1. Information Technology
Chapter 2
Competing
with
Information Technology

2. 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?

3. (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.

4. Fundamentals of Strategic Advantage
Section I
Fundamentals of Strategic Advantage

5. The Strategic Cube COMPETITIVE FORCES TO CONTEND WITH TACTICS
Customer
Power
Supplier
Present
Competitors
Potential
Substitute
Products
Strategic
Alliance
Merger or
Acquisition
Internal Growth
Internal
Innovation
TACTICS
Differentiation
Focused
Cost Focus
Differentiation
Cost Leadership
STRATEGIES

7. 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

8. 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)

9. 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.

10. 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

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

12. 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.

13. 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

16. 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

17. 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

18. Value Chain (continued)

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

20. 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

21. 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

22. 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

23. 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

24. 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

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

26. 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

27. Learning Organizations
Exploit two kinds of knowledge
Explicit
Tacit

28. Learning Organizations (continued)
Knowledge Management

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

30. 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?

31. 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?

32. 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?

33. 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?

51. Strategies, Forces, and Tactics in Competitive Markets
B. Competitive Forces
Threat of new entrants
Intensifying realty
Pressures from substitute products
Bargaining power of customers
Bargaining power of suppliers
Z-1998 Figure 3.12 p97

52. Strategies, Forces, and Tactics in Competitive Markets
C.Process for uncovering strategic systems opportunities
1. informal meetings to sell the idea
2. a tutorial on the theory of strategic information
3. Discussion of case examples
4. BRAINSTORMING
5. Executive brainstorming

53. Strategies, Forces, and Tactics in Competitive Markets
D. Tactical Moves in Pursuing a Strategy
Internal innovation
Internal growth (reengineering)
economies of scale (large volume)
economies of scope (Small volume)
Mergers
Strategic alliances

54. Value Chain Analysis of Strategic Opportunities
Definition: Value chain- consists of the major activities that have been added to the product during its creation, development or sale.
Primary activities : the creation of product or service
inbound logistics - order entry data collection, obtain raw materials, subassemblies
Operations - order processing, MRP; transformation of inputs to finished goods

55. Value Chain Analysis of Strategic Opportunities
Primary activities : the creation of product or service
Outbound logistics - distribution & sales data; storing products,
Marketing sales - promotions, discounting; establishing a customer need
Service activities - calls, returns, product rotation and maintenance

56. Value Chain with Typical Strategic IS Mapped onto it
EDI-Based
Purchasing
System
Computer-
Integrated
Mftg.
Automated
Ordering
System
Expert
Systems for
Salespeople
Telemaintenance
Expert
Systems
Inbound
Logistics
Outbound
Logistics
Marketing
and Sales
Operations
Service
Upstream Chains
of Suppliers
Downstream Chains
of Customers

58. Value Chain Analysis of Strategic Opportunities
Support activities: The required infrastructure
Org's infrastructure
Human resources
Technology
Procurement

59. Value Chain Analysis of Strategic Opportunities
Z-1992 fig 5.5 & 5.6

61. Strategies for CIM and BRP
Fjermestad & Chakrabarti, 1993

70. Organizational Requirements for Successful Strategic Information Systems
Active support of Senior management
Integrated Planning
Direct reporting responsibilities of strategic Team
Feedback & Control
budget
Reward
correction

71. Organizational Requirements for Successful Strategic Information Systems
Feedback & Control
Readiness: Culture, Resistance
sustainability
1. lead time will allow the achievement of CA
2. Copy cats may fail because of Uniqueness
3. If copied: Your organization will still have Preempted the marketplace

72. To Reengineer Business processes
The 1980' focus is on the Competitive advantage
The 1990's focus on internal outmode business practices
Today focus on alignment and strategy

73. To Reengineer Business processes
A. Definition: Fundamentally redesigning how the enterprise works-
procedures
control mechanisms
reporting relationships
decision makers
compensation criteria
The is to replace the paper-base world with IT

74. To Reengineer Business processes
B. The reason for the shifts
1. From competition
Quality
Cycle time
customer service
niche markets
2. Failures in implementing IT
3. Organizations are being forced to cut expenses
4. The cost/performance of computer hardware/software has dropped

75. To Reengineer Business processes
C. Where are we Headed?
Sprague Fig 3.5 p83

76. To Reengineer Business processes
D. Using IT as a Catalyst for CHANGE
1. Informate rather than automate:
use the information gathered about automated processes to improve the process or change the work performed
2. Use different structures
centralized
decentralized
both

77. To Reengineer Business processes
E. Principles Guiding Business Reengineering
1. Organize around Outcomes, Not tasks
Right!
2. People who use the output should perform the process
order your own supplies
3. Include information processing in the real work that produces the information
decentralization. At Ford the receiving department receive, process and authorizes payment

78. To Reengineer Business processes
4. Treat geographically dispersed resources as if they were centralized
central purchasing department to negotiate contracts, local department to draw on the database
5. Link parallel activities rather than integrate them
work in parallel rather than sequenced
6. Let doers be self managing
the lowest level makes the decision
7. Capture information once at its source
Yes!

79. To Reengineer Business processes
F. Lesson about Reengineering
Synchronize:
aligning strategy
people
technology
business processes
to cut cost, reduce non-valued-added- work, and streamline client organizations

80. To Reengineer Business processes
1. Business integration is a Process, not a project
2. People need time to change
3. Recognize the potential up front, get people involved early
4. Make job change throughout the organization
5. Manage the pace of change

81. To Reengineer Business processes
G. The role of the System Department
1. Be an influencer
2. Participate on multifunctional teams
3. Build more Flexible Applications faster
4. Introduce processing supporting technologies.
Image processing
EDI, Groupware, video conferencing,
5. Manage the technical architecture
flexibility
adaptability

82. Strategic Systems Can change how organizations work
Changing how decisions are made
To match the increasing turbulence and complexity organizational decision making will be:
more frequent
performed faster
more complex
Agility

83. A Strategic Perspective on Information Systems
“From the realization that IS may be designed to give a firm an enhance ability to compete & possible furnish the firm with a competitive advantage in the market place"
Zwass, 1992, p145

84. A Strategic Perspective on Information Systems
A. Why a New Perspective?
The dynamics of information; Many organization both
produce goods & services
process information
Reduced cost of IT; The substitution power of IS: IS in place of resources (labor, materials)
An interaction effect: Educated people, technology & change in organization culture
The change started to occur in the 1980's with the birth of the USER- TRON

85. A Strategic Perspective on Information Systems
B. Change
A strategic system radically alters the way an organization does business
Most companies change via a series of small steps
Strategic benefits from a system: Lower cost; Market penetration = competitive advantage
The company may not attribute COMPETITIVE ADVANTAGE to IS, but one uses these to justify the IS

86. Information Systems in Strategic Thrusts
Competitive systems
Cooperative systems
Systems that change
What are Strategic Systems?
Strategy: a definition - The science or art of military command as applied to the overall planning conduct of large-scale combat operations. A plan of action resulting from the practice of this science. The art or skill of using stratagem in politics, business, courtship or the like.

87. Information Systems in Strategic Thrusts
Stratagem: A military maneuver designed to deceive or surprise an enemy.
Strategic: Essential to the effective conduct of war. Designed to destroy the military potential of an enemy.
Strategic Information System: An information system designed to give the owner organization a strategic competitive advantage.

88. Information Systems in Strategic Thrusts
Strategic systems: A systems that supports or shapes a business unit's competitive strategy.
outward looking: customers, competitors, environments
inward looking: employees, systems, procedures
Characteristics of Strategic systems:
significantly changes business performance as measured by one or more key indicators. (Take no prisoners).
contributes to attaining a strategic goal.

89. Information Systems in Strategic Thrusts
fundamentally changes the way a company does business, or the way it competes, or the way it deals with its customers or suppliers. A PARADIGM shift.
Differences between traditional systems and strategic
Traditional project management techniques to not work well for developing strategic systems. WHY?
the questions are unstructured, equivocal and uncertain.

90. Information Systems in Strategic Thrusts
Strategic systems follow:
a prototype form, tested on a small scale by the customers then iteratively developed piece by piece.
User involvement is crucial both manager and customer.

91. Information Systems in Strategic Thrusts
A. Redefining Company Business
What business are we in?
Actually a "new vision" is created as an answer
Build on existing strengths
Examples:
B. Creating Products & Services based on IS
C. Transforming Products/Processes with IS

92. Strategies, Forces, and Tactics in Competitive Markets
A. Competitive Systems
The watchwords for the 2000's
Innovation
Speed
Service
Quality
Agility
To Stay in Business

93. Strategies, Forces, and Tactics in Competitive Markets
a. To Gain Market Share (Federal Express)
Continuously improve quality
Improve the value of service
Get closer to the customers
Make an international business profitable
Produce strong cash flow

94. Strategies, Forces, and Tactics in Competitive Markets
b. Uncovering Strategic Use of Systems
Analyze competitive forces
Study strategic thrusts
Study the value chain
Take the customer's view

95. Competitive Strategies
Competitive Advantage
Lower Cost
Differentiation
Cost
Leadership
Broad
Target
Differentiation
Competitive
Scope
Narrow
Target
Cost
Focus
Focused
Differentiation

96. Strategies, Forces, and Tactics in Competitive Markets
Differentiation
Develop products & services which are different from what the competition offers
superior attributes
distinguishing features

97. Strategies, Forces, and Tactics in Competitive Markets
Cost leadership
based on efficient operations
based on effective operations
economies of scale
become a low cost producer
market segmentation (niche)
Focused differentiation
Market niche
Cost focus
narrow market & low cost