978-0073402987 Chapter 1 Section 1.2 Business Strategy

Type

Quiz

Book Title

Business Driven Information Systems 5th Edition

ISBN 13

978-0073402987

April 4, 2019

SECTION 1.2

BUSINESS STRATEGY

This section discusses how an organization can identify competitive

advantages using tools such as Porter’s Five Forces, three generic strategies,

and value chains. Gaining competitive advantages are critical for

organizations. Organizations also must understand that competitive

advantages are typically temporary since competitors are quick to copy

competitive advantages. For example:

United was the first airline to offer a competitive advantage with its

frequent &yer mileage (this first-mover advantage was temporary)

Sony had a competitive advantage with its portable stereo systems (this

first-mover advantage was temporary)

Microsoft had a competitive advantage with its unique Windows operating

system

Ask your students if Microsoft still has a competitive advantage with its

Windows operating system

Ans: Perhaps – primarily due to its first-mover advantage since it is

difficult to switch operating systems and users face interoperability

issues if they are using different operating systems at the same

organization.

How many students in your class are currently using Windows?

What are the competitors to Windows? Ans: Linux and Macintosh

Why are there only three primary competitors (Microsoft, Macintosh,

and Linux) in this large operating system market?

LEARNING OUTCOMES

Learning Outcome 1.3: Explain why competitive advantages are

temporary.

A competitive advantage is a feature of a product or service on which

customers place a greater value than they do on similar offerings from

competitors. Competitive advantages provide the same product or service

either at a lower price or with additional value that can fetch premium prices.

Unfortunately, competitive advantages are typically temporary, because

competitors often quickly seek ways to duplicate them. In turn, organizations

must develop a strategy based on a new competitive advantage. Ways that

companies duplicate competitive advantages include acquiring the new

technology, copying business processes, and hiring away employees.

Learning Outcome 1.4: Identify the four key areas of a SWOT

analysis

A SWOT analysis evaluates an organization’s strengths, weaknesses,

opportunities, and threats to identify signiticant in&uences that work for or

against business strategies. Strengths and weaknesses originate inside an

organization or internally. Opportunities and threats originate outside an

organization or externally and cannot always be anticipated or controlled.

Learning Outcome 1.5: Describe Porter’s Five Forces Model and

explain each of the 4ve forces.

Porter’s Five Forces Model analyzes the competitive forces within the

environment in which a company operates, to assess the potential for

pro$tability in an industry.

Buyer power is the ability of buyers to affect the price they must pay for

an item.

Supplier power is the suppliers’ ability to in&uence the prices they charge

for supplies (including materials, labor, and services).

Threat of substitute products or services is high when there are many

alternatives to a product or service and low when there are few

alternatives from which to choose

Threat of new entrants is high when it is easy for new competitors to

enter a market and low when there are signi$cant entry barriers to

entering a market

Rivalry among existing competitors is high when competition is $erce in a

market and low when competition is more complacent

Learning Outcome 1.6: Compare Porter’s three generic strategies.

Organizations typically follow one of Porter’s three generic strategies when

entering a new market: (1) broad cost leadership, (2) broad differentiation,

(3) focused strategy. Broad strategies reach a large market segment.

Focused strategies target a niche market. Focused strategies concentrate on

either cost leadership or differentiation.

Learning Outcome 1.7: Demonstrate how a company can add value

by using Porter’s value chain analysis.

To identify competitive advantages, Michael Porter created value chain

analysis, which views a firm as a series of business processes that each add

value to the product or service. The goal of value chain analysis is to identify

processes in which the firm can add value for the customer and create a

competitive advantage for itself, with a cost advantage or product

differentiation. The value chain groups a $rm’s activities into two categories

—primary value activities and support value activities. Primary value

activities acquire raw materials and manufacture, deliver, market, sell, and

provide after-sales services. Support value activities, along the top of the

value chain in the figure, include $rm infrastructure, human resource

management, technology development, and procurement. Not surprisingly,

these support the primary value activities.

CLASSROOM OPENER

GREAT BUSINESS DECISIONS – Cyrus McCormick’s Reaper

On a hot summer day in 1831, several dozen farmers and hired laborers

gathered in a wheat field in Virginia to watch a horse-drawn wood-and-iron

device mow down rows and rows of golden wheat. On this day,

twenty-two-year-old Cyrus McCormick demonstrated the reaper that his

father invented and changed history as the mechanization of farming began.

Soon the process of industrialization began, which turned the nation’s

economy into the world’s most productive workforce. As the historian William

Hutchinson noted, “Of all the inventions during the first half of the

nineteenth century which revolutionized agricultures, the reaper was

probably the most important.”

Interestingly, the McCormicks were not the only individuals to build and

develop a reaper. In fact, many other companies and individuals developed

similar technology; however, Cyrus McCormick invented the business of

making reapers and selling them to the farmers of America and foreign

countries. His real genius was in the area of gaining and protecting patents

for his technology. McCormick turned the reaper into a commercially viable

product and introduced many new business practices including free trials,

money-back guarantees, and installment payment plans.

CLASSROOM OPENER

GREAT BUSINESS DECISIONS – Henry Luce Decides to Rank

Companies in the Fortune 500

Henry Luce founded Time magazine in 1923 and Fortune magazine in 1929.

Luce decided to create a ranking of America’s top 500 companies, called The

Fortune 500, which has served as the corporate benchmark for the twentieth

century – as well as being a clever marketing tactic for the magazine. The

Fortune 500 remains a powerful barometer of who’s up and down in the

corporate world. It is also a brilliant marketing tool since every single time its

name is mentioned, so is the name of the magazine. However, being ranked

on the Fortune 500 does not guarantee that the organization will achieve

future success, and its measures of current achievement can also be limited

and a bit confusing.

BusinessWeek magazine created a similar ranking by introducing its biannual

ranking of business schools. The issue routinely outsells all other issues of

the magazine in the year.

CLASSROOM EXERCISE

Porter Video on YouTube

Great YouTube video with Michael Porter on The Five Competitive Forces that

Shape Strategy.

http://www.youtube.com/watch?v=5R81uCoGby4

The article that Michael refers to in this video can be found online...

http://harvardbusinessonline.hbsp.harvard.edu/hbsp/hbr/articles/article.jsp?

_requestid=190696&ml_subscriber=true&ml_action=get-article&ml_issueid=

BR0801&articleID=R0801E&pageNumber=1

Michael Porter – The Five Forces that Shape Strategy (10 Mins)

http://www.youtube.com/watch?v=mYF2_FBCvXw

Michael Porter - Global Competitiveness Report 2007 (15 Mins)

http://www.youtube.com/watch?v=kzn9-M2umFQ

Michael Porter with Charlie Rose (2 Mins)

http://www.youtube.com/watch?v=q8NZfbcNMrM

Michael Porter: Long-term strategies in a down turn (13 Mins)

http://www.youtube.com/watch?v=mwc073nNl3Q

Institute for Strategy and Competitiveness

Ask your students to visit Michael Porter’s Institute for Strategy and

Competitiveness. There are numerous articles, videos, book excerpts, etc.

for the students to dig into Porter. http://www.isc.hbs.edu/

Strategy and the Internet

Discuss Porter’s HBS article Strategy and the Internet by Michael Porter.

http://hbswk.hbs.edu/item/2165.html

CLASSROOM EXERCISE

Strategy and the Internet

Ask your students to visit Michael Porter’s Institute for Strategy and

Competitiveness. There are numerous articles, videos, book excerpts, etc. for

the students to dig into Porter. http://www.isc.hbs.edu/

Strategy and the Internet

Discuss Porter’s HBS article Strategy and the Internet by Michael Porter.

http://hbswk.hbs.edu/item/2165.html

Have your students discuss the importance of technology on business

strategy.

oSince this article was written in 2001 ask your students the

following:

oWhat can be extrapolated to today's competitive environment?

oWhat has become obsolete about the Internet and strategy?

CLASSROOM EXERCISE

Analyzing Porter’s Five Forces

Porter's Five Forces is an easy framework to understand and offers a quick

way to analyze a market. Porter’s Five Forces was introduced in the text and

you can review the below examples to ensure you have a solid

understanding of each force. For this assignment, choose a product from the

following list and perform a Porter’s Five Forces analysis. Feel free to use the

below Porter’s Five Forces template for your assignment.

Desktop Computer

Address Book

Walkman

VHS Player

Polaroid Camera

Telephone

Textbook

Be sure to add in examples of loyalty programs or switching costs you could

implement to help retain your market share.

Sample Analysis for Airline Industry

Sample Analysis for Milk

CLASSROOM EXERCISE

Debate Carr’s Does IT Matter

DOES IT MATTER DEBATE: Ask your students to read both of the below

articles and debate if IT matters.

Nicholas Carr - IT Doesn’t Matter

http://www.nicholasgcarr.com/articles/matter.html A great way to start

o% your course is to discuss Carr’s famous article: IT Doesn’t Matter –

which can be read on his blog.

http://www.roughtype.com/archives/2007/01/it_doesnt_matte.php

IT Does Matter – by McFarlan and Nolan

http://hbswk.hbs.edu/item/3637.html The rebuttal to Carr’s article.

Create a classroom debate by breaking your students into groups and have

them create an argument for or against Nicholas Carr’ statement “IT Doesn’t

Matter.”

CORE MATERIAL

The core chapter material is covered in detail in the PowerPoint slides. Each

slide contains detailed teaching notes including exercises, class activities,

questions, and examples. Please review the PowerPoint slides for detailed

notes on how to teach and enhance the core chapter material.