Chapter 2 Gaining Competitive Advantage Through Information Systems TiVo Incorporated

Chapter 2
Gaining Competitive Advantage
Through Information Systems
2-1
“You’ve got a life. TiVo gets it.”
TiVo Incorporated
advertisement motto.
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Learning Objectives
2-2
1. Discuss how information systems can be used for
automation, organizational learning, and strategic
advantage.
2. Describe international business and IS strategies
used by companies operating in the digital world.
3. Explain why and how companies are continually
looking for innovative ways to use information systems
for competitive advantage.
4. Describe freeconomics and how organizations can
leverage digital technologies to provide free goods and
services to customers as a business strategy for gaining
a competitive advantage.
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Learning Objectives
2-3
1. Discuss how information systems can be used for
automation, organizational learning, and strategic
advantage.
2. Describe international business and IS strategies
used by companies operating in the digital world.
3. Explain why and how companies are continually
looking for innovative ways to use information systems
for competitive advantage.
4. Describe freeconomics and how organizations can
leverage digital technologies to provide free goods and
services to customers as a business strategy for gaining
a competitive advantage.
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Decision-Making Levels of an Organization
2-4
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Operational Level
2-5
 Day-to-day business processes
 Interactions with customers
 Decisions:
 structured,
 recurring, and
 can often be automated using IS.
 IS used to:
 optimize processes, and
 understand causes of performance problems.
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Operational Level (cont’d)
2-6
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Managerial Level
2-7
 Functional managers
 Monitor and control operational-level activities
Focus: effectively utilizing and deploying resources
 Goal: achieving strategic objectives

 Managers’ decisions
 Semistructured
 Moderately complex
 Time horizon of few days to few months
 IS can help with:
 performance analytics (dashboards),
 predictive analysis, and
 providing key performance indicators (KPI).
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Managerial Level (cont’d)
2-8
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Executive Level
2-9
 The president, CEO, vice presidents, board of
directors
 Decisions



Unstructured
Long-term strategic issues
Complex and nonroutine problems with long-term
ramifications
 IS is used to:
 obtain aggregate summaries of trends and projections, and
 provide KPIs across the organization.
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Executive Level (cont’d)
2-10
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Organizational Functional Areas
2-11
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Business Process Supported by Functional Area IS
2-12
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Major IS Tasks: Business Value Added
2-13
 Automating: Doing Things Faster
 Organizational Learning: Doing Things Better
 Supporting Strategy: Doing Things Smarter
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Competitive Forces (Pressures on the Firm)
2-14
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Pursuit of Competitive Advantage
2-15
 Best-made product
 Superior customer service
 Lower costs than rivals
 Proprietary manufacturing
technology
 Shorter development/test
lead times
 Well-known brand name
 More value for the money
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How IS Enhances Firm’s Competitiveness
2-16
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Use of IS in the Value Chain
2-17
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Learning Objectives
2-18
1. Discuss how information systems can be used for
automation, organizational learning, and strategic
advantage.
2. Describe international business and IS strategies
used by companies operating in the digital world.
3. Explain why and how companies are continually
looking for innovative ways to use information systems
for competitive advantage.
4. Describe freeconomics and how organizations can
leverage digital technologies to provide free goods and
services to customers as a business strategy for gaining
a competitive advantage.
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International Business Strategies in the Digital World
2-19
 The number of exclusively
domestic companies is
shrinking.
 Today’s large companies
have some international
business strategy for
competing in global
markets.




Home Replication Strategy
Multidomestic Strategy
Global Strategy
Transnational Strategy
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Home Replication Strategy
2-20
 International business as an extension of home
business
 Strengths: focus on core competencies in home
market
 Weakness: inability to react to local market
conditions
 Appropriate use: homogeneous markets
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Global Business Strategy
2-21
 Centralized organization with
standardized offerings across
markets
 Strengths: standardized
product offerings allow
achieving economies of scale
 Weakness: inability to react to
local market conditions
 Appropriate use: homogeneous
markets
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Multidomestic Business Strategy
2-22
 Federation of associated business
units; decentralized
 Strengths: ability to quickly
react to local conditions
 Weakness: differing product
offerings limit economies of
scale, and limited inter-unit
communication limits
knowledge sharing
 Appropriate use: very
heterogeneous markets
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Transnational Business Strategy
2-23
 Some aspects centralized,
others decentralized; integrated
network
 Strengths: can achieve benefits
of multidomestic and global
strategies
 Weakness: difficult to manage;
very complex
 Appropriate use: integrated
global markets
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Learning Objectives
2-24
1. Discuss how information systems can be used for
automation, organizational learning, and strategic
advantage.
2. Describe international business and IS strategies
used by companies operating in the digital world.
3. Explain why and how companies are continually
looking for innovative ways to use information systems
for competitive advantage.
4. Describe freeconomics and how organizations can
leverage digital technologies to provide free goods and
services to customers as a business strategy for gaining
a competitive advantage.
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Valuing Innovations
2-25
 Which new technology will make or break your
business?
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Successful Innovation Is Difficult
2-26
 Innovation is often fleeting.
 The advantages gained from innovations are often
short lived.
 Innovation is often risky.
 Sometimes even superior
products can lose the race.

Blu-ray vs. HD DVD
 Innovation choices are often difficult.
 Foreseeing the future is not always possible.

In 1994, the Internet was not given much attention.
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Organizational Requirements for Innovation
2-27
 Process requirements—the organization has to
be willing to do whatever it takes to implement the
change.
 Resource requirements—need to have the
human capital necessary for successful deployment of
the system
 Risk tolerance requirements—organizational
members must have appropriate tolerance of risk and
uncertainty.
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Predicting the Next New Thing
2-28
 Deciding which innovations to adopt is very
difficult.
 Diffusion of
Innovations

Classic view
of adoption of
innovations
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The Innovator’s Dilemma
2-29
 Disruptive innovations
 New technologies, products, or services that
eventually surpass dominant technologies
Online vs. brick-and-mortar retailing
 Automobiles vs. horses
 CDs vs. records
 MP3 vs. CDs


Undermine effective management practices
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Disruptive Innovations
2-30
 1970s:
mid- and highperformance
users were bulk
of the market
 Digital
Equipment
Company (DEC)
tried to sell to
those markets
 Microcomputers
seen as “toys”
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Disruptive Innovations (cont’d)
2-31
 1980s:
Microcomputers
focusing on lowperformance
users’ needs
 Ignored by DEC
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Disruptive Innovations (cont’d)
2-32
 1990s:
Growing
performance of
Microcomputers,
meeting midperformance
users’ needs
 DEC lost biggest
market segment
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Disruptive Innovations (cont’d)
2-33
 Today, micro-
computers
meeting entire
market’s needs
 DEC out of
business
 Next disruptive
innovation: 3G
and 4G mobile
phones?
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The Innovator’s Solution
2-34

Christensen outlines a process—disruptive growth
engine—that helps organizations respond to
disruptive innovations more effectively.
1.
2.
3.
4.
Start early.
Executive leadership.
Build a team of expert innovators.
Educate the organization.
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Implementing the Innovation Process
2-35
 E-Business
Innovation
Cycle

The key to
success is the
extent of IS use
in timely and
innovative
ways.
Based on: Wheeler (2002)
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E-Business Innovation Cycle
2-36
Choosing Enabling/Emerging Technologies
 Process/ group
devoted to
looking for
emerging IT
Based on: Wheeler (2002)
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E-Business Innovation Cycle (cont’d)
2-37
Matching Technologies to Opportunities
 Most promising
new technology
matched with
current
economic
opportunities
Based on: Wheeler (2002)
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E-Business Innovation Cycle (cont’d)
2-38
Executing Business Innovation for Growth
 Stage at which
the change is
actually
implemented
Based on: Wheeler (2002)
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E-Business Innovation Cycle (cont’d)
2-39
Assessing Value
 Value created
for customers
and internal
operations
assessed
Based on: Wheeler (2002)
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Three Ways to Think About Investments in
Disruptive Innovations
2-40
 Put technology ahead of strategy.
 Technology is so important to success, it needs to be
considered first.
 Strategy is developed afterwards.
 Put technology ahead of marketing.
 Rapid development of technology makes it impossible
for people to know what they want.
 Innovation is continuous.
 New technologies are constantly being developed.
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Learning Objectives
2-41
1. Discuss how information systems can be used for
automation, organizational learning, and strategic
advantage.
2. Describe international business and IS strategies
used by companies operating in the digital world.
3. Explain why and how companies are continually
looking for innovative ways to use information systems
for competitive advantage.
4. Describe freeconomics and how organizations can
leverage digital technologies to provide free goods and
services to customers as a business strategy for gaining
a competitive advantage.
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Freeconomics
2-42
 Freeconomics—The leveraging of digital technologies
to provide free goods and services to customers as a
business strategy for gaining competitive advantage.
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How Does Freeconomics Work (for Yahoo!)
2-43
 Price is set by a
product/service’s
marginal costs.
 Marginal costs for
digital services
decrease
tremendously.
 Yahoo! makes
millions with free
e-mail service (by
placing ads).
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The Freeconomic Value Proposition
2-44
 Someone, somewhere is paying for a services.
 Value proposition includes more than just buyers
and sellers.

Advertisers (see Google)
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Approaches for Applying Freeconomics
2-45
 Advertising
 Freemium
 Cross-Subsidies
 Zero Marginal
Cost
 Labor Exchange
 Gift Economy
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End of Chapter Content
2-46
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NET STATS
Online Searching
2-47
 To “Google” has become a household verb
meaning search.
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For Sale by Owner: Your
Company’s Name.Com
2-48
 Domainers
 Buy and sell domain names, the “real estate” of the internet
 Bought $9 billion in 2006 and $23 billion in 2009
 One approach: buy a name and try to sell it (e.g.,
fordmotorcompany.com)
 Alternative approach: rent advertising space on domain
name to marketers
1.
2.
3.
Buy and hold general domain name (e.g., candy.com)
Direct web traffic to an aggregator (middleman) who designs
a web site and taps into advertising networks
Searcher clicking on the domain name; advertiser pays
domainer a fee
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ETHICAL DILEMMA
Underground Gaming Economy
2-49
 Massive Multiplayer Online Role-Playing Game—
MMORPG

Virtual world—players live through avatars
 Players started selling virtual tools for real
money—farmers

Banned from various gaming sites due to behavior being
unethical and fear of turning users away
 What’s your take on farmers and people “buying”
tools and advancement without mastering the
skills?
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WHEN THINGS GO WRONG
e-Waste Is a Global Problem
2-50
 Disposal of electronics containing hazardous
materials is a rising issue.
 U.S. exports much of its e-waste to third world
countries.
China banned the import in 2002.
 Other countries to follow

 In mid 2006, EU banned toxic ingredients.
 Production of “green” hardware
 In the United States, no federal legislation, but
several states have e-waste laws.
 Pace of technological changes increases problem.
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