Chapter 3

Strategy Matters

When we are making considerations to MIS business strategy must always be taken into account.  When a company has an established competitive strategy the aspects of that strategy will influence the system itself just as it influences the organization as a whole.  Lets take some time and discuss some aspects of business strategy, a couple of well regarded models and how this really can be vital information regarding our MIS.  By the end of this entry we should all have a good understanding of how the strategy exerts influence on the structure, features and overall function of information systems.

The Five Forces

A commonly used model for business strategy is the Five Forces model.  It was published by researcher Michael Porter and is an excellent model for understanding the overall structure of an Industry.  Once you are able to understand the structure you can develop your strategy much more effectively.  The Five Forces model takes into account the following forces that have an effect on an industry as a whole: bargaining power of customers, threat of substitutions, bargaining power of suppliers, threat of new entrants and rivalry.  

These forces are evaluated of a level of weak to strong in order to understand how much of an effect they may have on any potential  business strategy.  Lets talk about the forces in detail starting with bargaining power of customers.  This force addresses the relative power of a customer to influence their purchases or acquisitions or in other words the total value they receive.  A strong example would be where a customer can demand a discount due to the size of their purchase or weak example would be an industry where customer service is not a powerful force such as in the industry of ambulance operators.  Next we have the threat of substitutions which evaluates how easy it is for customers to switch be tween products or vendors.  A strong example would be in the beer industry where there is great variety and no extra cost in trying something new where as a weak example would be in the aviation part industry where there is often no other choice other than to purchase your parts directly from the manufacturer.  That brings us to the bargaining power of suppliers, this is the same of that of the consumer except now we are addressing a suppliers ability to manipulate the price they receive for their product.  A strong example would be going to an auto mechanic, they assess the value of the work they preform with no over site from the consumer other than the possibility of an estimate.  A weak example of the bargaining power of a supplier would be in the industry of healthcare in a government sponsored single payer system, the medical institution has zero bargaining power as the prices of their services is predetermined by the government.  Threat of new entrants is another force that can have an effect on a industry.  This evaluates the ability of new competitors to enter an industry as a whole.  Business that are easy to replicate such as a car wash have a strong force here where those with barriers to entry such as a business with high start up cost of a low force.  Finally, we have the force of rivalries.  A good way to look at this is the amount of competitors that already exist in an industry.  I think that strong and weak are pretty straight forward here.  Once we have a strong understanding of the forces in the industry in question we can begin to formulate our competitive strategy.

Strategize Competitively

When a competitive strategy is developed we are simply deciding how to respond to the structure of an industry as it is understood.  Michael Porter has a second model that does a good job of generalizing the possibilities available in any industry.  It is a model of four strategies that are reached by choosing one aspect to purse from two sections that have two options.  

            

First we decide whither our product will compete by being cheaper or by being better.  That is a pretty simple concept and there isn't really any need to complicate it more.  Obviously a lower cost product will have a competitive advantage to some degree and a better product will too, often even if their is a significant premium associated with it.  Once we have decided which option is more beneficial in our industry we have to decide whither the benefits are greater if we focus on the industry as a whole or if we corner a specific segment.  Note:  It is possible that you need to evaluate the benefits to focusing on a segment of the industry versus the whole of it first.  This structure of the industry could make it obvious which has the greater potential.  

The Next Step - Value Chain

With our general competitive strategy selected we can now begin to build our value chain.  Just as the industry structure influences the competitive strategy so too does the competitive strategy influence the value chain.  A value chain is simply a network of  activities that create value.  A generic model exist that is generally applicable and provides a good and simplified overview of value chains.

First we have the inbound logistics activity.  This is the step in the chain where we bring in raw materials for our manufacturing or service.  Next we have the operations or manufacturing step.  Here we would process or raw materials or service materials into a product that can be sold.  (Service is the product that is sold be even that has a process i.e. The installation of a new compressor on a refrigerator).  Outbound logistics is another step in the chain.  This is the process of either shipping our product out or even managing or inventory of raw materials in a manner that allows us to easily monetize them.  We also have sales and marketing activities.  These are activities that connect our product to the customer or even the customer to our products.  Finally there customer service activities, while it is a general term it simply involves anything that assist the customer with the use of the product.  This could include maintenance, training or even warranty replacement.  All of these activites would be called primary activities in a value chain.  They are supplemented with support activities which are simply activities that contribute to the completion of a primary activity such as operating a call center for customer service.  

It is important to understand that the value chain does not have to interact with itself in a linear fashion.  Linkages or interactions across activities can connect any one activity with another.

Processes In The Chain

We now have arrived at business process themselves which include activities that make up our chain. They can be defined as a network of activities that generate value by transforming inputs into outputs.  Something goes in and something different comes out that has a greater value.  An activity is not limited to being part of only once process which is important to keep in mind.  As an example in a factory setting raw materials would be included in two different processes.  First it is part of the materials ordering process that would fall under our inbound logistics activity.  It is also part of the manufacturing process which is a manufacturing/service activity.  Think about how value is created in the processes.   A process could include many different activities that involve consist of multiple primary value chain activities and any one could be connected to another.   The design, maintenance and implementation of these processes is called business process management.  

Back To MIS

So where does out mother subject fit in?  MIS fits in anywhere it can in the chain.  Information systems can be used to give a competitive advantage in almost any aspect of a business value chain.  It can replace older process or link existing ones together to create another new process that provides new value.  The examples are near limitless but I will provide a couple of examples for entertainment value.  First, we could maintain our logistics network though paper records and paper invoices or we could digitize the process and provide hardware for our drivers and warehouse technicians to interact and use our system.  That is the replacement of a process.  Now that we have that in place however we could link or logistics with our sales in a way that wasn't possible before.  We could use the shipped from address data and compile a database of frequent customers in a geographical area and send those customers free shipping envelopes and boxes.  This could provide a fantastic advantage in an industry where substitutions are a strong force.  This is a fine example of the role of strategy in MIS, it can be both the how and they why which is why it is so important.