1. ISM 158
Business Information Strategy
Lecture 2
IT Strategy

2. Introductions
• Kevin Ross
• kross@soe.ucsc.edu
• Office hours: Tuesday 3:30pm – 5pm
– (or by appointment)
• E2 room 559

3. Overview and update
• Website now has schedule of
presentations and readings
• Any questions from last week?
– Quizzes
– Projects
– Presentations
– Cases/Reading

4. ISM 158: Lecture 2
“This class considers the role of information in
business strategy. In particular, we focus on
decisions regarding information technology and
information systems to give a business
competitive advantage over other companies”
• Today we focus on identifying strategies and the
role of IT in strategy

5. The Embedding of IT
• IT now embedded in:
– Definition and execution of strategy
– Organization and leadership of businesses
– Definitions of unique value propositions
• Every business definition is morphing before our eyes
–
–
–
–
Markets
Industries
Strategies
Firm designs
• Information is now a major economic good

6. What is a Business Model?
• Defines how enterprise relates to
environment
– Strategy aligns organization with
environment
– Resources in and out
– How value is created for stakeholders
– Sets goals and ways to achieve them

7. Fig 1.1 Components of a Business
Model

8. Porter Competitive Model
Potential
New Entrants
Bargaining
Power
of Suppliers
Intra-Industry Rivalry
Strategic Business Unit
Substitute
Products
and Services
Bargaining
Power of Buyers

9. Competitive Model Focus
• What is driving competition in the current or
future industry?
• What are current or future competitors likely
to do and how can a company respond?
• How can a company best posture itself to
achieve and sustain a competitive advantage?

10. Competitive Model Forces
Intra-industry Rivals: Strategic Business Unit (SBU) and
major rivals.
Buyers: Categories of major customers.
Suppliers: Categories of major suppliers that play a
significant role in enabling the SBU to conduct its business.
New Entrants: Companies that are new as competitors in
a geographic market or existing companies that through a
major shift in business strategy will now directly compete
with the SBU.
Substitutes: An alternative to doing business with the
SBU.

11. Porter Competitive Model Education Industry – Universities
U.S. Market
Potential
New Entrants
Bargaining
Power
of Suppliers
• Faculty
• Staff
• Equipment and
Service Suppliers
• Alumni
• Foundations
• Governments
• IT Vendors
• Foreign Universities
• Shift in Strategy by Universities
or Companies
Intra-Industry Rivalry
SBU: UCSC
Rivals: UC campuses, CSU,
Private universities,
Community Colleges
Substitute
Products
and Services
• Internet Distance Learning
• Books and Videotapes
• Computer-Based Training
• Company Education Programs
Bargaining
Power of Buyers
• Students
• Parents
• Businesses
• Employers
• Legislators

12. Role of Technology through
Porter perspective: Can we…
1. Build barriers to prevent a company from entering
an industry?
2. Build in costs that would make it difficult for a
customer to switch to another supplier?
3. Change the basis for competition within the
industry?
4. Change the balance of power in the relationship
that a company has with customers or suppliers?
5. Provide the basis for new products and services,
new markets or other new business opportunities

13. Porter Competitive Strategies
Cost Leadership Strategies
Cost Leadership Strategies
Differentiation Strategies
Differentiation Strategies
Primary
Strategies
Innovation Strategies
Innovation Strategies
Supporting
Strategies
Growth Strategies
Growth Strategies
Alliance Strategies
Alliance Strategies

14. Strategic Vision
Service Concept
• What are important elements of the service to be
provided, stated in terms of results produced for
customers?
• How are these elements supposed to be perceived by the
target market segment, by the market in general, by
employees, by others?
• How do customers perceive the service concept?
• What efforts does this suggest in terms of the manner in
which the service is designed, delivered, marketed?

15. Strategic Vision
Operating Strategy
• What are important elements of the strategy:
operations, financing, marketing, organization,
human resources, control?
• On which will the most effort be concentrated?
• Where will investments be made?
• How will quality and cost be controlled:
measures, incentives, rewards?
• What results will be expected versus
competition in terms of, quality of service, cost
profile, productivity, morale/loyalty of servers?

16. Strategic Vision
Service Delivery System
• What are important features of the service delivery
system including: role of people, technology, equipment,
layout, procedures?
• What capacity does it provide, normally, at peak levels?
• To what extent does it, help insure quality standards,
differentiate the service from competition, provide barriers
to entry by competitors?

17. Competitive Strategies
(Overall Cost Leadership)
• Seeking Out Low-cost Customers
• Standardizing a Custom Service
• Reducing the Personal Element in
Service
Delivery (promote selfservice)
• Reducing Network Costs (hub and
spoke)
• Taking Service Operations Off-line

18. Competitive Service Strategies
(Differentiation)
•
•
•
•
•
Making the Intangible Tangible (memorable)
Customizing the Standard Product
Reducing Perceived Risk
Giving Attention to Personnel Training
Controlling Quality
Note: Differentiation in service means being unique in
brand image, technology use, features, or reputation for
customer service.

19. Competitive Role of Information in
Services
Strategic Focus
Competitive Use of Information
On-line
(Real time)
Internal
(Operations)
Creation of barriers to entry:
Data base asset:
Reservation system
Frequent user club
Switching costs
External
(Customer)
Off-line
(Analysis)
Selling information
Development of services
Micro-marketing
Revenue generation:
Productivity enhancement:
Yield management
Point of sale Expert systems
Inventory status
Data envelopment
analysis (DEA)

20. Limits in the Use of Information
• Anti-competitive (Barrier to entry)
• Fairness (Yield management)
• Invasion of Privacy (Micro-marketing)
• Data Security (Medical records)
• Reliability (Credit report)

21. Strategy Audit of Company
• Market/Channel position
– Who are customers?
– How to reach them
• Product position
– What products/services to offer
– Features, price
• Value chain/value network position
– Role with respect to suppliers, producers, distributors, partners
• Boundary Position
– What won’t you do?

22. Fig 1.2 Analyzing Competitive Forces
and Strategic Positioning

23. Understand Customers

24. Understand Competitors

25. Understand Market and Product

26. Fig 1.3 Product/Market Positioning in the US Retail
Financial Services Industry, 1990

27. Understand Partners

28. Understand Societal Context

29. Strategic Shifts
• Strategy changes over time
• Flow of information makes this possible
– Enhancement (improve existing)
– Expansion (launch new)
– Extension (new business or business
model)
– Exit (drop product/category/market/channel)

30. Fig 1.4 Options for Evolving Strategy

31. Fig 1.5 Categories of Strategic Risk

32. Fig 1.6 McFarlan’s Strategic Grid

33. Fig 1.7 Strategic Alignment Model
Ideally, all four quadrants align
to create value

34. Opportunities
• Can IT change basis for competition?
• Can IT change balance of power among
buyers and supplyers?
• Can IT build or reduce barriers to entry?
• Can IT increase or decrease switching
costs?
• Can IT add value to existing products
and services or create new ones?

35. Risks
• Can emerging technologies disrupt
current business models?
• Are we too early or too late to exploit IT
opportunity?
• Does IT lower entry barriers?
• Does IT trigger regulatory action?

36. Fig 1.8 Analyzing Disruptive
Technologies

37. Fig 1.9 Analyzing Cash Flow Curve

38. Questions

39. Presentation: Ingrid Gain

40. Tips for Reading Cases