TAPMI

IT For Business and HRIS (HRS6600)

Session 2
IT as Business Strategy

Selvaraj Vadivelu
Jul-Aug 2021
 IT as Business Strategy
• Value Chain
• Value System
• Competitive Scope
• Influence of IT on Competitive Advantage
• Strategic significance
• Chapter 3: Laudon, K. C., & Laudon, J. P.
• Transforming the Value Chain (2020). Management information
systems: Managing the digital firm
• Effect on Competitive Scope (16th Edition), Pearson Education
Limited
• Transforming the Product
• Porter ME, Millar VE. 1985. How
• Nature of competition information gives you competitive
advantage. Harvard Business Review
• Changing the industry structure 63(4): 149–160
• Competitive forces model
• Creates competitive advantage
• Spawns new businesses
• Illustrative IT strategies for business
• Challenges to IT strategies and solutions

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 IT as Business Strategy – Value Chain
• Value a company creates is measured by:
• the amount that buyers are willing to pay for a product or service
• A business is profitable if:
• (the value it creates) > (the cost of performing the value activities).
• Primary activities:
• those involved in the physical creation of the product, its marketing and delivery to
buyers, and its support and servicing after sale.
• Support activities:
• provide the inputs and infrastructure that allow the primary activities to take place.
• To gain competitive advantage over its rivals, a company must
• either perform these activities at a lower cost
• or perform them in a way that leads to differentiation and a premium price (more
value)
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 IT as Business Strategy – Value Chain
• A company’s value chain:
• Is a system of interdependent activities, which are connected by linkages.
• Linkages exist when the way in which one activity is performed affects the cost or effectiveness of other
activities.
• Linkages often create trade-offs in performing different activities
• For example, spending more efforts on architecture, design and quality assurance can reduce defect fixing
and maintenance costs in IT industry
• A company must resolve such trade-offs, in accordance with its strategy, to achieve competitive
advantage.
• Linkages also require activities to be coordinated
• On-time delivery requires that operations, outbound logistics, and service activities (installation, for
example) should function smoothly together.
• Good coordination allows on-time delivery without the need for costly inventory.
• Careful management of linkages is a powerful source of competitive advantage
• because of the difficulty rivals have in perceiving them and in resolving trade-offs across organizational
lines.

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IT as Business Strategy – Value Chain

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 IT as Business Strategy – Value System
Value System (Extension of the company’s value chain)
• The larger stream of activities in which the value chain for a company in a particular industry
is embedded
• The value system is linked to the value chains of suppliers, distributors and customers
• Linkages not only connect value activities inside a company but also create
interdependencies between its value chain and those of its suppliers and channels.
• A company can create competitive advantage by optimizing or coordinating these links to
the external entities

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IT as Business Strategy – Value System

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 IT as Business Strategy – Competitive Scope
Competitive Scope:
• Denotes the breadth of a company's activities; Great tool to create competitive advantage
• Dimensions: Segment; Vertical (degree of vertical integration);Geographic; Industry (or range of related
industries in which the company competes)
• Broad scope Exploit interrelationships between the value chains serving different industry
segments, geographic areas, or related industries.
• For example, two business units may share one sales force to sell their products, or the units may
coordinate the procurement of common components.
• Narrow scope Tailor the value chain to a particular target segment to achieve lower cost or
differentiation.
• The competitive advantage of a narrow scope comes from customizing the value chain to best serve
particular product varieties, buyers, or geographic regions
• If the target segment has unusual needs, broad-scope competitors will not serve it well

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 IT as Business Strategy – Influence of IT
A. Strategic Significance
Transforming the Value Chain
• Every value activity has both a physical and an information processing component.
• The physical component includes all the physical tasks required to perform the activity.
• The information processing component encompasses the steps required to capture, manipulate, and channel the data necessary to
perform the activity.
• IT is touching the value chain at every point (all nine categories of activities)
• transforming the way value activities are performed and
• the nature of the linkages among them.
• IT is also creating new linkages between activities, and companies can now coordinate their actions more
closely with those of their buyers and suppliers.
• IT is advancing faster than technologies for physical processing and is also transforming the physical processing
component of activities too
• Too much information - It is also creating new opportunities and businesses

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IT as Business Strategy – Influence of IT

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 IT as Business Strategy – Influence of IT
A. Strategic Significance (contd)
Effect on Competitive Scope
• Information systems allow companies to coordinate value activities in far-flung geographic locations.
• Information technology is also creating many new interrelationships among businesses, expanding the scope of
industries in which a company must compete to achieve competitive advantage.
Transforming the Product
• Almost every product has some information component and process information
• The information content is ever increasing in products
• This along with transformation in the value chain gives IT a strategic role

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 IT as Business Strategy – Influence of IT
B. Changing Nature of Competition
Changing the industry structure
• The structure of an industry is embodied in five competitive forces that collectively determine industry
profitability (Porter’s Competitive Forces model)
• the power of buyers; the power of suppliers; the threat of new entrants, the threat of substitute
products, and the rivalry among existing competitors
• The collective strength of the five forces varies from industry to industry, as does average profitability.
• The strength of each of the five forces can also change, either improving or eroding the attractiveness of an
industry.
• IT can alter each of the five competitive forces and, hence, industry attractiveness as well.
• Scale of production is not critical for automation → Entry barrier reduces
• Critical but costly IS solutions → Entry barrier increases
• Information availability → Power of buyers increases

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 IT as Business Strategy – Influence of IT
B. Changing Nature of Competition (Contd)
Creates competitive advantage (through new ways to outperform competition)
• IT influences competitive advantage by impacting either cost or differentiation in the value activities
• Impact on cost drivers
• Easier customization of products; Bundling more information content; Changing competitive scope
Spawns new businesses (including from existing business)
• makes new businesses technologically feasible.
• creates derived demand for new products
• Creates new businesses from old ones
• Options to monetise information that is a by product of operations

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IT as Business Strategy – Illustrative Strategies
Competitive Strategies
Cost leadership: Produce products and services at a lower price than competitors
Product differentiation: Enable new products or services, greatly change customer
• Few illustrative
convenience and experience strategies
Focus on Market Niche: Use information systems to enable a focused strategy on a single enabled by IT
(not exhaustive)
market niche; specialize
• Criticality of
Strengthen customer and supplier intimacy: Use information systems to develop strong ties aligning IT with
and loyalty with customers and suppliers. Increase switching costs strategic
business
Promoting Synergies & Core Competencies: Enhanced competitive advantage
objectives
Firms to create networks or network with each other: Network economics (low marginal
costs; high marginal gains)
Virtual Company: Networks link people, assets and ideas; link with other companies for
creating and distributing products/services. Cost optimization through usage of capabilities
of partners; Improves time to market

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 IT as Business Strategy – Challenges & Solutions

Challenges & Solutions of strategic IS

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IT as Business Strategy - Recap
• Value Chain
• Value System
• Competitive Scope
• Influence of IT on Competitive Advantage
• Strategic significance
• Transforming the Value Chain
• Effect on Competitive Scope
• Transforming the Product
• Nature of competition
• Changing the industry structure
• Competitive forces model
• Creates competitive advantage
• Spawns new businesses
• Illustrative IT strategies for business
• Challenges to IT strategies and solutions

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 IT as Business Strategy – Discussion
Under Armour Smart Products – Coming Your Way (Textbook. Pg 108)
• This company is noted for performance clothing and recently acquired digital capabilities
• It is now selling connected running shoes – with built-in wireless sensor that tracks cadence, distance, pace, stride length, and steps.
• Data stored on the shoe can sync wirelessly to Under Armour’s Map My Run app and Users can connect to the app on third-party
devices such as Apple Watch, Garmin, or Fitbit, to incorporate metrics such as heart rate that can’t be tracked by the shoes.
• The shoe’s analytics will let users know when it’s time to purchase new shoes and sensor batteries have to be charged.
• It has recently added a digital coaching feature for the connected running shoes and Map My Run app.
• Based on the data obtained, Map My Run will be able to provide a runner with tips on how to improve his or her pace and splits,
by taking shorter or longer strides while running, for instance.
• Potential to generate revenue from in-app ads, including ads from other companies, and purchases from app users referred to its
products.
• The platform delivers unprecedented depth of information and insight about fitness- and health-oriented consumers, creating
numerous opportunities for Under Armour and other brands to engage with.
• Under Armour is hoping that daily use of its smartphone apps will build stronger ties to customers that will lead to stronger sales of its
own apparel, footwear, and other athletic gear. The company is clearly benefiting from bringing the power of software to its physical
products.

1. Identify the business strategies that are targeted here through Information Systems
2. From the available information, what are the challenges in the adopted IS based business strategy ?
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Meet you in Session 3!