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MP3 / MM740Strategy & Information Systems

Module 2: Strategy Concepts & Frameworks

Fall 2001

© Copyright 1997-2001, John M. Gallaugher, Ph.D

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Lecture Topics• Porter’s 5 Forces / ICA• Porter’s Value Chain Model• Resource-based Theory

– IS as resource & enabler

• Why Successful Firms Fail– disruptive technologies– options theory & technology experimentation

• Network Externalities• Strategic Alignment

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How Do We Know If An Asset Yields Sustainable Advantages?

• Rareness– Is the asset in limited supply or difficult to acquire?

• Value– Does the asset yield value to the firm/customers?

• Imperfectly Imitable– Is the asset impossible to imitate?

• Non-Substitutable– Is the asset without comparable substitutes?

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SWOT Analysis

OrganizationalAnalysis

EnvironmentalAnalysis

Strengths

Weaknesses

Opportunities

Threats

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ICA: Industry & Competitive Analysis

(Porter’s Five Forces)

Industry Competitors

Potential New Entrants

Substitute products or services

Power of Suppliers

Power of Buyers

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Competitor related threats– Growth industry w/above average profits– Fragmented industry - no clear leader / national brand– Low startup costs– Lack of scale economies– Low differentiation– Weak brands / low customer loyalty– Low customer switching costs– Available distribution networks– Technology & Regulatory shifts– Similar products/services/industries exist

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Addressing Competitive Threats– Economies of Scale– Product Differentiation– Proprietary technology, learning curve/know-how,

geography– Contrived Deterrence

• over-capacity, pre-announcements

– Government Regulation of Entry– Switching Costs– Create / secure distribution channels– Preemptive Cannibalization– Alliances (with complementary firms & competitors)

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Supplier related threats

• Small number of suppliers

• Suppliers sell highly differentiated products

• Suppliers not threatened by substitutes

• Firm is not an important customer for suppliers

• Suppliers threaten forward integration

• Information asymmetries

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Addressing the supply-side

• Foster relationships with more suppliers• Acquire & leverage information• Lower product complexity - turn supplier

products into commodities– be less dependent on a given supplier

• Integrate backwards• Tightly integrate suppliers into your operations

– make suppliers more dependent on your firm

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Commoditizing Products

Commodities DifferentiatedGoods

PRODUCT COMPLEXITY

LOW HIGH

Information Systems

ExamplesComputer Aided Design (CAD)Computer Aided Engineering (CAE)Computer Aided Manufacturing (CAM)Integrated Robotics

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Buyer related threats

• Small number of buyers

• Buyers purchase commodity products

• Products sold to buyers consume a high portion of the product’s final cost

• Buyers are not earning significant economic profits

• Buyers threaten backward integration

• Information asymmetries

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Addressing the buy side

• Seek or create new buyers / new markets• Reduce buyer costs / assist buyer in

expanding markets• Differentiate products• Acquire & leverage information• Tightly integrate with buyers• Integrate forwards

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Differentiating Products

Commodities DifferentiatedGoods

LEVEL OF CUSTOMIZATION

LOW HIGH

ExamplesCustomer-driven Ordering SystemsJust In Time (JIT) Manufacturing Systems

Information Systems

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Value Chain

Inbound Operations Outbound Marketing Servicelogistics logistics & Sales

Infrastructure: general mgmt, planning, finance, ISHRM: recruiting, hiring, training, and developmentTech. Development: R&DProcurement

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Inbound Logistics

• Expediting raw materials to production

• Where IT can help– automated warehousing– just-in-time (JIT) inventory (tightening

supplier links)– ex: Wal-Mart; Firms using supply chain

software such as i2

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Operations

• Transforming inputs into finished products

• Where IT can help– flexible manufacturing systems– robotics– ex: wearable computers - complex

assembly; wireless tablets - CareGroup Healthcare

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Outbound Logistics

• Storing and distributing finished products

• Where IT can help– automated order processing– electronic bills of lading (tighter buyer links)– ex: Logistics.com; supply-chain software

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Marketing & Sales

• Promotion and sale of products

• Where IT can help– customer identification– standardizing the sales process– ex: Amazon.com & preference databases;

Weyerhauser & configuration systems; Spiegel’s use of neural networks

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Service

• Post-sale services to maintain and enhance products

• Where IT can help– need detection and remote servicing– automated dispatch of repair technicians– automated information distribution– ex: expert systems for repair & service;

embedded self-diagnostic systems

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Firm Infrastructure

• Support of the entire value-chain. Includes general management, legal services, finance, IS, and public relations

• Where IT can help– decision support systems– management information systems

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Human Resource Management

• Recruiting, hiring, and training development

• Where IT can help– automated training– automated personnel scheduling

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Technology Development

• Improving products and processes

• Where IT can help– Computer Aided Design (CAD)– Computer Aided Engineering (CAE)– Computer Aided Manufacturing (CAM)– Computer-based modeling (supercomputers)– ex. Drug modeling by pharmaceutical

companies

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Procurement

• Purchasing inputs supplies

• Where IT can help– online procurement systems– inventory locator systems– ex: web-based office supply & travel

procurement systems

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IS as a Resource

• Competitive advantage is sometimes achieved through multiple resources

• IS can be an enabler– enabling latent advantages in an

organization that are not effectively utilized

• IS can create new resources– reshaping market dynamics– over time (e.g. databases)

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IS as an Enabler

• IS resource yields competitive advantage– (ex. Alcoa)

Competitive Advantage

Scale, World-leading mfg. & sales

Integrated IS across plants / offices

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Creating / Enhancing Resources• Created when resources combine for additional benefit.

– e.g. embedded technology

Competitive Advantage

Service Network

Monitoring IS

R & D

Exceptional Service

Superior Products

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Time-Based Resources

• Resources may yield additional advantages/ opportunities over time

Competitive Advantage Customer DatabaseGrowth Over Time

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HyperCompetition

Profits from a competitive advantage

launch

exploitation

counter-attack

Profits from a competitive advantage

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Pro

du

ct

Pe

rfo

rma

nc

e

Time

Performance demanded at the high

end of the market

Performance demanded at the low

end of the market

Progre

ss due to

susta

ining tech

nologies

Disruptive technological

innovation Progre

ss due to

susta

ining tech

nologies

Existing profit, staffing, and customer pressures stall innovation

Traditional market & financial analysis cause blindness

Why Do Leaders Fail?

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Creating the Killer-App• Blindness & Pressures

– existing customers & market pressure– financial performance measures

• Identify Technologies– external conversations (VCs, academics, technologists)– internal conversations (engineering, mktg, planning)

• Managing an Option Portfolio of Innovations– separate organizations– hedge financial risk, market focus, incentive

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Network Externalities(a.k.a. Network Effects, Metcalfe’s Law)

• A product or service becomes more valuable as its installed base expands• Why do consumers care about installed base?

– Exchange opportunities– Stability– Extrinsic, complementary benefits

More Exchange Opportunities

More Members

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Why are Markets for Network Goods Different?

• Market competition occurs very early and is particularly fierce

• Markets are ‘tippy’ and subject to bandwagons

• Markets exhibit monopolistic tendencies

• The ‘best’ technology or highest quality product doesn’t always win

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Success Factors for Large Scale IS• Business Case

– benchmark, cost justify (e.g. unplug mainframes)

• Leadership– from the highest levels (e.g. success at Owens Corning, failure at

Westinghouse)

• Staffing– largely from business, not IT (users know the process)

– ‘compensation handcuffs’ (e.g. end of deployment bonuses, performance review tied to usage)

– experienced consultants - check refs., clients

• Manage complexity– justify changes & use methodologies