Chapter 3: Strategy and Information Systems

Chapter 3

Summary

Organizational strategy determines Information System structure with the help of Porter’s Five Forces model. Following, organizations use Porter’s Four Competitive Strategies to then determine the Value Chain structure. Business processes are throughout the value chain; it’s key to competitive advantage to streamline business processes to increase margin. In response to competitive forces, organizations use competitive techniques created via product and services and via business process development, which are categorized into 8 principles.

Topics and Details

Q3-1 How Does Organizational Strategy Determine Information Systems Structure?

Competitive strategy determines an org.’s goals and objectives and an IS structure, features, and functions. Michael Porter developed 3 models that show how org. strategy determines IS.

Q3-2 What Five Forces Determine Industry Structure?

Porter’s Five Forces model: used to asses industry structure, profitability, and sustainability. Competitive forces: bargaining power of customers, threat of substitutions, bargaining power of suppliers, and rivalry.

Q3-3 How Does Analysis of industry Structure Determine Competitive Strategy?

Porter’s Four Competitive Strategies: an org. can focus on being a cost leader or focus on differentiating its products/services from competitors. After choosing one of these strategies, the org. can choose to employ it across an industry or a specific industry segment.

Q3-4 How Does Competitive Strategy Determine Value Chain Structure?

Cost strategy: the org. activities would provide essential functions at the lowest cost possible. A Differentiation strategy: an org. may use costly processes but only if the benefits outweigh the costs. Value: “amount of money a customer is willing to pay for a resource, product, or service” Margin: “the difference between the value…activity generates and the cost of the activity” Value Chain: “a network of value-creating activities” – generic chain: 5 primary activities and 4 support activities (indirectly involved in the production, sale, and service of a product). Linkages: “interactions across value activities”

Q3-5 How Do Business Processes Generate Value?

Business Process: “a network of activities that generate value by transforming inputs into outputs” Cost: “cost of the inputs plus the cost of the activities” Activity: “a business function that receives inputs and produces outputs” Repository: “a collection of something”- ex. database is a collection of data. Business processes span throughout the value chain activities, but vary in cost and effectiveness. Key to competitive advantage is streamlining business processes to increase margin. Change in business processes is difficult; one reason is that employees will need to work in new ways and follow new procedures.

Q3-6 How Does Competitive Strategy Determine Business Processes and the Structure of Information Systems?

The cost strategy implanted business processes that minimize costs for itself and customers while the differentiation strategy focuses on providing a high-end service. The IS needed for each strategy is different; for example, the cost strategy uses a shoebox for its data facility and the differentiation strategy uses extensive IS like sales tracking and inventory databases. Customer interaction can also be different.

Q3-7 How Do Information Systems Provide Competitive Advantages?

Org. respond to the competitive forces and distill them into 8 principles. Competitive techniques are created via product and services or via business process development. The first 3 principles concern products or services. Orgs. gain competitive advantage by: “creating new products or services, by enhancing existing products or services, and by differentiating their products and services from those of their competitors”. The other 5 principles concern the process. Orgs. gain competitive advantages by locking in customers and buyers, locking in suppliers, raising barriers to market entry, establish alliances, and reduce costs.

Q3-8 2026?

It’s unlikely that business strategy and competitive advantages models, and their relationship to processes and IS will change in 10 years. It’s more likely that new models will arise but they will probably be extensions of the old ones. The pace of business will accelerate due to technological advantages. Self-driving cars will be a factor in competitive advantage since transportation is a major cost for many products.

Three things I learned

Competitive advantage plays a big role ensuring a business’ effectiveness and efficiency in the market. For businesses, it starts with the organizational strategy. The organization strategy determines the industry structure, where there are five forces of influence. Next, an industry structure analysis will determine the best competitive strategy for a business to use. There are two strategies, cost and differentiation, which can be used across an industry or in a specific industry segment. Then, the competitive strategy determines the value chain structure. It affects the 5 primary activities and the 4 support activities. Business processes span throughout the value chain so it is also determined by the competitive strategy and can be done by either a person or a computer. Competitive advantage also determines the best information systems a business should use to fulfill its business procedures.

There are five primary activities in the value chain. Inbound Logistics refers to receiving, storing, and disseminating inputs to the products. Operations/Manufacturing refers to transforming inputs into the final products. Outbound Logistics refers to collecting, storing, and physically distributing the product to buyers Sales and Marketing refers to inducing buyers to purchase the products and providing a means for them to do so. Customer Service refers to assisting customer’ use of the products and maintaining and enhancing the products’ value. They are the standard stages of manufacturing a product.

I know self-driving cars are becoming a big thing. They will reduce transportation costs dramatically for businesses but it also comes with major consequences. Many transport people like truckers will be out of jobs. Also, how will the businesses compensate for the lack of human presence? For example, truckers need to stop at weigh stations throughout their travels. Also, if the road is under construction or there’s a bridge that is too low to pass under, how will the A.I. deal with the need to change routes. I think a good option would be to have a person as an “operator” to keep an eye on the system and the road conditions and could take control of the situation if it runs into a problem.