Information Technology:
Strategic Decision Making For
Managers
Henry C. Lucas Jr.
John Wiley & Sons, Inc
Dinesh Mirchandani
University of Missouri – St. Louis
Copyright 2004 John Wiley & Sons, Inc.
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Chapter 2
A Dynamic Model of IT Strategy
In A Netcentric Economy
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Information Technology’s Ability
To Change Strategy
• IT can
– Enable new strategies
– Provide new ways to reach customers
– Expand the markets in which the firm
participates
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Metrics for Evaluating Strategies
• Market share
• Number of markets in which a firm
participates
• Number of new markets
• Sales growth
• Size of the average sale
• Sales per employee
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Thinking Strategically
• Strategy is an approach to achieving a
series of objectives
• Corporate strategy describes how a firm
will achieve the vision of its senior
management
• Corporate strategy and IT strategy are
intertwined
• The new economy has created threats and
opportunities for corporate strategy
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E-Business
• An e-business
– Recognizes that IT is a fundamental driver of
success
– Uses technology extensively in all its
operations
• E-commerce is one aspect of e-business
– Involves using networks (primarily the
Internet) for the sale and purchase of goods
and services
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E-commerce
• Consists of two broad categories
– Business to consumer (B2C)
• E.g., Buying books and music CDs over the internet
– Business to business (B2B)
• E.g., Companies buying goods from their suppliers
• Has stimulated much greater competition and the
rapid creation of new firm-specific resources
(e.g., cash flows and venture capital)
• In a hypercompetitive economy, successful
strategies allows firms to sustain competitive
advantage for over a year
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E-Business and E-Commerce
Nature of Business
Description
Example
Electronic business
Pervasive use of
technology in the firm
E-mail, electronic
conferencing, automated
transactions processing,
ERP, CRM, knowledge
management systems, etc.
Internet online store
Amazon.com
Electronic connection
vendors to customers
Wal-mart Internet EDI with
vendors
Businesses
purchasing goods
from suppliers online
Procurement auctions, free
markets
Electronic commerce
Sell side
To consumers (B2C)
To other businesses (B2B)
Buy side (B2B)
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Corporate Strategy:
Porter’s Value Chain
• The value chain divides a firm’s activities into two types
– Primary: activities associated with the mission of the firm
such as inbound logistics, operations, outbound logistics,
marketing and sales, and service
– Support: activities represented by the firm’s infrastructure
such as human resources management, technology
development, and procurement
• The Internet and electronic commerce have impacted the
traditional value chain
– E.G., Amazon.com has no physical stores and hence a smaller
infrastructure which is easier to manage
• Comparing value chains can highlight the differences
among business models based on the internet and web
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Porter’s Five Forces Model
• Forces that shape a firm’s competition
–
–
–
–
–
Competitive rivalry
The threat of new entrants
The bargaining power of suppliers
The bargaining power of buyers
The threat of substitutes
• The Internet has affected the five forces by
– Lowering entry barriers for new firms
– Creating substitutes for traditional businesses (e.G.,
Stock trading and music)
– Creating new markets that change the way buyers and
supplies interact
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The Five Forces Model of
Competition
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Core Competencies View of
Strategy
• Core competencies are the collective
learning in the organization about how to
integrate multiple technologies and
coordinate diverse production capabilities
• A core competency
– Should provide access to a wide variety of
different markets
– Should make a significant contribution to the
end product
– Should be difficult to imitate
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Resource-Based Views of
Strategy
• Firm resources are all assets, capabilities,
organizational processes, firm attributes,
information, knowledge, etc. controlled by a firm
• Categories of resources
– Physical
– Human
– Capital
• A firm has competitive advantage when it creates
a successful non-duplicable strategy and
immobile, heterogeneous resources that are rare,
valuable, inimitable, and non-substitutable
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Competitive Advantage in the
Internet Economy
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A Dynamic Resource-Based Model
of Competitive Advantage in the
Internet Economy
• Components of the Dynamic Model
– Network Externalities and Critical Mass
– Other Assets that make the Innovation succeed
• complementary, specialized or co-specialized assets
– Lock-In and Switching Costs
– Additional Resources
• continually added resources protect and enhance
existing resources that are rare, valuable, inimitable,
and non-substitutable
– A System of Interacting Resources that create and
sustain Advantage
– Knowledge and Skills gained by Managers
– Feedback Loop
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Summary
• To gain competitive advantage, firms have
to create resources that are rare, valuable,
inimitable, and non-substitutable
• The objective of a firm is to create an
initial advantage, sustain that advantage,
and to appropriate benefits from its
innovative activities
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Summary (Continued)
• A firm cannot succeed with a strategy
alone and must first devise a business
model
• Executing the business model and
strategy requires highly capable managers
who can respond to changes in the
economy, environment, technology, and
competitor actions
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