information & competitive advantage

8/4/2019 Information & Competitive Advantage

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Strategic issues of Information Technology&

Competitive advantage

Hergovind Singh


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Information Technology

Increased importance of IT

Most general managers know... that the technologycan no longer be the exclusive territory of IS

departments

Information as a key resource for business

Today, information technology must be conceived of

broadly to encompass the information that businessescreate and use as well as a wide spectrum ofincreasingly convergent and linked technologies thatprocess information


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Technology impact on competition

Three ways IT changes the game

It changes industry structure and therefore the rules of

competition

It creates competitive advantage by giving companies new ways

to outperform their rivals

It spawns whole new businesses

Often within a companys existing operations


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Support

activities

Primary activitiesInbound logistics Materials receiving, storing, and distribution to manufacturing premisesOperations Transforming inputs into finished products.Outbound logistics Storing and distributing products

Marketing and Sales Promotions and sales forceService Service to maintain or enhance product valueCorporate infrastructure Support of entire value chain, e.g. general management planning,

financing, accounting, legal services, government affairs, and QMHuman resources management Recruiting, hiring, training, and developmentTechnology Development Improving product and manufacturing processProcurement Purchasing input

The Value Chain


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Technology and the Value Chain

Every value activity has both a physicaland an information-processing component

IS component encompasses the stepsrequired to capture, manipulate and channelthe data necessary to perform the activity


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Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan, Corporate Information Strategy and Management. Burr Ridge, IL:

McGraw-Hill/Irwin, 2002. Chapter 1 Figure 1-3

The Value Chain Defines Indust ry Str ucture and Relationships


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How Technology Permeates the Value Chain

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

Automated warehouse

Flexible Manufacturing

Automated order

processing Telemarketing, remote

terminals for sales staff

Remote servicing of

equipment, computerscheduling & routing ofrepair trucks


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Transforming the Value Chain

IT is advancing faster than technologies for physicalprocessing This expands the limits of what companies can do faster

than managers can explore the opportunities

IT is generating more data about activities andproducts, information that was not available before There is a higher information content in products

IT enhances the ability to exploit linkages betweenactivities both inside and outside the company

IT allows companies to coordinate activities in widelydispersed geographic locations

Often there is too much information, but IT can storeand help analyze the flood of information


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IT Impacts on the five forces model

Potential

new entrants

Strategic Business

Unit

Threat of substitute

products or services

Bargaining power

of buyers

Bargaining power

of suppliers

Large IT investments provide barriers to entry

Automated quotesfor easiercomparisons

Systems to connect

suppliers andbuyers

CAD makes it easier to change product offerings

Increased rivalryamong existingcompetitors


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Creates Competitive Advantage

Lowering cost

Automated parts inventory, new sales process

Enhancing differentiation

Customizing products and greater selection

Changes company scope

IT increases ability to coordinate activities within a company

Also allows interrelationships between companies and among

industries


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Spawning New Businesses

Makes new businesses technologically feasible.

Creates derived demand for new businesses Creates

new businesses within old ones (may give a company

excess capacity or skills Sears providing credit

services to other companies)


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Steps for competitive advantage Assess information intensity

Evaluate intensity on value chain or product

Determine the role of IT in industry structure

Predict the impact of IT on the industry

Identify and rank the ways in which IT might create competitive

advantage

IT impacts every activity on the value chain

Investigate how It might spawn new businesses

What information could the company sell, etc

Develop a plan for taking advantage of IT

Rank strategic IT investments, look at info components for products


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The Information Resources

Facilities

Software DatabaseHardware

InformationSpecialists

Users

Information


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The Information Resource Manager -- the

CIO Chief Information Officer (CIO) is not simply a title, but

an attitude

Titles used:

CIO

Director of MIS

V.P. of Information Systems

Other


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The CIO

The business is what counts

Build partnerships/ties with the rest of the firm

Improve basic business processes

Communicate in business terms, not IS jargon

Provide reliable IS services

Be positive, not defensive


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Strategic

planning for

information resources

Strategic

planning for

marketing

resources

Strategic

planning for

manufacturing

resources

Strategic

planning for

human

resources

Strategic

planning for

financial resources

The Interlinking of Functional Areas in

Developing - Strategic Plans


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Strategic planning for information resources

Strategy set transformation; support the firms objectives

Strategic planning for information resources (SPIR)

develops firm and IS strategic plans concurrently

SPIR content

1. What is to be achieved

2. What will be required


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Strategic Planning for Information Resources

BusinessStrategy/competitiveAdvantage

InformationResources andIS strategy

Influence onBusinessStrategy

Influence onInformationResources


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The Strategic Implications of End-UserComputing

Levels of end users in terms of capabilities

menu-level end users

command-level end users

end-user programmers

functional support personnel

EUC application considerations

shifts workload so that end-users and information specialists

talents are better used reduces communications gap


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Information and Competitive advantage

A recognition that competitive advantage can be

achieved by means of superior information resources

A recognition that information services is a major

functional area

A recognition that the CIO is a top-level executive


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(cont.)

A consideration of the firms information

resources when engaging in strategic planning

A formal strategic plan for information resources

A strategy for stimulating and managing end-

user computing


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Technological Advancement

Internet and broadband networks WWW and high performance servers

Flexible, standardized, powerful platform for creating andstoring information in all its forms

URL Uniform Resource locator and Browser

Common approach for identifying and locating informationanywhere on the internet

Multimedia digital devices

Portable internet access devices that provide internet access tovoice, television and information

Laptops, palm, cell phones,

Wireless networks and protocols

JAVA, XML and other OO languages and database technologies


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Economies

Economy of scale When a participant or network of participants is able to

leverage capabilities and infrastructure to increase itsrevenues and profitability within a single product line ormarket.

Economy of scope

When a participant or network of participants is able toleverage capabilities and infrastructure to launch new

product lines or enter new markets.


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Porters Value Chain(well suited for analyzing product/manufacturing firms)


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Exa-Value Chain Applied to AirlinesIdentifies uses of IT for each element of the value chain


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Industrial vs. Network EconomyCharacteristics Industrial Economy Network economy

Criteria for economicsuccess

Internal, proprietary andspecialized economies, limited bylevel of infrastructure required

External, networked and sharedeconomies of scale and scopeare increased by internetinfrastructure

Technological innovations Production, communication anddistribution technologies

Distribution, communication andinformation technologies;

The ability to assemblecomponent pieces

Operating innovations Standardization of work;Job specialization; assemblylines;

Value chain industry structure.

Knowledge work; job expansion;

Work teams; extended enterprise;

Outsourcing and partnerships;

Value networks.

Management innovations Hierarchical coordination;Compliance-based control;

Centralized planning and control.

Network coordinating andsupervision; ownershipincentives;

Information-based models ofcontrol

Societal/regulatoryinnovations

Urban growth; masstransportation; social security and

welfare; unions, regulations;domestic economy

Work at home; self-employment;global economy


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Impact of IT: questions 1 of 5.

Can IT be used to reengineer core value acti-vities andchange the basis of competition?

Uses IT not just to automate but also to transform and to inform

Benefits of conducting business online

Internet to reengineer value chain and the basis of competition


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Can IT change the nature of relationships andthe balance of power among buyers andsuppliers?

- Customers recognized the value of a multivendormarketplace but were unwilling to put up with theproblems of using multiple different supplier systems

Electronic market places.


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Impact of IT: questions 3 of 5. Can IT build or reduce barriers to entry?

Consultancy companies: knowledge technology

Technology based advantage.

The internet can decrease the impact: low cost, ease of penetration

Knowledge and community barriers are more sustainable

Proprietary infrastructure and channels to market are at a particular

disadvantage relative to new entrants when they attempt to create

second-order barriers to entry (Amazon.com as new entrant with

transaction, information and community infrastructures)


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Can IT increase or decrease switching costs?

Switching to another system might become difficult and costly

in proprietary systems

With the internet switching costs are substantially reduceddifficult to achieve customer loyalty

Intuit increased the switching cost

Provided easy to use inexpensive financial service software

Won users via ease-of-use

Hooked via simple ways of storing the information that should bereentered if the customer switches to a different product


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Can IT add value to existing products and services orcreate new ones?

Grocery stores are also in the business of selling information(client profiles)

Information content of existing products (cars)

Digital distribution of books, music, and video will dramatically

alter existing publishing and entertainment industries. Manure and fertilizer company provides information.


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Remember

Exploiting the opportunities afforded by IT, while avoidingthe pitfalls requires vision, sound execution, and the abilityto respond quickly

Risks increase when executives

Have poor understanding of sources of competitive dynamics Fail to understand the long-term implications of a strategic system

(their own or a competitor)

Launch a system that brings on litigation or regulation to thedetriment of the innovator

Fail to account for the time, effort, and cost required to ensure useradoption, assimilation and effective utilization


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(cont)

Investments should be examined on sustainable advantage

Movement of IT-personnel results in rapid proliferation of strategicideas

Questions

What business are we in? Who are our customers, suppliers,partners?

Who are our biggest competitors, today and in the future?

How effective are our core operating activities and processes?

Are there big changes looming at the horizon and what can we do?

Will changes in related industries influence our industry? Did we identified the strategic risks today and in the future?

Have we appropriately prioritized our business investments?

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