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

2. 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

3. 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

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
What do we know about Competitive Advantage?
Leading the industry in some identifiable way, such as Sales, Revenues or New Product
Must continually look for that new niche, product, service, etc WSJ

5. Competitive Forces and Strategies

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 BluRay
Customer bargaining power
Buy from competitors or don’t buy
Suppliers bargaining power
Your competitor pays in days not weeks
Five Competitive Forces = Porter’s Five Forces of Competiton
Competition is positive, why?
Discuss emergence of computer manufacturers - Apple, etc.
Salon shampoo copied and sold to Wal-Mart – is one better?
Choice of buying from competitors or don’t buy at all - drives price down
Suppliers charge more causes manufacturers prices to go up.

7. 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
Increase cost to competitors
Example: Priceline uses online seller bidding so the buyer sets the price
Focus on a particular segment or niche of market
Example: Dell first to offer customer choice
Larger hard drive, faster graphics card

8. 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
Radical changes to business processes
Example: Dell sold direct to consumer
Cheaper - cut out middle man
Difficult to imitate
Diversify into new products or services
Example: Wal-Mart’s merchandise ordering via global satellite tracking

9. 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

10. Using Competitive Strategies
Not mutually exclusive
One alone won’t usually fix the problem
Generally need a combination
Innovation not necessarily differentiated
Kindle v. iPad
MP3 players vs iPod
Gateway made in US, relaxed office
Differentiation not necessarily innovative
Shipping more efficient but not different
Telecom companies compete
Multiple telecom companies laid fiber optic cable without knowing others were, not enough business to support the investment

11. Other Competitive Strategies

12. 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
How can you do that?
Provide software and support
Fed Ex provides its customers with package tracking information.
Medical supply companies provide hospitals with inventory management and re-ordering systems
Offer discounts/bonuses for long term contracts
Propane supplier – low introductory rate but must commit for 3 years
Bundle services
Telephone, cable, internet
Windows and Internet Explorer
Computer with Windows and Microsoft Office

13. 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

14. Customer-Focused Business
What is the business value in being customer-focused?
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
Consistently

15. 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

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 help 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

17. Strategic Uses of IT
A company that emphasizes strategic business use of IT would use it to gain a competitive differentiation
Products
Services
Capabilities

18. Business Process Reengineering
Called BPR or simply Reengineering
Radical
Seeks improvements
High potential
High risk
Important enabler of reengineering IT
Process teams
Case managers
Called BPR or simply Reengineering
Fundamental rethinking and radical redesign of business processes
Seeks to achieve 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

19. 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

20. Strategies for Agility
An agile company…
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

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

22. Virtual Company Strategies
Basic business strategies
Share information and risk with alliance partners
Link complimentary 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

23. 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

24. Two Kinds of Knowledge Explicit Knowledge Tacit 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 such tacit knowledge available to others

25. Knowledge Management Successful knowledge management
Creates techniques, technologies, systems, and rewards for getting employees to share what they know
Makes better use of accumulated workplace and enterprise knowledge

26. Knowledge Management Techniques

27. Knowledge Management Systems (KMS)
A major strategic use of IT
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
Knowledge includes
Processes, procedures, patents, reference works, formulas, best practices, forecasts, and fixes