IT may be used to gain competitive advantage.ppt

Identify basic competitive strategies and explain how IT may be used to gain competitive advantage

1. 1
Chapter
2
Competing
with
Information Technology

2. 2
Objectives
Identify basic competitive strategies and explain
how IT may be used to gain competitive
advantage.
Identify strategic uses of information technology.
How does business process engineering
frequently use e-business technologies for
strategic purposes?

3. 3
Objectives (continued)
Identify the business value of using e-business
technologies for total quality management, to
become an agile competitor, or to form a virtual
company.
Explain how knowledge management systems
can help a business gain strategic advantage.

4. 4
Section I
Section I: Fundamentals of Strategic Advantage

5. 5
Strategic IT
Technology is no longer an afterthought in forming
business strategy, but the actual cause and driver.

6. 6
Competitive Strategy Concepts
A strategic information system can be any kind of
information system (TPS, MIS, DSS, etc.) that uses
information technology to help an organization gain a
competitive advantage, reduce a competitive
disadvantage, or meet other strategic enterprise
objectives.

7. 7
Competitive Strategy Concepts (continued)
In Michael Porter’s classic model of competitive strategy,
any business that wants to survive and succeed must
develop and implement strategies to effectively counter
(1) the rivalry of competitors within its industry,
(2) the threat of new entrants into an industry and its
markets,
(3) the threat posed by substitute products which might
capture market share,
(4) the bargaining power of customers, and
(5) the bargaining power of suppliers.

8. 8
Competitive Strategy Concepts (continued)
Businesses can counter the threats of competitive forces
that they face by implementing one or more of the five
basic competitive strategies.
Cost Leadership Strategy. Becoming a low-cost
producer of products and services by
Reducing inventory (JIT)
Reducing manpower costs per sale
Helping suppliers or customers reduce costs
Increasing costs of competitors
Reducing manufacturing costs

9. 9
Competitive Strategy Concepts (continued)
Differentiation Strategy. Developing ways to
differentiate a firm’s products and services from its
competitors by
Creating a positive difference between your
products/services & the competition.
allowing you to reduce a competitor’s differentiation
advantage.
allowing you to serve a niche market.

10. 10
Competitive Strategy Concepts (continued)
Innovation Strategy. Finding new ways of doing
business by.
Unique products or services
New ways to better serve customers
Reduce time to market
New distribution models
gaining entry into market niches

11. 11
Competitive Strategy Concepts (continued)
Growth Strategies. Significantly expanding a
company’s capacity by
Expanding production capacity
Expanding into global markets
Diversification
Integrating into related products and services.
Alliance Strategies. Establishing new business
linkages with customers and other companies by
Mergers, acquisitions, joint ventures,
Marketing, or distribution agreements.

12. 12
Competitive Strategy Concepts (continued)
Cost
Leadership
Differentiation
Innovation
Growth
Alliance
Other
Strategies
Bargaining
Power of
Suppliers
Bargaining
Power of
Customers
Threat of
Substitutes
Threat of
New
Elements
Rivalry of
Competitors
Competitive Forces
C
o
m
p
e
t
i
t
i
v
e

S
t
r
a
t
e
g
i
e
s

13. 13
Strategic Uses of Information Technology
Basic Strategies in the Business use of Information
Technology
Lower Costs
Use IT to substantially reduce the cost of business processes.
Use IT to lower the costs of customers or suppliers.
Differentiate
Develop new IT features to differentiate products and
services.
Use IT features to reduce the differentiation advantage of
competitors.
Use IT features to focus products and services at selected
market niches.

14. 14
Strategic Uses of Information Technology (continued)
Innovate
Create new products and services that include IT components.
Develop unique new markets or market niches with the help of
IT.
Make radical changes to business processes with IT that
dramatically cut costs, improve quality, efficiency, or customer
service, or shorten time to market.

15. 15
Strategic Uses of Information Technology (continued)
Promote growth
Use IT to manage regional and global business expansion.
Use IT to diversify and integrate into other products and
services.
Develop Alliances
Use IT to create virtual organizations of business partners.
Develop interenterprise information systems linked by the
Internet and extranets that support strategic business
relationships with customers, suppliers, subcontractors, and
others.

16. 16
Strategic Uses of Information Technology (continued)
Other Strategic Initiatives:
locking in customers or suppliers by building
valuable new relationships with them
find ways to create switching costs into the
relationships between a firm and its customers or
suppliers.
Also raise barriers to entry that would discourage or
delay other companies from entering a market.
The firm can leverage investment in IT by
developing new products and services that would not
be possible without a strong IT capability.

17. 17
Strategic Uses of Information Technology (continued)
Strategy Company Strategic Use of
Information
Technology
Business Benefit
 
Cost Leadership

Dell ComputerOnline build to orderLowest cost producer
Differentiation AVNET
Marshall
Customer/supplier e-
commerce
Increase in market
share
Innovation Charles Schwab
& Co.
Online discount stock
trading
Market leadership
Growth Citicorp Global intranet Increase in global
market
Alliance Wal-Mart/
Proctor &
Gamble
Automatic inventory
replenishment by
supplier
Reduced inventory
cost/increased sales
Figure 2.4 Examples of how companies have used IT to implement five
competitive strategies for strategic advantage.

18. 18
Strategic Uses of Information Technology (continued)
Other Strategic Uses of Information technology

Develop interenterprise information systems whose
convenience and efficiency create switching costs that lock in
customers or suppliers.

Make major investments in advanced IT applications that build
barriers to entry against industry competitors or outsiders.

Include IT components in products and services to make
substitution of competing products or services more difficult.

Leverage investment in IS people, hardware, software,
databases and networks from operational uses into strategic
applications.

19. 19
Building a Customer-Focused Business
The driving force behind world economic growth has
changed from manufacturing value to improving
customer value.
This strategic focus on customer value recognises that
quality, rather than price, has become the primary
determinant in a customer’s perception of value.
The chief business value of becoming a customer-
focused business lies in the company’s ability to help
them keep customers loyal, anticipate their future needs,
respond to customer concerns, and provide top-quality
customer service.

20. 20
The Value Chain and Strategic IS
The value chain concept, developed by Michael Porter, views a
firm as a series, or network of basic activities that add value to its
products and services, and thus add a margin of value both to the
firm and its customers.
Business activities are classified as primary processes and support
processes.
Primary processes are those business activities that are directly
related to the manufacture of products or delivery of services to
the customers.
In contrast, support processes are those that help support the day-
to-day operation of the business and that indirectly contribute to
the products or services of the organization.

21. 21
The Value Chain and Strategic IS (continued)
Examples of strategic applications of information
systems technology to primary business processes
include
automated just-in-time warehousing systems to
support inbound logistic processes involving storage
of inventory,
computer-aided flexible manufacturing (CAM)
systems for manufacturing operations, and
online point-of-sale and order processing systems to
improve outbound logistics processes that process
customer orders.

22. 22
The Value Chain and Strategic IS (continued)
Administrative Coordination and Support Services

Collaborative Workflow Intranet
Human Resources Management
Employee Benefits Intranet
Technology Development
Product Development Extranet with Partners
Procurement of Resources
e-Commerce Web Portals for Suppliers
Inbound
logistics
Automated
Just-in-time
Warehousing
Operations
Computer-
Aided Flexible
Manufacturing
Outbound
Logistics
Online Point-
of-Sale and
Order
Processing
Marketing and
Sales
Targeted
marketing
Customer Service
Customer
Relationship
management
Competitive
Advantage
Support
Processes
Primary
Business
Processes
Figure 2.8 The value chain of a firm.

23. 23
Section II
Section II: Using Information Technology
for Strategic Advantage

24. 24
Reengineering Business Processes
Business Process Reengineering (BPR), most often
simply called reengineering is a fundamental rethinking
and radical redesign of business processes to achieve
dramatic improvements in cost, quality, speed, and
service.
So BPR combines a strategy of promoting business
innovation with a strategy of making major
improvements to business processes so that a company
can become much stronger and more successful
competitor in the marketplace.

25. 25
Reengineering Business Processes (continued)
  Business
Improvement
Business Process
Reengineering
Level of Change Incremental Radical
Process Change Improved new
version of process
Brand new process
Starting Point Existing processesClean slate
Frequency of ChangeOne-time or
continuous
Periodic one-time change
Figure 2.10 Some of the key ways that business process reengineering differs
from business improvement.

26. 26
Reengineering Business Processes (continued)
Time Required Short Long
Typical Scope Narrow, within
functions
Broad, cross-functional
Horizon Past and presentFuture
Participation Bottom-up Top-down
Path to ExecutionCultural Cultural, structural
Primary Enabler Statistical controlInformation technology
Risk Moderate High

27. 27
Reengineering Business Processes (continued)
Companies have found that organizational redesign
approaches are an important enabler of reengineering,
along with the use of IT.
For example, one approach is the use of self-directed
cross-functional or multidisciplinary process teams.
Another example is the use of case managers, who
handle almost all tasks in a business process, instead of
splitting tasks among many different specialists.

28. 28
Becoming an Agile Company
We are changing from a competitive environment in
which mass-market products and services were
standardized, long-lived, information-poor, and
exchanged in one-time transactions, to an environment
in which companies compete globally with niche
market products and services that are individualized,
short-lived, information-rich, and exchanged on an on-
going basis with customers.

29. 29
Becoming an Agile Company (continued)
Agility in business performance is the ability of a
company to prosper in rapidly changing global markets
for high-quality, customer-configured products and
services.
An agile company can make a profit in markets with
broad product ranges and short model lifetimes, and can
produce orders individually and in arbitrary lot sizes.

30. 30
Becoming an Agile Company (continued)
An agile company must implement four basic strategies.
Customers of an agile company perceive products or services
as solutions to their individual problems.
It should cooperate with customers, suppliers, and even with
competitors which allows it to bring products to market as
rapidly as possible, no matter where resources are located and
who owns them.
It organizes so that it thrives on change and uncertainty.
Finally it leverages the impact of its people and the knowledge
they possess and provides incentives for employee
responsibility, and innovation.

31. 31
Becoming an Agile Company (continued)
Type of
Agility
Description Role of IT Example
Customer Ability to co-opt
customers in the
exploitation of
innovation opportunities
As source of innovation
ideas
As cocreators of
innovation
As users in testing ideas
or helping other users
learn about the idea
Technologies for
building and
enhancing
virtual customer
communities for
product design,
feed-back, and
testing
eBay customers are its de
facto product development
team because they post an
average of 10,000 messages
each week to share tips,
point out glitches, and lobby
for changes
Figure 2.13 How IT can help a company be an agile competitor with the help of
customers and business partners.

32. 32
Becoming an Agile Company (continued)
PartneringAbility to leverage
assets, knowledge,
and competencies,
of suppliers,
distributors,
contract
manufacturers and
logistics providers
in the exploration
and exploitation of
innovation
opportunities.
Technologies
facilitating interfirm
collaboration such as
collaborative platforms
and portals, supply
chain systems, etc.
Yahoo! has
accomplished a
significant
transformation of its
service from a search
engine into a portal by
initiating numerous
partnerships to provide
content and other
media-related services
from its website

33. 33
Becoming an Agile Company (continued)
OperationalAbility to
accomplish
speed,
accuracy and
cost economy
in the
exploitation of
innovation
opportunities.
Technologies
for
modularization
and integration
of business
processes.
Ingram Micro, a
global wholesaler,
has deployed an
integrated trading
system allowing its
customers and
suppliers to connect
directly to its
procurement and
ERP systems.

34. 34
Creating a Virtual Company
A virtual company (also called a virtual corporation or
virtual organization) is an organization that uses IT to
link people, organizations, assets, and ideas.
In order to exploit a new market opportunity, a business
may not have the time or resources to develop the
manufacturing and distribution infrastructure, people
competencies, and IT needed.
Only by quickly forming a virtual company through a
strategic alliance of partners can it assemble the
components it needs to provide a world-class solution for
customers and capture the market opportunity.

35. 35
Creating a Virtual Company (continued)
Alliance with Subcontractors
Boundary of Firm
Alliance
with a
Major
Supplier
Customer response
and Order fulfillment
teams
Alliance with a
Major Customer
Manufacturing
Teams
Alliance with a
competitor who
provides services
that are
complementary
Engg teamsCross-Functional teams
Alliance with
Small Suppliers
Intranets
Extranets

36. 36
Creating a Virtual Company (continued)
Strategies of Virtual Companies
Share infrastructure and risk with alliance partners
Link complementary core competencies
Reduce concept-to-cash time through sharing
Increase facilities and market coverage
Gain access to new markets and share market or
customer loyalty
Migrate from selling products to selling solutions

37. 37
Building a Knowledge-Creating Company
In an economy where the only certainty is uncertainty,
the one sure source of lasting competitive advantage is
knowledge.
When markets shift, technologies proliferate,
competitors multiply, and products become obsolete
almost overnight, successful companies are those that
consistently create new knowledge, disseminate it widely
throughout the organization, and quickly embody it in
new technologies and products.
These activities define the “knowledge-creating”
company, whose sole business is continuous innovation.

38. 38
Building a Knowledge-Creating Company (continued)
Companies exploit two kinds of knowledge.
Explicit knowledge—data, documents, things written
down or stored on computers.
Tacit knowledge—the “how-tos” of knowledge, which
reside in workers.

39. 39
Knowledge management systems
Many companies are building knowledge management
systems (KMS) to manage organizational learning and
business know-how.
The goal of such systems is to help knowledge workers
create, organize, and make available important business
knowledge, wherever and whenever it’s needed in an
organization.

40. 40
Knowledge management systems (continued)
Knowledge Management

41. 41
Discussion Questions
You have been asked to develop e-business & e-
commerce applications to gain competitive advantage.
What reservations might you have about doing so?
How could a business use IT to increase switching costs
and lock in its customers and suppliers?
How could a business leverage its investment in IT to
build strategic IT capabilities that serve as a barrier to
entry by new entrants into its markets?

42. 42
Discussion Questions (continued)
What strategic role can information technology play in
business process reengineering and total quality
management?
How can Internet technologies help a business form
strategic alliances with its customers, suppliers, and
others?
How could a business use Internet technologies to form a
virtual company or become an agile competitor?

43. 43
Discussion Questions (continued)
IT can’t really give a company a strategic advantage,
because most competitive advantages don’t last more
than a few years & soon become strategic necessities that
just raise the stakes of the game. Discuss.
MIS author & consultant Peter Keen says: “We have
learned that it is not technology that creates a
competitive edge, but the management process that
exploits technology.” What does he mean?

44. 44
Real World Case 1 – WESCO International, Inc.
Business-to-Business
Describe WESCO’s original system.
Describe WESCO’s new system.

45. 45
Real World Case 1 (continued)
What are the business benefits to WESCO and
its suppliers of its new e-procurement system?
Is WESCO’s new system a strategic use of IT?

46. 46
Real World Case 1 (continued)
Does WESCO’s new system give the company
a competitive advantage?
What other strategic moves could WESCO
implement to gain competitive advantage?

47. 47
Real World Case 2 – Staples, Inc.
What is the strategic business value to Staples
and their large business clients of the new web-
based procurement system?
What is the strategic business value to Staples
and the value proposition to their customers of
their new clicks and bricks capabilities?

48. 48
Real World Case 2 (continued)
Is an integrated clicks and bricks strategy the
Internet strategy that most businesses, large
and small, should adopt?
What competitive strategies is Staples
pursuing?

49. 49
Real World Case 2 (continued)
What other e-business or e-commerce strategy
would you recommend to Staples to help them
gain a competitive advantage in their
industry?

50. 50
Real World Case 3 – Enron Corp.
What mistakes did Enron make in the use or
management of IT?
Did those mistakes play a part in the failure of
Enron?

51. 51
Real World Case 3 (continued)
“Is it time to go back to the days when IT
supported the business rather than became the
business?” Explain your position.
What are the major lessons for the future use
of IT in business that you gained from this
case?

52. 52
Real World Case 3 (continued)
How would you apply one of the lessons from
this case in your present job or in your future
business career?

53. 53
Real World Case 4 – Delta Technology & FirstHealth Group
What are Delta Technology’s new
requirements for IT investments?
What is the business value of Delta’s new
requirements?

54. 54
Real World Case 4 (continued)
Explain FirstHealth’s “return on opportunity”
guidelines.
Is FirstHealth’s “return on opportunity”
guideline for IT investments a good way to
evaluate investments in IT?

55. 55
Real World Case 4 (continued)
What should be the role of ROI in IT decision-
making?
Are the IT investment guidelines of Delta and
FirstHealth applicable to other companies,
including small businesses?

56. 56
Real World Case 5 – Ford, Dow Chemical, IBM, et al.
What is Six Sigma?
What do critics of Six Sigma see as its
shortcomings?

57. 57
Real World Case 5 (continued)
Is Six Sigma “an enterprise-wide business
strategy?”
What role does information technology play in
Six Sigma business initiatives?

58. 58
Real World Case 5 (continued)
What are the benefits and limitations of Six
Sigma as a business strategy?
Can Six Sigma make up for poor management
and faulty vision?

59. 59