Competing with Information Technology Chapter 2 Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

2-2 Learning Objectives Identify basic competitive strategies and explain how a business can use IT to confront the competitive forces it faces Identify several strategic uses of IT and give examples of how they can help a business gain competitive advantages Give examples of how business process reengineering frequently involves the strategic use of IT

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

2-4 Case 1: Reinventing IT as a Strategic Business Partner Apart from providing reliable and excellent IT services, IT should provide innovative solutions to business challenges IT is no longer about supporting or automating a business –It’s about innovating, improving, and reinventing it IT is now a ground-floor business partner, rather than an after-the-fact business tool

2-5 Case Study Questions What business and political challenges are likely to occur as a result of the transformation of IT from a support activity to a partner role? What implications does this shift in the strategic outlook of IT have for traditional IT workers and the educational institutions that train them? –How does this change the emphasis on what knowledge and skills the IT person of the future should have?

2-6 Case Study Questions Do you agree with the idea that technology is embedded in just about everything a company does? –Provide examples, other than those in the case, of recent product introductions that could not have been possible without heavy reliance on IT

2-7 Strategic IT Technology is no longer an afterthought in business strategy, but the cause and driver IT can change the way businesses compete A strategic information system is any information system that uses IT to help an organization… –Gain a competitive advantage –Reduce a competitive disadvantage –Or meet other strategic enterprise objectives

2-8 Competitive Forces and Strategies

2-9 Five Competitive Strategies Strategies Cost Leadership Alliance Growth Innovation Differentiation

2-10 Using Competitive Strategies These strategies are not mutually exclusive –Organizations use one, some, or all –A given activity could fall into one or more categories Not everything innovative serves to differentiate one organization from another –Likewise, not everything that differentiates organizations is innovative

2-11 Ways to Implement Basic Strategies

2-12 Other Competitive Strategies Strategy Lock in customers and suppliers Raise barriers to entry Create switching costs Build strategic IT capabilities Leverage investment in IT

2-13 Customer-Focused Business Business value in customer focus Focus on customer value Keeps customers loyal Anticipates their future needs Quality, not price, has become the primary determinant of value Responds to customer concerns Provides top-quality customer service

2-14 Providing Customer Value Use CRM systems to focus on the customer Track individual preferences Keep up with market trends Supply products, services, and information anytime, anywhere Tailor customer services to the individual Companies that consistently offer the best value…

2-15 Building Customer Value via the Internet

2-16 The Value Chain and Strategic IS View the firm as a chain of basic activities that add value to its products and services –Primary processes directly relate to manufacturing or delivering products –Support processes support the day-to-day running of the firm and indirectly contribute to products or services Use the value chain to highlight where competitive strategies will add the most value

2-17 Using IS in the Value Chain

2-18 Strategic Uses of IT Companies that emphasize strategic business use of IT use it to gain competitive differentiation ProductsServicesCapabilities

2-19 Reengineering Business Processes Called BRP or Reengineering –Fundamental rethinking and radical redesign of business processes –Seeks dramatic improvements in cost, quality, speed, and service Potential payback is high, but so is risk of disruption and failure Organizational redesign approaches are an important enabler of reengineering –Includes use of IT, process teams, case managers

2-20 BPR vs. Business Improvement

2-21 The Role of Information Technology IT plays a major role in reengineering most business processes –Can substantially increase process efficiency –Improves communication –Facilitates collaboration

2-22 Reengineering Order Management

2-23 Reengineering Order Management Supplier-managed inventory systems using the Internet and extranets Cross-functional ERP software to integrate manufacturing, distribution, finance, HR processes CRM systems using intranets and the Internet Customer-accessible e-commerce websites for order entry, status checking, payment, and service Customer, product, and order status databases accessed via intranets and extranets IT that supports the reengineering process…

2-24 Becoming an Agile Company Old Marketplace New Marketplace Standardized mass- market products and services Long-lived Information poor Exchanged in one-time transactions Global competition Niche products Individualized Short-lived Information rich Exchanged on an ongoing basis

2-25 Becoming an Agile Company Agility is the ability to prosper –In rapidly changing, continually fragmenting global markets –By selling high-quality, high-performance, customer- configured products and services –By using Internet technologies An agile company profits in spite of –Broad product ranges –Short model lifetimes –Individualized products –Arbitrary lot sizes

2-26 Strategies for Agility Presents products as solutions to customers’ problems Brings products to market quickly and cost-effectively Cooperates with customers, suppliers, competitors An agile company… Organizes to thrive on change and uncertainty Leverages the impact of its people and the knowledge they possess Provides incentives for employee responsibility, adaptability, innovation

2-27 How IT Helps a Company be Agile

2-28 Creating a Virtual Company Organizations Assets Ideas People A virtual company uses IT to link… Suppliers Subcontractors CompetitorsCustomers Inter-enterprise information systems link…

2-29 A Virtual Company

2-30 Virtual Company Strategies Basic Business Strategies Reduce concept-to-cash time through sharing Share information & risk with alliance partners Link complimentary core competencies Migrate from selling products to selling solutions Increase facilities and market coverage Gain access to new markets & share market or customer loyalty

2-31 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

2-32 Two Kinds of Knowledge Explicit Knowledge Data, documents, and things written down or stored in computers Tacit Knowledge The “how to” knowledge in workers’ minds Represents some of the most important information within an organization A knowledge-creating company makes tacit knowledge available to others

2-33 Knowledge Management Successful knowledge management –Creates techniques, technologies, systems, & rewards for getting employees to share what they know –Makes better use of accumulated workplace and enterprise knowledge

2-34 Knowledge Management Techniques

2-35 Knowledge Management Systems (KMS) Knowledge management systems… Are a major strategic use of IT Manage organizational learning and know-how Help knowledge workers create, organize, and make available important knowledge Make this knowledge available wherever and whenever it is needed

2-36 Knowledge Management Systems (KMS) Best practices Reference works Processes Forecasts Procedures Fixes Formulas Patents Knowledge includes…

2-37 Case 3: Wachovia and Others Trading Securities at the Speed of Light –Investment companies rely on faster hardware and processing times to get an advantage over competitors –Securities trading is one of the few business activities where a one-second processing delay can cost a company big bucks –Wall Street’s quest for speed is not only putting floor traders out of work, but opening up space for new alternative exchanges and e-communications networks that compete with established stock markets

2-38 Case Study Questions What competitive advantages can the companies in the case derive from faster technology and co-location of servers with exchanges? –Which would you say are sustainable, and which ones are temporary or easily imitable? Tony Bishop of Wachovia stated that “Competitive advantage comes from your math, your workflow, and your processes through your systems” –Referring to what you have learned in this chapter, develop opposing viewpoints as to the role of IT, if any, in the development of competitive advantage

2-39 Case Study Questions What companies in industries other than securities trading could benefit from technologies that focus on reducing transaction processing times?