Competitive Advantage: Creating and Sustaining Superior Performance - Essay Example

Partnership Analysis Write a 1500 word paper analyzing the rationale for pursuing strategic interorganizatinal partnerships in industry Information Systems. Rationale must be grounded in evaluation of the selected organization’s needs, capabilities and competencies as well as strategic analysis of the environment it operates. Partnership Analysis Introduction Information Systems (IS) are combinations of hardware, software and telecommunications networks that people build and use to collect, create and distribute useful data, typically in organizational settings. IS that are built across organizational boundaries are called Inter Organizational Information Systems. These can be used with strategic intent, especially for gaining competitive advantage. We take the case of Ford Motor, the second largest car maker in the US. While Ford has built many IS with strategic aspects, we focus on the IS for supplier – Ford relations. Information Systems and Value Chain Analysis Managers can use value chain analysis to identify opportunities to use IS for competitive advantage (Porter, 1985, 2001; Shank and Govindarajan, 1993). An organization (in our case, Ford) can be thought of as a big input – output process. This can be represented schematically as follows: Purchased Supplies/ Inbound Logistics – Operations – Outbound Logistics – Sales and Marketing – Service Product Research and Development, Technology, and Systems Development Human Resource Management General Administration Ford Motor purchases automobile components and services from automotive companies in the industry. So at the left end in the schematic, supplies are purchased and brought into Ford. Ford then integrates those supplies (components) and makes cars, which it markets to customers. Ford then provides customer service after it sells the cars. In this entire process, there are opportunities for people in Ford to add value in various stages of the process. For example, supplies can be acquired more effectively and value can be added. Some other examples are adding value in making cars and improving sales. This process of adding value throughout the organization is called the Value Chain of the organization. Value Chain Analysis is the process of analyzing the organization’s value chain to find out where value is added to products and services, and the costs of adding value. Since IS can automate many activities in the Value Chain, Value Chain Analysis is used widely in using IS for strategic competitive advantage. In this, one has to first draw the Value Chain and then flesh out each of the activities where value is added. Then costs are determined for such value addition activities. Then one has to compare and benchmark these activities with those of the competitors. Then one can use the appropriate IS for gaining competitive advantage. IS can be used at any stage or activity in the Value Chain. For example, Internet can be used to exchange orders, invoices and receipts online in real time. Using the Internet and other IS has become very popular especially when you link organizations in the industry. Many firms now use the Internet for business-to-business transactions. Such systems are called extranets. Extranets are internet links from one organization to another through firewalls and Virtual Private Networks. Ford’s needs, competencies, capabilities and the environment: IS and competitive forces Every year about 5% of the US population buys new cars. This defines the size of the market in the economy in which Ford operates. There are two other car makers in the US, General Motors and Chrysler. Besides, there are many other foreign car makers selling cars in the US market. Ford is one of the biggest car makers in the world, and it has many decades of experience. It is known for its competencies in design, quality, production and marketing of automobiles. We will now see the competitive forces in the immediate environment in which Ford operates (Applegate and McFarlan, 1991). Power of traditional rivals within the automobile industry increases – Implication for Ford is competition in price, product distribution and services. Threat of new entrants into the US car market – Implication for Ford is increased capacity of the industry, reduced prices for cars and decreased market share. Increase in customer’s bargaining power – Ford finds reduced prices for cars, need to improve quality and demand for more services. Increase in supplier’s bargaining power – Ford finds increased prices for components and reduced quality in components. Threats of substitute products from other industries – Ford finds reduced return on products, decreased market share and loss of customers for life. Ford will have opportunities to use IS to combat competitive forces. We take the case of supplier power. In this case, Ford can use the Internet to establish closer electronic ties with suppliers and to create new relationships with new suppliers located far away. If Ford can cut purchased materials and services costs by 10%, this will straight away lead to a sizeable profit. Hence use of IS for supplier – Ford relationship becomes important. The use of IS for industry partnership and strategic advantage: Ford Supplier Network Ford has focused on using the Internet IS, in this case the extranet, for strategic partnership with suppliers. Instead of building separate extranets for each supplier, a single point gateway for all suppliers to Ford has been built. This is called as a procurement portal. This type of portal automates the business processes that occur before, and after sales have been transacted between Ford and multiple suppliers. This procurement portal provides suppliers efficient tools for managing all phases of the distribution cycle, including dissemination of product information, purchase order processing, and customer service. This portal is called Ford Supplier Network (FSN; fsn.ford.com). Suppliers can now come to share information with Ford and conduct business. A variety of issues such as customer support, quality control, purchase order management and product development are covered by FSN. An application built for the FSN is DEALIS (Distribution, Export and Logistics Information Systems). DEALIS provides up-to-the-minute sales and shipping information to suppliers and shippers with real-time tracking facilities. Ford’ suppliers use DEALIS to receive updates on shipments in transit and allow users to view information based on containers, packages, and even specific parts. For example, if you are a Ford supplier, you can use DEALIS to know where the shipment of bumpers is located. Another application developed for FSN is the Master Part Number Registry (MPNR). This application standardizes part number and descriptions. Ford has multiple suppliers for the same parts. In such an environment each supplier may use different nomenclature to describe the same part. By implementing a common set of part numbers and descriptions, Ford can make more efficient purchasing decisions. Product comparisons can now be based on a common set of standards. In order for suppliers to adhere to Ford’s standards, they can use MPNR to verify the product information given to Ford. MPNR has been linked to Ford’s corporate databases. This ensures accuracy and consistency of part numbers and descriptions used within Ford and throughout Ford’s supply chain. Another application of FSN is called the Supplier Direct Data Links (SDDL). It provides real-time information internally as well as externally to suppliers about parts shortages. Suppliers are notified by SDDL when inventory levels for a part reach a critical or potentially critical stage. Then the suppliers can respond quickly to the issue of shortage. Suppliers can inform Ford that they are investigating the shortage and provide revised promised delivery dates through SDDL. FSN also helps in learning and information. FSN includes applications that help suppliers take courses online. With the FORDSTAR program Ford certifies its employees, dealerships and suppliers. Users can access training materials, online courses and developmental resources. This helps Ford and its suppliers remain competitive in the ever-changing automotive industry. Suppliers use this interactive system to determine which learning opportunities will be most beneficial to the organization. FSN also provides suppliers with information about Ford’s key business processes and plans for the future. There are online tutorials to teach suppliers how to conduct business with Ford. For the supplier one key benefit of FSN is in the distribution of competitive intelligence. FSN provides information on market trends and the activities of competitors. This helps Ford’s suppliers stay one step ahead of the competition. The Ford procurement portal has created a win-win situation. The company, its suppliers and end consumers all benefit due to FSN. With FSN, Ford has been able to streamline its business operations with its suppliers. This has lead to dramatic process efficiencies and cost reductions. For the suppliers, FSN provides easy and direct access to the large Ford organization and produces a big revenue stream. The information provided by Ford helps suppliers to operate more efficiently and access Ford-sponsored training. It also helps them remain competitive in their markets. End consumers (the car buyers) also benefit. With FSN Ford has been able to manufacture automobiles cheaply and efficiently. Hence Ford has been able to reduce prices and deliver products faster to the consumers. Thus, with the help of an industry Information System called FSN where Ford and its suppliers participate, Ford has been able to leverage on its core competencies and capabilities. In the environment of the Information Economy, the imperative of using IS for improving business has been achieved by Ford. The rationale of achieving savings in supplier-Ford relationships has been illustrated with the FSN Information Systems pioneered by Ford. Conclusion We have illustrated the assignment concepts with the case of Ford Motor. The Interorganizational Information System used here is the Ford Supplier Network. It ensures the strategic participation of Ford’s suppliers with Ford. The rationale for such a system is the efficiencies and savings achieved by Ford in procurement of parts and supplies. The immediate environment in which Ford operates is the supplier – firm network in this case. We have analyzed the environment using a competitive forces framework and value chain analysis. The various applications of FSN such as DEALIS, MPNR and FORDSTAR have been discussed showing the benefits to Ford, suppliers and customers. This case illustrates that a company can pursue Interorganizational Information Systems with strategic competitive advantage, by using Value Chain Analysis and Competitive forces in the environment with emphasis on core competencies of the company. _____________________________ References 1) Applegate, L. M., and F. W. McFarlan. 1999. Corporate Information Systems Management: Texts and Cases, Chicago, IL: Irwin. 2) Ford Motor Corporation, www.fsn.ford.com 3) Porter, M. E. 1985. Competitive Advantage: Creating and Sustaining Superior Performance, New York: The Free Press. 4) Porter, M. E. 2001, “Strategy and the Internet”, Harvard Business Review 79(3): 62-78. 5) Shank, J., and V. Govindarajan. 1993. Strategic Cost Management: Three Key Themes for Managing Costs effectively. New York: The Free Press. Read More