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

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

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

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

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?

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

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

8. Competitive Forces and Strategies

9. Five Competitive Strategies
Cost Leadership
Differentiation
Strategies
Alliance
Innovation
Cost Leadership
Become low-cost producers, help suppliers or customers reduce costs, and increase cost to competitors
Example: Priceline uses online bidding so the buyer sets the price
Differentiation Strategy
Differentiate a firm’s products from competitors’, or focus on a particular segment or niche of market
Example: Moen uses online customer design
Innovation Strategy
Unique products, services, or markets. Radical changes to business processes
Example: Amazon’s online, full-service customer systems
Growth Strategy
Expand company’s capacity to produce, expand into global markets, or diversify into new products or services
Example: Wal-Mart’s merchandise ordering via global satellite tracking
Alliance Strategy
Establish linkages and alliances with customers, suppliers, competitors, consultants, and other companies. This includes mergers, acquisitions, joint ventures, virtual companies
Example: Wal-Mart uses automatic inventory replenishment by supplier
Growth

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

11. Ways to Implement Basic Strategies

12. Other Competitive Strategies
Strategy
Lock in customers and suppliers
Create switching costs
Raise barriers to entry
Lock in Customers and Suppliers
Deter them from switching to competitors
Create Switching Costs
Make customers and suppliers dependent on the use of innovative IS
Raise Barriers to Entry
Discourage or delay other companies from entering the market
Increase the technology or investment needed to enter
Build Strategic IT Capabilities
Take advantage of strategic opportunities when they arise
Improve efficiency of business practices
Leverage Investment in IT
Develop products and service that would not be possible without a strong IT capability
Build strategic IT capabilities
Leverage investment in IT

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

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

15. Building Customer Value via the Internet

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

17. Using IS in the Value Chain

18. Strategic Uses of IT Products Services Capabilities
Companies that emphasize strategic business use of IT use it to gain competitive differentiation
Products
Services
Capabilities

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

20. BPR vs. Business Improvement

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

22. Reengineering Order Management

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

24. Becoming an Agile Company
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
Old Marketplace
New Marketplace

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

26. Strategies for Agility
An agile company…
Presents products as solutions to customers’ problems
Cooperates with customers, suppliers, competitors
Brings products to market quickly and cost-effectively
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

27. How IT Helps a Company be Agile

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

29. A Virtual Company

30. Virtual Company Strategies
Basic Business Strategies
Share information & 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 & share market or customer loyalty
Migrate from selling products to selling solutions

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
Builds it into its products and services

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

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

34. Knowledge Management Techniques

35. Knowledge Management Systems (KMS)
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

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

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

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

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