Information Technology Chapter 2 Competing with Information Technology

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?

(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.

Fundamentals of Strategic Advantage Competitive Forces (Porter) Bargaining power of customers Bargaining power of suppliers Rivalry of competitors Threat of new entrants Threat of substitutes

Competitive Strategies & the Role of IT Cost Leadership (low cost producer) Reduce inventory (JIT) Reduce manpower costs per sale (see Real World Case 1) Help suppliers or customers reduce costs Increase costs of competitors Reduce manufacturing costs (process control)

Competitive Strategies & the Role of IT (continued) Differentiation Create a positive difference between your products/services & the competition. May allow you to reduce a competitor’s differentiation advantage. May allow you to serve a niche market.

Competitive Strategies & the Role of IT (continued) Innovation New ways of doing business Unique products or services New ways to better serve customers Reduce time to market New distribution models

Competitive Strategies & the Role of IT (continued) Growth Expand production capacity Expand into global markets Diversify Integrate into related products and services.

Competitive Strategies & the Role of IT (continued) Alliance Broaden your base of support New linkages Mergers, acquisitions, joint ventures, “virtual companies” Marketing, manufacturing, or distribution agreements.

Competitive Strategies & the Role of IT (continued) Other Competitive Strategies Locking in customers or suppliers Build value into your relationship Creating switching costs Extranets Proprietary software applications

Competitive Strategies & the Role of IT (continued) Other Competitive Strategies (continued) Raising barriers to entry Improve operations or promote innovation Leveraging investment in IT Allows the business to take advantage of strategic opportunities

The Value Chain Views a firm as a series, chain, or network of activities that add value to its products and services. Improved administrative coordination Training Joint design of products and processes Improved procurement processes JIT inventory Order processing systems

Value Chain (continued)

Using Information Technology for Strategic Advantage Section II Using Information Technology for Strategic Advantage

Strategic Uses Of Information Technology Major competitive differentiator Develop a focus on the customer Customer value Best value Understand customer preferences Track market trends Supply products, services, & information anytime, anywhere Tailored customer service

Strategic Uses of IT (continued) Business Process Reengineering (BPR) Rethinking & redesign of business processes Combines innovation and process improvement There are risks involved. Success factors Organizational redesign Process teams and case managers Information technology

Strategic Uses of IT (continued) Improve business quality Total Quality Management (TQM) Quality from customer’s perspective Meeting or exceeding customer expectations Commitment to: Higher quality Quicker response Greater flexibility Lower cost

Strategic Uses of IT (continued) Becoming agile Four basic strategies Customers’ perception of product/service as solution to individual problem Cooperate with customers, suppliers, other companies (including competitors) Thrive on change and uncertainty Leverage impact of people and people’s knowledge

Strategic Uses of IT (continued) The virtual company Uses IT to link people, assets, and ideas Forms virtual workgroups and alliances with business partners Interorganizational information systems

The Virtual Company (continued) Strategies Share infrastructure & risk with alliance partners Link complementary core competencies Reduce concept-to-cash time through sharing

The Virtual Company (continued) Strategies (continued) Increase facilities and market coverage Gain access to new markets and share market or customer loyalty Migrate from selling products to selling solutions

Learning Organizations Exploit two kinds of knowledge Explicit Tacit

Learning Organizations (continued) Knowledge Management

Learning Organizations (continued) Knowledge management systems Help create, organize, and share business knowledge wherever and whenever needed within the organization

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?

Discussion Questions (continued) 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? What strategic role can information technology play in business process reengineering and total quality management?

Discussion Questions (continued) 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?

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?

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

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?

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?

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?

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?

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?

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?

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?

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?

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?

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?

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?

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

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

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?