Essentials of Management
Information Systems
Fifteenth Edition, Global Edition
Chapter 3
Achieving Competitive Advantage
with Information Systems
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Learning Objectives
3.1 Demonstrate how Porter’s competitive forces model, the
value chain model, synergies, core competencies, and
network-based strategies help companies use
information systems for competitive advantage.
3.2 Describe how information systems help businesses
compete globally.
3.3 Describe how information systems help businesses
compete using quality and design.
3.4 Explain the role of business process management (BPM)
in enhancing competitiveness.
3.5 Understand how MIS can help your career.
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Video Case
• Celonis Tops $11 Billion Valuation with New Round of
Funding
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N26: A Bank Without Branches
• Problem
– Improving operational efficiency
– Improve customer experience
• Solutions
– Online customer-centric processes
– Improved cash-based operations
– Security systems
Illustrates use of IT to differentiate services and improve customer
experience
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Porter’s Competitive Forces Model
• Five competitive forces shape fate of firm
– Traditional competitors
– New market entrants
– Substitute products and services
– Customers
– Suppliers
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Figure 3.1 Porter’s Competitive
Forces Model
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Information System Strategies for
Dealing with Competitive Forces
(1 of 5)
• Basic strategy: Align IT with business objectives
– Identify business goals and strategies
– Break strategic goals into concrete activities and processes
– Identify metrics for measuring progress
– Determine how IT can help achieve business goals
– Measure actual performance
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Information System Strategies for
Dealing with Competitive Forces
(2 of 5)
• Low-cost leadership
– Use information systems to achieve the lowest operational
costs and the lowest prices
– Example: Walmart
▪ Inventory replenishment system sends orders to
suppliers when purchase recorded at cash register
▪ Minimizes inventory at warehouses, operating costs
▪ Efficient customer response system
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Information System Strategies for
Dealing with Competitive Forces
(3 of 5)
• Product differentiation
– Use information systems to enable new products and
services, or greatly change the customer convenience in
using your existing products and services
– E.g., Google's continuous innovations, Apple's iPhone
– Use information systems to customize, personalize products
to fit specifications of individual consumers
▪ Example: Baume’s customized watches
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Information System Strategies for
Dealing with Competitive Forces
(4 of 5)
• Focus on market niche
– Use information systems to enable specific market focus
and serve narrow target market better than competitors.
▪ Analyzes customer buying habits, preferences
▪ Advertising pitches to smaller and smaller target markets
– Example: Charlotte Hornets NBA basketball team
▪ Maintains detailed records on fans that include real-time data
to create a single profile of each fan, enabling team to build a
more personal relationship with fans
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Information System Strategies for
Dealing with Competitive Forces
(5 of 5)
• Strengthen customer and supplier intimacy.
– Strong linkages to customers and suppliers increase
switching costs and loyalty
– Toyota: uses IS to facilitate direct access from suppliers to
production schedules
▪ Permits suppliers to decide how and when to ship supplies to
plants, allowing more lead time in producing goods
– Amazon: keeps track of user preferences for purchases,
and recommends titles purchased by others
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Spotlight on People: Customer
Experience Management: A New
Strategic Weapon
• Class Discussion
– What is customer experience management? How can it
contribute to competitive advantage?
– How does information technology support customer
experience management? Give some examples.
– How did information technology and customer experience
management change operations and decision making at the
organizations described in this case?
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The Internet’s Impact on Competitive
Advantage
• Impacts include:
– Enabling new products and services to emerge as
substitutes for existing products and services
– Changes to balance of power of customers and suppliers
– Reduction of barriers to entry
– Transformation, and even destruction, of some industries
– Creation of opportunities for developing new markets,
building brands, and large customer bases
• Smart products and the Internet of Things an excellent
example of how Internet is changing competition within
industries and enabling new products and services
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The Business Value Chain Model
• Highlights specific activities in a business where
competitive strategies can best be applied and where
information systems are likely to have a strategic impact.
– Primary activities
– Support activities
– Benchmarking
– Best practices
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Figure 3.2 The Value Chain Model
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The Value Web
• A firm’s value chain is linked to the value chains of its
suppliers, distributors, and customers.
• Value web
– Collection of independent firms that use information
technology to coordinate their value chains to produce a
product collectively
– Value webs are flexible and adapt to changes in supply and
demand
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Figure 3.3 The Value Web
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Synergies, Core Competencies, and
Network-Based Strategies
• Large corporations comprised of business units
– Financial returns overall are tied to performance of business
units
• Information systems improve performance of business
units by promoting
– Communication
– Synergies
– Core competencies
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Synergies
• When output of some business units can be used as inputs
to other units
• When two firms can pool markets and expertise
– Example: Amazon’s acquisition of MGM
• Lower costs and generate profits
• Enabled by information systems that tie together disparate
units so they act as whole
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Core Competencies
• Activities for which firm is world-class leader
– E.g., world’s best miniature parts designer, best package
delivery service, etc
• Relies on knowledge gained over years of experience as
well as knowledge research
• Any information system that encourages the sharing of
knowledge across business units enhances competency
– Example: Procter & Gamble uses systems to help people
working on similar problems share ideas and expertise.
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Network-Based Strategies
• Virtual company
– Uses networks to link people, resources, and ally with other
companies to create and distribute products without
traditional organizational boundaries or physical locations
▪ Example: Li & Fung
• Network economics
– Marginal costs of adding another participant to the network
are near zero, whereas marginal gain is much larger
– E.g., larger number of participants on Internet, greater value
to all participants
▪ Example: eBay
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Business Ecosystems and Platforms
• Business ecosystem (industry sets): Loosely coupled by
interdependent networks of suppliers, distributors,
outsourcing firms, transportation service firms, and
technology manufacturers
– IT plays an important role
• Platforms: Keystone firms that dominate the business
ecosystem and let other firms use their resources and
services
– Examples: Microsoft; Apple, Facebook
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Disruptive Technologies
• Technologies with disruptive impact on industries and
businesses, rendering existing products, services and
business models obsolete
– Personal computers
– World Wide Web
– Internet music, video, TV services
• First movers versus fast followers
– First movers may fail to take advantage, allowing second
movers (fast followers) to reap rewards
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The Internet and Globalization
• Prior to the Internet, competing globally was only an option
for huge firms able to afford factories, warehouses, and
distribution centers abroad.
• The Internet drastically reduces costs of operating globally.
• Globalization benefits
– Scale economies and resource cost reduction
– Higher utilization rates, fixed capital costs, and lower cost
per unit of production
– Speeding time to market
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Figure 3.4 Apple i Phone’s Global
Supply Chain
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Global Business and System
Strategies
• Four main ways of organizing business internationally:
– Domestic exporter strategy
▪ Example: Caterpillar Inc.
– Multinational strategy
▪ Example: Ford Motor Company
– Franchiser
▪ Example: McDonald’s
– Transnational strategy
▪ Example: Nestle S.A.
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Global System Configuration
• Four main system strategies and configurations:
– Centralized systems
– Duplicated systems
– Decentralized systems
– Networked systems
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Figure 3.5 Global Business
Organization Systems Configurations
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What is Quality?
• Producer perspective
– Conformance to specifications and absence of variation
from specs
• Customer perspective
– Is broader than producer perspective; also includes physical
quality (reliability), quality of service, psychological quality
• Total quality management (TQM)
– Quality control is end in itself
– Everyone in the organization is responsible for quality
• Six Sigma
– Measure of quality: 3.4 defects/million opportunities
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How Information Systems Improve
Quality
• Reduce cycle time and simplify production
– Example: ArcScam
• Benchmark
– Example: L.L. Bean
• Use customer demands to improve products and services
– Example: Delta Airlines
• Improve design quality and precision
– Computer-aided design (CAD) systems; 3-D printing
• Improve production precision and tighten production
tolerances
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What is Business Process
Management (BPM)?
• Technology alone is often not enough to improve business
• Organizational changes often necessary
– May require just minor changes in work habits or
redesigning entire business processes
• Aims to continuously improve processes
• Uses variety of tools and methodologies to:
– Understand existing processes
– Design and optimize new processes
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Steps in BPM
1. Identify processes for change
2. Analyze existing processes
3. Design new process
4. Implement new process
5. Continuous measurement
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Figure 3.6 As-Is Business Process for
Purchasing a Book from a Physical
Bookstore
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Figure 3.7 Redesigned Process for
Purchasing a Book Online
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Business Process Reengineering
• A radical form of far-reaching change
• Not continuous improvement, but elimination of old
processes, replacement with new processes
• Can produce dramatic gains in productivity and efficiency
• Can produce more organizational resistance to change
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Spotlight on Organizations: GCB
Bank: A Digital Transformation
• Class discussion
– What is the role of information systems at GCB Bank?
– Could early adoption of information systems by GCB Bank widen its
customer base?
– Do you anticipate that GCB Bank will continue to rely on application of
information systems
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How MIS Can Help Your Career
• The Company: SuperiorCRM.com
• Position Description
• Job Requirements
• Interview Questions
• Author Tips
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