STRATEGIC USES OF

INFORMATION TECHNOLOGY

2.1

2007 by Prentice Hall

Strategic Significance of IT
IT affects Company way of operating Process of product creation Reshaping the product

2.2

2007 by Prentice Hall

Strategic Uses of Information Technology

Porter and Millars Value Chain Concept provides a means to evaluate business activities and the use of information technology. Value chain divides company activities into value activities.
2.3
2007 by Prentice Hall

VALUE ACTIVITIES IN THE VALUE CHAIN

SUPPORT ACTIVITIES Organization Human Resources Technology

Purchasing
Inbound Logistics Material Handling delivery Operations Outbound Marketing Logistics And sales Manufacturing Order Advertisement Parts Processing promotion assembly shipping Services Service Repair

PRIMARY ACTIVITIES
2.4
2007 by Prentice Hall

THE VALUE SYSTEM

The value chain of a particular industry works within a larger system of activities called the value system

SUPPLIER VALUE CHAIN

FIRM VALUE CHAIN

CHANNELS VALUE CHAIN

BUYERS VALUE CHAIN

Information system that link supplier and buyers, manufacturers And distributors and buyers are known as Interorganizational systems
2.5
2007 by Prentice Hall

How IT makes a difference

It transforms the way activities are performed. Each activity in value chain has --Physical component (physical tasks) --Information processing component (steps involved in capturing, manipulating and channeling the data necessary to carry an activity)
2.6
2007 by Prentice Hall

IT advancements
IT is advancing faster than technologies for physical processing. Expanding the limits of what companies can do faster than managers can explore the opportunities. Performing optimization and control functions as well as more judgmental executive functions.
2.7
2007 by Prentice Hall

How IT supports value activities

VALUE ACTVITIES a) Inbound logistics : b) Operations : c) Outbound logistics :

d) Marketing & Sales : e) After sale service :

USE OF IT Just in time inventory Process control system Online links to order entry system of suppliers Laptops for direct sales Electronic dispatch of technical support
2007 by Prentice Hall

2.8

How IT supports Support activities

SUPPORT ACTVITIES

USE OF IT

a) Organization : b) Human Resources :

c) Technology : d) Procurement

Electronic mail. Online access to personnel files with a skills database. CAD & manufacturing Online access to suppliers inventory files
2007 by Prentice Hall

2.9

Using Information Technology for Competitive Advantage

IT is changing the rules of competition in 3 ways --Changing the industry structure. --Important lever that companies can use to create competitive advantage. --Information revolution is spawning completely new business.
2.10
2007 by Prentice Hall

Using Information Technology for Competitive Advantage

Gregory Parsons (1983) introduced a three-level framework to help managers assess the current and potential effect of information technology.

---Industry-Level Effect.
---Firm-Level Effect. ---Strategy-Level Effect.

2.11

2007 by Prentice Hall

Industry-Level Effect
Products and Services: IT can change the nature of products/services by altering the product development life cycle and increasing the speed of distribution. Production Economics: E.g. A food marketer with a distribution can serve regional markets and also reallocate inventories to serve the national market. Markets: Consumers are accustomed to banking with ATMs and shopping Pointof-sales systems. IT is providing electronic services in order to compete in most markets.
2.12
2007 by Prentice Hall

Firm-Level Effect
Porter (1980) describes the five major competitive forces affecting profitability in an industry. Buyer: IT can reduce the power of buyer --by introducing loyalty programs --market analyst need to analyze buyer profitability
2.13
2007 by Prentice Hall

Firm-Level Effect
Supplier: reduce the power of supplier --rely on high priced labor replace with robots --IS are designed to track labor efficiency can be tied directly to wage incentive systems --quality control systems --by having access more information about supplier, dealers

2.14

2007 by Prentice Hall

Firm-Level Effect
Substitute products: --deter customers from finding substitute for existing products and services --for eg. a) Switching cost b)Cash Management Account bundles a brokerage a/c, market a/c, a visa products and checking a/c all financial services in one package

2.15

2007 by Prentice Hall

Firm-Level Effect
New Entrant : --prevent them having market share -- create Entry barriers -- Insurance company created online telecommunication networks. --online reservation win the business of travel agents. Rivals: IT provides competitive edge against rivals
2.16
2007 by Prentice Hall

Strategy Level Effect

Low-cost leadership: --Improve productivity at low cost --IS that cuts the cost of transaction processing will support this strategy eg: office automation, Introducing Word, Magazine distributor can use IS for sorting and distribution.
2.17
2007 by Prentice Hall

Strategy Level Effect (contd..)

Product differentiation: -- adding value or unique feature to improve its image, quality or service. -- adding value added features. -- ability to provide customers with better information -- By providing reliable services, quick responses to queries
2.18
2007 by Prentice Hall

Strategy Level Effect (contd..)

Market specialization: Information system --Provide information about the profitability of specific market --Enable manufacturers and distributors to design --Market product and services addressing the needs of a particular market niche
2.19
2007 by Prentice Hall