Business Models And It

Business Models and Information Systems

“A business strategy is a well articulated vision of where a business seeks to go and how it expects to get there” (Pearlson & Saunders, 2004). An organization’s decisions regarding both organizational and information systems strategies must be governed by this overarching business strategy. The information technology strategy must fit into the business strategy and be reevaluated constantly to ensure the company is meeting its strategic goals. The information systems strategy will both affect, and be affected, by the business strategy. Pearlson and Saunders (2004) discuss two important business models: the Porter generic strategies framework and D’Aveni’s hyper-competition model.

The Porter generic strategies framework can be a useful tool to help managers identify and understand the strategy options available in the search for competitive advantage. Porter (1985) identified three primary strategies that allow a business to obtain this advantage: cost leadership, differentiation, and focus. I feel that this competitive advantage is just as dependent on the competition’s strategy and execution as it is on the organization’s position in the market relative to those competitors.

Porter (1985) contends that the goal of a cost leadership strategy is to be the lowest-cost producer in a particular marketplace. By minimizing the costs associated with doing business the organization is able to obtain above average performance. “To be successful, this strategy usually requires a considerable market share advantage or preferential access to raw materials, components, labor, or some other important input. Without one or more of these advantages, the strategy can easily be mimicked by competitors” (Wikipedia.org, n.d.). The organization must also offer a product or service of comparable quality to its higher cost competition. It is only when the quality of two competing products is comparable that a customer will be able to realize the relative value of the product made by the cost leader. In order for an organization to properly execute a cost leadership strategy it must streamline operations and reduce overhead while decreasing the time it takes to get products from the idea to the customer stages. Proper design and use of information technology systems allow an organization to distribute information, coordinate efforts, share resources, automate processes, and analyze data in order to make the cost leadership strategy a market reality.

“Through differentiation, the organization qualifies its product or service in a way that allows it to appear unique in the marketplace” (Pearlson & Saunders, 2004). The organization identifies the features most important to its customers and then attempts to add value by improving upon or augmenting those facets. The differentiation strategy can only effective when the price charged to customers is judged to be fair when compared to prices across the remainder of the market. In service industries, proper use of information technology can be the facet that differentiates the service. Examples of IT being used to differentiate services include United Parcel Services mobile data stations that track and store information to predict shipment dates and minimize claims, and insurance adjusters using laptops to process claims from a customers home.

Two important variations of differentiation strategy are made apparent in study of Porter’s work: the shareholder value model and the unlimited resources model. The shareholder value model is based on the view that customers will buy products or services from a company in order to access that company’s unique knowledge. By properly timing the use of specialized knowledge an organization can create a differentiation advantage. The unlimited resources model allows an organization to outlast competitors through the use of a large resource base coupled with a differentiation strategy. This model is