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Discuss at least 4 examples of the use of IS/IT for innovation.

Discuss at least 4 examples of the use of IS/IT for innovation.

Discuss at least 4 examples of the use of IS/IT for innovation.

For this assignment you will have to prepare a paper that critically discusses how organisations apply the strategic use of IS/IT to achieve IS/IT-enabled innovation (Note: you should try to focus on information systems rather than mobile apps and social media platforms & applications). Some aspects and issues you may discuss in your paper could include (but are not limited to):

• Discuss at least 4 examples of the use of IS/IT for innovation.

• Highlight some success factors or some lessons learned (i.e., what went wrong?) for your examples.

Topic 2Information systems for competitive advantage

Topic aims

· Review competitive forces and competitive IS/IT strategies for gaining competitive advantages

· Explain concepts of value chain, value web and business eco-systems and co-opetition

· Demonstrate some IS/IT applications useful for gaining competitive advantages

· Explain the importance of being both innovative and the best.

2.1 Competitive forces and competitive advantage

Gaining competitive advantage is critical for organisations. Baltzan and Phillips (2010, p. 16) define competitive advantage as ‘a product or service that an organization’s customers value more highly than similar offerings from its competitors’ (in other words, you have something useful (i.e. products, services, capabilities) that your competitors do not have). Competitive advantages are typically temporary as competitors often seek ways to duplicate the competitive advantage (Baltzan & Phillips 2010, p. 16). In order to stay ahead of competition, organisations have to continually develop new competitive advantages. This section discusses how an organisation can analyse, identify, and develop competitive advantages using tools such as Porter’s Five Forces, three generic strategies, and value chains.

Michael Porter’s Five Forces Model is a useful tool to assist in assessing the competition in an industry and determining the relative attractiveness of that industry. Porter states that in order to do an industry analysis a firm must analyse five competitive forces (Baltzan & Phillips 2010, p. 17):

· Rivalry of competitors within its industry

· Threat of new entrants into an industry and its markets

· Threat posed by substitute products which might capture market share

· Bargaining power of customers

· Bargaining power of suppliers.

To survive and succeed, a business must develop and implement strategies to effectively counter the above five competitive forces. O’Brien and Marakas (2011, p. 49) suggest that organisations can follow one of five basic competitive strategies, which are based on Porter’s three generic strategies of broad cost leadership, broad differentiation, and focused strategy (see Figure 2.1). The five competitive strategies are:

· cost leadership: reducing costs of products and services and identifying ways to help suppliers and customers reduce their costs

· differentiation: exploring ways to differentiate a firm’s products and services from its competitors’ and to reduce the differentiation advantages of competitors

· innovation: developing new ways of doing business, i.e. unique products and services and unique markets or market niches

· growth: increasing a company’s capacity to produce goods and services, expanding into global markets, diversifying into new products and services, and integrating into related products and services

· alliance: setting up new business linkages and alliances with customers, suppliers, competitors, consultants, and other companies.

Figure 2.1 Competitive forces and competitive strategies. (Source: O’Brien & Marakas 2011, p. 49)

Merger or acquisition could be another useful strategy for eliminating competitors. Some understandings of using information systems for gaining competitive advantages could be located in Table 2.1.

Table 2.1Competitive Strategies & Roles of Information Systems. (Source: Adopted from Xu & Quaddus 2013, pp. 28–29)
Competitive Strategy Roles of Information Systems
Cost Leadership Organizations can use information systems to fundamentally shift the cost of doing business (Booth, Roberts & Sikes 2011) or reduce the costs of business processes and/or to lower the costs of customers or suppliers , i.e. using online business to consumer & business to business models, e-procurement systems to reduce operating costs.
Differentiation Organizations can use information systems to develop differentiated features and/or to reduce competitors’ differentiation advantages, i.e. using online live chatting systems and social networks to better understand and serve customers; using technology to create informediaries to offer value-added service and improve customers’ stickiness to your website/business (Booth, Roberts & Sikes 2011); applying advanced and established measures for online operations to offline practices (i.e. more accurate and systematic ways of measuring efficiency and effectiveness of advertising) (Manyika 2009).
Innovation Organizations can use information systems to identify and create (or assist in creating) new products and services and/or to develop new/niche markets and/or to radically change business processes via automation (i.e. using digital modelling and simulation of product design to reduce the time and cost to the market (Chui & Fleming 2011). They also can work on new initiatives of establishing pure online businesses/operations. At the same time, the Internet and telecommunications networks provide better capabilities and opportunities for innovation. “Combinational innovation” and Open innovation are two good examples. There are a large number of component parts on the networks that are very expensive or extremely different before the establishment of the networks, and organizations could combine or recombine components/parts on the networks to create new innovations (Manyika 2009). Meanwhile everyone is connected via personal computers, laptops and other mobile devices through cabled Internet or wireless networks or mobile networks, there are plenty of opportunities to co-create with customers, external partners and internal people.
Growth Organizations can use information systems to expand domestic and international operations and/or to diversify and integrate into other products and services, i.e. establishing global intranet and global operation platform; establishing omni-channel strategy to gain growth (omni-channel strategy looks at leveraging advantages of both online (or digital) and offline (or non-digital) channels) (Rigby 2011).
Strategic Alliance Organizations can use information systems to create and enhance relations with partners via applications, such as developing virtual organizations and inter-organizational information systems.

O’Brien and Marakas (2008, p. 47) also point out that information technology can help a business implement the five basic competitive strategies in many ways (see Table 2.2). Table 2.2 presents examples of how specific companies have used information technology to implement these five strategies.

Table 2.2Examples of competitive strategies. (Source: O’Brien & Marakas 2008, p. 47)
Strategy Company Strategic Use of Information Technology Business Benefits
Cost Leadership Dell Computer Online build to order Lowest cost producer
  Priceline.com Online seller bidding Buyer-set pricing
  eBay.com Online auctions Auction-set prices
Differentiation AVNET Marshall Customer/supplier e-commerce Increase in market share
  Moen Inc. Online customer design Increase in market share
  Consolidated Freightways Customer online shipment tracking Increase in market share
Innovation Charles Schwab & Co. Online discount stock trading Market leadership
  Federal Express Online package tracking and flight management Market leadership
  Amazon.com Online full-service customer systems Market leadership
Growth Citicorp Global intranet Increased in global market
  Wal-Mart Merchandise ordering by global satelite network Market leadership
  Toys ‘ᴙ’ Us Inc. POS inventory tracking Market leadership
Alliance Wal-Mart?Procter & Gamble Automatic inventory replenishment by supplier Reduced inventory cost/increased sales
  Cisco Systems Virtual manufacturing alliances Agile market leadership
  Staples Inc. and Partners Online one-stop shopping with partners Increased in market share

On top of these five basic strategies, companies can also adopt other competitive strategies facilitated by information technology to shape their competitive advantage. Some examples provided by O’Brien & Marakas (2011, pp. 50–52) are:

· locking in customers or suppliers by building valuable new relationships with them via CRM applications

· building switching costs via extranets and proprietary software applications so that a firm’s customers or suppliers are reluctant to pay the costs in time, money, effort, and bear the inconvenience to switch to a company’s competitors

· raising barriers to entry through improving operations or promoting innovation by increasing the amount or the complexity of the technology required

· leveraging investments in IT to take advantage of strategic opportunities, i.e. developing new products and services via intranets and extranets.

2.2 Value chain

Another important concept and tool that can help a business identify competitive advantage and opportunities for strategic use of information technology is Porter’s value chain model. The value chain approach views an organisation as a chain, or series, of processes, each of which adds value to the product or service for each customer (O’Brien & Marakas 2011, p. 56). The value chain helps an organisation determine the ‘value’ of its business processes for its customers. The model highlights specific activities in the business where competitive strategies can be best applied and where information systems are most likely to have a strategic impact. The firm’s value chain can be linked to the value chains of its business partners thereby achieving strategic advantage by providing value, not only through its internal value chain process but also through powerful, efficient ties to industry value partners (Laudon & Laudon 2012, p. 135) (see Figure 2.2).

Figure 2.2 The firm value chain and industry value chain. (Source: Laudon & Laudon 2012, p. 135)

The use of IT does not in itself create value. The value is in the strategic use of IT to assist/improve a competitive strategy. So here technology is the means to support the value chain.

A value web is a value chain extended by Internet technology that connects all the firm’s suppliers, partners, and customers and can ‘synchronize the value chains of business partners within an industry to rapidly respond to changes in supply and demand’ (Laudon & Laudon 2012, p. 137) (see Figure 2.3). It is more customer-driven, less linear than a value chain and is flexible and adaptive to changes in supply and demand.

Figure 2.3 The value web. (Source: Laudon & Laudon 2012, p. 135)

2.3 Business eco-systems and co-opetition (competition & cooperation)

In today’s digital era, firms need to have a more dynamic view of the boundaries among firms, customers, and suppliers, with competition and cooperation occurring with members of the Industry set (more than one industry) (Laudon & Laudon 2012, p. 140) (see Figure 2.4). For example, car, plane, bus, train are in the same industry set of transportation. Another example is the way that traditional universities are now competing with online learning and other training and development firms.

Business eco-systems refer to ‘loosely coupled but independent network of suppliers, distributors, partners and strategic alliances’ (Laudon & Laudon 2012, p. 139). An excellent example of business eco-systems is the mobile Internet platform; industries such as mobile device manufacturers, software vendors, online services firms, Internet services providers are working together.

Figure 2.4 An eco-system model. (Source: Laudon & Laudon 2012, p. 140)

Another term reflects the same meaning is ‘co-opetition’. In order to succeed in today’s highly competitive market, firms also should practice ‘co-opetition’ since not all strategic alliances are formed with suppliers or customers. Co-opetition is a strategy whereby companies cooperate and compete at the same time with their competitors, complementors (i.e. hardware and software businesses), customers, suppliers (Pearlson & Saunders 2014, p. 65). Through co-opetition, the best possible outcome for a business can be achieved by optimally combining competition and cooperation. A good example is Covisint, which is the auto industry’s e-marketplace and is backed up by competitors of GM, Ford, Daimler Chryslers and others. Benefits of Covisint include speed in decision making, reduced supply chain costs and greater responsiveness in serving customers.

The downside to co-opetition is that it may be viewed as collusion. Many countries have legislation in force to deter anti-competitive or price-fixing practices. The ACCC in Australia has imposed huge monetary fines on companies and the directors of those companies found guilty of anti-competitive or price-fixing practices.

2.4 Applications of information technology for competitive advantages

There are many ways that organisations may view and use information technology to support competitive advantages. Here we discuss a few examples of strategic business applications of information technology.

Building a customer-focused business

Information technology can help build a customer-focused business, which can anticipate customers’ future needs, respond to customer concerns, and provide top-quality customer service (O’Brien & Marakas 2011, p. 54).

Re-engineering business processes

Information technology is an important enabler of an organisation’s effort for business processes re-engineering (BPR), which is fundamentally rethinking and radically redesigning the business processes to achieve dramatic improvements in cost, quality, speed, and service. For example, firms can use Internet (i.e. online retailing) and Internet-linked networks (i.e. intranet for connecting employees all over the world and extranet for cooperating and collaborating with business partners) for business transformation (O’Brien & Marakas 2011, p. 58).

When implementing strategic initiatives, such as cross-functional systems of CRM, ERP, and SCM, organisations always have to make some fundamental changes to their business processes to facilitate the integration and implementation of new systems. In preparation for implementing such systems organisations may first need to fix poorly designed processes and/or change processes. There is no point in automating a bad process. Although companies may achieve dramatic improvement in cost, quality, speed and service, the risk of failure and level of disruption to the organisational environment of radical changes/BPR can be detrimental (O’Brien & Marakas 2011, p. 58).

Becoming an agile company

According to O’Brien & Marakas (2008, p. 59), agility is ‘the ability of a company to prosper in rapidly changing, continually fragmenting global markets for high-quality, high performance, customer-configured products and services’. Accordingly an agile company is a company that can ‘make a profit in markets with broad product ranges and short model lifetimes, and can produce orders individually and in arbitrary lot sizes, and information technology along with the help of customers and business partners can help a company achieve agility (O’Brien & Marakas 2011, p. 63) (see Table 2.3).

Table 2.3Role of IT in achieving agility. (Source: O’Brien & Marakas 2011, p. 63)
Type of Agility Description Role of IT Example
Customer Ability to co-opt customers in the exploitation of innovation opportunities

· as sources of innovation ideas

· as cocreators of innovation

· as users in testing ideas or helping other users learn about the idea

Technologies for building and enhancing virtual customer communities for product design, feedback, and testing eBay customers are its de facto product development team because they post an average of 10,000 messages each week to share tips, point out glitches, and lobby for changes.
Partnering Ability to leverage assets, knowledge, and competencies of supplies, distributors, contact manufacturers, and logistics providers in the exploration and exploitation of innovation opportunities Technologies facilitating interfirm collaboration, such as collaborative platforms and portals, supply-chain systems, etc. Yahoo! has accomplished a significant transformation of its service from a search engine into a portal by initiating numerous partnerships to provide content and other media-related services from its website.
Operational Ability to accomplish speed, accuracy, and cost economy in the exploitation of innovation opportunities Technologies for modularization and integration of business processes Ingram Mrico, a global wholesaler, has deployed an integrated trading system allowing its customers and suppliers to connect directly to its procurement and ERP systems.

Creating a virtual company

A virtual company uses the Internet, intranets, and extranets to link people, assets and ideas, form workgroups and support alliances with business partners (O’Brien & Marakas 2011, p. 64) (see Figure 2.5) regardless of location.

Figure 2.5 A virtual company. (Source: O’Brien & Marakas 2011, p. 64)

Strategy and the Internet

Porter suggests the Internet is relevant to strategy development. However, he argues the Internet is only a complement to, not a cannibal of, traditional ways of competing.

Reading 2.1

Turn to Reading 2.1 for a discussion about the Internet and competition, titled ‘Strategy and the Internet’ by Michael Porter (2001).

2.5 Early technology adopter and innovation

Companies like eBay (online auction), Yahoo (Internet directory), and Apple computer (software/hardware) ‘got there first’ and leveraged their first-mover/early adopter competitive advantage. Companies such as Citibank (ATM), Sony (video tape), Chemdex (B2B digital exchange), Netscape (Internet browser), lost their first-mover advantages to late movers. Intel (microchip), America Online (Internet marketing), Google (online search engine), are some good examples of companies who were later movers but gained success over earlier adopters by being the best (Turban et al. 2006, p. 592).

The first mover in an industry has the advantage of being the first to offer a good or service to the market. This can help create an impression that it is the pioneer or the initiator in the customer’s mind. In addition this firm will be able to capitalise on the demand for this good or service until another firm enters the market (Turban et al. 2006, p. 591). However, first movers take the risk that new goods and services may not be accepted by the market. Some factors that determine the success or failure of the first mover strategy suggested by Turban et al. (2006, p. 591) include:

· size of the opportunity: big enough opportunity for just one firm and the company is big enough for the opportunity

· commodity products: simple enough to offer but hard to differentiate, i.e. books and airline seats. Products such as clothes and restaurants are more easily differentiated by later movers with better features and services encouraging a switch to late movers.

· be the best: in the long run, best-mover advantage not first-mover advantage determines the market leader.

In the long term, organisations have to keep on being innovative and investing in R&D to stay ahead of the competition and/or survive in the market. The following Figure 2.6 presents the Top 20 Innovation firms based on spending on R&D.

Figure 2.6 The Innovation Top 20 (based on R&D spending). (Source: Jaruzelski, Staack & Shinozaki 2016, p. 5)

It should be noted that R&D investment alone could not guarantee successful innovation management, for example, the top 10 most innovative companies presented in Figure 2.6 are not necessarily top spenders on R&D. Other factors influencing the success of innovation management could include (Jaruzelski & Dehoff 2010; 2011; Jaruzelski, Loehr & Holman 2012; Xu & Quaddus 2013, pp. 38–39): top management’s innovation skills and attitude, innovation process (including effective management of ideas generation and the process of from idea generation to product development), alignment between innovation strategy and business strategy, and pro-innovation culture (i.e. strong customer focus and customer experience orientation, passion and pride for products and services offered).

Figure 2.7 The Most Innovative Companies. (Source: Jaruzelski, Staack & Shinozaki 2016, p. 9)

Meanwhile organisations are paying more attention to open innovation. Open innovation emphasises an organisation’s efforts of engaging and collaborating with external sources and its partners in its innovation process (Lichtenthaler, Hoegl & Muethel 2011). The telecommunications networks and Internet technologies have made the open innovation more appealing to organisations. Open innovation strategy has been adopted by many most innovative companies in the world. One of the excellent/prominent examples or leaders of successfully implementing open innovation strategy is Mozilla Corporation, which has developed an open-source and free web browser: Firefox (Xu & Quaddus 2013, p. 34).

Reading 2.2

Read Reading 2.2 titled ‘The Half-Truth of First Mover Advantage’ by Suarez and Lanzolla (2005) for a discussion on identifying situations in which companies may gain first-mover advantages and situations in which such advantages are less likely.

Reading 2.3

Turn to Reading 2.3 titled ‘Is Your Company Ready for Open Innovation’ to read about some insights on successfully implementing open innovation in the organisation.

Reading 2.4

Turn to Reading 2.4 to read about some innovation best practices at some of the world’s most innovation firms.

Activity 2.1

Go to MySCU and locate Activity 2.1 Case titled read the case titled ‘Wachovia and Others: Trading Securities at the Speed of Light’ under Topic 2 – Information Systems for Competitive Advantages in the Section of PPTs and Recordings. Answer the questions at the end of the case.

Summary

In this topic an important dimension of strategic information systems, identifying competitive advantages and enhancing competitive strategies through information technology, was discussed. Organisations can apply strategic planning tools such as Porter’s five forces and value chain to analyse their competitive position, examine their competitive advantages, and identify relevant competitive strategies. IT can play a very important role in the success of organisation’s competitive strategies. However competitive strategies alone cannot create magic. In order to meet the ‘IT’s unmet potential’, both IT and non-IT executives need to work hard to have a better understanding each other’s areas (Roberts & Sikes 2008). The transparency in the planning and execution of IT projects should be visible to business leaders. Accountability of IT projects should be applied to both IT and business sections in the organisation. In the next topic, planning and evaluating information systems will be discussed.

Feedback to activities

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