Digital Transformation

Technologies
Ts. Ahmad Kamal Bin Hasan Basri
Lecture 2

Gaining Competitive Advantage Through

Information Systems (chapter 2)

14 June 2022
Please Take Your Attendance for W2.
Scan the QR Code
Chapter 2 Learning Objectives
Enabling Organizational Strategy Through Information
Systems
• Discuss how information systems can be used for
automation, organizational learning, and strategic
advantage.

Business Models in the Digital World

• Describe how information systems support business
models used by companies operating in the digital
world.

Valuing Innovations
• Explain why and how companies are continually
looking for innovative ways to use information
systems for competitive advantage.

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Enabling Organizational Strategy
Through Information Systems (1 of 2)

• Organizational Decision-Making Levels

• Organizational Functional Areas
• Information Systems for Automating: Doing Things Faster
• Information Systems for Organizational Learning: Doing
Things Better
Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Enabling Organizational Strategy
Through Information Systems (2 of 2)
• Information Systems for Supporting Strategy: Doing
Things Smarter
• Identifying Where to Compete: Analyzing Competitive
Forces
• Identifying How to Complete: Choosing a Generic
Strategy
• Identifying How to Compete: Resources and Capabilities
• Identifying How to Compete: Analyzing the Value Chain
• The Role of Information Systems in Value Chain Analysis
• The Technology/Strategy Fit
Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Organizational Decision-Making Levels
• Executive/Strategic
Level
– Upper Management
• Managerial/Tactical
Level
– Middle Management
• Operational Level
– Foreman
– Supervisors
– Operational
Employees

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Operational Level

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
 Operational Level
• At the operational level of a firm, the routine, day-to-day business processes
and interactions with customers occur.
• Information systems at this level are designed to automate repetitive activities,
such as processing sales transactions, and to improve the efficiency of business
processes at the customer interface.
• Because structured decisions are relatively straightforward, they can be
programmed directly into operational information systems so that they can be
made with little or no human intervention.
• For example, an inventory management system for a shoe store in the mall
could keep track of inventory and issue an order for additional inventory when
levels drop below a specified level. Operational managers within the store would
simply need to confirm with the inventory management system that the order for
additional shoes was needed.
• At the operational level, information systems are typically used to increase
efficiency (i.e., the extent to which goals are accomplished faster, at lower cost,
or with relatively little time and effort) by optimizing processes and better
understanding the underlying causes of any performance problems.
Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Managerial/Tactical Level

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
 Managerial/Tactical Level
• At the managerial level (or tactical level) of the organization, functional
managers (e.g., marketing managers, finance managers, manufacturing
managers, human resource managers) focus on monitoring and
controlling operational-level activities and providing information to higher
levels of the organization.
• Managers at this level, referred to as midlevel managers, focus on
effectively utilizing and deploying organizational resources to increase
effectiveness (i.e., the extent to which goals or tasks are accomplished
well) to achieve the strategic objectives of the organization.
• Managerial-level decision making is referred to as semistructured decision
making because solutions and problems are not clear-cut and often
require judgment and expertise. For semistructured decisions, some
procedures to follow for a given situation can be specified in advance, but
not to the extent where a specific recommendation can be made. For
example, a business intelligence system could provide a production
manager at Nike with performance analytics and forecasts about sales for
multiple product lines, inventory levels, and overall production capacity
Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Executive/Strategic Level

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
 Executive/Strategic Level
• At the executive level (or strategic level) of the organization, managers
focus on long-term strategic questions facing the organization, such as
which products to produce, which countries to compete in, and what
organizational strategy to follow
• Managers at this level include the president and chief executive officer,
chief information officer, vice presidents, and possibly the board of
directors; they are referred to as “executives.”
• Executive-level decisions are referred to as unstructured decisions
because the problems are relatively complex and nonroutine.
• For unstructured decisions, few or no procedures to follow for a given
situation can be specified in advance. For example, top managers may
decide to develop a new product or discontinue an existing one. Such a
decision may have vast, long- term effects on the organization’s levels of
employment and profitability.

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Executive/Strategic Level
• To assist executive- level decision making, information systems are
used to obtain aggregate summaries of trends and projections of the
future. At the executive level, information systems provide KPIs that
are focused on balancing performance across the organization, such
that, for example, product launches are staggered to smooth out the
effects of spikes in demand on the supply chain
• Information systems used for executive-level decisions need to
consider various types of unstructured data, such as data related to
global economic factors, demographic changes, or changing
customer tastes and preferences.
• Executives also engage in environmental scanning to assess how
new information systems can help the organization offer new product
or services and support strategy.

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
 Organizational Functional Areas (1 of 3)
• Organizations also have functional areas representing a
discrete area that focuses on a specific set of activities

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Organizational Functional Areas (2 of 3)

A functional area information system is designed to support the unique

business processes of these areas

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Organizational Functional Areas (3 of 3)

The business value added from

automating, learning, and strategizing
with information systems

• When deploying information systems across organizational levels and

functions, there are three general ways the information system can
provide value:
• to enable automating activities (doing things faster)
• to enable learning (doing things better)
• to enable the execution of organizational strategy (doing things smarter)
Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Information Systems for Automation:
Doing Things Faster
Table 2.2 Activities Involved Under Three Different Loan Application Processes
Primary Activity Manual Loan Tech-Supported Fully Automated
Process (Time) Process (Time) Process (Time)
Complete and submit loan Customer takes the Customer takes the Customer fills out application
application application home, completes application home, from home via the web (15
it, and returns it (1.5 days) completes it, and returns minutes)
it (1.5 days)
Check application for Employee does this in Employee does this in Computer does this as it is
errors batches (2.5 days) batches (2.5 days) being completed (1 second)
Input data from Applications are kept in paper Employee does this in Done as part of the online
application into the form, handling time involved batches (2.5 days) application process (no extra
information system (1 hour) time needed)
Assess loan applications Employee does this Employee does this with Computer does this
under $250k to determine completely by hand (15 days) the help of a computer (1 automatically (1 second)
whether to fund them hour)
Committee decides this (15 days) (15 days) (15 days)
on loans over $250k
Applicant notified Employee generates letters Employee generates System notifies applicant via
automatically in batches (1 letters with the help of a email (1 second)
week) computer (1 day)
Total time 25-40 days 5-20 days 15 minutes to 15 days

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Information Systems for Organizational
Learning: Doing Things Better (1 of 2)
• By analyzing data created when automating a process, improved understanding about
the underlying work processes can be developed.

• The learning mentality recognizes that information systems can be used as a vehicle
for organizational learning—the ability of an organization to use past behavior and
data to improve its business processes—and for change as well as for automation.

A computer-based loan
processing system enables
the bank manager to identify
trends in loan applications

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Information Systems for Organizational
Learning: Doing Things Better (1 of 2)
• A combined automating and learning approach, in the long run, is more effective than
an automating approach alone. If the underlying business process supported by
technology is inherently flawed, a learning use of the technology might help you detect
problems with the process and change it.

• For instance, in our loan processing example, a learning use of technology may help
us uncover a pattern among the accepted loans that enables us to distinguish
between low-and high-performing loans over their lives and subsequently to change
the criteria for loan acceptance.

• If, however, the underlying business process is bad and you are using technology only
for automating (i.e., you would not uncover the data that would tell you this process is
bad), you are more likely to continue with a flawed or less-than-optimal business
process. In fact, such an automating use of technology may mask the process
problems.

• With a bad underlying set of loan acceptance criteria, a person might manually review
four applications in a day and, because of the problematic criteria used, accept on
average two “bad” applications per week. If you automated the same faulty process,
with no learning aspects built in, the system might help a person review 12
applications per day, resulting in up to six “bad” applications accepted per week on
average.

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Information Systems for Organizational
Learning: Doing Things Better (1 of 2)
• The technology would serve only to magnify the existing business problems.

• Without learning, it is more difficult to uncover bad business processes underlying the
information system.

Automating a loan
processing system requires sound
underlying business processes, or
errors will rapidly increase.

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Information Systems for Organizational
Learning: Doing Things Better (2 of 2)

How increasing digital density

enables Grab’s business model

• Grab uses a rider’s past behavior to learn about a customer preferences and
provide personalized ride recommendations.
• Grab’s app uses data about riders’ and drivers’ locations and a host of other
factors to anticipate surges in demand and change pricing accordingly. This data,
is also used to coordinate riders and drivers to optimize the matching of supply
and demand
Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Information Systems for Supporting
Strategy: Doing Things Smarter
• The best way to use an information system is to support
the organization’s strategy - a firm’s plan to accomplish
its mission and goals as well as to gain or sustain
competitive advantage over rivals
• A strategic mentality towards information systems goes
beyond automation and moves to help organizations
achieve their goals
• Information systems today should enable technology, not
just improve efficiency

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Information Systems for Supporting
Strategy: Doing Things Smarter
• The best way to use an information system is to support the
organization’s strategy - a firm’s plan to accomplish its mission and
goals as well as to gain or sustain competitive advantage over rivals
• When senior managers—at the executive level of the organization—
conduct strategic planning, they form a vision of where the
organization needs to head, convert that vision into measurable
objectives and performance targets, and craft a strategy to achieve the
desired results.
• A person with a strategic mentality toward information systems goes
beyond mere automating and learning and instead tries to find ways to
use information systems to achieve the organization’s chosen strategy,
such as by innovating, streamlining operations, optimizing the supply
chain, or better understanding customers.
• This person wants the benefits of automating and learning but also
looks for some strategic, competitive advantage from the system.
Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Information Systems for Supporting
Strategy: Doing Things Smarter
• In today’s business environment, if a proposed information system isn’t
going to clearly deliver some strategic value (i.e., help to improve the
business so that it can compete better) while also helping people to
work smarter and save money in the process, then it isn’t likely to be
funded.
• In the Grab example, the ability to use information systems for
personalization, anticipation, and coordination is clearly at the heart of
their organizational strategy and is fundamental to their business
model and essential to the long-term survival of the organization.
• Instead of solely improving organizations’ efficiency, information
systems now enable technology and data-driven business model
disruption

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
 Information Systems for Supporting
Strategy: Doing Things Smarter
• In other words,
incumbents see their
ways of working
challenged by
technology startups
who approach the
business in
fundamentally different
ways, grabbing market
share from the
incumbents and
ultimately making
existing business
models obsolete.

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Identifying Where to Compete:
Analyzing Competitive Forces (1 of 2)

Porter’s 5 Forces

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Identifying Where to Compete:
Analyzing Competitive Forces (2 of 2)
Table 2.3 The Influence of the Internet on the Competitive Forces
Competitive Force Implication for Firm Influence of the Internet
Traditional rivals within your Competition in price, product Increase of competitors due to wider geographic
industry distribution, and service reach; customers can more easily compare
products, so competition focuses more on price
Threat of new entrants into Increased capacity in the Reduced barriers to entry, as the internet reduces
your market industry, reduced prices, and the difficulty of obtaining critical resources or
decreased market share entering new markets
Customers’ bargaining power Reduced prices, need for Wider choices for customers lead to lower
increased quality, and demand switching costs and higher bargaining power of
for more services customers
Suppliers’ bargaining power Increased costs and reduced Companies have equal access to suppliers; easier
quality to find new suppliers; suppliers have access to
more potential buyers
Threat of substitute products Product returns from customers, New substitutes are created by the internet and
or services from other decreased market share, and other information technologies
industries losing customers for life

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Identifying How to Compete: Choosing
a Generic Strategy

Five general types of

organizational strategy:
broad differentiation,
focused differentiation,
focused low-cost
leadership, overall low-
cost leadership, and
best-cost provider

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Identifying How to Compete: Resources
and Capabilities (Resources)

Information systems are at the heart of

the different resources, capabilities, or
distinctive competencies.

Resources – Reflect the organization’s specific assets

that are utilized to achieve cost or differentiation from its
competitors

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Identifying How to Compete: Resources
and Capabilities (Capabilities)

Capabilities — Reflect the organization’s ability to

leverage their resources in the marketplace

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Identifying How to Compete: Analyzing
the Value Chain
• The Value Chain is used to identify opportunities where
information systems can be used to gain a competitive
advantage
• Value chain analysis is the process of analyzing an
organization’s activities to determine where value is
added to products and/or services and what costs are
incurred for doing so
– Leads to which activities need to be optimized
– Result is to ultimately gain or sustain a competitive
advantage

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
The Role of Information Systems in
Value Chain Analysis

• Because information systems can automate and optimize many

activities along the value chain, the use of information systems has
become one of the primary ways that organizations improve their
value chains
Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
The Technology/Strategy Fit
• Organizations are constrained by time and money to build or
acquire only those systems that add the most value: those
that help automate and learn as well as have strategic
value.
• Speed is of the essence in gaining a competitive advantage,
so organizations must choose wisely which information
systems to deploy.
• Organizations try to maximize business/IT alignment
–They do not want systems that do not match the
strategy, even if they offer automating and learning
benefits.
–While spending on information systems is rising, most
companies are willing to spend money on projects only
when they can see clear, significant value.
Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
The Technology/Strategy Fit
• Sometimes, organizations have no choice in making some types of
investments that may or may not coincide with their overall strategy.
This is called Strategic necessity-something an organization must
do in order to survive.
• In any significant I S implementation, there must be commensurate,
significant organizational change
– For example, an established organization will need to make
changes to processes, organizational roles, and the overall
organizational culture and mindset.
– This typically comes in the form of business process
management and other similar methods of improving the
functioning of the organization as opposed to merely dropping in
an information system with no attempts at changing and
improving the organization.

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Business Models in the Digital World
Enabling Organizational Strategy Through Information Systems
Discuss how information systems can be used for automation, organizational learning, and
strategic advantage.

Business Models in the Digital World

Describe how information systems support
business models used by companies
operating in the digital world.

Valuing Innovations
Explain why and how companies are continually looking for innovative ways to use information
systems for competitive advantage.

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Business Models in the Digital World
• Revenue Models in the Digital World
• Platform-Based Business Models and the Sharing Economy
• Service-Based Business Models

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Business Models in the Digital World
• A business model is a summary of a business’s strategic direction
that outlines how the objectives will be achieved
• A business model specifies the value proposition as well as how a
company will create, deliver, and capture value identifies its customer
segments, value propositions, channels, customer relationships,
revenue streams, key resources, key activities, key partners, and
cost structure
• It reflects the following:
– What does a company do?
– How does a company uniquely do it?
– In what way (or ways) does the company get paid for doing it?
– What are the key resources and activities needed?
– What are the costs involved?

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Revenue Models in the Digital World
Revenue Type Description Who is Doing This
Affiliate marketing Paying businesses that bring or refer customers Amazon’s Associates program
to another business. Revenue sharing is
typically used
Advertising Free services are provided to customers and Yahoo!, Google, Facebook, Twitter, TikTok
paid for by a third party
Subscription Users pay a monthly or yearly recurring fee for Netflix, World of Warcraft, Spotify,
the use of the product/service Symantec, Norton
Licensing Users pay a fee for using protected intellectual Minecraft, Angry Birds, Tasker,
property (e.g., software WolframAlpha, Face Tune, ProCamera
Transaction A commission is paid to the business for aiding PayPal, eBay, Scottrade, Airbnb
fees/Brokerage in the transaction
Traditional sales A consumer buys a product/service from the Amazon, Zappos, Nordstrom.com, iTunes,
website or makes in-app purchases TikTok, Honor of Kings
Freemium Basic services are offered for free, but a Flickr, Skye, Dropbox.com
premium is charge for special features

A revenue model describes how the firm will earn revenue, generate
profits, and produce a superior return on invested capital

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Freemium
Freemium (“free” + “premium”) is
when an organization gives away
limited versions of a product or
service for free to build a large
customer base and then charges
a premium for unrestricted
versions (usually on a
subscription basis

• Under the freemium approach, typical restrictions of free versions

include limitations of features, bandwidth, storage, type of user, or
number of users.
• For example, the cloud storage provider Dropbox offers free
accounts with limited storage capacity and allows users to subscribe
to accounts with larger storage space.
Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Freeconomics: Free Products Are the Future

Copyright © 2015 Pearson Education, Inc. 2-40

The Freeconomics Value Proposition

• Free doesn’t mean no profit

– Google gives away search
– Users give Google search results their attention
• This can include attention to sponsored links
• Google sells space for sponsored links
– Advertisers pay Google for that attention to
sponsored links
• Some users convert into customers
• Customers pay advertising firms for their products

Copyright © 2015 Pearson Education, Inc. 2-41

Platform-Based Business Models and
the Sharing Economy
• A digital platform enables other businesses or users to co-create value
• Platforms create digital ecosystems where some users create value and
other users consume.
– For example, users uploading content to Instagram or Pinterest are
producers of value that is consumed by others.
– Likewise, Uber and Airbnb are successful platforms that do not offer
services themselves but depend on users to offer and consume
services.
– As a result, a platform creates a so-called two- sided market, and its
success is dependent on the network effect.
• Platforms tend to be attractive as they often have negligible marginal
costs, they carefully must think about how to monetize their services.
• For instance, Airbnb uses a transaction fee–based revenue model
whereas YouTube charges neither the producers nor the consumers but
a third party (advertisers)
Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Platform-Based Business Models and
the Sharing Economy
A digital platform enables other businesses or users to
co-create value as seen in the examples below:
Value Created/Exchanged Examples

Products Amazon Marketplace, eBay

Services Airbnb, Uber

Payments Square, PayPal

Investments and funding Kickstarter, Lending Club

Content Wikipedia, Twitter, YouTube

Communication WhatsApp, Skype

Collaboration Dropbox

Social relationships Facebook, LinkedIn

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
 A Platform-Based Business Model

The value of the app store

(a platform) depends on
the numbers of users on
the same side and on the
other side of the platform

• As more users switch to iOS, everyone benefits from wider compatibility

of its Keynote presentation format
• The app store becomes more useful for users as more apps are added;
conversely, app developers are more likely to develop iOS apps as more
users use iOS

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
A Sharing Economy

A sharing economy has been defined as “an economic system

in which assets or services are shared between private
individuals, either free or for a fee, typically by means of the
internet (Oxford Dictionary, 2016)

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Service-Based Business Models
Under a service-based business model, a manufacturer
can offer equipment services as well as the product
(sometimes referred to as XaaS, or “X as a service”).
For example, Rolls-Royce
might sell jet engines near
cost in a competitive
market with the real
revenue coming from the
maintenance contracts to
service those engines

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Service-Based Business Models
Question:
• Please provide examples of other service-based
business models

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Valuing Innovations
Enabling Organizational Strategy Through Information Systems
Discuss how information systems can be used for automation, organizational learning, and
strategic advantage.

Business Models in the Digital World

Describe how information systems support business models used by companies operating in
the digital world.

Valuing Innovations
Explain why and how companies are continually looking
for innovative ways to use information systems for
competitive advantage.

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Valuing Innovations (1 of 2)
• The Need for Constant IS Innovation
• Successful Innovation is Difficult
• Open Innovation
• The Innovation Process
• Innovation and the Lean Startup Methodology
• Organizational Requirements for Innovation
• Startups and Crowdfunding

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Valuing Innovations (2 of 2)
• Innovation is key for organizations attempting to gain or
sustain a competitive advantage
• Innovation involves creating new products or services
that return value to the organization
• Radical innovations, also known as disruptive
innovations, use a markedly new or different technology
to access new customer segments and significantly
greater benefits

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Valuing Innovations (2 of 2)
Examples of
Radical
Innovations

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Valuing Innovation
• Given that product performance innovations can often be easily
copied, companies frequently combine multiple types of innovations
to sustain competitive advantage.
– For example, Apple is typically known for its product
innovations; yet, while the design and functionality of Apple’s
innovative products have been widely imitated, other companies
find it difficult to copy Apple’s product system innovations or
customer engagement innovations.
– Likewise, computer manufacturer Dell combined profit model
innovations (collecting money before building the product),
process innovations (the built-to-order model), and channel
innovations (selling computers online rather than in stores) as
well as other types of innovation to challenge established
computer manufacturers.
• In their book Ten Types of Innovation, Keeley et al. (2013) outline
how different types of innovations can help organizations gain or
sustain competitive advantage
Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
 Ten Types of Innovation
Innovation Description Examples
Profit model innovation Finding novel ways of generating revenues Dropbox using a freemium approach; Microsoft offering Office 365 on a
from offerings subscription basis; GE selling “thrust as a service”

Network innovation Harnessing the capabilities and strengths GlaxoSmithKline or Marriott using open innovation for new product or
of others service ideas; Netflix running contests for improving movie
recommendation algorithm; luxury hotels partnering with fashion designers

Structure Innovations Using the company’s talent and assets in Southwest Airlines focusing on one aircraft type; Google allowing
innovative ways employees to use 20 percent of work time for personal projects

Process innovations Changing primary processes used to Toyota pioneering lean production; Zara moving fashion from initial design
produce product or service to stores in 3 weeks

Product performance Creating novel products or improving Dyson’s Airblade hand dryers; Corning’s “unbreakable” Gorilla Glass;
innovations existing products through differentiation coke’s customizable Coke bottles

Product system Creating bundles of complementary Microsoft bundling individual office programs into Office suite; Apple
innovations offerings offering developer tools and app store to enable developers to create novel
apps; Marriott letting users test drive GoPro HERO action cams

Service innovations Supporting and enhancing value of offering Zappos’s WOW philosophy of delivering excellent customer service; Men’s
Wearhouse offering its customers the ability to purchase free lifetime
pressing

Channel innovations Using innovative ways to connect offerings Niketown offering immersive experiences; Nespresso partnering with
with customers hotels and airlines

Brand innovations Positioning the brand in innovative ways Virgin family of brands; German discount grocer Aldi’s; Trader Joe’s
markets

Customer engagement Developing meaningful connections with Swarm encouraging users to frequently “check in” to places; apple tying
innovations customers customers to it ecosystem

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
 Valuing Innovation
• To gain and sustain significant competitive advantage, firms
must often deploy the latest technologies or redeploy and
reinvest in existing technologies in clever, new ways.
– For example, architects and interior designers use virtual
reality (VR) headsets—head-mounted devices enabling
immersive three-dimensional experiences—such as
Oculus Rift to allow customers to virtually explore planned
buildings or offices before construction has started;
– See video here:
– https://www.youtube.com/watch?v=38iJulduXNA&t=95s

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
 Valuing Innovation
• Similar to virtual reality, augmented reality uses information systems to enhance a
person’s per-ception of reality by providing relevant information about the user’s
surroundings; typically, special glasses or other devices are used to augment the user’s
view of the real-world environment with computer-generated content

• In its latest edition, Google Glass takes this concept a step further by enabling mixed
reality, where the user’s view of the real-world environment is augmented with 3D content
enabling applications such as providing remote assist capabilities for engineers

• See Video on Google Glass here: https://www.youtube.com/watch?v=fxQDOMKLqp0

• Similar to Google Glass, Microsoft uses HoloLens 2

• See video on Microsoft’s HoloLens 2 here: https://www.microsoft.com/en-us/hololens

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
New Information Technologies and
Systems on the Horizon

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
New Information Technologies and
Systems on the Horizon
• Example on new technologies – Quantum Computing

• Quantum computing uses a combination of bits to perform specific computational

tasks. All at a much higher efficiency than their classical counterparts.

• Development of quantum computers mark a leap forward in computing capability, with

massive performance gains for specific use cases

• The quantum computer gains much of its processing power through the ability for bits
to be in multiple states at one time. They can perform tasks using a combination of 1’s,
0’s and both a 1 and 0 simultaneously

• See video on quantum computing:

• https://www.youtube.com/watch?v=6fvPXmciwTY

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Successful Innovation is Difficult
• Innovation is often fleeting/short-lived
– Given the pace of change in the digital world, advantages gained
by innovations often have a limited life span.
– For example, even in situations where an organization has
developed an innovative information system in-house, it usually
did so with hardware, software, and networking components that
others can also purchase. In other words, rivals can copy
innovative information systems, so this form of competitive
advantage can be short-lived.
– If use of the new system causes one organization to gain a
significant advantage over others, smart rivals are quick to
duplicate or improve on that use of the system.
– Rivals can copy innovative products, services, or processes

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Successful Innovation is Difficult
• Innovation is often risky
– Choosing among innovative IS-related investments or potential
product, service, or process innovations always entails risk.
– E.g., a videocassette recorder (VCR) vs. Betamax (developed by
Sony) and VHS (developed by JVC) formats
– Blu-ray vs. HD DVD

• Innovation choices are often difficult

– Refer to the diagram next page: “Some predictions about
technology that were not quite correct”

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Successful Innovation is Difficult
• Open Innovation can prove to be beneficial when you
integrate external stakeholders into the innovation proces
• For example, pharmaceutical giant Eli Lilly created a site
called InnoCentive, where companies can post scientific
problems and everybody can take a shot at solving the
problem.
• Usually, a reward is paid to a successful solver.
• The challenge is integrating external stakeholders into the
innovation process, however, often involves making
organizational data and knowledge accessible to the
external stakeholders, so companies must carefully
balance the benefits and potential drawbacks of engaging
in such initiatives.
Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
The Innovation Process
• If IS is used to gain a competitive advantage in the area
of operational efficiencies, it is likely that your rivals an do
the same
• If you use IS to create innovative products, services, or
processes to gain a longer-lasting, sustainable
competitive advantage it is harder for your rivals to
compete
–Example: Waze developed a unique algorithm that
incorporated map date real-time traffic information
that was so successful that Google ended up
purchasing it in 2013

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Innovation and the Lean Startup
Methodology
The lean startup methodology provides a framework to gain a
competitive advantage from continuous innovation the ability to flexibly
experiment with different solutions or business models quickly

The build-measure-learn cycle that

enables validated learning

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Organizational Requirements for
Innovation
• Process Requirements (focus on success)
– To successfully use the lean startup methodology, an
organization needs to change organizational processes
and incentive systems.
– For example, innovation and, in particular, the
development of an MVP using agile approaches require
close collaboration of cross-functional teams—something
that is usually uncommon in established organizations.
– Likewise, the organization must incentivize
experimentation and innovation within the organization,
with accountability and incentives on the team level, rather
than on the individual level.

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Organizational Requirements for Innovation
• Resource Requirements
– Employees with knowledge, skill, time, and resources
– Partner with appropriate resources
• Risk Tolerance Requirements (For both risk and failure)
– Tolerance for risk and uncertainty as well as the willingness to test
products that may not meet the customers’ requirements and fail fast,
if needed.
• Thinking About Investments in Radical Innovations
– Put technology ahead of strategy
▪ With increasing digital density, technology is so important to
strategy and to success that you have to begin with technology.
▪ Innovative companies do not begin with strategy, as a traditional
approach to running a business organization would suggest.
▪ Given how important technology is today and how fast it changes,
if you start with a strategy and then try to retrofit technology into
your aging strategy, you are doomed
Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Organizational Requirements for
Innovation
• . Thinking About Investments in Radical Innovations
– Think in terms of problems before designing solutions
▪ The second way that this approach is that organizations
should drop inside- out thinking (internal process focused) in
favor of outside-in thinking (customer-focused)

– Innovation is continuous
▪ The third way that this approach is interesting—and
potentially troubling—is that the process must be ongoing.
▪ Innovative companies are constantly on the lookout for the
“next new thing” that will revolutionize the business

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Startups and Crowdfunding
• Crowdfunding is the
securing of business
financing from
individuals in the
marketplace (crowd) in
exchange for certain
benefits
• Inventors and startups
can draw on may
sources for support
• Example, kickstarter:
https://www.kickstarter.com/projects/ennoprogroup/glassouse-
pro-let-everyone-access-technology-0?ref=section-homepage-
projectcollection-4-staff-picks-newest

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
End of Chapter Content

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Managing in the Digital World:
Startups and New Business Models
• Information technology has enabled new business models:
– Operating a platform (enables other businesses/users to
co-create value)
– Cutting out the middleman (bypassing traditional retail
channels and interacting directly with customers)
▪ Ex: Warby Parker (eyeglass vendor) and Casper (mattress
seller) use technology to disrupt traditional distribution
channels and directly connect with buyers
– Selling subscriptions (facilitated by technology through the
removal of friction from the transaction using online forms)
– Providing on-demand services

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Green IT: IoT, AI, and Environment
Sustainability
• Resource scarcity and global warming have given rise to
a tremendous interest in renewable energy
• This has led to an increasing need for environmental
sustainability
• Increasing digital density can help push us forward to a
more sustainable future
• Digital twins – a digital representation of physical objects
are increasingly used to remote monitoring of assets
• Remote sensing capabilities of IoT devices offer many
promises related to environmental sustainability

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Digital Density: Digital Nomads
• Digital Nomads — People who live and work wherever
they feel like, using the internet and mobile technology to
connect with their customers or employers
– Location must be appealing place to live and work
– Low cost of living
– Good weather
– Good connectivity using Wi-Fi or cellular networks
– Some changes
▪ Must be conducive to the work style and skill set
▪ Maintain good relationship with customers or employers
▪ Must be able to build and maintain networks

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
When Things Go Wrong: The Pains of
Uber in China
• Didi Kuaidi, formed by rival taxi-hauling services Alibaba
and Tencent (two of China’s internet giants) competed
directly with Uber (later renamed Didi Chuxing)
– Disrupted Uber by offering customers a choice between a
taxi, private car, shared car, shuttle van or bus
– Arranged more than 15 million daily active users in 2020
– Uber withdrew from the Chinese market in mid-2016
• The onset of the COVID-19 virus in 2019, Didi Chuxing
faced a near collapse in rider demand of only 5 million
daily active users (along with profitability)

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Ethical Dilemma: The Ethics of the
Sharing Economy
• Uber and Airbnb are providing a service bypassing the middleman
thus providing a service in the sharing economy by removing
transactional friction from markets for services that are already
permissible by law
– Unregulated like taxis and hotels are
– Not subject to controlled markets

• The challenge remains that the existing laws and regulations

framework provide for and protect existing economic stakeholders
– Some cities (London) have pressured Uber to ensure their drivers are
safe and vetted, resulting in a failure to renew some licenses to operate
in late 2019
– Are these ethical? Expect more challenges and highly public disputes to
come

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Coming Attractions: Augmented
Shopping Experiences
• Futurist Peter Diamandis foresees an artificially intelligent
“shopping” digital assistant
– The assistant know you, your likes, your styles
– Has access to your shopping history
– Has data from other shopping sources
• The assistant will leverage augmented reality (AR) to
show images of you in different styles of clothing
• This will allow shopping online without ever stepping foot
in the store

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Security Matters: SWIFT Theft
• The Society for Worldwide Interbank Financial
Telecommunications (SWIFT) is an organization that enables
banks to rapidly clear financial transactions on a global basis
– Links more than 11,000 financial institutions in more than 200
countries

• In 2016, two banks in SE Asia experienced cybertheft of

US$81 million
– Attackers penetrated the system of Bangladesh to gain entrance
– SWIFT system was no compromised as entranced was through
a member’s weakness in security

• Served as a reminder to member banks to secure their own

house

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Industry Analysis: Education
• Cost of higher education in the United States has steadily
increased
• Average college graduate owes $33,000 in student loans
• Trend in globalization—increased collaboration in research
and curriculum
• Trend in online delivery—leads to cost savings, but may be
less engaging to students
• COVID-19 was challenging for in-person students who had to
suddenly transition to an online environment
• Massively open online courses (MOOCs)—free to students

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Copyright

This work is protected by United States copyright laws and is

provided solely for the use of instructors in teaching their
courses and assessing student learning. Dissemination or sale of
any part of this work (including on the World Wide Web) will
destroy the integrity of the work and is not permitted. The work
and materials from it should never be made available to students
except by instructors using the accompanying text in their
classes. All recipients of this work are expected to abide by these
restrictions and to honor the intended pedagogical purposes and
the needs of other instructors who rely on these materials.

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved