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Learning Objectives
1. How can IS support the implementation of business strategies ?
2. In what ways can companies use IS to gain competitive advantages ?
3. How can IS help to deal with competitive forces?
Chapter 2 4. How does the rise of network-based strategies and network
economics change the way businesses compete ?
Information Systems and
5. What is the role of IS in building virtual companies ?
Strategy
6. What are the challenges posed by strategic IS ?
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INTRODUCTION INTRODUCTION
• As technology continues to evolve, firms are increasingly turning to IS to
• A competitive advantage is a mix of unique features that allows a
transform their strategies, optimize operations, and create innovative
company to outperform its competitors. It can stem from various sources,
value propositions that differentiate them from competitors.
including technology, brand reputation, intellectual property, customer
loyalty, operational efficiencies, or exclusive access to resources. • Firms use the insights from Porter model to develop strategies that enable
them to outperform competitors and achieve a competitive advantage
• Example: Tesla's innovation in electric vehicle technology, battery
performance, and autonomous driving has given it a competitive • In Porter’s competitive forces model, the strategic position of the firm and
advantage in the electric car market. its strategies are determined not only by competition with its traditional
direct competitors but also by four other forces in the industry’s
• Apple’s competitive advantage comes from its strong brand, loyal
environment: new market entrants, substitute products, customers, and
customer base, seamless ecosystem (iOS, macOS, and services like
suppliers.
iCloud), and constant innovation in product design and technology.
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Porter’s Competitive Forces Model Porter’s Competitive Forces Model
1. Threat of new entrants: How likely is it that new competitors will
come into the industry?
2. Threat of substitutes: How likely is it that other industries’ products
can be substituted for our industry’s products?
3. Bargaining power of buyers: How much bargaining power do
buyers (customers) have?
4. Bargaining power of suppliers: How much bargaining power do
suppliers have?
5. Competitive rivalry: How intense is the rivalry among industry
competitors?
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The Internet’s Impact on Competitive Advantage Impact of IS on Threat of New Entrants
• A company can achieve competitive advantage by creating barriers
to entry. How can IS restrain new market entrants?
• IS can create higher barriers to entry by requiring significant
investment in advanced technology. Example: Amazon's sophisticated
logistics and fulfillment systems make it difficult for new e-commerce
players to compete. Example: In the financial services industry,
Goldman Sachs use advanced IS to ensure compliance with global
regulations (data protection laws, financial reporting standards, or
industry-specific regulations). New entrants may lack the resources or
knowledge to set up compliant systems, making it difficult for them to
enter highly regulated industries.
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Impact of IS on Bargaining Power of Impact of IS on Threat of Substitutes
Suppliers
• How IS prevent substitutes ?
• Companies can achieve competitive advantage by securing favorable
supplier relationships. • Innovation and Differentiation: IS enable firms to innovate continuously,
creating unique products or services that are difficult to substitute.
• Increased Supplier Competition: With IS facilitating access to a broader
Example: Netflix uses advanced recommendation algorithms to provide a
base of suppliers reducing dependency on single suppliers and
personalized experience, differentiating it from traditional cable services.
enhancing negotiation power. Example: A retail company using e-
sourcing platforms (such as Ariba) can invite multiple suppliers to bid • Lower Costs of Switching: IS can enhance product stickiness, making it
for contracts, increasing competition and driving down procurement costs. harder for customers to switch to substitutes. Example: Apple’s
ecosystem of devices and services integrates seamlessly, making
• E-sourcing platforms can also track supplier performance and pricing
substitutes less attractive.
over time. The company can use this historical data to request better
pricing, improved terms, or shorter delivery times.
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Impact of IS on Bargaining Power of Buyers Impact of IS on Industry Rivalry
• Enhanced Buyer Knowledge: IS provides customers with access to
• Industry rivalry intensifies when competition is fierce, leading to price
real-time information about products and pricing, increasing their
wars, advertising battles, or other competitive actions that reduce
negotiating power. Example: Price comparison platforms like Google
profitability.
Shopping empower buyers to demand better deals.
• Firms can use IS to reduce industry rivalry by creating competitive
• Customization and Loyalty Programs: IS enables firms to offer
advantages. Here’s how they can achieve this:
personalized experiences and loyalty programs, reducing buyer power by
increasing switching costs as customers do not want to lose accumulated • 1. Differentiation strategy
rewards. Example: Airlines use IS to manage frequent flyer programs that • 2. Cost Leadership strategy
reward customers with points for each flight. These points can be • 3. Focus (or niche) strategy
redeemed for free tickets, upgrades, or other perks. Customers are less
likely to switch airlines if they risk losing significant benefits.
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Role of IS in Cost Leadership Strategy Role of IS in Differentiation Strategy
– Differentiation creates a competitive advantage as customers view the
– Implementing IS can significantly support or even help create a cost products as being unique or superior.
leadership strategy by streamlining operations, optimizing processes,
– IS support this strategy by helping firms deliver tailored value proposition,
and reducing expenses.
improve customer experience, and create distinctive offerings.
– Example: ERP, cloud platforms, automation, and AI-powered systems
– Example: Apple’s IS ensure that all its products work seamlessly
provide real-time visibility into operations which can help reduce
together, providing a unique value proposition that competitors like
operational costs, improve efficiency, eliminate redundant tasks,
Samsung and xiaomi cannot easily replicate.
optimize inventory management, making it easier for firms to achieve
– IS may be used to offer new products or to customize products. For
cost leadership.
example, Nike sells customized sneakers on its website. Customers can
select the type of shoe, colors, material, outsoles, logo… This ability to
offer individually tailored products is called mass customization.
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Role of IS in Focus (Niche) Strategy IS and Network-Based Strategies
• IS have inspired other strategies that take advantage of firms’ abilities to
– Firms that follow niche strategy are addressing a need for a product or
create networks. IS enable firms to participate in networks or ecosystems,
service that is not being addressed by mainstream providers.
create new business models and gain a competitive advantage. Example:
– Firms can use IS to analyze vast amounts of customer data to identify Tesla's participation in a network of software developers and battery
underserved or unmet needs within specific target markets, tailor their manufacturers allows it to innovate faster and create new business
offerings accordingly and pitch advertising and marketing campaigns models (e.g., vehicle-as-a-service or energy trading platforms). Example:
to these small target markets. Uber use real-time data and algorithms to match riders with drivers
– Luxury brands use IS to gather valuable insights from digital platforms efficiently, reducing wait times and optimizing routes. IS enable Uber to
to understand customer preferences and market trends. Bespoke implement dynamic pricing based on supply and demand. The network
products, special collaborations or limited-editions are generally the based strategy is central to Uber’s competitive advantage, as the more
result of this effort. drivers and riders on the platform, the more valuable the service becomes
to both parties.
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Network Economics
IS and Network-Based Strategies
• Network Economics refers to the benefits that come from being a member
• Include use of: of a network. In a network, the marginal cost of adding one more member
is close to zero, but the resulting benefits are huge because each new
– Network economics
member can then interact and trade with all the members of the network.
– Virtual company model
• The value of a community grows with its size. Example: The more people
offering products on eBay, the more valuable the eBay site is to everyone
because more products are listed, and more competition among suppliers
lowers prices.
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Virtual Company Model Li & Fung: a perfect example of a virtual company
• A virtual company uses networks (such as the internet, cloud platforms, or • Li & Fung is a leading player in the global supply chain management
other digital communication tools) to link people, processes, assets, and sector, specializing in the design, sourcing, production, and delivery of
information. It focuses on its core competencies and relies on outsourcing consumer products for major retailers and brands. The company does not
specific functions to third-party vendors (suppliers, subcontractors, directly own the factories that manufacture the goods; rather, it manages a
freelancers). It may also enter into collaborative alliances with other network of suppliers and partners to fulfill orders on behalf of its clients.
companies to create and distribute products or services • LI & Fung handles product development, raw material sourcing, production
• Unlike traditional organizations with a fixed office or manufacturing plant, a planning and shipping. It focus on coordination, management, and value-
virtual company can operate from anywhere, allowing employees, added services rather than physical production. Customers place orders to
suppliers, and partners to be geographically dispersed. This reduces the Li & Fung over its private extranet. Li & Fung then sends instructions to
overhead costs associated with maintaining physical office spaces and appropriate raw material suppliers and factories where the products are
enables businesses to tap into global talent. produced.
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Challenges Posed by Strategic IS Example
• Uber disrupted the traditional taxi industry with its app-based ride-hailing
1. How to sustain your competitive advantage ?
service. Uber relied solely on expanding and optimizing its app to manage
– The competitive advantages that IS confer do not necessarily last long
drivers, customer transactions, route optimization, and pricing, without
time. Competitors can retaliate and replicate successful IS, diminishing
giving enough attention to regulatory issues, to local competition, and to
the advantage enjoyed by early adopters. Example: Amazon was an e-
changing consumer preferences. Outcome: Uber faced regulatory
commerce leader but now faces competition from other online stores
hurdles, particularly in major cities, and experienced backlash over driver
like AliBaba, eBay...
treatment and safety concerns. Its reliance on technology, without
– Companies that rely solely on advanced IS for competitive advantage
adapting its business practices or improving driver experiences, led to
may become complacent and fail to adapt to changing market
issues in customer satisfaction and higher competition from rivals like Lyft
dynamics or customer needs.
and local players in various regions.
– Flexibility and continuous innovation are essential to competitiveness
in the long term.
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Challenges Posed by Strategic IS Challenges Posed by Strategic IS
2. Aligning IS with business objectives: 3. Limited Understanding of IS by Business Leaders:
– The most common issue is when the IT department and business – Many business leaders may have limited knowledge or understanding
leaders do not share a common understanding of the business of how IS work or their potential to contribute strategically, leading to a
strategy. IT may focus on technical upgrades or projects that don't perception that IS is merely a tool for administrative tasks or day-to-
contribute directly to the strategic objectives, leading to wasted day operations, rather than as a driver for strategic decision-making,
resources and efforts. innovation, and growth. This lack of understanding can result in
underinvestment in IS, ineffective governance, failures…
– IS should be aligned with business objectives and strategic goals.
– Solution: Firms should invest in building IS literacy among business
– This involves active involvement of business leaders in IS decision-
leaders through training, workshops, and educational initiatives.
making processes, regular communication between IS and business
Business leaders need to understand the potential of IS to drive
units, and setting IS priorities based on their potential to contribute to
innovation, improve operational efficiency, and create value for
strategic objectives.
shareholders.
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Example: Blockbuster vs. Netflix:
• Blockbuster was once the leader in video rental, relying heavily on its
brick-and-mortar stores and sophisticated inventory and rental tracking
systems.
• One of the key reasons Blockbuster failed to adapt to the digital shift was
that its leadership did not fully grasp the potential of online streaming and
the importance of IS in transforming the customer experience. While
Netflix recognized the need for robust IS to facilitate streaming, content
management, and personalized recommendations, Blockbuster’s
leadership focused on the traditional DVD rental model and was slow to
invest in the necessary technology.
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