MIS Ch: 2

When companies are pursuing a Global business strategy

, their products are deliberately developed for a global market. This is differs from the home-replication strategy, where products are developed for the home market then offered up for export. In the global strategy the product is intended for a global audience and designed to appeal across the global audience. This requires subsidiaries providing extensive feedback to the home office to ensure an understanding of how the product is being received. This strategy doesn't allow for localization of the product to appeal to specific markets, the focus is rather a global product appealing across many markets.

Freeconomics: Cross-subsidies

A freeconomic cross-subsidy occurs when a company provides one product for free while enticing or forcing recipients to purchase another product. Consumers can file their federal tax form for free using TurboTax, which is subsidized by consumers who pay for the state form. They can also receive a free phone by signing up for a phone plan

Apple and Successful Innovations

Apple I (1976) Apple's first computer Mostly, a computer for hobbyists and engineers It sold for $666.66 Buyers had to add a keyboard, display, power supply, and storage system Apple II (1976) Apple's first mass-market computer Ready to run out of the box One of the most popular computers ever Macintosh (1984) Apple's second GUI-based personal computer Successful because Apple learned from its mistakes with the Lisa The Mac was built with a GUI interface, but was faster and cheaper than the Lisa iMac (1998) An easy-to-use computer for first-time computer buyers who wanted internet access iPod (2001) Changed the way people listen to music This successful portable music player paved the way for iTunes and the iPhone iTunes (2001) iTunes simplified the process of buying digital music It sold tracks from all major music labels In 2008, became the largest music retailer in the US iPhone (2001) The iPhone allowed users to control the phone using a buttonless interface It shares some similarities with the Newton MessagePad 1.7 million fourth-generation iPhones sold in the first three days iPad (2010) The iPad is a nice middle ground between a cell phone and a personal computer Apple took only 28 days to sell a million iPads iPad sounds much better than Internet Protocol Adapter

Apple and Failed Innovations

Apple III (1981) Unreliable hardware doomed sales Lisa (1983) The $9,995 price was too much for most consumers in 1983 The system was slow Reports indicate that unsold Lisas ended up in a Utah landfill Apple IIc (1984) The "c" stood for compact (this was meant to be a portable computer) The screen was very hard to read in low light It had limited upgradability MessagePad (Newton) (1987) The first PDA—was an idea ahead of its time It's handwriting recognition feature was poor The Newton never achieved enough success to continue production Macintosh TV (1993) It was unable to show television feeds in a desktop window It also had inadequate graphics performance Pippin (1995) Apple's game console that tried to go head-to-head against Nintendo, Sega, and the Sony Playstation The Pippin lacked sufficient software TAM (1997) The TAM was overpriced and underpowered It failed to provide new technology Puck Mouse (1998) It got it's name from it's hockey puck shape This mouse was difficult to use The Cube (2000) Despite Steve Jobs describing the Cube as "simply the coolest computer ever," sales were very weak The Cube was too expensive iTunes Phone (2005) The iTunes phone held only 100 songs The transfer between phone and computer was very slow It could not download music over a cellular network Apple TV (2007) Apple TV was expensive and complicated iTunes movies were low resolution The 2010 Apple TV was much better Cheaper Connected directly to the internet MobileMe (2009) The related collection of online services had many problems when first offered The $99 per year subscription price was more than most consumers wanted to pay MobileMe was replaced by iCloud, which is better

Business Value Added

Automating lowerst Learning Median Stategizing highest

Major IS Tasks: Business Value Added

Automating: Doing Things Faster Organizational Learning: Doing Things Better Supporting Strategy: Doing Things Smarter

Organizational Decision-Making Levels

Executive/Strategic Level Upper Management Managerial/Tactical Level Middle Management Operational Level Operational Employees, Foremen, Supervisors

Pursuit of Competitive Advantage

Best-made product Superior customer service Lower costs than rivals Proprietary manufacturing technology Shorter development/test lead times Well-known brand name More value for the money

Global Business Strategy

Centralized organization with standardized offerings across markets Strengths: standardized product offerings allow achieving economies of scale Weakness: inability to react to local market conditions Appropriate use: homogeneous markets Centralized systems, networks and data sharing between home office and subsidiaries

The Innovator's Solution

Christensen outlines a process—disruptive growth engine—that helps organizations respond to disruptive innovations more effectively. Start early. Executive leadership. Build a team of expert innovators. Educate the organization

Freeconomics: Freemium

Common freemium examples include services such as Dropbox , Spotify, and Acrobat Reader. According to one researcher, a free user (one who pays nothing to use the service) is expected to be worth 15% to 25% the value of a premium subscriber, with much of that value being the result of free users recommending the service to other people (some of whom become premium subscribers). In contrast to early adopters who are more likely to become premium subscribers, late adopters are more likely to be free users. So some freemium companies keep adding new premium features to try to encourage these price sensitive free users to purchase a premium subscription.

Components and E-business Revenue of a Business Model

Components: Customer segments Value proposition Channels Customer relationships Revenue streams Key resources Key activities Key partners Cost Structure Revenue Model: Affliate Marketing Subscription Licensing Transaction fees and Brokerage Traditional sales Web advertising

Operational Level

Day-to-day business processes Interactions with customers Decisions: structured, recurring, and Often automated using IS. IS used to: optimize processes, and understand causes of performance problems

Predicting the Next New Thing

Deciding which innovations to adopt is very difficult. Diffusion of Innovation Classic view of adoption of innovations

The Innovator's Dilemma

Disruptive innovations: New technologies, products, or services that eventually surpass dominant technologies Undermine effective management practices

Multidomestic Business Strategy

Federation of associated business units; decentralized Strengths: ability to quickly react to local conditions Weakness: differing product offerings limit economies of scale, and limited inter-unit communication limits knowledge sharing Appropriate use: very heterogeneous markets Decentralized systems, bidirectional communications, local databases

Assessing Value for the IS Infrastructure

Economic Value Direct financial impact Architectural Value Extending business capabilities today and in the future Operational Value Enhancing ability to meet business requirements Regulatory and Compliance Value Complying with regulatory requirements

Home-Replication Strategy

Focused domestically, homogenous markets International business an extension of home business Focus on core home market competencies Inability to react to local market conditions Domestic systems, limited communication, local databases

quiz

For example, structured decisions are associated with the operational level since this level most frequently makes decisions in which "the procedures to follow for a given situation can be specified in advance." Transaction processing systems are frequently used at the operational level. When you go through the checkout at most stores, a type of transaction processing system is used that's called a point of sale (POS) system. This POS system assists with structured decisions related to addition (e.g, ringing up your items), subtraction (e.g., deducting coupons), and multiplication (e.g., calculating sales tax). Question 2 Porter's five-forces model of competition can help you determine which specific technologies will be useful, depending on the nature of your industry. This can aid you in identifying particular investments, including IT investments. In value chain analysis, one draws the value chain for one's organization, determines the costs and factors behind the costs (do this for each area in the value chain diagram), compares one's costs to those of one's competitors, and then make the appropriate changes. Some of those changes will likely involve information systems.

Freeconomics

Freeconomics—The leveraging of digital technologies to provide free goods and services to customers as a business strategy for gaining competitive advantage.

Managerial Level

Functional managers Monitor and control operational-level activities Focus: effectively utilizing and deploying resources Goal: achieving strategic objectives Managers' decisions Semistructured Moderately complex Time horizon of few days to few months IS can help with: performance analytics (dashboards), predictive analysis, and providing key performance indicators (KPI).

The four different types of international business strategy are

Home Replication, Global, Multidomestic, and Transnational. These strategies are designed to address different needs for local responsiveness, simplicity, and cost minimization. We will discuss each of them in depth in the next four slides.

A team put together the first IBM PC in about a year

IBM believed that any further delay would be too long. The team found computer component manufacturers in East Asia that could build components to IBM's specifications

The IBM PC story is an interesting contrast to that of DEC, since both companies declined to participate in the disruptive innovation (the personal computer) in the early years

IBM was able to overcome its mistake, while DEC was not: The difference may be related to IBM's advantages (see the previous slide) The DEC experience is more common than the IBM one

Disruptive Innovations the IBM PC

In 1981, the IBM PC was first sold. Due in part to IBM's dominance, reputation, and deep pockets, IBM became the leading personal computer manufacturer.

Freeconomics: Gift Economy

In a gift economy, one delivers a good or service, despite failing to receive an explicit agreement for recompense. When on Amazon, one answers a consumer's question or writes a review for a product one purchased at Amazon, one is participating in the gift economy. The lack of explicit two-way exchange does not mean the giver receives no benefit. For example, givers can know that they will benefit thanks to the gifts (answers and reviews) given by other givers.

Freeconomics: Labor Exchange

In labor exchange, one performs service within the framework that includes an explicit agreement for recompense. For example, labor exchange occurs when a massively multiplayer online role-playing game (MMORPG game) allows users to participate in a weekend beta event. The company benefits since user labor (playing the game) becomes part of the testing process, and in exchange the users get to play the game.

Successful Innovation Is Difficult

Innovation Is Often Fleeting The pace of change is fast Smart rivals quickly adopt any advantage Innovation Is Often Risky Competing Technologies result in a winner and a looser (e.g.: Blu-Ray and HD DVD) Innovation Choices Are Often Difficult It is impossible to pursue all opportunities It is hard to predict which opportunities will lead to success

It is difficult to predict the next innovation that will provide a long term competitive advantage, but there are a few things to keep in mind

Innovations based on a purchased technology can often be purchased by competitors, and those based on a developed technology can be imitated or copied. To provide long term advantage the innovation needs to form the basis for or incorporate something that competitors can't readily acquire or develop. This could be something based on customer data that competitors can't readily acquire, such as unique customer service. Sometimes a company can develop a technology that customers buy into and then are locked into with high switching costs. While this can be effective, some customers will view it as a trap and avoid it. Finally, companies can develop sophisticated technologies that are very difficult to copy or have a very high cost to duplicate. All of these can result in a company having a long term competitive advantage.

Identifying Where to Compete: Analyzing Competitive Forces

Level of Industry Competitiveness Rivalry Among Existing Firms Threat of New Entrants Bargaining Power of Buyers Threat of Substitute Products or Services Bargaining Power of Suppliers

Disruptive Innovations the IBM PC

Like DEC, IBM studied the market to see if it should build personal computers—and like DEC, IBM decided not to. IBM believed that its customers would continue to insist upon reliable IBM mainframes, not unreliable personal computers. Also, IBM, which enjoyed high profit margins with its mainframe computers, did not want the thin profit margins of personal computers.

Predicting the Next New Thing

Many innovations can be copied: Limited time span of any advantage May become a requirement for staying competitive Some innovations deliver longer advantages: Unique customer service based on customer data High levels of customer investment in proprietary systems - high switching costs Technologies that are very difficult to copy

IBM's success with the personal computer lasted slowed greatly in the late 1980s

Other computer manufacturers stopped building their computers to IBM's changing standards These manufacturers instead followed the leads of Intel and Microsoft IBM's personal computers became less reliable following IBM's decision to place used components in new personal computers

Organizational Functions and Functional Levels

Pic 1

Using IS to Combat Competitive Forces

Pic 2

Applying Freeconomics in the Digital World

Pic 3

Identifying How to Compete: Analyzing the Value Chain

Pic 3

Organizational Requirements for Innovation

Process Requirements Focus on success over other objectives Resource Requirements Employees with knowledge, skill, time & resources Partner with appropriate requirements Risk Tolerance Requirements Tolerance for risk Tolerance for failure

Purchasing departments at mid to large companies typically bought IBM or Compaq personal computers

Purchasing agents at large companies were afraid of being blamed for buying unreliable computers, so they bought the personal computers with the best reputation at that time.

Three Ways to Think About Investments in Disruptive Innovations

Put technology ahead of strategy. Technology is so important to success, it needs to be considered first. Strategy is developed afterwards. Put technology ahead of marketing. Rapid development of technology makes it impossible for people to know what they want. Innovation is continuous. New technologies are constantly being developed

Transnational Business Strategy

Some aspects centralized, others decentralized; integrated network Strengths: can achieve benefits of multidomestic and global strategies Weakness: difficult to manage; very complex Appropriate use: integrated global markets Distributed/shared systems, enterprise-wide linkages, common global data resources

Freeconomics: Zero Marginal Cost

Some bands have given away free music to entice consumers to purchase additional music, concert tickets, and merchandise. This model can work due to the marginal cost of distributing the music being close to zero. Radiohead released In Rainbows, allowingconsumers to pay any or no amount. Despite many free downloads, Radiohead earned more from that album than from all of its previous albums combined. Nine Inch Nails made nine tracks free from their album Ghosts I-IV. On the first day of the release, digital sales on Amazon reached $1 million, while the first week sales on nin.com was $1.6 million

Value Chain Example

Starbucks - Inbound Logistics Starbucks buys coffee beans from farms, transports the beans to storage sites, roasts and packages them, and then sends them to distribution centers Starbucks - Operations Starbucks owns or licenses stores in over 21,000 stores in 65 countries. In 2013, company-owned stores generated about 79% of total net revenue, while licensed stores generated 9%. Starbucks - Outbound Logistics Starbucks sells most of its product in its owned and licensed stores. A smaller amount of its coffees are sold through some major retailers Starbucks - Marketing and Sales Starbucks advertises less than do comparable companies. Brand recognition also occurs through word-of-mouth and in store experiences (e.g., enjoyable atmosphere, interactions with employees, sampling new products, etc.). Starbucks - Service Starbucks retail objective is "to be the leading retailer and brand of coffee in each of our target markets by selling the finest quality coffee and related products, and by providing each customer a unique Starbucks Experience." Starbucks - Infrastructure Starbucks infrastructure includes the departments that maintain the operations of the stores. These departments include finance, legal, etc Starbucks - HR Management Starbucks commitment to its employees (e.g., training, incentives, tuition assistance, etc.) has resulted in a relatively low turnover rate for its industry Starbucks - Technology Development Technology is used throughout the coffee-related processes, and to connect with its employees and customers. Starbucks has also implemented e-commerce activities, including purchase, notification, and payment. Starbucks - Procurement Starbucks buyers purchase coffee directly from farms in Asia, Africa, and Latin America. While this raises costs, Starbucks feels it's necessary to maintain the quality of their coffee

Innovation isn't something every company can do

The company has to have an organization and process that allows innovation to move forward and not get caught up in office politics and competing agendas. If a company decides to pursue innovation, it either needs the resources in-house or needs to contract with a partner that has the appropriate resources. Finally, a company that doesn't allow risk taking and the occasional failure will punish people who try to take risks and innovate, and will soon stifle any possibility of innovation

Most businesses have three levels of management, with one or more layers of managers in each level

The executive management includes top tier management focused on long-term strategic business decisions such as how to compete, price versus quality, and what countries to do business in. Middle or tactical management is focused on running the organization to meet the strategic goals, and typically has a management timeframe of 3 to 12 months. Typical decisions might include where additional stores in existing markets should be opened. Operational employees and management perform the day-to-day work of the organization, making decisions on a day-by-day basis. A shift manager at a Wal-Mart would be Operational Management, while a Store manager at a Wal-Mart would be at the lowest level of Middle or Tactical Management.

E-Business Innovation Cycle

The key to success is the extent of IS use in timely and innovative ways.

The Need for Constant IS Innovation

The most important discoveries of the next 50 years are likely to be ones of which we cannot now even conceive" John Maddox Transformation Technologies are difficult or even impossible to see coming Think of the Internet in 1999 Many of the critical discoveries in the next 50 years will be in areas we don't see coming

Executive Level

The president, CEO, vice presidents, board of directors Decisions Unstructured Long-term strategic issues Complex and nonroutine problems with long-term ramifications IS is used to: obtain aggregate summaries of trends and projections, and provide KPIs across the organization.

Information systems add value to companies in several ways

There are both direct financial impacts, and indirect impacts such as enabling an organization to make changes in the future or strengthening the business processes so organizations are readily able to meet business requirements without having to constantly make exceptional efforts. Finally there is the value of meeting current and future regulatory requirements.

International Business Strategies in the Digital World

There are four international business strategies Home Replication Strategy Multidomestic Strategy Global Strategy Transnational Strategy Each has pros and cons in terms of complexity, cost benefits, local responsiveness, and control

The Technology/Strategy Fit

There are never enough resources to implement every possible IS improvement Therefore, organizations try to maximize business/IT alignment This means matching the IT investment to the company's strategy e.g., don't invest in IS that maximizes product differentiation if your company's strategic focus is on being a low-cost leader Companies that focus on the improvements and business process management that help their value creation strategy the most will see the greatest competitive benefit

A business model reflects the following:

What does a company do? How does a company uniquely do it? In what way (or ways) does the company get paid for doing it? What are the key resources and activities needed? What are the costs involved

Information systems at the Managerial, or Tactical level

are focused on helping middle management exercise control more efficiently and effectively and on helping them make semi-structured decisions with better input and resources

Multidomestic companies take a

decentralized approach to running different subsidiary locations. Each location typically has a great deal of latitude in meeting local market needs. While multidomestic companies can successfully operate in very different cultures, there tends to be little sharing of lessons learned and best practices throughout the company, resulting in inefficiencies. The information systems of multidomestic companies also tend to be run by individual IS departments within each subsidiary.

Around 1980, after finding large numbers of personal computers in mid- to large-sized companies, IBM

decided to enter the PC market.

The most important ingredient for any organization

determining how to generate revenue. A revenue model describes how the firm will earn revenue, generate profits, and produce a superior return on invested capital.

Transnational companies take a

federated approach to management, meaning some aspects of the company are centralized, while other aspects are decentralized. What portions of the company are centralized and which are decentralized is based on what approach is necessary to maximize the return on shareholder investment, with products requiring significant localization to be successful often decentralized, while products or business functions that gain efficiencies from economies of scale and standardization being centralized. Different parts of the company may even be centralized in different countries to take advantage of cost savings. The Transnational strategy is sophisticated and complex, requiring extensive information sharing between different subsidiaries as well as between each subsidiary and the home location or locations. This communication is facilitated by information systems and the Internet.

Operational Level focuses

focus on process automation. This can include automating routine activities as well as automating and optimizing structured decisions (such as employee scheduling).

If a company wants to stay ahead of the competition

it needs to stay on top of the changing environment. This can require constant innovation, as the technologies in the world we live in keep changing in new and unexpected ways. Just as many companies in 1999 couldn't conceive of the Internet as it is today, we may be unable to conceive of how the Internet will look in 2020 or 2025.

home replication strategy is essentially focused

making products for the domestic market, and then selling them as exports to anyone who wants to buy them internationally regardless of how the products may or may not be suited for that different market.

There are multiple approaches to making freeconomics work

many of which result in significant profits for successful companies. The classic example is online search engines. The functionality of the search engines is given to users for free, but the use of the search engine Web site gives the search engine companies the opportunity to sell advertising to companies. The sale of advertising by the search engine can be particularly valuable because the advertising shown can be targeted based on the content of the desired search, making it more relevant for the user exposed to it.

The e-business innovation cycle is based

on choosing technologies, matching them to opportunities, and executing against the opportunity. After each execution there is an assessment phase where learning occurs, and then the process stares again. The most difficult part of the cycle is in Choosing the enabling/emerging technologies, which can be exceptionally difficult. Matching the selection with business opportunities is the next most difficult phase.

Information systems at the Executive level are focused

on helping executing managers understand the current business status through: executive information systems that often show aggregate business performance data, and through tools to support executing decision making such as forecasting and planning tools.

A business model is a summary of a business's strategic direction

outlines how the objectives will be achieved; a business model specifies the value proposition, as well as how a company will create, deliver, and capture value. Each component plays a critical role in shaping all aspects of the business.

Typical innovations are often

slow to take off, then are rapidly adopted, and finally there is a long tail of late adopters who slowly change over. The innovators may be adopting technology just to see if it's beneficial, while the majority are adopting it to take advantage of its benefits, and the laggards are slow to adopt despite the benefits they would see. While many technologies go through this cycle, disrupting innovations, discussed next, are different.

Disruptive Innovations can completely replace the technology

technology they are disrupting, and a failure to recognize that a disruptive innovation is changing the market can easily lead to a companies demise. With a disruptive innovation, companies may not be given the opportunity to be laggards.

It is important that when firms are choosing technologies to implement

they make sure the technologies support the business strategies already in place.

In freeconomic advertising

users receive a free web service at the cost of some web space being devoted to advertising.

How a company answers these questions dictates:

what industry the company is competing in, how competitive it is in that industry, what if any competitive advantage the company enjoys, and how profitable the company is or can be.