Managing Information Systems For Strategic Advantage (Part 1)

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Managing InformationSystems For Strategic
Advantage (Part 1)
(Week 11, Thursday 11/2/2006)
BUS3500 - Abdou Illia, Fall 2006
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LEARNING GOALS

• Explain Value Chain and Value Chain Analysis.
• Explain how IS can support Value Chain
  activities.
• Explain Competitive Forces and Porters
  Competitive Forces Model.
• Explain how IS can help dealing with Competitive
  Forces issues.

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Value Chain?
Purchase Price Added Value Profit Margin
Sales Price
Internal Business Processes
Suppliers
Customers
Q1 Which internal processes are directly related
to getting raw materials and transforming
them into something of greater value?
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Types of processes in Value Chain

• Business processes directly related to
• getting raw materials
• transforming raw material into something of
  greater value.
• Business processes that
• support Value Chain activities
• but do not directly add value to a product.

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Inbound logistics Receiving, warehousing raw
materialsOperations Actual conversion of raw
material into finished productsOutbound
logistics Getting the finished products to the
customersMarketing Sales Getting the
customers buy the productsService Keeping
products work after purchase Check Business
Knowledge Center or 12Manage for more on Porters
framework
Q2 In a Value Chain, primary activities include
functions such as Accounting T FQ3 The
cost of implementing and managing IS is part of
the value chain T F
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Porters Value Chain Analysis tool

• A tool for analyzing internal business activities
  that bring products and services to market
• A process of analyzing the activities within an
  organizations value chain
• Companies could gain strategic advantages by
  focusing on a particular portion of the value
  chain
• IT can help reduce the costs of these processes,
  thus increasing profit margins

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Information Systems and Value Chain

• Dell Computer Corporation gained a strategic
  advantage over its competitors by using IS in
  performing a specific activity of Porters Value
  Chain . Dell used and still uses a system called
  Just-In-Time (JIT) Inventory. JIT allows Dell to
  stock only small amounts of raw materials used to
  build computers. With JIT, the small amounts are
  automatically restocked when the levels drop
  below a predetermined amount. JIT allows Dell to
  keep less than 6 days of inventory in hand while
  most of its competitors stock more than 30 days
  of inventory. Therefore, Dell dramatically
  reduced its warehousing costs and better managed
  its cash flow.
• What Value Chain activity does Dell focused on to
  gain a strategic advantage over its competitors?
• What kind of Business integration system is JIT?

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Information Systems and Value Chain

• What kind of Business Integration system could
  help performing these Value Chain activities?

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Porters Competitive Forces ModelDealing with
external factors
Industry Competition Rivalry within the
industryNew Entrants Potential competitors.
E.g. IBM could decide to use Dells direct
selling modelSuppliers Bargaining power of
suppliers. The more suppliers, the less their
bargaining powerCustomers Bargaining power of
customers. Individual has less bargaining power
than corporations.Substitutes Potential for
substitute products to undercut our market share.
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Porters Competitive Forces Model

• Five components
• Level of competition in industry
• Threat of new entrants into industry
• Bargaining power of customers
• Bargaining power of suppliers
• Threat of substitute products
• Uses for CFM
• Determine companys own position within industry
• Identify competitive forces and threats early
• Analyze industries and market segments to
  determine their future prospects
• Possible strategic decisions based on CFM use
• Begin producing substitute product
• Exit a declining market segment

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Information Systems and Competitive Forces

• How can information systems change the way an
  organization reacts to its competitive forces?
• By changing the bargain power of suppliers
• By building closer ties with customers
• By increasing or decreasing barriers to entry in
  a market

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Information Systems and Competitive Forces

• What kind of Business Integration system could
  help dealing with these Competitive Forces
  issues?
• Changing the bargain power of suppliers
• Building closer ties with customers
• Increasing barriers to entry in a market

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Summary Questions