Lecture 10 SIS1

8/2/2019 Lecture 10 SIS1

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STRATEGY ANDSTRATEGIC ADVANTAGE


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Objectives

Explain what business strategy and strategicadvantage areIllustrate how information systems can givebusinesses a competitive advantageIdentify basic initiatives for gaining acompetitive advantage

Management Information Systems

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Introduction

Strategy : plan to gain advantage over enemyBusiness strategy is plan to outperformcompetitors

Done by creating new opportunities, not beatingrivals

It is a broad based formula for how a businessis going to compete, what its goal should be,

and what plans and polices will be required tocarry out those goalsStrategic Advantage : Using strategy tomaximize company strengths


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Competitive Advantage

Significant and (ideally) long-term benefit to acompany over its competition

An advantage in some measures such as cost,quality or speedAbility to establish and maintain competitiveadvantage is vital to the companys success


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Factors That Lead Firms to SeekCompetitive AdvantageFive forces Model :

Rivalry among existing competitorsThreat of new entrantsThreat of substitute products and servicesBargaining power of customers andBargaining power of suppliers


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Factors That Lead Firms to SeekCompetitive Advantage

Rivalry among existing competitorsHigh fixed cost of entering or leavingLow degree of product differentiation

Many competitorsIndustries with strong rivalries tend to havemore firms seeking competitive advantage.Constantly analyze how they use theirresourcesResource based approach : to acquire andcontrol assets or resources that can help themachieve a competitive adv.


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Threat of new entrantsThe entry and exit costs to an industry are lowTechnology needed to start and maintain iscommonly available

Desire to seek and maintain competitiveadvantage is usually high


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Threat of substitute products and servicesConsumers can obtain similar product andservices

Bargaining power of customers and suppliersCustomer can threaten to switch to rivalcompanies


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Achieving a CompetitiveAdvantage

Managers develop a strategyAimed at establishing a profitable and sustainableposition against these five forces

Many initiatives are used to gain competitiveadvantage

Strategic moves often consist of combination of

two or more initiatives


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Eight basic ways to gain competitive advantage


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Many strategic moves can work together to achieve a competitive advantage


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Reduce Costs or CostLeadership

Deliver the products and services at lowestpossible priceAchieved by

Cost of raw materialsEfficient production and manufacturing processWarehousing and shipping costOutsourcing

Automation greatly reduces costsWeb can automate customer service


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Raise Barriers to MarketEntrantsLess competition is better for companyRaise barriers to entrants to lower competition

Techniques include obtaining copyrights andpatents on inventions, techniques, and services

Building unmatchable information systemsblocks entrants

Use IT to provide exceptional service e.g CiscoIntroduce innovative product


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Establish High Switching Costs

Discourage customer or suppliers from goingto competitors for economic reasonsSwitching costs : incurred when customerstops buying from company and starts buyingfrom another company

Explicit: charge customer for switching

Implicit: indirect costs over period of timeHigh switching costs locks in customers


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Differentiate Products orServices

Deliver different products and servicesInvolve producing a variety of products, giving customersmore choices or delivering higher quality products andservices.

Product differentiation: persuading customers thatproduct is better than competitors

Achieved through advertisingExemplified by brand name successPromotes brand nameHigher prices can be chargedCan sell more products


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Differentiate Products orServices


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Google did not offer an original service, but the service has grown superior to otherWeb search services


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Enhance existing Product lines orServicesMake real or perceived improvements toexisting product lines and/or services toincrease value to consumer

Many products and services have beenenhanced by the Web


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Enhance Products or Services


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Dell continues to enhance its service to maintain the competitive advantage of itsonline order site


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Create New Products orServicesIntroducing new unique product or service periodicallyor frequentlyFirst mover : organization that is first to offer a newproduct or service

Create Assets: Superior brand name, better technology ormethod of delivery, or Critical mass : body of clients that islarge enough to attract other clientsEnjoy longer experience

Being a first mover is not always a guarantee of longterm successSome First movers have lost market share

Neglected to improve the service they pioneered


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Create New Products orServices


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EBay created a new service that established it as an industry leader


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Altering the Industry structure

Change the industry to become more favorable to thecompany or organizationCreating strategic alliances

Alliance: agreement between two or more companiesthat involves joint production and distribution of goodsand services

Makes product more attractive

Reduces costsProvides one-stop shopping (convenience)

Affiliate program : linking to other companies andrewarding the linker for click-throughs


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Establish Alliances


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Strategic alliances combine services to create synergies


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Lock in Suppliers or Buyers

Encourage customers or suppliers to stay withyou rather than going to competitorsAccomplished by achieving bargaining power

Bargaining power : leverage to influencebuyers and suppliers

Achieved by being major competitor oreliminating competitorsUses purchase volume as leverage

Lock in clients by creating high standards


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Other Initiatives

Customer-orientationTime as resource

Operational effectivenessGrowth strategyNiche strategy


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Summary

Various initiatives to establishing advantageCost reduction, raising barriers to competitors,establishing high switching costs, new products,

differentiating products, enhancing products,alliances, and locking suppliers

Management Information Systems, 2012

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Documents

Lecture 10 SIS1