Lecture 5 - Gaining Competitive Advantage

through Information Systems

A firm has competitive

advantage over rival firms when it
can do something better, faster,
more economically, or uniquely

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Chapter 2 Learning Objectives
Enabling Organizational Strategy through Information Systems
• Discuss how information systems can be used for automation, organizational learning,
and strategic advantage.

International Business Strategies in the Digital World

• Describe international business and IS strategies 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.

Freeconomics: Why Free Products are the Future of the Digital World
• Describe freeconomics and how organizations can leverage digital technologies to
provide free goods and services to customers as a business strategy for gaining a
competitive advantage.

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Enabling Organizational Strategy through
Information Systems
Enabling Organizational Strategy through
Information Systems
Discuss how information systems can be used for
automation, organizational learning, and strategic advantage.

International Business Strategies in the Digital World

Describe international business and IS strategies 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.

Freeconomics: Why Free Products are the Future of the Digital World
Describe freeconomics and how organizations can leverage digital technologies to provide free goods
and services to customers as a business strategy for gaining a competitive advantage.

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Organizational Decision-Making Levels

• Executive/Strategic
Level
– Upper Management
• Managerial/Tactical
Level
– Middle Management
• Operational Level
– Operational Employees,
Foremen, Supervisors

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Organizational Decision-Making Levels:
Operational Level

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Organizational Decision-Making Levels:
Managerial/Tactical Level

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Organizational Decision-Making Levels:
Executive/Strategic Level

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Organizational Functions and Functional Levels

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Information Systems for Automating: Doing
Things Faster
Primary Activities Manual Loan Technology- Fully Automated
of Loan Processing Process Supported
Complete and submit Completed at Completed at home Completed online
application home (1.5 days) (1.5 days) (15 minutes)
Check application Done in batches Done in batches Computerized
for errors (2.5 days) (2.5 days) (3.5 sec)
Input data into the NA some paper Done in batches NA (already done)
information system handling (1 hr) (2.5 days)
Assess loan apps Done by hand Computer assisted Computer
under $250K (15 days) (1 hr) processed (1 sec)
Committee decides if (15 days) (15 days) (15 days)
loan over $250k
Applicant notified Batches (5 days) (1 day) E-mail (3.5 sec)
Total time 25 to 40 days 5 to 20 days 15 min to 15 days

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Information Systems for Organizational
Learning: Doing Things Better
• Information systems can track and identify trends
and seasonality
• Managers can use this to plan staffing levels and
cross-training

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Information Systems for Supporting Strategy:
Doing Things Smarter

• Firms have a competitive strategy

• Information Systems should be implemented
that support that strategy
– Low cost strategy implies information systems to
minimize expenses
– High quality strategy implies information systems
to support ensuring excellent quality and minimal
defects

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Sources of Competitive Advantage

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Identifying Where to Compete: Analyzing
Competitive Forces

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Using IS to Combat Competitive Forces
Table 2.2
Competitive Force Implication for Firm Potential Use of Information
Systems
Rivals within your Competition in price, product Reduce costs, use the Internet
industry distribution, and service to increase service
New entrants Reduced prices and market Inventory control to manage
share excess capacity, Internet to
differentiate products
Customers’ Reduced prices, demand for CRM to improve service,
bargaining power better quality and service CAD/CAM
Suppliers’ Increased costs and reduced Use internet to work with new
bargaining power quality distant suppliers
Threat of substitute Decreased market share, Better assess customer needs,
products customer loss use CAD to design better
products

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The Technology/Strategy Fit

• There are never enough resources to

implement every possible IS improvement
• There are usually never enough resources to
implement every financially beneficial IS
improvement
• Companies that focus on the improvements
and business process changes that help their
value creation strategy the most will see the
greatest competitive benefit
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Assessing Value for the IS Infrastructure

• Economic Value
– Direct financial impact
• Architectural Value
– Extending business capabilities today and in the
future
• Operational Value
– Enhancing ability to meet business requirements

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Putting It All Together: Developing a Successful
Business Model

• A business model reflects the following:

1. What does a company do?
2. How does a company uniquely do it?
3. In what way (or ways) does the company get
paid for doing it?
4. What are the key resources and activities
needed?
5. What are the costs involved?

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International Business Strategies in the
Digital World
Enabling Organizational Strategy through Information Systems
Discuss how information systems can be used for automation, organizational learning, and strategic
advantage.

International Business Strategies in the Digital

World
Describe international business and IS strategies 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.

Freeconomics: Why Free Products are the Future of the Digital World
Describe freeconomics and how organizations can leverage digital technologies to provide free goods
and services to customers as a business strategy for gaining a competitive advantage.

Copyright © 2014 Pearson Education, Inc. 18

International IS Strategies

• There are four international business

strategies
– Home Replication
– Global
– Multidomestic
– Transnational
• Each has pros and cons in terms of complexity,
cost benefits, local responsiveness, and
control
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Home-Replication Strategy

• Focused Domestically
• Exporting products to generate additional
sales
• Secondary emphasis on international
operations
• Information Systems not a significant factor in
facilitating international export sales

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Global Business Strategy

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Multidomestic Business Strategy

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Transnational Business Strategy

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Valuing Innovations
Enabling Organizational Strategy through Information Systems
Discuss how information systems can be used for automation, organizational learning, and strategic
advantage.

International Business Strategies in the Digital World

Describe international business and IS strategies 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.

Freeconomics: Why Free Products are the Future of the Digital World
Describe freeconomics and how organizations can leverage digital technologies to provide free goods
and services to customers as a business strategy for gaining a competitive advantage.

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The Need for Constant IS Innovation

“The most important discoveries of the next 50

years are likely to be ones of which we cannot
now even conceive” John Maddox
• Transformation Technologies are difficult or
even impossible to see coming
– Think of the Internet in 1999
– Many of the critical discoveries in the next 50
years will be in areas we don’t see coming

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Successful Innovation Is Difficult

• Innovation Is Often Fleeting

– The pace of change is fast
– Smart rivals quickly adopt any advantage
• Innovation Is Often Risky
– Competing Technologies result in a winner and a
looser (e.g.: Blu-Ray and HD DVD)
• Innovation Choices Are Often Difficult
– It is impossible to pursue all opportunities
– It is hard to predict which opportunities will lead to
success
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Organizational Requirements for Innovation

• Process Requirements
– Focus on success over other objectives
• Resource Requirements
– Employees with knowledge, skill, time & resources
– Partner with appropriate requirements
• Risk Tolerance Requirements
– Tolerance for risk
– Tolerance for failure

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Predicting the Next New Thing

• Many innovations can be copied

– Limited time span of any advantage
– May become a requirement for staying
competitive
• Some innovations deliver longer advantages
– Unique customer service based on customer data
– High levels of customer investment in proprietary
systems – high switching costs
– Technologies that are very difficult to copy
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Disruptive Innovations
Examples from Table 2.8
Disruptive Innovation Displaced or Marginalized Technology
Digital photography Chemical photography
Online stock brokerage Full-service stock brokerages
Online retailing Brick-and-mortar retailing
Distance education Classroom education
Unmanned aircraft Manned aircraft
Semiconductors Vacuum tubes
MP3 players and music downloading Compact discs and music stores
Smartphones MP3 players, dedicated GPS navigation
Tablets Notebook computers

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Freeconomics: Why Free Products are the
Future of the Digital World
Enabling Organizational Strategy through Information Systems
Discuss how information systems can be used for automation, organizational learning, and strategic
advantage.

International Business Strategies in the Digital World

Describe international business and IS strategies 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.

Freeconomics: Why Free Products are the Future

of the Digital World
Describe freeconomics and how organizations can leverage
digital technologies to provide free goods and services to
customers as a business strategy for gaining a competitive
advantage.
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How Freeconomics Works

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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

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Applying Freeconomics in the Digital World

Approach What it Means Examples

Advertising Free services are provided to ▪ Yahoo!’s banner ads
customers & paid for by a third party ▪ Google’s pay-per-click
Freemium Basic services are free, a premium is ▪ Skype
charged for special features ▪ Dropbox.com
Cross subsidies Sale price of one item is reduced in ▪ Free cell phone with two-
order to sell something else of value year contract
Zero Marginal Products are distributed to ▪ iTunes music distribution
Cost customers without an appreciable ▪ Software distribution
cost to anyone ▪ YouTube Video content
Labor Exchange The act of customers using free ▪ Yahoo! Answers
services creates value ▪ Answers.com
Gift Economy People participate and collaborate ▪ Open source software
to create value for Everyone ▪ Wikipedia

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 END OF CHAPTER CONTENT

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