Chapter Three

Information Systems for Competitive

Advantages

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Outline

• What is competitive advantage?

• IS and performance

• Models Vs use of IS

– Michel Porter Model

– Generic strategies

• Value Chain Model

• ERP and SCMS

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 Using IS for achieving Competitive Advantage

• Competitive advantage
– Any thing that the firm does better than competitors
• It can be achieved when:
− Access to special resources that others do not, or
− Able use commonly available resources more efficiently

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Using IS for Better Performance

 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.
 Information systems would help the merged companies
consolidate operations, lower retailing costs, and increase
cross-marketing of financial products.
 E.g. Purchase of YouTube by Google.

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 Using IS for Better Performance

 Core competencies

 Activity for which firm is world-class leader.

 Relies on knowledge, experience, and sharing this

across business units.

 Any information system that encourages the

sharing of knowledge across business units
enhances competency.
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 Discussion
 Why do some firms become leaders within
their industry?
 How do information systems contribute to
strategic advantages?

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 Using Information Systems to Achieve Competitive
Advantage
 Michael Porter’s competitive forces model
• Provides general view of firm, its competitors, and
environment.
• Five competitive forces shape fate of firm
o Traditional competitors
o New market entrants
o Substitute products and services
o Customers
o Suppliers

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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.

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 Using Information Systems to Achieve Competitive
Advantage
 Traditional competitors
• All firms share market space with competitors who are
continuously devising new products, services,
efficiencies, switching costs.
 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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 Using Information Systems to Achieve Competitive
Advantage
 Substitute products and services
• Substitutes customers might use if your prices become
too high, e.g. Solar energy substitute for coal or gasoil or
hydro power.
 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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 Generic competitive strategies

• Five strategies:
– Cost leadership

– Differentiation

– Market niche

– Customer and supply intimacy

– Innovation

– Growth

– Alliance
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Cost leadership strategy

• Meaning:
– Becoming a low-cost producer in the industry allows the
company to lower prices to customers.

• How?
 Use IS to substantially reduce the cost of business
processes.
 Use IS to lower the costs of customers or suppliers.

• E.g. Wal-Mart (computer record the bar code of each

item and transmits to suppliers(Web tech).
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Differentiation strategy

• Meaning:
– distinguishing their products on one or more features
important to their customers.

• How?
– Develop new IT features to differentiate products and services;

– Use IT features to focus products and services at selected market

niches.

• E.g. Google, Land’s End, Apple iPhone

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Market niche strategy

 Focus on market niche

 Use information systems to enable a focused strategy on a

single market niche; specialize.

 E.g. Hilton Hotels’ OnQ system-determine the preferences

of each guest and each guest’s profitability

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Customer and supplier intimacy strategy
 Strengthen customer and supplier intimacy’

 Use information systems to develop strong ties

and loyalty with customers and suppliers; increase
switching costs.

 E.g. Chrysler: direct access by suppliers to production schedules,

and even permits suppliers to decide how and when to ship supplies

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Innovation strategy

• Meaning:
– Changes in business processes can cause fundamental changes in
the way an industry does business.

• How?
◦ Create new products and services that include IT components.
◦ Develop unique new markets or market niches with the help of
IT.
◦ Make radical changes to business processes with IT that
dramatically cut costs;
◦ Use IT to improve quality, efficiency, or customer service; or
shorten time to market.
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Growth strategy

• Meaning:

– Significantly expanding production capacity,

entering new global markets, diversifying into new
areas
• How?
◦ Use IT to manage regional and global business
expansion.
◦ Use IT to diversify and integrate into other products
and services.
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Alliance Strategy

• Meaning:
– Establishing new business linkages and alliances with
customers, suppliers, former competitors, consultants, and
others can create competitive advantage

• How?

◦ Use IT to create virtual organizations of business partners.

◦ Develop inter-enterprise information systems linked by the

Internet and extranets that support strategic business relationships
with customers, suppliers, subcontractors, and others.
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 Strategic roles for Information Systems
Improving Promote Locking in
Strategy Business Business Customers and
Process Innovation Suppliers

o•Use IT to
Use IT to Use IT to improve
•Use IT toquality
reduce create new of service
improve
IT Role costs of products •Use IT of
quality to
doing and link business
service
business services or to
•Usecustomers
IT
processes and
to link
suppliers
business
to
customer
s and
Enhance Create New Maintain
suppliersValuable
Outcome Operational Business Relationships with
Efficiency Opportunities Customers and
Suppliers
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 Strategic roles for Information Systems
Raise Build a Build a
Barriers Strategic IT Strategic
Strategy to Entry Platform Information Base

Increase Leverage Use IT to

amount of investment provide
investment information
IT Role in IS
to support
or resources
complexity firm’s
from competitive
of IT operational
needed to strategy
uses to
compete strategic
uses

Increase Create New Enhance

Outcome Market Business Organizational
Share Opportunities Collaboration

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 THE BUSINESS VALUE CHAIN MODEL

• The value chain model highlights specific activities in

the business where competitive strategies can best
be applied.
• It also shows how, what type of IS and where at the
point of operation to use IS.

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…VALUE CHAIN

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…VALUE CHAIN

• Benchmarking and Industry best practices are

important tools for value chain model.

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 Enterprise resource Planning

 Enterprise systems
 Based on suite of integrated software modules and common
central database.
 Integrate information from across company’s divisions,
departments, key business processes in the four functional
areas.
 Updated information made available to all business processes.

 Generate enterprise-wide data for management analyses.

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 How Enterprise Systems Work

Enterprise systems feature a set of integrated software modules and a central database that
enables data to be shared by many different business processes and functional areas
throughout the enterprise.

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 Business value of enterprise systems
• Benefits
 Increasing operational efficiency.
 Helping respond to customer requests rapidly.
 Producing, procuring, shipping right amounts.
 Enforcing standard practices and data throughout company.
 Providing firm-wide information to help managers make better
decisions.
 Allowing senior management to easily find out at any moment how a
particular organizational unit is performing or to determine which
products are most or least profitable.

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 Supply Chain Management Systems
Nike’s Supply Chain

This figure illustrates the major entities in Nike’s supply chain and the flow of information upstream and downstream to
coordinate the activities involved in buying, making, and moving a product. Shown here is a simplified supply chain, with the
upstream portion focusing only on the suppliers for sneakers and sneaker soles.
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Enterprise resource Planning

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