The Information Systems Strategy Triangle and Strategic Use of Information Resources

1. The Information Systems Strategy Triangle and Strategic Use of Information Resources Jason C. H. Chen, Ph.D. Professor of MIS School of Business Administration Gonzaga University Spokane, WA 99258 chen@jepson.gonzaga.edu

2. MIS • Management • Information • Systems Which component is mostly important?

3. Information Ecology Data • ______ = simple observations • ___________ = data endowed with relevance and purpose. • ___________ = information that has been situationalized and contextualized to provide value. Information Knowledge

4. Very easy role • No major decision making Or information processing Figurehead • Most significant; judging, Promoting, monitoring, training Leader • “Give-and-take” relationships Liaison • Seeks and receives Specific information Monitor Transformation Decisions • Transmits information To employees, managers,etc. Facilitator • Transmits information To vendors, customer, etc. Spokesperson Entrepreneur Problem Solver Resource Allocator negotiator Management Roles Description MIS and Management Roles Interpersonal roles MIS/IS Actionable Results Information Data Information- Based roles • Initiates improvements • Supervises projects • Allocates and approves Resources • Represents the firm in Settling disputes Decision- related roles

5. develop Mission guide Strategy create Tactic Planning is everything ...What are Two Major Outputs for an organization? Vision Customers, market, competition Products, Services N

6. Discussion Questions • Q4- It has been said that there are no sustainable competitive advantages can be gained from IT other than the capability of the IT organization itself. Do you agree or disagree (Any sustainable competitive advantages?)? Defend your position. • As the chapter discusses, sustainable advantage is hard to come by. Just about any advantage gained by a company seems to be copied by another at some point in the future.

7. Discussion Questions - Answer • Those who agree (i.e., IT does not provide S.A.) with this statement might argue that even the capability of the IT organization is not a sustainable advantage because people come and go, they can be bought by another organization as a move to create the capability elsewhere, and their skills and knowledge atrophy over time, when new capabilities arise. Witness IT organizations who excelled at managing mainframe applications, who are now struggling to keep up with web-based applications. • Those who disagree (i.e., IT provides S.A.) with this statement might argue that the key to sustaining any advantage comes from the way all business resources are organized and used, and ultimately that comes down to how the managers and the people are able to perform.

8. What is the “Competitive Advantage”? • A competitive advantage is a benefit derived from something a company does or has that its customers want and its competitors cannot (or choose not to) match. • If a company can sustain its competitive advantage, the company will succeed in its industry – how? • Two types of people lead a company to succeed • Those know how to innovatethe enterprise • Those know how to execute their strategy onto the enterprise using IS/IT.

9. Sustainable Competitive Advantages • Any sustainable competitive advantages? • How can an organization sustain its competitive advantage? • Firms may create/improve their competitive advantages only if they: • have ________ to learn, • employ ________ _________ approach • With the service economy accounting for over 70 percent of GDP in OECD (Organization for Economic Co-operation and Development) countries, service firms are becoming increasingly competitive with revenue management (RM) and pricing becoming central in their focus for sustaining long term profitability (and competitive advantage). capacity revenue management • learning to learn and learning to change(life-long learning environment)

10. Three Essential Value Propositions for a Successful Company • __________ Model • __________ Competency • outsourcing • offshoring • __________ • Set corporate goals and get executive sponsorship for the initiative Business Core Execution

11. What is Business Model? • A business model is a set of planned activities (sometimes referred to as business processes) designed to result in a profit in a marketplace. • The business model is at the center of the business plan. • An e-commerce business model aims to use and leverage the unique qualities of the Internet and the www. N Source: E-Commerce: business, technology, society, Laudon and Traver, A/W

12. Why New Models? • We need some new models • for how we go about exploring IT for competitive advantage, • for IT infrastructure how we create it and manage it • for how we acquire, manage and deploy the skills that are needed to run that infrastructure • Profitability (making money) N

13. Business Model vs. Revenue Model • Business model is the architectural configuration of the components of transactions designed to exploit business opportunities. • Revenue model refers to “the specific ways in which a business model enables revenue generation.” • Revenue mechanism is a key component of the business model because it provides a sustainable financial source for the business’ effort of innovation (Afuah, 2004). N

14. Business vs. Revenue Model Business Model Revenue Model Value _________ Value ____________ creation appropriation It can be realized through a combination of - subscription fees, - advertising fees, - transactional income (e.g., fixed transactional fees, referral fees, fixed/variable commissions, etc) It describes the way in which a company enables transactions that create value for all participants, including partners, suppliers and customers.

15. Direction for business Needs and priorities POP QUIZ __________ Strategy IT impact and potential ___________ Strategy _______ Strategy

16. Direction for business Supports business Needs and priorities Infrastructure and services Information System Strategy Triangle Strategy Triangle Business (Firm) Strategy Where is the business going and why? IT impact and potential Organizational Strategy IS/IT Strategy What is required? How it can be delivered? 1. Architecture/Infrastructure 2. MIS organization (Sourcing, Governance etc.) 3. Funding 4. Project Management N

17. Information System Strategy Triangle • A business strategy is a well-articulated vision of where the business seeks to go and how it expects to get there. • An organizational strategy is the organization’s design, as well as the choices it makes to define, set up, coordinate, and control its work processes. • IS strategy is the plan the organization uses in providing information systems and services.

18. Example • Give an example in which a company fails to perform well because it does not align its three strategies. • Any? • too much focus on IT • used to be considered as a “hardware” company (Mainframe, Mini-computers, PC, DOS etc.) • new division established in early 1990: GLOBAL BUSINESS SERVICIE DIVISION • it now becomes a “Service” corp. – “TOTAL solution”

19. IBM IS Strategy Triangle: Old Strategy Revenue Creation (from Hardware) Business (Firm) Strategy The triangle becomes unbalanced! WHY Organizational Strategy IS/IT Strategy COMPLICATED and inflexible structure Too much focus on hardware N

20. IBM IS Strategy Triangle:New Strategy IBM Global Business Services is organized into six service lines: Strategy & Transformation SAP Applications Oracle Applications Business Analytics and Optimization Application Innovation Services Application Management Services Revenue Creation (_____________) Business (Firm) Strategy Service Corp The triangle is balanced! Organizational Strategy IS/IT Strategy Re-structured/ Re-engineered Organization (e.g., Global Business Service Division) IT is a supportive tool for entire organization worldwide N

21. Louis V. Gerstner, Jr. IBM former CEO and president (1992-2002) Prior to joining IBM, Mr. Gerstner served for four years as chairman and chief executive officer of RJR Nabisco, Inc. This was preceded by an 11-year career at American Express Company, where he was president of the parent company and chairman and CEO of its largest subsidiary, American Express Travel Related Services Company. Prior to that, Mr. Gerstner was a director of the management consulting firm of McKinsey & Co., Inc., which he joined in 1965. In January 2003 he assumed the position of chairman of The Carlyle Group, a global private equity firm located in Washington, DC.

22. Another Example? • Give another example (not in the high tech industry) in which a company fails to perform well because it does not align its three strategies. • Any? • too much focus other than IT • inefficient organization structure • Inefficient IT usage

23. FORD IS Strategy Triangle: Old Strategy Business (Firm) Strategy TOO MANY BRANDS/ FOCUSES Organizational Strategy IS/IT Strategy COMPLICATED and Inefficient structure Inefficient and ineffective IT usage N

24. FORD IS Strategy Triangle:New Strategy (ONE FORD) ONE FORD STRATEGY: One Team, One Plan, One Goal A simple-sounding plan with big consequences Business (Firm) Strategy Organizational Strategy IS/IT Strategy SIMPLE and Efficient Structure Efficient and Effective IT Usage and Support N

26. Alan Mulally: President and CEO, Ford Motor Company In September 2006 Prior to joining Ford in September 2006, Mulally served as executive vice president of The Boeing Company, and president and chief executive officer of Boeing Commercial Airplanes. In that role, he was responsible for all of the company’s commercial airplane programs and related services. Mulally also was a member of the Boeing Executive Council and served as Boeing’s senior executive in the Pacific Northwest. Management style Mulally negotiated four new agreements with United Auto Workers, which has brought down labor costs from $76/hour to $55/hour.

27. Videos • One Ford Strategy-All-new Ranger Show in 2010 Sydney (1m 28s)

28. Co-Creating IT and Business Strategy • Information is increasingly a core component of the product or service offered by the firm. • IT strategy is ________ strategy – they cannot be created without each other. • Some company’s main product is information (financial services). • Q: Is FedEx is a package delivering company? • Y/N (and Why?) • FedEx can not function without ____ even though they are primarily a package delivering company. • Other companies such as Walmart, UPS, or Zipcar business IT

29. The Information Systems Strategy Triangle drives • Successful firms’ business strategy ______ both their organizational and IS strategies: • They must, therefore, seek to balance business, organizational, and IS strategies • Changes in any strategy requires changes in the others to maintain balance. • IS Strategy is affected by the other strategies a firm uses. • IS strategy can have (sometimes unintentional) consequences on business and organizational strategies

30. Wal-Mart • What is the “core/type “ for the Wal-Mart? • Grocery • Manufacturing • or ??

31. BRIEF OVERVIEW OF BUSINESS STRATEGY FRAMEWORKS

32. Striving for Competitive Advantage Firm • ______ level: Industry & Competitive Analysis • Competitive Forces Model • Competitive Strategy • D’Aveni’s Hypercompetition Model (7-Ss) • _______ level • Value-Chain Analysis Business

33. NEW MARKET ENTRANTS SUBSTITUTE PRODUCTS & SERVICES • Switching cost • Access to distribution channels • Economies of scale • Redefine products and services • Improve price/performance INDUSTRY COMPETITORS THE FIRM • Cost-effectiveness • Market access • Differentiation of product or service • Buyer selection • Switching costs • Differentiation • Selection of suppler • Threat of backward integration SUPPLIERS CUSTOMERS PORTER’S FIVE COMPETITIVE FORCES MODEL Threats Bargaining power N TM -33 Dr. Chen,The Trends of the Information Systems Technology

34. Generic Strategies Framework • Michael Porter describes how businesses can build a sustainable competitive advantage • “fundamental basis of above-average performance in the long run is sustainable competitive advantage.” • He identified three primary strategies for achieving competitive advantage: • ______ leadership - lowest-cost producer • _____________ - product/service is with unique feature • _______ - limited scope; occupy narrow market niche where the products/services can stand out by virtue of their cost leadership or differentiation. Cost Differentiation Focus

35. Figure 1.2: Porter’s Generic Strategy Framework – 3 Strategies for achieving Competitive Advantage Competitive Advantage Uniqueness Perceived by Customer Lower Cost Position Industrywide (Broad Target) Overall Cost Leadership Differentiation Competitive Scope Particular Segment only (Narrow Target) Focus Competitive Mechanism N Dr. Chen,The Trends of the Information Systems Technology TM -35

36. Group Work/Discussion Questions • Using the five competitive forces model as described in this chapter to describe how (and what) IT might be used to provide a winning position for: • A global airline • Use UA as an example (Group work together)

37. NEW MARKET ENTRANTS SUBSTITUTE PRODUCTS & SERVICES INDUSTRY COMPETITORS THE FIRM SUPPLIERS CUSTOMERS PORTER’S FIVE COMPETITIVE FORCES MODEL Threats Other forces should be considered in the e-Age: 1. Digitalization 2. Globalization 3. Deregulation/ liberalization Internal Forces: 1.customer focus 2.communication 3.core competencies 4.complexity 5.Quality • Cost-effectiveness • Market access • Differentiation of product or service Bargaining power N TM -37 Dr. Chen, The Trends of the Information Systems Technology

38. Business Strategies and its Competitive Advantage Uniqueness Perceived by Customer Lower Cost Position Industrywide (Broad Target) Cost Leadership Differentiation Alliance Innovation Growth Competitive Scope Particular Segment only (Narrow Target) Cost Focus Differentiation Focus Knowledge-based economy Industrial economy Competitive Mechanism N Dr. Chen,The Trends of the Information Systems Technology TM -38

39. Hypercompetition and the New 7-S’s framework (D’Aveni) Every advantage is eroded. • _______________________ • Sustaining an advantage uses too much time and resources that can be a deadly distraction. • The goal should be___________, not _______________ of advantage. • Initiatives are achieved with a series of small steps. • Hypercompetiton occurs when technologies or offerings are so new that standards and rules are influx, resulting in competitive advantages that cannot be sustained. It is characterized by intense and rapid competitive moves, in which competitors must move quickly to build new advantages and erode the advantages of their rivals. disruption sustainability

40. Vision for Disruption • Identifying and creating opportunities for • temporary advantage through understanding • Stakeholder satisfaction • Strategic Soothsaying • directed at identifying new ways to serve existing • customers better or new customers that are not • currently served by others Market Disruption • Tactics for Disruption • Seizing the initiative to gain advantage by • Shifting the rules • Signaling • Simultaneous and sequential strategic • thrusts • With actions that shape, mold, or influence • the direction or nature of the competitor’s • response • Capability for Disruption • Sustaining momentum by developing • flexible capacities for • Speed • Surprise • That can be applied across actions to • Build temporary advantage D’Aveni’s Disruption and 7-S’s Old 7Ss: structure, strategy, system, style, skills, staff, and super-ordinate goals. N

41. Examples of Competitive Dynamics Models • A similar strategy of cannibalizing their own products was used by Apple® and GilletteTM. • Apple introduced the iPhone® while iPod® sales were _____ , and the iPad® while its Macintosh sales were ______. • Apple continues to exhibit this strategy with subsequent releases of new models of all of its products brisk strong What S’s fit into this scenario?

42. An Example in Beijing (Residential Housing Industry)锋尚国际公寓案例 • Say “Good Bye” to the air conditioning era • (告别空调暖气时代) • Selling house based on the actual living size • 按照使用面积售房 • Recruiting __________ • 招收 __________ members of communist party 中共党员 What S’s fit into this scenario?

43. Porter’s Model vs. Hypercompetition Model stable • Dynamic

44. Firms achieve competitive advantage through cost leadership, differentiation, or focus. Understanding which strategy is chosen by a firm is critical to choosing IS to complement that strategy. Speed, agilityand aggressive moves and countermoves by a firm Create competitive advantage. IS are critical to achieving the speed needed for moves and countermoves. IS are in a constant state of flux or development Companies cooperate and compete at the same time. Being cooperative and competitive at the same time requires IS that can manage these two roles. Summary of Key Strategy Frameworks (Fig. 1.4) Applications to Information Systems Key Idea Strategic Approach Porter’s generic strategies framework D’Aveni’s hypercompetition model Brandenberg and Nalebuff’s co-opetition model

45. Building a Social Business Strategy A social business strategy is • A plan of how the firm will use social IT, alignedwith organization strategy and IS strategy • A vision of how the business would operate if it seamlessly and thoroughly incorporated social and collaborative capabilities throughout the business model • Social IT is the technologies used for collaboration, networking, and the general interaction between people over the Web. • Social business is the enterprise use of social IT for business applications, activities and processes . • Answers the same type of questions of what, how, and who, as any other business strategy

46. Social Business Strategies Collaboration Most of the social business opportunities fall into one of three categories: • ______________ • Using social IT to extend the reach of stakeholders, both employees and those outside the enterprise walls. • Social networks enable individuals to find and connect with each other to share ideas, information, and expertise. • ______________ • Using social IT to involvestakeholders in the traditional business of the enterprise. • Communities and blogs provide a platform for individuals to join in conversations, create new conversations, offer support to each other, and other activities that create a deeper feeling of connection to the company, brand, or enterprise Engagement

47. Social Business Strategies (Cont.) Innovation • _____________ • Using social IT to identify, describe, prioritize, and create new ideas for the enterprise • Social IT offer the community members a “super idea box” where individuals suggest new ideas, comment on other ideas, and vote for their favorite idea, giving managers a new way to generate and decide on products and services

48. Mini Case 2-2: ZIPCAR • This is an interesting, short case about how a new type of rental car company is able to operate in a completely new business model, as compared to other rental car companies, and embrace Web 2.0 technologies to gain further competitive advantage.

49. Questions 1. Analyze the business model of Zipcar using Information Systems Strategy Triangle. 2. Discuss the synergy between the business strategy of Zipcar and information technology. 3. Are there any network externalities in the workings of Zipcar? If so, do they add value? How? 4. As the CEO of Zipcar, what would you do to sustain a competitive advantage? 5. Is the ZIPCAR case related to “Hypercompetition Model”? What are they (in terms of 7S)?

50. Analyze the business model of Zipcar using Information Systems Strategy Triangle.