Chapter 2 Strategic Use of Information Resources Jason

Chapter 2. Strategic Use of Information Resources Jason C. H. Chen, Ph. D. Professor of MIS School of Business Administration Gonzaga University Spokane, WA 99258 chen@jepson. gonzaga. edu 1

File name on your group work • Please name your group files as follows: • mbus 626 -G 1 -Swimming in the VCPool with Plentyof. Fish (. pptx or. docx) • Other group, please change G 1 to your designated group#. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Learning Objectives • List the identifying factors of the eras of information usage. • Know what makes an information resource valuable. • Explain how information resources are used strategically in context of the 5 -forces model. • Understand how information resources can be used to alter the value chain. • Explain the importance of strategic alliances. • Know the risks of information resources. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 3

Real World Example information system strategy • Zara aligns its _________ business strategy. with its _____ • The system links demand to manufacturing and distribution. • Customers visit up to 17 times per year to check on new items that may have arrived. • Limited products lead customers to immediately purchase products they like. • Zara’s business strategy leads to a loyal and satisfied customer base. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Real World Example (Cont. ) • The POS system sends daily updates to Zara’s headquarters. • Managers report to designers what sold and what customers wanted but couldn’t find. information is used to determine inventory • The ______ management. • New designs can be ordered twice a week. • The entire process is automated so that new designs and products can be created quickly. information resources to sustain its • Zara uses its ______ advantages over competitors ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Discussion Questions • Q 4 • It has been said that there are no sustainable competitive advantages can be gained from IT other than the capability of the IT organization itself. Do you agree or disagree? Defend your position. • As the chapter discusses, sustainable advantage is hard to come by. Just about any advantage gained by a company seems to be copied by another at some point in the future. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 6

Discussion Questions - Answer • Those who agree (i. e. , IT does not provide S. A. ) with this statement might argue that even the capability of the IT organization is not a sustainable advantage because people come and go, they can be bought by another organization as a move to create the capability elsewhere, and their skills and knowledge atrophy over time, when new capabilities arise. Witness IT organizations who excelled at managing mainframe applications, who are now struggling to keep up with web-based applications. • Those who disagree (i. e. , IT provides S. A. ) with this statement might argue that the key to sustaining any advantage comes from the way all business resources are organized and used, and ultimately that comes down to how the managers and the people are able to perform. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 7

What is the “Competitive Advantage”? • A competitive advantage is a benefit derived from something a company does or has that its customers want and its competitors cannot (or choose not to) match. • If a company can sustain its competitive advantage, the company will succeed in its industry – how? • Two types of people lead a company to succeed – Those know how to innovate the enterprise – Those know how to execute their strategy onto the enterprise using IS/IT. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 8

Sustainable Competitive Advantages • Any sustainable competitive advantages? • How can an organization sustain its competitive advantage? • Firms may create/improve their competitive advantages only if they: capacity to learn, – have ____ revenue management – employ _________ approach • With the service economy accounting for over 70 percent of GDP in OECD (Organization for Economic Co-operation and Development) countries, service firms are becoming increasingly competitive with revenue management (RM) and pricing becoming central in their focus for sustaining long term profitability (and competitive 9 advantage). – learning to learn and learning to change (life-long learning environment) ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Co-Creating IT and Business Strategy • Information is increasingly a core component of the product or service offered by the firm. business strategy – they cannot be • IT strategy is ____ created without each other. • Some company’s main product is information (financial services). • Q: Is Fed. Ex is a package delivering company? – Y/N (and Why? ) IT even though – Fed. Ex can not function without ____ they are primarily a package delivering company. • Other companies such as Walmart, UPS, or Zipcar ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

What is Business Model? • A business model is a set of planned activities (sometimes referred to as business processes) designed to result in a profit in a marketplace. • The business model is at the center of the business plan. • An e-commerce business model aims to use and leverage the unique qualities of the Internet and the www. Source: E-Commerce: business, technology, society, Laudon and Traver, A/W ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices N 11

Why New Models? • We need some new models – for how we go about exploring IT for competitive advantage, – for IT infrastructure how we create it and manage it – for how we acquire, manage and deploy the skills that are needed to run that infrastructure – Profitability (making money) ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices N 12

Business Model vs. Revenue Model • Business model is the architectural configuration of the components of transactions designed to exploit business opportunities. specific ways in • Revenue model refers to “the _______ which a business model enables revenue generation ______. ” • Revenue mechanism is a key component of the business model because it provides a sustainable financial source for the business’ effort of innovation (Afuah, 2004). ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices N

Business vs. Revenue Model Business Model creation Value _____ It describes the way in which a company enables transactions that create value for all participants, including partners, suppliers and customers. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Revenue Model appropriation Value ______ It can be realized through a combination of - subscription fees, - advertising fees, - transactional income (e. g. , fixed transactional fees, referral fees, fixed/variable commissions, etc)

Revenue Management • If you are interested in the issues of RM • International Journal of Revenue Management • http: //www. inderscience. com/ijrm ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

EVOLUTION OF INFORMATION RESOURCES ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 16

Evolution Of Information Resources • IS strategy from the 1960 s to the 1990 s was driven by internal organizational needs – Lower existing transaction costs – Provide support for managers by collecting and distributing information – Redesign business processes • In the 2010 era IS strategy was driven by social IT platforms and new capabilities ______ – A new evolution of applications, processes, and strategic opportunities ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Information Resources • The term information resources is defined as the available data, technology, people, and processes available to perform business processes and tasks. efficiency model” of • Organizations have moved from an “_______ value creation and ______ social business the 1960’s to a “______ model” of the 2010’s. • Companies seek to utilize those technologies that give them competitive advantage. • Maximizing the effectiveness of the firm’s business strategy requires the general manager to identify and use information resources. • Figure 2. 1 shows this change. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 18

Era I 1960 s Era II 1970 s Era III 1980 s Era IV 1990 s Era V 2000+ Efficiency Automate existing paper-based processes Effectiveness Solve problems and create opportunities Strategic Increase individual and group effectiveness Strategic Transform industry/ organization Value creation ______ Create collaborative partnerships ______ Increasing productivity and better decision quality Organization/ group Competitive position Adding value Creating relationships Individual manager/ group Business processes ecosystem Customer/ supplier ecosystem Information Application specific models Data driven User driven Business driven Knowledge driven Customer/ employee supplier ecosystem People driven (or relationship driven) Dominate technology Mainframe, “centralized intelligence” Minicomputer, Mostly “centralized intelligence” Microcomputer, “decentralized intelligence” Client Server, “distributed intelligence” Internet, global “ubiquitous intelligence” Social platforms, Social networks, mobile, cloud Basis of value Underlying economics Scarcity Plentitude Economics of information bundled with economics of things Economics of information separated from economics of things Economics of relationships bundled with economics of information Primary role of IT ROI Justify IT expenditures Target of systems Organization Era VI 2010+ Community and social business Figure 2. 1 – Mission statements of computer companies ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Figure 2. 2 Information Resources Type of Information Resource IT Asset _____ Definition Example Anything that can be used by a firm in its processes for creating, producing and/or offering its products (goods or services) - IS infrastructure Base foundation of the IT portfolio shared through the firm Hardware, software, network, data components, proprietary technology, web-based services - Information repository Data that is logically related and organized in a structured form accessible and able for decision making purposes. Critical information about customers that can be used to gain strategic advantage. Much of this information is increasingly available on the web. IT Capability _____ - Technical skill - IT management skills - Relationship skills Something that is learned or developed over time in order for the firm to create, produce or offer it products in IT assets Ability applied to designing, developing and implementing information systems Ability to managing IT function and IT projects Proficiency in systems analysis and design; programming skills Being knowledgeable about business processes and managing systems to support them; evaluating technology options; envisioning creative IS solutions to business problems Ability of IS specialists to work with Spanning: having a good relationship between parties outside the IS department. IT and business managers Externally-forced: have a good relationship with an outsourcing vendor ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Advantages of Information Resource • Information resource appropriation: – Determining where a resource’s value lies and how it can be improved in a firm’s favor. – The attributes of information resources that impact the value make it possible to create and sustain competitive advantage (i. e. Zara). • Information resource distribution across firms: – Early adopters may experience a competitive advantage from First Mover using an information resource. (_______Advantage) – The experience gained may lead to inequities between firms. – Different experiences with a resource creates value, and a create strategic advantage. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Advantages of Information Resource (Cont. ) • Mobility of Information resource: – Reliance on the individual skills of IT professional – Risky as key individuals will leave the firm, taking their experience with them. – Development of unique knowledge-sharing processes, and creation of an organizational memory. • Then – Q: How and what do we need to sustain organization’s competitive advantage in terms of using information resource (software)? Business Intelligence (e. g. , Knowledge Management Systems) – A: _________________ ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Network Externalities • Definition - The phenomenon whereby a service more people use it, thereby becomes more valuable as ______ encouraging ever-increasing numbers of adopters. effects – Network _______ • While the word-of-mouth method is often more influential in the beginning, analysis may play a significant role later in the cycle. In other words, you may adopt a service initially because someone you know uses it; later, you may adopt a service because "everyone" uses. – IT Role? – Network Externality offers a reason for value derived from plentitude (Eras IV, V & VI) ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 23

Virtual Companies (Portable Computing) A Virtual Company is an Organization composed of several Business Partners that Uses Technology to ______ Link/Share People, Information ______ Assets, Ideas, Costs, and Resources for the purpose of producing a product or service. Virtual Companies are Adaptable and Opportunity. Exploiting Organizations Providing World-Class Excellence in Their Competencies and Technologies. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 24

Characteristics of Virtual Companies Excellence Borderless Adaptability Six Characteristics of Virtual Companies Opportunism Trust-Based Technology ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices N 25

HOW CAN INFORMATION RESOURCES BE USED STRATEGICALLY? ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 26

Striving for Competitive Advantage Firm level: Industry & Competitive • ______ Analysis – Competitive Forces Model – Competitive Strategy – D’Aveni’s Hypercompetition Model (7 -Ss) • _______ Business level – Value-Chain Analysis ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 27

Porter’s Five Forces Model • According to Porter, there are five competitive forces in any industry, and the attractiveness of the industry depends on the strength of each force. • Under the perspective of market structure, Porter’s competitive forces model has been broadly adopted as the underpinning for investigating the effect of information technology on the relationships between suppliers, customers, and other potential threats. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 28

PORTER’S FIVE COMPETITIVE FORCES MODEL NEW MARKET ENTRANTS • Switching cost • Access to distribution channels • Economies of scale INDUSTRY COMPETITORS THE FIRM • Selection of suppler • Threat of backward integration SUPPLIERS SUBSTITUTE PRODUCTS & SERVICES Threats • Cost-effectiveness • Market access • Differentiation of product or service Bargaining power ã John Wiley. Dr. & Sons, Dr. Chen, Information Theory and Practices Chen, Inc. The&Trends of the Information. Systems –Technology • Redefine products and services • Improve price/performance • Buyer selection • Switching costs • Differentiation CUSTOMERS 29 N TM -29

Figure 2. 4 Application of five competitive forces model for Zara. Competitive Force IT Influence on Competitive Force Threat of New Entrants Zara’s IT supports its tightly-knit group of designers, market specialists, production managers and production planners. New entrants are unlikely to provide IT to support relationships that have been built over time. Further it has a rich information repository about customers that would be hard to replicate. Bargaining Power of Buyers With its constant infusion of new products, buyers are drawn to Zara stores. Zara boasts more than 11, 000 new designs a year, whereas competitors typically offer only 2, 000 – 4, 000. Further, because of the low inventory that the Zara stores stock, the regulars buy products they like when they see them because they are likely to be gone the next time they visit the store. More recently Zara has employed laser technology to measure 10, 000 women volunteers so that it can add the measurements of ‘real’ customers into its information repositories. This means that the new products will be more likely to fit Zara customers. Bargaining Power of Suppliers Its computer-controlled cutting machine cuts up to 1000 layers at a time. It then sends the cut materials to suppliers who sew the pieces together. The suppliers’ work is relatively simple and many suppliers can do the sewing. Thus, the pool of suppliers is expanded and Zara has greater flexibility in choosing the sewing companies. Further, because Zara dyes 50% of the fabric in its plant, it is less dependent on suppliers and can respond more quickly to mid-season changes in customer color preferences. Threat of Substitute Products Industry competitors long marketed the desire of durable, classic lines. Zara forces on meeting customer preferences for trendy, low-cost fashion. It has the highest sales per square foot of any of its competitors. It does so with virtually no advertising and only 10% of stock is unsold. It keeps its inventory levels very low and offers new products at an amazing pace for the industry (i. e. , 15 days from idea to shelves). Zara has extremely efficient manufacturing and distribution operations. Industrial Competitors Zara offers extremely fashionable lines that are only expected to last for approximately 10 wears. It offers trendy, appealing apparel at a hard-to-beat price. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

The Five Forces Model and IS • The Five Forces Model provides a way to think about how information resources can create competitive advantage. • Using Porter’s Model, General Managers can: – Identify key sources of competition they face. – Recognize uses of information resources to enhance their competitive position against competitive threats – Consider likely changes in competitive threats over time ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices N 31

PORTER’S FIVE COMPETITIVE FORCES MODEL NEW MARKET ENTRANTS Internal Forces: 1. customer focus 2. communication 3. core competencies 4. complexity 5. Quality SUBSTITUTE PRODUCTS & SERVICES Threats INDUSTRY COMPETITORS THE FIRM • Cost-effectiveness • Market access • Differentiation of product or service SUPPLIERS Bargaining power ã John Wiley. Dr. & Sons, & Trends Dr. Chen, Information Systems – Theory and Practices Chen, Inc. The of the Information Systems Technology Other forces should be considered in the e-Age: 1. Digitalization 2. Globalization 3. Deregulation/ liberalization CUSTOMERS 32 N TM -32

Porter’s Value Chain Model • The value chain model highlights specific activities (i. e. create, deliver, and support a company’s product or service) in the business where competitive strategies can be best applied and where information systems are most likely to have a strategic impact. • Therefore, the value chain model can be employed to identify specific, critical leverage points where a firm can use IT most effectively to enhance its competitive position. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 33

Figure 2. 5 Process View of the Firm: The Value Chain e tiv eti mp Co Ad v an tag e (Value) Two broad categories: Primary activities – relate directly to the value created in a product or service. Support activities – make it possible for the primary activities to exist and remain coordinated ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices N 34

The Value System (Fig 2. 6) • Value chain analysis can be extended beyond the company to include other firms in the industry, such as suppliers and customers, in a “value system” analysis. • Much of the advantage of supply chain management comes from understanding how information is used within each value chain of the system. • This can lead to the formation of entire new businesses designed to change the information component of value-added activities. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices N 35

Figure 2. 6: The Value System: Interconnecting relationships between organizations Upstream value Firm value Downstream value N ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 36

New Forces in Today’s Economy • Overcapacity and hypercompetition. – Overcapacity is 25% pharmaceuticals, 30% chemicals, 35% automobiles – Leads to falling prices and margins, mergers, and company failures • Ascendant power of customers. – Customer shortage – Price transparency • Ascendant power of distributors over manufacturers. • Growth of digitalization and the Internet as major sources of efficiency and profitability. • Proliferation of channels and media. • Globalization and global interdependence. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

BUSINESS FOCUS E-BUSINESS • SCM • CRM • BPR • ERP Customer centric Who are the customers? _______are the customers? Where purchasing habits. Their _____ ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Demands Products What they need/want? How many they need/want? When they need/want? How to reach them?

WHY CRM? • In this competitive age when product differentiation is difficult, CRM is one of the most valuable assets a company can acquire. • The sooner a company embraces CRM the better off it will be and the harder it will be for competitors to steal loyal and devoted customers. • CRM is more than just “Marketing” (what else? ) ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

CUSTOMER RELATIONSHIP MANAGEMENT’S EXPLOSIVE GROWTH CRM Business Drivers ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

BASICS OF SUPPLY CHAIN • Organizations must embrace technologies that can effectively manage supply chains Involvement (integration) ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

FIVE BASIC SUPPLY CHAIN MANAGEMENT COMPONENTS Plan Source Make ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Deliver Return

INFORMATION TECHNOLOGY’S ROLE IN THE SUPPLY CHAIN • IT’s primary role is to create integrations or tight process and information linkages between functions within a firm ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Information Resources Strategy: The Strategic Landscape • Managers confront elements that influence the competitive environment. • Slim tolerance for error requires managers take multiple view of the strategic landscape, such as: – First view - Porter’s five competitive forces model. – Second view - Porter’s value chain. – Third view • focuses on the types of IS resources needed (Resource. Based View). ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 44

The Resource-Based View • The Resource-Based View (RBV) looks at gaining competitive advantage through the use of information resources. value. – Determining whether a firm’s strategy has created _____ • Two subsets of information resources have been identified: attain competitive advantage – Those that enable firms to ______ (initially rare and valuable resources were the communities many companies implemented using social IT. ) sustain competitive advantage – Those that enable firms to ______ over the long-term (resources must be difficult to transfer or relatively immobile and need to continue to innovate and to protect against resource imitation, substitution, or transfer. ) ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 45

Porter’s Model vs. Resource-Based View Porter’s Model/Value Chain Resource-Based View (RBV) Competitive Advantage (CA) Argues that aspects of the firm’s industry create sources of CA. Focus (what adds value to the firm) Firm’s activities Maintains that CA comes from the information and other resources at the firm Resources that firm _____ can manage and create value ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 46

Social Capital Theory • Social capital – is the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit. – The focus on theory is not on managing individuals, but rather managing relationships. • The value from networks may be derived in one of three interrelated ways – structural: pattern of relationships in the network (who is connected to whom) – relational: nature of relationships among members in the network (how do connected people interact) – cognitive: the way people think about things in the network (how do the connected people think). ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 47

• More to be discussed on the topic of “Strategic IT Resources” ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 48

STRATEGIC ALLIANCES ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 49

Strategic Alliances • An interorganizational relationship that affords one or more companies in the relationship a strategic advantage. – E. g. , the alliance between Zynga and Facebook helped Zynga benefit from the revenue resulting from its gamers on Facebook community. • IS can be the platform upon which a strategic alliance functions. – E. g. , The alliance between Delta and e-Travel helped Delta reduce agency reservation fees and offered e-Travel new corporate leads. • Linking value chains through SCM is another way firms build an IT-facilitated strategic alliance. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Aligning IS strategy with Business Strategy • Using multiple approaches to evaluating the strategic landscape is helpful in determining strategic opportunities. • Here, we look at three such approaches: – Porter’s five forces model of the competitive advantage of firms – Porter’s value chain model of internal organizational operations – Wiseman’s theory of strategic thrusts and strategic option generator (results in nine possible major options to secure a competitive advantage) ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices N 51

Wiseman’s theory of strategic thrusts and strategic option generator I. Major options to secure a competitive advantage Suppliers Customers Differentiation II. Option Generator 1. What is our strategic target? Competitors 2. What strategic thrust can be used against the target? 3. What strategic mode can be used? Cost Innovation ü offensive or defensive 4. What direction of thrust can be used? ü usage or provision Results in nine possible major options 5. What IS skills can we use? to secure a competitive advantage. ü processing/storage/transmission ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 52

Types of Strategic Alliances Co-opetition a new strategy whereby companies • ______: cooperate and compete at the same time with companies in their value net. – Co-opetition is the strategy for creating the best possible outcome for a business by optimally combining competition and cooperation. – e. g, Covisint and General Motors, Ford, and Daimler. Chrysler. • Value net includes a company and its competitors and complementors, as well as its customers and suppliers, and the interactions among all of them. – Complementor is a company whose product or service is used in conjunction with a particular product or service to make a more useful set for the customer. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Summary of Key Strategy Frameworks Framework Key Idea Usefulness in Information Systems Discussions Porter’s generic strategies framework Firms achieve competitive advantage through cost leadership, differentiation, or focus. Understanding which strategy is chosen by a firm is critical to choosing IS to complement that strategy. D’Aveni’s hypercompetition model Speed and aggressive moves and countermoves by a firm create competitive advantage. The 7 -S’s give the manager suggestions on what moves and counter moves to make and IS are critical to achieve the speed needed for these moves. Brandenberg and Nalebuff’s co-opetition model Companies cooperate and compete at the same time. Being cooperative and competitive at the same time requires IS that can manage these two roles. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 54

Social Capital Theory • Social capital – is the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit. – The focus on theory is not on managing individuals, but rather managing _______. relationships • The value from networks may be derived in one of three interrelated ways structural pattern of relationships in the network (who is – _____: connected to whom) relational nature of relationships among members in the – _____: network (how do connected people interact) cognitive the way people think about things in the network (how – ____: do the connected people think). ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 55

Co-Creating IT and Business Strategy • Information is increasingly a core component of the product or service offered by the firm. business strategy – they cannot be • IT strategy is ____ created without each other. • Some company’s main product is information (financial services). • Is Fed. Ex is a package delivering company? – Y/N (and Why? ) IT even though – Fed. Ex can not function without ____ they are primarily a package delivering company. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices

Profits relative to competitions (%) Relationship between profits and time of market introduction 300 250 200 150 100 50 0 Time of market introduction relative to competition (months) ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 57

Keen’s Six-Stage Competitive Advantage Model Stimulus for action First major move Customer acceptance Competitor catch-up moves First-mover expansion moves Commoditization ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices N 58

When to Perform Activities • First Movers Advantages Disadvantages • Build brand recognition • Newer technology • Control scarce resources • Higher development costs • Establish networks • Reverse engineering by competitors • Early Economies-of-Scale ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 59

RISKS Copyright 2010 John Wiley & Sons, Inc. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 60 60

Potential Risks There are many potential risks that a firm faces when attempting to use IT to outpace their competition. • Awakening a sleeping giant – a large competitor with deeper pockets may be nudged into implementing IS with even better features • Demonstrating bad timing – sometimes customers are not ready to use the technology designed to gain strategic advantage • Implementing IS poorly – information systems that fail because they are poorly implemented • Failing to deliver what users want – systems that don’t meet the firm’s target market likely to fail • Web-based alternative removes advantages – consider risk of losing any advantage obtained by an information resource that later becomes available as a service on the web • Running afoul of the law – Using IS strategically may promote litigation if the IS results in the violation of laws or regulations. N ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 61

Summary • Using IS for strategic advantage requires more than just knowing the technology. • Remember that not just the local competition is a factor in success but the 5 competitive forces model reminds us of other issues. • Value chain analysis show us how IS add value to the primary activity of a business. • Know the risks associated with using IS to gain strategic advantage. ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 62

End of Chapter 2 ã John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 63