Download Information Age Enterprise - L1 - The University of Texas at Dallas

Role of IT in a Business Firm
Varghese Jacob & Sumit Sarkar
University of Texas at Dallas
Goal
 Understand
contexts that can be used to identify
the role and impact IT can have on your business.
 “We
have a philosophy where we look for
productivity and process enhancements wherever
we can. To a great degree that dictates the
technology solution rather than the other way
around” Cassese VP of business technology and
marketing research, Pfizer
Context
 Decision-making
 Competitive
 Value
chain
Environment
Decision Making

Decision ?

Decision Process
A university professor, who was previously a sailor, was
aware that ships are addressed as "she" and "her". He
often wondered what gender should be used to address
computers. To answer the question, he set up two groups of
computer experts.
The first was comprised of women, the second of men. Each
group was asked to recommend whether computers should
be referred to in the masculine or feminine gender. They
were asked to give 4 supporting reasons.
The women reported that computers should be
referred to in the masculine gender, because:
1. To get their attention, you have to turn them on
2. They have a lot of data, but are still clueless
3. They are supposed to help us solve problems, but
half the time they are the problem.
4. As soon as you commit to one, you realize that if
you had waited a little longer you could have had
a better model
The men concluded that computers should be referred to in
the feminine gender, because:
1. No one but the Creator understands their internal logic
2. The native language they use to communicate with other
computers is incomprehensible to everyone else
3. Even your smallest mistakes are stored in long-term
memory for later retrieval.
4. As soon as you commit to one, you find yourself spending
half your paycheck on accessories for it.
Simon’s Model of Decision Making
The Process
 Intelligence Activity

Design Activity

Choice

Review
 How
can IT be used to support the decision
process?
Competitive Strategies
 How
can a firm perform above-average in the long
run?
 Fundamental basis for sustainable competitive
advantage (Michael E. Porter)
• Low Cost
• Differentiation
• Focus
>
>
Cost
Differentiation
Porter’s Five Competitive Forces
New Entrants
Bargaining Power of Suppliers
Competitors
Substitute Products/Services
Bargaining Power of Customers
Competitors
 Value
proposition
 Cost leadership
 Differentiation
 Focus (cost or differentiation)
 Branding
 First mover advantage
Bargaining Power
 Buyers
have bargaining power where
• Multiple potential suppliers
• Buyer accounts for large proportion of the seller's
business
 Seller
can gain bargaining power by
• Introducing switching costs
• Reduces the number of possible suppliers (how?)
New Entrants
Establish
barriers to entry
• High entry cost (up-front investments)
• Economies of scale
• Economies of scope
• Branding
• Switching cost in monopolistic competition (lock-in)
• Risk of retaliation
Substitutes
Threats
of substitute products countered by
• introducing switching cost
• providing a higher level of service
>convenience
(e.g., one-stop shopping)
>after-sales service
• offering low price
>volume
discounts
 Does
IT play a role in above?
• Can IT build (lower) barriers to entry?
• Can IT build in Switching costs?
• Can IT change the basis of competition?
• Can IT change the balance of power in supplier
relationships?
Example
 Kalamazzo,
Michigan a city with 125,000 has two
hospitals, Borgess MedicalCenter and Bronson
Methodist Hospital. Both of which are competing
for the same patient pool. Both of them want to
increase its inpatient pool.
 Borgess Medical Center asked themselves How
can we get an increasing share of a decreasing
market?
 Who
is the hospital’s customer?
 Physician or patient?
 Borgess Medical Center came to the conclusion
that physicians are the customers.
 Goal how does one increase customer loyalty?
 Borgress’s solution
 Gave
each physician a computer and software free
in their offices at no cost.
 Software included patient billing, appointment
scheduling etc.
 PC connects to the hospitals system for scheduling
admissions and operating rooms.
 PC for access to results of lab tests.
 Physician referral service.
 Result 18% increase operating revenues.
 5% increase in admissions when there is decline
elsewhere.
The Value Chain
 What
is the value chain?
 What is its significance?
 What is the role of IT within the value chain?
SUPPORT
ACTIVITIES
The Value Chain
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT
PRIMARY
ACTIVITIES
MARGIN
INBOUND
LOGISTICS
OUTBOUND
LOGISTICS
OPERATIONS
SERVICE
SALES &
MARKETING
Source: Porter, Michael E.
Competitive Advantage: Creating and sustaining superior performance
The Value System
Supplier Value
Chain
Upstream Value
Firm Value
Chain
Buyer Value
Chain
Channel Value
Chain
Downstream Value
Source: Porter, Michael E.
Competitive Advantage: Creating and sustaining superior performance
Inbound Logistics
 Receiving
raw materials
 Inbound inspection
 Material handling and inventory control systems
 Raw material warehousing activities
Operations
 Develop
and Maintain Facilities
 Schedule Operations
 Assemble Parts
 Manufacture Products/Deliver Services
 Efficiency of plant layout and work-flow design
 Maintain Inventory
Outbound Logistics
 Finished
goods warehousing activities
 Process customer orders
 Schedule deliveries
 Distribution (& Shipping) of finished goods and
services
Marketing and Sales


Market Research
• Identify new products & services
• Identify customers
• Understand customer needs
• Forecasting
Develop & Maintain Markets
• Sales promotion and advertising
• Pricing strategies
• Evaluate alternative distribution channels
• Motivate and evaluate sales force
Customer Service
 Provide
replacement parts
 Repair services
 Handle warranty and guarantee policies
 Customer education and training
 Solicit customer feedback for product
improvement
Human Resource Management
 Recruiting,
hiring, training, and promotion of
employees
 Reward systems for motivating and challenging
employees
 Ensure work environment to minimize absenteeism
and keep turnover at desirable level
Technology Development
 Improve
products and processes
• R&D
• Improved maintenance, packaging, testing, material
handling, work flow
Procurement
 Develop
sources of inputs
 Procure raw materials
 Procure plant, machinery, and buildings
 Evaluate lease vs. purchase decisions
 Facilitate long-term relationships with reliable
suppliers
Firm Infrastructure
 Strategic
planning
 Accounting and finance
 Legal and environmental
 Total quality management
 Coordination and integration of all activities in the
value chain
Linkages in the Value Chain
 Functions
are inter-related
• Improving raw material quality may reduce
manufacturing costs
 Linkages
can be to external entities
SUPPORT
ACTIVITIES
Cost Maps
FIRM INFRASTRUCTURE (3%)
HUMAN RESOURCE MANAGEMENT (7%)
TECHNOLOGY DEVELOPMENT (5%)
PROCUREMENT (4%)
PRIMARY
ACTIVITIES
MARGIN
INBOUND
LOGISTICS
(8%)
OUTBOUND
LOGISTICS
(9%)
OPERATIONS
(43%)
SERVICE
(8%)
SALES &
MARKETING
(13%)
Source: Porter, Michael E.
Competitive Advantage: Creating and sustaining superior performance
Porter and Millar’s Five-Step
Process
 Assess
information intensity
 Determine the role of IT
 Identify and Rank ways in which IT can provide
competitive advantage
 Can IT help spawn new businesses
 Develop a plan for taking advantage of IT
Exercise
•
Groups that end with even numbers should consider Amazon and
groups that end with odd numbers should consider Barnes and
Noble (brick and mortar version). Address the following issues
within the context of the value chain:
>
>
>
>
What is the product being sold?
Describe what the primary value activities mean as it pertains to your
organization, e.g.what does inbound logistics mean for your business?
Identify the specific activities that you would need to perform within
the generic primary activities of the value chain.
In your opinion which of the primary activities have the highest
percentage cost and what would be its cost drivers? Which of the
secondary activities would have the highest percentage cost?
Identify three IT implementations that could reduce the cost or provide
additional value.