Chapter 2
Gaining Competitive Advantage
Through Information Systems
2-1
“You’ve got a life. TiVo gets it.”
TiVo Incorporated
advertisement motto.
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Learning Objectives
2-2
1. Discuss how information systems can be used for
automation, organizational learning, and strategic
advantage.
2. Describe international business and IS strategies
used by companies operating in the digital world.
3. Explain why and how companies are continually
looking for innovative ways to use information systems
for competitive advantage.
4. Describe freeconomics and how organizations can
leverage digital technologies to provide free goods and
services to customers as a business strategy for gaining
a competitive advantage.
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Types of Decisions You Face
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Decision-Making Levels of an Organization
2-4
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Operational Level
2-5
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Managerial Level
2-6
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Executive Level
2-7
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Organizational Functional Areas
2-8
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Business Process Supported by Functional Area IS
2-9
What is your
major?
Do any of these
have value for
you?
Top/Bottom
Line?
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Major IS Tasks: Business Value Added
2-10
 What do we mean when we say we create business
value by automating, organizational learning and
supporting strategy
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The Five Forces Model – Evaluating Business
Segments
Product returns
Lower market
Increased
costsshare
Competition
in price,
Lost
customers
Reduced
quality and
distribution
service
Electronic connections to
more suppliers
Reduced prices
Lost market
share
11
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Decision support and
business
intelligence
Reduce prices
CAD
product
redesign
Increase
quality
Value added services
ERP to
ERP
reduce
reduce
costs
costs
and
Better
presence
react
CRM
moreweb
quickly
Lower
costs improve
through ERP,
CAD/CAM
quality
supply chain, etc.
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Pursuit of Competitive Advantage
2-12
 What technologies enable
an organization:
 Best-made product
 Superior customer service
 Lower costs than rivals
 Proprietary manufacturing
technology
 Shorter development/test
lead times
 Well-known brand name
 More value for the money
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7/13/2017
Learning Objectives
2-13
1. Discuss how information systems can be used for
automation, organizational learning, and strategic
advantage.
2. Describe international business and IS strategies
used by companies operating in the digital world.
3. Explain why and how companies are continually
looking for innovative ways to use information systems
for competitive advantage.
4. Describe freeconomics and how organizations can
leverage digital technologies to provide free goods and
services to customers as a business strategy for gaining
a competitive advantage.
IS Today (Valacich & Schneider) 5/e
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7/13/2017
International Business Strategies in the Digital World
2-14
 Home Replication Strategy
 Multidomestic Strategy
 Global Strategy
 Transnational Strategy
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Home Replication Strategy
2-15
 International business as an extension of home
business
 Strengths: focus on core competencies in home
market
 Weakness: inability to react to local market
conditions
 Appropriate use: homogeneous markets
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Global Business Strategy
2-16
 Strengths?
 Weaknesses?
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Multidomestic Business Strategy
2-17
 Strengths?
 Weaknesses?
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Transnational Business Strategy
2-18
 Strengths?
 Weaknesses?
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Business/Information Systems
Strategies
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Learning Objectives
2-20
1. Discuss how information systems can be used for
automation, organizational learning, and strategic
advantage.
2. Describe international business and IS strategies
used by companies operating in the digital world.
3. Explain why and how companies are continually
looking for innovative ways to use information systems
for competitive advantage.
4. Describe freeconomics and how organizations can
leverage digital technologies to provide free goods and
services to customers as a business strategy for gaining
a competitive advantage.
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Miniaturization – What is Moore’s Law?
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Valuing Innovations
2-22
 Which new technology will make or break your
business?
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Successful Innovation Is Difficult
2-23
 Innovation is often fleeting.
 The advantages gained from innovations are often
short lived.
 Innovation is often risky.
 Sometimes even superior
products can lose the race.

Blu-ray vs. HD DVD
 Innovation choices are often difficult.
 Foreseeing the future is not always possible.

In 1994, the Internet was not given much attention.
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Organizational Requirements for Innovation
2-24
 Process requirements—the organization has to
be willing to do whatever it takes to implement the
change.
 Resource requirements—need to have the
human capital necessary for successful deployment of
the system
 Risk tolerance requirements—organizational
members must have appropriate tolerance of risk and
uncertainty.
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Predicting the Next New Thing
2-25
 Deciding which innovations to adopt is very
difficult.
 Diffusion of
Innovations

Classic view
of adoption of
innovations
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The Innovator’s Dilemma
2-26
 Disruptive innovations
 New technologies, products, or services that
eventually surpass dominant technologies
Online vs. brick-and-mortar retailing
 Automobiles vs. horses
 CDs vs. records
 MP3 vs. CDs


Undermine effective management practices
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Disruptive Innovations
2-27
 1970s:
mid- and highperformance
users were bulk
of the market
 Digital
Equipment
Company (DEC)
tried to sell to
those markets
 Microcomputers
seen as “toys”
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Disruptive Innovations (cont’d)
2-28
 1980s:
Microcomputers
focusing on lowperformance
users’ needs
 Ignored by DEC
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Disruptive Innovations (cont’d)
2-29
 1990s:
Growing
performance of
Microcomputers,
meeting midperformance
users’ needs
 DEC lost biggest
market segment
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Disruptive Innovations (cont’d)
2-30
 Today, micro-
computers
meeting entire
market’s needs
 DEC out of
business
 Next disruptive
innovation: 3G
and 4G mobile
phones?
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The Innovator’s Solution
2-31

Christensen outlines a process—disruptive growth
engine—that helps organizations respond to
disruptive innovations more effectively.
1.
2.
3.
4.
Start early.
Executive leadership.
Build a team of expert innovators.
Educate the organization.
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Implementing the Innovation Process
2-32
 E-Business
Innovation
Cycle

The key to
success is the
extent of IS use
in timely and
innovative
ways.
Based on: Wheeler (2002)
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E-Business Innovation Cycle
2-33
Choosing Enabling/Emerging Technologies
 Process/ group
devoted to
looking for
emerging IT
Based on: Wheeler (2002)
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E-Business Innovation Cycle (cont’d)
2-34
Matching Technologies to Opportunities
 Most promising
new technology
matched with
current
economic
opportunities
Based on: Wheeler (2002)
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E-Business Innovation Cycle (cont’d)
2-35
Executing Business Innovation for Growth
 Stage at which
the change is
actually
implemented
Based on: Wheeler (2002)
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E-Business Innovation Cycle (cont’d)
2-36
Assessing Value
 Value created
for customers
and internal
operations
assessed
Based on: Wheeler (2002)
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Three Ways to Think About Investments in
Disruptive Innovations
2-37
 Put technology ahead of strategy.
 Technology is so important to success, it needs to be
considered first.
 Strategy is developed afterwards.
 Put technology ahead of marketing.
 Rapid development of technology makes it impossible
for people to know what they want.
 Innovation is continuous.
 New technologies are constantly being developed.
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Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall
7/13/2017
Learning Objectives
2-38
1. Discuss how information systems can be used for
automation, organizational learning, and strategic
advantage.
2. Describe international business and IS strategies
used by companies operating in the digital world.
3. Explain why and how companies are continually
looking for innovative ways to use information systems
for competitive advantage.
4. Describe freeconomics and how organizations can
leverage digital technologies to provide free goods and
services to customers as a business strategy for gaining
a competitive advantage.
IS Today (Valacich & Schneider) 5/e
Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall
7/13/2017
Question?
 How many of you would take a free smartphone,
both the phone and no cost monthly service, if all
you had to do was put up with a few advertisements?
Free smartphone and free service
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Freeconomics
2-40
 Freeconomics—The leveraging of digital technologies
to provide free goods and services to customers as a
business strategy for gaining competitive advantage.
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How Does Freeconomics Work (for Yahoo!)
2-41
 Price is set by a
product/service’s
marginal costs.
 Marginal costs for
digital services
decrease
tremendously.
 Yahoo! makes
millions with free
e-mail service (by
placing ads).
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The Freeconomic Value Proposition
2-42
 Someone, somewhere is paying for a services.
 Value proposition includes more than just buyers
and sellers.

Advertisers (see Google)
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Approaches for Applying Freeconomics
2-43
 Advertising
 Freemium
 Cross-Subsidies
 Zero Marginal
Cost
 Labor Exchange
 Gift Economy
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