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Western University
Computer Science
Computer Science 1032A/B

Chapter 3 – Strategy, Info Systems and Competitive Advantage Productivity & Technology  Technology – its impact on economic productivity?  Stephen Roach (late 1980s) o Found no evidence of an increase in work productivity associated with the massive increase in investment in information technology  Robert Solow (Nobel Prize winning economist) o ‘We see computers everywhere, except in the productivity statistics’ o  computers perform a variety of tasks o These tasks are not done in any particular new or efficient manner o But rather they are only done faster  Productivity Paradox o Productivity growth has slowed while investments in informational technology have grown dramatically o Some take this as proof that information technology doesn’t affect productivity o Productivity grows slow against the time of technology increases o Still valid today  ITs impact o Productivity, value to business o Application of information technology improves productivity Value of an IT Investment  Productivity o Using IT allows company to produce more/better/faster output from the same inputs  Structure of competition o Using IT can alter the way corporations compete  End customer o Ability to provide cheaper and better goods & services as a result of IT and increased competition IS Improvement to Productivity  Increasing efficiency o Business process accomplished  Quicker/with fewer resources and/or facilities o ‘Doing Things Right’  Increased effectiveness o Company offers new or improved goods or services that is valued by the customer o ‘Doing the Right things’  Company may choose to focus on one of: o Doing things right o Doing the right things  Companies with LT success tend to focus on both effectiveness and efficiency Business Processes and Value Chains  Value chain is a network of value-creating activities o Primary activities o Support activities  Contains o At least one o Often many business processes  Each Business Process adds value o Chain of events  value chain o Example: trees  Vietnam  Canada  Factory  shipping  tire store  Car Primary Activities  5 activities o Inbound logistics  Receiving, storing and disseminating inputs to the product o Operations  Transforming inputs to the final product o Outbound logistics  Collecting, storing and physically distributing the product to the buyers o Marketing and sales  Inducing buyer to purchase product & providing a means for them to do so o Service  Assisting customer’s use of the product  Maintaining and enhancing the product’s value  Each stage o Accumulate costs o Value added to product o Difference is the margin  Price charge – cost of production Example: start a business that recruits students for summer jobs (Primary Value Chain)  Inbound logistics o Acquiring our raw materials (jobs) o Organizing job posting, making it easy to match student skills with job opportunityies o Easy of use for employers to provide info about job opportunities  Outbound logistics o Notifying the student of a job match o Receiving student’s job acceptance  Marketing and sale o Building awareness of the service to the students (customers)  Service Support Activities  4 activities o Firm infrastructure o Human resources o Technological development o Procurement  Contribute indirectly o Production, sales & service  Add value and costs (indirectly) o Difficult to calculate margin Linkages in the Value Chain  Interactions across value activities o Important sources of efficiencies o Readily supported by IS  New and improved Understanding the Value Chain  Help to understand how info systems increase productivity  Enable the development of more efficient or more effective supporting activities  Increase the margin enjoyed by company  Information systems increase productivity by offering new and improved services, primary activities Organizational Strategy & Industry Strategy  Organizational Strategy o Determines organization’s goals and objectives o Developed from organizational structure o Creates the value chain for organization o Establishes the structure, features, and functions of IS  Company’s Strategy o Directly influenced by the competitive structure of the company’s industry Porter’s 5 Competitive Forces  Bargaining power of customers  Threat of substitution  Bargaining power of suppliers  Threat of new entrants  Rivalry among existing firms  Intensity of each of these o Determines characteristics of the industry o Profitability o Sustainability of the profits  If something is strong, then we need to build strategies and systems to deal with the forces Competitive Strategy  Porter’s 4 competitive strategies o Cost Leadership  Across industry  Focused on particular industry segment  Lowest cost product or a product that will cost more that customers will want (differentiation) o Differentiation  Across industry  Focused on particular industry segment o Strategy: Cost Leader  Develop business activities as economical as possible o Strategy: Differentiation  Provide a net benefit or margin  Adding benefits not available from competitors at a premium price o Goals, objectives, culture, and activities must be consistent with org strategy o IS must facilitate the org’s competitive strategy o Once strategy formulated  Organize & structure organization  Implement strategy Cost Differentiation Industry-wide Lowest cost across the Better productive/service industry across the industry Focus Lowest cost within an Better product/service industry segment within an industry segment Bargaining power of customers – relatively strong  Students have many options for finding a job Threat of substitution – weak  Typically there is a great demand by students to find a summer job Bargaining power of suppliers – relatively strong  Suppliers: businesses that need summer workers  Employers have many ways of reaching a pool of students looking for summer work Threat of new entrants – somewhat strong Rivalry among exist firms – fairly strong  Competing on cost alone might not be profitable o Many services like this are free  Decide to use differentiation strategy o Use a segment of the students seeking summer employment  Web-based system to administer skills and interest survey o Assuring more successful placements Innovation & Info Technology  Changes (industry structure) occur through innovation  Sustaining technologies o Changes in technology that maintain the rate of improvement in customer value o Advances where we are (improves what we’re doing) o Example: vulcanization of rubber  better tires  Disruptive technologies o Intro of a new package of attributes to the accepted mainstream products o Example: MP3 format  disruptive to Music industry Info Systems & Industry Structure  Consider the importance of technology: o Rate of innovation (staggering) o Increase speed and increase memory  store and retrieve data quicker  Examples (competitive advantages): o Royal Bank & ATMs (first bank to have ATM) o RIM & The Blackberry o Competitive Advantage  new industry  Microcomputers: Microsoft, Intel, Apple, Oracle, Dell  Wireless Technology: RIM  Social Networking, Facebook, Myspace, Twitter Diffuse of Innovation  Theory defined by Everett Rogers  Innovation: “catches on” or diffuses through it  The process by which an innovation is communicated through certain channels over time among the members of a social system  Defined 5 stages of diffusion: o Knowledge, Persuasion, Decision, Implementation, Confirmation o Knowledge – first hear about innovation, not knowing much about it o Persuasion – interested in innovation, find out about innovation, with enough info move to next stage o Decision – consider pros and cons for adoption, adopt or reject o Implementation – use innovation o Confirmation – pleased with innovation, using it to its full potential Information Systems & Competitive Advantage  Examine the structure of their industry (industry structure) o Which one of the 5 forces to deal with (which are strong and weak)  Determine a competitive strategy/advantage (competitive strategy) o Cost or product  Which determines the value chains  Determines the business processes  Nature of business processes determines the structure of the IS Principles of Competitive Advantage  Product implementations o Create a new product/service o Enhance products or services o Differentiate products/services  System implementations o Lock in customers and buyers o Lock in suppliers o Raise barriers to market entry o Establish alliances o Reduce cost Competitive Advantage via Products  Advantage by o Creating new products or services o Enhancing existing products or services o Differentiating their products or services  Role of Information Systems Competitive Advantage – via Business Process  Locking in customers o High switching costs (makes it difficult to switch to another org)  Locking in suppliers o Easy to connect to and work with  Create entry barriers o Expensive for new competition to enter market  Establish alliances o Establish standards, promote product awareness  Reducing costs o Increased profitability Sustaining Competitive Advantage through Information Systems  Competitors often react to innovations by replicating the technology (hardware and software)  The more common place the informational technology becomes, the less competitive advantage information technology provides  If this is true about technology, it isn’t true about information systems since it include procedures and people along with information technology  In business, people make the difference! Long-Term Competitive Advantage  Companies must successfully integrate many technology systems with people and procedures in the organization  While competition might be able to purchase the technology, it takes time for people to gain the necessary experience and skill  Matching the entire set of info system is a high barrier for companies with less experience and success in integrating people and technology Consider…  Knowledge of how information technology affects productivity o Provides an understanding of where technology can be used to increase effectiveness and efficiency  Knowledge of business processes o Helps the understanding of where technology can add value for the customer  LT advantage is provided by people learning how to incorporate new technology into company procedures Chapter 4 – Hardware and Software What do you need to know about IT?  Computer hard ware o Components o Client/server  Software o Types  Purchasing considerations o Hardware and software  Security – issues Which of the following is not an external device for storing info?  Memory stick  Flash drive  MP3 player  C3PO player Information Technology  Y2K (year 2000) problem o Result of expensive computer memory in the early days of computing o Two-digit to store year values  19 didnt need to include before  Knowing something about where technology has been, can help us understand where technology is headed  Early computers: o 1939-1952 o Complex & expensive o Single user o One program at a time o Housed at universities o 1947, ENIAC o  Mark I o 1952, FERUT at U of T 1 Computer Bug  Moth found trapped btwn points at Relay # 70, Panel F, of the Mark II Aiken Relay Calculator while it was being tested at Harvard University, 9 September 1947. The operators affixed the moth to the computer log, with the entry: “First actual case of bug being found.” They put out the word that they had ‘debugged’ the machine, thus introducing the term ‘debugging a computer program’ Mainframes: 1952 – Present  1 digital computers o Used in business and gov’t st  1 generation, vacuum tubes o IBM 650 ($200 000 - $400 000) o Add or subtract 16 000 numbers/second  2 generation, transistor o Smaller, easier to maintain, reliable  3 generation (mid 1960s) o Operating systems o Multiprocessing/timesharing o Cost $ millions o Mini-computers  Still being used today o Fast processing, massive storag
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