MIS 6413 Chapter 1

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MIS 6413 Chapter 1
Creating Business Advantage with IT

• Dr. Richard Segall
• Fall 2005

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Agenda

• I. Frameworks for Analyzing IT Impact pp.29-33
• II. Impact of IT on Strategic Decision Making
  pp.34-43

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I. Frameworks for Analyzing IT

• Many perspectives can be used to view
  organizational competition and strategy
• 1. Value Chain Analysis (p.29-32)
• 2. Industry and Competitive Analysis (p.32-33)
• 3. Strategic Grid Analysis (p.33)

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1. Value Chain Analysis

• A value chain is the series of activities
  performed to create the value for which customers
  pay.
• Initially looked at only internal operations of
  firm.
• Analysis now includes whole industry, industry
  value chain.

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1. Value Chain Analysis

• Supply Chain Management (SCM) addresses the
  linkages along the firms value chain.
• Ensures accurate and timely information.
• Reduces time needed to process orders.
• Reduces inventory carrying costs.

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Supply Chain The Extended Enterprise
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Automotive Service Parts Supply Chain
Shaw et al, 2003
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Knowledge Hierarchy
Actionability
Knowledge
Information
Data
Abundance
Nissen, 2001
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Data vs. Information vs. Knowledge

• Data is unorganized bits with no apparent meaning
• SINBKI70815
• Information is eminently descriptive, and can be
  used for decision making
• Knowledge is eminently associative, and
  actionable
• Knowledge is information used for decision making
  in an unknown context

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Information Knowledge Transfer in a Supply Chain
Knowledge
Shaw et al, 2003
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Knowledge vs. Information
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Problem Definition

• Automotive service parts replenishment
• Objective is to maximize net profit
• Costs include ordering and inventory with
  promotions that motivate forward buys
• Problem constrained by high customer service
  target and inventory investment cap
• Demand is uncertain, non-stationary and
  influenced by demand altering events

Shaw et al, 2003
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Knowledge in the Automotive Service Parts Problem

• New parts
• Expected peak demand
• Length of the life cycle
• Proclivity for obsolescence, high rate of early
  failure, recall, and other demand altering
  events

• All parts
• Stage in the life cycle
• Uncertainty in demand
• Desired service level
• Service shop schedules
• Stock levels at depots
• Service bulletins

Shaw et al, 2003
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Additional Complications

• Data for making the decision is scattered
• Data are in non-standard formats
• Decisional implications of the parts promotional
  data are non-obvious and require decision support

Shaw et al, 2003
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Decision Process
Management
Management
Management and Parts Manager
Parts Mgr
Automated Process
Total Inv Value Aging Ratios CSI Profitability
1 Million None of 6 Months Regional Average
Shaw et al, 2003
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Decision Process
Parts Mgr
Parts Mgr
Parts Mgr
UCS
UCS
Add new parts Increase Order Decrease Order
Days Sales History D O Supply
By Vendor By Promotion
Shaw et al, 2003
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2. Industry Competitive Analysis ICA (pp.
32-33)

• Porters ICA framework postulates that ECONOMIC
  COMPETITIVE FORCES in an INDUSTRY are the result
  of FIVE 95) basic forces. See next slide!
• Porters 3 generic strategies for achieving
  proprietary advantage within an industry
• 1. Cost leadership (Should we lower cost?)
• 2. Differentiation (Should we differentiate our
  products services?)
• 3. Focus.(Should we target a broad or narrow
  market?)

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2. Porters Five-Forces Model (p.32)

• Suppliers bargaining Power
• Buyers bargaining power
• Threat of new entrants
• Threat of substitute products
• Positioning of traditional intra-industry rivals

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3. Strategic Grid Analysis (p.33)

• McFarland Strategic Grid of Figure 1.6 on page
  34
• Vertical axis The impact of IT on OPERATIONS.
• Horizontal axis The impact of IT on STRATEGY.

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II. Analyzing the Impact of IT on Strategic
Decision Making

• Pages 34-43.

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Questions for Assessing Potential Impact of I/T
on Strategy

• 1. Can I/T change the basis of competition?
• 2. Can I/T change the balance of power in
  supplier relationship?
• 3. Can I/T build or reduce barriers to entry?
• 4. Can I/T change switching costs?
• 5. Can I/T generate new products?

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1. Competitive Vulnerabilities

• I/T can create competitive vulnerabilities that
  are difficult to address.
• Airline reservation systems
• Travel agents and the Internet
• Two strategies for addressing competitive
  vulnerabilities.
• Positioning I/T in the organization
• Managing emerging technologies

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2. Product Differentiation

• Offer perceived improvements and/or
  consolidations in products and/or services for
  which customers are willing to pay more.
• Develop a product that can be easily
  distinguished from competitors and cant be
  duplicated.
• Citibank ATM
• Levis Jeans

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3. Can IT Build Barriers to Entry?

• Become a first mover
• American Airlines Sabre System
• Citibank ATMs
• Amazon

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3. Generic Competitive Strategies

• Low cost producer
• Product differentiation change the basis of
  competition
• Obtain a market niche
• Lock in customers or suppliers build in
  switching costs

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4. Low Cost Producer

• Lower internal costs so retail prices can be
  lower
• Operate in such a way that costs are
  significantly lower than those of competitors
• Walmart Supply Chain

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4. Lock in Customers or Suppliers

• Raise switching costs so it would be difficult to
  move to a competitor.
• Baxter Hospital Supply and Hospitals

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5. Obtain a Market Niche

• Concentrate on a subset of customers that
  competitors are not servicing adequately.
• Look for target customers
• What if you were a baby formula producer?