You are on page 1of 33

STRATEGIC USE OF INFORMATION TECHNOLOGY

HOW I T SUPPORTS BUSINESS ACTIVITIES
• Porter & Miller’s concept of value chain helps explain which business activities can be analyzed and transformed through the use of information technology • The value chain divides the companies activities into value activities, the distinct activities it must perform to do business • Value activities consist of primary
04/30/12 2

PRIMARY & SUPPORT ACTIVITIES
• Primary activities include inbound logistics, operations, outbound logistics, marketing and service
Inbound Logistics Materials handling Delivery Operations Manufacturing Parts assembly Out-bound Logistics Order processing, Shipping Marketing And Sales Advertising promotion Service Service repair

PRIMARY ACTIVITIES
04/30/12

Eg: Manufacturing Organization

3

PRIMARY & SUPPORT ACTIVITIES
• Support activities include the resources that support the primary activities of the business
SUPPORT ACTIVITIES Organization Human resources Technology Purchasing
04/30/12 4

SUPPORT ACTIVITIES Organization Human resources Technology Purchasing
Inbound Logistics Materials handling Delivery Operations Manufacturing Parts assembly Out-bound Logistics Order processing, Shipping Marketing And Sales Advertising promotion Service Service repair

PRIMARY ACTIVITIES
04/30/12 5

• The value chain is a system of interdependent linkages. The way one activity is performed may affect the performance of other activities
• Ex: investing in a more expensive product design and superior materials may reduce after-salesservice

PRIMARY & SUPPORT ACTIVITIES

• Value activity at lower cost.
04/30/12 6

VALUE CHAIN

Supplier Value Chain(s)

Firm Value Chain(s)

Channel Value Chain(s)

Buyer Value Chain(s)

Note : I.T. can provide more effective interface between the buyer and the channel
04/30/12 7

• To obtain a competitive edge, a firm must be able to perform value activities at a lower cost than its rivals or in a way that provides its buyers with added value or service • The value system includes the value chain of suppliers, of the firm, of the channel through which the firm distributes its products & services, and of the ultimate buyer • If links between the value activities of the supplier and buyer are coordinated, 04/30/12 8 then both firms can cut costs

THE VALUE SYSTEM

THE VALUE SYSTEM
• Information systems that link suppliers and buyers, manufacturers and distributors and distributors and buyers are known as inter-organizational systems IOSs. These systems benefit both participants • Information technology affects the value chain by transforming the way value activities are performed
04/30/12 9

• Each activity in the value chain has has a physical component and an information processing component
Physical component encompasses the physical tasks needed to perform the activity
04/30/12

Information processing Component encompasses the the steps involved in capturing, manipulating, and channeling the data necessary to carry out the activity
10

VALUE

ACTIVITY USE OF INFORMATION TECHNOLOGY Just-in-time inventory Process control system

Inbound logistics Operations

Outbound logistics On-line links to the order-entry systems of suppliers Marketing and sales Laptops for direct sales After-sale service Electronics dispatch of technical support

04/30/12

11

SECONDARY ACTIVITY Management communications Human resources

USE OF INFORMATION TECHNOLOGY Electronic mail On-line access to personnel files with a skills database Computer-aided design and manufacturing On-line access to suppliers Inventory files

Technology Procurement

04/30/12

12

I.T for Competitive Advantage. SUPPORT ACTIVITIES Organization: Office automation Human resources: Skills databases Technology: CAD & manufacturing Purchasing: on line links to suppliers
Inbound logistics Operations Out-bound Logistics Marketing And Sales Market analysis Product profitability Service Remote machine diagnosis

ProcessAutomated control Online Warehousing Manufacturing Order-entry systems Control systems systems
04/30/12

PRIMARY ACTIVITIES

13

Check out
• Information technology also supports operations • Process control systems monitor oil refinement, chemical production, even assembly of ingredients in the manufacture of paints and cookies • IT can also be used for after-sales service
04/30/12 14

USING IT FOR COMPETITIVE ADVANTAGE
• New developments in IT such as telecommunications, CAD and office automation have created unprecedented opportunities • Gregory Parsons, in his work on IT and competitive strategy, introduces a three level framework to help managers assess the current and potential effect of information technology
04/30/12 15

Industry level

IT changes an industry's •Products & services •Production economics •Markets IT affects key competitive forces •Buyers •Suppliers •Substitute products •New entrants •Rivals IT supports a firm's strategy •Low cost leadership •Product differentiation •Market specialization
16

Firm level

Strategy level

04/30/12

INDUSTRY LEVEL EFFECT
• Products & Services: IT can change the nature of products & services by altering the product development cycle or by increasing the speed of distribution
– Ex: publishing business – Videoconferencing in hotels

• Production Economics:
– Nationwide inventory tracking

• Markets:
– Consumers more computer literate. – Use online banking, scanners at POS. – Orgs not offering these facilities lose 04/30/12

17

FIRM LEVEL EFFECT
• Five competitive forces influence the profitability of an industry
– Buyers – Suppliers – Substitute products – New entrants – rivals

04/30/12

18

FIRM LEVEL EFFECT
• Buyers:
– Businesses can use IT to reduce the power of buyers by introducing switching costs – IT can provide market analysts with the tools needed to analyze buyer profitability

• Suppliers:
– Use of robots instead of labor in the automobile industry – More control is exercised over suppliers by using quality control methods, which make them more cautious about their quality
04/30/12 19

FIRM LEVEL EFFECT
• Substitute products
– Deter customers from using substitutes by lowering costs or by improving their perceived performance

• New Entrants:
– IT can create entry barriers by enhancing the services provided – Ex: online reservations – Giving laptops to sales agents /employees to give information to clients
04/30/12 20

FIRM LEVEL EFFECT
• Rivals:
– Use of tracking for freight and schedules for the customers – Use of pooled resources of smaller companies against a big organization

04/30/12

21

Porter’s Competitive Forces Model

• Low Cost Leadership

STRATEGY LEVEL EFFECT
• Computer based systems cut transaction costs • Automated systems work faster reducing costs

• Product Differentiation:
• Value added features to improve image, quality or service • Frequent flier miles can mean special discounts • Reliable service & quick response to customer queries

• Market Specialization
Low-cost leadership Product differentiation
04/30/12

STRATEGY-LEVEL IMPACT

USE OF I.T

Office automation Inventory control systems Computer-aided design Hotline to technical support
23 Electronic library access for PC

Market specialization

Class Assignment
• • • • Form a 4 group Each group will have 4/5 students Group will have 15 min to discuss slides Then 8 to 10 min for presentation

• Select 1 topic each from below • A1 - Porter’s Competitive Forces Model
26) 27)

(slide (slide

• A2 - Porter’s Competitive Forces Model

• A3 - Value Chain (slide 28,29 & 30) 04/30/12 • A4 - Value Chain & Value system (slide 31 & 24 32)

Porter’s Competitive Forces Model

Competitive Forces
25

Porter’s Competitive Forces Model Competitive
Competitive Forces

26

The Value Chain
According to the value chain model (Porter, 1985), the activities conducted in any organization can be divided into two parts: primary activities and support activities.

Primary activities are those activities in which materials are purchased, processed into products, and delivered to customers. Each adds value to the product or service hence the value chain.
    

Inbound logistics (inputs) Operations (manufacturing and testing) Outbound logistics (storage and distribution) Marketing and sales Service
27

The Value Chain

(Continued)

Unlike the primary activities, which directly add value to the product or service, the support activities are operations that support the creation of value (primary activities)

The firm’s infrastructure (accounting, finance, management) Human resources management Technology development (R&D)

  

Procurement The initial purpose of the value chain model was to analyze the internal operations of a corporation, in order to increase its efficiency, effectiveness, and competitiveness. We can extend that company analysis, by systematically evaluating a company’s key processes and core competencies to eliminate any 28 activities that do not add value to the product.

The Value Chain
Secondary Activities

(Continued)

Valu e

Primary Activities

29

The Value Chain
Secondary Activities

(Continued)

Value

Primary Activities

30

The Value System
A firm’s value chain is part of a larger stream of activities, which Porter calls a value system. A value system includes the suppliers that provide the inputs necessary to the firm and their value chains. This also is the basis for the supply chain management concept. Many of these alliances and business partnerships are based on Internet connectivity are called interorganizational information systems (IOSs)

These Internet-based EDI systems offer strategic benefits
   

Faster business cycle (PO to Receiving) Automation of business procedures (Automated Replenishment) Reduced operational costs Greater advantage in a fierce competitive environment Chapter 3 31

Thank you

04/30/12

32

Practice Questions
Q1. “Information Technology supports business activities” Explain ? Q2. Short notes on Three level effect of information technology. Q3.what is value chain ? How do Information Technology effects value system. Q4. Explain Porter’s competitive Force model with example.
04/30/12 33