1. Competing with Information Technology2
Competing with Information Technology
© 2002 McGraw-Hill Companies

2. Chapter Objectives
Identify several basic competitive strategies and explain how they can use information technologies to confront the competitive forces faced by a business.
Identify several strategic uses of information technology for electronic business and commerce, and give examples of how they give competitive advantages to business.
Give examples of how business process reengineering frequently involves the strategic use of e-business technologies.
© 2002 McGraw-Hill Companies

3. Chapter Objectives
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 advantages.
© 2002 McGraw-Hill Companies

4. The Competitive Environment
Threat of New
Entrants
Rivalry Among
Existing
Competitors
Bargaining Power
of Customers
of Suppliers
Threat of
Substitutes
A firm can survive in the long run if it successfully develops strategies to confront five generic competitive forces that operate in the firm's relevant environment. As illustrated on the slide these forces include:
Threat of New Entrants. Many threats to long run survival come from companies that do not yet exist or have a presence in a given industry or market. The threat of new entrants forces top management to monitor the trends, especially in technology, that might give rise to new competitors.
Teaching Tip: This is especially true as the effects of globalization increase the likelihood that previously "domestic only" competition will encounter new international competitors.
Bargaining Power of Suppliers. Suppliers with access to key or limited resources, or who dominate their industries, may exert undue influence on the firm. Many firms seek to reduce their dependence on a single firm to limit the suppliers' bargaining power.
Rivalry Among Existing Firms. In mature industries, existing competitors are not much of the threat: typically each firm has found its "niche". However, changes in management, ownership, or "the rules of the game" can give rise to serious threats to long term survival from existing firms.
Teaching Tip: For example, the airline industry faces serious threats from airlines operating in bankruptcy, who do not pay on the debts while slashing fares against those healthy airlines who do pay on debt.
Bargaining Power of Customers. Customers can grow large and powerful as a result of their market share. For example, Wal-Mart is the largest customer for consumer package goods and often dictates terms to the makers of those goods -- even a giant like Procter & Gamble.
Threat of Substitutes. To the extent that customers can use different products to fulfill the same need, the threat of substitutes exists.
© 2002 McGraw-Hill Companies

5. Fundamental Competitive Strategies - Cont.
Differentiation Strategies
Innovation Strategies
Growth Strategies
Alliance Strategies
Cost Leadership Strategies
Competitive Advantage is created or maintained with the company succeeds in performing some activity of value to customers significantly better than does its competition. According to Porter, competitive advantage can be developed by following one or more of these strategies:
Cost Strategies. Becoming a low-cost producer in the industry allows the company to lower prices to customers. Competitors with higher costs cannot afford to compete with the low-cost leader on price.
Differentiation Strategies. Some companies create competitive advantage by distinguishing their products on one or more features important to their customers. Unique features or benefits may justify price differences and/or stimulate demand.
Innovation Strategies. Unique products or services or changes in business processes can cause fundamental changes in the way an industry does business.
Teaching Tip: For example, applying TQM, originally developed for manufacturing, to the service industry helped Ritz Carlton when the Malcolm Balridge Award for excellence.
Growth Strategies. Significantly expanding production capacity, entering new global markets, diversifying into new areas, or integrating related products or services can all be a springboard to strong company growth.
Teaching Tip: For example, Intel has increased its capacity (and lowered its costs) just as competitors were close to matching its previous technology in integrated chip manufacturing and design.
Alliance Strategies. Establishing new business linkages and alliances with customers, suppliers, former competitors, consultants, and others can create competitive advantage
© 2002 McGraw-Hill Companies

6. Strategic Uses of Information Technology
Improving
Business
Process
Promote
Innovation
Locking in
Customers
and Suppliers
Use IT to reduce costs of doing business
Use IT to improve quality
Use IT to link business to customers and suppliers
Use IT to create new products or services
Enhance
Efficiency
Create New
Opportunities
Maintain Valuable
Customers and
Relationships
Strategy
IT Role
Outcome
Teaching note: Once the instructor has covered the basic competitive strategy concepts found in Figure 2.2, in the text, they should then further develop the discussion by looking at other competitive strategies that firms use in addition to the five basic strategies of cost leadership, differentiation, innovation, growth, and alliance. The material is found on pages 44 to 45 of the text.
The information in this slide comes from Figure 2.5 found in the textbook which outlines 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 difficulty.
Leverage investment in IS people, hardware, software, databases, and networks from operational uses into strategic applications.
© 2002 McGraw-Hill Companies

7. Strategic Uses of Information Technology
Raise
Barriers
to Entry
Build a
Strategic IT
Platform
Strategic
Information Base
Increase amount of investment or complexity of IT needed to compete
Use IT to provide information to support firm’s competitive strategy
Leverage investment in IS resources from operat- ional uses to strategic uses
Increase
Market Share
Create New
Business
Opportunities
Enhance
Organizational
Collaboration
Strategy
IT Role
Outcome
Teaching note: Once the instructor has covered the basic competitive strategy concepts found in Figure 2.2, in the text, they should then further develop the discussion by looking at other competitive strategies that firms use in addition to the five basic strategies of cost leadership, differentiation, innovation, growth, and alliance. The material is found on pages 44 to 45 of the text.
The information in this slide comes from Figure 2.5 found in the textbook which outlines 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 difficulty.
Leverage investment in IS people, hardware, software, databases, and networks from operational uses into strategic applications.
© 2002 McGraw-Hill Companies

8. The Value Chain Administrative Coordination & Support Services
Human Resource Management
Technology Development
Procurement of Resources
Inbound
Logistics
Operations
Outbound
Marketing
and
Sales
Customer
Service
Competitive
Advantage
The Value Chain Concept developed by Michael Porter views a firm as a series of basic activities (the "chain") that add value to its products and services that support a profit margin for the firm. In the value chain concept, some business activities are primary activities and others support activities. For each activity, the role of strategic information systems (SIS) can contribute significantly to that activity's contribution to the value chain:
Support Activities. Support activities create the internal infrastructure that provides direction to and support for the specialized work of primary activities:
Management and Administrative Services. The key role of SIS here is in automated office systems.
Human Resources Management. SIS role: Employee Skills Database.
Technology Development. SIS role: Computer-Aided Design.
Procurement of Resources. SIS role: EDI with suppliers.
Primary Activities. These activities directly contribute to the transformation process of the organization.
Inbound Logistics. SIS role: Automated Warehousing, JIT.
Operations. SIS role: Computer-Aided Manufacturing.
Outbound Logistics. SIS role: Online Data Entry.
Marketing and Sales. SIS role: Market Analysis.
Service. SIS role: Diagnostic Expert System.
© 2002 McGraw-Hill Companies

9. The Internet Value Chain
Marketing and
Product
Research
Sales and
Distribution
Support and
Customer
Feedback
Data for market research, establishes consumer responses
Access to customer com-ments online
Immediate re-sponse to customer problems
Low cost distribution
Reaches new customers
Multiplies contact points
Increase
Market Share
Lower
Cost Margins
Enhanced
Customers
Satisfaction
Internet
Capability
Benefits to
Company
Opportunity
for
Advantage
Value chains can be used to strategically position a company’s Internet-based applications to gain competitive advantage.
1. This value chain model outlines several ways that a company’s Internet connections with its customers could provide business benefits and opportunities for competitive advantage.
Example: Company-managed Internet newsgroups, chat rooms, and e-commerce websites are powerful tools for market research and product development, direct sales, and customer feedback and support.
2. Company Internet connections with its suppliers could be used for competitive advantage.
Example: Online auctions and exchanges at suppliers’ e-commerce websites and online shipping, scheduling, and status information at an e-commerce portal that gives employees immediate access to up-to-date information from a variety of vendors. This can substantially lower costs, reduce lead times, and improve the quality of products and services.
Conclusion:
Value chain concept can help you decide where and how to apply the strategic capabilities of information technology.
Value chain shows various types of information technologies that might be applied to specific business processes to help a firm gain competitive advantages in the marketplace.
© 2002 McGraw-Hill Companies

10. Strategic Positioning of Internet Technologies
Global Market
Penetration
E-Commerce Website
Value-added IT Services
Product and Services
Transformation
E-Business; Extensive
Intranets and Extranets
Cost and
Efficiency
Improvements
, Chat Systems
Performance
Improvements in
Business
Effectiveness
Strategy
Solution
Low
High
Customer Competition Connectivity
E-Business Processes Connectivity
Internal Drivers
External Drivers
For Internet technologies to be used strategically applications must be correctly positioned. The strategic positioning matrix shown can be used to help a company optimize the strategic impact of Internet Technologies.
The matrix recognizes two major drivers:
Internal Drivers. The amount of connectivity, collaboration and use of IT within a firm.
External Drivers. The amount of connectivity, collaboration and use of IT by customers, suppliers, business partners, and competitors.
Cost and Efficiency Improvements. When there is a low amount of connectivity, collaboration and use of IT within the company and by customers and competitors, a firm should focus on improving efficiency and lowering costs by using Internet technologies to enhance communications between the company and its customers and suppliers.
Performance Improvement in Business Effectiveness. When there is a high amount of internal connectivity, but external connectivity by customers and competitors is still low, a firm should focus on using Internet technologies like intranets and extranets to make major improvements in business effectiveness.
Global Market Penetration. When there is a high degree of connectivity by customers and competitors and low internal connectivity, a firm should focus on developing Internet-based applications to optimize interactions with customers and build market share.
Product and Service Transformation. When a company and its customers, suppliers, and competitors are extensively networked, Internet technologies should be used to develop and deploy products and services that strategically reposition it in the marketplace.
Teaching Tips
This slide corresponds to Figure 2.8 on p. 48 and relates to material on pp
© 2002 McGraw-Hill Companies

11. Customer-Focused e-Business
Let customers
place orders thru
distribution
partners
Transaction
Database
Link Employees
and distribution
check order history
and delivery status
place orders
directly
Customer
Build a
community
of customers,
employees,
and partners
Give all
employees a
complete view
of customers
There are other key strategies enabled by IT that can be used to enable a business to become successful and to maintain their success. These will be discussed on the next slides.
A key strategy for becoming a successful e-business is to maximize customer value. This strategic focus on customer value recognizes that quality rather than price becomes the primary determinant in a customer’s perception of value. A Customer-Focused e-business, then, is one that uses Internet technologies to keep customer loyal by anticipating their future needs, responding to concerns, and providing top quality customer service.
As the slide indicates, such technologies like intranets, the Internet, and extranet websites create new channels for interactive communications within a company, with customers, and with suppliers, business partners, and others in the external business environment. Thereby, encouraging cross-functional collaboration with customers in product development, marketing, delivery, service and technical support.
A successful Customer-Focused e-business attempts to ‘own’ the customer's total business experience through such approaches as:
Letting the customer place orders directly, and through distribution partners
Building a customer database that captures customers' preferences and profitability, and allowing all employees access to a complete view of each customer.
Teaching Tip: Encourage your students to describe the characteristics of a profitable customer. What makes a particular customer valuable to a specific business?
Letting customers check order, history and delivery status
Nurturing an online community of customers, employees, and business partners.
Teaching Tips
This slide corresponds to Figure 2.10 on p. 52 and relates to the material on pp
© 2002 McGraw-Hill Companies

12. Business Reengineering and Quality Management
Business Quality
Improvement
Business
Reengineering
Definition
Target
Potential
Payback
Risk
What Changes?
Primary
Enablers
Incrementally Improving Existing Processes
Radically Redesigning Business Systems
Any Process
Strategic Business Processes
10%-50% Improvements
10-Fold Improvements
Low
High
Same Jobs - More Efficient
Big Job Cuts; New Jobs; Major Job Redesign
IT and Work Simplification
IT and Organizational Redesign
One of the most important competitive strategies today is business process reengineering (BPR) most often simply called reengineering. Reengineering is more than automating business processes to make modest improvements in the efficiency of business operations. Reengineering is a fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in cost, quality, speed, and service. BPR combines a strategy of promoting business innovation with a strategy of making major improvements to business processes so that a company can become a much stronger and more successful competitor in the marketplace.
However, while many companies have reported impressive gains, many others have failed to achieve the major improvements they sought through reengineering projects.
Business quality improvement is a less dramatic approach to enhancing business success. One important strategic thrust in this area is called Total Quality Management (TQM). TQM emphasizes quality improvement that focuses on the customer requirements and expectations of products and services. This may involve many features and attributes, such as performance, reliability, durability, responsiveness etc.
TQM uses a variety of tools and methods to provide:
More appealing, less-variable quality of products or services
Quicker less-variable turnaround from design to production and distribution
Greater flexibility in adjusting to customer buying habits and preferences
Lower costs through rework reductions, and non-value-adding waste elimination.
Teaching Tips
This slide corresponds to Figure 2.11 on p. 54 and relates to the material on pp
© 2002 McGraw-Hill Companies

13. The Customer- Focused Agile Competitor
Leverage the
Impact of
People and
IS Resources
Now
Accessibility
Delivery Time
time to market
Customer’s
Anticipation of
future needs
Customization
Conformance
Cost of
Transaction
Value-added
Services
Give Customers
Solutions
to Problems
Cooperate with
Business Partners
and Competitors
Perfect
Free
Organize to
Master
Change
Agility in competitive performance is the ability of a business to prosper in rapidly changing, continually fragmenting global markets for high-quality, high-performance, customer-configured products and services. Agile companies depend heavily on information technology to support and manage business processes. The four fundamental strategies of agile competition are:
Enrich Customers. Agile companies enrich customers with solutions to their problems. Long term value-added products and services succeed when they solve problems based on customer needs. As conditions change, the agile competitor establishes a relationship based on the ability and willingness to change to meet new customer problem situations.
Cooperate. Agile companies cooperate to enhance competitiveness. This means internal cooperation and, where necessary, cooperation with competitors in order to bring products and services to market more quickly.
Organize. Agile companies organize to master change and uncertainty. This is a key component of agile competition because it seeks development of the anticipation and rapid response to changing conditions, not an attempt to stifle change itself.
Leverage People and Information. Agile companies leverage the impact of people and information by nurturing an entrepreneurial spirit and providing incentives to employees to exercise responsibility, adaptability, and innovation.
The Free.Perfect.Now model developed by AVNET Marshall embodies these principles into a succinct model for serving its customers in the most agile and responsive way.
Free Dimension. Emphasizes that most customers want the lower cost for value received, but are willing to pay more for a value-added service.
Perfect Dimension. Emphasizes that products and services should not only be defect free, but should be enhanced by customization, added features and should further anticipate future customer needs.
Now Dimension. Emphasizes that customers want 24x7 accessibility to products and services, short delivery times, and consideration of the time-to-market for their own products.
Teaching Tips
This slide corresponds to Figure 2.15 on p.58 and relates to the material on pp
© 2002 McGraw-Hill Companies

14. Virtual Corporations Borderless Technology Excellence Trust-Based
Adaptability
Opportunism
Six
Characteristics
of Virtual
Companies
A Virtual Company (also called a virtual corporation or virtual organization) is an organization that uses information technology to link people, assets, and ideas. People and corporations are forming virtual companies in order to take advantage of strategic opportunities that require time, people competencies and information technologies resources that may not exist within a single company. By making strategic alliances with other companies and quickly forming a virtual company of all-star partners, the virtual company is best able to assemble the components needed to provide a world-class solution for customers and capture the opportunity.
To succeed the virtual company must possess six characteristics:
Adaptability: Able to adapt to a diverse, fast-changing business environment. Virtual companies must further reduce concept-to-cash time through sharing.
Opportunism: Created, operated, and dissolved to exploit business opportunities when they appear. They must gain access to new markets and share market or customer loyalty, while increasing facilities and market coverage.
Excellence: Possess all-star, world-class excellence in the core competencies that are needed. These competencies must be seamlessly linked through the use of Internet technologies.
Technology: Provide world-class information technology and other required technologies in all customer solutions. They must migrate from selling products to selling solutions.
Borderless: Easily and transparently synthesize the competencies and resources of business partners into integrated customer solutions.
Trust-Based: Members are trustworthy and display mutual trust in their business relationships. They must be willing to share infrastructures and risks.
Teaching Tips
This slide relates to the material on pp
© 2002 McGraw-Hill Companies

15. Knowledge Management Systems
Solution
Knowledge
Development
Engineers
Technical
Support
Staff
Product
Managers
Other
Vendors
Customers
The
Internet
Intranet
Knowledge Management has become one of the major strategic uses of information technology. Knowledge Management Systems (KMS) are systems that are used to manage organizational learning and business know-how. The goal of knowledge management systems is to help knowledge workers create, organize, and make available important business knowledge, whenever, and wherever its needed.
Such knowledge may include explicit knowledge like reference works, formulas, and processes, or tacit knowledge like “best practices”, and fixes. Internet and intranet technologies, along with such other technologies like GroupWare, data mining, and online discussion groups are used by KMS to collect, edit, evaluate and disseminate knowledge within the organization.
Knowledge management systems are sometimes called adaptive learning systems, because they create cycles of organizational learning called adaptive learning loops, which allow the knowledge company to continually build and integrate knowledge into business processes, products, and services. Thereby, helping the company to become a more innovative, agile provider of goods and services.
Teaching Tips
This slide relates to the material on pp
© 2002 McGraw-Hill Companies

16. Chapter Summary
Information systems can play several strategic roles in business.
The Internet, intranets, extranets, and other Internet-based technologies can be used strategically for e-business and e-commerce that provide a competitive advantage.
A key strategic use of Internet technologies is to build an e-business which develops its business value by making customer value its strategic focus.
© 2002 McGraw-Hill Companies

17. Chapter Summary (cont)
IT is a key ingredient in reengineering business operations, by enabling radical changes to business processes that dramatically improve their efficiency and effectiveness.
IT can be strategically used to improve the quality of business performance.
A business can use IT to help it become an agile company, that can respond quickly to changes in its environment.
© 2002 McGraw-Hill Companies

18. Chapter Summary (cont)
Forming virtual companies has become an important competitive strategy in today’s dynamic global market.
Lasting competitive advantages today can only come from innovative use and management of organizational knowledge by knowledge creating companies and learning organizations.
© 2002 McGraw-Hill Companies