Unit 2: IT and competitive advantage
Strategic Management of IT notes · PTU syllabus (MBA 946-18)
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Unit summary
The value chain shows where IT can create competitive advantage. This unit covers the value chain and Porter's value chain model, value chain analysis and its advantages, understanding linkages and interrelationships, and an approach to IS/IT strategy formulation.
After this unit you can
- Explain Porter's value chain model
- Apply value chain analysis to find IT opportunities
- Explain linkages and interrelationships
- Formulate IS/IT strategy
PTU syllabus topics
- Value chain and Porter's Value Chain Model
- value chain analysis and its advantages
- understanding linkages and interrelationships
- approach to IS/IT strategy formulation
Primary: inbound logistics
Primary: operations
Primary: outbound logistics
Primary: marketing and sales
Primary: service
Support
Infrastructure, HR, technology, procurement
Topic 1
Porter's value chain model
Primary activities
Inbound logistics, operations, outbound logistics, marketing and sales, service
Support activities
Firm infrastructure, human resource management, technology development, procurement
Margin
Value created minus cost of activities
- Uses: identify sources of cost advantage and differentiation, find linkages between activities, decide what to outsource, benchmark against rivals.
Topic 2
IT across the value chain
| Value activity | IT applications |
|---|---|
| Inbound logistics | E-procurement, supplier portals, EDI, warehouse management |
| Operations | ERP, MES, automation, IoT, quality analytics |
| Outbound logistics | Order management, route optimisation, track and trace |
| Marketing and sales | CRM, digital marketing, e-commerce, analytics |
| Service | Help desks, chatbots, remote diagnostics |
| Support activities | HRMS, financial systems, collaboration tools, PLM, procurement analytics |
Topic 3
Value chain analysis and its advantages
- 1
Identify activities
- 2
Assign costs and assets
- 3
Identify cost drivers and value drivers
- 4
Find linkages
- 5
Identify opportunities for cost reduction or differentiation
- 6
Benchmark against competitors
- Advantages: reveals sources of cost and differentiation, shows where IT adds most value, supports outsourcing decisions, aligns investments with strategy.
Topic 4
Linkages and interrelationships
- Linkages within the chain: how one activity affects another (better design reduces after-sales service costs); IT coordinates linkages through shared data.
- Vertical linkages: with suppliers' and buyers' value chains (the value system) — EDI, vendor-managed inventory, collaborative planning.
- Interrelationships among business units (Porter): sharing activities across SBUs (common IT platforms, shared services) creates synergy.
Topic 5
Approach to IS/IT strategy formulation
- 1
Business strategy analysis
Objectives, CSFs, value chain
- 2
Current IS/IT assessment
Applications, infrastructure, skills
- 3
External IT environment
Technology trends, competitors' use of IT
- 4
Define IS strategy
What applications and information are needed
- 5
Define IT strategy
How — infrastructure, architecture, sourcing
- 6
Define IM strategy
Governance, organisation, policies
- 7
Roadmap and business cases
- IS strategy (demand — what), IT strategy (supply — how), information management strategy (who and governance).
Key terms
- Value chain
- Set of activities that create value for customers
- Linkage
- Relationship between how activities are performed
- Value system
- Linked value chains of suppliers, firm, channels and buyers
- IS strategy
- What information systems the business needs
- IT strategy
- How technology will deliver the IS strategy
Quick revision
- Primary and support activities; IT in each.
- Value chain analysis steps and advantages.
- Internal, vertical linkages; interrelationships among SBUs.
- Ward and Peppard process; IS vs IT vs IM strategy.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.Name the primary activities of the value chain.
- Q2.Give one IT application in inbound logistics.
- Q3.State two advantages of value chain analysis.
- Q4.What is a vertical linkage?
- Q5.Distinguish IS strategy and IT strategy.
- Q6.What is an interrelationship among business units?
Long-answer questions
- Q1.Explain Porter's value chain model and IT's role in each activity.
- Q2.Explain value chain analysis and its advantages.
- Q3.Discuss linkages and interrelationships in the value chain.
- Q4.Explain an approach to formulating IS/IT strategy.
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