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Centre for Information


Centre for Information & Knowledge Management INFORMATION SYSTEMS MANAGEMENT Jamie O Brien Centre for Information & Knowledge Management University of Limerick – PowerPoint PPT presentation

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Title: Centre for Information

Centre for Information Knowledge Management
  • Jamie OBrien
  • Centre for Information Knowledge Management
  • University of Limerick
  • Lecture 4
  • E-mail jamie.a.obrien_at_ul.ie

What well cover today
  • Strategy evaluation using the Value Chain
  • IS Acquisition

  • Strategic Analyses using the Value Chain

The Value Chain
  • Proposed by Michael Porter in his work
    Competitive Advantage (1985).
  • Every organisation creates their suite of
    products or services using a set of sequential
  • Certain of these activities contribute more
    directly and obviously to creating a more
    valuable product or service (the Primary

The Value Chain
  • Other activities play more of an indirect
    supporting or background role but are still
    important (the Support activities).
  • If we analyse these activities, we may identify
    how they can become even more efficient and/or
    effective, increasing their value to us and the

The Generic Value Chain (in graphical format)
What do we mean by Value in the Value Chain?
  • For the customer at the receiving end of the
    value chain, increased value can be expressed as
    a cheaper product/service (in a cost leadership
    driven market) as a product/service with more
    appealing or specific features (in more of a
    differentiation or focus driven market).
  • For those managing the value chain, value chain
    analyses must be driven by similar

What do we mean by Value in the Value Chain?
  • Cost Leaders normally do value chain analyses to
    squeeze costs out (efficiency).
  • Differentiators/Focusers can also do it to
    squeeze costs but will emphasise more on
    maximising capabilities for difference (more
    about effectiveness).

The Primary Activities
  • Inbound logistics include the receiving,
    warehousing, and inventory control of input
  • Operations are the value-creating activities
    that transform the inputs into the final product.
  • Outbound logistics are the activities required
    to get the finished product to the customer,
    including warehousing, order fulfilment, etc.

The Primary Activities
  • 4. Marketing Sales activities associated with
    getting buyers to purchase the product, including
    channel selection, advertising, pricing, etc.
  • 5. Service Activities are those that maintain and
    enhance the product's value including customer
    support, repair services, etc.

The Support Activities (span across the chain)
  • Procurement - the function of purchasing the raw
    materials and other inputs used in the
    value-creating activities.
  • Technology Development- includes research and
    development, process automation, and other
    technology development used to support the
    value-chain activities.
  • Human Resource Management- the activities
    associated with recruiting, development, and
    compensation of employees.
  • Firm Infrastructure- includes activities such as
    finance, legal, etc.

Analyses using the Value Chain
  • An organisation can focus on improving their own
    internal value chain.
  • The internal value chain of any organisation is
    also however embedded in the wider
    market/industrial environment and a broader value
  • Firstly, each organisation must interact with the
    environment to source raw materials from a
    supplier who has their own value chain
    (backward/upstream value chain).

Analyses using the Value Chain
  • Secondly, each organisation must interact with
    the environment to deliver products materials
    using a distributer who has their own value chain
    ( forward/downstream value chain).
  • Value chain analyses not always about cost...

Internal Value Chain Analyses
  • Often reactive and driven by the need to match a
    standard set by a competitor in the specific
    industry (known as benchmarking).
  • Economise on higher cost activities regardless of
    primary or support.
  • Vertically integrate to increase economy of
  • Utilise technology to combine/streamline
  • Identify where resources can be shifted to more
    higher value activities.

Backward/Upstream Value Chain Analyses
  • Managing the bargaining power of your suppliers
    and inbound logistics
  • Expand supplier base
  • Negotiate exclusivity/special contracts with your
  • Vertical related acquisition of suppliers to
    absorb into internal value chain
  • Offer specific expertise to suppliers to reduce
    their costs.
  • Improve quality standards/incoming inspections to
    boost raw material quality.

Forward/Downstream Value Chain Analyses
  • Managing your distributors and the bargaining
    power of your buyers
  • Expand distributor base
  • Integrate with your distributors vertically or
  • Create your own independent distribution channel
    over which you have full cost control.
  • Strive for constant brand reinforcement to manage
    the bargaining power of your buyers.

Exercises (1) Value Chain Analyses
  • How would a differentiator like Apple do VCA in
    contrast with a cost leader like Aldi?
  • Organisations with a strong focus on quality
    management will focus their analyses on which
    value chain activities?
  • Having a strong brand reduces the pressure on
    what type of VCA?

Exercises (2) Value Chain Analyses
  • One of the key practical issues for the Resource
    Based View of the firm is packaging resources
    into some dynamic strategic capability how could
    VCA help?
  • Many commentators talk about the need for Ireland
    to move up the value chain is this an accurate
    comment? Discuss.
  • Strong bench markers in an industry can
    completely alter the focus of VCA for the other
    competitors. Discuss an example.

  • IS Acquisition

Software Evaluation Purchase
  • Selecting the software package most suitable to a
    companys needs is a complex, time-consuming
  • For example, selection of an ERP system often
    involves up to 20 employees for up to 14 months,
    with total acquisition costs often as much as 30
    of the overall project cost (Hecht, 1997).

  • Software selection should involve
  • careful consideration of organisational
  • establishing evaluation criteria
  • determining participants
  • determining acquisition strategies
  • vendor and package evaluation

Software Characteristics
  • The following should be considered in software
  • Functionality,
  • Cost,
  • Usability,
  • Flexibility to support a changing business
  • Ease of installation,
  • Ease of integration with other systems,
  • Improvements/completeness
  • Performance/stability
  • System requirements.

Vendor Characteristics
  • The following should be considered in software
  • Financial stability,
  • Volume of successful installations/track record,
  • Market strength, leadership and focus,
  • Corporate image, vision, direction and
    international orientation,
  • Service and support.

Quality Factors for Software Quality Assessment
  • Functionality
  • capabilities of a computer system
  • how it manages transactions based on various
    settings or parameters.
  • Modules to cater for different functional areas
    of organisations e.g. finance functionality,
    purchasing, sales, payroll etc

  • Usability
  • The ease with which people can use computer
    systems in order to achieve a particular goal.
  • System usability is characterised by
  • Learn ability
  • Efficiency
  • Memorability
  • Volume of errors
  • Satisfaction

  • Reliability
  • the ability of a system to perform and maintain
    its functions in both routine and unexpected
  • The IEEE defines it as ". . . the ability of a
    system or component to perform its required
    functions under stated conditions for a specified
    period of time."
  • Performance
  • The effectiveness of the IT systems
  • May involve examining factors such as speed,

  • Supportability
  • Degree to which the design characteristics of a
    standby or support system meet the operational
    requirements of an organization.
  • Supportable systems are designed for reliability
    and maintainability, technical support data, and
  • Excellent documentation, reference material, user
    manuals required

Requirements Analysis
  • A widely known approach for choosing between
    different vendors and packages.
  • Companies prepare a detailed list of requirements
    or wish list that is sent to vendors in the
    form of a request for proposal (RFP).
  • Vendors compare the requirements with their
    software capabilities.
  • The RFP serves
  • as the basis for short-listing the best vendors
    and requesting vendor demonstrations.
  • as a benchmark for evaluating different software

Options for IT Acquisition
  • In-house bespoke development by the IT function
  • Commercial Off the shelf package
  • Outsourcing IT Development
  • End User Computing

Outsourcing IT Development
  • Outsourcing hiring an outside vendor to provide
    services that cannot be performed with in-house
  • A contracting transaction through which one
    company purchases services from another while
    keeping ownership and ultimate responsibility for
    the underlying processes.

Advantages of Outsourcing
  • Management can concentrate on core competencies.
  • Access to specialized labor at low rates
  • Cutting human resource costs
  • Cutting operational costs
  • Reducing software project expenditure e.g. a
    software company can save about 40 of its
    expenses by outsourcing an application
    development project overseas
  • Ensuring proper project management
  • Software research at lower rates
  • Reducing training costs

Disadvantage of Outsourcing
  • Loss of managerial control over business process
  • Underestimation of overall costs
  • May be a threat to the security and
    confidentiality of company issues.
  • Possible loss of flexibility in reacting to
    changing business conditions
  • Lack of internal and external customer focus
  • Sharing cost savings

What we covered today
  • Strategy evaluation using the Value Chain
  • IS Acquisition

  • End of Lecture
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