Review Sheet for Final Fall 2011 BMGT 301 Dr Karake Strategy Technology IT STRATEGY BASICS VALUE CHAIN FORCES SLIDES performing the same tasks better than rivals perform performing the same tasks in a different way performing different tasks than your rivals or Higher value revenue Competitive advantage Competitive Advantage is the ability of a firm to outperform its competitors in Operational effectiveness Operational Effectiveness them Lower cost Strategic positioning Strategic Positioning financial measures Can be Measured by o Accounting profits o Stock prices Sustainable competitive advantage Sustainable competitive advantage is an advantage that one firm has relative to competing firms Even though firms can improve their efficiency through investing in IT they may not gain any competitive advantage if everyone else also uses IT to improve efficiency A factor or set of factors can lead to sustainable competitive advantage if o Affects firm value in a positive way advantage o Not too many competitors can imitate it competitive o Can keep it up sustainable Sustainability of a competitive advantage depends on o Lead time will allow the achievement of competitive advantage o Copy cats may fail because of Uniqueness o If copied Your organization will still have preempted the marketplace Examples of a sustainable competitive advantage Amazon eBay Imitation resistant value chain Find ways to gain a competitive advantage Michael porter is the father for competitive advantage 80s concepts 1990 91 applied his view to nations competitive advantage of nations book Value chain connected series of activities each of which adds value or supports the addition of value to the firm s goods and services1 Extending the Value Chain The Value Web o A firm s value chain is linked to the value chains of its suppliers distributors and customers o A value web is a collection of independent firms that use information technology to coordinate their value chains to produce a product collectively o Value webs are flexible and adapt to changes in supply and demand Virtual Value Chain o Digital Assets infinite reuse near zero cost o Economies of Scale small global firms o Economies of Scope leverage into new markets o Transaction Cost Compression o Sense and Respond to Market Swiftly Resources for competitive advantage Successfully using IS to achieve competitive advantage requires precise coordination of technology organizations and people o Some IT and systems are specific to particular parts of the value chain or departments o Other systems known as enterprise wide systems support and are used by the entire enterprise through a centralized database and coordinated software modules o IT can support almost every activity in the organization as well as helping to transform and integrate differing aspects of the value chain Major Benefits of IS o It helps create barriers to competitor s entry into the market o It can often increase customers switching costs to competitors system o It can pose a threat to existing rival firms o It can develop a business process that allows the firm to choose an optimal pricing strategy for products and services Through the intelligent use of IT a business can increase its competitive advantage IT enables competitive advantage by o Be different Own a Niche market so no one can compete with you Product differentiation o New pricing strategies Price discrimination Price discrimination exists when sales of identical goods or services are transacted at different prices from the same provider In general the practice of charging different customers different prices is called price discrimination o Lowering cost Automation substitution processing data cheaper Counting Inventory Information as substitute for inventory Concept of switching costs Ideally an organization wants to be in a market in which there are few substitutes for its products or services This is difficult to achieve and most organizations create a competitive advantage through switching costs the more painful it is for a customer to switch suppliers the less likely they are to switch If a customer has to experience pain when switching to a different service provider then they are unlikely to switch For example switching doctors usually involves sending all medical records and explaining all past medical history to the new doctor Insurance also has to be transferred along with detailed forms that the customer will be required to complete such as family history personal history HIPAA etc For these reasons customers have to be extremely dissatisfied with a doctor before they will endure the pain of finding or switching to a new doctor Differentiation Many possible dimensions to differentiate products o Physical attributes color size o Intangible attributes service quality Two types of differentiation o Vertical build a better product products differ in quality Civic vs Acura o Horizontal position yourself in product space away from your competitors used to appeal to distinct group of customers red and blue cars Networks effects Metcalfe s Law Law of Externalities Value of network grows exponentially as people in the network grow 3 sources o Exchange how many people connect to network and exchange information facebook o Staying power likelihood of a product to succeed o Complimentary products different products are dependent on other products a printer is dependent on a computer Activities involved in Value Chain Analysis model Value chain model highlights the primary or support activities that add a margin of value to a firm s products or services where information systems can best be applied to achieve a competitive advantage Besides determining discrete steps in chain also need to analyze linkages between steps in value chain Use value chain analysis to identify strategic information systems to use IS strategically must identify potentially info related aspects of each activity in value chain and linkages between them Primary Activities o Directly linked to production and distribution Directly related to the production and distribution of the organization s products and services that create business value for the organization and its customers Example primary activities include inbound logistics obtaining raw materials operations creating the product outbound logistics shipping the product and marketing sales and service selling the product Supporting Activities o Value chain activities that an organization conducts
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