Chapter 2.

Strategic Use of
Information Resources
 Introduction
How have successful businesses utilized IS
strategically?
What resources are involved in crafting a
strategic IS policy? Which one is most
important?
D’Aveni stated that competitive advantage is
temporary, do you agree or disagree? Why?
Many of today’s most successful companies
have created strategic alliances. How has this
helped them to create strategic advantage?

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 DELL
In 1994 Dell stopped selling PCs through retail
stores:
 Uses an integrated IT platform that allows customers to
order a PC to their specifications
Strategic use of IS (vs. use of IS): cost savings from
reduced inventories → passed on to consumer
COMPETITIVE ADVANTAGE for Dell
 Used its information resources to achieve high volumes
without the high costs of the industry’s traditional
distribution channels

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EVOLUTION OF INFORMATION
RESOURCES

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 Information Resources
Use of information resources has changed.
Organizations have moved from an
“efficiency model” of the 1960’s to a “value
creation model” of the 2000’s.
Companies seek to use those technologies
that give them competitive advantage.
Maximizing the effectiveness of the firm’s
business strategy requires the general
manager to identify and use information
resources.
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 1960s 1970s 1980s 1990s 2000+
Primary Efficiency Effectiveness Strategic Strategic Value creation
Automate Solve problems Increase individual Transform Create
Role of IT existing paper- and create and group industry/organizati collaborative
based opportunities effectiveness on partnerships
processes

Justify IT ROI Increasing Competitive Competitive Adding

productivity and position position Value
expenditure decision making

Target of Organization Individual Business Business Customer,

manager/ processes processes supplier,
systems ecosystem
Group ecosystem

Information Application Data-driven User-driven Business-driven Knowledge-

model specific driven

Dominant Mainframe- Minicomputer- Microcomputer Client-Server Internet

based based “decentralized “distribution “ubiquitous
technology intelligence” intelligence” intelligence”

Basis of Scarcity Scarcity Scarcity Plentitude Plentitude

Value
Underlying Economic of Economic of Economic of Economic of Economic of
information information information bundled information information
economics bundled w/ bundled w/ w/ economics of separated f/ separated f/
economics of economics of things economics of economics of
things things things things

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INFORMATION RESOURCES
AS STRATEGIC TOOLS

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 Information Resources
Defined as the available data, technology,
and processes available to perform
business processes and tasks.
Strategic advantage must be crafted by
combining all of the firm’s resources:
Production resources
Human resources
Information resources

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 Examples of Information
Resources Available to a Firm:
IS infrastructure
Information and knowledge
Proprietary technology
Technical skills of the IT staff
End users of the IS
Relationship between IT and business
managers
Business processes
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 What Advantages might an
Information Resource Create?
To understand the type of advantage the
information resource might create, managers need
to ask the following:
 What makes the information resource valuable?
Network externality
 Who appropriates the value created by the information
resource?
 Is the information resource equally distributed across
firms?
 Is the information resource highly mobile?
 How quickly does the information resource depreciate?
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HOW CAN INFORMATION
RESOURCES BE USED
STRATEGICALLY?

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 The Strategic Landscape
Managers confront elements that influence
the competitive environment.
Slim tolerance for error.
Using multiple approaches to evaluating
the strategic landscape is helpful in
determining strategic opportunities.
First view - Porter’s five competitive forces model.
Second view - Porter’s value chain.
Third view – focuses on the types of IS resources
needed (Resource Based View).

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 Porter’s Five Forces Model of
Competitive Advantage
1. Threat of New Entrants: new firms that may
enter a companies market.
2. Bargaining Power of Buyers: the ability of
buyers to use their market power to decrease a
firm’s competitive position
3. Bargaining Power of Suppliers: the ability
suppliers of the inputs of a product or service to
lower a firm’s competitive position
4. Threat of Substitutes: providers of equivalent or
superior alternative products
5. Industry Competitors: current competitors for the
same product.

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Competitive Forces with Potential
Strategic Use of Information Resources

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 Application of 5 Forces Model
Competitive Force IT Influence on Competitive Force
Threat of New Entrants Can be lowered if there are barriers to entry.
Sometimes IS can be used to create barriers to entry

Bargaining Power of Buyers Can be high if it’s easy to switch. Switching costs are
increased by giving buyers things they value in
exchange such as lower costs or useful information

Bargaining Power of Suppliers Forces is strongest when there are few firms to
choose from, quality is inputs is crucial or the volume
of purchases is insignificant to the supplier

Threat of Substitute Products Depends on buyers’ willingness to substitute and the

level of switching costs buyer’s face

Industrial Competitors Rivalry is high when it is expensive to leave and

industry, the industry’s growth rate is declining, or
products have lost differentiation

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 The Five Forces Model and IS

The Five Forces Model provides a way to think

about how information resources can create
competitive advantage.

Using Porter’s Model, General Managers can:

 Identify key sources of competition they face
 Identify uses of information resources to enhance their
competitive position against competitive threats
 Consider likely changes in competitive threats over time

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 Porter’s Value Chain Model
Looks at increasing competitive advantage by
reorganizing the activities related to create, support
and deliver a firm’s product or service.

Two broad categories:

 Primary activities that relate directly to how value is
created for a product or service.
 Support activities that make the primary activities
possible and that manage the coordination of different
activities.

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Using Information Resources to Alter
the Value Chain

The Value Chain model suggests that competition

can come from two sources:
 Lowering the cost to perform an activity

Lowering costs only achieves competitive advantage if the firm

possesses information on the competitor’s costs

 Adding value to a product or service so

buyers will be willing to pay more.
Adding value is a strategic advantage if a firm possesses
accurate information regarding its customer such as: which
products are valued? Where can improvements be made?
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Value Chain of the Firm

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 The Value System
Linking many value chains into a value
system.
Much of the advantage of supply chain
management comes from understanding
how information is used within each value
chain of the system.
 This can lead to the formation of entire new
businesses designed to change the information
component of value-added activities.

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The Value System: Interconnecting
Relationships between Organizations

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Activity Grocery Chain’s Value Chain Supplier’ Value Chain
Primary Activities
Inbound Logistics Analysis of buying patterns suggest
items should be stocked at local
stores, including amounts and
optimum delivery times
Operations Automated checkout can speed ckt.
operations; may lead to reduced
staffing of registers/ lower operating
costs
Outbound logistics
Analysis of b. patterns can aid
Marketing and Sales development of promotional strategies/
highlight customer preference
Service Automated checkout lanes shorten
customer waiting times
Figure 2.6 Application of Value Chain Model
Analysis of buying patterns can aid
grocery chains in better determining
demand, leading to better
forecasting for both chain and
supplier
Analysis of buying patterns can
reduce ‘last-minute’ orders and
improve suppliers processing of
orders
Sharing analysis of buying patterns
by grocery chain can aid supplier in
scheduling
Suppliers may be able to offer
economies of scale in its purchases
Sharing analysis of b. patterns
allows better supplier service
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 Secondary Activities
Shopping card can provide data to
help grocery chain plan for trends and
Organization
demographic changes in its target
market.
Human Resources Staffing needs for cash registers may
be reduces with automated checkout
Shopping card can provide data for
Technology market research
Grocery chain may be able to capture
Purchasing
more discounts for volume purchases
Figure 2.6 Application of Value Chain Model (continued)
Shopping card can provide data
to help supplier plan for trends
and demographic changes in its
target market.
Grocery chain can provide
information to help supplier’s
marketing research
Supplier chain may be able to
capture more discounts for
volume purchases
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 CRM and the Value Chain
Customer Relationship Management (CRM) is a
natural extension of applying the value chain
model to customers.
CRM includes management activities performed
to obtain, enhance relationships with, and retain
customers.
CRM is a coordinated set of activities.
CRM can lead to better customer service, which
leads to competitive advantage for the business.

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 The Resource-Based View
The Resource-Based View (RBV) looks at
gaining competitive advantage through the use
of information resources.
Two subsets of information resources have been
identified:
 Those that enable firms to attain competitive
advantage (rare and valuable resources that are not
common place).
 Those that enable firms to sustain competitive
advantage (resources must be difficult to transfer or
relatively immobile).

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STRATEGIC ALLIANCES

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 The Value System and Strategic
Alliances
Many industries are experiencing the growth of strategic
alliances that are directly linked to sharing information
resources across existing value systems.
 Delta recently formed an alliance with e-Travel Inc to promote Delta’s
inline reservation system.
This helps reduce Delta’s agency fees while offering e-Travel new
corporate leads.

 Alliance between American Airlines, Marriott and Budget Rent-A-

Car called AMRIS provides travelers with a single point of contact.

Electronically pooling information services of several

companies can create competitive advantage by saving
customers time.
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Types of Strategic Alliances
Supply Chain Management: improves the way a
company finds raw components that it needs to
make a product or service.
 Technology, especially Web-based, allows the supply chain of a
company’s customers and suppliers to be linked through a single
network that optimizes costs and opportunities for all companies
in the supply chain
 Wal-Mart and Proctor & Gamble.
Co-opetition: a new strategy whereby companies
cooperate and compete at the same time with
companies in their value net
 Covisint and General Motors, Ford, and DaimlerChrysler.

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 Potential Risks
There are many potential risks that a firm faces when
attempting to use IT to outpace their competition.
Executives should be aware of these risks before they surface.
Awakening a sleeping giant – a large competitor with
deeper pockets may be nudged into implementing IS
with even better features
Demonstrating bad timing – sometimes customers are
not ready to use the technology designed to gain
strategic advantage
Implementing IS poorly – information systems that fail
because they are poorly implemented
Failing to deliver what users what – systems that don’t
meet the firm’s target market likely to fail
Running afoul of the law – Using IS strategically may
promote litigation

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 Food for Thought:
Time-based Competitive
Advantage

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Time-based Competitive Advantage
The Internet is increasing the pace of technological
change by refocusing competitive efforts towards
creating time-based competitive advantage.
 Information resources are key to creating those advantages.
 Typical planning cycles are thrown out the window because the
organization needs to respond quickly to customer, competitor
and environmental changes.

The speed at which an organization adapts its

business processes will be the true measure of its
ability to maintain competitive advantage.
 Dell’s direct strategy has been to build and deliver computers in
as little as 5 days.

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 Summary
Using IS for strategic advantage requires more
than just knowing the technology.
Remember that not just the local competition is a
factor in success but the 5 competitive forces
model reminds us of other issues.
Value chain analysis show us how IS add value
to the primary activity of a business.
Know the risks associated with using IS to gain
strategic advantage.

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