Chapter 3: Strategy and Information Systems

In Chapter 3, we begin to learn about competitive strategy and how it is used to achieve an organization's goals and objectives.

Researcher Michael Porter's Five Forces helps us understand what determines an industries structure. The forces can be broken down into two sets, competitive and bargaining. These five forces are:

1. Bargaining power of customers
2. Threat of substitutions
3. Bargaining power of suppliers
4. Threat of new entrants
5. Rivalry

Here is a table that shows examples of Five Forces:

What we can see here is that for the three competitive forces, each of them show concern about losing their customers to other businesses.

Porter shows us that organizations can focus their competitive strategies on either being a cost leader or differentiating their products. Furthermore, they can choose to either focus their strategy across an industry or just an industry segment itself.

In the text, value is defined as the amount of money a customer is willing to pay for something. The difference between the value and the cost of a resource, product, or service is called a margin. Five primary activities and four support activities creates a value chain. They are found here:

A business process generates value by transforming inputs into outputs. Each activity in a business process receives inputs and produces outputs.

An example of three processes are materials ordering, manufacturing, and sales processing.

Organizations gain competitive advantage by creating new products or services, by enhancing existing products or services, and by differentiating their products and services from those of their competitors.

Organizations can lock in customers by making it difficult or expensive for customers to switch to another product. This is known as switching costs. Orgs can also lock in suppliers by making it difficult to switch to another organization.

Companies are able to use IS to create competitive advantages:

• Enhances existing products
• Differentiates products
• Locks in customers
• Raises barriers to market entry
• Increases profit margins by decreasing costs and decreasing errors
• Maintains customer account data
• Package & information delivery system