How Information System Can Be Used To Support Competitive Strategy

Using Information Systems to Attain Competitive Reward

Firms with a competitive advantage over others typically have admission to special resource that others do not or are able to utilize resources more than efficiently, resulting in higher revenue growth, profitability, or productivity growth (efficiency), all of which ultimately in the long run translate into college stock market valuations than their competitors.

Michael Porter's competitive forces model describes 5 competitive forces that shape the fate of the firm.

Traditional competitors: Existing firms that share a house's market place space
New market entrants: New companies have certain advantages, such as not being locked into sometime equipment and high motivation, as well as disadvantages, such as less expertise and lilliputian brand recognition. Some industries take lower barriers to entry, ie: cost less for a new company to enter the field.
Substitute products and services: These are substitutes that your customers might use if your prices go too loftier. For example, Internet phone service can substitute for traditional phone service. The more substitute products and services in your industry, the less yous tin can command pricing and raise your profit margins.
Customers: The power of customers grows if they can easily switch to a competitor's products and services, or if they can forcefulness a business and its competitors to compete on price alone in a transparent market where at that place is picayune production differentiation and all prices are known instantly (such as on the Net).
Suppliers: The more than unlike suppliers a firm has, the greater control it tin can exercise over suppliers in terms of cost, quality, and delivery schedules.

Figure 3-10

FIGURE 3-10 PORTER�S COMPETITIVE FORCES MODEL
In Porter�southward competitive forces model, the strategic position of the firm and its strategies are determined non merely by competition with its traditional direct competitors only also by iv forces in the industry�s environment: new market entrants, substitute products, customers, and suppliers.

There are four generic strategies used to manage competitive forces, each of which oftentimes is enabled by using data engineering science and systems:

Low-cost leadership: Apply data systems to achieve the everyman operational costs and the lowest prices. For case, a supply chain direction arrangement can contain an efficient customer response system to directly link consumer behavior to distribution and production and supply chains, helping lower inventory and distribution costs.
Production differentiation: Use information systems to enable new products and services, or greatly alter the customer convenience in using your existing products and services. For instance, Land'due south End uses mass customization, offering individually tailored products or services using the same production resources as mass production, to custom-tailor wear to individual customer specifications.
Focus on marketplace niche: Use information systems to enable a specific marketplace focus and serve this narrow target market improve than competitors. Information systems support this strategy by producing and analyzing data for finely tuned sales and marketing techniques. Hilton Hotels uses a client information system with detailed data almost active guests to provide tailored services and reward profitable customers with extra privileges and attention.
Strengthen customer and supplier intimacy: Utilise information systems to tighten linkages with suppliers and develop intimacy with customers. Chrysler Corporation uses information systems to facilitate direct admission from suppliers to production schedules, and even permits suppliers to decide how and when to ship suppliers to Chrysler factories. This allows suppliers more lead fourth dimension in producing goods. Stiff linkages to customers and suppliers increase switching costs (the cost of switching from one product to a competing product) and loyalty to your firm.
The Internet has most destroyed some industries and has severely threatened more. The Internet has also created entirely new markets and formed the basis for thousands of new businesses.

Because of the Internet, the traditional competitive forces are yet at piece of work, but competitive rivalry has become much more intense. Internet engineering is based on universal standards, making information technology easy for rivals to compete on price alone and for new competitors to enter the market. Because data is available to everyone, the Internet raises the bargaining power of customers, who can quickly find the lowest-cost provider on the Spider web. Some industries, such as the travel industry and the financial services industry, have been more impacted than others. However, the Cyberspace besides creates new opportunities for building brands and edifice very large and loyal customer bases, such as Yahoo!, eBay, and Google.

The value chain model highlights specific activities in the business where competitive strategies can best be practical and where information systems are most probable to accept a strategic impact. The value concatenation model views the firm as a series or concatenation of bones activities that add together a margin of value to a firm's products or services. These activities tin be categorized as either primary activities or support activities.

Primary activities are most straight related to the production and distribution of the firm'south products and services, which create value for the client. Primary activities include inbound logistics, operations, outbound logistics, sales and marketing, and service.
Back up activities make the commitment of the primary activities possible and consist of organization infrastructure (assistants and direction), human being resources (employee recruiting, hiring, and training), applied science (improving products and the production process), and procurement (purchasing input).

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Figure three-11 THE VALUE Chain MODEL
This figure provides examples of systems for both primary and support activities of a firm and of its value partners that tin add a margin of value to a firm�s products or services.

Yous can use the business value concatenation model to identify areas where information systems volition improve business processes. You tin can also benchmark your business concern processes against your competitors or others in related industries, and place and implement industry best practices.

Benchmarking involves comparison the efficiency and effectiveness of your business organization processes against strict standards and then measuring performance confronting those standards.
Industry best practices are unremarkably identified by consulting companies, research organizations, government agencies, and manufacture associations as the about successful solutions or problem-solving methods for consistently and effectively achieving a business concern objective.

A firm'due south value chain is linked to the value bondage of its suppliers, distributors, and customers.

Information systems tin be used to achieve strategic advantage at the industry level by working with other firms to develop manufacture-broad standards for exchanging information or business transactions electronically, which forcefulness all market participants to subscribe to similar standards. Such efforts increase efficiency, making product exchange less likely and mayhap raising entry costs.,

Cyberspace technology has made it possible to create highly synchronized industry value chains called value webs. A value web is a drove of independent firms that use information technology to coordinate their value bondage to produce a product or service for a market collectively. It is more customer-driven and operates in a less linear fashion than the traditional value concatenation.

Figure 3-12

Effigy 3-12 THE VALUE WEB
The value spider web is a networked organisation that can synchronize the value chains of business partners within an industry to respond rapidly to changes in supply and demand.

A big corporation is typically a drove of businesses. Information systems can improve the overall performance of these business units past promoting synergies and cadre competencies.

In synergies, the output of some units can be used every bit inputs to other units, or two organizations pool markets and expertise, and these relationships lower costs and generate profits.
A core competency is an action for which a business firm is a world-course leader, such as being the world'due south best miniature parts designer. A core competency relies on cognition that is gained through experience besides as incorporating new, external cognition. Any data system that encourages the sharing of knowledge across business units enhances competency.

Business models based on a network may aid firms strategically past taking advantage of network economics . In network economics, the marginal costs of adding another participant or creating another product are negligible, whereas the marginal proceeds is much larger. For example, the more people offering products on eBay, the more valuable the eBay site is to everyone because more products are listed, and more contest among suppliers lowers prices.

Some other network-based strategy is the virtual company , or virtual organization, which uses networks to link people, avails, and ideas, enabling information technology to marry with other companies to create and distribute products and services without being limited by traditional organizational boundaries or physical locations. One company tin use the capabilities of another company without being physically tied to that visitor.

The traditional Porter model of competitive forces assumes a relatively static manufacture surroundings; relatively articulate-cut industry boundaries; and a relatively stable set of suppliers, substitutes, and customers. With the emergence of the digital firm and the Internet, some modifications to the original competitive forces model are needed. Some of today's firms are much more aware that they participate in business ecosystems, loosely coupled but interdependent networks of suppliers, distributors, outsourcing firms, transportation service firms, and technology manufacturers. In a business ecosystem , cooperation takes place across many industries rather than many firms.

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FIGURE 3-13 AN ECOSYSTEM STRATEGIC MODEL
The digital business firm era requires a more dynamic view of the boundaries among industries, firms, customers, and suppliers, with competition occurring among industry sets in a business ecosystem. In the ecosystem model, multiple industries work together to deliver value to the customer. IT plays an important office in enabling a dense network of interactions among the participating firms.

Business ecosystems can be characterized as having one or a few keystone firms that dominate the ecosystem and create the platforms used by other niche firms. Keystone firms in the Microsoft ecosystem include Microsoft and applied science producers such every bit Intel and IBM. Niche firms include thousands of software application firms, software developers, service firms, networking firms, and consulting firms that both back up and rely on the Microsoft products.