MIS 204 - Chapter 3

Value Chain Linkages

-Interactions across value activities readily supported by information systems -Manufacturing systems use linkages to reduce costs Sales forecasts to plan production > Production plan used to determine raw materials needs > Material needs used to schedule purchases > Just-in-time inventory > Reduced inventory sizes and costs

Three examples of Business Processes for Bicycle Manufacturer

1. Materials ordering process transforms cash into raw materials inventory 2. Manufacturing process transforms raw materials into finished goods 3. Sales process transforms finished goods into cash

Improved Ordering Process

Purchase Bicycle Parts activity queries both raw materials inventory database and finished goods inventory database

How Does an Actual Company Use IS to Create Competitive Advantages?

ABC, Inc., an actual company, created competitive advantage in shipping industry by: -Superior customer service -Making it easy fro customer to do business by minimizing data entry: > Drop-down lists, automatic fill-ins, contact lists for customers >Minimizing data-entry errors Examples: 1. Web Page to select recipient from customer records 2. Web Page to select contact from customer records 3. Web Page to specify Email Notification 4. Web Page to Print a Shipping Label

Q8: 2021? What Does Flextime look like in 2021?

Assume FlexTime keeps pace w/ emergin research on opitmal workout schedules www.angelfire.com/wa3/loserschallenge/cardio.html www.sportsci.org/jour/0101/cf.htm Optimist View: -Could develop information systems to track client workouts and intensity, then relate data into net cardiovascular benefits -Could correlate workout data w/ dietary data and client weight loss/gain -Maybe provide data to medical insurers and help its active clients to obtain reductions in medical insurance premiums -FlexTime could, BUT SHOULD IT? Is it worthwhile for FlexTime to develop such systems?

Q5: How do Business Processes Generate Value?

Business process Cost of a business process Margin of a business process Activity Resources Facilities store resources

How Does ABC's System Create a Competitive Advantage?

Enhancing existing products Differentiating products Locking in customers Raising barriers to market entry Increasing profit margins by decreasing costs and decreasing errors

Q2: What Five Forces Determine Industry Structure?

Force: 1. Bargaining power of customers 2. Threat of substitutions 3. Bargaining power of suppliers 4. Threat of new entrants 5. Rivalry

Competitive Advantage via Business Processes

Lock in Customers -By creating high switching costs Lock in suppliers -Make it easy to connect to and work with your organization Create entry barriers Establish alliances Creating better business Processes

Three Business Processes 2

Notice activities get data resources from databases and put data into databases Business processes vary in cost and effectiveness. Streamlining business processes to increase margin (add value, reduce costs, or both) is key to competitive advantage Example of using a linkage across business processes to improve process margin: - Querying both databases allows purchasing department to make decisions on raw materials quantities and customer demand -With this data, purchasing can reduce size of raw materials inventory, reducing production costs and add margin to value chains

Bottom Line

Organizations analyze their industry and choose a competitive strategy Given a strategy, business processes to span value-generating activities are designed Those processes determine scope and requirements of each organization's information systems

Q1: How Does Organizational Strategy Determine Information Systems Structure?

Organizations examine the structure of their industry and determine a competitive strategy Competitive strategy determines value chains determines business process Structure of business processes determines design of supporting information systems Industry structure > Competitive Strategy > Value Chains > Business Processes > Information Systems

Q8: 2

Pessimistic View: Suppose economic downturn proves too much for FlexTime and it is forced to reconfigure into a shadow of former self: -No longer a single business entity. Maybe it becomes a federation of trainers, workout spaces, dietitians, and recreational sports leagues -Federation uses free data storage, data communication, and emerging collaboration tools and systems to appear as a virtual organization to clients, but it is composed of independently owned and operated small business entities. -Who knows?

Q3: How Does Analysis of Industry Structure Determine Competitive Strategy?

Porter's Four Competitive Strategies

Q7: How do Information Systems Provide Competitive Advantages?

Product Implementations: 1. Create a new product or service 2. Enhance products or services 3. Differentiate products or services Process Implementations: 4. Lock in customers and buyers 5. Lock in suppliers 6. Raise barriers to market entry 7. Establish alliances 8. Reduce costs

Support Activities in the Value Chain

Support Activity + Description: -Technology: R & D, New Techniques, methods, procedures -Procurement: Raw Materials -Human Resources: Training, recruiting, compensation -Firm Infrastructure: General Management, Finance, Accounting, Legal, Gov Affairs

Q4: How Does Competitive Strategy Determine Value Chain Structure?

VALUE: is amount of money a customer is wiling to pay for a resource, product, or service. Difference between value an activity generates and its cost is called MARGIN Primary Activity + Description -Inbound Logistics: Receiving, storing, and disseminating inputs to the product -Operations/Manufacturing: Transforming inputs into the final product -Outbound Logistics: Collecting, storing, and physically distributing the product to buyers -Sales and Marketing: inducing buyers to purchase the produce and providing a means for them to do so -Customer Service: Assisting customer's use of the product and thus maintaining and enhancing the product's value