11Managing InformationSystems For Strategic Advantage (Part 1)BUS3500 - Abdou Illia, Fall 2006(Week 11, Thursday 11/2/2006)2LEARNING GOALS Explain Value Chain and Value Chain Analysis. Explain how IS can support Value Chain activities. Explain Competitive Forces and Porter’s Competitive Forces Model. Explain how IS can help dealing with Competitive Forces issues.3Value Chain?Q1: Which internal processes are directly related to getting raw materials andtransforming them into something of greater value?Internal Business ProcessesSuppliersCustomersPurchase Price + Added Value + Profit Margin = Sales PriceProduction ProcessesSales ProcessesPurchasingProcessesWarehousingProcessesMarketingProcessesAccountingProcessesDeliveryProcessesHuman ResourcesProcesses24Types of processes in Value Chain1) Business processes directly related to: getting raw materials transforming raw material into something of greater value.2) Business processes that  support Value Chain activities  but do not directly add value to a product.5Inbound logistics: Receiving, warehousing raw materialsOperations: Actual conversion of raw material into finished productsOutbound logistics: Getting the finished products to the customersMarketing & Sales: Getting the customers buy the productsService: Keeping products work after purchaseCheck Business Knowledge Center or 12Manage for more on Porter’s frameworkQ2: In a Value Chain, primary activities include functions such as Accounting T FQ3: The cost of implementing and managing IS is part of the value chain T F6Porter’s Value Chain Analysis tool A tool for analyzing internal business activities that bring products and services to market A process of analyzing the activities within an organization’s value chain Companies could gain strategic advantages by focusing on a particular portion of the value chain IT can help reduce the costs of these processes, thus increasing profit margins37Information Systems and Value Chain Dell Computer Corporation gained a strategic advantage over its competitors by using IS in performing a specific activity of Porter’s Value Chain . Dell used and still uses a system called Just-In-Time (JIT) Inventory. JIT allows Dell to stock only small amounts of raw materials used to build computers. With JIT, the small amounts are automatically restocked when the levels drop below a predetermined amount. JIT allows Dell to keep less than 6 days of inventory in hand while most of its competitors stock more than 30 days of inventory. Therefore, Dell dramatically reduced its warehousing costs and better managed its cash flow.1) What Value Chain activity does Dell focused on to gain a strategic advantage over its competitors?2) What kind of Business integration system is JIT?8Information Systems and Value Chain What kind of Business Integration system could help performing these Value Chain activities?ServiceMarketing & SalesOutbound LogisticsInbound LogisticsOperationsProcurementHuman Resource ManagementCRMSCMERP9Porter’s Competitive Forces Model:Dealing with external factorsIndustrycompetitionIndustry Competition: Rivalry within the industryNew Entrants: Potential competitors. E.g. IBM could decide to use Dell’s direct selling modelSuppliers: Bargaining power of suppliers. The more suppliers, the less their bargaining powerCustomers: Bargaining power of customers. Individual has less bargaining power than corporations.Substitutes: Potential for substitute products to undercut our market share.410Porter’s Competitive Forces Model Five components Level of competition in industry Threat of new entrants into industry Bargaining power of customers Bargaining power of suppliers Threat of substitute products Uses for CFM Determine company’s own position within industry Identify competitive forces and threats early Analyze industries and market segments to determine their future prospects Possible strategic decisions based on CFM use Begin producing substitute product Exit a declining market segment11Information Systems and Competitive Forces How can information systems change the way an organization reacts to its competitive forces? By changing the bargain power of suppliers By building closer ties with customers By increasing or decreasing barriers to entry in a market12Information Systems and Competitive Forces What kind of Business Integration system could help dealing with these Competitive Forces issues? Changing the bargain power of suppliers Building closer ties with customers Increasing barriers to entry in a marketFTAn information system will do little in changing the bargaining power of a company’s suppliers and customers FTIn using Porter's Five Forces Model, buyers power is low when they have many choices of whom to buy from, and it's high when their choices are few.FTIn Porter's Five Forces Model, an industry is more attractive when the rivalry among existing competitors is high. FTIn Porter’s Competitive Forces Model, the bargaining power of suppliers depends on their size relative to the buyer and their overall market power513Summary Questions5) What kind of Information systems could help dealing with Competitive Forces issues?104) What are the possible uses of Porter’s Competitive Force Model?3) What kind of Information systems could help performing each of the primary and support activities of Porter’s Value Chain?2) Could companies gain strategic value by focusing on only one activity of the value chain?1) What is Value Chain? What are the two types of activities in Porter’s Value Chain Analysis