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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
Porters Competitive ForcesModel
P C i i F
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26
CompetitiveCompetitive
ForcesForces
Porters Competitive ForcesModel
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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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