Management Information Systems

Lecture 4: Business Strategy

Gabriella Kereszturi
 MAIN POINTS

• Competitive advantage is temporary

• SWOT analysis
• Porter’s Five Forces Model
• Porter’s three generic strategies
• Porter’s value chain analysis
Business Strategy & Competitive
Advantage

It is essential for businesses to identify competitive

advantage and develop their business strategy.
• A Business strategy – A leadership plan to achieve a
specific set of goals or objectives.
• It …..

o‘Defines how we will meet our objectives’

o‘Sets allocation of resources to meet goals’

o‘Selects preferred strategic option to

compete within a market’

o‘Provides a long-term plan for the development of

the organization’ and achieving the objectives.
 Business Strategies- Examples

Decreasing
Costs

Increasing Attracting
customer new
loyality customers
Business
Strategies

Developing new
products or Increasing
sevices Sales

Entering new
markets
Products or Services-
examples
Strategic Options for a Company in Relation to The
Importance of The Internet as a Channel

Source: Chaffey (2011)

 Competitive Advantage

– Delivering better performance

– Charging less for superior products
– Responding to customers and suppliers in real time

Examples: Apple, Walmart, UPS

Source: Laudon and Laudon

(2016)
• Competitive advantage – A product or service that an
organization’s customers place a greater value on than similar
offerings from a competitor

• Implications of being a First-mover– Occurs when an

organization can significantly impact its market share by
being first to market with a competitive advantage
Methods for Identifying Competitive
Advantages
Methods for Identifying Competitive Advantages
SWOT analysis: to evaluate a project position….
- can we do it?

The five forces model: to evaluate the attractiveness of an

industry…
- shall we do it?

The three generic strategies: to choose a business focus –

(example Wal-Mart uses a low-cost strategy)…
- what strategy should we adopt?

Value chain analysis: to execute business strategies…

- how should we implement it?
A SWOT analysis evaluates an organization’s strengths,
weaknesses, opportunities, and threats to identify
significant influences that work for or against business
strategies
 SWOT

• Strengths (eg. Market leader) and weaknesses (eg.

Obsolete /Out of date technology used) originate
inside an organization, or internally.

• Opportunities (eg entering new markets) and threats

(eg. new entrants) originate outside an organization, or
externally and cannot always be anticipated or
controlled.
• Competitive intelligence – The process of
gathering information about the competitive
environment to improve the company’s ability
to succeed

• Technology has the opportunity to play an important

role in environmental scanning* for competitive
intelligence

*environmental scanning: Careful monitoring of an organization's

internal and external environments for detecting early signs of
opportunities and threats that may influence its current and
future plans. Source:
http://www.businessdictionary.com/definition/environmental-scanning.html
Competitive Intelligence Tools
Porter’s
Five Forces
Model

Competitive
Intelligence
Tools
Porter’s
Porter’s
Value
Three
Chain
Generic
Analysis
Strategies
 Porter’s Five Forces Model –
Evaluating Industry Attractiveness
Factors affecting the Porter’s Five Forces
Model

Source: https://www.mindtools.com/pages/article/newTMC_08.htm
 Watch this Video

• Michael Porter – The Five Forces that Shape Strategy (10

Mins) http://www.youtube.com/watch?v=mYF2_FBCvXw

• Michael Porter - Global Competitiveness Report 2007

(15 Mins)
http://www.youtube.com/watch?v=kzn9-M2umFQ
Buyer power/ Customer power – The ability of
buyers to affect the price of an item

– Can customers easily switch to competitor's

products?
– Can they force businesses to compete on price alone
in transparent marketplace?
– How can a company reduce buyer power (to create
a competitive advantage)?
The reduction of buyers/ customers
power
Retaining the company’s market share / creating a competitive
advantage:

–Switching cost – Manipulating costs that make customers

reluctant to switch to another product

–Loyalty program – Rewards customers based on the amount

of business they do with a particular organization (eg.
Frequent flyer miles, grocery store discount card, etc.)
Supplier power – The suppliers’ ability to influence
the prices they charge for supplies
– Supply chain – Consists of all parties involved in the
procurement/possession of a product or raw material
– Market power of suppliers when firm cannot raise prices
as fast as suppliers
 Supplier power …

• If supplier power is high, the supplier can influence

the industry by:

– Charging higher prices

– Limiting quality or services
– Shifting costs to industry participants
Threat of new entrants –
• High when it is easy for new competitors to enter a
market and
• Low when there are significant entry barriers
– Entry barrier – A feature of a product or service that
customers have come to expect and entering competitors
must offer the same for survival
– Some industries have high barriers to entry, for example,
computer chip business.
 Examples of barriers to entry

• Economies of Scale
• Product Differentiation
• Capital Requirements
• Customer Switching Costs
• Access to Distribution Channels
• Government Policy
• Expected Retaliation

Source: http://www.slideshare.net/amitanshu/porters-5-force-model?next_slideshow=1
Rivalry among existing competitors
(Traditional competitors)

•High when competition is fierce in a market and

•Low when competitors are more complacent
-All firms share market space with competitors who are
continuously devising new products, services, efficiencies, and
switching costs.
Threat of substitute products or services –
•High when there are many alternatives to a
product or service and
•low when there are few alternatives
- Customers might use Substitutes product or
service if your prices become too high, For
example, iTunes substitutes for CDs
Threat of substitute products or services…

• Ideally, an organization wants to be in a market in

which there are few substitutes for its products or
services

- This is difficult to achieve, and

competitive advantage
most organizations createthrough
a switching costs (If
customer has to a
experience inconveniences toextreme
a different service
when switching provider, then unlikely
difficulties/
to switch)
they are
The Internet’s Impact on Competitive
Advantage
 The Web/Internet’s Impact on Competitive
Advantage

– Transformation or threat to some industries

• Examples: travel agency, printed encyclopedia,
etc.
– Competitive forces still at work, but rivalry more
intense
– Universal standards allow new rivals, entrants to
market
– New opportunities for building brands and loyal
customer bases
Source: Laudon and Laudon (2016)
 Impact
Level
H

Source: Laudon and Laudon (2016)

 Smart Products and the Internet of Things

• Internet of Things (IoT)

– Growing use of Internet-connected sensors in products
• Smart products
– Fitness equipment, health trackers
• Expand product differentiation opportunities
– Increasing rivalry between competitors
• Raise switching costs
• Inhibit/ restrict new entrants
• May decrease power of suppliers
 Activity

• Perform a Porter’s Five Forces analysis for a

company entering the commercial Milk industry
– Buyer power
– Supplier power
– Threat of substitute products/services
– Threat of new entrants
– Rivalry among competitors
 Sample Analysis for Milk Product/s

Threat of Substitute Products or

Services High: Soy Milk, Rice
Milk

Buyer
Supplier
R iv a lr y Power
Power
High: Customer
Low: Customer
High have
have
many choices
many choices

Threat of New Entrants

Low: Hard to sell milk without meeting FDA regulations and having a vast
distribution network
 Activities

Perform a Porter’s Five Forces analysis for a company

entering the commercial airline industry. It is important to
always include in your answer your justification for your
choice/ argument.
 Airline Activity-Hint
Potential Answers Include:
•Buyer Power – high, many airlines to choose from
•Supplier Power – high, limited manufacturers, unions
•Threat of Substitute products/services – high**, many alternate
transportation choices
•Threat of new Entrants – high*, new airlines enter market
continuously
•Rivalry among competitors – high, online sales

* Others might disagree and consider it ‘Low’ depending on size of operations, Aircrafts
used, country … eg. due to hard entry regulations by governing authorities, insurance
requirements, and large capital investment).
** Others might disagree and consider it ‘Low’ due to No Substitution available in certain
locations/ countries.
Generic Strategies
 Competitive intelligence tools:
Generic Strategies
Formulating a Strategy
•Organizations must formulate a strategy for entering new markets. An
organization can follow Porter’s three generic strategies when entering a
new market: (1) broad cost leadership, (2) broad differentiation, or
(3) a focused strategy.

•Broad strategies reach a large market segment, while focused strategies

target a niche market. A focused strategy concentrates on either cost
leadership or differentiation.

•Trying to be all things to all people, however, can be a recipe for

disaster, since it is difficult to project a consistent image to the entire
marketplace. Porter suggests that an organization is wise to adopt only
one of the three generic strategies.
The 3 Generic Strategies
Choosing a Business Focus

Porter’s Three Generic Strategies

 Generic Strategies –Examples….

Source: http://www.johnwiley.net.au/highered/management/istudy/menu/strategic_management/strategy_and_product_life_cycle/?page=000
4
 The 3 Generic Strategies
Selecting a Business Focus

Low Cost Differentiation

Cost Leadership Differentiation

Broad Market Lowest cost across industry Better product/service
across industry
Eg. Walmart, Tesco,
Premier Inn, Acer Eg. Emirates, Apple,
UPS,
Audi

Narrow Market Focus (Cost) Lowest Focus (Differentiation)

cost within an industry Better product/ service
segment within an industry segment

Eg Ferrari, Rolls-Royce,
Eg. Saga UK (over Rolex
50s)
 Generic Strategies

• Low-cost leadership
– Produce products and services at a lower price
than competitors
– Example: Walmart’s efficient customer response
system
• Product differentiation
– Enable new products or services, greatly change
customer convenience and experience
– Example: Google, Nike, Apple, UPS,…
– Mass customization
Source: Laudon and Laudon (2016)
 Generic Strategies…

• Focus on market niche

– enable a focused strategy on a single market
niche; specialization
– Example: Tiffany & CO.
• Strengthen customer and supplier intimacy
– developing stronger ties and loyalty with
customers and suppliers
– Increase switching costs
– Example: Netflix, Amazon

Source: adapted and modified from Laudon and Laudon (2016)

Using Information Systems & Strategies

Source: Laudon and Laudon (2016)

 Activity

What do you think UPS’s business strategy is?

 UPS Activity- Hint

- UPS’s strategy is to provide the best service with relatively inexpensive

service that can help customers ship packages practically anywhere. One
of the most visible aspects of IS is the customers ability to track his/her
package via UPSs Web site. However, technology also enables data to
seamlessly flow throughout UPS and helps streamline the workflow at
UPS. Thus, the technology enables UPS to be more competitive,
efficient, and profitable. The technologies are seen as helping the
customers’ complete their tasks more efficiently, which in turn is seen
as value- added services as opposed to increasing the cost of sending
packages.
Porter’s Value Chain Analysis
 Porter’s Value Chain Analysis

• It views a firm as a series of business processes* that

each add value to the product or service

• *A business process – is a standardized set of activities that

accomplish a specific task, such as a specific process
 Value Chain Analysis

The goal of value chain analysis is to identify processes in which the

firm can add value for the customer and create a competitive
advantage for itself, with a cost advantage or product
differentiation (Occurs when a company develops unique differences
in its products or services with the intent to influence demand)

The value chain can be divided into two categories:

1)primary value activities &
2)support value activities

At each stage, determine how information systems can improve

operational efficiency and improve customer and supplier intimacy
Utilize benchmarking, industry best practices
Value Chain Analysis – Executing
Business Strategies
 Value Chain Analysis – Executing
Business Strategies
• Support value activities
– Firm infrastructure – Includes the company format or
departmental structures, environment, and systems
– Human resource management – Provides employee training,
hiring, and compensation
– Technology development – Applies MIS to processes to add
value
– Procurement – Purchases inputs such as raw materials,
resources, equipment, and supplies
 Value Chain Analysis – Executing Business
Strategies
• Primary value activities
– Inbound logistics - Acquires raw materials and resources,
and distributes
– Operations - Transforms raw materials or inputs into goods
and services
– Outbound logistics - Distributes goods and services to
customers
– Marketing and sales - Promotes, prices, and sells products
to
customers
– Service - Provides customer support
 The Value Chain

• Value in the Porter model is the total revenue that a

customer is willing to spend for a product or service.

• Value is stressed rather than cost because an organization

that has a differentiation strategy may intentionally raise
costs in order to create value.

• Margin is the difference between cost and value.

Value Chain Analysis – Executing Business
Strategies

• If an organization wants to decrease its buyer’s or

customer’s power, it can construct its value chain activity
of “service after the sale” by offering high levels of
quality customer service

• This will increase the switching costs for its customers,

thereby decreasing their power (buyer power)
 Value Chain Analysis…

It is essential to determine ways that IS can improve the

efficiency of operations, customer and supplier intimacy taking
into account the industry’s best practices and benchmarking
Source: Laudon and Laudon (2016)

The idea of the value chain as a network of value-creating activities

became the foundation of a movement called business process design,
or sometimes business process redesign. The central idea is that
organizations should create new, more efficient, business processes
that integrate the activities of all departments involved in a value
chain.
Source: Barker J (2007) ITE 406 IG3 The Processes and Technology
Examples IS for the Value Chain Model
Using MIS to Improve Business Processes

Types of change an organization

can achieve, along with the
magnitudes of change and the
potential business benefit
 Basic Process Analysis (Determining Requirements)

• Depending on amount of change

– BPA (Business Process Automation) – small change : eg.

answering phones with computers, auto grading an essay or
Excel project

– BPI (Business Process Improvement/Streamlining) – moderate

change: eg. remove duplicate jobs in the process, use a
different tool to perform the same task

– BPR (Business Process Reengineering) – significant change :

taking an airplane instead of a bike, horse, or car,
A true BPR effort does more for a company than simply improve it by
performing a process better, faster, and cheaper- redefine an entire
industry – such as Progressive Insurance
 Tasks
Read chapter 3 of the text book.

Watch these videos then answer the following questions (hints

provided):

•Michael Porter – The Five Forces that Shape Strategy (10

Mins) http://www.youtube.com/watch?v=mYF2_FBCvXw

•Michael Porter - Global Competitiveness Report 2007

(15 Mins) http://www.youtube.com/watch?v=kzn9-M2umFQ
 Main References

• Baltzan, P. ( 2016) Business Driven Information Systems. Global

Edition, 5th ed McGraw-Hill/NY. ISBN 978-1-259-25176-4
• Laudon K.C. and Laudon J.P. (2020) Management Information Systems,
Global Edition, 16th ed. Prentice Hall.
• Laudon K.C. and Laudon J.P. (2016) Management Information Systems,
Managing the Digital Firm, 14th ed. Prentice Hall.
• Chaffey, D. (2011) E-Business and E-Commerce Management: Strategy,
Implementation and Practice, 5/E. Financial Times.
• Dennis, A. Wixom, B. H. and Roth, R. M. (2003). Systems Analysis and
Design, 2nd Edition. John Wiley & Sons Inc.