1 1 Chapter 2. Strategic Use of Information Resources Jason C. H. Chen, Ph.D. Professor of MIS School of Business Administration Gonzaga University Spokane, WA 99258 [email protected]John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices File name on your group work • Please name your group files as follows: • mbacup-G1-Swimming in the VCPool with PlentyofFish (.pptx or .docx) • Other group, please change G1 to your designated group#. John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 3 Learning Objectives • List the identifying factors of the eras of information usage. • Know what makes an information resource valuable. • Explain how information resources are used strategically in context of the 5-forces model. • Understand how information resources can be used to alter the value chain. • Explain the importance of strategic alliances. • Know the risks of information resources. John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Real World Example • Zara aligns its __________________ strategy with its _________ strategy. • The system links demand to manufacturing and distribution. • Customers visit up to 17 times per year to check on new items that may have arrived. • Limited products lead customers to immediately purchase products they like. • Zara’s business strategy leads to a loyal and satisfied customer base. information system business John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Real World Example (Cont.) • The POS system sends daily updates to Zara’s headquarters. • Managers report to designers what sold and what customers wanted but couldn’t find. • The ___________ is used to determine inventory management. • New designs can be ordered twice a week. • The entire process is automated so that new designs and products can be created quickly. • Zara uses its ___________ resources to sustain its advantages over competitors information information John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 6 Discussion Questions • Q4 • It has been said that there are no sustainable competitive advantages can be gained from IT other than the capability of the IT organization itself. Do you agree or disagree? Defend your position. • As the chapter discusses, sustainable advantage is hard to come by. Just about any advantage gained by a company seems to be copied by another at some point in the future.
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1
1
Chapter 2.
Strategic Use of Information
Resources
Jason C. H. Chen, Ph.D.
Professor of MIS
School of Business Administration
Gonzaga University
Spokane, WA 99258
[email protected] John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
File name on your group work
• Please name your group files as follows:
• mbacup-G1-Swimming in the VCPool with
PlentyofFish (.pptx or .docx)
• Other group, please change G1 to your
designated group#.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 3
Learning Objectives
• List the identifying factors of the eras of information
usage.
• Know what makes an information resource valuable.
• Explain how information resources are used
strategically in context of the 5-forces model.
• Understand how information resources can be used to
alter the value chain.
• Explain the importance of strategic alliances.
• Know the risks of information resources.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Real World Example
• Zara aligns its __________________ strategy
with its _________ strategy.
• The system links demand to manufacturing
and distribution.
• Customers visit up to 17 times per year to
check on new items that may have arrived.
• Limited products lead customers to
immediately purchase products they like.
• Zara’s business strategy leads to a loyal and
satisfied customer base.
information system
business
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Real World Example (Cont.)
• The POS system sends daily updates to Zara’s
headquarters.
• Managers report to designers what sold and what
customers wanted but couldn’t find.
• The ___________ is used to determine inventory
management.
• New designs can be ordered twice a week.
• The entire process is automated so that new
designs and products can be created quickly.
• Zara uses its ___________ resources to sustain its
advantages over competitors
information
information
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 6
Discussion Questions
• Q4
• It has been said that there are no sustainable
competitive advantages can be gained from IT
other than the capability of the IT organization
itself. Do you agree or disagree? Defend your
position.
• As the chapter discusses, sustainable advantage
is hard to come by. Just about any advantage
gained by a company seems to be copied by
another at some point in the future.
2
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 7
Discussion Questions - Answer
• Those who agree (i.e., IT does not provide S.A.) with this statement might argue that even the capability of the IT organization is not a sustainable advantage because people come and go, they can be bought by another organization as a move to create the capability elsewhere, and their skills and knowledge atrophy over time, when new capabilities arise. Witness IT organizations who excelled at managing mainframe applications, who are now struggling to keep up with web-based applications.
• Those who disagree (i.e., IT provides S.A.) with this statement might argue that the key to sustaining any advantage comes from the way all business resources are organized and used, and ultimately that comes down to how the managers and the people are able to perform.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 8
What is the
“Competitive Advantage”?
• A competitive advantage is a benefit derived from
something a company does or has that its customers
want and its competitors cannot (or choose not to)
match.
• If a company can sustain its competitive advantage,
the company will succeed in its industry – how?
• Two types of people lead a company to succeed
– Those know how to innovate the enterprise
– Those know how to execute their strategy onto the
enterprise using IS/IT.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
9
Sustainable Competitive Advantages
• Any sustainable competitive advantages?
• How can an organization sustain its competitive advantage?
• Firms may create/improve their competitive advantages only if they:
– have ________ to learn,
– employ ________ _________ approach • With the service economy accounting for over 70 percent of GDP in
OECD (Organization for Economic Co-operation and Development) countries, service firms are becoming increasingly competitive with revenue management (RM) and pricing becoming central in their focus for sustaining long term profitability (and competitive advantage).
–
capacity
revenue management
learning to learn and learning to change (life-long learning environment)
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Co-Creating IT and Business Strategy
• Information is increasingly a core component of the
product or service offered by the firm.
• IT strategy is ________ strategy – they cannot be
created without each other.
• Some company’s main product is information
(financial services).
• Q: Is FedEx is a package delivering company?
– Y/N (and Why?)
– FedEx can not function without ____ even though
they are primarily a package delivering company.
• Other companies such as Walmart, UPS, or Zipcar
business
IT
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 11
What is Business 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.
Source: E-Commerce: business, technology, society, Laudon and Traver, A/W N
• The business model is at the center of the business plan.
• An e-commerce business model aims to use and leverage the unique qualities of the Internet and the www.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 12
Why New Models?
• We need some new models
– for how we go about exploring IT for
competitive advantage,
– for IT infrastructure how we create it and
manage it
– for how we acquire, manage and deploy the
skills that are needed to run that infrastructure
N
– Profitability (making money)
3
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Business Model vs.
Revenue Model
• Business model is the architectural configuration of
the components of transactions designed to exploit
business opportunities.
N
• Revenue model refers to “the _______ ways in
which a business model enables revenue
___________.”
• Revenue mechanism is a key component of the
business model because it provides a sustainable
financial source for the business’ effort of innovation
(Afuah, 2004).
specific
generation
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Business Model Revenue Model
Value _________ Value ____________
It describes the way in
which a company
enables transactions
that create value for
all participants,
including partners,
suppliers and
customers.
It can be realized through a
combination of
- subscription fees,
- advertising fees,
- transactional income
(e.g., fixed transactional
fees, referral fees,
fixed/variable commissions,
etc)
Business vs. Revenue Model
creation appropriation
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Revenue Management
• If you are interested in
the issues of RM
• International Journal of
Revenue Management
• http://www.inderscience.
com/ijrm
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 16
EVOLUTION OF INFORMATION
RESOURCES
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Evolution Of Information Resources
• IS strategy from the 1960s to the 1990s was
driven by internal organizational needs
– Lower existing transaction costs
– Provide support for managers by collecting and distributing
information
– Redesign business processes
• In the 2010 era IS strategy was driven by
______ IT platforms and new capabilities
– A new evolution of applications, processes, and strategic
opportunities
social
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 18
Information Resources
• The term information resources is defined as the available data, technology, people, and processes available to perform business processes and tasks.
• Organizations have moved from an “_______ model” of the 1960’s to a “______ creation and ______ business model” of the 2010’s.
• Companies seek to utilize those technologies that give them competitive advantage.
• Maximizing the effectiveness of the firm’s business strategy requires the general manager to identify and use information resources.
• Figure 2.1 shows this change.
efficiency value social
4
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Era I
1960s
Era II
1970s
Era III
1980s
Era IV
1990s
Era V
2000+
Era VI
2010+
Primary
role of IT Efficiency
Automate
existing
paper-based
processes
Effectiveness
Solve problems
and create
opportunities
Strategic
Increase
individual
and group
effectiveness
Strategic
Transform
industry/
organization
___________
Create
collaborative
partnerships
____________
Community
and social
business
Justify IT
expenditures
ROI Increasing
productivity
and better
decision quality
Competitive
position
Competitive
position
Adding value Creating
relationships
Target of
systems
Organization
Organization/
group
Individual
manager/
group
Business
processes
ecosystem
Customer/
supplier
ecosystem
Customer/
employee
supplier
ecosystem
Information
models
Application
specific
Data driven User driven Business driven Knowledge
driven
People driven (or
relationship
driven)
Dominate
technology Mainframe,
“centralized
intelligence”
Minicomputer,
Mostly
“centralized
intelligence”
Microcomputer,
“decentralized
intelligence”
Client Server,
“distributed
intelligence”
Internet, global
“ubiquitous
intelligence”
Social platforms,
Social networks,
mobile, cloud
Basis of
value Scarcity Scarcity Scarcity Plentitude Plentitude Plentitude
Underlying
economics
Economics of
information
bundled with
economics of
things
Economics of
information
bundled with
economics of
things
Economics of
information
bundled with
economics of
things
Economics of
information
separated
from
economics of
things
Economics of
information
separated
from
economics of
things
Economics of
relationships
bundled with
economics of
information
Value creation
Figure 2.1 – Mission statements of computer companies
Value creation
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Figure 2.2 Information Resources
Type of Information Resource Definition Example
Anything that can be used by a firm in its processes for creating, producing
and/or offering its products (goods or services)
- IS infrastructure Base foundation of the IT portfolio
shared through the firm
Hardware, software, network, data components,
proprietary technology, web-based services
- Information repository Data that is logically related and
organized in a structured form
accessible and able for decision
making purposes.
Critical information about customers that can be
used to gain strategic advantage. Much of this
information is increasingly available on the
web.
Something that is learned or developed over time in order for the firm to
create, produce or offer it products in IT assets
- Technical skill Ability applied to designing,
developing and implementing
information systems
Proficiency in systems analysis and design;
programming skills
- IT management skills Ability to managing IT function and
IT projects
Being knowledgeable about business processes
and managing systems to support them;
evaluating technology options; envisioning
creative IS solutions to business problems
- Relationship skills Ability of IS specialists to work with
parties outside the IS department.
Spanning: having a good relationship between
IT and business managers
Externally-forced: have a good relationship
with an outsourcing vendor
_________
_________
IT Asset
IT Capability
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Advantages of Information Resource
• Information resource appropriation:
– Determining where a resource’s value lies and how it can be
improved in a firm’s favor.
– The attributes of information resources that impact the value
make it possible to create and sustain competitive advantage
(i.e. Zara).
• Information resource distribution across firms:
– Early adopters may experience a competitive advantage from
using an information resource. (______________Advantage)
– The experience gained may lead to inequities between firms.
– Different experiences with a resource creates value, and a
create strategic advantage.
First Mover
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Advantages of Information Resource (Cont.)
• Mobility of Information resource:
– Reliance on the individual skills of IT professional
– Risky as key individuals will leave the firm, taking their
experience with them.
– Development of unique knowledge-sharing processes, and
creation of an organizational memory.
• Then
– Q: How and what do we need to sustain organization’s
competitive advantage in terms of using information
resource (software)?
– A: _________________________________
Business Intelligence (e.g.,
Knowledge Management Systems)
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 23
Network Externalities
• Definition - The phenomenon whereby a service becomes more valuable as ______ people use it, thereby encouraging ever-increasing numbers of adopters.
– Network _______
• While the word-of-mouth method is often more influential in the beginning, analysis may play a significant role later in the cycle. In other words, you may adopt a service initially because someone you know uses it; later, you may adopt a service because "everyone" uses.
– IT Role?
– Network Externality offers a reason for value derived from plentitude (Eras IV, V & VI)
more
effects
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 24
Virtual Companies (Portable Computing)
A Virtual Company is an Organization composed of several Business Partners that Uses
Information ___________ to ___________ People, Assets, Ideas, Costs, and Resources
for the purpose of producing a product or service.
Technology Link/Share
Virtual Companies are Adaptable and Opportunity- Exploiting Organizations Providing World-Class
Excellence in Their Competencies and Technologies.
5
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 25
Characteristics of Virtual Companies
Borderless
Opportunism
Adaptability
Trust-Based
Excellence
Technology
Six Characteristics
of Virtual Companies
N John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
26
HOW CAN INFORMATION
RESOURCES BE USED
STRATEGICALLY?
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 27
Striving for Competitive Advantage
• ______ level: Industry & Competitive
Analysis
– Competitive Forces Model
– Competitive Strategy
– D’Aveni’s Hypercompetition Model (7-Ss)
• _______ level
– Value-Chain Analysis
Firm
Business
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 28
Porter’s Five Forces Model
• According to Porter, there are five competitive
forces in any industry, and the attractiveness of the
industry depends on the strength of each force.
• Under the perspective of market structure, Porter’s
competitive forces model has been broadly adopted
as the underpinning for investigating the effect of
information technology on the relationships
between suppliers, customers, and other potential
threats.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 29
PORTER’S FIVE COMPETITIVE
FORCES MODEL
THE FIRM INDUSTRY
COMPETITORS
NEW
MARKET
ENTRANTS
SUPPLIERS
SUBSTITUTE
PRODUCTS
& SERVICES
CUSTOMERS
Threats
Bargaining power
N Dr. Chen, The Trends of the Information Systems Technology TM -29
•Switching cost •Access to distribution channels •Economies of scale
•Redefine products and services •Improve price/performance
•Selection of suppler •Threat of backward integration
Other forces should be considered in the e-Age: 1. Digitalization 2. Globalization 3. Deregulation/ liberalization
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 33
Porter’s Value Chain Model
• The value chain model highlights specific activities (i.e. create, deliver, and support a company’s product or service) in the business where competitive strategies can be best applied and where information systems are most likely to have a strategic impact.
• Therefore, the value chain model can be employed to identify specific, critical leverage points where a firm can use IT most effectively to enhance its competitive position.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 34
(Value)
N
Figure 2.5 Process View of the Firm: The Value Chain
Two broad categories:
Primary activities – relate directly to the value created in a product or service.
Support activities – make it possible for the primary activities to exist and remain coordinated
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 35
The Value System (Fig 2.6)
• Value chain analysis can be extended beyond the company to include other firms in the industry, such as suppliers and customers, in a “value system” analysis.
• Much of the advantage of supply chain management comes from understanding how information is used within each value chain of the system.
• This can lead to the formation of entire new businesses designed to change the information component of value-added activities.
N John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
36
Figure 2.6: The Value System: Interconnecting relationships between organizations
Upstream
value
Firm
value
Downstream
value
N
7
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
New Forces in Today’s Economy • Overcapacity and hypercompetition.
– Overcapacity is 25% pharmaceuticals, 30% chemicals, 35% automobiles
– Leads to falling prices and margins, mergers, and company failures
• Ascendant power of customers. – Customer shortage – Price transparency
• Ascendant power of distributors over
manufacturers.
• Growth of digitalization and the Internet as major sources of efficiency and profitability.
• Proliferation of channels and media.
• Globalization and global interdependence. John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Customer
centric
______ are the customers?
_______are the customers?
Their __________ habits.
What they need/want?
How many they need/want?
When they need/want?
How to reach them?
Demands Products
E-BUSINESS
BUSINESS FOCUS
•SCM
•CRM
•BPR
•ERP
Who
Where purchasing
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
WHY CRM?
• In this competitive age when product differentiation is difficult, CRM is one of the most valuable assets a company can acquire.
• The sooner a company embraces CRM the better off it will be and the harder it will be for competitors to steal loyal and devoted customers.
• CRM is more than just “Marketing” (what else?)
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
CUSTOMER RELATIONSHIP
MANAGEMENT’S EXPLOSIVE GROWTH
CRM Business Drivers
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
BASICS OF SUPPLY CHAIN
• Organizations must embrace technologies that can
effectively manage supply chains
Involvement
(integration) John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
FIVE BASIC SUPPLY CHAIN
MANAGEMENT COMPONENTS
Plan Deliver Source Make Return
8
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
INFORMATION TECHNOLOGY’S
ROLE IN THE SUPPLY CHAIN
• IT’s primary role is to create integrations or tight process and
information linkages between functions within a firm
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 44
Information Resources Strategy:
The Strategic Landscape
• Managers confront elements that influence the
competitive environment.
• Slim tolerance for error requires managers take
multiple view of the strategic landscape, such as:
– First view - Porter’s five competitive forces
model.
– Second view - Porter’s value chain.
– Third view
• focuses on the types of IS resources needed (Resource-
Based View).
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
45
The Resource-Based View
• The Resource-Based View (RBV) looks at gaining competitive advantage through the use of information resources.
– Determining whether a firm’s strategy has created _____ .
• Two subsets of information resources have been identified:
– Those that enable firms to ______ competitive advantage (initially rare and valuable resources were the communities many companies implemented using social IT. )
– Those that enable firms to ______ competitive advantage over the long-term (resources must be difficult to transfer or relatively immobile and need to continue to innovate and to protect against resource imitation, substitution, or transfer.)
attain
sustain
value
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 46
Porter’s Model/Value
Chain
Resource-Based
View (RBV)
Competitive
Advantage
(CA)
Argues that aspects of the
firm’s industry create
sources of CA.
Maintains that CA
comes from the
information and other
resources at the firm
Focus (what
adds value to
the firm)
Firm’s activities _________ that firm
can manage and create
value
Porter’s Model vs. Resource-Based View
Resources
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Social Capital Theory
• Social capital
– is the sum of the actual and potential resources embedded within,
available through, and derived from the network of relationships
possessed by an individual or social unit.
– The focus on the theory is not on managing individuals, but rather
managing relationships.
• The value from networks may be derived in one of three
interrelated ways
– structural: pattern of relationships in the network (who is connected
to whom)
– relational: nature of relationships among members in the network
(how do connected people interact)
– cognitive: the way people think about things in the network (how do
the connected people think).
47 John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
48
• More to be discussed on the topic of
“Strategic IT Resources”
9
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 49
STRATEGIC ALLIANCES
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Strategic Alliances
• An interorganizational relationship that affords one or
more companies in the relationship a strategic
advantage.
– E.g., the alliance between Zynga and Facebook helped Zynga
benefit from the revenue resulting from its gamers on
Facebook community.
• IS can be the platform upon which a strategic alliance
functions.
– E.g., The alliance between Delta and e-Travel helped Delta
reduce agency reservation fees and offered e-Travel new
corporate leads.
• Linking value chains through SCM is another way
firms build an IT-facilitated strategic alliance.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 51
Aligning IS strategy with Business
Strategy
• Using multiple approaches to evaluating the strategic landscape is helpful in determining strategic opportunities.
• Here, we look at three such approaches:
– Porter’s five forces model of the competitive advantage of firms
– Porter’s value chain model of internal organizational operations
– and strategic option generator (results in nine possible major options to secure a competitive advantage)
N
Wiseman’s theory of strategic thrusts
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 52
Wiseman’s theory of strategic thrusts
and strategic option generator
1. What is our strategic target?
2. What strategic thrust can be used against the target?
3. What strategic mode can be used?
offensive or defensive
4. What direction of thrust can be used? usage or provision
5. What IS skills can we use?
processing/storage/transmission
Suppliers Customers Competitors
Differen-
tiation
Cost
Innovation
I. Major options to secure a
competitive advantage II. Option Generator
Results in nine possible major options
to secure a competitive advantage.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Types of Strategic Alliances
• ____________: a new strategy whereby companies
cooperate and compete at the same time with companies
in their value net.
– Co-opetition is the strategy for creating the best possible
outcome for a business by optimally combining competition
and cooperation.
– e.g, Covisint and General Motors, Ford, and DaimlerChrysler.
• Value net includes a company and its competitors and
complementors, as well as its customers and suppliers,
and the interactions among all of them.
– Complementor is a company whose product or service is
used in conjunction with a particular product or service to
make a more useful set for the customer.
Co-opetition
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 54
Summary of Key Strategy Frameworks
Framework Key Idea Usefulness in Information Systems
Discussions
Porter’s generic
strategies
framework
Firms achieve
competitive advantage
through cost leadership,
differentiation, or
focus.
Understanding which strategy is chosen
by a firm is critical to choosing IS to
complement that strategy.
D’Aveni’s
hypercompetition
model
Speed and aggressive
moves and counter-
moves by a firm
create
competitive advantage.
The 7-S’s give the manager suggestions
on what moves and counter moves to
make and IS are critical to achieve the
speed needed for these moves.
Brandenberg and
Nalebuff’s
co-opetition model
Companies cooperate
and compete at the
same time.
Being cooperative and competitive at the
same time requires IS that can manage
these two roles.
10
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Social Capital Theory
• Social capital
– is the sum of the actual and potential resources embedded within,
available through, and derived from the network of relationships
possessed by an individual or social unit.
– The focus on the theory is not on managing individuals, but
rather managing _____________.
• The value from networks may be derived in one of
three interrelated ways
– _________: pattern of relationships in the network (who is
connected to whom)
– _________: nature of relationships among members in the
network (how do connected people interact)
– ________: the way people think about things in the network (how
do the connected people think). 55
structural
relational
cognitive
relationships
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Co-Creating IT and Business Strategy
• Information is increasingly a core component of the
product or service offered by the firm.
• IT strategy is ________ strategy – they cannot be
created without each other.
• Some company’s main product is information
(financial services).
• Is FedEx is a package delivering company?
– Y/N (and Why?)
– FedEx can not function without ____ even though
they are primarily a package delivering company.
business
IT
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 57
-10 -5 0 5 10
0
50
100
150
200
250
300
Time of market introduction relative to competition (months)
Pro
fits
rela
tive t
o c
om
peti
tio
ns (
%)
Relationship between profits and time
of market introduction
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 58
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 59
When to Perform Activities
• First Movers
Advantages
• Build brand recognition
• Control scarce resources
• Establish networks
• Early Economies-of-Scale
Disadvantages
• Newer technology
• Higher development costs
• Reverse engineering by
competitors
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 60 Copyright 2010 John Wiley & Sons, Inc. 60
RISKS
11
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Potential Risks
There are many potential risks that a firm faces when attempting to use IT to outpace their competition.
• Awakening a sleeping giant – a large competitor with deeper pockets may be nudged into implementing IS with even better features
• Demonstrating bad timing – sometimes customers are not ready to use the technology designed to gain strategic advantage
• Implementing IS poorly – information systems that fail because they are poorly implemented
• Failing to deliver what users want – systems that don’t meet the firm’s target market likely to fail
• Web-based alternative removes advantages – consider risk of losing any advantage obtained by an information resource that later becomes available as a service on the web
• Running afoul of the law – Using IS strategically may promote litigation if the IS results in the violation of laws or regulations.
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62
Summary • Using IS for strategic advantage requires more than
just knowing the technology.
• Remember that not just the local competition is a
factor in success but the 5 competitive forces model
reminds us of other issues.
• Value chain analysis show us how IS add value to the
primary activity of a business.
• Know the risks associated with using IS to gain
strategic advantage.
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End of Chapter 2
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 64
Mini Case 2-2: ZIPCAR
• This is an interesting, short case about how
a new type of rental car company is able to
operate in a completely new business
model, as compared to other rental car
companies, and embrace Web 2.0
technologies to gain further competitive
advantage.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Questions
1. Analyze the business model of Zipcar using Information
Systems Strategy Triangle.
2. Discuss the synergy between the business strategy of
Zipcar and information technology.
3. Are there any network externalities in the workings of
Zipcar? If so, do they add value? How?
4. As the CEO of Zipcar, what would you do to sustain a competitive advantage?
5. Is the ZIPCAR case related to “Hypercompetition
Model”? What are they (in terms of 7S)?
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66
1. Analyze the business model of Zipcar using Information Systems Strategy Triangle.
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John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Information System Strategy Triangle
Business (Firm)
Strategy
Organizational Strategy IS/IT Strategy
N
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Information System Strategy Triangle for
ZIP CAR
Business (Firm)
Strategy
Organizational Strategy IS/IT Strategy
N
1. Innovation (w/ new business model)
2. New Market and Revenue Increase
1. Small staff with little
human interaction
2. Online community
(Zipsters )
3. E-Business organization (Car reservations were for a
specific pick up time and
location around the city, often
in neighborhoods)
1. Internet
2. Wireless and Social
Networking technologies
(e.g., RFID, GPS, and
Zipsters)
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
2. Discuss the synergy between the business strategy of Zipcar and information technology.
• Ans: There is tremendous synergy between Zipcars business and IT strategy.
• Zipcar is heavily dependent upon an automated process, and supports social networking of its clients, so that they can freely provide feedback on the company and its products and services.
• IT was not only the key enabler of this business strategy (e.g., business model) but also was a facilitator in creating a buzz and encouraging community development around the concept
• IT completely supports what Zipcar is trying to accomplish.
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3. Are there any network externalities in the workings of Zipcar? If so, do they add value? How?
• Through their use of social networking they provide value to the customer by providing an open exchange of ideas, and feedback to Zipcar.
• Network Externalities: Definition - The phenomenon whereby a service becomes more valuable as more people use it, thereby encouraging ever-increasing numbers of adopters.
– Network effects
• While the word-of-mouth method is often more influential in the beginning, analysis may play a significant role later in the cycle. In other words, you may adopt a service initially because someone you know uses it; later, you may adopt a service because "everyone" uses.
– IT Role?
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4. As the CEO of Zipcar, what would you do to sustain a competitive advantage?
• Continue to innovate through the use of IT and by listening to customer feedback on the social network sites. Look for strategic partnerships with suppliers or other potential providers of services that Zipcar could leverage to improve its service or add extra value.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices