Chapter 3 Organizational Strategy Information Systems and Competitive

Chapter 3 Organizational Strategy, Information Systems, and Competitive Advantage

Study Questions Q 1: How does organizational strategy determine information systems structure? Q 2: What five forces determine industry structure? Q 3: What is competitive strategy? Q 4: What is a value chain? Q 5: How do value chains determine business processes and information systems? Q 6: How do information systems provide competitive advantage? Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -2

Q 1: How Does Organizational Strategy Determine Information Systems Structure? 1. 2. 3. 4. 5. Information systems exist to help organizations achieves goals and objectives Goals and objectives are determined by competitive strategy Competitive strategy defines structures, features, and functions of every information system Organizations examine industry structure to determine a competitive strategy Strategy determines value chains and business processes Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -3

Organizational Strategy Determines Information Systems Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -4

Q 2: What Five Forces Determine Industry Structure? • Porter’s five competitive forces: 1. 2. 3. 4. 5. Bargaining power of customers Bargaining power of suppliers Threat of substitutions Threat of new entrants Rivalry among existing firms Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -5

Porter’s Five Competitive Forces 2 1 Figure 3 -2 4 5 3 Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -6

Q 3: What Is Competitive Strategy? • Porter identified four competitive strategies: 1. Broad cost leadership across industry (most efficient) 2. Broad differentiation across industry (most effective) 3. Narrow cost leadership focused on particular industry segment (most efficient) 4. Narrow differentiation focused on particular industry segment (most effective) Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -7

Porter’s Four Competitive Strategies Two Dimensions of Strategy – Scope <> Competitive Advantage Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -8

Q 4: What Is a Value Chain? A network of: – Value-creating activities • Primary activities • Support activities (Secondary) – With linkages between activities Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -9

Porter’s Value Chain Model Figure 3 -5 Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -10

Primary Activities in Value Chain • Five Primary Activities 1. 2. 3. 4. 5. Inbound logistics Operations Outbound logistics Marketing and sales Service Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -11

Support Activities • Four support activities 1. Firm infrastructure – general management, finance, accounting, legal, government affairs 2. Human resources – training, recruiting, compensation 3. Technology – R & D, new techniques, methods, procedures 4. Procurement – raw materials • These contribute indirectly to production, sale, and service Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -12

Linkages • Interactions across value activities that are: – Sources of efficiencies – Readily supported by information systems – Improves Information flow and organizational efficiency (JIT) Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -13

Business Process Design • Porter’s Value Chain is used to: – Create integrated, cross-departmental business systems – Create new, more efficient processes rather than automating existing ones – Focus is on: • Creating integrated activities across entire value chain • Eliminating redundant processes, and creating new, more efficient processes Business Process Re-engineering Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -14

Q 5: How Do Value Chains Determine Business Processes and Information Systems? Bicycle Rental Competitive Strategies Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -15

Q 6: How Do Information Systems Provide Competitive Advantages? Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -16

Competitive Advantage Via Products • Organizations can gain a competitive advantage by: 1. Creating new products or services 2. Enhancing existing products or services 3. Differentiating products or services • • • By cost By quality Roles for Information Systems Regarding Products: – – As part of the Product In support of the Product Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -17

Competitive Advantage via Business Processes Organizations can gain a competitive advantage by implementing business systems that: 1. Lock in customers • By creating high switching costs 2. Lock in suppliers • Make it easy to connect to and work with your organization 3. Create entry barriers • Make it difficult for new competitors to enter the market 4. Establish alliances • Establish standards 5. Reduce costs • To increase profit margins and profitability Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -18

Applying Knowledge of Industry Structure • Dee’s memo should include: – List of competitive advantages blog can create, such as: 1. 2. 3. Help sales team differentiate company’s drugs from competitors Lock in customers (customers get up-to-date information) Raise barriers to market entry for new drugs or pharmaceutical companies Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -19

How Does Knowledge in This Chapter Help Dee and You? • Knowledge of industry structure will make it easier to talk with senior management • Understanding the organization’s competitive strategy translates that strategy into company projects • The strategies in this chapter can justify the blog to promote the company’s competitive strategy through cost-effective dissemination of accurate, current and useful information Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -20

Active Review Q 1: Q 2: Q 3: Q 4: Q 5: Q 6: How does organizational strategy determine information systems structure? What five forces determine industry structure? What is competitive strategy? What is a value chain? How do value chains determine business processes and information systems? How do information systems provide competitive advantages? Copyright 2010 Pearson Education, Inc. for Prentice Hall 3 -21

Chapter Extension 4 Knowledge Management and Expert Systems

Study Questions Q 1: What are the benefits of knowledge management? Q 2: What are content management systems? Q 3: What are the challenges of content management? Q 4: How do people share knowledge via collaboration? Q 5: What are expert systems? CE 4 -23 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

Q 1: What Are the Benefits of Knowledge Management? • KM – process of creating value from intellectual capital - sharing that knowledge with employees, managers, suppliers and customers who need it • Benefits of KM – Fosters innovation by encouraging free flow of ideas – Improves customer service by streamlining response time – Boosts revenues by getting products, services to market faster – Enhances employee retention rates by recognizing employee value – Streamlines operations and reduces costs by eliminating redundant, unnecessary processes • Preserves organizational memory – Lessons learned – Best practices CE 4 -24 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

Q 2: What Are Content Management Systems? • Information systems that track documents, Web pages, graphics and related material • Do not directly support business operations • Not part of operational system • Used to create, manage, or deliver documents for purpose of imparting knowledge • Document Life Cycle Management Create to Death-Delete) CE 4 -25 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall (Birth-

Q 3: What Are the Challenges of Content Management? 1. Functions are complex – Databases are huge – Content changes constantly with additions, deletions, alterations 2. Documents do not exist in isolation – Linked to other documents 3. Document contents are perishable – Become obsolete – Need to be altered or removed 4. Documents must be translated into multiple languages 5. Content must be arranged and indexed with facility to search 6. Appropriate document formats to be used must be determined CE 4 -26 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

Q 4: How Do People Share Knowledge Via Collaboration? • Team portals – Publish information about team activities • Discussion groups – Post questions and queries online – Organize discussions as FAQs • Emails – Lists • Blogs – Open-ended, multiple formats, robust • Podcasts – Audio and video digital files uploaded to Web CE 4 -27 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

Resistance to Knowledge Sharing • Employees reluctant to exhibit their ignorance • Employee competition • Employee shyness, fear of ridicule, inertia Cure: strong management endorsement for knowledge sharing, praise, and cash (Reward the appropriate behavior!) CE 4 -28 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

Q 5: What Are Expert Systems? • Expert systems – Rule-based systems • IF/THEN – Encode human knowledge • Expert systems shells – Process IF side of rules until no value changes – Report values of all variables – Knowledge gathered from human experts in domain of interest CE 4 -29 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

Example of IF/THEN Rules CE 4 -30 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

Drawbacks of Expert Systems • Difficult and expensive to develop – Labor intensive – Ties up domain experts • Difficult to maintain – Changes cause unpredictable outcomes • Don’t live up to expectations – Can’t duplicate diagnostic abilities of humans – Constantly need expensive changes to programs to reflect new knowledge CE 4 -31 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

Expert Systems for Pharmacies • Pharm. ADE and Dose. Checker – Dose. Checker verifies appropriate dosages on prescriptions issued in the hospital – Pharm. ADE ensures patients are not prescribed drugs that have harmful interactions CE 4 -32 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

Active Review Q 1: What are the benefits of knowledge management? Q 2: What are content management systems? Q 3: What are the challenges of content management? Q 4: How do people share knowledge via collaboration? Q 5: What are expert systems? CE 4 -33 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

Chapter 3 Organizational Strategy, Information Systems, and Competitive Advantage