Chapter 2 Strategic Role Of Information Systems
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Chapter
2
THE STRATEGIC ROLE OF INFORMATION SYSTEMS
2.1
© 2003 by Prentice Hall
Chapter 2 OBJECTIVES
• Analyze the role played by the six major types of information systems in organizations. • Describe the relationship between the major types of information systems • Distinguish a strategic information system. • Describe how information systems can be used to support three levels of strategy used in business. 2.2
© 2003 by Prentice Hall
Chapter 2 MANAGEMENT CHALLENGES
• Integration: Different systems serve variety of functions, and even to integrate them together as using enterprise resource planning (ERP) is much more easy but connecting organizational levels is difficult, and costly
• Sustainability of competitive advantage: A management team in a company need to be more innovative to have new business strategies as competitive advantage. Competitors can copy strategic systems
2.3
© 2003 by Prentice Hall
Different levels of management systems Operational-level systems
– support operational managers by keeping track of the elementary activities & transactions of the org such as sales, receipts, cash deposits
2. Knowledge-level systems – support the organization’s knowledge and data worker. - It help the company to discover, organize and integrate new knowledge into business and to control the flow of paperwork. 2.4
© 2003 by Prentice Hall
Different kinds of systems 1. Management-Level system - monitor, control, decision-making & administrative activities of middle managers - controlling whether everything in company is working well, whether actual costs exceed budgets
4. Strategic-Level Systems - help senior management tackle and address strategic issues and long-term trends, both in the firm and the external environment
2.5
© 2003 by Prentice Hall
Different kinds of system : Example
2.6
Systems Example (Sales system) Strategic level To forecast sales trends, buying habits trends for next 5 years Management Tracks monthly sales figures, if level sales exceed or fall below expected figures Knowledge To design promotional displays for level firm’s products, i.e. to design an attractive brochure Operational To record daily sales figures, i.e. level at the cashier machine © 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Types of Information Systems
Each types of systems Serve Different levels and Functions.
2.7
Figure 2-1
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
6 Major Types of Systems
• Executive Support Systems (ESS) • Decision Support Systems (DSS) • Management Information Systems (MIS) • Knowledge Work Systems (KWS) • Office Automation Systems (OAS) • Transaction Processing Systems (TPS)
2.8
© 2003 by Prentice Hall
Chapter 2 TYPES OF INFORMATION SYSTEMS
2.9
Figure 2-2
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Transaction Processing Systems (TPS): • Basic business systems that serve the operational level • A computerized system that performs and records the daily routine transactions necessary to the conduct of the business • For example, sales order entry, hotel reservation system, payroll, employee record keeping and shipping 2.10
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Payroll TPS
2.11
Figure 2-3 © 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Types of TPS Systems
Figure 2-4 2.12
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Knowledge Work Systems (KWS):
Aid knowledge workers in the creation and integration of new knowledge in the org Eg: Scientific or engineering design workstations to promote the creation of new knowledge Office System-computer system, such as WP, E-mail systems and scheduling systems to increase the productivity of data workers by supporting the coordinating and communicating activities in an office 2.13
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Management Information System (MIS): Is that serve the function of planning, controlling and decision making by providing routine summary and exception reports Eg: Sales Management , Inventory Control
2.14
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Management Information System (MIS)
Figure 2-5 2.15
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Management Information System (MIS)
This is an annual sales data produced By the MIS
2.16
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Decision Support System (DSS): DSS helps managers to make decisions that are unique, rapidly changing and not easily specified in advance DSS uses internal info (TPS & MIS) as well as external sources such as current stock prices, product prices of competitors DSS has more analytical power than other sys Eg: Production scheduling, Cost Analysis, Pricing Analysis, Budgeting 2.17
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Decision Support System (DSS)
Figure 2-7 2.18
© 2003 by Prentice Hall
Examples of Business Decision Support software
• http://www.canadiancontent.net/tech/dow • http://www.exefind.com/cash-flowplanner-P4101.html
2.19
© 2003 by Prentice Hall
Executive Support System • Executive Support System (ESS) is a reporting tool (software) that allows you to turn your organization's data into useful summarized reports. • These reports are generally used by executive level managers for quick access to reports coming from all company levels and departments such as billing, cost accounting , staffing, scheduling, and more. 2.20
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Executive Support System (ESS): IS at the org strategic level designed to address unstructured decision making through advanced graphics and communication ESS address non-routine decisions requiring judgment, evaluation since no agreed-on procedure for arriving at a solution ESS provide a generalized computing and communications capacity that can be applied to a changing array of problems. ESS are not designed primarily to solve specific problems 2.21
© 2003 by Prentice Hall
Example of Executive information system
2.22
© 2003 by Prentice Hall
Example EIS Epic
2.23
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Executive Support System (ESS)
2.24
Figure 2-8
© 2003 by Prentice Hall
Chapter 2 INTERRELATIONSHIPS AMONG SYSTEMS
2.25
Figure 2-9
© 2003 by Prentice Hall
Systems From a Functional Perspective Sales & Marketing Systems – system’s that help the firm identify customers for the firm’s products or services, develop products and services to meet their needs, promote these products and services & provide ongoing customer support
2.26
System
Description
Org Level
Order Processing
Enter, process & track orders
Operational
Market Analysis
Identify customers and markets using data on demo
Knowledge
Pricing analysis
Determine prices for pro & services
Management
Sales trend forecasting
Prepare 5 year forecasts
Strategic © 2003 by Prentice Hall
Systems From a Functional Perspective Manufacturing & Production System – systems that deals with the planning, development and production of products & services and with controlling the flow of production System
Description
Org Level
Machine Control Control the actions of machines & Equipment
Operational
CAD
Design new products using the computer
Knowledge
Producing planning
Decide when and how many products should be produced
Management
Facilities location
Decide where to locate new production facilities
Strategic
2.27
© 2003 by Prentice Hall
Systems From a Functional Perspective Finance and Accounting system – systems to keep track of the firm’s financial assets and fund flows such as cash, stocks, bonds and other investments
2.28
System
Description
Org Level
Accounts receivable
Track money owed the firm
Operational
Portfolio analysis
Design the firm portfolio of investment
Knowledge
Budgeting
Prepare short-terms budgets
Management
Profit planning
Plan long-term profits
Strategic
© 2003 by Prentice Hall
Systems From a Functional Perspective Human Resources Systems – system’s that maintain employee records, track employee skills, job performance, and training and support planning for employee compensation and career development System
Description
Org Level
Training & Development
Track employee training, skills, and performance
Operational
Career pathing
Design career paths for employees
Knowledge
Compensation analysis
Monitor the range and distribution of employee wages
Management
Human resource planning
Plan the long-term labor force needs of the org
Strategic
2.29
© 2003 by Prentice Hall
What is Strategic Info System?
Change the goals, operations, products, services or environmental relationships of org to help them gain an edge over competitors Used at all organizational levels 2 models of a firm and its environment have been used to identify areas of business where IS can provide advantage over competitors 2.30
© 2003 by Prentice Hall
Using Information System to achieve Competitive Advantage • A firm “do better” than others are said to have a competitive advantage over others. • For example, Apple’s iTunes is the leader with more than 75% of the downloaded music market. • To understand competitive advantage, Michael Porter’s competitive forces model can be used.
2.31
© 2003 by Prentice Hall
Using Information System to achieve Competitive Advantage
Competitive Forces – used to describe the interaction of external influences, specifically threats and opportunities, that affect an org’s strategy and ability to compete Eg: Threats & Opportunities – new entrants into market, pressure from substitute products or services, customers & Suppliers bargaining power
2.32
© 2003 by Prentice Hall
Michael 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, bargaining power of customers, and bargaining power of suppliers. 2.33
© 2003 by Prentice Hall
Michael Porter’s competitive forces model • Entry of competitors –
How easy/difficult is it for new entrants to start competing which barriers do exist.
• Threat of substitutes – – –
2.34
Substitutes goods or services from outside an industry that perform the same functions as a product that the industry produces. For example, substitutes good for Milo might be coffee How easy/difficult a product or service can be substitute, especially made cheaper.
© 2003 by Prentice Hall
Michael Porter’s competitive forces model •
Bargaining power of buyers
– – –
2.35
Customers will bargain for higher quality, greater levels of services and lower prices. Bargaining power of buyers seems to be increased with the used of Internet where they have more choices to compare for price from different manufacturers. Customers are powerful when: • They purchase a large portion of an industry’s total output • The sales of the product being purchased account for a significant portion of the seller’s annual revenues. • They could switch to another product at little if any cost • The industry’s products are undifferentiated or standardized and the buyers pose a credible threat if they were to integrate backward into the seller’s industry. © 2003 by Prentice Hall
Michael Porter’s competitive forces model • Bargaining power of suppliers – – –
– 2.36
Increasing prices and reducing the quality of its products are potential means used by suppliers to exert power over firms competing within an industry. If a firm is unable to recover cost increase by its suppliers, then their profitability level is decrease because of the suppliers’ action. A supplier group is powerful when; • It is dominated by a few large companies and is more concentrated than the industry to which it sells. • Satisfactory substitute products are not available to industry firms. • Industry firms are not a significant customer for the supplier group Suppliers’ goods are critical to buyers’ marketplace success © 2003 by Prentice Hall
Michael Porter’s competitive forces model • Intensity of rivalry among competitors – –
–
2.37
Does a strong competition exist among the existing competitors in the market. Competitive rivalry intensifies when a firm is challenged by a competitor’s actions or when an opportunity to improve its market position is recognized. Visible dimensions on which rivalry is based include price, quality and innovation.
© 2003 by Prentice Hall
Achieving a Competitive Advantage • Competitive advantage is achieved when a for-profit company increases its profits significantly, usually through increased market share • Many initiatives can be used to gain competitive advantage • Strategic moves often combine two or more initiatives • The essence of strategy is innovation 2.38
© 2003 by Prentice Hall
Four basic competitive strategies
2.39
© 2003 by Prentice Hall
Competitive Strategies 4 basic competitive strategies to deal with competitive forces :2. Product Differentiation Creating unique new products & services from those competitors, or potential competitors can’t duplicate Using IS to custom-tailored to fit individual customers precise specifications. Eg: Dell Computer corporation – sells build-to-order manufacturing 2.40
© 2003 by Prentice Hall
Competitive Strategies 2. Developing Tight Linkages to Customers &
Suppliers Firms can create ties to customers and suppliers that “lock” customers into the firm’s products This raises switching costs – cost for customer to switch to competitors products/ services and reduce customers & suppliers bargaining power For example, Amazon.com keep track of user preferences for book and CD purchases and recommend titles purchased by other customers
2.41
© 2003 by Prentice Hall
Competitive Strategies 3. Becoming Low-Cost Producer To prevent new competitors from entering their markets, businesses can produce goods and services at a lower price than competitors. Eg: Supply Chain Management System – integrates supplier, distributor and customer logistics requirements into one cohesive process SCM lower down inventory cost and create efficient customer response systems that deliver the product or services more rapidly to customers
2.42
© 2003 by Prentice Hall
Competitive Strategies • 4. Focus on Market Niche – Using Information Systems to enable a specific market focus and serve narrow target market better than competitors. – IS enable companies to analyze customer preferences and taste, and then categorize them in group so that a certain advertising will only send to the relevant interests group. – For example, Customer relationship management can be used by a hotel to find the preferences of active guest so that the staff can give what they want through past staying records. 2.43
© 2003 by Prentice Hall
The Internet’s Impact on competitive Advantage Adopting IS requires changes in business goals, relationship with customers and suppliers, internal operations and information architecture Socio-technical changes - both social and technical elements of the org Internet technology challenges many traditional business models - it provides customers, suppliers and other with rich new sources of information. 2.44
© 2003 by Prentice Hall
The Internet’s Impact on competitive Advantage
2.45
© 2003 by Prentice Hall
Value Chain Concepts • It show how various types of information technologies might be applied to specific business processes to help a firm gain competitive advantages in the marketplace. • A value chain is a chain of activities. Products pass all activities of the chain in order and at each activity the product gains some value. • The value chain categorizes the generic valuevalue adding activities of an organization.
2.46
© 2003 by Prentice Hall
The value chain of a firm. This diagram provide examples how and where information technologies can be applied to basic business processes using the value chain framework.
2.47
© 2003 by Prentice Hall
Value Chain Concepts • The "primary activities" include: inbound logistics, operations (production), outbound logistics, marketing and sales, and services (maintenance). • The "support activities" include: administrative infrastructure management, human resource management, R&D, and procurement • Its ultimate goal is to maximize value creation while minimizing costs. 2.48
© 2003 by Prentice Hall
AirAsia: A Success Story • AirAsia: airline company that entered a formerly hurting market with great success – Ticketless travel – Automation with IT – Reduced costs – Improved service
2.49
© 2003 by Prentice Hall
AirAsia: A Success Story
2.50
© 2003 by Prentice Hall
Massive Automation • AirAsia developed Open Skies software to automate ticket handling – Avoids travel agents and their fees – Uses reservation agents who work from home using VoIP – Encourages Internet flight booking by customers
• Maintenance information system used to log airplane parts and time cycles for replacement 2.51
© 2003 by Prentice Hall
Away from Tradition • AirAsia used innovative technique for routing airplanes – Does not use hub-and-spokes method, only point to point – Take most profitable route between cities • Keeping flight manuals on laptop computers allows for paperless cockpits – Saves preflight time associated with calculating weight of plane (annual savings of ~4800 hours)
2.52
© 2003 by Prentice Hall
Competitive advantages • Technology helps AirAsia offer better service – Safety First: Partnering with the world’s most renowned maintenance providers and complying with the with world airline operations. – High Aircraft Utilization: Implementing the regions fastest turnaround time at only 25 minutes, assuring lower costs and higher productivity.
2.53
© 2003 by Prentice Hall
Competitive advantages • Technology helps AirAsia offer better service – Low Fare, No Frills: Providing guests with the choice of customizing services without compromising on quality and services. – Streamline Operations: Making sure that processes are as simple as possible. – Lean Distribution System: Offering a wide and innovative range of distribution channels to make booking and travelling easier. – Point to Point Network: Applying the point-to-point network keeps operations simple and costs, low. 2.54
© 2003 by Prentice Hall
THE END.
Any questions??????
2.55
© 2003 by Prentice Hall
2
THE STRATEGIC ROLE OF INFORMATION SYSTEMS
2.1
© 2003 by Prentice Hall
Chapter 2 OBJECTIVES
• Analyze the role played by the six major types of information systems in organizations. • Describe the relationship between the major types of information systems • Distinguish a strategic information system. • Describe how information systems can be used to support three levels of strategy used in business. 2.2
© 2003 by Prentice Hall
Chapter 2 MANAGEMENT CHALLENGES
• Integration: Different systems serve variety of functions, and even to integrate them together as using enterprise resource planning (ERP) is much more easy but connecting organizational levels is difficult, and costly
• Sustainability of competitive advantage: A management team in a company need to be more innovative to have new business strategies as competitive advantage. Competitors can copy strategic systems
2.3
© 2003 by Prentice Hall
Different levels of management systems Operational-level systems
– support operational managers by keeping track of the elementary activities & transactions of the org such as sales, receipts, cash deposits
2. Knowledge-level systems – support the organization’s knowledge and data worker. - It help the company to discover, organize and integrate new knowledge into business and to control the flow of paperwork. 2.4
© 2003 by Prentice Hall
Different kinds of systems 1. Management-Level system - monitor, control, decision-making & administrative activities of middle managers - controlling whether everything in company is working well, whether actual costs exceed budgets
4. Strategic-Level Systems - help senior management tackle and address strategic issues and long-term trends, both in the firm and the external environment
2.5
© 2003 by Prentice Hall
Different kinds of system : Example
2.6
Systems Example (Sales system) Strategic level To forecast sales trends, buying habits trends for next 5 years Management Tracks monthly sales figures, if level sales exceed or fall below expected figures Knowledge To design promotional displays for level firm’s products, i.e. to design an attractive brochure Operational To record daily sales figures, i.e. level at the cashier machine © 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Types of Information Systems
Each types of systems Serve Different levels and Functions.
2.7
Figure 2-1
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
6 Major Types of Systems
• Executive Support Systems (ESS) • Decision Support Systems (DSS) • Management Information Systems (MIS) • Knowledge Work Systems (KWS) • Office Automation Systems (OAS) • Transaction Processing Systems (TPS)
2.8
© 2003 by Prentice Hall
Chapter 2 TYPES OF INFORMATION SYSTEMS
2.9
Figure 2-2
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Transaction Processing Systems (TPS): • Basic business systems that serve the operational level • A computerized system that performs and records the daily routine transactions necessary to the conduct of the business • For example, sales order entry, hotel reservation system, payroll, employee record keeping and shipping 2.10
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Payroll TPS
2.11
Figure 2-3 © 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Types of TPS Systems
Figure 2-4 2.12
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Knowledge Work Systems (KWS):
Aid knowledge workers in the creation and integration of new knowledge in the org Eg: Scientific or engineering design workstations to promote the creation of new knowledge Office System-computer system, such as WP, E-mail systems and scheduling systems to increase the productivity of data workers by supporting the coordinating and communicating activities in an office 2.13
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Management Information System (MIS): Is that serve the function of planning, controlling and decision making by providing routine summary and exception reports Eg: Sales Management , Inventory Control
2.14
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Management Information System (MIS)
Figure 2-5 2.15
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Management Information System (MIS)
This is an annual sales data produced By the MIS
2.16
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Decision Support System (DSS): DSS helps managers to make decisions that are unique, rapidly changing and not easily specified in advance DSS uses internal info (TPS & MIS) as well as external sources such as current stock prices, product prices of competitors DSS has more analytical power than other sys Eg: Production scheduling, Cost Analysis, Pricing Analysis, Budgeting 2.17
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Decision Support System (DSS)
Figure 2-7 2.18
© 2003 by Prentice Hall
Examples of Business Decision Support software
• http://www.canadiancontent.net/tech/dow • http://www.exefind.com/cash-flowplanner-P4101.html
2.19
© 2003 by Prentice Hall
Executive Support System • Executive Support System (ESS) is a reporting tool (software) that allows you to turn your organization's data into useful summarized reports. • These reports are generally used by executive level managers for quick access to reports coming from all company levels and departments such as billing, cost accounting , staffing, scheduling, and more. 2.20
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Executive Support System (ESS): IS at the org strategic level designed to address unstructured decision making through advanced graphics and communication ESS address non-routine decisions requiring judgment, evaluation since no agreed-on procedure for arriving at a solution ESS provide a generalized computing and communications capacity that can be applied to a changing array of problems. ESS are not designed primarily to solve specific problems 2.21
© 2003 by Prentice Hall
Example of Executive information system
2.22
© 2003 by Prentice Hall
Example EIS Epic
2.23
© 2003 by Prentice Hall
Chapter 2 KEY SYSTEM APPLICATIONS IN THE ORGANIZATION
Executive Support System (ESS)
2.24
Figure 2-8
© 2003 by Prentice Hall
Chapter 2 INTERRELATIONSHIPS AMONG SYSTEMS
2.25
Figure 2-9
© 2003 by Prentice Hall
Systems From a Functional Perspective Sales & Marketing Systems – system’s that help the firm identify customers for the firm’s products or services, develop products and services to meet their needs, promote these products and services & provide ongoing customer support
2.26
System
Description
Org Level
Order Processing
Enter, process & track orders
Operational
Market Analysis
Identify customers and markets using data on demo
Knowledge
Pricing analysis
Determine prices for pro & services
Management
Sales trend forecasting
Prepare 5 year forecasts
Strategic © 2003 by Prentice Hall
Systems From a Functional Perspective Manufacturing & Production System – systems that deals with the planning, development and production of products & services and with controlling the flow of production System
Description
Org Level
Machine Control Control the actions of machines & Equipment
Operational
CAD
Design new products using the computer
Knowledge
Producing planning
Decide when and how many products should be produced
Management
Facilities location
Decide where to locate new production facilities
Strategic
2.27
© 2003 by Prentice Hall
Systems From a Functional Perspective Finance and Accounting system – systems to keep track of the firm’s financial assets and fund flows such as cash, stocks, bonds and other investments
2.28
System
Description
Org Level
Accounts receivable
Track money owed the firm
Operational
Portfolio analysis
Design the firm portfolio of investment
Knowledge
Budgeting
Prepare short-terms budgets
Management
Profit planning
Plan long-term profits
Strategic
© 2003 by Prentice Hall
Systems From a Functional Perspective Human Resources Systems – system’s that maintain employee records, track employee skills, job performance, and training and support planning for employee compensation and career development System
Description
Org Level
Training & Development
Track employee training, skills, and performance
Operational
Career pathing
Design career paths for employees
Knowledge
Compensation analysis
Monitor the range and distribution of employee wages
Management
Human resource planning
Plan the long-term labor force needs of the org
Strategic
2.29
© 2003 by Prentice Hall
What is Strategic Info System?
Change the goals, operations, products, services or environmental relationships of org to help them gain an edge over competitors Used at all organizational levels 2 models of a firm and its environment have been used to identify areas of business where IS can provide advantage over competitors 2.30
© 2003 by Prentice Hall
Using Information System to achieve Competitive Advantage • A firm “do better” than others are said to have a competitive advantage over others. • For example, Apple’s iTunes is the leader with more than 75% of the downloaded music market. • To understand competitive advantage, Michael Porter’s competitive forces model can be used.
2.31
© 2003 by Prentice Hall
Using Information System to achieve Competitive Advantage
Competitive Forces – used to describe the interaction of external influences, specifically threats and opportunities, that affect an org’s strategy and ability to compete Eg: Threats & Opportunities – new entrants into market, pressure from substitute products or services, customers & Suppliers bargaining power
2.32
© 2003 by Prentice Hall
Michael 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, bargaining power of customers, and bargaining power of suppliers. 2.33
© 2003 by Prentice Hall
Michael Porter’s competitive forces model • Entry of competitors –
How easy/difficult is it for new entrants to start competing which barriers do exist.
• Threat of substitutes – – –
2.34
Substitutes goods or services from outside an industry that perform the same functions as a product that the industry produces. For example, substitutes good for Milo might be coffee How easy/difficult a product or service can be substitute, especially made cheaper.
© 2003 by Prentice Hall
Michael Porter’s competitive forces model •
Bargaining power of buyers
– – –
2.35
Customers will bargain for higher quality, greater levels of services and lower prices. Bargaining power of buyers seems to be increased with the used of Internet where they have more choices to compare for price from different manufacturers. Customers are powerful when: • They purchase a large portion of an industry’s total output • The sales of the product being purchased account for a significant portion of the seller’s annual revenues. • They could switch to another product at little if any cost • The industry’s products are undifferentiated or standardized and the buyers pose a credible threat if they were to integrate backward into the seller’s industry. © 2003 by Prentice Hall
Michael Porter’s competitive forces model • Bargaining power of suppliers – – –
– 2.36
Increasing prices and reducing the quality of its products are potential means used by suppliers to exert power over firms competing within an industry. If a firm is unable to recover cost increase by its suppliers, then their profitability level is decrease because of the suppliers’ action. A supplier group is powerful when; • It is dominated by a few large companies and is more concentrated than the industry to which it sells. • Satisfactory substitute products are not available to industry firms. • Industry firms are not a significant customer for the supplier group Suppliers’ goods are critical to buyers’ marketplace success © 2003 by Prentice Hall
Michael Porter’s competitive forces model • Intensity of rivalry among competitors – –
–
2.37
Does a strong competition exist among the existing competitors in the market. Competitive rivalry intensifies when a firm is challenged by a competitor’s actions or when an opportunity to improve its market position is recognized. Visible dimensions on which rivalry is based include price, quality and innovation.
© 2003 by Prentice Hall
Achieving a Competitive Advantage • Competitive advantage is achieved when a for-profit company increases its profits significantly, usually through increased market share • Many initiatives can be used to gain competitive advantage • Strategic moves often combine two or more initiatives • The essence of strategy is innovation 2.38
© 2003 by Prentice Hall
Four basic competitive strategies
2.39
© 2003 by Prentice Hall
Competitive Strategies 4 basic competitive strategies to deal with competitive forces :2. Product Differentiation Creating unique new products & services from those competitors, or potential competitors can’t duplicate Using IS to custom-tailored to fit individual customers precise specifications. Eg: Dell Computer corporation – sells build-to-order manufacturing 2.40
© 2003 by Prentice Hall
Competitive Strategies 2. Developing Tight Linkages to Customers &
Suppliers Firms can create ties to customers and suppliers that “lock” customers into the firm’s products This raises switching costs – cost for customer to switch to competitors products/ services and reduce customers & suppliers bargaining power For example, Amazon.com keep track of user preferences for book and CD purchases and recommend titles purchased by other customers
2.41
© 2003 by Prentice Hall
Competitive Strategies 3. Becoming Low-Cost Producer To prevent new competitors from entering their markets, businesses can produce goods and services at a lower price than competitors. Eg: Supply Chain Management System – integrates supplier, distributor and customer logistics requirements into one cohesive process SCM lower down inventory cost and create efficient customer response systems that deliver the product or services more rapidly to customers
2.42
© 2003 by Prentice Hall
Competitive Strategies • 4. Focus on Market Niche – Using Information Systems to enable a specific market focus and serve narrow target market better than competitors. – IS enable companies to analyze customer preferences and taste, and then categorize them in group so that a certain advertising will only send to the relevant interests group. – For example, Customer relationship management can be used by a hotel to find the preferences of active guest so that the staff can give what they want through past staying records. 2.43
© 2003 by Prentice Hall
The Internet’s Impact on competitive Advantage Adopting IS requires changes in business goals, relationship with customers and suppliers, internal operations and information architecture Socio-technical changes - both social and technical elements of the org Internet technology challenges many traditional business models - it provides customers, suppliers and other with rich new sources of information. 2.44
© 2003 by Prentice Hall
The Internet’s Impact on competitive Advantage
2.45
© 2003 by Prentice Hall
Value Chain Concepts • It show how various types of information technologies might be applied to specific business processes to help a firm gain competitive advantages in the marketplace. • A value chain is a chain of activities. Products pass all activities of the chain in order and at each activity the product gains some value. • The value chain categorizes the generic valuevalue adding activities of an organization.
2.46
© 2003 by Prentice Hall
The value chain of a firm. This diagram provide examples how and where information technologies can be applied to basic business processes using the value chain framework.
2.47
© 2003 by Prentice Hall
Value Chain Concepts • The "primary activities" include: inbound logistics, operations (production), outbound logistics, marketing and sales, and services (maintenance). • The "support activities" include: administrative infrastructure management, human resource management, R&D, and procurement • Its ultimate goal is to maximize value creation while minimizing costs. 2.48
© 2003 by Prentice Hall
AirAsia: A Success Story • AirAsia: airline company that entered a formerly hurting market with great success – Ticketless travel – Automation with IT – Reduced costs – Improved service
2.49
© 2003 by Prentice Hall
AirAsia: A Success Story
2.50
© 2003 by Prentice Hall
Massive Automation • AirAsia developed Open Skies software to automate ticket handling – Avoids travel agents and their fees – Uses reservation agents who work from home using VoIP – Encourages Internet flight booking by customers
• Maintenance information system used to log airplane parts and time cycles for replacement 2.51
© 2003 by Prentice Hall
Away from Tradition • AirAsia used innovative technique for routing airplanes – Does not use hub-and-spokes method, only point to point – Take most profitable route between cities • Keeping flight manuals on laptop computers allows for paperless cockpits – Saves preflight time associated with calculating weight of plane (annual savings of ~4800 hours)
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© 2003 by Prentice Hall
Competitive advantages • Technology helps AirAsia offer better service – Safety First: Partnering with the world’s most renowned maintenance providers and complying with the with world airline operations. – High Aircraft Utilization: Implementing the regions fastest turnaround time at only 25 minutes, assuring lower costs and higher productivity.
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© 2003 by Prentice Hall
Competitive advantages • Technology helps AirAsia offer better service – Low Fare, No Frills: Providing guests with the choice of customizing services without compromising on quality and services. – Streamline Operations: Making sure that processes are as simple as possible. – Lean Distribution System: Offering a wide and innovative range of distribution channels to make booking and travelling easier. – Point to Point Network: Applying the point-to-point network keeps operations simple and costs, low. 2.54
© 2003 by Prentice Hall
THE END.
Any questions??????
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© 2003 by Prentice Hall
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