Managing Information Resources

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Bertina Angelica Burns
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1 MSC 3824 Discussion Notes Session 3: Strategic Use of IT Spring, 2003 Professor Yang W. Lee College of Business Administration Northeastern University MSC Prof Y. Lee Page 3-1

2 Strategic Use of IT: INFORMATION REVOLUTION! Competitive Advantage " Competitive in what, how, and why? " Strategic use of IT and Information " Strategic reformulation and restructuring of business process, market m structure? " Creating new product?! Information, IT creates competitive advantage? " Changes Industry Structure " Changes Rules and Nature of Competition " Early Examples:» Product Distributor: On-line order processing» Airline: Automated reservation system» Aerospace: CAD MSC Prof Y. Lee Page 3-2

3 Technology Impacts Strategy By: 1. SUPPORTING COST AND DIFFERENTIATION STRATEGIES 2. SPAWNING ENTIRELY NEW BUSINESSES a) new business economically feasible b) created by new demand c) create new business within old d) information products 3. ALTERING INDUSTRY STRUCTURE MSC Prof Y. Lee Page 3-3

4 5 FORCES SHAPE STRATEGY Potential New Entrants Bargaining Power of Suppliers TRADITIONAL ENGINEERING SALES FINANCE ETC. BUSINESS UNIT INTRA-INDUSTRY RIVALRY Bargaining Power of Buyers - BASIC MODEL: PORTER, COMPETITIVE STRATEGY Threat of Substitute Product or Services

5 MODIFIED 5-FORCES 5 MODEL INTER-ORGANIZATIONAL Model NEW ENTRANTS/ COMPETITORS WARD OFF COMPETITION -DELTA MAILING TO FREQUENT FLYERS MATCHING AND BEATING COMPETITION SUPPLIER COORDINATE SUPPLIER - TOYS R US CONTROL INVENTORY SHIPPING RESPOND TO DEMAND STRATEGIC BUSINESS UNIT NEW PRODUCTS AND S CUSTOMER LOCK IN CUSTOMER - AMERICAN HOSPITAL SUPPLY ORDER ENTRY BID PREPARATION -AIRLINES FREQUENT FLYER - RED RIVER CONSTRUCTION UNDERBID ON ALL CONTRACTS NOTE: POSITIVE AND NEGATIVE LINKAGES/CONNECTIVITY EXPAND MARKET DEFINITION - JC PENNY CREDIT CARD FOR MOBIL & GULF - Mrs Field s cookies Industry software

6 VALUE CHAIN MODEL Intra-organizational model SUPPORT ACTIVITIES { PRIMARY ACTIVITIES Opportunities: - lower cost - within individual value chain - add value - through improved linkages

7 INTERLINKED VALUE CHAINS POTENTIAL NEW ENTRANT SUPPLIER YOU (A) CUSTOMER (B) OPPORTUNITY FOR NEW PRODUCTS AND S

8 Value Chain B INTERDEPENDENCE OF ACTIVITIES BETWEEN VALUE CHAINS Inbound Logistics Operations Outbound Logistics Marketing & Sales Inbound Logistics Operations Value Chain A Outbound Logistics Marketing & Sales Service Service MSC Prof Y. Lee Page 3-8

9 EXAMPLE 1 POTENTIAL NEW ENTRANT SUPPLIER AMERICAN HOSPITAL SUPPLY (BAXTER) CUSTOMER OPPORTUNITY FOR NEW PRODUCTS AND S

10 AMERICAN HOSPITAL SUPPLY (AHS)! SIMPLE STORY " Provided hospitals with direct data-entry capability! IMPLICATIONS " Raised barrier to entry " Locked in customer " Lowered clerical and inventory costs (customer and AHS) " Volume discounts " Better inventory control less stock-outs outs " Better production coordination reduce costs and improve service " Reduced data entry errors reduce costs and improve service " New activities:» Business consultants to hospitals» Marketing information data (based on data from customers) MSC Prof Y. Lee Page 3-10

11 Your EXAMPLE POTENTIAL NEW ENTRANT (COMPETITOR) SUPPLIER CUSTOMER OPPORTUNITY FOR NEW PRODUCTS AND S

12 AIRLINE RESERVATION SYSTEMS AND FREQUENT FLYER PROGRAMS! SIMPLE STORY: " Added incentive to fly on that airline! Who owns and uses data about you from you? " "Big brother" concern! AIRLINE RESERVATION SYSTEM INITIAL BENEFITS: " Lock you in and generate revenue " Preferential screen display (until Aggregators show up)! OTHER IMPACTS " Much better data for Yield management increase profits " Special deals edge over competition " Against new competition protect revenues " Generate new revenues MSC Prof Y. Lee Page 3-12

13 EXAMPLE X POTENTIAL NEW ENTRANT SUPPLIER CUSTOMER OPPORTUNITY FOR NEW PRODUCTS AND S

14 SUMMARY! NEED TO EXPLORE NEW COMPETITIVE STRATEGIES AND PROCESSES! APPROACHES: " Competitive forces (5-forces) " Value chain analysis " Changes what work gets done and by whom! LONG-TERM IMPACTS ON COMPANY AND INDUSTRY " Support cost and differentiation strategies " Alters industry structure " Spawn entirely new businesses INTERLINKED VALUE CHAINS! NOTE INTERDEPENDENCE OF STRATEGY, IT, AND ORGANIZATION MSC Prof Y. Lee Page 3-14

15 ! End of Article 1 MSC Prof Y. Lee Page 3-15

16 Strategy and the New Economics of Information! Britannica vs. Encarta! Britannica s cost structure? " Contents: 5% " Intensive personal selling» Automobiles, insurance, real estate, travel! Every business is an Information business " Ex.: Healthcare in the US» $300 billion plus business for information! Transformation of Retail Banking " Other Examples? MSC Prof Y. Lee Page 3-16

17 Implications for Competitive Advantage! New Business?! New Information Product?! New Processes?! New Strategies?! New Technologies?! New Value chains? MSC Prof Y. Lee Page 3-17

18 Summary! Focus on Customer: Who is your customer anyway! Create new strategy! Create or revise product! Innovate how you produce and deliver that product! Study flow and contents of information! Reconfigure access to information! Interweave value chain! Transform business process, market structure MSC Prof Y. Lee Page 3-18

19 H.E. B. Grocery company! Key innovations? Payoffs?! Opportunities and challenges in using information and IT as Strategic advantages?! Future challenges and your advice? MSC Prof Y. Lee Page 3-19

Information Systems and Business Strategy. Chapter 3 (9E) Ch 3 & Questions

Information Systems and Business Strategy Chapter 3 (9E) 10/7/2007 Laudon & Laudon 1 Ch 3 & Questions 1. What are information systems? Explain the nature and interaction of technology, people, and organizational