Lecture 7 (business-level strategy and the value chain model)

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Business-Level Strategy and
the Value Chain Model
Lecture 7
Abdisalam Issa-Salwe
Department of Computer Science
Faculty of Information Science and Technology
East Africa University
Department of Computer Science, Faculty of Information Science and Technology, East Africa University
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Topic list
 Business-Level Strategy
 About Value Chain Model
 Primary activities & support activities

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Business level of strategy
 At the business level of strategy, the key question is,
"How can we compete effectively in this particular
market?" The market might be light bulbs, utility vehicles,
or cable television.
 The most common generic strategies at this level are:
(1) to become the low-cost producer,
(2) to differentiate your product or service, and/or
(3) to change the scope of competition by either enlarging the
market to include global markets or narrowing the market by
focusing on small niches not well served by your competitors.

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Business level of strategy (cont…)
 Digital firms provide new capabilities for
supporting business-level strategy
by managing the supply chain, building
efficient customer "sense and response"
systems, and
participating in "value webs" to deliver new
products and services to market.
 At the business level the most common analytical tool is
value chain analysis.
 The value chain model highlights specific activities in
the business where competitive strategies can be best
applied (Porter, 1985) and where information systems
are most likely to have a strategic impact.
 The value chain model identifies specific, critical
leverage points where a firm can use information
technology most effectively to enhance its competitive
position.

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 Exactly where can it obtain the greatest benefit
from strategic information systems—
Example, what specific activities can be used to
create new products and services, enhance
market penetration, lock in customers and
suppliers, and lower operational costs?
 The firm as a series or "chain" of basic activities
that add a margin of value to a firm's products or
services.
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Primary activities & support activities
 These activities can be categorised as either primary
activities or support activities.
 Primary activities are most directly related to the
production and distribution of the firm's products and
services that create value for the customer.
 Primary activities include inbound logistics,
operations, outbound logistics, sales and
marketing, and service.
1. Inbound logistics include receiving and
storing materials for distribution to production.
2. Operations transforms inputs into finished
products.

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Primary activities & support activities (cont…)
3. Outbound logistics entail storing and distributing
finished products.
4. Sales and marketing includes promoting and
selling the firm's products.
5. The service activity includes maintenance and
repair of the firm's goods and services.
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 Support activities make the delivery of the primary
activities possible and consist of organisation
 infrastructure (administration and management),
 human resources (employee recruiting, hiring,
and training),
 technology (improving products and the
production process), and
 procurement (purchasing input).
Primary activities & support activities (cont…)

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Explaining the diagram
 The diagram illustrated various examples of
strategic information systems for the primary and
support activities of a firm and of its value
partners that would add a margin of value to a
firm's products or services.

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Organisations have competitive when…
 Organisations have competitive advantage when they
provide more value to their customers or when they
provide the same value to customers at a lower price.
 An information system could have a strategic impact if it
helped the firm provide products or services at a lower
cost than competitors or if it provided products and
services at the same cost as competitors but with
greater value
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Web value
 Internet technology has made it possible to extend the
value chain so that it ties together all the firm's suppliers,
business partners, and customers into a value web
 A value web is a collection of independent firms who
use information technology to coordinate their value
chains to collectively produce a product or service for a
market
 It is more customer-driven and operates in less linear
fashion than the traditional value chain

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Web value chain (cont…)
 Previous figure shows that this value web functions like
a dynamic business ecosystem, synchronizing the
business processes of customers, suppliers, and trading
partners among different companies in an industry or
related industries.
 These value webs are flexible and adaptive to changes
in supply and demand.
 Relationships can be bundled or unbundled in response
to changing market conditions.

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The value web (cont…)
 The value web is a networked business
ecosystem that can synchronise the value
chains of business partners within an
industry to rapidly respond to changes in
supply and demand.
 Businesses should try to develop strategic
information systems for both the internal
value chain activities and the external
value activities that add the most value
 A strategic analysis might, for example, identify sales and
marketing activities where information systems could provide the
greatest boost.
 The analysis might recommend a system to reduce marketing
costs by targeting marketing campaigns more efficiently or by
providing information for developing products more finely attuned
to a firm's target market.
 A series of systems, including some linked to systems of other
value partners, might be required to create a strategic advantage.
 The Window on Technology describes how NextCard developed
systems for such purposes.

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 A company can use this value web to maintain long-
standing relationships with many customers over long
periods or to respond immediately to individual
customer transactions
 Firms can accelerate time to market and to customers
by optimising their value web relationships to make
quick decisions on who can deliver the required
products or services at the right price and location
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IS Products and Services
 Firms can use information systems to create
unique new products and services that can
be easily distinguished from those of
competitors.
 Strategic information systems for product
differentiation can prevent the competition
from responding in kind so that firms with
these differentiated products and services
no longer have to compete on the basis of
cost

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IS Products and Services (cont…)
 Many of these information technology-based
products and services have been created by
financial institutions. Citibank developed
automatic teller machines (ATMs) and bank
debit cards in 1977.
 Citibank became at one time the largest
bank in the United States. Citibank ATMs
were so successful that Citibank's
competitors were forced to counter-strike
with their own ATM systems
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IS Products and Services (cont…)
 Manufacturers and retailers are starting to use information
systems to create products and services that are custom-tailored
to fit the precise specifications of individual customers.
 Dell Computer Corporation sells directly to customers using
assemble-to-order manufacturing.
 Individuals, businesses, and government agencies can buy
computers directly from Dell, customized with exactly the
features and components they need.
 They can place their orders directly using a toll-free telephone
number or Dell's Web site.
 Once Dell's production control receives an order, it directs an
assembly plant to assemble the computer based on the
configuration specified by the customer using components from
an on-site warehouse.

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Management Challenges
 Information technology provides tools for
managers to carry out both their traditional and
newer roles, allowing them to monitor, plan, and
forecast with more precision and speed than ever
before and to respond more rapidly to the
changing business environment.
 Finding ways to use information technology to
achieve competitive advantage at the business,
firm, and industry level is a key management
responsibility.
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Management Challenges (cont…)
 In addition to identifying the business processes,
core competencies, and the relationships with
others in the industry that can be enhanced with
information technology, managers need to
oversee the socio-technical changes required to
implement strategic systems.
 Each organization has a unique constellation of
information systems that result from its interaction
with information technology

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 Contemporary information technology can lead to
major organizational changes -and efficiencies -
by reducing transaction and agency costs and
can also be a source of competitive advantage.
 Developing meaningful strategic systems
generally requires extensive changes in
organizational structure, culture, and business
processes that often encounter resistance.
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 Information technology offers new ways of
organizing work and using information that can
promote organizational survival and prosperity.
 Technology can be used to differentiate existing
products, create new products and services,
nurture core competencies, and reduce
operational costs.
 Selecting an appropriate technology for the firm's
competitive strategy is a key decision.

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 Managers need to understand certain essential
features of organizations in order to build and use
information systems successfully.
 All modern organizations are hierarchical,
specialized, and impartial.
 They use explicit standard operating procedures
to maximize efficiency.
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 All organizations have their own cultures and
politics arising from differences in interest groups.
 Organizations differ in goals, groups served,
social roles, leadership styles, incentives,
surrounding environments, and types of tasks
performed.
 These differences create varying types of
organizational structures and they also help
explain differences in organizations' use of
information systems.

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 Information systems and the organizations in
which they are used interact with and influence
each other.
 The introduction of a new information system will
affect organizational structure, goals, work
design, values, competition between interest
groups, decision making, and day-to-day behavior
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 The information systems department is the formal
organizational unit that is responsible for the
organization's information systems function.
 Organizational characteristics and managerial
decisions determine the role this group will
actually play.

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 At the same time, information systems must be
designed to serve the needs of important
organizational groups and will be shaped by the
organization's structure, tasks, goals, culture,
politics, and management.
 Information technology can reduce transaction
and agency costs, and such changes have been
accentuated in organizations using the Internet
Reference
 Laudon, K. & Laudon, J. (2006): Management Information
Systems: Managing the Digital Firm, 9th ed. Prentice Hall
 Abdisalam Issa-Salwe, Lecture Notes, Thames Valley
University,UK, 2008.
 Dave Chaffey, Paul Bocij,F Andrew Greasley and Simon
Hickies (eds) (2003): Business Information Systems:
Technology, Development and Management, Pearson
Education Limited, London.

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Tutorial Question
 What is Business-Level Strategy?
 When Value Chain Model is used and why?
 How many parts the activities within value chain
can be categorized?
 Explain Outbound logistics and it entails?
 Can you explain the commercialization of the
Internet?
 What is technological innovation?
 Explain the diagram next slide: Name the different
part?
Explain the diagram below: Name and
defint the different part of the chain.

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Topic Questions
1. Group 1: Discuss the impact of
Business-Level Strategy on the
organizations
2. Group 2: Discuss Value Chain Model
and it works within the organizations
3. Group 3: Discuss the Primary
activities & support activities of the
Value Chain Model within an
organization.

Lecture 7 (business-level strategy and the value chain model)

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Lecture 7 (business-level strategy and the value chain model)