Chapter 3

Organization Strategy, IS, Competitive

Advantage
Dr. Preecha Tangworakitthaworn

Dr. Srisupa Palakvangsa Na Ayudhya

Study Questions
1) How does organizational strategy determine
information systems requirements?
2) What five forces determine industry structure?
3) What is competitive strategy?
4) How does competitive strategy determine value
chain structure?
5) How do value chains determine business
processes and information systems?
6) How do information systems provide
competitive advantages?
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What is strategy?
1) A method or plan chosen to bring about a desired
future, such as achievement of a goal or solution to a
problem.
2) The art and science of planning and marshalling
resources for their most efficient and effective use.

Organizational Strategy Determines Information

Systems
Ref:http://www.businessdictionary.com/definition/strategy.html#ixzz4IVJnwoHp

How to determine? Planning Process

Industry Stucture
use Five Forces Model to determine the
potential profitability of an industry
Five Forces Model
o Grouped into two types
o Competitive Forces
o Supply Chain Bargaining Power

Five Forces Model

Competitive Forces
o Competition from Existing Rivals
o Competition from New Competitors
o Competition from Vendors of Substitutes

Supply Chain Bargaining Power

o Bargaining Power of Suppliers
o Bargaining Power of Customers

Five Forces Model

Rivalry Among Existing Competitors

How fierce is the
battling for position and
how aggressive is
competition in the
industry?
Example:
o Bag Shops on Internet
o 7-11
o eMail Service

Threat of New Entrants

How easily can
competitors enter the
market?
Are the barriers
significant enough?
Example: Toyota, eBay,
Alibaba

Threat of Substitutes
How easily can the
product or service be
replicated in a way that
meets the same
customer needs?
Example:
o Paper VS Tablet
o Tape Cassette VS iPod VS
smartphone
o videotape VS CD VS DVD VS
Bluray

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Bargaining Power of Buyers

How easily can
customers influence the
price of the product or
service?
Example:
o Tesco/ Big C/ Homework/
Ikea
o Street Shop

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Bargaining Power of Suppliers

How easily can
individuals and firms sell
their products and
services at high prices?
Example:
o Tesco/ Big C/ Homework/
Ikea
o Street Shop

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Assessing the Five Forces at AllRoad

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Assessing the Five Forces at AllRoad

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How to determine? Planning Process

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Competitive Strategy
Definition
A superiority gained by an organization when it can
provide the same value as its competitors but at a
lower price, or can charge higher prices by
providing greater value through differentiation.
Competitive advantage results from matching core
competencies to the opportunities.
Read more: http://www.businessdictionary.com/definition/competitiveadvantage.html#ixzz4IVsnabhl
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Porter's Four Competitive Strategies

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Four Basic Competitive Strategies

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How to determine? Planning Process

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What is Value?
When something novel is done
When this something novel is deemed
worthwhile by someone else
Economic value is created through a
transformation process.
Resource: Value $x (Input)
Transformation
process

Customer Willing to Pay: $x + $v (Output)

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Transformation Process
Input resources (value of $x in their next best
utilization) are transformed into outputs for which
customers are willing to pay $x + $v
$v is the amount of new value that was created
o It was not there before
o It would not come to be unless the transformation
process occurred

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Transformation Process
Input Resources:
o Any factor of production, such as raw materials,
labor, equity and debt capital, managerial talent,
support services

Output Resources:
o The product and/or service that the firm can sell and
a customer is interested in acquiring.

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Example
Input Resources
oLabor
oStores & warehousing facilities
oTrucks and equipment
oFuel for trucks & utilities for stores
oEquity and debt capital
Transformation Processes
oAcquiring products in bulk
oWarehousing them
oDistributing them to stores
Output
oConvenient access to a large selection of mainstream
products
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Key Components of Value

Supplier Opportunity Cost (SOC):

oThe minimum amount of money the suppliers are willing to

accept to provide the firm with the needed resources

Firm Cost (FC):

oThe actual amount of money the firm disbursed to acquire the

resources needed to create its product or service

Customer Willingness to Pay (CWP):

oThe maximum amount of money the firms customers are

willing to spend in order to obtain the firms product

Total Value Created (TVC):

oThe difference between customer willingness to pay and

supplier opportunity cost

TVC = CWP SOC

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Total Value Created

(Ingredients $4 + Baking time $6.50 + Elec $0.50 = $11)
Supplier
opportunity
cost

Coffee Shop
willingness to pay

Value
continuum
$11

$20

Total value created in the

cake-making transformation
process: $9

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Appropriating the Value Created

TVC only tells us if there is an opportunity to make
a profit.
Value Appropriation:
The process by which the total value created in the
transaction is allocated amongst the entities who
contributed to creating it

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Value Appropriation
Supplier
opportunity cost

Your Firms
cost

Coffee Shop willingness to

pay
Price

Value
continuum

$11

$12

Supplier Share

$20

$18

Your Firms Share

Coffee Shops Share

Total value created in the cake-making

transformation process: $9

o The suppliers appropriate $1.00 in excess profits

o You appropriate $6.00 in excess profits
o The customer, the gourmet coffee shop, appropriates
$2.00 in savings
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Added Value
Cake with special decoration

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Some Considerations
Two ways to create new value
o Increasing Customer Willingness to Pay
o Decreasing Supplier Opportunity Cost

Value is in the eye of the customer

Customer willingness to pay is not the same as
price
Value can be tangible or intangible

Creation of value is not the same as

appropriation of value
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Value Chain
As managers you will analyze opportunities to
use strategic IS to create added value.
The value chain model identifies
o Primary activities
o Support activities

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Value Chain

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Primary Activities
Those directly related to value creation
They are:
o Inbound logistics: Receiving, storing, and disseminating
inputs to the product
o Operations: Transforming inputs into the final product
o Outbound logistics: Collecting, storing, and physically
distributing the product to buyers
o Marketing and Sales: Inducing buyers to purchase the
product and providing a means for them to do so
o Service: Assisting customers use of the product and thus
maintaining and enchancing the products value
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Supporting Activities
Those not directly related to the transformation
process
They are necessary to enable it.
They are:
oFirm infrastructure
oHR management
oTechnology development
oProcurement

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Example: Bicycle Manufacturer

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How Do Value Chains Determine

Business Processes & IS?

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How Do Value Chains Determine

Business Processes & IS?

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How to determine? Planning Process

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How to determine? Planning Process

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How do IS provide Competitive Advantage?

Could be developed by many methods e.g.
o Via products
o Via services
o Via the development of business process

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Principles of Competitive Advantage

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References
Slide from Management Information System
(MIS) Presented By: Navneet Jingar
Slide from Experiencing MIS (6th ED)
Book: An Introduction to Business Information
Management

Book: MIS 13th Edition

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