Chapter 2 Competing with Information Technology Why study

Chapter 2 Competing with Information Technology Why study Strategic Information Systems? q Technology is no longer an afterthought in forming business strategy, but the actual cause and driver. q IT can change the way businesses compete. q Information systems are a means of organizational restructuring to allow organizations to adapt q Information Systems are a necessary investment in technologies that help a company adopt strategies and business processes that enable it to reengineer or reinvent itself in order to survive and succeed in today’s dynamic business environment.

Chapter 2 Competing with Information Technology What is a strategic IS? q Any kind of information system that uses information technology to help an organization gain a competitive advantage, reduce a competitive disadvantage, or meet other strategic enterprise objectives. q These systems provide Competitive Advantage as opposed to Competitive Necessity What’s the difference?

Chapter 2 Competing with Information Technology What is the difference between competitive advantage and competitive necessity? q Competitive Advantage • developing products, services, processes, or capabilities that give a company a superior business position relative to its competitors and other competitive forces q Competitive Necessity • products, services, processes, or capabilities that are necessary simply to compete and do business in an industry

Chapter Competing with Information Technology 2 Factors Influencing Competitive Forces q Factors shaping the structure of competition in its industry. • Number Competitors • Growth Potential • Capacity • Complexity Rivalry • Intense rivalry if many companies • Increased rivalry if growth potential and high profits • Private Space Shuttles v. Airlines • Genetic Research v. Hot Dog Stands

Chapter Competing with Information Technology 2 Factors Influencing Competitive Forces q Factors discouraging/encouraging new competitors • Economies of Scale • Proprietary Products • Brand Identity • Distribution Channels • Profit Margin New Entrants Competitors • Production of large outputs at lower costs than smaller rivals • CPUs v. 7 -11 • Coca-Cola v. Top Soil • Easy Access? Rivalry • Supermarkets v. Jewelry Stores • Government Policy • Network Broadcasting v. Lemonade Stands • Retaliation • Operating Systems v. Slide-rule manufacture

Chapter Competing with Information Technology 2 Factors Influencing Competitive Forces q Factors influencing supplier power • Concentration • Differentiation (branding) • Volume New Entrants Competitors • De. Beers v. Diing Sen • Rolls Royce • Is the industry vital to the supplier? Vendors Rivalry • Switching Costs • Microsoft for Linux? • Can suppliers easily find new customers?

Chapter Competing with Information Technology 2 Factors Influencing Competitive Forces q Factors influencing buyer power • buyer concentration to firm concentration ratio • Information New Entrants • Many buyers/Few Suppliers Competitors • Surfers v. unaware Customers. Vendors • Importance of volume • Price Sensitivity Buyers Rivalry • Calpers • Necessary (electricity) v. impulse buying

Chapter Competing with Information Technology 2 Factors Influencing Competitive Forces q Factors influencing Substitutes • Switching Costs • Buyer inclination to substitute New Entrants • DVD v. VCR • i. Pod Competitors Vendors • Price-Performance Buyers Rivalry Substitutes • Trade-off substitutes • Does it give a good ‘bang for the buck? ” • Heating (necessary) v. impulse buying

Chapter 2 Competing with Information Technology What Competitive Strategies are available? q Cost Leadership • Becoming a low-cost producer of products and services • Finding ways to help suppliers and customers reduce their costs • Increase costs of competitors Example?

Chapter 2 Competing with Information Technology What Competitive Strategies are available? q Differentiation • Developing ways to differentiate a firm’s products and services from its competitors’ • Reduce the differentiation advantages of competitors Examples?

Chapter 2 Competing with Information Technology What Competitive Strategies are available? q Innovation • Development of unique products and services • Entry into unique markets or market niches • Making radical changes to the business processes for producing or distributing products and services that are so different from the way a business has been conducted that they alter the fundamental structure of an industry Examples?

Chapter 2 Competing with Information Technology What Competitive Strategies are available? q Growth • Significantly expanding a company’s capacity to produce goods and services • Expanding into global markets • Diversifying into new products and services • Integrating into related products and services Examples? electrical and electronic equipment, plastics, aircraft engines, medical imaging equipment, and financial services

Chapter 2 Competing with Information Technology What Competitive Strategies are available? q Alliance • Establishing new business linkages and alliances with customers, suppliers, competitors, consultants, and other companies Examples? Proctor and Gamble

Chapter 2 Competing with Information Technology How does that work? • In the early 1990’s, Wal-Mart invited its major suppliers to jointly develop powerful supply chain partnerships • The Wal-Mart/Procter & Gamble (P&G) alliance incorporated vendor-managed inventory, category management, and other inter-company innovations. • For example, P&G monitors and replenishes all of the merchandise at Wal-Mart Stores (Wal-Mart does not place any orders, although occasionally it reviews P&G’s orders) • Based on in-store sales, P&G also modifies it product mix • The outcome has been increased sales and JIT inventory, resulting in increased sales/profits for both Wal-Mart and P&G

Chapter 2 Competing with Information Technology How do Information Systems help in This?

Chapter 2 Competing with Information Technology Additional Competitive Advantage Tactics q Locking in customers or suppliers: • Mc. Kesson Drugs, as well as others, have developed their own proprietary automated dispensing and reporting systems along with consulting services to deepen their relationships with clients. • Airlines and hotels have benefited from frequent flier and frequent guest (Loyalty) programs • These programs are possible because companies keep more information about their customers' historical purchasing patterns. Retailers collect detailed information on individual customers' buying patterns. These methods require tracking individual customer purchases over time, establishing accounts for each

Chapter 2 Competing with Information Technology Additional Competitive Advantage Tactics q Locking in customers or suppliers: q Building switching costs: • A firm’s customers or suppliers are reluctant to pay the costs in time, money, effort, and inconvenience that it would take to switch to a company’s competitors. • The benefits (of Frequent Flier/Frequent guest programs) become part of the total switching costs: Either the customer loses them (a customer switching cost) or the new carrier matches them (a supplier switching cost).

Chapter 2 Competing with Information Technology Additional Competitive Advantage Tactics q Locking in customers or suppliers: q Building switching costs: q Raising barriers to entry: • Without the technology in use by the industry (e. g. , ATMs) new entrants would be at a severe disadvantage

Chapter 2 Competing with Information Technology Additional Competitive Advantage Tactics q q Locking in customers or suppliers: Building switching costs: Raising barriers to entry: Leveraging investment : • Using investments in information technology that have developed new products and services that can not be duplicated without a strong IT capability. • For example, the use of intranets and extranets which enables them to leverage previous investments in web browsers, PCs, servers and client-server networks.

Chapter 2 Competing with Information Technology Another example of SIS q Jet. Blue Airlines • At a time when airlines (especially low-cost airlines) have failed Jet. Blue (founded 1999) has prospered. • 2009 Revenues: $3. 286 billion • JD Powers 2010 rankings of low-cost carriers: 1. Jet. Blue Airways 2. Southwest Airlines 3. West. Jet 4. Air. Tran Airways 5. Frontier Airlines

Chapter 2 Competing with Information Technology Another example of SIS q Some Reasons • Combination reservation system and accounting system • Supports customer services and sales tracking • Electronic tickets • No paper handling or expense • Encourages online ticket purchases • Avoids travel agents • Significant cost savings • Automated Maintenance Systems • Logs all airplane parts and time cycles • Reduced tracking costs

Chapter 2 Competing with Information Technology Another example of SIS q Some Reasons • Flight planning software • Maximize seats occupied on a flight • Reduced planning costs • In-house software for tracking operational data • Updated on a flight by flight basis • Systems are accessible by all employees • Employees are given wireless devices so they can Report and respond to irregular events • All training records are stored electronically • Do not use the hub and spoke routing

Chapter 2 Competing with Information Technology Another example of SIS q Some Reasons • • Paperless Cockpits Pilots provided with laptops Live TV through contract with Direc. TV Excellent on-schedule arrivals/departures Fewest mishandled baggage Rapid check-in times Partnership In 2009, signed a 6 year strategic agreement with Verizon Business to manage its IT data center and network needs, as well as provide security and IT consulting services.

Chapter 2 Competing with Information Technology Customer Focused Businesses q Business that: • provide top-quality customer service • respond to customer interests and concerns • anticipate customers’ future needs Such as? Consider Hilton Hotels Reservations World-Wide (HRW) • 2, 400 hotels in 65 Countries • 31 M calls, 9 M reservations annually • Average time to complete reservation: less than 2 minutes

Chapter 2 Competing with Information Technology How? Customer Orders Placed Directly Create/Revise as necessary Customer Database OR Distribution Partner Orders (e. g. , Expedia, Priceline) Transaction Database View customer Information Employees (Intranet/Extranet) Build Web Community (Customers, Providers, Partners) Check/Revise Reservation Personalize Service (Internet/Extranet) Customers and Distribution Partners (Internet/Extranet)

Chapter 2 Competing with Information Technology Value Chains q Viewing a firm as a series, chain, 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. • Primary processes add to revenues (Line) • Support Processes are intended to assist primary processes (Staff)

Chapter 2 Competing with Information Technology Value Chains and Strategic IS

Chapter 2 Competing with Information Technology Using IT for Strategic Advantage q Organizational Redesign • The use of self-directed cross-functional or multidisciplinary process teams q Business Process Reengineering • Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in cost, quality, speed, and service.

Chapter 2 Competing with Information Technology Using IT for Strategic Advantage

Chapter 2 Competing with Information Technology Agile Companies • Agility is the ability to prosper: • In rapidly changing, continually fragmenting global markets • By selling high-quality, high-performance, customerconfigured products and services • By using Internet technologies to integrate and manage business processes. • An agile company profits in spite of: • Broad product ranges • Short model lifetimes • Arbitrary lot sizes

Chapter 2 Competing with Information Technology Agile Companies • Support mass customization: Providing individualized products while maintaining high volumes of production. • Presents products as solutions to customers’ problems • Cooperates with customers, suppliers and competitors • Brings products to market as quickly and cost-effectively as possible • Organizes to thrive on change and uncertainty • Leverages the impact of its people and the knowledge they possess

Chapter Competing with Information Technology 2 Agile vs. ‘Staid’ companies Performance Agile Staid Measurement New Products 8. 8 3. 2 Percent of 2004 sales from new products introduced in previous three years. Average = 5. 6% Modified Products 35 13 Average percent of 2004 sales from modified products introduced in previous three years. Average = 22. 5% Growth +7 -10 Average annual percentage growth 2002 -2004 (relative to industry average). Average growth = 6. 8% per annum Profit Growth +37 -13 Average annual percent change in ROE 2002 -2004 (relative to industry average). Average = 0. 5% From: "Business Agility & IT Portfolios, " MIT Sloan School of Management, Center for Information Systems Research, Summer Session 3, June 2006, data from 649 firms, National Science Foundation grant number IIS- 0085725. Agile = Average of firms above sample mean on percent of sales from new products (i. e. , 5. 6%). Staid = Average of firms below sample mean. Copyright © Massachusetts Institute of Technology, 2006. This work was created by MIT’s Sloan Center for Systems Research (CISR)

Chapter 2 Competing with Information Technology IT and Agile Companies

Chapter 2 Competing with Information Technology Creating a virtual company • An organization that uses information technology to link people, organizations, assets, and ideas. • Creation of Interenterprise Information Systems: • Information systems implemented on an extranet among a company and its suppliers, customers, subcontractors, and competitors with whom it has formed alliances.

Chapter 2 Competing with Information Technology Virtual company strategies • • • 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 Example?

Chapter 2 Competing with Information Technology Virtual company strategies q Cisco Systems • The world’s largest supplier of telecommunications product; manufacturer of none • Online orders arrive simultaneously at Cisco (San Jose) and Jabil Circuit (St. Petersburg, FL). • Jabil builds the product from 3 on-site warehouses: 1 owned by Jabil, 1 -owned by Cisco, 1 owned by Hamilton Standard • Product is tested, checked against the order (at Cisco) and shipped (by Jabil) • Jabil and Hamilton Standard send bills to Cisco • Cisco sends bill to customer

Chapter 2 Competing with Information Technology Knowledge Creation Companies • “learning organizations” or “organizational learning” • Creating new business knowledge, disseminating it widely throughout the company, and quickly building the new knowledge into their products and services. What does “knowledge” mean? • Includes processes, procedures, patents, reference works, formulas, best practices, forecasts, and fixes • Explicit knowledge: data, documents, things written down or stored on computers • Tacit knowledge: the “how-tos” of knowledge, which reside in workers

Chapter 2 Competing with Information Technology Knowledge Management Systems (KMS) • Manages organizational learning and know-how • Helps knowledge workers create, organize, and make available important knowledge • Makes this knowledge available wherever and whenever it is needed

Chapter 2 Competing with Information Technology Knowledge Management

Chapter 2 Competing with Information Technology Summary q Information technologies can support many competitive strategies including cost leadership, differentiation, innovation, growth and alliance q IT can help • • • Build customer-focused businesses Reengineer business processes Businesses become agile companies Create virtual companies Build knowledge-creating companies

Chapter 2 Competing with Information Technology ? ? ? Any Questions ? ? ? You Moron!! I know Evrythin!!!