendor
  • Needs to move quickly to exploit new market
    opportunities and lacks the time and resources to
    respond on its own.

62
VIRTUAL COMPANY STRATEGY
  • Example Fashion Companies such as Ann Taylor,
    Levi Strauss, Reebok and GUESS
  • enlist Hong Kong based Li
    Fung ( A Virtual Company) to manage
    Production and Shipment of their garments.
  • Li Fung handles Product
    design, raw material sourcing, production
  • planning , quality assurance
    and product shipment.
  • Li Fung does not own any
    factories or machines or fabrics but outsources
    all of its work to a network of more
    than 7500 Suppliers in 37 countries all over
    the world.
  • Customers place their orders to
    LI Fung over its Extranet .
  • Li Fung then sends
    instructions to appropriate raw material
    suppliers and factories where the
    clothing is going to be produced.
  • Li Fung Extranets tracks the
    entire production and shipment process for
    each order. Working as a Virtual
    Company keeps Li Fung flexible and adaptable so
    that it can design and produce orders
    placed by its clients in short order to keep
    pace with rapidly changing fashion trends.

63
BUSINESS ECOSYSTEMS
  • The Internet and the emerging of Digital firms
    call for some modification of the industry
  • Competitive Forces Model.
  • The Traditional Competitive Model assumes a
    relatively
  • Static Industry environment
  • Clear cut Industry environment boundaries,
  • Stable set of Suppliers,
  • Substitutions
  • Customers with the focus on industry players in a
    market environment.
  • However, some of todays firms are much more
    aware that they participate in
  • Not a particular industry but in a Industry Sets.
  • Business Ecosystems is another term for those
    loosely coupled but
  • Interdependent networks of Suppliers,
    Distributors, Outsourcing firms,
  • Transportation Service Firms and Technology
    Manufacturers.

64
BUSINESS ECOSYSTEMS
  • The Concept of Business Ecosystem is based on
    Value Web. However , the main
  • differences being that cooperation takes place
    across many industries rather
  • than many firms.
  • The Digital Firm era requires a more dynamic view
    of the boundaries among
  • Industries, Firms, Customers, and Suppliers, with
    Competition occurring
  • among Industry sets in business Ecosystems.
  • In the Ecosystem model, multiple Industries work
    together to deliver value to the customer.
  • IT plays an important role in enabling a dense
    network of interactions among the participating
    firms.
  • Business Ecosystems can be characterized as
    having one or a few keystone firms that dominate
    the Ecosystem and create the platforms used by
    other niche firms.

65
BUSINESS ECOSYSTEMS
66
  • USING INFORMATION SYSTEMS FOR COMPETETIVE
    ADVANTAGE
  • MANAGEMENT ISSUES
  • Strategic Information Systems often change the
    Organization as well as its Products,
  • Services, and Operating Procedures and thus
    driving the organization into new
  • Behavioural patterns.
  • Successfully using Information Systems to achieve
    a Competitive Advantage is
  • challenging and requires precise coordination of
    Technology, Organizations and
  • Management.
  • SUSTAINING COMPETATIVE ADVANTAGE
  • The Competitive Advantage of Strategic
    Systems do not necessarily last long
  • enough to ensure long-term profitability.
    Because
  • Competitors can retaliate and copy Strategic
    Systems and thus Competitive Advantage is not
    always sustainable .

67
  • SUSTAINING COMPETATIVE ADVANTAGE
  • Example Amazon.com was an e-commerce leader but
    now faces competition from Yahoo! and
    Goggle.
  • Information Systems alone cannot provide an
    enduring Business Advantage.
  • Information Systems originally intended to be
    strategic tools for survival, required by every
    firm to stay in business, or they may inhibit
    organizations from making strategic changes
    essential for future success.
  • Managers interested in using Information
    Systems for Competitive
  • Advantage will need to perform a Strategic
    Systems Analysis.

68
  • PERFORMING A STRATEGIC SYSTEMS ANALYSIS
  • Managers should ask the following questions to
    identify the types of Information Systems
  • that will provide a Strategic Advantage to their
    firms-
  • 1. What is the Structure of the Industry in
    which my firm is located?
  • What are some of the Competitive Forces at work
    in the Industry?
  • Are there New Entrants to the Industry?
  • What is the relative power of Suppliers,
    Customers, and Substitute products and services
    over price?
  • Is the basis of competition Quality , price, or
    brand?
  • What are the direction and nature of change
    within the Industry?
  • How is the Industry currently using IT? Is the
    organization behind or ahead of the Industry in
    its application of Information Systems?

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  • What are the Business and Industry Value Chains
    for my Firm?
  • How is the company creating Value for the
    Customer through lower prices and lower
    transaction costs or higher quality? Are there
    any places in the Value Chain where the business
    could create more value for the customer and
    additional profit for the company?
  • Does the firm understand and manage its Business
    Processes using the Best Practices available?
    Is the firm taking maximum advantage of Supply
    Chain Management, Customer Relationship
    Management, and Enterprise Systems (ERP)?
  • Does the Firm Leverage its Core Competencies?
  • Is the Industry Supply Chain and Customer Base
    changing in ways that benefit or harm the firm?
  • Can the firm benefit from Strategic Partnership
    and Value Webs?
  • Where in the Value Chain will Information
    Systems provide the greatest value to the firm?

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MANAGING STRATEGIC TRANSITIONS
  • Adaptation of Strategic Information Systems
    requires changes in Business Goals,
  • Business Processes and the Relationships with
    Customers and Suppliers
  • These Sociotechnical changes, affecting both
    Social and Technical elements of
  • the Organization which can be considered
    Strategic Transitions (i.e. a movement
  • between the levels of Sociotechnical Systems).
  • Such changes often entails blurring of
    Organizational boundaries (both internal and
    external).
  • Suppliers and Customers must become intimately
    linked and may share each others
    responsibilities.
  • Managers will need to devise new Business
    Processes for coordinating their
  • firms activities with those of Customers,
    Suppliers, and other Firms when
  • adapting new Strategic Systems.
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