This chapter discusses how information systems and strategy are related. It covers Porter's five competitive forces model and how IS can impact each force. The value chain and how IS can optimize primary and support activities are explained. Business strategy options like low cost leadership and differentiation are presented. The role of IS in supporting various strategies is described. The chapter also addresses how nonprofits and governments can use IS to achieve their missions and provide services. It emphasizes that human factors are critical for realizing strategic advantages from IS.

1. Chapter 2:
Information Systems and Strategy
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2. Learning objectives
1. Five forces
2. Other factors
3. Value chain
4. Business strategy
5. Nonprofit/government strategy
6. Role of IS
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3. Baidu
• Chinese visitors
• Chinese language
• Competition
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4. Introduction
• Strategies rely on IS
• IS transform industries
• Companies gain advantages with IS
• Nonprofits achieve missions with IS
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5. Five forces
1. New entrants
2. Buyers
3. Suppliers
4. Substitutes
5. Rivalry
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6. • Incumbents and IS
• Network effects
• Switching costs
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Threat of new entrants

7. • Few buyers
• Similar products
• IS shift buyer power
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Power of buyers

8. • Only game in town
• IS impose switching costs
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Power of suppliers

9. • Alternative products at attractive savings
• IS role in substitutions
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Threat of substitutes

10. • Price cuts
• Slow growth
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Rivalry among competitors

11. External factors
1. Disruptive innovations
2. Government policies
3. Complementary services
4. Environmental events
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12. • Radical and unexpected breakthroughs
• Transform industry and changes five forces
• Creative destruction
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Disruptive innovations

13. • Affect how industries operate and evolve
• Organizations lobby for government action
• Judges and courts affect industry structure
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Government policies

14. • Industries are interrelated
• Companies embedded in ecosystem
• Visionaries lead to new beneficial directions
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Complementary services

15. • Major effects without warning
• Energy costs and emissions
• Leaders must consider industry and forces
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Environmental events

16. Value chain
• Primary activities
• Support activities
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17. Extended value chain
• Includes suppliers and customers
• Strategic opportunities for suppliers
• Strategic opportunities for customers
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18. Benchmarking
• Reference point used as baseline
• For value chain, percent of total budget
• Analysis identifies areas that need attention
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19. IT benchmarks
• IT spending varies by industry and by region
• Managers can use benchmarks to assess
extended value chain
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20. Competitive strategies
1. Low cost leadership
2. Product differentiation
3. Focused strategy
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21. Low cost leadership
• Similar product at lower price
• Automate and streamline processes
• Reduce operating expenses
• Achieve efficiencies
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22. Differentiation and focus
Product differentiation Focused strategy
• Special features
• Customers willing to
pay more
• Reduce substitutes
and new entrants
• Differentiate for
market niche
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23. IS in strategy
Low cost Differentiation
• Automate
• Support back office
• Streamline
• Innovations
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24. Run, grow, and transform
• 66% of IT spending to run organization
• 19% to grow business
• 15% to transform business model
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25. Nonprofit organizations
• Objectives that need strategic planning
• Operational requirements
• Benefit from IS
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26. Fund-raising
• IS help manage donations
• Reach worldwide audience
• Learn about preferences and motivations
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27. Volunteering
• Attract volunteers
• Help volunteers
identify projects that
need their skills
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28. Government (1:2)
• Needs IS to handle operational requirements
• Citizens expect cost effective services
• Mission also includes projects with long-term
benefits
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29. Government (2:2)
E-Government Research
• Unclassified info
available to citizens
via the Internet
• Interactive online
services
• Private investors
might avoid certain
projects because of
risk or distant payoff
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Update Figure

30. Does IT matter?
• Advantage depends on type of IS
• Funds to run business are commodity
• Funds to grow and transform are more
closely tied to strategy and advantage
• Human element is critical for success
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31. Summary
1. Five forces
2. Other factors
3. Value chain
4. Business strategy
5. Nonprofit/government strategy
6. Role of IS
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32. GameStop case study
• GameStop business model
• Rivalry among competitors
• Barriers to entry
• Power of suppliers
• GameStop’s response to threats
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33. Open Internet case study
• Net neutrality
• Position of content providers
• Position of telecom companies
• Proposal
• Criticism of proposal
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