Chapter 2 Competing with Information Technology Mc GrawHillIrwin

Chapter 2 Competing with Information Technology Mc. Graw-Hill/Irwin Copyright © 2011 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Learning Objectives • Identify several basic competitive strategies and explain how they use information technologies to confront the competitive forces faced by a business • Identify several strategic uses of Internet technologies and give examples of how they help a business to gain competitive advantages • Give examples of how business process reengineering frequently involves the strategic use of IT 2 -2

Learning Objectives • Identify the business value of using Internet technologies to become an agile competitor or form a virtual company • Explain how knowledge management systems can help a business gain strategic advantages 2 -3

Strategic IT • Technology is no longer an afterthought in business strategy, but the cause and driver • IT can change the way businesses compete – Vital competitive networks – Organizational renewal – Necessary investment • Integral to success 2 -4

Competitive Strategy Concepts • A strategic information system uses IT to help an organization… – Gain a competitive advantage – Reduce a competitive disadvantage – Meet other strategic enterprise objectives • What is Competitive Advantage? – Capability for advantage over competitive forces – Leading the industry in some identifiable way – Sustains profits above the industry average – Hard to maintain over a long period of time 2 -5

RWC 1: Quantify IT Risks and Value • IT is a business asset, like buildings and land • Quantify IT Value and Risks – How much would normal operations cost without IT systems? – How much would operations cost if the IT system goes down? • IT is investment not cost • Must align IT with company strategy 2 -6

Porter’s Five Forces of Competition • Rivalry of Competitors – Positive, natural, healthy • Threat of new entrants – Apple, TRS 80, Commodore, IBM, HP, Compaq, Gateway, Dell, Acer • Threat of substitutes – Salon shampoo vs Wal-Mart brand – VCR vs DVD vs Blu. Ray • Customer bargaining power – Buy from competitors or don’t buy • Suppliers bargaining power – Your competitor pays in days not weeks 2 -7

Competitive Forces and Strategies 2 -8

Five Competitive Strategies • Cost Leadership – Become low-cost producers – Help suppliers or customers reduce costs – Increase cost to competitors • Example: Priceline • Differentiation Strategy – Set a firm’s products apart from competitors’ – Focus on a particular segment or niche market • Example: Dell 2 -9

Competitive Strategies (continued) • Innovation Strategy – Unique products, services, or markets – Radical changes to business processes • Example: Dell • Growth Strategy – Expand company’s capacity to produce – Expand into global markets – Diversify into new products or services • Example: Wal-Mart 2 -10

Competitive Strategies (continued) • Alliance Strategy – Includes mergers, acquisitions, joint ventures, virtual companies – Customers, suppliers, competitors, consultants, and other companies • Example: Wal-Mart uses automatic inventory replenishment by supplier 2 -11

Using Competitive Strategies • Not mutually exclusive – One alone won’t usually fix the problem – Generally need a combination • Innovation not necessarily differentiated – Kindle v. i. Pad – MP 3 players vs i. Pod – Gateway made in US, relaxed office • Differentiation not necessarily innovative – Shipping more efficient but not different – Telecom companies compete 2 -12

Using IT to Implement Basic Strategies 2 -13

Implementing Competitive Strategies 2 -14

Other IT strategies 2 -15

Other Competitive Strategies • Lock in Customers and Suppliers – Deter them from switching to competitors • Create Switching Costs – Time, money, effort or inconvenience needed to switch to a competitor • Raise Barriers to Entry – Discourage or delay other companies from entering the market – Increase the technology or investment needed to enter 2 -16

Other Competitive Strategies • Build a strong IT department • Use IT to: – Take advantage of strategic opportunities – Improve efficiency of business practices – Develop products and services that would not be possible without a strong IT capability • Use IT to do more than automate a system, be creative 2 -17

Competitive Advantage can become Competitive Necessity 2 -18

Customer-Focused Business • Keep customers loyal – Anticipate their future needs – Respond to customer concerns – Provide top-quality customer service • Focus on customer value – Quality, not price, has become the primary determinant of value 2 -19

Providing Customer Value • Companies that consistently offer the best value from the customer’s perspective… – Track individual preferences – Keep up with market trends – Supply products, services, and information anytime, anywhere – Tailor customer services to the individual – Use Customer Relationship Management (CRM) systems to focus on the customer 2 -20

Building Customer Value via the Internet 2 -21

Value Chain and Strategic IS • Activities that add value – Primary processes – direct – Support processes – indirect 2 -22

Strategic Uses of IT • Gain a competitive differentiation – Products – Services – Capabilities • Somehow do things better – Just-in-time 2 -23

Business Process Reengineering • Called BRP or simply Reengineering – Radical – Seeks improvements • High potential • High risk • Important enabler of reengineering – IT – Process teams – Case managers 2 -24

Role of Information Technology • Major role – Increase process efficiencies – Improves communication – Facilitates collaboration 2 -25

RWC 2: Running a Business on Smartphones • CPS Energy – Smartphones with digital cameras – Cut response time – Reduced inventory • Lloyd’s Construction – Smartphones with GPS – Mobile productivity software – Low cost – High return 2 -26

BPR Versus Business Improvement 2 -27

Cross-Functional Processes • Reengineered with… – Enterprise resource planning software – Web-enabled electronic business and commerce systems 2 -28

Reengineering Order Management 2 -29

Strategies for Becoming an Agile Company • Presents products as solutions to problems – Can price as a solution not cost to produce • Cooperates with customers, suppliers and competitors – Brings products to market as quickly and costeffectively as possible • Thrives on change and uncertainty – Responds to changing customer expectations • Leverages people and knowledge – Provides incentives for responsibility, adaptability, and innovation 2 -30

How IT Helps a Company be Agile 2 -31

Creating a Virtual Company • A virtual company uses IT to link… – – People Organizations Assets Ideas • Inter-enterprise information systems link… – – Customers Suppliers Subcontractors Competitors 2 -32

A Virtual Company 2 -33

Virtual Company Strategies 2 -34

Building a Knowledge-Creating Company • A knowledge-creating company or learning organization… – Consistently creates new business knowledge – Disseminates it throughout the company – Builds it into its products and services 2 -35

Knowledge Management • Explicit Knowledge – Data, documents, and things written down or stored in computers • Employee handbook • Tacit Knowledge – The “how-to” knowledge in workers’ minds – Most important information • Successful knowledge management – Rewards sharing – Makes better use of knowledge 2 -36

Knowledge Management Techniques 2 -37

RWC 3: Trading Securities • Investment companies rely on technology to gain competitive advantage • One-second delay can be costly • Wall Street – Fewer floor traders – New alternative exchanges and ecommunications networks 2 -38

RWC 4: Reinventing IT • • • Reliable and excellent IT services Innovative solutions Create new products and services New business models Lower cost Highest possible profit margins 2 -39