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Value Creationwith Information Systems

What theoretical and analytical models help managers identify opportunities to create added value with IT

© Gabriele Piccoli

Course Roadmap

• Part I: Foundations• Part II: Competing in the Internet Age• Part III: The Strategic use of Information Systems

– Chapter 6: Strategic Information Systems Planning– Chapter 7: Value Creation and Strategic Information

Systems– Chapter 8: Value Creation with Information Systems– Chapter 9: Appropriating IT-Enabled Value over Time

• Part IV: Getting IT Done

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Learning Objectives

1. Identify and use traditional models of value creation with information systems and information technology, including:

• Industry analysis

• Value chain analysis

• Customer service life cycle framework

2. Incorporate the data resource in your search for opportunities for value creation using emerging frameworks, including:

• Virtual value chain

• Customer data strategies framework

3. Learn to devise and select initiatives that create value using business data.

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Traditional Frameworks

Frameworks that have been proposed over time in the literature

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Industry Analysis

• Based on the fact that different industries offer different profit potential

• Differences measured using the 5 Forces framework

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Threat of New Entrants

• How easily can competitors enter the market?

• Are the barriers significant enough?

• Example:

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The Threat of Substitutes

• How easily can the product or service be replicated in a way that meets the same customer needs?

• Example:

VS.

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Bargaining Power of Buyers

• How easily can customers influence the price of the product or service?

• Example:

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Bargaining Power of Suppliers

• How easily can individuals and firms sell their products and services at high prices?

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Rivalry Among Existing Competitors

• How fierce is the battling for position and how aggressive is competition in the industry?

• Hyper competition – fierce rivalry among existing firms and a very rapid rate of innovation leading to fast obsolescence of any competitive advantage

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How Does this Apply to IS?

• Investing in IS may:– Can the use of IT raise or increase barriers to

entry in the industry?– Can the use of IT decrease suppliers’

bargaining power?– Can the use of IT decrease buyers’

bargaining power?– Can the use of IT change the basis of industry

competition?

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Value Chain

• As managers – you will analyze opportunities to use strategic IS to create added value.

• The value chain model identifies:– Primary activities– Support activities

Firm Infrastructure

HR Management

Technology development

Procurement

Support Activities

Inbound logistics

Operations Outbound logistics

Marketing and sales

Service

Primary Activities

Margin

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Primary Activities

• Those directly related to value creation

• They are:– Inbound logistics– Operations– Outbound logistics– Marketing and Sales– Service

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Support Activities

• Those not directly related to the transformation process

• They are necessary to enable it.

• They are:– Firm infrastructure– HR management– Technology development– Procurement

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Value Chain and Information Systems

• Managers need to identify, understand, and analyze the activities of the firm

• The objective is to enhance or transform them using Information Systems

• Careful! Map a representative value chain

Marketing& Sales

Procurement Production

Guest StayAfter Stay

Service

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Value Network

• Firms interact with one another in the value network• Individual value chains are therefore linked to those of

suppliers (upstream) and customers (downstream)• These linkages offer opportunities for value creation with

Information Systems

Suppliers Firm Customers

Linkages

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The Customer Service Life Cycle

• Objective:– To map the relationship between a firm and its

customers– To identify the stages where customers:

• Are unsatisfied or• Receive substandard service

– Provide ideas as to how:• To improve customer service through the use of

the advanced IT • or the deployment of IT-dependent strategic

initiatives.

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CSLC: Four Phases

• The CLSC identifies four major phases mapping the relationship between the firm and its customers

• Stepping through the relationship in the customer’s shoes

• Helps managers address these needs from the customers’ point of view

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CSLC: Thirteen Stages

• Each of the four phases is further subdivided into stages

• These represent typical needs the customer has when:– Purchasing– Using and– Retiring a product or service.

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Phase 1: Requirements

• Establish requirements: – Customer identifies a need for a firm’s

product/service

• Specify: – Customer details the characteristics of

product or service of interest

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Phase 2: Acquisition

• Select a source:– The customer identifies where to acquire the product or service

from– Internet is a new source that reduces vendor’s distribution costs

• Ordering:– The customer requests the product or service

• Authorize and pay for:– The customer issues payment

• Acquire: – The customer begins using the product or service

• Evaluate and accept:– The customer ensures tha the product or service meets

specifications and the stated objectives of use

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Stage 3: Ownership

• Integrate:– The customer adds the product or service to the existing

inventory of resources

• Monitor use and behavior: – The customer ensures that the product or service remains in

working order

• Upgrade:– The customer modifies or improves the product or service as

needed

• Maintain: – The customer services the product or service as needed– The firm can use such opportunities to avoid dissatisfaction and

provide outstanding service

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Stage 4: Retirement

• Transfer or dispose:– The customer will needs to transfer, resell,

return, or dispose of the product or service

• Account for: – The customer needs to evaluate the

experience provided by the product or service– The customer needs to measure the costs

associate with ownership of the product or service

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Emerging Frameworks

Frameworks that have recently emerged, in response to recent trends

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Virtual Value Chain

• Designed to map the set of sequential activities that enable a firm to transform:– Raw data in input into– Higher value information in output

• Adopts the same logic as the phisical value chain

• VVC recognizes info as the entity being transformed (the value of which is being enhanced) through the chain of activities

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Virtual Value Chain

Gather Organize Synthesize DistributeSelect

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Five Activities

• Gather:– Collecting and accumulating information

• Organize:– Storing the gathered data in a way that makes later retrieval and

analysis simple and effective.

• Select:– Identifying and extracting the needed data from the data

repository

• Synthesize:– Packaging information so that it can be readily used by the

intended consumer for the specific purpose to which it is directed

• Distribute:– Transmiting the appropriately packaged information to its intended

user or customer.

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Three Classes of Strategic Initiatives

• Visibility:– The ability to “see through” organizational

processes previously treated as black box

• Example:

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Three Classes of Strategic Initiatives

• Mirroring Capabilities:– The ability of transrming physical activities into

information-based ones

• Thus potentially Increasing:– Efficiency– Effectiveness– Performance

• Example:

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Three Classes of Strategic Initiatives

• New Digital Value:– Creating relationship with the customer

• Thus:– Increasing Customer willingness to pay – Creating new value in the form of new

information enabled products or services.

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New Frontier: Value Matrix

Inbound Logistics

Operations Outbound Logistics

Marketing and Sales

Service

Gather

Organize

Select

Synthesize

Distribute

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New Frontier: Value Matrix

Capture

Store

Select

Synthesize

Distribute

Marketing& Sales

Procurement Production

Guest Stay After StayService

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Creating Value with Data

Purpose of data: Do something of value for customers

increase their customer willingness to pay

Value

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Theoretical Repurchase Frequency

How often the customer repurchases the goods/services

It is a function of the industry the firm is in and the characteristics of the

value proposition it offers

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Degree Of Customizability

How much the product or service can be tailored to the specific needs and requirements of individual customers

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Customer Data Strategies

Low

Low

High

High

Theoretical Repurchase Rate

Degree of Customizability

Low Payoff

Acquisition Strategy

Rewards Strategy Personalization

- Analytics- New Prospects

- Operations- Differentiation

- Loyalty Rewards- Reporting

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Personalization Strategy

• Repeated interactions

• Returning customers.

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Rewards Strategy

• Product and service purchased frequently.

• Products are fairly standardized

Difficult to tailor them to specific customer requests

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Acquisition Strategy

• Low theoretical repurchase frequency

• High degree of customization

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No Potential

• Low theoretical repurchase frequency

• Relatively low degree of customizability

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The Third Dimension

Unobtrusive Data Capture

The extent to which – during the normal business cycle – data is collected and stored in a readily usable format.

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Data-Driven Strategic Initiatives

• Identify relevant Transaction Processing Systems (TPS)– Narrow the scope of the analysis and focus on the

systems that hold relevant data

• Inventory currently available data– Identify the underlying data tracked in the natural

course of business– Talk to power users

• Conceptualize initiatives– Generate and brainstorm ideas – Don’t evaluate feasibility or financial viability yet

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Prioritize Initiatives

• Evaluate actual feasibility – make pragmatic decisions about these initiatives

• Upside potential– Time sensitivity- Impact immediacy- Aggregation requirements- Trending requirements

• Data availability– Accuracy– Comprehensiveness

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Prioritize Initiatives

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Prioritize Initiatives

Imperatives:- Projects with significant upside potential that rely on readily

available informationQuick wins:- Projects without much upside potential - Can be readily implemented based on immediately available

information - Help gain momentum and build credibilityTradeoffs:- Projects that rely on information not readily available that

tends to be costlyLosing causes:- Projects with little upside potential that rely on information

that is not readily available

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What we Learned

1. Identify and use traditional models of value creation with information systems and information technology, including:

• Industry analysis

• Value chain analysis

• Customer service life cycle framework

2. Incorporate the data resource in your search for opportunities for value creation using emerging frameworks, including:

• Virtual value chain

• Customer data strategies framework

3. Learn to devise and select initiatives that create value using business data.