1. McGraw-Hill/Irwin ©2008,The McGraw-Hill Companies, All Rights Reserved Competing with Information Technology How can a business use IT to compete? Competitive strategies and forces Chapter 2

2. 2- 2 Strategic IT Technology is no longer an after thought in forming business strategy, but the actual cause and driver. IT can change the way businesses compete. A strategic information system is –Any kind of information system –That uses IT to help an organization Gain a competitive advantage Reduce a competitive disadvantage Or meet other strategic enterprise objectives

3. 2- 3 Competitive Forces and Strategies

4. 2- 4 Competitive Forces If a business wants to succeed must develop strategies to counter these forces: –Rivalry of competitors within its industry –Threat of new entrants into an industry and its markets –Threat posed by substitute products which might capture market share –Bargaining power of customers –Bargaining power of suppliers

5. 2- 5 Five Competitive Strategies Cost Leadership –Become low-cost producers –Help suppliers or customers reduce costs –Increase cost to competitors –Example, Priceline uses online seller bidding so buyer sets the price Differentiation Strategy –Develop ways to differentiate a firm’s products from its competitors –Can focus on particular segment or niche of market –Example, Moen uses online customer design

6. 2- 6 Competitive Strategies (cont.) Innovation Strategy –Find new ways of doing business Unparalleled products or services Or Unparalleled markets Radical changes to business processes to alter the fundamental structure of an industry –Example, Amazon uses online full-service customer systems Growth Strategy –Expand company’s capacity to produce –Expand into global markets –Diversify into new products or services –Example, Wal-Mart uses merchandise ordering by global satellite tracking

7. 2- 7 Competitive strategies (cont.) Alliance (damaged )Strategy –Establish linkages and alliances with Customers, suppliers, competitors, consultants and other companies –Includes mergers, acquisitions, joint projects, virtual companies –Example, Wal-Mart uses automatic inventory Renewal by supplier

8. 2- 8 Using these strategies The strategies are not mutually exclusive Organizations use one, some or all

9. 2- 9 Using IT for these strategies

10. 2- 10 Other competitive strategies Lock in customers and suppliers –And lock out competitors –Deter them from switching to competitors –Build in switching costs –Make customers and suppliers dependent on the use of innovative IS Barriers to entry –Discourage or delay other companies from entering market –Increase the technology or investment needed to enter

11. 2- 11 Other competitive strategies (cont.) Include IT components in products –Makes substituting competing products more difficult Leverage investment in IT –Develop new products or services not possible without IT

12. 2- 12 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 primary determinant of value

13. 2- 13 How can we provide customer value? Track individual preferences Keep up with market trends Supply products, services and information anytime, anywhere Provide customer services tailored to individual needs Use Customer Relationship Management (CRM) systems to focus on customer

14. 2- 14 Building customer value using the Internet

15. 2- 15 Value Chain View the firm as a chain of basic activities that add value to its products and services Activities are either –Primary processes directly related 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 can best be applied to add the most value

16. 2- 16 Using IS in the value chain

17. 2- 17 Case 2: GE Energy and GE Healthcare: Using IT to Create Strategic Customer Relationships Networking and data storage & analysis technologies enable companies like GE to gain a competitive advantage by providing unique products and services to their customers. This strategic investment in IT has a dramatic effect on the profitability of GE’s services. The strategic business partnership results in a longer-term relationship than traditional methods.

18. 2- 18 Case Study Questions 1.What are the business benefits of using information technology to build strategic customer relationships for GE Energy and GE Healthcare? What are the business benefits for their customers? 2.What strategic uses of information technology discussed in this chapter and summarized in Figures 2.3 and 2.5 do you see implemented in this case? Explain the reasons for your choices.

19. 2- 19 Case Study Questions 3.How could other companies benefit from the use of IT to build strategic customer relationships? Provide or propose several examples of such uses. Explain how each benefits the business and its customers.

20. 2- 20 Real World Internet Activity 1.Use the Internet to discover if GE Energy and GE Healthcare are expanding or strengthening their uses of IT to build strategic customer relationships. What benefits are they gaining for themselves and claiming for their customers? 2.Use the Internet to discover other companies whose products are networked, monitored, diagnosed, and managed at customers’ sites like the GE companies in this case. Alternatively, choose other companies you can research on the Internet and propose several ways they could implement and benefit from similar uses of information technology.

21. 2- 21 Real World Group Activity 3.What business control and security concerns might a business customer have with the extent of its dependency on GE for the use and maintenance of assets that are vital to the operation of the business? –Discuss the rationale for these concerns and what measures both the business and GE could take to reduce any security threats and improve a customer’s secure control of the business assets it obtains from GE.

22. 2- 22 Business Process Reengineering Called BPR or Reengineering –Fundamental rethinking and radical redesign –Of business processes –To achieve improvements in cost, quality, speed and service Potential payback high Risk of failure is also high

23. 2- 23 How BPR differs from business improvement

24. 2- 24 A cross-functional process

25. 2- 25 Reengineering order management

26. 2- 26 Agility Agility is the ability of a company to prosper –In a rapidly changing, continually fragmenting –Global market for high-quality, high-performance, customer-configured products and services An agile company can make a profit with –Broad product ranges –Short model lifetimes –Mass customization Individual products in large volumes

27. 2- 27 Four strategies for agility An agile company: Provides products as solutions to their customers’ individual problems Cooperates with customers, suppliers and competitors to bring products to market as quickly and cost-effectively as possible Organizes so that it thrives on change and uncertainty Leverages the impact of its people and the knowledge they possess

28. 2- 28 How IT helps a company be agile

29. 2- 29 Virtual Company A virtual company uses IT to link –People, –Organizations, –Assets, –And ideas Creates interenterprise information systems –to link customers, suppliers, subcontractors and competitors

30. 2- 30 A virtual company

31. 2- 31 Strategies of virtual companies

32. 2- 32 Knowledge Creation Knowledge-creating company or learning organization –Consistently creates new business knowledge –Disseminates it throughout the company –And builds in the new knowledge into its products and services

33. 2- 33 Two kinds of knowledge Explicit knowledge –Data, documents and things written down or stored on computers Tacit knowledge –The “how-to” knowledge which reside in workers’ minds A knowledge-creating company makes such tacit knowledge available to others

34. 2- 34 Knowledge issues What is the problem with organizational knowledge being tacit? Why are incentives to share this knowledge needed?

35. 2- 35 Knowledge management techniques Source: Adapted from Marc Rosenberg, e-Learning: Strategies for Delivering Knowledge in the Digital Age (New York: McGraw-Hill, 2001), p.70.

36. 2- 36 Knowledge management systems (KMS) KMS manage organizational learning and business know-how Goal: –Help knowledge workers to create, organize, and make available knowledge –Whenever and wherever it’s needed in an organization