Organizational Strategy and Competitive AdvantageBSAD 141Dave Novak

BDIS: 1.2 (13-26)

Lecture Outline Business Strategy Competitive Advantage Goals versus Objectives Porter’s 5 Forces Model Value Chains How do information systems fit in?

Business Strategy

What is a “business strategy”?

Business Strategy

Is it important for employees to know the organizational “business strategy”?

Business Strategy

Difference between goals and objectives

Examples of Goals

Developing new products or services Entering new markets Increasing customer loyalty Attracting new customers Increasing sales

Examples of Objectives

First, identify a particular goal For example, increasing customer loyalty

Second, identify measurable, focused indicators of customer loyalty that can be used to determine whether you are actually meeting your goalExamples?

Competitive Advantage A feature of a product or service that

customers value very highly or more highly than they do for similar features provided by their competitors Could be a unique product or service but

doesn’t have to be uniqueHow do you determine “better”?

Identifying Competitive Advantages

Competitive intelligence –The process of gathering information about the competitive environment to improve the company’s ability to succeed

First-mover advantage – Occurs when an organization can significantly impact its market share by being first to market with a competitive advantage

Competitive Strategy

Competitive Strategy

Source: Kroenke, Experiencing MIS, 2008

Porter’s 5 Forces Model

A framework for analyzing the competitive forces in the environment in which an organization operatesEvaluate the attractiveness in terms of

entering into a particular industryAssess potential for profit

Porter’s 5 Forces Model

1) Buyer/Customer Power The ability of buyers to influence

the price of an itemHigh when customers have

ability/power to (lower) prices Switching cost – Manipulating costs

that make customers reluctant to switch to another product

Loyalty program – Rewards customers based on the amount of business they do with a particular organization

2) Supplier Power The suppliers’ ability to influence the prices

they charge for their product/serviceHigh when supplier can set their own price with

little risk of losing customers

For example, a monopolistic firm has high supplier power

3) Threat of Substitute Products or Services

How difficult it is for a customer to switch from your product / service to one of your competitor’s (or an alternative) Threat is high when it is easy for customers to

switch (there are many alternatives and switching costs are low) between different products and services and low when there are few alternatives

4) Threat of New Entrants

How difficult it is for an organization to enter into the same industry as youHigh when it is easy for new competitors to

enter a market and low when there are significant barriers to entry

Entry barrier – A feature of a product or service that customers have come to expect and entering competitors must offer the same for survival

5) Rivalry Among Existing Competitors To what extent is your market

position challenged? High when competition is fierce in a

market and low when competitors are more complacent

Product differentiation – Occurs when a company develops unique differences in its products or services with the intent to influence demand

Value Chain Analysis: Executing Business Strategies

What is a business process?

Value Chain Analysis: Executing Business Strategies

Value chain analysis – Viewing an organization as a series of connected business processes that each add value to the product or service

Value Chain Analysis: Executing Business Strategies

Porter’s Value Chain

Value Chain Analysis: Executing Business Strategies Primary value activities

Inbound logistics - Acquires raw materials and resources, and distributes

Operations - Transforms raw materials or inputs into goods and services

Outbound logistics - Distributes goods and services to customers

Marketing and sales - Promotes, prices, and sells products to customers

Service - Provides customer support

Value Chain Analysis: Executing Business Strategies

Support value activities Firm infrastructure – Includes the company format or

departmental structures, environment, and systems

Human resource management – Provides employee training, hiring, and compensation

Technology development – Applies MIS to processes to add value

Procurement – Purchases inputs such as raw materials, resources, equipment, and supplies

Value Chain Analysis: Executing Business Strategies

Value Chain and Porter’s Five Forces ModelThe organization’s goals and value-chain structure directly impact rivalry

Value Chain Analysis: Executing Business Strategies

The necessity of linking ALL activities is what allows the organization to realize a profitThese linkages are essential for success

The various profits, functions, and functional areas of the organization cannot operate in isolation

Concept of “whole” is greater than the sum of the individual parts

Value Chain Analysis: Executing Business Strategies

The profit margin is determined by the organization’s ability to successfully manage linkages between different processes and functions in the organization

Links are flows of information, goods, and services including the systems and processes needed to perform these activities and assist in flow

Value Chain Analysis: Executing Business Strategies

Only if the Marketing & Sales function delivers sales forecasts for the next period to all other departments in time and in reliable accuracy, procurement will be able to order the necessary material for the correct date

And only if procurement does a good job and forwards order information to inbound logistics, operations will be able to schedule production in a way that guarantees the delivery of products in a timely and effective manner – as pre-determined by marketing

In the result, the linkages are about seamless cooperation and information flow between the value chain activities

Source: Recklies, (2001) http://www.fao.org/fileadmin/user_upload/fisheries/docs/ValueChain.pdf

Value Chain and Information Systems How might the introduction of new

technologies impact different parts of the value chain and integration of components?

How might technology impact buyers? How might the introduction of new

technologies impact costs? Value chain components might change

based on new technologies and IS

Value Chain and Information Systems Supply chain – Consists of all parties

involved in the procurement, creation, and delivery of a product or raw material

Value chain –versus- supply chain?

Summary of lecture Discussion of business strategy and why is it

important Defining competitive advantage

Cost-based matrix Differentiating between goals & objectives Discuss Porter’s 5 Forces Model

Name 5 forces Value Chains

Name 5 primary and 4 support activities The role of IS