On the West Coast, some fishermen now use weather satellite data on ocean temperatures to identify promising fishing grounds. Dramatic reductions in the cost of obtaining, processing, and transmitting information are changing the way we do business. Information technology is changing the way companies operate. The cost of computer power relative to the cost of manual information processing is at least 8,000 times less expensive than the cost 30 years ago. Schlumberger has developed an electronic device permitting engineers to measure the angle of a drill bit, the temperature of a rock, and other variables while drilling oil wells. By selecting a narrow scope, on the other hand, a company may be able to tailor the value chain to a particular target segment to achieve lower cost or differentiation. A business is profitable if the value it creates exceeds the cost of performing the value activities. Information System, Organizations and Strategy: Achieving Competitive Advantage. The technology is creating new linkages between activities, and companies can now coordinate their actions more closely with those of their buyers and suppliers. Will information technology provide the leverage to expand the business globally? Many companies are partly in control of the nature and pace of change in the industry structure. After several decades of vigorous expansion and prosperity, however, many firms lost sight of competitive advantage in their scramble for growth and pursuit of diversification. environmental changes and aid the organization to achieve a competitive advantage over its competitors. As we have seen in the previous section, it is about the innovative use of technology integrated into your business processes that bring about competitive advantage. By taking a careful look, managers can identify the value activities that are likely to be most affected in terms of cost and differentiation. Changing competitive scope. The kink below also talk about Business Strategy and how to achieve Competitive Advantage: CHAPTER 10: Understanding the IT Department: Operations and Projects. CHAPTER 3: Strategy, Information Systems, and Competitive Advantage. Access to natural resources that are restricted to competitors 2. The new technology substitutes machines for human effort in information processing. One can utilise information systems for competitive advantage by identifying how the systems can enhance core competencies. Buyer needs, in turn, depend not only on the impact of the company’s product on the buyer but also on the company’s other activities (for example, logistics or after-sale services). The story is told that once, while confined to the infirmary with a minor ailment, the only thing Wood could find to read was the Statistical Abstract of the United States, which he began perusing simply to pass the time but soon came to study avidly. By bundling more information with the physical product package sold to the buyer, the new technology affects a company’s ability to differentiate itself. Using Information Systems to Achieve Competitive Advantage Supermarkets and large retail stores such as Wal- Mart use sales data captured at the checkout counter to determine which items have sold and need to be reordered. These basic effects explain why information technology has acquired strategic significance and is different from the many other technologies businesses use. Now the pace of technological change is reversed. 4. Information systems help businesses leverage their core competencies by promoting the sharing of … • What business objectives does Cemex’s Web site Every value activity creates and uses information of some kind. To help managers accomplish this, we have developed some measures of the potential importance of information technology. For instance, metal stamping uses more physical processing than information processing; processing of insurance claims requires just the opposite balance. • Discuss the concepts of market niche, customer intimacy, and supplier intimacy as they relate to Cemex’s growth with information systems. It is a profitability ratio measuring revenue after covering operating and non-operating expenses of a business. If you need an original paper click the button below to learn more. Managers must look carefully at the structural implications of the new technology to realize its advantages or to be prepared for its consequences. As a long-term asset, this expectation extends beyond one year. This allows a company to achieve superior margins Operating Margin Operating margin is equal to operating income divided by revenue. IT applications are mostly used to help organizations to do its day to day work and to gain competitive advantage while reducing competitive disadvantage and to meet other business objectives which organizations need. Automation and flexibility are achieved simultaneously, a pairing that changes the pattern of rivalry among competitors. Videotex home shopping services, such as Comp-U-Card, increases buyers’ information. How Do Successful Business Professionals Use IS? environmental changes and aid the organization to achieve a competitive advantage over its competitors. No Frames Version Achieving Competitive Advantage with Information Systems. Chapter 3: Achieving Competitive Advantage with Information Systems 81 HEADS UP In the past decade, firms using the Internet and the Web, and other kinds of information systems, have created entirely new products and services, and entire new industries and businesses. See Michael E. Porter, “How Competitive Forces Shape Strategy,” HBR March–April 1979, p. 137. Using Information Systems to Achieve Competitive Advantage Using Information Systems to Achieve Competitive Advantage Figure 3-2 This figure provides examples of systems for both primary and support activities of a firm and of its value partners that would add a margin of value to a firm’s products or services. Alfred D. Chandler, Jr., The Visible Hand (Cambridge: Belknap Press of Harvard University Press, 1977), p. 86. Other firms have achieved operational excellence and much Therefore senior executives, strategic planners and information system managers are increasingly looking forward to get the use of IS/IT to achieve the competitive advantage. technology. Chapter 3: Achieving Competitive Advantage with Information Systems 81 HEADS UP In the past decade, firms using the Internet and the Web, and other kinds of information systems, have created entirely new products and services, and entire new industries and businesses. The number of variables that a company can analyze or control has grown dramatically. Increasingly, companies must employ information technology with a sophisticated understanding of the requirements for competitive advantage. As they see their rivals use information for competitive advantage, these executives recognize the need to become directly involved in the management of the new technology. By the early 1920s, however, the “buyer for the American farmer” concept had begun to lose its relevance to economic and social realities. The information revolution is affecting competition in three vital ways: We discuss the reasons why information technology has acquired strategic significance and how it is affecting all businesses. General Electric, for instance, uses a data base that includes the accumulated experience and (often intuitive) knowledge of its appliance service engineers to provide support to customers by phone. The company, suppliers, and channels can all benefit through better recognition and exploitation of such linkages. In addition to computers, then, data recognition equipment, communications technologies, factory automation, and other hardware and services are involved. What Is the Relationship between Innovation and Information Technology? Consequently, for firms to achieve a competitive advantage through continuous support from both IT and business managers and executives, it is … Just-in-time deliveries by the supplier may have the same effect. They must examine how information technology might affect each of the five competitive forces. A company’s first task is to evaluate the existing and potential information intensity of the products and processes of its business units. Using automation, for instance, Sulzer Brothers has increased from five to eight the number of cylinder bore sizes of new low-speed marine diesel engines. The technology is unfreezing the structure of many industries, creating the need and opportunity for change. It is what makes the brand, product, or service to be perceived as superior to the other competitors. As noted earlier, the role of a company and its product in the buyer’s value chain is the key determinant of differentiation. Competitive Forces. It also is affecting competitive scope and reshaping the way products meet buyer needs. Similarly, the embedding of information systems in the physical product itself is an increasingly powerful way to distinguish it from competing goods. For example, a candy manufacturer may save processing steps by persuading its suppliers to deliver chocolate in liquid form rather than in molded bars. Describe global competition and global business drivers. Chapter 3: Achieving Competitive Advantage with Information System (Technology) Title: Technology Helps Starbucks Find New Ways to Compete Question 1 Analyze Starbucks using the competitive forces and value chain models? The value system includes the value chains of suppliers, who provide inputs (such as raw materials, components, and purchased services) to the company’s value chain. In these applications, the computers automated repetitive clerical functions such as order processing. Can the company embed information technology in it? There is an unmistakable trend toward expanding the information content in products. The applications of information technology that companies are using today are only a beginning. With the coming of the automobile and good roads, rural America rapidly became less isolated, and the kinds of merchandise of interest to the farm family came more and more to be the kinds of merchandise of interest to city dwellers as well. Computer-aided design capability not only reduces the cost of designing new products but also dramatically reduces the cost of modifying or adding features to existing products. It is affecting the entire process by which companies create their products. Now, however, many casinos have developed computer systems to analyze data on customers. Does information technology make it feasible to produce new items related to the company’s product? Will the flexibility of information technology allow broad-line competitors to invade areas that were once the province of niche competitors? In the past, each local office set prices using manual procedures. Answer: TRUE Diff: 2 Page Ref: 81 2) The competitive forces model was created for today's digital firm. These limits no longer exist, however. After installation of a “smart” manufacturing system, BMW can build customized cars (each with its own tailored gearbox, transmission system, interior, and other features) on the normal assembly line. A company’s value activities fall into nine generic categories (see Exhibit I). 5. 1. When a bank consortium went looking for a contractor to run a network of automated teller machines, A.O. During the Industrial Revolution, companies achieved competitive advantage by substituting machines for human labor. While the term is commonly used for businesses, the strategies work for any organization, country, or individual in a competitive … Read online Achieving Competitive Advantage with Information Systems book pdf free download link book now. Start studying Chapter 3: Achieving Competitive Advantage with Information Systems. Can Information Systems Improve Productivity? Achieving Competitive Advantage with Information Systems - Essentials of Management Information Systems For example, information systems now permit the airline industry to alter fares frequently and to charge many different fares between any two points. Smith, developed data-communications expertise to meet the needs of its traditional businesses. Similarly, information technology helped Sulzer Brothers’ engineers improve the design of diesel engines in ways that manual calculations could not. CHAPTER 2: Business Processes, Information, and Decision Making. How Do Information Systems Support Business Processes? Firms throughout the world face slower growth as … Competitive advantage is a favourable position a business holds in the market which results in more customers and profits. What Is a Data Mart, and How Does It Differ from a Data Warehouse? This technological transformation is expanding the limits of what companies can do faster than managers can explore the opportunities. Eastman Kodak recently began offering long-distance telephone and data-transmission services through its internal telecommunications system. Service, for example, frequently includes activities such as installation, repair, adjustment, upgrading, and parts inventory management. Can information technology help the company serve new segments? Luckily, there is a known strategy for creating competitive advantage within a business. Download Achieving Competitive Advantage with Information Systems book pdf free download link or read online here in PDF. Finally, we outline a procedure managers can use to assess the role of information technology in their business and to help define investment priorities to turn the technology to their competitive advantage. Now that we have an understanding of competitive advantage and some of the ways that IT may be used to help organizations gain it, we will turn our attention to some specific examples. CHAPTER 3 Achieving Competitive Advantage with Information Systems DKU IBA Kai Kim 1 Learning Objectives 3.1 How do Porter’s competitive forces model, the value chain model, synergies, core competencies, and network-based strategies help companies use information systems for competitive advantage? Finally, the information revolution is spawning completely new businesses. Whether or not the infirmary story is apocryphal, it is clear that in his Canal experience he acquired a taste for and an understanding of demographic and economic statistics that stayed with him for the rest of his life. Information systems allow companies to coordinate value activities in far-flung geographic locations. In insurance brokerage, a number of insurance companies usually participate in underwriting a contract. Successfully using information systems to achieve a competitive advantage requires close coordination among organizations, people, and : suppliers. Such technology also makes room for a more comprehensive analysis and use of the expanded data. Information technology not only affects how individual activities are performed but, through new information flows, it is also greatly enhancing a company’s ability to exploit linkages between activities, both within and outside the company. National Benefit Life reportedly merged with American Can in part to gain access to data on the nine million customers of American Can’s direct-mail retailing subsidiary. For example, modern imaging and telecommunications technology blend to support new facsimile services such as Federal Express’s Zapmail. An information system that is intended to achieve sustainable competitive advantage applies information technology (IT) to the strategic needs of the organization. In this paper, we offer a competency-based view of how information systems (IS) can be used to achieve competitive advantage. Information technology is permeating the value chain at every point, transforming the way value activities are performed and the nature of the linkages among them. It … It can unlock the power of broader geographic scope to create competitive advantage. For more information on the value chain concept, see Michael E. Porter, Competitive Advantage (New York: Free Press, 1985). A fresh look at the company’s product may also be in order: Can the company bundle more information with the product? Every value activity has both a physical and an information-processing component. The oil-refining industry has a high use of information in the refining process but a relatively low information content in the product dimension. It is of utmost necessity to view a business problem through... 2. An important concept that highlights the role of information technology in competition is the “value chain.”1 This concept divides a company’s activities into the technologically and economically distinct activities it performs to do business. Support activities provide the inputs and infrastructure that allow the primary activities to take place. At the same time, general managers must be involved to ensure that cross-functional linkages, more possible to achieve with information technology, are exploited. How will advances in information technology affect competition and the sources of competitive advantage? The competitive advantage of a narrow scope comes from customizing the value chain to best serve particular product varieties, buyers, or geographic regions. Similarly, Digital Equipment’s artificial intelligence system, XCON, uses decision rules to develop custom computer configurations. The physical component includes all the physical tasks required to perform the activity. Because firms consist of multiple business units, information systems achieve additional efficiencies or enhance services by tying together the operations of disparate business units. Every activity employs purchased inputs, human resources, and a combination of technologies. During his mature years, there was a widely circulated myth (probably grounded in fact) that the Statistical Abstract was his favorite bedside reading. Most of those come through knowledge and information. PERFORMING A STRATEGIC SYSTEMS ANALYSIS Managers interested in using information systems for competitive advantage will need to perform a strategic systems analysis. Reporting systems can track progress toward milestones and success factors. What Is OLTP and How Does It Support Decision Making? There are four generic strategies used to manage competitive forces, each of which often is enabled by using information technology and systems: Low-cost leadership: Use information systems to achieve the lowest operational costs and the lowest prices. Harvard Business Publishing is an affiliate of Harvard Business School. Competing nationally or globally with a coordinated strategy can yield a competitive advantage over local or domestic rivals. Department of Defense studies show that the error rate in recording data through bar coding is 1 in 3,000,000, compared to 1 error in 300 manual data entries.4. What is a Competitive Advantage? During the Industrial Revolution, the railroad cut the travel time from Boston, Massachusetts, to Concord, New Hampshire, from five days to four hours, a factor of 30.3 But the advances in information technology are even greater. This convergence has profound effects on the structure of both industries. Large-scale production is no longer essential to achieve automation. Information System Strategies for Dealing with . Lowering cost. At the same time, automation no longer necessarily leads to inflexibility. NEXIS subscribers can quickly search the full text of any article in 225 periodicals. Second, information technology can also spawn new businesses by creating derived demand for new products. This is for educational purposes only. A logistics activity, for example, uses information like scheduling promises, transportation rates, and production plans to ensure timely and cost-effective delivery. One example is Western Union’s EasyLink service, a sophisticated, high-speed, data-communications network that allows personal computers, word processors, and other electronic devices to send messages to each other and to telex machines throughout the world. Finally, the new technology has a powerful effect on competitive scope. The Value Chain Model Good coordination allows on-time delivery without the need for costly inventory. This problem creates new uses of information technology to store and analyze the flood of information available to executives. Enhancing differentiation. As we have seen, information technology can alter a company’s costs in any part of the value chain.8 The technology’s historical impact on cost was confined to activities in which repetitive information processing played a large part. A Competitive Advantage is achieved when an organization can do any one thing, process, function, etc. Even activities like assembly that mainly involve physical processing now have a large information-processing component. The increasing flexibility in performing many value activities combined with the falling costs of designing products has triggered an avalanche of opportunities to customize and to serve small market niches. Comp-U-Card is growing quickly: revenues have quintupled in two years to $9.5 million and membership is now 15,000. This optimization may require trade-offs. A competitive strategyis a broad-based formula for how a business is going A dishwasher, for example, requires a control system that directs the various components of the unit through the washing cycle and displays the process to the user. Now a computer model can optimize (and often reduce) the number of insurers per contract, lowering the broker’s total cost. Potentially high information intensity in the value chain—a large number of suppliers or customers with whom the company deals directly, a product requiring a large quantity of information in selling, a product line with many distinct product varieties, a product composed of many parts, a large number of steps in a company’s manufacturing process, a long cycle time from the initial order to the delivered product. The essential purpose of the strategic information systems is to help organizations to do things better [14]. These banks may also need to invest in improved computer hardware and other facilities. These sorts of systems began popping up in the 1980s, as noted in a paper by Charles Wiseman entitled “Creating Competitive Weapons From Information System… A unique geographic location 4. What Are the IT Department's Responsibilities? This article aims to help general managers respond to the challenges of the information revolution. CHAPTER 8: Decision Making and Business Intelligence. Of the many opportunities for investment in information technology, which are the most urgent? Using Information Systems to Achieve Competitive Advantage Essentials of Management Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems Information System Strategies for Dealing with Competitive Forces • Low-cost leadership Use information systems to achieve the lowest operational costs and the lowest prices. Electronic data bases, such as NEXIS, are substituting for library research and consulting firms. Electronic control of the automobile, for example, is becoming more visible in dashboard displays, talking dashboards, diagnostic messages, and the like. They also aim to For example, banks competing in cash management services for corporate clients now need advanced software to give customers on-line account information. Senior executives can follow five steps to take advantage of opportunities that the information revolution has created. Describe how linking information systems across organizations helps companies achieve competi-tive advantage. Customers can make purchases at any hour at prices typically 25% to 30% below suggested retail levels. Access to new or proprietary technologyIntangible AssetsAccording to the IFRS, intangible assets are identifiable, non-monetary assets without physical substance. Compustat’s customers have access to corporate financial data filed with the Securities and Exchange Commission, and many companies have sprung up to perform energy use analyses of buildings. By bringing General Wood into the company in November of 1924, Julius Rosenwald acquired much more than the higher order of managerial skills he was seeking. As more and more of their time and […]. So pervasive is the impact of information technology that it confronts executives with a tough problem: too much information. As a result, entry barriers in a number of industries are falling. analysis of events and trends in the … To prove this, there are several explanations in recent trends. The structure of an industry is embodied in five competitive forces that collectively determine industry profitability: the power of buyers, the power of suppliers, the threat of new entrants, the threat of substitute products, and the rivalry among existing competitors (see Exhibit V). A company’s value chain is a system of interdependent activities, which are connected by linkages. To obtain a competitive advantage with information technology requires more than just simply using the technology. Using information technology to gain a new perspective Because firms consist of multiple business units, information systems achieve additional efficiencies or enhance services by tying together the operations of disparate business units. The primary reference for this lecture is: Essentials in Management Information Systems by Laudon & Laudon. Consumer behaviour is more dynamic than ever. Retailers can run an ad in the morning newspaper and find out its effect by early afternoon. Such advances in communication plants have also made it possible to move toward a global strategy. Consider the newspaper industry. By selling extra capacity outside, it is at the same time generating new revenue. In addition, the buyer avoids the cost of the journal subscriptions and pays only for the information required. Assess information intensity. Completely decentralized organizational design and application of information technology will thwart these possibilities, because the information technology introduced in various parts of a company will not be compatible. According to Mark Davis (2005) business intelligence is the source for achieving competitive advantage because legitimate innovations support business functions. Most general managers know that the revolution is under way, and few dispute its importance. What Is Information Technology Architecture? The information revolution is sweeping through our economy. All books are in clear copy here, and all files are secure so don't worry about it. The costs of documenting each company’s participation are high. Like all assets, intangible assets are those that are expected to generate economic returns for the company in the future. Here is a common scenario, you realize the need to use technology to improve your operation,... 3. Flexible computer-aided design and manufacturing systems have influenced the threat of substitution in many industries by making it quicker, easier, and cheaper to incorporate enhanced features into products. A company with information processing embedded in its value chain may have excess capacity or skills that can be sold outside. What Are Systems Analysis and Design, and SDLC? Information processing at that time was mostly the result of human effort. Please note that this is an example. One assignment for pit bosses has always been to keep an eye out for the big spenders. For example, convenient, accessible information on maintenance and service procedures is an important buyer criterion in consumer appliances. Assembly workers have bins containing all the parts needed for the particular copier. What Is Competitive Advantage? Test bank Questions and Answers of Chapter 3: Achieving Competitive Advantage With Information Systems It was originally developed by Michael Porter, a professor at the Harvard Business School. That is, a product includes information about its characteristics and how it should be used and supported. Minimizes inventory at warehouses, operating costs. Managers should predict the likely impact of information technology on their industry’s structure. Similarly, a company’s ability to differentiate itself reflects the contribution of each value activity toward fulfillment of buyer needs. Linkages often create trade-offs in performing different activities that should be optimized. These changes do not mean that a central information-technology function should play an insignificant role. This improves the position of both brokers and homebuyers in shopping for mortgages. 8. Furthermore, it is reshaping the product itself: the entire package of physical goods, services, and information companies provide to create value for their buyers. Smith got the job. The information revolution is creating interrelationships among industries that were previously separate. Executives must examine such activities for ways in which information technology can create sustainable competitive advantage. STUDY. The cost of tailoring products to market segments is falling, again affecting the pattern of industry rivalry. This dramatically reduces the time required to fill orders and increases accuracy—which enhances Digital’s image as a quality provider. 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