Chapter 3
Strategy and
Information Systems
Jason C. H. Chen, Ph.D.
Professor of MIS
School of Business Administration
Gonzaga University
Spokane, WA 99258
[email protected]
Dr. Chen, Management Information Systems
BUSINESS FOCUS
E-BUSINESS
•SCM
•CRM
•BPR
•ERP
Customer
centric
Who are the customers?
______
_______are
the customers?
Where
habits
Their purchasing ______
Supply Chain Management
Customer Relationship Management
Business Process Reengineering
Enterprise Resource Planning
Dr. Chen, Management Information Systems
Demands
Products/
Service
What they need/want?
How many they need/want?
When they need/want?
How to reach them?
What is Model?
• A business model is a set of planned activities
(sometimes referred to as business processes)
designed to result in a profit in a marketplace.
• The business model is at the center of the
business plan.
• A model is a graphical representation
describing a specific activities.
thousands words
• A model is worth more than ________
N
Dr. Chen, Management Information Systems
Study Questions
Q1: How does organizational strategy determine information
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: 2026?
Dr. Chen, Management Information Systems
Q1: How Does Organizational Strategy
Determine Information Systems Structure?
• An organization’s goals and objectives are determined
by its competitive strategy.
• Ultimately, an organization’s competitive strategy
determines every information system’s …
Goals/Objectives
determine
Fig 3-1 Organizational Strategy Determines Information Systems
Dr. Chen, Management Information Systems
Structures,
Features,
Functions
Striving for Competitive Advantage
Firm level: Industry & Competitive Analysis
• _______
– Competitive Forces Model
– Competitive Strategy
Relationships between (among) firms in
the industry
Business level
• _________
– Value-Chain Analysis
Improve activities inside the firm
Dr. Chen, Management Information Systems
Relationships between Forces and Strategies
Study Five Competitive Forces
Identify
2/3 most Critical Forces (Why?)
Deal
IT Role?
Improve/
Create
Firm’s Competitive
Advantage
Choose an appropriate Strategy
(strategies)
Dr. Chen, Management Information Systems
PORTER’S FIVE COMPETITIVE FORCES MODEL
NEW
MARKET
ENTRANTS
Strategic Use
•Switching cost
•Access to
distribution channels
•Economies of scale
THE FIRM
INDUSTRY
RIVALS/
COMPETITORS
Strategic Use
•Cost-effectiveness
•Market access
•Differentiation of
product or service
Strategic Use
•Selection of suppler
•Threat of backward
integration
SUPPLIERS
SUBSTITUTE
PRODUCTS
& SERVICES
Threats
Bargaining power
Strategic Use
•Redefine products
and services
•Improve
price/performance
Strategic Use
•Buyer selection
•Switching costs
•Differentiation
CUSTOMERS
N
Dr. Chen, Management
Information
Systems
Dr. Chen, The
Trends of the
Information Systems Technology
TM -8
Q2: What Five Forces Determine
Industry Structure?
Competitive Forces (Threats)
rivals
• Competition from existing _______.
competitors/entrants
• Competition from new __________________.
•
Competition from vendors who manufacture
__________.
substitutes
Bargaining Power Forces
suppliers
• Bargaining power of _________.
customers
• Bargaining power of _________.
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Five Forces Model
• 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.
2.
3.
4.
5.
How great is the rivalry among existing firms?
How much of a threat do substitution products or services pose?
How great is the threat of new competitors entering the marketplace?
How much bargaining power do suppliers have?
How much bargaining power do customers have?
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A new drug that has shown promise in curing skin
cancer has been discovered by a famous chemical
laboratory. This is the only known drug effective
for treatment of this disease. The laboratory
obtains a patent for the product and decides to sell
it. This situation is characterized by ________.
A) low threat of substitutions
B) high bargaining power of customers
C) high threat of new entrants
D) low bargaining power of the laboratory
A
Answer: ______
Dr. Chen, Management Information Systems
Porter’s Generic Strategy Framework –
3 Strategies for achieving Competitive Advantage
Strategic Advantage
Lower Cost
Position
Industrywide
(Broad
Target)
Particular
Segment only
(Narrow
Target)
Overall Cost
Leadership
Uniqueness
Perceived by
Customer
Differentiation
Focus
N
Competitive Mechanism
Dr. Chen,
Dr. Chen,
The Trends
Management
of the Information
Information
Systems
Systems
Technology
TM -12
Q3: How Does Analysis of Industry Structure
Determine Competitive Strategy?
Porter's Four
Competitive
Strategies
Wal-Mart
SouthWest
Apple
Apple iPhone
To be effective, organization goals, objectives, culture, and activities
must be consistent with organization strategy.
Fig 3-5: Porter’s Four Competitive Strategies
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Porter’s Competitive Strategy Model
• Firms engage in one of four competitive strategies: (video)
1. Be the _____
cost leader across a wide industry
 Wal-Mart is the lowest cost leader in the retail industry.
Differentiate its products across a wide industry
2. ___________
 Apple Computer competes on how much better its computers are than
PCs.
3. Be the cost leader in a focused industry segment
 Southwest Airlines is the cost leader in certain portions of the airline
industry.
4. Differentiate its product in a focused industry segment
 Apple’s iPhone competes by being different than other cell phones.
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Yikes! Bikes! (p.88)
• Yikes! Bikes, a manufacturer of high-end mountain
bicycles.
• You are operations manager.
• New owners plan to pursue lowest-cost vendor
strategy by importing low-cost, low quality bikes.
• New owners are not being honest with employees
about cutting jobs.
• Say you might be promoted to new general manager.
Should you trust them?
Q: Are the owner’s actions illegal? Unethical?
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Relationships between Forces and Strategies
Study Five Competitive Forces
•
•
•
•
•
Traditional rivals
New entrants
Substitutes
Suppliers
Customers
Identify
2/3 most Critical Forces (Why?)
Deal
• Cost or/and
• Differentiation
Improve/
Create
Firm’s Competitive
Advantage
Choose an appropriate Strategy
(strategies)
Dr. Chen, Management Information Systems
An automobile company decides to improve
the quality of its products and bring more
variety into its product line. The company has
decided to adopt ________.
A) focused cost leadership
B) industry-wide differentiation
C) industry-wide cost leadership
D) focused differentiation
Answer: ________
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Business Strategies
and its Competitive Advantage
Lower Cost
Position
Industry
wide
(Broad
Target)
Particular
Segment
only
(Narrow
Target)
Uniqueness
Perceived by
Customer
Cost
Leadership
Differentiation
Cost Focus
Differentiation
Focus
Industrial economy
Knowledge-based
economy
Competitive Mechanism
Dr. Chen,
Dr. Chen,
The Trends
Management
of the Information
Information
Systems
Systems
Technology
TM -18
Q/A - Enhancing your Analytic Skill
Linda is in the computer repair businesses. Mark
and Jill, two recent university graduates are
unemployed, but are thinking of doing computer
repairs at their homes. This is an example of which
of the five forces?
a.
b.
c.
d.
e.
f.
bargaining power of customers
bargaining power of suppliers
threat of new entrants
threat of substitution
rivalry among existing firms
… and the answer is:
–
C
Answer _________
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PART II
• Chapter Case Presentation
Dr. Chen, Management Information Systems
Relationships between Forces and Strategies
Study Five Competitive Forces
•
•
•
•
•
Traditional rivals
New entrants
Substitutes
Suppliers
Customers
Identify
2/3 most Critical Forces (Why?)
IT Role?
Deal
• Cost or/and
• Differentiation
Improve/
Create
Firm’s Competitive
Advantage
Choose an appropriate Strategy
(strategies)
Dr. Chen, Management Information Systems
Striving for Competitive Advantage
Firm level: Industry & Competitive Analysis
• _______
– Competitive Forces Model
– Competitive Strategy
Relationships between (among) firms in
the industry
Business level
• _________
– Value-Chain Analysis
Improve activities inside the firm
Dr. Chen, Management Information Systems
Value-Chain Analysis
• Value chain analysis (model) views an
organization as a chain, or series, or
processes, each of which adds ______
value to
the product or service for each customers.
• To create a competitive advantage, the
value chain must enable the organization to
provide unique value to its customers by
using primary and/or support activites.
Dr. Chen, Management Information Systems
Q4: How Does Competitive Strategy
Determine Value Chain Structure?
Business Level: The Value Chain
performance
evaluation
compensation
(Value)
Porter’s Value Chain Model
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N
Primary Activities in the Value Chain
Value in parts, time required to contact vendors, maintaining relationships with
vendors, ordering parts, receiving shipment, and so forth
Fig 3-7: Task Descriptions for Primary Activities of the Value Chain
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25
Support Activities in the Value Chain
Contribute indirectly to production, sale, and service of product
Support Activity
___________
Technology
Procurement
Description
R & D, New Techniques, Methods,
Procedures
finding vendors (raw materials),
setting up contractual arrangements,
and negotiating prices
Training, Recruiting, Evaluation
______ Resources
Human
_______
(performance), Compensation
Firm Infrastructure
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General Management, Finance,
Accounting, Legal, Government
Affairs
Value Chain
• Competitive strategy implemented by creating value
 Value—amount of money a customer is willing to pay for a
resource, product, or service
 Margin—difference between value an activity generates and
cost of activity
 Value chain—a network of value-creating activities
• Primary activities
• Support activities
Rather than automating or improving existing functional
systems, Porter contends companies should create new,
integrate the
more efficient business processes that __________
activities of the entire value chain.
Dr. Chen, Management Information Systems
27
Q4: How Does Competitive Strategy Determine
Value Chain Structure? (corrected; p.90)
Competitive strategy: cost leadership / differentiation/ focused
Support
Support
Primary
Linkages
Primary
Linkages--interactions across value activities
Figure 3-6 Bicycle Manufacturer’s Value Chain
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Value Chain in Order Management
An Existing Product
Support Activities
Administrative and Other
Indirect Value Added
Primary Activities
Production
Sales
and
Manufacturing
Distribution/
Service
Logistics
D.B.
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Accounting
N
Value Chain in Order Management
A New Product
Support Activities
Administrative and Other
Indirect Value Added
Primary Activities
Production
Sales
Finance
and
Manufacturing
D.B.
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Distribution/
Marketing
Logistics
Service
Value Chain Linkages
• Linkages are the interactions across the value
activities.
 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-intime inventory, which reduces inventory sizes and costs.
• Business process design
 Organizations should not automate or improve existing
functional systems. Rather, they should create new, more
processes that integrate activities of
efficient business __________
all departments involved in a value chain.
Dr. Chen, Management Information Systems
Which of the following value chain activities
involves collecting, storing, and physically
distributing the product to buyers?
A) inbound logistics
B) operations
C) customer service
D) outbound logistics
Answer: ______
D
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Q5: How Do Business Processes Generate Value?
Activities
interact with
databases,
but, query
one DB a time
Fig 3-8: Three Examples of Business Processes
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Purchase-bicycle-parts activity queries both raw materials inventory and finished
goods inventory databases.
Queries both
databases at
the same time
Objectives?
Objectives: # of purchase parts will be more accurate
Fig 3-9: Improved Material Ordering Process Using Integrated Databases
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Business Process Summary
• Business process - set of activities that generate
value by transforming inputs into outputs.
• Key to a company’s competitive advantage is to
increase the margin (= value - cost) of its
products by adding value, reducing costs, or both.
• Business process redesign helps a business
streamline its activities in order to increase its
margins.
• Most difficult part of process redesign is
associated with employee resistance.
Dr. Chen, Management Information Systems
Which of the following statements is consistent
with the central idea of business process design?
A) Technology should be used to supplement the
existing value chain.
B) Business processes should focus on improving
individual functional systems.
C) Organizations should create new business
processes rather than improve existing systems.
D) Technology should be used to modify and
improve standard business processes.
Answer: ______
C
Dr. Chen, Management Information Systems
Q6: How Does Competitive Strategy Determine Business
Processes and the Structure of Information Systems?
Fig 3-10: Operations Value Chains for Bicycle Rental Companies
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High-Service Rental Value Chain
IT/Cust.
Service
CRM
IT/HR
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Business Process and Information Systems for
High-Service Bike Rental
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Q7: How Do Information Systems Provide Competitive
Advantages? (Two Types of Implementations)
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Figure 3-12 Principles of Competitive Advantage
• Product Implementation
– 1. Create a new product or service
– 2. Enhance products or services
– 3. Differentiate products or services
• Process Implementation
–
–
–
–
–
4. Lock in customers and buyers
5. Lock in suppliers
6. Raise barriers to market entry
7. Establish alliance
8. Increases profit margins by reducing
costs and decreasing errors
Figure 3-12 (b): Principles of Competitive Advantage
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Two Ways to Respond to the Five
Competitive Forces
(video)
1. Competitive advantage via products or services:
 Creating new products or services,
 Enhancing existing products or services,
 Differentiating their products and services from
those of their competitors by:

cost
 quality
2. Information systems can help create a competitive
advantage by being part of the product or by providing
support to the product or service.
Dr. Chen, Management Information Systems
Hueblue Software, an application provider to the
gaming industry, decided to increase its portfolio
by developing motion-control-enabled games for
the mobile gaming industry. In this scenario,
which competitive strategy is Hueblue Software
implementing?
A) establishment of alliances
B) product differentiation
C) reduction of cost
D) locking in suppliers
B
Answer: ______
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Essential Value Propositions for a
Successful Company
Business Model
• ________
– A value-added
– Value, value, value
Core Competency
• _______
– outsourcing
– offshoring
Execution
• __________
– Set corporate goals and get executive sponsorship for
the initiative
Dr. Chen, Management Information Systems
Q8: 2026?
• Pace of change and integration of new technology fast
and increasing.
• Augmented reality devices, like Google Glass and
Microsoft's HoloLens, will change competitive
landscape.
• New businesses based on advances in self-driving
cars, drones, 3D printing.
• New products constructed in someone’s garage.
• Take advantage of opportunities new products create.
Dr. Chen, Management Information Systems
• END of CHAPTER 3
Dr. Chen, Management Information Systems