Information Systems Today: Chapter # 2

Information Systems Today
Eighth Edition
Chapter # 2
Gaining Competitive
Advantage Through
Information Systems
Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Learning Objectives
•
2.1 Discuss how information systems can be used for automation,
organizational learning, and strategic advantage.
•
2.2 Describe how information systems support business models used by
companies operating in the digital world.
•
2.3 Explain why and how companies are continually looking for innovative ways
to use information systems for competitive advantage.
Enabling Organizational Strategy through
Information Systems (1 of 2)
• Learning Objective: Discuss
how information systems can
be used for automation,
organizational learning, and
strategic advantage.
• Organizational Decision-Making Levels

• Organizational Functional Areas
• Information Systems for Automating: Doing things Faster
• Information Systems for Organizational Learning: Doing Things Better
Enabling Organizational Strategy through
Information Systems (2 of 2)
• Information Systems for Supporting Strategy
• Identifying Where to Compete: analyzing Competitive Forces
• Identifying How to Compete: Choosing a Generic Strategy
• Identifying How to Compete: Resources and Capabilities
• Identifying How to Compete: Analyzing the Value Chain
• The Role of Information Systems in Value Chain Analysis
• The Technology/Strategy Fit
Organizational Decision Making Levels
• Executive/Strategic
Level
– Upper Management
• Managerial/Tactical
Level
– Middle Management
• Operational Level
– Operational
Employees, Foremen,
Supervisors
Operational Level
Managerial/Tactical Level
Executive/Strategic Level
Organizational Functional Areas
Information Systems for Automating: Doing
Things Faster (Table 2.2)
Primary Activity Manual Loan Tech-Supported Fully Automated
Process (Time) (Time) Process (Time)
Complete and Complete at home Complete at home Completed online (15
submit application (1.5 days) (1.5 days) minutes)
Check application for Done in batches Done in batches (2.5 Computerized (1 sec)
errors (2.5 days) days)
Input data into the N/A some paper Done in batches NA (already done)
information system handling (1 hr) (2.5 days)
Assess loan apps Done by hand Computer assisted Computer processed
under $250K (15 days) (1 hr) (1 sec)
Committee decides if (15 days) (15 days) (15 days)
over $250K
Applicant notified Batches (1 week) (1 day) E-mail (1 sec)
Total time 25 to 40 days 5 to 20 days 15 min to 15 days
Information Systems for Organizational
Learning: Doing Things Better
• Information systems can track and identify trends
and seasonality
• Managers can use this to plan for timely staffing
and training of personnel
Information Systems for Supporting
Strategy: Doing Things Smarter
• Firms have a competitive strategy
• Information systems should be implemented to
support the organization’s strategy
– A strategic mentality towards information systems
results in finding ways to use information systems to
achieve a chosen strategy by innovation, streamlining
operations, or optimizing the value chain
– A strategic view of information systems results in
creating a computer based loan application process to
process loans faster and better than rivals
Identifying Where to Compete: Analyzing
Competitive Forces
Identifying Where to Compete: Analyzing
Competitive Forces (Table 2.3)
Competitive Force Implication for Firm Internet influence on
Competitive Force
Rivals within your Competition in price, Geographic reach, ease of
industry product distribution, and product comparison, price
service competition
New Entrants Increased capacity in Reduced entry barriers and
industry, reduced prices and eased critical resource access
market share
Customer’s bargaining Reduced prices, demand for Wider customer choices, lower
power better quality service switching costs, higher customer
bargaining power
Supplier’ bargaining Increased costs and Equalized access to suppliers
power reduced quality
Threat of substitute Potential returns on product, New substitutes created by
products decreased market share, Internet and IT
customer loss
Identifying How to Compete: Choosing a
Generic Strategy
Identifying How to Compete: Resources and
Capabilities (Resources)
• Resources — Reflect the organization’s specific

assets that are utilized to achieve cost or
differentiation from it’s competitors
Identifying How to Compete: Resources and
Capabilities (Capabilities)
• Capabilities — Reflect the organization’s ability to

leverage their resources in the marketplace
Identifying How to Compete: Analyzing the
Value Chain
• Value Chain Analysis
– The process of analyzing an organization’s activities to
determine where value is added to products or services
– Used to identify opportunities where information
systems can be used to gain a competitive advantage
The Role of Information Systems in Value
Chain Analysis
The Technology/Strategy Fit
• Organizations are constrained by time and money to
build or acquire only those systems that add the
most value
• Therefore, organizations try to maximize business/IT
alignment
• In any significant IS implementation, there must be
commensurate, significant organizational change
– This typically comes in the form of business process
management (a method of improving functioning of an
organization)
Business Models in the Digital World (1 of 2)
• Learning Objective: Describe how information
systems support business models used by
companies operating in the digital world.
• Revenue Models in the Digital World

• Platform-Based Business Models and the Sharing Economy
• Service-Based Business Models
A business model is a summary of a business’s strategic

direction that outlines how the objectives will be achieved
Business Models in the Digital World (2 of 2)
• A business model reflects the following:
1. What does a company do?
2. How does a company uniquely do it?
3. In what way (or ways) does the company get paid for
doing it?
4. What are the key resources and activities needed?
5. What are the costs Involved?
Revenue Models in the Digital World
• A revenue model describes how the firm will earn
revenue, generate profits, and produce a superior
return on invested capital
Revenue Models
• Affiliate marketing • Transaction fees/Brokerage
• Advertising • Traditional sales
• Subscription • Freemium
• Licensing
Freemium
• Freemium is a marketing approach companies use to

obtain customers by offering something for free to build a
large customer base and then charge a premium for
unrestricted versions with more functionality
Platform-Based Business Models and the
Sharing Economy
• A digital platform enables other businesses or users to co-
create value as seen in the examples below:
Value Created/Exchanged Examples

Products Amazon Marketplace, eBay
Services Airbnb, Uber
Payments Square, PayPal
Investments and funding Kickstarter, Lending Club
Content Wikipedia, Twitter, YouTube
Communication WhatsApp, Skype
Collaboration Dropbox
Social relationships Facebook, LinkedIn
A Sharing Economy
• A sharing economy has been defined as “an economic system in
which assets or services are shared between private individuals,
either free or for a fee, typically by means of the Internet
(Oxford Dictionary, 2016)
Service-Based Business Models
• Under a service-based business model, a manufacturer
can offer equipment services as well as the product
• For example, Rolls-Royce

might sell jet engines near
cost in a competitive
market with the real
revenue coming from the
maintenance contracts to
service those engines
Valuing Innovations
• Learning Objective: Explain why and
how companies are continually
looking for innovative ways to use
information systems for competitive
advantage
• Innovation is key for organizations attempting to gain or sustain a
competitive advantage
• Innovation involves creating new products or services that return
value to the organization
• Radical innovations, also known as disruptive innovations, use a
markedly new or different technology to access new customer
segments and significantly greater benefits
Predicting the Next New Thing
Above are examples of some new technologies and systems
Successful Innovation is Difficult
• Innovation is often fleeting
• Innovation is often risky (such as the battle between HD-DVD
and Sony’s Blu-ray son by Blu-ray)
• Innovation choices are
often difficult
• Open innovation can
prove to be beneficial
when you integrate
external stakeholders
into the innovation
process
Organizational Requirements for
Innovation
• Process Requirements
– Focus on success over other objectives
• Resource Requirements
– Employees with knowledge, skill, time, and resources
– Partner with appropriate resources
• Risk Tolerance Requirements
– Tolerance for risk
– Tolerance for failure
Organizing to Make Innovation Choices
• A book, The Innovator’s Solution, by Christensen
and Raynor (2003) outlines a process called the
disruptive growth engine that organizations can
follow to more effectively respond to radical
innovation in their industry. This process has the
following steps:
1. Start early
2. Display executive leadership
3. Build a team of expert innovators
4. Educate the organization
Implementing the Innovation Process
Thinking About Investments in Radical
Innovation
• The disruptive innovation cycle suggests three new
ways to think about investments in radical innovation:
1. Put Technology Ahead of Strategy
 Because of importance you must begin with technology
 You must begin by understanding technology and develop a
strategy from there
2. Put Technology Ahead of Marketing
 Marketing comes into play later in this model
3. Innovation is Continuous
 Emerging technologies are constantly on the lookout for the
next new thing
Crowdfunding
• Crowdfunding is
the securing of
business financing
from individuals in
the marketplace to
fund an initiative
END OF CHAPTER CONTENT
Managing in the Digital World: Startups
and New Business Models
• Information technology has enabled new business
models:
– Operating a platform (enables other businesses/users to co-
create value)
– Cutting out the middleman (bypassing traditional retail
channels and interacting directly with customers)
 Ex: Warby Parker (eyeglass vendor) and Casper (mattress
seller) use technology to disrupt traditional distribution
channels and directly connect with buyers
– Selling subscriptions (facilitated by technology through the
removal of friction from the transaction using online forms)
– Providing on-demand services
Green IT: The Electric Navy
• New navy ship, USS Zumwalt, uses a hybrid
propulsion system
– Allows for more efficient generation and flexible
distribution of power between propulsion, sensors, and
weapon systems
– Modern navy combat is as much about
technology as it is brute force
– Also investigating biofuels as a greener more
available solution
Who’s Going Mobile: Digital Nomads
• Digital Nomads — People who live and work wherever
they feel like, using the Internet and mobile technology
to connect with their customers or employers
– Location must be appealing place to live and work
– Low cost of living
– Good weather
– Good connectivity using Wi-Fi or cellular networks
– Some changes
 Must be conducive to the work style and skill set
 Maintain good relationship with customers or employers
 Must be able to build and maintain networks
When Things Go Wrong: The Pains of Uber
in China
• Didi Kuaidi, formed by rival taxi-hauling services
Alibaba and Tencent (two of China’s Internet giants)
competed directly with Uber (later renamed Didi
Chuxing)
– Actually disrupted Uber by offering customers a choice
between a taxi, private car, shared car, shuttle van or bus
– Arranged more than 1.4 billion rides since its inception
(more than Uber did worldwide since its founding)
– Plans to expand in the future to include car loans to drivers,
passengers booking test drives of new cars, and match-
making by allowing drivers and passengers to select each
other
Ethical Dilemma: The Ethics of the Sharing
Economy
• Uber and Airbnb are providing a service bypassing the
middleman thus providing a service in the sharing
economy by removing transactional friction from markets
for services that are already permissible by law
– Unregulated like taxis and hotels are
– Not subject to controlled markets
• The challenge remains that the existing laws and

regulations framework provide for and protect existing
economic stakeholders
– Are these ethical? Existing stakeholders will not take this
lying down
Coming Attractions: The CITE Project
• CITE (The Center for Innovation, Testing, and
Evaluation) is designed to be a full scale city (without
residents) designed to be a realistic test for emerging
technologies
– Built in the desert of New Mexico close to Mexico
– Allow new innovations to be tested at scale with minimal risk
to the public
– Will include self-driving cars, smart homes, advanced
thorium-based power supplies
– Major challenge is finding unintended consequences when
real people are allowed to use, misuse, and abuse them
Security Matters: The Bangladesh SWIFT
Theft
• SWIFT (The Society for Worldwide Interbank
Telecommunications) is an organization that enables
banks to rapidly clear financial transactions on a
global scale.
– Owned by its member banks who pay a fee
– Organized since 1970 linking 9,000 banks in 209 countries
• In 2016, attackers penetrated the central banking

system of Bangladesh and used SWIFT to transfer
US$81 million dollars
– They used malware to cover up their activity
Industry Analysis: Education
• Cost of higher education in the United States has steadily
increased (16% every five years)
• Average college graduate owes $37,000 in student loans
• Trend in globalization—increased collaboration in research
and curriculum
• Trend in online delivery—leads to cost savings, but may be
less engaging to students
• Massively open online courses (MOOCs)—free to students
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Information Systems Today

• Organizational Decision-Making Levels

• Resources — Reflect the organization’s specific

• Capabilities — Reflect the organization’s ability to

• Revenue Models in the Digital World

A business model is a summary of a business’s strategic

• Freemium is a marketing approach companies use to

Value Created/Exchanged Examples

• For example, Rolls-Royce

Above are examples of some new technologies and systems

• The challenge remains that the existing laws and

• In 2016, attackers penetrated the central banking

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