Chapter 2 Gaining Competitive Advantage Through Information Systems

Chapter 2 Gaining Competitive Advantage Through Information Systems 2 -1 “You’ve got a life. Ti. Vo gets it. ” Ti. Vo Incorporated advertisement motto. IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Learning Objectives 2 -2 1. Discuss how information systems can be used for automation, organizational learning, and strategic advantage. 2. Describe international business and IS strategies used by companies operating in the digital world. 3. Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage. 4. Describe freeconomics and how organizations can leverage digital technologies to provide free goods and services to customers as a business strategy for gaining a competitive advantage. IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Types of Decisions You Face IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Decision-Making Levels of an Organization 2 -4 IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Operational Level 2 -5 IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Managerial Level 2 -6 IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Executive Level 2 -7 IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Organizational Functional Areas 2 -8 IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Business Process Supported by Functional Area IS 2 -9 What is your major? Do any of these have value for you? Top/Bottom Line? IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Major IS Tasks: Business Value Added 2 -10 What do we mean when we say we create business value by automating, organizational learning and supporting strategy IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

The Five Forces Model – Evaluating Business Segments Product returns Lower market Increased costsshare Competition in price, Lost customers Reduced quality and distribution service Electronic connections to more suppliers Reduced prices Lost market share 11 IS Today (Valacich & Schneider) 5/e Decision support and business intelligence Reduce prices CAD product redesign Increase quality Value added services ERP to ERP reduce costs and Better presence react CRM moreweb quickly Lower costs improve through ERP, CAD/CAM quality supply chain, etc. Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Pursuit of Competitive Advantage 2 -12 What technologies enable an organization: Best-made product Superior customer service Lower costs than rivals Proprietary manufacturing technology Shorter development/test lead times Well-known brand name More value for the money IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Learning Objectives 2 -13 1. Discuss how information systems can be used for automation, organizational learning, and strategic advantage. 2. Describe international business and IS strategies used by companies operating in the digital world. 3. Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage. 4. Describe freeconomics and how organizations can leverage digital technologies to provide free goods and services to customers as a business strategy for gaining a competitive advantage. IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

International Business Strategies in the Digital World 2 -14 Home Replication Strategy Multidomestic Strategy Global Strategy Transnational Strategy IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Home Replication Strategy 2 -15 International business as an extension of home business Strengths: focus on core competencies in home market Weakness: inability to react to local market conditions Appropriate use: homogeneous markets IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Global Business Strategy 2 -16 Strengths? Weaknesses? IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Multidomestic Business Strategy 2 -17 Strengths? Weaknesses? IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Transnational Business Strategy 2 -18 Strengths? Weaknesses? IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Business/Information Systems Strategies IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Learning Objectives 2 -20 1. Discuss how information systems can be used for automation, organizational learning, and strategic advantage. 2. Describe international business and IS strategies used by companies operating in the digital world. 3. Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage. 4. Describe freeconomics and how organizations can leverage digital technologies to provide free goods and services to customers as a business strategy for gaining a competitive advantage. IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Miniaturization – What is Moore’s Law? IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Valuing Innovations 2 -22 Which new technology will make or break your business? IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Successful Innovation Is Difficult 2 -23 Innovation is often fleeting. The advantages gained from innovations are often short lived. Innovation is often risky. Sometimes even superior products can lose the race. Blu-ray vs. HD DVD Innovation choices are often difficult. Foreseeing the future is not always possible. In 1994, the Internet was not given much attention. IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Organizational Requirements for Innovation 2 -24 Process requirements—the organization has to be willing to do whatever it takes to implement the change. Resource requirements—need to have the human capital necessary for successful deployment of the system Risk tolerance requirements—organizational members must have appropriate tolerance of risk and uncertainty. IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Predicting the Next New Thing 2 -25 Deciding which innovations to adopt is very difficult. Diffusion of Innovations Classic view of adoption of innovations IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

The Innovator’s Dilemma 2 -26 Disruptive innovations New technologies, products, or services that eventually surpass dominant technologies Online vs. brick-and-mortar retailing Automobiles vs. horses CDs vs. records MP 3 vs. CDs Undermine effective management practices IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Disruptive Innovations 2 -27 1970 s: mid- and highperformance users were bulk of the market Digital Equipment Company (DEC) tried to sell to those markets Microcomputers seen as “toys” IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Disruptive Innovations (cont’d) 2 -28 1980 s: Microcomputers focusing on lowperformance users’ needs Ignored by DEC IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Disruptive Innovations (cont’d) 2 -29 1990 s: Growing performance of Microcomputers, meeting midperformance users’ needs DEC lost biggest market segment IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Disruptive Innovations (cont’d) 2 -30 Today, micro- computers meeting entire market’s needs DEC out of business Next disruptive innovation: 3 G and 4 G mobile phones? IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

The Innovator’s Solution 2 -31 Christensen outlines a process—disruptive growth engine—that helps organizations respond to disruptive innovations more effectively. 1. 2. 3. 4. Start early. Executive leadership. Build a team of expert innovators. Educate the organization. IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Implementing the Innovation Process 2 -32 E-Business Innovation Cycle The key to success is the extent of IS use in timely and innovative ways. Based on: Wheeler (2002) IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

E-Business Innovation Cycle 2 -33 Choosing Enabling/Emerging Technologies Process/ group devoted to looking for emerging IT Based on: Wheeler (2002) IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

E-Business Innovation Cycle (cont’d) 2 -34 Matching Technologies to Opportunities Most promising new technology matched with current economic opportunities Based on: Wheeler (2002) IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

E-Business Innovation Cycle (cont’d) 2 -35 Executing Business Innovation for Growth Stage at which the change is actually implemented Based on: Wheeler (2002) IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

E-Business Innovation Cycle (cont’d) 2 -36 Assessing Value created for customers and internal operations assessed Based on: Wheeler (2002) IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Three Ways to Think About Investments in Disruptive Innovations 2 -37 Put technology ahead of strategy. Technology is so important to success, it needs to be considered first. Strategy is developed afterwards. Put technology ahead of marketing. Rapid development of technology makes it impossible for people to know what they want. Innovation is continuous. New technologies are constantly being developed. IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Learning Objectives 2 -38 1. Discuss how information systems can be used for automation, organizational learning, and strategic advantage. 2. Describe international business and IS strategies used by companies operating in the digital world. 3. Explain why and how companies are continually looking for innovative ways to use information systems for competitive advantage. 4. Describe freeconomics and how organizations can leverage digital technologies to provide free goods and services to customers as a business strategy for gaining a competitive advantage. IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Question? How many of you would take a free smartphone, both the phone and no cost monthly service, if all you had to do was put up with a few advertisements? Free smartphone and free service IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Freeconomics 2 -40 Freeconomics—The leveraging of digital technologies to provide free goods and services to customers as a business strategy for gaining competitive advantage. IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

How Does Freeconomics Work (for Yahoo!) 2 -41 Price is set by a product/service’s marginal costs. Marginal costs for digital services decrease tremendously. Yahoo! makes millions with free e-mail service (by placing ads). IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

The Freeconomic Value Proposition 2 -42 Someone, somewhere is paying for a services. Value proposition includes more than just buyers and sellers. Advertisers (see Google) IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022

Approaches for Applying Freeconomics 2 -43 Advertising Freemium Cross-Subsidies Zero Marginal Cost Labor Exchange Gift Economy IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall 1/9/2022