Info 200

Dr Randa Salamoun

Fall 2023
Chapter 3: Information systems and Competitive advantage (continued)
Sirine Taleb
Slides: Developed by Dr. Randa Salamoun
9/19/2023
 October 10

 Time and Location defined later

INFO 200 – AUB – Fall 2023 – Sirine Taleb 9/19/2023 2

Definition of business model: Value
A model that describes how the business is proposition
organized, what the business is doing, how it
will turn it into profit with a focus on value
creation Value architecture
A business model describes the rationale of
how an organization creates, delivers and
captures value. Profit
equation
 Read more here
INFO 200 – AUB – Fall 2023 – Sirine Taleb 9/19/2023 4
 Value
proposition

Getting the
Newness Performance Customization Design
job done

Brand/ status Price Cost reduction Risk reduction Accessibility

Convenience Usability Etc.

 Value
proposition

• Customer
segment
 The business must assess where it stands • Customer pain
• Value
 Highlight vision and mission
 Detect the weakness in the old business model
 Understand customers' pain points and shifts in behaviors

 Design
 Look for opportunities outside what the business offers
 Stay true to vision, mission and values
 Leverage what the technology offers
 Value
proposition

 Example:
 Airbnb

 When Airbnb began to disrupt the hospitality industry, it needed to market to two separate groups: guests who
wanted a place to stay and hosts who wanted to rent out their spaces. Their two-in-one value proposition:
Travelers benefit from a truly local experience and hosts benefit from extra income.
 In their own words, “Airbnb exists to create a world where anyone can belong anywhere, providing healthy
travel that is local, authentic, diverse, inclusive and sustainable.”
 Their rooms often have more character than hotels, and they’re usually located in neighborhoods people live
in. Guests learn from local knowledge shared by hosts and feel at home wherever they go. These different
sources of value wrap together into Airbnb’s tagline: Belong Anywhere.
 As a business goes through different stages of growth, its value proposition is likely to change, too.
Originally marketed as much cheaper than staying in a hotel, Airbnb has now become an experience-driven,
mainstream staple with a premium wing called “Airbnb Plus” “Superhost” with its own value proposition.
 Exercise

INFO 200 – AUB – Fall 2023 – Sirine Taleb 9/19/2023 10

INFO 200 – AUB – Fall 2023 – Sirine Taleb 9/19/2023 11
 Many businesses don’t have just
one business model as a part of
their success. Instead, many
businesses, like Airbnb, are a
multi-sided market. In this
business model, the needs of
two parties must be met.

INFO 200 – AUB – Fall 2023 – Sirine Taleb 9/19/2023 12

 Value
proposition

A business is not defined by a product, an industry or

competitors

It focuses on customer needs

• By being customer centric
• It may come up with
•  Define new products
•  Compete in a new industry
 Allows buyers and sellers to meet

 Marketplace

 Ex. Uber, AirBnB, Apple store, and many others

 Physical Marketplace
 Value
architecture

 The second pillar is the value architecture.

 This pillar is related to the "how",
 How is the business organized to create and deliver the value proposition to the client.
 It describes the major activities, called the value chain,
 It describes the resources that can be tangible and intangible,
 It identifies the partnerships, and
 It describes the key competencies used to deliver the value proposition to the client.

 Example: if mobile APP, develop and improve the app on a regular basis
 Value
architecture

 Organizations analyze the structure of their industry, and, using that analysis, they formulate a
competitive strategy. They then need to organize and structure the organization to implement that
strategy.
 If, for example, the competitive strategy is to be a cost leader, then business activities need to be
developed to provide essential functions at the lowest possible cost.
 Value
architecture

 A value chain is a network of value-creating activities. It consists of primary

activities and support activities. Primary activities are business functions that
relate directly to the production of the organization’s products or services. Support
activities are business functions that assist and facilitate the primary activities.

Drone Manufacturer’s value Chain

 Value
architecture

 First, the manufacturer acquires raw materials using the inbound logistics activity. This activity concerns the
receiving and handling of raw materials and other inputs. The accumulation of those materials adds value in
the sense that even a pile of unassembled parts is worth something to some customer.
 A collection of the parts needed to build a drone is worth more than an empty space on a shelf.
 The value is not only the parts themselves, but also the time required to contact vendors for those parts, to
maintain business relationships with those vendors, to order the parts, to receive the shipment, and so forth.
 In the operations activity, the drone maker transforms raw materials into a finished drone, a process that adds
more value. Next, the company uses the outbound logistics activity to deliver the finished drone to a customer.
Of course, there is no customer to send the drone to without the marketing and sales value activity. Finally, the
service activity provides customer support to the drone users.
 Each stage of this generic chain accumulates costs and adds value to the product. The net result is the total
margin of the chain, which is the difference between the total value added and the total costs incurred.
 Profit
model

 The third pillar answers

 How does the above generate a profit?
 This pillar derives from the 2 previous pillars
 Value proposition  Generates revenues, in other words, sales
 Value architecture  Explains the cost structure, the capital employed (fixed assets, the machines, the trucks and the
working capital). All that is needed to run the business
 The value proposition and value architecture need to be aligned in order to create a profit.

 Example: if mobile APP, expenses would be Cost of developing the app whereas revenue can be generate revenue through ads or subscriptions
 Profit
model

 If you have a good value proposition, it will generate revenues, in other words, sales. That is the first line in
any profit and loss statement. On the other hand, remember, the value architecture depicts how the company
is organized. This explains the cost structure, but also what is called the capital employed. Capital employed
are fixed assets, the machines, the trucks that I need to run my business, but also what is called the working
capital.

 The profit equation represents the financial implications of the two previous pillars.

 Again, the value proposition explains the revenues, the value architecture explains the cost structure and the
capital employed. The overall message of the business model is that value proposition and value architecture
need to be aligned in order to create a profit.

 Value architecture and value proposition need to be aligned.

 What Is A Business Model

 https://youtu.be/ZNiPuTwZ4q0

 Note about the video:

 Part 1 and 2 refer to Pilar 1
 Part 3 refers to Pilar 2
 Part 3 refers to Pilar 3
 Apple’s iPod and iTunes Software
 Google’s Search Engine

 Application:
 Where is the product?
 Where is the platform?
 What is the role of IS in each example?
 Aims to make it simple for users to look for, purchase, and
Value proposition
enjoy digital music.

Negotiate deals with all the major record labels to establish

the greatest online music collection in the world.

Selling iPods generates the majority of Apple's music-

Profit equation
related revenue, and the company uses integration with the
online music store to differentiate itself from rivals.
 Value Offering online text advertising that is incredibly
proposition targeted around the world.

Establishing multiple tools: Web search (Google.com),

Value
advertising (AdWords), and third-party content
Architecture
monetization (AdSense).

It makes money from one Customer Segment, advertisers,

Profit equation while subsidizing free offers to two other segments:Web
surfers and content owners.
 The business model

Value Value Business Information

proposition architecture Profit model Value chain processes systems

Who are How is VP How is

the offered? profit
customers? What generated?
What is activities? Revenues?
offered to What Costs?
them? resources?
At what
price?

Source: Kroenke, D. M., & Boyle, R. J. (2016). Organizational Strategy, Information Systems, and Competitive
Advantage. Experiencing MIS (7th ed., pp. 93). Pearson.
The value chain Value chain

Primary Activities
Primary Activity Description
Inbound Logistics Receiving, storing, and disseminating inputs to the
products
Operations/Manufacturing Transforming inputs into the final products
Outbound Logistics Collecting, storing, and physically distributing the
products to buyers
Sales and Marketing Inducing buyers to purchase the products and
providing a means for them to do so
Customer Service Assisting customers’ use of the products and thus
maintaining and enhancing the products’ value
Source: Based on Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (The Free Press, a Division of Simon & Schuster Adult
Publishing Group). Copyright © 1985, 1998 by Michael E. Porter.
 Value chain

Support Activity Description

The support activities in the
generic value chain facilitate the Procurement Activities through which businesses identify the materials (raw
primary activities and contribute materials, goods, services) they need, select suppliers and
negotiate contracts to obtain them.
only indirectly to the production,
sale, and service of the product. Technology Researching, developing and maintaining designs and
Development technologies that support the work of the business.

They include procurement, Human resources Activities related to the management of the human forces
which consists of the processes of Management working in the organization. This includes hiring, training,
finding vendors, setting up assessing, remunerating, and others.
contractual arrangements, and Firm Includes all activities relating to the company's management,
negotiating prices. Infrastructure planning, accounting, financial, and quality-control systems as
well as its organizational structure.

Source: Based on Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (T he Free Press, a Di vision of Simon & Schuster Adult Publishing Group). Copyright © 1985, 1998 by Michael E. Porter.
 Value chain

Source: Kroenke, D. M., & Boyle, R. J. (2016). Organizational Strategy, Information

Systems, and Competitive Advantage. Experiencing MIS (7th ed., pp. 96). Pearson.
 Linkages of the value chain are the interactions across all the activities of the value chain.

 They consist of sharing information between the activities as they link the activities one to another leading to
a close coordination between the primary activities and support activities.

 For example, manufacturing systems use linkages to reduce inventory costs. Such a system uses sales
forecasts to plan production; it then uses the production plan to determine raw material needs and then uses
the material needs to schedule purchases. The end result is just-in-time inventory, which reduces inventory
sizes and costs.
 Business
processes

The business model

Value Value Business Information
Profit model Value chain
proposition architecture processes systems

 As you learned in the last chapter, a business process is a network of activities, resources, facilities, and
information that accomplishes a business function. Now we can be more specific and say that business
processes implement value chains or portions of value chains. Thus, each value chain is supported by one or
more business processes.

 Let’s consider 2 scenarios

 Same business – bicycle rental
 Same value chain activities
 NB: 1 value chain activity, multiple processes
 2 distinct propositions: Status vs. Low price

 Activity: Compare the business processes and the IS for 2 different offerings
 Business
processes

 Note that the value chain activities are the same for both companies. Both greet the customer, determine the
customer’s needs, rent a bike, and return the bike. However, each company implements these activities in
ways that are consistent with its competitive strategy