How Information Gives you Competitive Advantage :How Information Gives you Competitive Advantage By Michael Porter and Victor Millar HBR July-August 1985


Pivotal Ideas :1/15/2009 IS Breadth Exam - John Fisher 2 Pivotal Ideas Increased importance of IT Most general managers know... that the technology can no longer be the exclusive territory of EDP or IS departments Information as a key resource for business Today, information technology must be conceived of broadly to encompass the information that businesses create and use as well as a wide spectrum of increasingly convergent and linked technologies that process information


Technology impact on competition :1/15/2009 IS Breadth Exam - John Fisher 3 Technology impact on competition Three ways IT changes the game It changes industry structure and therefore the rules of competition It creates competitive advantage by giving companies new ways to outperform their rivals It spawns whole new businesses Often within a company’s existing operations


The Value Chain :1/15/2009 IS Breadth Exam - John Fisher 4 Support activities Primary activities Inbound logistics Materials receiving, storing, and distribution to manufacturing premises Operations Transforming inputs into finished products. Outbound logistics Storing and distributing products Marketing and Sales Promotions and sales force Service Service to maintain or enhance product value Corporate infrastructure Support of entire value chain, e.g. general management planning, financing, accounting, legal services, government affairs, and QM Human resources management Recruiting, hiring, training, and development Technology Development Improving product and manufacturing process Procurement Purchasing input The Value Chain


Technology and the Value Chain :1/15/2009 IS Breadth Exam - John Fisher 5 Technology and the Value Chain Every value activity has both a physical and an information-processing component IS component encompasses the steps required to capture, manipulate and channel the data necessary to perform the activity


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How Technology Permeates the Value Chain :1/15/2009 IS Breadth Exam - John Fisher 7 How Technology Permeates the Value Chain Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Automated warehouse Flexible Manufacturing Automated order processing Telemarketing, remote terminals for sales staff Remote servicing of equipment, computer scheduling & routing of repair trucks


Transforming the Value Chain :1/15/2009 IS Breadth Exam - John Fisher 8 Transforming the Value Chain IT is advancing faster than technologies for physical processing This expands the limits of what companies can do faster than managers can explore the opportunities IT is generating more data about activities and products, information that was not available before There is a higher information content in products IT enhances the ability to exploit linkages between activities both inside and outside the company IT allows companies to coordinate activities in widely dispersed geographic locations Often there is too much information, but IT can store and help analyze the flood of information


Changing Industry Structure :1/15/2009 IS Breadth Exam - John Fisher 9 Changing Industry Structure IT Impacts on the five forces model Large IT investments provide barriers to entry Automated quotes for easier comparisons Systems to connect suppliers and buyers CAD makes it easier to change product offerings Increased rivalry among existing competitors


Creates Competitive Advantage :1/15/2009 IS Breadth Exam - John Fisher 10 Creates Competitive Advantage Lowering cost Automated parts inventory, new sales process Enhancing differentiation Customizing products and greater selection Changes company scope IT increases ability to coordinate activities within a company Also allows interrelationships between companies and among industries


Spawning New Businesses :1/15/2009 IS Breadth Exam - John Fisher 11 Spawning New Businesses Makes new businesses technologically feasible (Merrill Lynch Cash Management) Creates derived demand for new businesses (Western Union’s EasyLink) Creates new businesses within old ones (may give a company excess capacity or skills – Sears providing credit services to other companies)


Five Steps for Senior Executives :1/15/2009 IS Breadth Exam - John Fisher 12 Five Steps for Senior Executives Assess information intensity Evaluate intensity on value chain or product Determine the role of IT in industry structure Predict the impact of IT on the industry Identify and rank the ways in which IT might create competitive advantage IT impacts every activity on the value chain Investigate how It might spawn new businesses What information could the company sell, etc Develop a plan for taking advantage of IT Rank strategic IT investments, look at info components for products


An Example from Bob Herbold :1/15/2009 IS Breadth Exam - John Fisher 13 An Example from Bob Herbold “Why do you (Procter & Gamble) have all those salesmen, making me have a bunch of buyers? Why not just connect your computers to our computers?” Sam Walton to the CEO of P&G, November 1987 Talk by Bob Herbold – Retired COO Microsoft, ex CIO Proctor & Gamble on October 28, 2004 about his new book – The Fiefdom Syndrome