l5 - Strategic Use of It

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STRATEGIC USE OF

INFORMATION TECHNOLOGY


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HOW I T SUPPORTS BUSINESSACTIVITIES

Porter & Millers concept ofvalue chainhelps explain which business activitiescan be analyzed and transformed

through the use of informationtechnology

The value chain divides the companies

activities into value activities, thedistinct activities it must perform to dobusiness

Value activities consist ofprimary


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PRIMARY & SUPPORTACTIVITIES

Primary activities include inboundlogistics, operations, outbound logistics,marketing and service

Inbound

Logistics

Materialshandling

Delivery

Operations

Manu-

facturing

Parts

assembly

Out-bound

Logistics

Order

processing,

Shipping

Marketing

And Sales

Advertising

promotion

Service

Service

repair

PRIMARY ACTIVITIES

Eg: Manufacturing Organization


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PRIMARY & SUPPORTACTIVITIES

Support activities include the resourcesthat support the primary activities of thebusiness

Organization

Human resources

Technology

Purchasing

SUPPORT ACTIVITIES


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Organization

Human resources

Technology

Purchasing

Inbound

Logistics

Materialshandling

Delivery

Operations

Manu-

facturing

Parts

assembly

Out-bound

Logistics

Order

processing,

Shipping

Marketing

And Sales

Advertising

promotion

Service

Service

repair

SUPPORT ACTIVITIES

PRIMARY ACTIVITIES


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Supplier

ValueChain(s)

Firm

ValueChain(s)

Channel

ValueChain(s)

Buyer

ValueChain(s)

VALUE CHAIN

Note :I.T. can provide more effective interface betweenthe buyer and the channel


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THE VALUE SYSTEMTo obtain a competitive edge, a firm

must be able to perform value activitiesat a lower cost than its rivals or in a waythat provides its buyers with added valueor service

The value system includes the valuechain of suppliers, of the firm, of thechannel through which the firm

distributes its products & services, andof the ultimate buyer

If links between the value activities ofthe supplier and buyer are coordinated,then both firms can cut costs


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THE VALUE SYSTEM

Information systems that link suppliersand buyers, manufacturers anddistributors and distributors and buyers

are known asinter-organizational systemsIOSs.

These systems benefit both participants

Information technology affects the valuechain by transforming the way valueactivities are performed


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Each activity in the value chain has has aphysical component and an informationprocessing component

Physical component

encompasses the physicaltasks needed to perform

the activity

Information processing

Component

encompasses the the steps involvedin capturing, manipulating, and

channeling the data necessary to

carry out the activity


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VALUE ACTIVITY USE OF INFORMATION

TECHNOLOGY

Inbound logistics Just-in-time inventory

Operations Process control system

Outbound logistics On-line links to the order-entrysystems of suppliers

Marketing and salesLaptops for direct sales

After-sale service Electronics dispatch of technicalsupport


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SECONDARY ACTIVITY USE OF INFORMATION

TECHNOLOGY

Managementcommunications

Electronic mail

Human resources On-line access to

personnel files with a skillsdatabase

Technology Computer-aided designand manufacturing

Procurement On-line access to suppliersInventory files


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Organization: Office automation

Human resources: Skills databases

Technology: CAD & manufacturing

Purchasing: on line links to suppliers

Inbound

logistics

Automated

Warehousing

systems

Operations

Process-control

Manufacturing

Control

systems

Out-bound

Logistics

Online

Order-entry

systems

Marketing

And Sales

Market

analysis

Product

profitability

Service

Remotemachine

diagnosis

SUPPORT ACTIVITIES

PRIMARY ACTIVITIES

I.T for Competitive Advantage.


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Check out

Information technology also supportsoperations

Process control systems monitor oil

refinement, chemical production, evenassembly of ingredients in themanufacture of paints and cookies

IT can also be used for after-salesservice


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USING IT FOR COMPETITIVEADVANTAGE

New developments in IT such astelecommunications, CAD and officeautomation have created unprecedented

opportunities Gregory Parsons, in his work on IT and

competitive strategy, introduces a three

level framework to help managersassess the current and potential effect ofinformation technology


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Industry level

Firm level

Strategy level

IT changes an industry'sProducts & services

Production economicsMarkets

IT affects key competitive forces

Buyers

SuppliersSubstitute productsNew entrantsRivals

IT supports a firm's strategy

Low cost leadershipProduct differentiationMarket specialization


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INDUSTRY LEVEL EFFECT Products & Services: IT can change the

nature of products & services by alteringthe product development cycle or byincreasing the speed of distribution Ex: publishing business

Videoconferencing in hotels

Production Economics: Nationwide inventory tracking

Markets: Consumers more computer literate.

Use online banking, scanners at POS.

Orgs not offering these facilities lose


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FIRM LEVEL EFFECT

Five competitive forces influence theprofitability of an industry

Buyers

Suppliers Substitute products

New entrants

rivals


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FIRM LEVEL EFFECT

Buyers: Businesses can use IT to reduce the power

of buyers by introducing switching costs

IT can provide market analysts with the toolsneeded to analyze buyer profitability

Suppliers: Use of robots instead of labor in the

automobile industry More control is exercised over suppliers by

using quality control methods, which makethem more cautious about their quality


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FIRM LEVEL EFFECT

Substitute products Deter customers from using substitutes by

lowering costs or by improving their

perceived performance New Entrants:

IT can create entry barriers by enhancingthe services provided

Ex: online reservations

Giving laptops to sales agents /employees togive information to clients


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FIRM LEVEL EFFECT

Rivals: Use of tracking for freight and schedules for

the customers

Use of pooled resources of smallercompanies against a big organization


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Porters Competitive ForcesModel


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STRATEGY LEVEL EFFECT Low Cost Leadership

Computer based systems cut transaction costs Automated systems work faster reducing costs

Product Differentiation: Value added features to improve image, quality or

service Frequent flier miles can mean special discounts

Reliable service & quick response to customerqueries

Market SpecializationSTRATEGY-LEVEL

IMPACT

USE OF I.T

Low-cost leadership Office automationInventory control systems

Product differentiation Computer-aided designHotline to technical support

Market specialization Electronic library access for PC


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Class Assignment

Form a 4 group Each group will have 4/5 students

Group will have 15 min to discuss slides

Then 8 to 10 min for presentation

Select 1 topic each from below

A1 - Porters Competitive Forces Model(slide

26)

A2 - Porters Competitive Forces Model (slide27)

A3 - Value Chain (slide 28,29 & 30)

A4 - Value Chain & Value system (slide 31 & 32)04/30/12 24

i i


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25

CompetitiveCompetitive

ForcesForces


P C i i F


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26

CompetitiveCompetitive

ForcesForces



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27

The Value Chain

According to the value chain model (Porter, 1985), the

activities conducted in any organization can be divided into

two parts: primary activities and support activities.

Primary activities are those activities in which materials are

purchased, processed into products, and delivered to customers. Eachadds value to the product or service hence the value chain.

Inbound logistics (inputs)

Operations (manufacturing and testing)

Outbound logistics (storage and distribution)

Marketing and sales

Service


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28

The Value Chain (Continued)

Unlike the primary activities, which directly add value to the product orservice, the support activities are operations that support the creation ofvalue (primary activities)

The firms infrastructure (accounting, finance,management)

Human resources management

Technology development (R&D)

Procurement

The initial purpose of the value chain model was to analyze the internaloperations of a corporation, in order to increase its efficiency,

effectiveness, and competitiveness.

We can extend that company analysis, by systematically evaluating a

companys key processes and core competencies to eliminate anyactivities that do not add value to the roduct.


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29

The Value Chain (Continued)

Secondary ActivitiesSecondary Activities

Primary ActivitiesPrimary Activities

ValuValu

ee


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30

The Value Chain (Continued)Secondary ActivitiesSecondary Activities

Primary ActivitiesPrimary Activities

ValueValue


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Chapter 3 31

The Value System

A firms value chain is part of a larger stream of activities, which

Porter calls a value system.A value system includes the suppliers

that provide the inputs necessary to the firm and their value

chains. This also is the basis for thesupply chainmanagement

concept. Many of these alliances and business partnerships are

based on Internet connectivity

are called interorganizational informationsystems (IOSs)

These Internet-based EDI systems offer strategic benefits

Faster business cycle(PO to Receiving)

Automation of business procedures(Automated Replenishment)

Reduced operational costs

Greater advantage in a fierce competitive environment


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Thank you

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Practice Questions

Q1. Information Technology supportsbusiness activities Explain ?

Q2. Short notes on Three level effect of

information technology.

Q3.what is value chain ? How do InformationTechnology effects value system.

Q4. Explain Porters competitive Force model

with example.

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l5 - Strategic Use of It

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