Chapter 2.

Strategic Use of Information Resources

Prof. Dr. Piet Ribbers

Introduction

In 1994 Dell stopped selling PCs through retail stores It moved to using an integrated IT platform that allows customers to specify and order a PC Strategic use of IS produced Cost savings f f d d from reduced d d inventories resulting in lower prices Business environment changed from Make to Stock (MTS) to Assembly to order (ATO) This innovation was a competitive advantage for Dell, which used its information resources to achieve high volumes without the high costs of the industrys traditional distribution channels
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EVOLUTION OF INFORMATION RESOURCES

Different Approaches in Three Eras

MIS-Era
DP - ERA
Organizational discontinuity Technological discontinuity

Added Value of ISs

SIS- era

Improve operational efficiency [DP era] Improve management information provisioning [MIS era] Improve competitiveness [SIS era]

[NETWORK era]

Eras of Informational Usage in Organizations

1960s
Primary Role of IT Efficiency Automate existing paperbased processes ROI Lower transaction costs

1970s
Effectiveness

1980s
Effectiveness

1990s
Strategic Transform industry/orga nization

2000
Value creation/str ategic Create collaborative partnerships hi Adding Value

Solve problems and create opportunities Increasing productivity and decision making

Increase individual and group effectiveness

Justify IT expenditure

Better decision Competitive making position

INFORMATION RESOURCES AS STRATEGIC TOOLS

Dominant technology

Mainframebased

Minicomputerbased

Microcomputer Client-Server decentralized distribution intelligence intelligence

Internet ubiquitous intelligence

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Using Information resources to create strategic advantage

Using Information resources to create strategic advantage

Strategic advantage must be crafted by combining all of the firms resources including: production resources, human resources, and information resources

Strategic advantage must be crafted by combining all of the firms resources including: production resources, human resources, and information resources Information resources include not only data, but also technology, people, and processes

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Transformation ..of the

Dutch Flower Industry

Internet

TFA

info clock price info African grower EAF Dutch buyer

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Example of Net Enhancement

Economic Setting of the Dutch Flower Market

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Example of the Movement of Goods in the Dutch Flower Market

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Future Movement of Goods in the Dutch Flower Market?

Examples of information resources available to a firm:

Eliminate physical inspection by buyers: Pictorial displays and ratings by trusted onsite sources combined with the Buyer-At-a-Distance Auction (BADA) system allows buyers to remotely bid on lots eliminate expensive link in the value chain
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IS infrastructure Information and knowledge Proprietary t h l P i t technology Technical skills of the IT staff End users of the IS Relationship between IT and business managers Business processes

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What advantages might an information resource create?

A manager might consider the following to understand the type of advantage the information resource might create:

What makes the information resource valuable? Who appropriates the value created by the information resource? Is the information resource equally distributed across firms? Is the information resource highly mobile? How quickly does the information resource depreciate?
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HOW CAN INFORMATION RESOURCES BE USED STRATEGICALLY?

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Aligning IS strategy with Business Strategy

Aligning IS strategy with Business Strategy

Using multiple approaches to evaluating the strategic landscape is helpful in determining strategic opportunities. g g pp

Using multiple approaches to evaluating the strategic landscape is helpful in determining strategic opportunities. g g pp Here, we look at three such approaches: Porters five forces model of the competitive advantage of firms Porters value chain model of internal organizational operations
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Porters Five Forces Model of Competitive Advantage

Porters Five Forces Model of Competitive Advantage

Porters Five Forces Model divides entities in the competitive landscape into 5 groups as follows: 1. Threat of New Entrants: new firms that may enter a companies market. 2. Bargaining Power of Buyers: the ability of buyers to use their market power to decrease a firms competitive position 3. Bargaining Power of Suppliers: the ability suppliers of the inputs of a product or service to lower a firms competitive position 4. Threat of Substitutes: providers of equivalent or superior alternative products 5. Industry Competitors: current competitors for the same 22 product.

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Application of 5 Forces Model

Competitive Force Threat of New Entrant IT Influence on Competitive Force Can be lowered if there are barriers to entry. Sometimes IS can be used to create barriers to entry Can be high if its easy to switch. Switching costs are increased by giving buyers things they value in exchange such as lower costs or useful information This Force is strongest when there are few firms to choose from, quality of inputs is crucial or the volume of purchases is insignificant to the supplier Depends on buyers willingness to substitute and the level of switching costs buyers face Rivalry is high when it is expensive to leave and industry, the industrys growth rate is declining, or 23 products have lost differentiation

The Five Forces Model and IS

The Five Forces Model provides a way to think about how information resources can create competitive advantage Using Porters Model, General Managers can: Identify key sources of competition they face. Identify uses of information resources to enhance their competitive position against competitive threats Consider likely changes in competitive threats over time 24

Bargaining Power of Buyers

Bargaining Power of Suppliers

Threat of Substitute Products Industrial Competitors

Five forces web sites

http://www.themanager.org/Models/p5f.htm#_Toc516553133

The Value Chain of the Firm

http://www.investopedia.com/features/industryhandbook/porter.asp

http://www.tutor2u.net/business/strategy/porter_five_forces.htm

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Porters Value Chain Model

Porters Value Chain Model

Porters Value Chain Model looks at increasing competitive advantage by reorganizing the activities related to create, g g , support and deliver a firms product or service.

Porters Value Chain Model looks at increasing competitive advantage by reorganizing the activities related to create, support and deliver a firm s firms product or service service. These activities can be divided into two broad categories (See Figure 2.6): Primary activities that relate directly to how value is created for a product or service. Support activities that make the primary activities possible and that manage the coordinate of different activities.
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Using Information Resources to Alter the Value Chain

Using Information Resources to Alter the Value Chain

The Value Chain model suggest that competition can come from two sources: Lowering the cost to perform an activity and Adding value to a product or service so buyers will be willing to pay more.

The Value Chain model suggest that competition can come from two sources: Lowering the cost to perform an activity and Adding value to a product or service so buyers will be willing to pay more. Lowering costs only achieves competitive advantage if the firm possesses information on the competitors costs Adding value is a strategic advantage if a firm possesses accurate information regarding its customer such as: which products are valued? Where can improvements be made?
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Value Chain Analysis of Strategic Opportunities

Application of the Value Chain Model

Activity Inbound Logistics Grocery Chains Value Chain Primary Activities Analysis of buying patterns suggest items should be stocked at local stores, including amounts and optimum delivery times Automated checkout can speed p ckt. operations; may lead to reduced staffing of registers/ lower operating costs Analysis of b. patterns can aid grocery chains in better determining demand, leading to better forecasting for both chain and supplier Analysis of b. p y patterns can reduce last-minute orders and improve suppliers processing of orders Sharing analysis of b. patterns Analysis of b. patterns can aid by grocery chain can aid supplier in scheduling development of promotional Suppliers may be able to offer strategies/ highlight customer economies of scale in its preference purchases Automated checkout lanes shorten customer waiting times Sharing analysis of b. patterns allows better supplier service Supplier Value Chain

Z-1992 fig 5.5 & 5.6

Operations

Outbound logistics Marketing and Sales Service

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Application of Value Chain Model

Secondary Activities
Organization Human Resources Technology Staffing needs for cash registers may be reduces with automated checkout t t d h k t Shopping card can Grocery chain can provide data for market provide information to research help suppliers marketing research Grocery chain may Supplier chain may be able to capture be able to capture more discounts for more discounts for volume purchases volume purchases
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Value chain websites

http://www.valuebasedmanagement.net/methods_porter_value_chain.html http://www.electrabel.be/corporate/aboutelectrabel/businessmodel_en.asp http://www.accenture.com/xd/xd.asp?it=enweb&xd=services%5Cscm%5Ccase%5Cscm_gambro.xml http://www accenture com/xd/xd asp?it=enweb&xd=services%5Cscm%5Ccase%5Cscm gambro xml http://www.netmba.com/strategy/value-chain/ http://www.cscresearchservices.com/foundation/library/value/GTR.asp http://www.iwvaluechain.com/FAQ/ http://www.1000ventures.com/business_guide/im_value_chain_main.html

Purchasing

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The Value System: Interconnecting relationships between organizations

The Value System

Many value chains can be linked into a value system. 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
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The Value System and Strategic Alliances

STRATEGIC ALLIANCES

Many industries are experiencing the growth of strategic alliances that are directly linked to sharing information resources across existing value systems. E.g., Delta recently formed an alliance with e-Travel Inc to promote Deltas inline reservation system. This helps reduce Deltas agency fees while offering e-Travel new corporate leads.
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Types of Strategic Alliances

Risks

Supply Chain Management: technology, especially Web-based, allows the supply chain of a company s companys customers and suppliers to be linked through a single network that optimizes costs and opportunities for all companies in the supply chain Co-opetition: a new strategy whereby companies cooperate and compete at the same time with companies in their value net
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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 what systems that dont meet the firms target market likely to fail Running afoul of the law Using IS strategically may promote litigation
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End of Chapter 2 d f h

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