Chapter 3 Strategy and Information Systems

Chapter 3 Strategy and Information Systems

Chapter 3 shows a competitive strategy which is supported by information systems and it helps other collaborate. Using IS will generate a body of knowledge for organizations to analyze and choose a competitive advantage. When structuring information systems, its crucial to survey any type of knowledge and know how to interpret that knowledge. In the end, businesses use the knowledge in information systems to gain a competitive advantage.

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

When comparing information system and MIS, the two exist for businesses to use in their strategies. When a company decides on a competitive strategy, it determines the information system structure, features and functions. An organization strategy determines an information system by starting at its industry structure, competitive strategy, value chains, business processes and ends with information system.

Q3-2 What Five Forces Determine Industry Structure?

Industry structure in an organizational strategy starts with reviewing any fundamental characteristics. When accessing an organization industry structure, Porter’s five forces model is one model to consider. Porters five forces model uses five competitive forces to determine how much industry profitability. The five forces model consist of: bargaining power of customers, threat of substitutions, bargaining power of suppliers, threat of new entrants and rivalry among existing firms. When using this model, it’s good to understand both strong and weak examples of each examples. Use the model to consider different forces of each category and how these five forces create a competitive advantage. Porters five forces model characteristics basically shows how profitable the industry is and if the industry can sustain those profits. After examining these fiver forces, the organizations must decide what they intend to do next and choose a competitive strategy.

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

Competitive strategy is begun when the company has decided on its industry structure. In Porter’s five forces model consist of a four competitive strategies model. It is assumed that most organizations focus on at least one of these strategies. One strategy a firm can use is a cost leader strategy by having low prices or competitive prices. The firm can also use a differentiation approach, by making their products different from their competitors. These type of strategies can be utilized and focused on the whole firm itself or use those strategies on a certain market segment.  For example, car rental companies can compete either on providing low cost rental fees throughout the company or low cost fees to particular consumers. The rental company can provide the most range of high/low end cars and rent those type of cars to all individuals or towards particular consumers. Therefore, in order to be an effective firm, an organization strategy and its information system must comply with its competitive strategy.

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

After an organization sets up its industry structure then analyzes the industry and comes up with a competitive strategy.  After, the firm must use it competitive strategies to organize and structure its organization; creating a value chain structure. Resources, products and services have a money value which consumers are willing to pay for. Therefore, a value chain is a network chain of value creating activities and consist of: five primary activities and four secondary activities.

Primary Activities: These five primary activities are inbound logistics, operations/manufacturing, outbound logistics, customer service, sales and marketing. The first primary task deals with receiving, storing and disseminating inputs to the products. The secondary task transforms those inputs into final products and collecting or storing then distributing those products to buyers. Now the sales and marketing departments get buyers to purchase those products and a given value for purchase. Finally, customer service will enhance the products value by providing assistance and maintenance.

Supporting Activities: These four secondary activities indirectly deal with the production, sale, procurement and service of the product. Any supporting functions in the generic value chain will add value however it also adds cost. Even though it’s hard to calculate the margin of value but value is added and there is a cost.

Value Chain Linkages: These linkages interact with value chain activities, which derived from an integrated, cross-department business system called process design. Organizations should create new, more efficient functional systems rather than automating or improving existing ones. It’s prefer to use a business process that integrates both the value chain activities of all departments.

Q3-5 How Do Business Processes Generate Value?

Business processes uses a network of activities which create value from converting inputs to outputs. Each of these activities are business functions that receives inputs and outputs. Business process generate value by using outputs and the costs. The cost of these business activities are the cost of inputs and cost of the activities. Now to generate a profit margin, you must use the business process value of outputs minus the cost. After its required to generate a repository of data and a raw material repository.

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

When structuring an information system, value generating activities are on top of the chart and compare those activities competitive strategy. For example, choosing a low price cost competitive strategy vs high price cost competitive strategy. Depending on the competitive strategy, a business will choose what information system is best for the company. For instance, the low price cost competitive strategy may require a very simple IS structure for basic business transactions.  Possibly the high price cost competitive strategy may require a large complicated information system.

Q3-7 How Do Information Systems Provide Competitive Advantage?

Competitive Advantage via Products: Organizations can gain a competitive advantage by generating new, by enhancing existing and by differentiating products/services. Information systems will help achieve competitive advantages either for a product or by providing support to a product.

Competitive Advantage via Business Processes: Organizations can establish high switching costs which makes it harder or expensive for consumers to switch to another product. Companies can also lock down suppliers by making it just as difficult to switch to another organization; since it’s easy to connect and work with the current organization.  In addition, creating entry barriers is another competitive advantage by making it more competitive and difficult for new competitors. Another competitive advantage is by establishing alliances and reducing cost.

How Does an Actual Company Use IS to Create Competitive Advantages?

For example, when a company maintains a customer account data, which includes the customer name, address and billing info. An information system will read the customers contact data from its database and saves time by not having to write their information again. A company can turn its product from a package delivery service to a package and information delivery service.  In addition, information systems can generate shipping labels for a company and reduces any shipping errors.

How Does This System Create a Competitive Advantage?

Information systems can also help a company have a different delivery service compare to other similar competitors.  For instance, a new service can be a generated email that’s sent out when a company picks up and delivers a package. An information system both stores and generates data on the consumers and lock in all that data. These systems raise the bar for new barriers in market entry and generates a competitive advantage. Also these systems bring net saving costs, will reduced errors and any printing cost.