Chapter 3

Information Systems,
Organizations, and
Strategy

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 Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy

LEARNING OBJECTIVES

• Demonstrate how Porter’s competitive forces

model and the value chain model help
businesses use information systems for
competitive advantage.

• Demonstrate how information systems help

businesses use synergies, core competencies,
and network-based strategies to achieve
competitive advantage.

• Assess the challenges posed by strategic

information systems and management solutions.
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Chapter 3 Information Systems, Organizations, and Strategy

STRATEGIC INFORMATION SYSTEM:

CAN CHANGE GOALS, OPERATIONS
PRODUCTS, SERVICES,
ENVIRONMENT

TO GAIN COMPETITIVE ADVANTAGE

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

• Why do some firms become leaders within

their industry?
• Michael Porter’s competitive forces model
• Provides general view of firm, its competitors, and
environment
• Five competitive forces shape fate of firm
• Traditional competitors
• New market entrants
• Substitute products and services
• Customers
• Suppliers
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 Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

Porter’s Competitive Forces Model

In Porter’s competitive forces model, the strategic position of the firm and its strategies are determined not only by
competition with its traditional direct competitors but also by four forces in the industry’s environment: new market
entrants, substitute products, customers, and suppliers.

Figure 3-10
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 Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

• Traditional competitors
• All firms share market space with competitors who
are continuously devising new products, services
• New market entrants
• Some industries have high barriers to entry, e.g.
computer chip business
• New companies have new equipment, younger
workers, but little brand recognition

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

• Substitute products and services

• Substitutes customers might use if your prices
become too high, e.g. iTunes substitutes for CDs
• Customers
• Can customers easily switch to competitor’s
products? Can they force businesses to compete on
price alone in transparent marketplace?
• Suppliers
• Market power of suppliers when firm cannot raise
prices as fast as suppliers

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

• Four generic strategies for dealing with

competitive forces, enabled by using IT
• Low-cost leadership
• Product differentiation
• Focus on market niche
• Strengthen customer and supplier intimacy

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

• Low-cost leadership
• produce products and services at a lower price than
competitors while enhancing quality and level of
service.
• E.g. Wal-Mart, Dell
• Product differentiation
• Enable new products or services, greatly change
customer convenience and experience
• E.g. Google, Land’s End, Apple iPhone

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

• Focus on market niche

• Use information systems to enable a focused
strategy on a single market niche; specialize.
• E.g. Hilton Hotels
• Strengthen customer and supplier intimacy
• Use information systems to develop strong ties and
loyalty with customers and suppliers; increase
switching costs
• E.g. Amazon

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 Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

7-Eleven Stores Ask the Customer by Asking the Data

• Read the Interactive Session: Technology, and then
discuss the following questions:
• Why is knowing about the customer so important to a
company such as 7-Eleven?
• What are the benefits of 7-Eleven’s Retail Information
System?
• In terms of Porter’s model, what strategic forces does the
Retail Information System seek to address?
• Which of the strategies described in the chapter does the
Retail Information System support?

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

• The Internet’s impact on competitive

advantage
• Transformation, destruction, threat to some industries
• E.g. travel agency, printed encyclopedia, newspaper
• Competitive forces still at work, but rivalry more intense
• Universal standards allow new rivals, entrants to market
• New opportunities for building brands and loyal customer
bases

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

• Business value chain model

• Views firm as series of activities that add value to
products or services
• Highlights activities where competitive strategies can
best be applied
• Primary activities vs. secondary activities
• At each stage, determine how information systems
can improve operational efficiency and improve
customer and supplier intimacy
• Utilize benchmarking, industry best practices

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 Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

The Value Chain Model

This figure provides examples of

systems for both primary and
support activities of a firm and of
its value partners that can add a
margin of value to a firm’s
products or services. Figure 3-11
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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

• Strategic advantage at industry level:

• Use IT to develop industry-wide standards for exchanging
information or transactions electronically, to increase efficiency,
make product substitution less likely, and perhaps raise entry
costs
• Value web:
• Collection of independent firms using highly synchronized IT to
coordinate value chains to produce product or service
collectively
• More customer driven, less linear operation than traditional
value chain

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

The Value Web

The value web is a networked system

that can synchronize the value chains of
business partners within an industry to
respond rapidly to changes in supply
and demand. Figure 3-12
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 Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

Amazon.com: An Internet Giant Fine-Tunes Its Strategy

• Read the Interactive Session: Organizations, and then
discuss the following questions:
• Analyze Amazon.com using the competitive forces and value
chain models. How has it responded to pressures from its
competitive environment? How does it provide value to its
customers?
• Describe Amazon’s evolving business strategy.
• Why did the company change its strategy?
• Do you think Amazon can continue to be successful? Explain
your answer.

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

Amazon.com is an early e-
commerce leader that has
adjusted it strategy multiple
times. It is trying to become a
one-stop source for online
shoppers.

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

• Information systems can improve overall

performance of business units by promoting
synergies and core competencies
• Synergies
• When output of some units used as inputs to
others, or organizations pool markets and
expertise
• E.g. merger of Bank One and JPMorgan Chase
• Purchase of YouTube by Google

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

• Core competencies
• Activity for which firm is world-class leader
• Relies on knowledge, experience, and sharing this
across business units
• E.g. Procter & Gamble’s intranet and directory of
subject matter experts

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

• Network-based strategies
• Take advantage of firm’s abilities to network
with each other
• Include use of:
• Network economics
• Virtual company model
• Business ecosystems

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

• Network economics
• Traditional economics: Law of diminishing returns
• The more any given resource is applied to production, the
lower the marginal gain in output, until a point is reached
where the additional inputs produce no additional outputs
• Network economics:
• Marginal cost of adding new participant almost zero, with
much greater marginal gain
• Value of community grows with size
• Value of software grows as installed customer base grows

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

• Virtual company strategy

• Virtual company uses networks to ally with other
companies to create and distribute products without
being limited by traditional organizational boundaries
or physical locations
• E.g. Li Fung manages production, shipment of
garments for major fashion companies, outsourcing
all work to over 7,500 suppliers

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

• Business ecosystems
• Industry sets of firms providing related services and products
• Microsoft platform used by thousands of firms for their own
products
• Wal-Mart’s order entry and inventory management system
• Keystone firms: Dominate ecosystem and create platform
used by other firms
• Niche firms: Rely on platform developed by keystone firm
• Individual firms can consider how IT will enable them to
become profitable niche players in larger ecosystems

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Chapter 3 Information Systems, Organizations, and Strategy

Using Information Systems to Achieve Competitive Advantage

An Ecosystem Strategic Model

The digital firm era requires a more dynamic view of the boundaries among industries, firms, customers, and suppliers, with competition occurring
among industry sets in a business ecosystem. In the ecosystem model, multiple industries work together to deliver value to the customer. IT plays an
important role in enabling a dense network of interactions among the participating firms.

Figure 3-13
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 Management Information Systems
Chapter 3 Information Systems, Organizations, and Strategy

Using Systems for Competitive Advantage: Management Issues

• Sustaining competitive advantage

• Because competitors can retaliate and copy strategic systems,
competitive advantage is not always sustainable; systems may
become tools for survival
• Performing strategic systems analysis
• What is structure of industry?
• What are value chains for this firm?
• Managing strategic transitions
• Adopting strategic systems requires changes in business
goals, relationships with customers and suppliers, and
business processes

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