MASSACHUSETTS INSTITUTE OF TECHNOLOGY SLOAN SCHOOL OF MANAGEMENT 15.565 Integrating eSystems: Technology, Strategy, and Organizational Factors 15.578 Global Information Systems: Communications & Connectivity Among Information Systems 1 Spring 2002 Lecture 2 INFORMATION TECHNOLOGY STRATEGY: INTERLINKED VALUE CHAINSCOMPETITIVE STRATEGIES AND NEW PROCESSES – FRAMEWORKS • ISSUES: • Corporate strategy • Information technology Competitive Advantage • APPROACHES: • Five - forces model • Value chain model • Transform processes • Long-term impacts Interlinked Value Chains 2TECHNOLOGY 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 by-products 3. ALTERING INDUSTRY STRUCTURE 3IMPACT OF COMPETITIVE FORCES (“5 Forces”) - BASIC MODEL: SEE PORTER, COMPETITIVE STRATEGY 4MODIFIED 5-FORCES MODEL I. INTER-ORGANIZATIONAL NEW ENTRANTS/COMPETITORS •WARD OFF COMPETITION -DELTA • MAILING TO FREQUENT FLYERS MATCHING AND BEATING COMPETITION 5 SUPPLIER CUSTOMER STRATEGIC BUSINESS UNIT NEW PRODUCTS AND SERVICES •COORDINATE SUPPLIER - TOYS ‘R US • CONTROL INVENTORY SHIPPING • RESPOND TO DEMAND (SELL-OFF LOSERS FAST •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 SERVICE FOR MOBIL & GULF - CITIBANK, MORGAN GUARANTY •TRANSACTION PROCESSORS 2. INTRA-ORGANIZATIONALVALUE CHAIN MODEL SUPPORT ACTIVITIES { INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SERVICE MARGIN MARGIN MARKETING AND SALES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT PRIMARY ACTIVITIESOpportunities: - lower cost - within individual value chain - add value - through improved linkages 6INTERLINKED VALUE CHAINS INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SERVICE MARGIN MARGIN MARKETING AND SALES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT POTENTIAL NEW ENTRANT INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SERVICE MARGIN MARGIN MARKETING AND SALES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SERVICE MARGIN MARGIN MARKETING AND SALES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SERVICE MARGIN MARGIN MARKETING AND SALES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT SUPPLIER YOU (A) CUSTOMER (B) INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SERVICE MARGIN MARGIN MARKETING AND SALES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT OPPORTUNITY FOR NEW PRODUCTS AND SERVICES 7INTERDEPENDENCE OF ACTIVITIES BETWEEN VALUE CHAINS Value Chain A Inbound Operations Outbound Marketing & Service Logistics Logistics Sales B Inbound Logistics Operations n i a h C eulaVOutbound Logistics Marketing & Sales Service 8EXAMPLE 1 INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SERVICE MARGIN MARGIN MARKETING AND SALES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT POTENTIAL NEW ENTRANT INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SERVICE MARGIN MARGIN MARKETING AND SALES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT SUPPLIER INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SERVICE MARGIN MARGIN MARKETING AND SALES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SERVICE MARGIN MARGIN MARKETING AND SALES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SERVICE MARGIN MARGIN MARKETING AND SALES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT CUSTOMER AMERICAN HOSPITAL SUPPLY (BAXTER) OPPORTUNITY FOR NEW PRODUCTS AND SERVICES 9AMERICAN 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 • 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 10EXAMPLE 2 INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SERVICE MARGIN MARGIN MARKETING AND SALES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SERVICE MARGIN MARGIN MARKETING AND SALES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SERVICE MARGIN MARGIN MARKETING AND SALES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SERVICE MARGIN MARGIN MARKETING AND SALES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT POTENTIAL NEW ENTRANT (COMPETITOR) SUPPLIER CUSTOMERDELTA AIR LINES Normal Frequent Flyers INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SERVICE MARGIN MARGIN MARKETING AND SALES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT OPPORTUNITY FOR NEW PRODUCTS AND SERVICES 11AIRLINE RESERVATION SYSTEMS AND FREQUENT FLYER PROGRAMS • SIMPLE STORY: • Added incentive to fly on that airline • HISTORICAL ASIDE • "Big brother" concern • AIRLINE RESERVATION SYSTEM INITIAL BENEFITS: • “Lock you in” and generate revenue • Preferential screen display • OTHER IMPACTS • Much better data for Yield management increase profits • Special deals edge over competition • Against new competition protect revenues • Generate new revenues • INTERESTING ISSUE: Who is the "customer"? 12MANY OTHER EXAMPLES INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SERVICE MARGIN MARGIN MARKETING AND SALES FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT