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  • The Value Chain is one way to help identify core competencies in your business.
    The value chain is a systematic approach to examining the development of competitive advantage. It was created by Michael E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organization. The 'margin' depicted in the diagram (next slide) is the same as added value. The organization is split into 'primary activities' and 'support activities.
  • The Value Chain Model can also be used to strategically position a company’s Internet-based applications to gain competitive advantage. The Internet Value Chain Model shown outlines several ways that a company’s Internet connections with its customers could provide business benefits and opportunities for competitive advantage. The model suggests that company-managed newsgroups and chat rooms can be used to support market research, product development and direct sales. Likewise a company’s Internet-enabled connection with its suppliers can be used to support online shipping and scheduling. Multimedia catalogs can also be used to support E-Commerce. All together the model indicates how Internet technologies might be applied to help a firm gain competitive advantage in the marketplace.
    Teaching Tips
    This slide relates to the material on pp. 64-67.
  • For Internet technologies to be used strategically applications must be correctly positioned. The strategic positioning matrix shown can be used to help a company optimize the strategic impact of Internet Technologies.
    The matrix recognizes two major drivers:
    Internal Drivers. The amount of connectivity, collaboration and use of IT within a firm.
    External Drivers. The amount of connectivity, collaboration and use of IT by customers, suppliers, business partners, and competitors.
    Cost and Efficiency Improvements. When there is a low amount of connectivity, collaboration and use of IT within the company and by customers and competitors, a firm should focus on improving efficiency and lowering costs by using Internet technologies to enhance communications between the company and its customers and suppliers.
    Performance Improvement in Business Effectiveness. When there is a high amount of internal connectivity, but external connectivity by customers and competitors is still low, a firm should focus on using Internet technologies like intranets and extranets to make major improvements in business effectiveness.
    Global Market Penetration. When there is a high degree of connectivity by customers and competitors and low internal connectivity, a firm should focus on developing Internet-based applications to optimize interactions with customers and build market share.
    Product and Service Transformation. When a company and its customers, suppliers, and competitors are extensively networked, Internet technologies should be used to develop and deploy products and services that strategically reposition it in the marketplace.
    Teaching Tips
    This slide corresponds to Figure 2.4 on p. 52 and relates to material on pp. 52-54.
  • There are other key strategies enabled by IT that can be used to enable a business to become successful and to maintain their success. These will be discussed on the next slides.
    A key strategy for becoming a successful E-Business is to maximize customer value. This strategic focus on customer value recognizes that quality rather than price becomes the primary determinant in a customer’s perception of value. A Customer-Focused E-Business, then, is one that uses Internet technologies to keep customer loyal by anticipating their future needs, responding to concerns, and providing top quality customer service.
    As the slide indicates, such technologies like intranets, the Internet, and extranet websites create new channels for interactive communications within a company, with customers, and with suppliers, business partners, and others in the external business environment. Thereby, encouraging cross-functional collaboration with customers in product development, marketing, delivery, service and technical support.
    A successful Customer-Focused E-Business attempts to ‘own’ the customer's total business experience through such approaches as:
    Letting the customer place orders directly, and through distribution partners
    Building a customer database that captures customers' preferences and profitability, and allowing all employees access to a complete view of each customer.
    Teaching Tip: Encourage your students to describe the characteristics of a profitable customer. What makes a particular customer valuable to a specific business?
    Letting customers check order, history and delivery status
    Nurturing an online community of customers, employees, and business partners.
    Teaching Tips
    This slide corresponds to Figure 2.10 on p. 61 and relates to the material on pp. 59-61.
  • To counter the threats of competitive forces
  • Often use the Internet as the foundation for such strategies
  • Order management consists of several business processes
    Crosses the boundaries of traditional business functions
  • An agile company often uses the Internet to integrate and manage business processes while providing the processing power to treat masses of customers as individuals
  • This company is using the Internet, intranet and extranets to link to business partners
    This creates interenterprise information systems to link customers, suppliers, subcontractors and competitors
    Flexible and adaptable virtual workgroups
  • A company facing a new market opportunity might not have the time or resources to develop the manufacturing and distribution infrastructures, the competencies or the IT needed. By forming a virtual company with an alliance with others it can quickly provide the solution needed.
  • To have lasting competitive advantage, a company must be a knowledge creating company or learning organization
  • Tacit knowledge is often some of the most important information within a firm. But its not recorded anywhere since it’s in the employee’s mind.
  • Issues:
    What if the person who has the knowledge leaves the company?
    What if someone in another part of the company could use the expertise?
    How do you know who knows what you need to know?
    How do you find what you need to know
    Company wastes money “re-inventing the wheel”
    Unless people are given incentive to share the knowledge,
    They won’t want to spend time doing something that they are not rewarded for
    They will worry about losing their status of having the expertise
  • Three levels of techniques, technologies, and systems that promote the collection, organization, access, sharing and use of workplace and enterprise knowledge
    Create techniques, technologies, systems and rewards for getting employees to share what they know.
  • E business applications

    1. 1. E-Business Applications
    2. 2. What is an Information System? Any organized combination of people, hardware, software, communications networks, and data resources that stores, retrieves, transforms, and disseminates information in an organization.
    3. 3. Types of Information Technologies • Computer Hardware Technologies including microcomputers, midsize servers, and large mainframe systems, and the input, output, and storage devices that support them • Computer Software Technologies including operating system software, Web browsers, software productivity suites, and software for business applications like customer relationship management and supply chain management
    4. 4. Types of Information Technologies • Telecommunications Network Technologies including the telecommunications media, processors, and software needed to provide wire-based and wireless access and support for the Internet and private Internet-based networks • Data Resource Management Technologies including database management system software for the development, access, and maintenance of the databases of an organization
    5. 5. Roles of IS in Business
    6. 6. What is E-Business? Definition: • The use of Internet technologies to work and empower business processes, electronic commerce, and enterprise collaboration within a company and with its customers, suppliers, and other business stakeholders. • An online exchange of value.
    7. 7. Electronic Commerce: Definitions and Concepts • EC organizations brick-and-mortar organizations Old-economy organizations (corporations) that perform most of their business off-line, selling physical products by means of physical agents virtual (pure-play) organizations Organizations that conduct their business activities solely online click-and-mortar (click-and-brick) organizations Organizations that conduct some e-commerce activities, but do their primary business in the physical world
    8. 8. Electronic Commerce: Definitions and Concepts • Where EC is conducted electronic market (e-marketplace) An online marketplace where buyers and sellers meet to exchange goods, services, money, or information interorganizational information systems (IOSs) Communications system that allows routine transaction processing and information flow between two or more organizations intraorganizational information systems Communication systems that enable e-commerce activities to go on within individual organizations
    9. 9. Benefits of EC Benefits to Organizations • Global Reach • Cost Reduction • Supply Chain Improvements • Extended Hours • Customization • New Business Models • Vendors’ Specialization • Rapid Time-to-Market • Lower Communication Costs • Efficient Procurement • Improved Customer Relations • Up-to-Date Company Material • No City Business Permits and Fees • Other Benefits
    10. 10. Benefits of EC Benefits to Consumers • Ubiquity • More Products and Services • Customized Products and Services • Cheaper Products and Services • Instant Delivery • Information Availability • Participation in Auctions • Electronic Communities • No Sales Tax
    11. 11. Benefits of EC • Benefits to Society – – – – – Telecommuting Higher Standard of Living Homeland Security Hope for the Poor Availability of Public Services
    12. 12. Exhibit 1.7 Limitations of EC
    13. 13. Value Chain (Michael Porter, 1985) • A series of linked activities or processes in an organization • IT can improve these processes
    14. 14. Strategic Analysis This is all about the analysing the strength of businesses' position and understanding the important external factors that may influence that position. The process of Strategic Analysis can be assisted by a number of tools, including: Five Forces Analysis - a technique for identifying the forces which affect the level of competition in an industry PEST Analysis - a technique for understanding the "environment" in which a business operates Scenario Planning - a technique that builds various credible views of possible futures for a business Market Segmentation - a technique which seeks to identify similarities and differences between groups of customers or users SWOT Analysis - a useful summary technique for summarising the key issues arising from an assessment of a businesses "internal" position and "external" environmental influences.
    15. 15. The Value Chain • A framework for identifying core competencies – Inside the firm – In the supply chain • Can be used to – Identify strengths and weaknesses – Identify sources of competitive advantage – Identify market opportunities
    16. 16. The Value Chain
    17. 17. Primary Activities and Factors for Assessment Inbound Logistics  Soundness of material and inventory control systems  Efficiency of raw material warehousing activities Operations Outbound Logistics  Productivity of  Timeliness and equipment efficiency of compared to delivery of that of key finished goods competitors and services  Appropriate  Efficiency of automation of finished goods production warehousing processes activities  Effectiveness of production control systems to improve quality and reduce costs  Efficiency of plant layout and work-flow design Marketing & Sales Customer Service  Effectiveness of market research to identify customer segments & needs  Innovation in sales & promotion  Evaluation of alternate distribution channels  Motivation and competence of sales force  Development of image of quality and a favorable reputation  Extent of brand loyalty among customers  Extent of market dominance within the market segment or overall market  Means to solicit customer input for product improvements  Promptness of attention to customer complaints  Appropriateness of warranty and guarantee policies  Quality of customer education and training  Ability to provide replacement parts and repair service
    18. 18. Secondary Activities and Factors for Assessment Firm Infrastructure      Capability to identify new product market opportunities and potential environmental threats Quality of the strategic planning system to achieve corporate objectives Coordination and integration of all value chain activities Ability to obtain relatively low cost funds for capital expenditures and working capital Timely & accurate information on general and competitive environments Human Resource     Effectiveness of procedures for recruiting, training, and promoting all levels of employees Appropriateness of reward systems Relations with trade unions Levels of employee motivation and job satisfaction Technology Development      Success of R&D activities in leading to product and process innovations Quality of working relationship between R&D personnel and other departments Timeliness of technology development activities in meeting critical deadlines Qualifications & experience of laboratory technicians and scientists Ability of work environment to encourage creativity and innovation Procurement     Development of alternate sources for inputs to minimize dependence on a single supplier Procurement of raw materials on timely basis at lowest possible cost and at acceptable levels of quality Development for criteria for lease-vs.buy decisions Good, long-term relationships with suppliers
    19. 19. Technologies in the Value Chain Information System Technology Planning and Budgeting Technology Office Technology FIRM INFRASTRUCTURE Training Technology Motivation Research Information Technology HUMAN RESOURCE MANAGEMENT Product Technology Computer-Aided Design Pilot Plant Technology TECHNOLOGY DEVELOPMENT Software Development Tools Information Systems Technology Information Systems Technology Communication System Technology Transportation System Technology PROCUREMENT •Transportation Technology •Material Handling Technology •Storage and Preservation Technology •Communication System Technology •Testing Technology •Information Technology INBOUND LOGISTICS •Basic Process Technology •Materials Technology •Machine Tools Technology •Materials Handling Technology •Packaging Technology •Testing Technology •I/nformation Tech. OPERATIONS •Transportation Technology •Material Handling Technology •Packaging Technology •Communications Technology •Information Technology •Multi-Media Technology •Communication Technology •Information Technology •Diagnostic and Testing Technology •Communications Technology •Information Technology OUTBOUND LOGISTICS MARKETING AND SALES SERVICE
    20. 20. The Internet Value Chain Internet Capability Benefits to Company Opportunity for Advantage Marketing and Product Research Data for market research, establishes consumer responses Enhance Efficiency Sales and Distribution Support and Customer Feedback •Low cost distribution •Reaches new customers •Multiplies contact points •Access to customer comments online •Immediate response to customer problems Create New Business Opportunities Maintain Valuable Customers and Relationships
    21. 21. Customer Competition Connectivity External Drivers High Low Strategic Positioning of Internet Technologies Global Market Penetration Product and Services Transformation Strategy E-Commerce Website Value-added IT Services E-Business; Extensive Intranets and Extranets Solution Cost and Efficiency Improvements Performance Improvements in Business Effectiveness E-Mail, Chat Systems Intranets and Extranets E-Business Processes Connectivity Internal Drivers High
    22. 22. Customer-Focused E-Business Let customers place orders directly Let customers check order history and delivery status Build a community of customers, employees, and partners Customer Database Give all employees a complete view of customers Let customers place orders thru distribution partners Transaction Database Link Employees and distribution partners
    23. 23. Porter’s Five Competitive Forces
    24. 24. Porter 5 forces analysis The Porter 5 forces analysis is a framework for business management developed by Michael Porter in 1979. It uses concepts developed in Industrial Organization (IO) economics to derive 5 forces that determine the attractiveness of a market. It is also known as FFF (Fullerton's Five Forces). A graphical representation of Porters Five Forces
    25. 25. Turning threats into advantage • Organisations within the same industry: – Have same suppliers as rivals – Have same customers as rivals – Face same threats of • New products being developed • New firms/ organisations starting up in competition • Awareness of this can help organisations: – Improve its competitive position – Make it less vulnerable to attack
    26. 26. Firm-Level Strategy: Core Competencies • Core Competencies – an activity in which the firm excels – Created based on experience and research – Ex., best logistics, best customer service, best optic technology manufacturer
    27. 27. Industry-Level Strategy: Five Forces Model (Michael Porter, 1980) • • • • • Buyer Power Supplier Power Threat of Substitutes Threat of New Entrants Rivalry among Firms
    28. 28. Five Forces Model
    29. 29. Porter’s model • Allows the development of a competitive strategy • Suggests 5 main forces may be decisive in helping shape the outcome: – – – – – Suppliers New Entrants Substitutes Buyers Industrial competitors
    30. 30. The Power of Suppliers • Using the models of market structures developed in Unit 4 assess whether the supplier of your main input has more market power than your organisation. – Are they the only suppliers of the input? – How many other potential suppliers exist? – Is the input more homogeneous than unique? – Are there any substitutes available? – Would there be switch costs? – On a spectrum of 1-10 where does you bargaining power lie relative to your main supplier?
    31. 31. The Power of Customers • Customers bargaining power increases if………. – they buy in large volumes – the product is homogeneous – there are many more suppliers – product represents a substantial fraction of their total costs • Do you have many customers, a few or one (ie monopsony)? • In the light of the above assess the bargaining power of your main customers. • How does this affects the behaviour of your organisation?
    32. 32. The threat of substitute products • Substitutes often come into the market rapidly, especially when high profits are being made ie high profits act as an incentive to develop substitutes. Watch R&D. • Equally in the public sector governments eager to cut cost will look for substitute services eg increasing shift towards voluntary sector provision.
    33. 33. The threat of substitute products • How many substitute products/services have appeared in your industry in the last 5 years? • What are they? How different are they? • Were they introduced by your organisation or others? • Which organisation in your industry does the most Research and Development? • What happens to price, profits and market share when substitutes are introduced? • Assess the potential threat!!!
    34. 34. Threat of new entrants • • New entrants bring increased capacity to the industry and are often backed by substantial resources eg Virgin New entrants can be deterred by ‘barriers to entry’ (Remember in the theory of perfect competition there are no barriers to entry). – The main barriers are……… • Economies of scale • Patents • Product differentiation • Capital requirements – both financial and specialist equipment • Skills • Access to distribution channels • Reaction/strategic decisions of incumbents (eg all undercut new entrant) • Government policy (eg statuary monopoly – but remember these can be relaxed to allow new entrants)
    35. 35. Threat of new entrants • When was the last time a new entrant entered your market? • Was it a surprise or in response to changes in the market, expiry of a patent, or changes in government policy eg deregulation? • Are they still there? • How did they affect the existing participants? • Using the above information plus your knowledge of barriers, (overleaf) assess the potential threat of new entry!!!!
    36. 36. Five Competitive Strategies • Cost Leadership – – – – Become low-cost producers Help suppliers or customers reduce costs Increase cost to competitors Example, Priceline uses online seller bidding so buyer sets the price • Differentiation Strategy – Develop ways to differentiate a firm’s products from its competitors – Can focus on particular segment or niche of market – Example, Moen uses online customer design
    37. 37. Competitive Strategies (cont.) • Innovation Strategy – Find new ways of doing business • Unique products or services • Or unique markets • Radical changes to business processes to alter the fundamental structure of an industry – Example, Amazon uses online full-service customer systems • Growth Strategy – – – – Expand company’s capacity to produce Expand into global markets Diversify into new products or services Example, Wal-Mart uses merchandise ordering by global satellite tracking
    38. 38. Competitive strategies (cont.) • Alliance Strategy – Establish linkages and alliances with • Customers, suppliers, competitors, consultants and other companies – Includes mergers, acquisitions, joint ventures, virtual companies – Example, Wal-Mart uses automatic inventory replenishment by supplier
    39. 39. Competitive Forces and Strategies
    40. 40. Using IT for these strategies
    41. 41. Dealing with current rivals • Tactics amongst rivals include…….. – price competition – product introduction – advertising/marketing – after-sales service
    42. 42. Competitive Strategy Examples
    43. 43. Advantage vs. Necessity • Competitive Advantage – developing products, services, processes, or capabilities that give a company a superior business position relative to its competitors and other competitive forces • Competitive Necessity – products, services, processes, or capabilities that are necessary simply to compete and do business in an industry
    44. 44. Five Forces Model The Five Forces Model explains factors that determine competitiveness. The five forces model is used to determine the relative attractiveness of an industry. Examples of using the Five Forces Model include: •Buyer Power – there is lots of competition among hotels given the huge number of hotels available in most markets. Many hotel chains have followed the airline idea of loyalty programs which give points for each stay. •Supplier Power – to decrease supplier power is to locate alternative sources of supply. The business to business marketplace on the Internet can do this. Information is power. •Threat of substitute products or services – business professionals can be threatened when new technology is used – tax preparer or financial services professional can be replaced by simple software packages for tax preparation or financial planning •Threat of new entrants – many dotcoms fell victim to this. An entry barrier can be used to make it more difficult for competitors to jump into the business. •Rivalry among existing competitors – IT can help make companies more efficient
    45. 45. Business Process Reengineering • Called BPR or Reengineering – Fundamental rethinking and radical redesign – Of business processes – To achieve improvements in cost, quality, speed and service • Potential payback high • Risk of failure is also high
    46. 46. How BPR differs from business improvement
    47. 47. A cross-functional process
    48. 48. Reengineering order management
    49. 49. Agility • Agility is the ability of a company to prosper – In a rapidly changing, continually fragmenting – Global market for high-quality, high-performance, customer-configured products and services • An agile company can make a profit with – Broad product ranges – Short model lifetimes – Mass customization • Individual products in large volumes
    50. 50. How IT helps a company be agile
    51. 51. Virtual Company • A virtual company uses IT to link – – – – People, Organizations, Assets, And ideas • Creates interenterprise information systems – to link customers, suppliers, subcontractors and competitors
    52. 52. A virtual company
    53. 53. Strategies of virtual companies
    54. 54. Knowledge Creation • Knowledge-creating company or learning organization – Consistently creates new business knowledge – Disseminates it throughout the company – And builds in the new knowledge into its products and services
    55. 55. Two kinds of knowledge • Explicit knowledge – Data, documents and things written down or stored on computers • Tacit knowledge – The “how-to” knowledge which reside in workers’ minds • A knowledge-creating company makes such tacit knowledge available to others
    56. 56. Knowledge issues • What is the problem with organizational knowledge being tacit? • Why are incentives to share this knowledge needed?
    57. 57. Knowledge management techniques Source: Adapted from Marc Rosenberg, e-Learning: Strategies for Delivering Knowledge in the Digital Age (New York: McGraw-Hill, 2001), p.70.
    58. 58. Lecture 1 - End of Presentation