How do information systems apply to competitive strategies for nonprofit organizations?

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Presentation on theme: "Chapter 2: Information Systems and Strategy"— Presentation transcript:

1 Chapter 2: Information Systems and Strategy
Companies compete for your dollars, your loyalty, and your attention, and the strategies they use often depend on innovative information systems. This chapter explores strategy, starting with the forces that shape industry competition and why some industries are more profitable than others. Copyright © 2015 Pearson Education, Inc.

2 Learning objectives 1. Five forces 2. Other factors 3. Value chain 4. Business strategy 5. Nonprofit/government strategy 6. Role of IS After studying this chapter, you will be able to do the following: 1. Describe Porter’s five competitive forces that shape industry competition. 2. Explain how disruptive innovations, government policies, complementary products and services, and other factors affect how the competitive forces operate. 3. Identify the components of the value chain and explain its extended version. 4. Describe how information systems apply to competitive strategies for business. 5. Explain how information systems apply to strategy for nonprofit organizations and governments. 6. Explain why the role of information systems in organizations has shifted, depending on whether the systems are deployed to run, grow, or transform the business. Copyright © 2015 Pearson Education, Inc.

3 Baidu Chinese visitors Chinese language Competition
The search engine company Baidu dominates the Chinese market and attracts Chinese speakers from all around the world. Baidu’s strategy focuses on Chinese visitors, offering them ways to enter Chinese keywords and find relevant websites in Chinese. The written Chinese language, with its tens of thousands of complex characters, poses challenges for users typing on keyboards with a standard QWERTY layout. Baidu develops shortcuts and intelligent interfaces to make life easier for Chinese speakers. Baidu earns revenue by showing paid links relevant to the user’s search terms. Baidu, with its Google-like interface, should have no trouble staying on top. However, consumer trading site Taobao has its eye on Baidu’s market. Taobao offers services similar to eBay, but gained dominance in consumer trading by dropping commission fees. Taobao’s chief financial officer said, “One of Baidu’s biggest competitors is going to be Taobao.” Google and Microsoft are also making their own plans to capture a share of the Chinese Internet user market, which at almost 300 million is the largest of any country in the world. Copyright © 2015 Pearson Education, Inc.

4 Introduction Strategies rely on IS IS transform industries
Companies gain advantages with IS Nonprofits achieve missions with IS The strategies companies use to win customers, earn market share, make profits, and grow rely on the application of information systems to business areas such as marketing, human resources, manufacturing, and supply chain management. IS-related strategies can completely transform companies and industries. We will examine the nature of industry competition, and how companies exploit openings to gain advantages with information systems. We will also see how nonprofit organizations develop strategies involving information systems to dramatically improve their ability to achieve their missions. Copyright © 2015 Pearson Education, Inc.

5 Five forces New entrants Buyers Suppliers Substitutes Rivalry
During the 1980’s, Michael Porter of Harvard Business School introduced a framework to identify five forces that influence industry competition and explain differences in profitability across industries: 1. Threat of new entrants 2. Power of buyers 3. Power of suppliers Threat of substitutes 5. Rivalry among existing competitors We will now discuss each of these forces. Copyright © 2015 Pearson Education, Inc.

6 Threat of new entrants Incumbents and IS Network effects
Switching costs Incumbent industry players try to keep newcomers out in many ways, often drawing on innovative use of information systems. Incumbents have higher volumes that can mean lower costs per unit of production. A large customer base can be significant because of network effects, which refer to the increased value of a product or service that results because there are more people using it. For example, the value of Facebook is low if you can only connect a few people. But the more people who use that social network, the more valuable it becomes to everyone. Another example involves mobile phone carriers that foster network effects by offering free calling to any mobile phone on the same network. The carriers hope you will persuade your friends and family to select the same carrier. Incumbents also devise strategies to raise switching costs, which are the costs customers incur when they change suppliers. Carriers do this by offering a “free” cell phone with a 2-year contract, but the phone is not really free. Its cost is embedded in the monthly fees over the life of the contract, and termination fees recapture any remaining costs if the customer stops service early. Loyalty programs are another example. Frequent flyers earn rewards for racking up all their flying miles with a single airline, including automatic upgrades and free companion tickets. Travelers go out of their way to stick with their favorite airline and grow their point balance. Copyright © 2015 Pearson Education, Inc.

7 Power of buyers Few buyers Similar products IS shift buyer power
The power of buyers rises when they have leverage over suppliers and can demand deep discounts and special services. If a supplier has a small number of buyers, the supplier is at a disadvantage since losing even one could be devastating. For example, companies whose main customer is government must deal with a very powerful buyer. Buyer power also rises when many suppliers offer similar undifferentiated products and the buyer can deal with any of them to get about the same product. For example, with airline tickets on the most popular and competitive routes, buyers have considerable power. However, the balance of power between buyers and suppliers for many industries shifted dramatically when markets went online and customers could switch from one seller to another with a single click. Unless passengers are tied to one airline with a loyalty program, they can search for the best price. For example, many websites such as PriceGrabber.com gather up-to-the-minute prices from sellers so visitors can easily compare them in a single list. Copyright © 2015 Pearson Education, Inc.

8 Power of suppliers Only game in town IS impose switching costs
The power of suppliers is high when they are just about the only game in town and thus can charge more for their products and services. Microsoft is an example. Given the dominance of its Windows operating system, PC assemblers around the world risk losing customers if they don’t install it. Microsoft can demand higher prices and require additional perks such as desktop icons. Walmart’s suppliers are an example of suppliers with low supplier power. There are few products made by a single supplier for which Walmart could not find a close alternative to satisfy consumers. IT can be used to impose switching costs that increase supplier power. For example, initially songs purchased at iTunes would only play on the iPod, and the iPod would only play songs in that format. People who bought iPods had little choice but to buy music from Apple’s store. The costs to switch to a different music player were also very high for consumers who had a large collection in the iTunes format. Copyright © 2015 Pearson Education, Inc.

9 Threat of substitutes Alternative products at attractive savings
IS role in substitutions The threat of substitutes is high when alternative products are available, especially if they offer attractive savings. For example, with rising fuel costs and tight travel budgets, videoconferencing becomes an attractive substitute for business travel. Cisco reports that the company’s video conferencing technology is the fastest-growing product it has ever had. Information technology plays a key role in many examples of substitutions, from online learning modules that replace face-to-face training classes, to Internet video that threatens cable television companies. The threats may come from any direction, making it critical for strategists to pay attention to developments on a much wider scale. For example, the newspaper industry failed to grasp how quickly subscribers would switch to the free news available online to save both money and trees. Copyright © 2015 Pearson Education, Inc.

10 Rivalry among competitors
Price cuts Slow growth If firms compete mainly on price, rivalry is high and the industry becomes less profitable, because price cutting triggers retaliation and price wars. Online price cuts can occur with breathtaking speed, with no need to attach new price tags to physical merchandise. Price wars also affect the behavior of buyers, reminding them to shop around for bargains and damaging industry profitability. Slow growth can also lead to intense rivalry among existing competitors. If sales are flat, any competitive strategy from one company will steal market share from the others, so incumbents will counter every competitive move. Copyright © 2015 Pearson Education, Inc.

11 External factors Disruptive innovations Government policies
Complementary services Environmental events The five forces determine industry structure and potential for profit. In addition to company strategies, several external factors affect how those forces operate and can force companies to change their strategies. We will discuss four external factors: Disruptive innovations Government policies and actions Complementary services and products Environmental events Copyright © 2015 Pearson Education, Inc.

12 Disruptive innovations
Radical and unexpected breakthroughs Transform industry and changes five forces Creative destruction A disruptive innovation is a new product or service, often springing from technological advances, that has the potential to reshape an industry. For example, companies began offering digital cameras that needed no film in the 1990s, transforming the industry within a few short years. A disruptive innovation brings a radical and unexpected breakthrough that first replaces lower-end products, but then rapidly overtakes even the high end of the market. Companies that cling to older models may eventually be out of business. The Internet itself is the largest disruptive innovation in the last century, and all the innovations it supports are transforming one industry after another. It fundamentally changes aspects of the five forces by reducing entry barriers for newcomers, empowering buyers with far more information about prices and competitors, and virtually eliminating switching costs for many products. In creative destruction, newcomers find ways to capitalize on the new technologies, while many incumbents resist change and seek ways to protect their old business models. Digital music, downloaded one song at a time, is one disruptive innovation made possible by the Internet that led to sweeping creative destruction in the music business. Industry leaders need to be alert to these disruptive innovations, and should look for breakthrough opportunities themselves. Copyright © 2015 Pearson Education, Inc.

13 Government policies Affect how industries operate and evolve
Organizations lobby for government action Judges and courts affect industry structure Government policies and funding priorities can have dramatic effects on how industries operate and evolve. For example, patents reduce the threat of new entrants, while low cost loans to small business can increase that threat. Organizations frequently lobby for government action to influence how the five forces operate and to improve industry profitability. For example, spending on lobbying by large technology companies has more than doubled since the late 1990s. Lobbyists concentrate on regulatory policy, taxes, government subsidies, and other issues that affect the industry. For example, lobbyists for state governments have pressed Congress to level the playing field and allow them to collect sales taxes when state residents buy products from online retailers like Amazon. Optometrists once earned profits through contact lens sales, as patients used their new prescription to buy their lenses at the optometrist’s store. When 1800contacts.com and other retailers began offering lenses at discounted prices, they lobbied to make it easier for customers to compare prices and buy elsewhere. However, the American Optometry Association also lobbied, and the 2004 ‘Fairness to Contact Lens Consumers Act’ contained regulations to appease both groups. Copyright © 2015 Pearson Education, Inc.

14 Complementary services
Industries are interrelated Companies embedded in ecosystem Visionaries lead to new beneficial directions Many industries are interrelated and events in one can influence the structure and profitability in another. For example, desktop publishing software makes computers more useful to small businesses that save money by developing menus, signs, and brochures in-house, which in turn benefits manufacturers of business computers, printers and specialty paper. Companies are embedded in a complex ecosystem—an economic community that includes the related industries making complementary products and services, the competitors themselves, the suppliers, and also the consumers. Events in one arena—particularly a disruptive innovation—ripple through the whole community, affecting all players and the five forces for the industries involved. Some of the most powerful strategic moves come from visionaries who propose fundamental changes for all the industries in the ecosystem, and persuade the others to come along. For example, Bill Gates articulated a vision for moving computing away from mainframes and onto the desktop. To succeed, there would need to be a standard operating system for software developers and peripheral manufacturers to build on and enrich the ecosystem with a compelling set of products and services. The Microsoft operating system began its ascent, eventually dominating the industry with almost 90% market share. Copyright © 2015 Pearson Education, Inc.

15 Environmental events Major effects without warning
Energy costs and emissions Leaders must consider industry and forces Hurricanes, snowstorms, pandemics, earthquakes, strikes, and civil unrest can all have major effects on entire industries, sometimes without much warning. For example, the H1N1 flu outbreak triggered major downturns in the global travel and tourism industries. Rising energy costs and concerns over carbon emissions may also trigger waves of change. For example, supply chains that stress just-in-time deliveries may struggle to pay for the extra gas that just in time requires. Electronic commerce companies that rely heavily on shipping may need to increase their shipping fees, which could impact their competitive advantage over traditional brick-and-mortar retailers. For an organization to develop a viable competitive strategy, its leaders take into account the nature of the industry and how the five competitive forces play out. They also consider the factors affecting those forces and how they are changing. Copyright © 2015 Pearson Education, Inc.

16 Value chain Primary activities Support activities
Michael Porter of Harvard Business School, who developed the five forces model we discussed earlier, also introduced the value chain model. The value chain model describes the activities a company performs to create value, as it brings in raw resources from suppliers, transforms them in some way, and then markets the product or service to buyers. In the model, the company performs primary activities directly related to the process by which products and services are created, marketed, sold, and delivered. Support activities encompass all other processes, including administration and human resources. This model applies to both manufacturing and service settings. For example, while “raw resources” (the first primary activity) could be copper ore mined and trucked to a processing plant in a manufacturing setting, they could also be digital journal articles downloaded from online libraries and summarized for a briefing paper in a services setting. “Making the product or service” could be chemical processing of the copper (manufacturing), or consultant research and analytical synthesis (services). Primary activities Support activities Copyright © 2015 Pearson Education, Inc.

17 Extended value chain Includes suppliers and customers
Strategic opportunities for suppliers Strategic opportunities for customers Expanding the model beyond the company’s primary and support activities, to include suppliers and customers, leads to a better understanding of how all the processes fit together. Events in these external parts of the chain can also offer strategic opportunities. A company may benefit from switching suppliers, or from strategic alliances with a few of them to help make them more efficient. For example, Toyota encourages its auto part suppliers to set up shop near its factories so Toyota can provide extensive training and support. Nike, the world’s #1 athletic footwear maker, focuses on product development, marketing, and its branded stores, and leaves other activities such as manufacturing the shoes to its suppliers. Nike’s control of the stores, however, ensures that the company can receive feedback directly from customers. Online, the extended value chain often incorporates contributions from buyers who help add value to the company’s products or services. For example, Amazon’s customers enrich the retailer’s site by contributing their product reviews and rating the usefulness of other reviews. Copyright © 2015 Pearson Education, Inc.

18 Benchmarking Reference point used as baseline
For value chain, percent of total budget Analysis identifies areas that need attention The value chain model offers a way for organizations to compare their performance against industry benchmarks to see how they stack up, and also spot areas that should be targeted for improvement. A benchmark is a reference point used as a baseline measurement. For the value chain, one benchmark might be the percent of total budget allocated to each of the primary and support activities. How does the organization’s allocation compare to industry benchmarks, or average expenditures? Analyzing these benchmarks can point to areas that need attention. Copyright © 2015 Pearson Education, Inc.

19 IT benchmarks IT spending varies by industry and by region
Managers can use benchmarks to assess extended value chain IT spending varies by industry. For example, banking and finance spend almost 7% of revenue allocated to this component of the value chain. Building online financial services is an enormously expensive proposition. Another benchmark useful for information systems is the amount spent per employee. On average, organizations spend over $13,000 per employee, including all hardware, software, salaries for IT personnel, software licensing, data center costs, telecommunications costs, and outsourced IT projects. IT spending also varies by region of the world. For example, companies in Asia spend almost 70% more per employee compared to those in Latin America and the Caribbean, and much of the additional expense goes to capital investment in infrastructure. Managers can use benchmarks like these to assess components in the extended value chain and examine how much every dollar they spend is helping to create value. Each component offers opportunities for either cost savings or improved products and services that offer more value to buyers, which can improve the company’s competitiveness and bottom line. Copyright © 2015 Pearson Education, Inc.

20 Competitive strategies
1. Low cost leadership 2. Product differentiation 3. Focused strategy Michael Porter identified three basic strategies that are most likely to lead to success: Low cost leadership strategy Product differentiation strategy Focused strategy There are also hybrid models that combine elements of these three strategies. Copyright © 2015 Pearson Education, Inc.

21 Low cost leadership Similar product at lower price
Automate and streamline processes Reduce operating expenses Achieve efficiencies The low cost leadership strategy means offering a similar product at a lower price compared to competitors. Kia Motors and Southwest Airlines are examples of companies that pursue a low cost leadership strategy. To be successful, the company has to cut every gram of fat in the value chain using information systems to automate and streamline processes. A relentless search for ways to reduce operating expenses and achieve efficiencies pervades this strategy. For example, Walmart’s enormous success as a low cost leader in retailing comes especially from its IT-supported supply chain. One challenge of a low cost leadership strategy is that it is difficult to sustain and could lead to price wars as described earlier. The founder of ASUSTeK, a computer company in Taiwan that entered the laptop business with its low cost “Eee PC” priced less than $250, said “We can’t forget that people are running after us.” Copyright © 2015 Pearson Education, Inc.

22 Differentiation and focus
Product differentiation Focused strategy Special features Customers willing to pay more Reduce substitutes and new entrants Differentiate for market niche Product differentiation involves adding special features or unique add-ons for which customers are willing to pay more. This strategy tends to reduce threats from substitute products and erects barriers to new entrants. Apple is a clear example of this strategy, with its Macintosh computers, iPod, iPhone, and iTunes music store. Differentiating the product or service for a particular market niche is called a focused strategy. For example, Research in Motion (RIM) positions its Blackberry smartphone for the business and government segment with conservative looks and business-oriented features. Because the digital age has shaken the five forces that shape competition, companies can find successful paths with hybrid models, such as shooting for the best value for the lowest price. Companies also achieve a different kind of success by building a large and rapt audience to gain market share in a market that did not exist before. YouTube took that route by attracting millions of people who wanted to share their homemade videos with friends. Google bought YouTube for more than 40 times the sum investors contributed. Copyright © 2015 Pearson Education, Inc.

23 IS in strategy Low cost Differentiation Automate Support back office
Streamline Innovations All of these strategies leverage information systems to succeed. Often information technology is at the heart of the company’s competitive advantage. Low cost leaders must automate as much as possible, from their suppliers to their customer support services. Savings accrue from implementing information systems to support all the back office functions, and rethinking how these processes are done by eliminating steps or avoiding duplication of effort. For example, rather than asking employees to complete paper forms that are reviewed by human resources staff, and then entered into systems that manage payroll and benefits, information systems let employees handle those tasks themselves. Employees can enter benefit selections, fill in tax forms, complete time sheets, update contact information, register for professional development classes, and track vacation and sick days online. Launching a differentiated product or service often relies on innovations in IT as well. Grocery stores are experimenting with various smart shopping carts with wireless access that scan shoppers’ loyalty cards then guide them through the aisles. The devices can announce special sales, scan purchases, and total the bill so customers breeze through checkout. The information is transmitted to the store’s inventory system, which activates the restocking process as needed. Copyright © 2015 Pearson Education, Inc.

24 Run, grow, and transform 66% of IT spending to run organization
19% to grow business 15% to transform business model On average, organizations spend about two-thirds of their IT budget to just keep things running. These costs include IT staff salaries, the data center, the help desk, software licenses, and maintenance of the company’s core application software and infrastructure. The organization cannot operate without these capabilities. However, there are ways to reduce these costs. For example, some companies are outsourcing their help desks or moving to cloud computing to reduce data center expenses. Managers should seek opportunities to reduce this kind of IT spending, just as they would for any other component of the value chain. The rest of the IT budget is focused on growing the business or transforming the business model. For example, IT can facilitate a whole new business model like eBay in the form of specialized software to support online auctions. Another example of a potentially game changing use of IT is the electronic medical record (EMR). The goal of EMR is to drastically reduce health care costs by digitizing patient history and treatment records, and making them available to health care providers as needed. Despite promising starts, this strategic use of information systems to transform health care lags far behind almost every other industry. To overcome the obstacles, security concerns and data exchange issues must be addressed to safeguard privacy and avoid creating incompatible systems. Copyright © 2015 Pearson Education, Inc.

25 Nonprofit organizations
Objectives that need strategic planning Operational requirements Benefit from IS Although nonprofit organizations have no shareholders, they do have objectives that need strategic planning and that benefit from strategic use of information systems. Running, growing, and transforming the organization are all relevant to nonprofits, just as they are to the for-profit world, and information systems play a key role. The operational requirements to run nonprofits are quite similar to businesses, with information systems used for payroll, accounting and finance, human resources, asset management, and related tasks. Many nonprofits also need information systems to track customer transactions. Some of the most innovative strategic uses of IT come from the nonprofit world. Reaching out to their constituencies is fundamental to most nonprofit organizations, and IT brings tremendous capabilities to that task. Two areas that have benefited considerably from such innovations are fundraising and volunteer management. Copyright © 2015 Pearson Education, Inc.

26 Fund-raising IS help manage donations Reach worldwide audience
Learn about preferences and motivations A major funding source for many nonprofits is donations, and specialized IT help manage this critical activity. Though direct mail and telemarketing once dominated, much fundraising is now done online. For example, in 4 years annual online donations for Chicago’s YMCA leaped from $450 to $24,000, an increase of over 5,000%. Even a small nonprofit can reach out to a worldwide audience, making a case for its mission and motivating people to help. Nonprofits leverage information systems to learn more about potential donors, their preferences, and their motivations, much as companies such as Amazon.com do to build relationships with customers. For example, the Leukemia and Lymphoma Society and Google conducted an experiment to compare three different web pages. One featured photos of team participants climbing mountains and competing in sporting events, a second version showed a video about the program, and the third contained written testimonials. During the experiment, Google randomly directed visitors to one of the three versions, and the charity analyzed how many visitors signed up to receive more information. The results showed that the sporty photos worked best, with almost 20% of the visitors asking for more information. Copyright © 2015 Pearson Education, Inc.

27 Volunteering Attract volunteers
Help volunteers identify projects that need their skills Attracting volunteers and sustaining their attachment to the mission are essential tasks for many nonprofits. The efforts are similar to those companies use to build customer relationships and develop employee loyalty. For example, VolunteerMatch.org offers search tools to help people find projects underway near their homes that match their interests. More than 62,000 nonprofits post their needs on the site, hoping to attract volunteers for needs such as teaching swimming, mentoring children, caring for animals, and guiding museum visitors. VolunteerMatch.org focuses on information systems to make the process easier and fulfill its mission to “bring good people and good causes together.” Copyright © 2015 Pearson Education, Inc.

28 Government (1:2) Needs IS to handle operational requirements
Citizens expect cost effective services Mission also includes projects with long-term benefits Like nonprofits, government agencies have similar needs for information systems to “run” the business, handling the operational requirements that all organizations share. They must manage their payrolls, budgets, procurements, assets, and inventories. Citizens expect their governments to spend taxpayer dollars wisely and provide services in a cost effective manner. Government missions also include education, security, defense, infrastructure, justice, law making, regulation, international affairs, health and welfare, involving substantial investments and long-term benefits. Copyright © 2015 Pearson Education, Inc.

29 Government (2:2) E-Government Research
Unclassified info available to citizens via the Internet Interactive online services Private investors might avoid certain projects because of risk or distant payoff E-government involves efforts to make unclassified information available to citizens via the Internet, and to offer interactive online services to save people time-consuming visits to government offices. For example, the U.S. Census Bureau offers many summaries and tables online, and also provides tools to help researchers download data. USA.gov serves as a gateway, and search engines help visitors track down what they need. Interactive online services, from motor vehicle registration payment systems to absentee ballot requests, also enhance access and convenience for the public. Government funding is critical to certain kinds of research projects that private investors might avoid because of risk, or perhaps because the payoff is very far in the future. For example, a U.S. government agency called the Defense Advanced Research Projects Agency created a computer research program in the 1960s, and it also funded a community of scientists working from other institutions in the U.S. and U.K. ARPANET was the first working network built with this funding, and it eventually grew into the Internet. Copyright © 2015 Pearson Education, Inc.

30 Does IT matter? Advantage depends on type of IS
Funds to run business are commodity Funds to grow and transform are more closely tied to strategy and advantage Human element is critical for success Nicholas Carr, former editor of Harvard Business Review, poses a thought-provoking question: “Does IT matter?” His point is that IT resources have become so commonplace that their strategic importance has diminished, and they have become an infrastructure commodity. The benchmarks discussed earlier show that organizations are looking closely at how they spend their IT dollars, not just at total amounts. The funds used to “run” the business are mainly for the kinds of IT resources that now fall into the commodity category. Strategies to reduce those costs are critical, and because price competition for commodities is fierce, opportunities for savings abound. In contrast, the funds and human effort applied to growing and transforming an organization are much more closely tied to strategy, innovation, and competitive advantage. Although many technologies are indeed commodities, the ability to extract their value requires human imagination; opportunities to do that are limitless. Whatever your role in the organization, the distinction between the different roles IT plays is very important to grasp since it affects how you allocate resources and judge the value of new initiatives. Copyright © 2015 Pearson Education, Inc.

31 Summary 1. Five forces 2. Other factors 3. Value chain 4. Business strategy 5. Nonprofit/government strategy 6. Role of IS The five forces that shape an industry’s competitive structure, and help determine how profitable companies operating in the industry include (1) the threat of new entrants, (2) the power of buyers, (3) the power of suppliers, (4) the threat of substitute products, and (5) rivalry among competitors. In addition to the strategies of the companies themselves, many external factors affect how the five forces operate. Disruptive innovations can transform entire industries through the process of creative destruction. Government policies can also affect industry competition through legislation, regulation, and court decisions. Industries that operate in a larger ecosystem are affected by the development of complementary products and services that accelerate trends. Environmental events such as pandemics or earthquakes can reshape industries and call for changes in strategy. Organizations can use the value chain model to understand their options as they strive to compete in an industry. Primary activities (bringing in raw resources, making the product, marketing, delivery, and customer support) and support activities form the major components of the value chain. The extended value chain, which includes suppliers and customers, offers more strategic opportunities. Benchmarks are used to compare a company’s performance to industry standards on components of the value chain. Competitive strategies include low cost leadership, product differentiation, and a focused strategy for a particular market niche. Information systems support all these approaches by reducing costs, streamlining processes, and adding unique value with new products or features. Their role includes running the organization and, as a strategic enabler, growing and transforming the organization. Nonprofits take advantage of information systems to manage basic operations, and also as a strategic enabler in areas such as fund-raising and volunteer management. Governments use information systems extensively for e-government initiatives, especially to increase access and enhance services for the public. As technologies become commodities, and become widely used by almost all organizations, their strategic value diminishes. The information systems used to “run” organizations are readily available and managers should focus on reducing their cost. Innovative information systems in which creative people leverage technology to grow and transform the organization are critical for effective strategy. Copyright © 2015 Pearson Education, Inc.

32 GameStop case study GameStop business model Rivalry among competitors
Barriers to entry Power of suppliers GameStop’s response to threats GameStop’s major source of revenue is the sale of games, both new and used, in its stores. The business model has, so far, survived the Internet’s creative destruction that swept away other brick-and-mortar outlets. GameStop’s revenues topped $9 billion in 2009, but the company is surrounded by threats. One major rival is Best Buy, who began offering customers a chance to trade in their old games for gift cards that could be used at any Best Buy store. Another threat comes from the game developers, who fume about used-game sales because they earn no royalties. To counter used sales, many developers include a coupon with a new game so purchasers can download special content or game upgrades. Online retailers pose another threat, especially combined with infomediary services that show up to-the-minute price comparisons from different outlets. Companies such as Electronic Arts and Blizzard can deliver major upgrades and sequels to their high-end games digitally, and customers can buy them online directly from the publisher. GameStop is countering these threats by moving to online games and adding digital delivery. CEO Paul Raines adds that the company will “continue to pursue bold directions and opportunities...” Copyright © 2015 Pearson Education, Inc.

33 Open Internet case study
Net neutrality Position of content providers Position of telecom companies Proposal Criticism of proposal The principle of net neutrality holds that carriers selling Internet connectivity—for example, Verizon, AT&T, and Comcast—should not discriminate for or against content providers such as Amazon, Google, or Facebook. All traffic should be routed neutrally, and the carriers should not make special deals to favor some content by giving it priority bandwidth. The carriers argue that incentives are needed to encourage their investment in the network infrastructure, and that their networks have to be managed to provide the best service at reasonable costs. Google and Verizon joined together to propose a new legislative framework. Their proposal gave limited authority to the FCC, and reinforced the principle of net neutrality for wired services—but not wireless. Critics from all sides slammed the proposal because it exempted wireless services. The Google/Verizon proposal also came under attack because it included vague terms such as “lawful” and “reasonable,” without explaining how they would be defined. Copyright © 2015 Pearson Education, Inc.

34 Chapter

How are information systems apply to competitive strategies for business?

How strategic information systems can contribute to the competitiveness of Organisations?

What are competitive strategies in information systems?

How can information itself provide a competitive advantage to an organization?