1. Introduction to Information Systems Lecture 02 Competing with IT
How can a business use IT to compete?
Jaeki Song

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 give competitive advantages to a business.
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.

3. Today’s Business Environment
Increased globalization
Increased competitive pressure
Frequent mergers
Rapidly changing technology
Evolving patterns of consumer demand

4. Strategy “the art of the general”
What its business is, its objectives, how it defines and measures results, who its customers are, and what its customers value
Converts business into action by enabling an organization to achieve its goals in an increasingly unpredictable business environment
Strategy is about making choices that include:
The selection of business goals
The choice of products and services offer
The design and configuration of policies that determine how the firm positions itself to compete in its markets
The appropriate level of scope and diversity
The design of organization structure, administrative systems, and policies used to define and coordinate work

5. Formulation of Strategy
Analysis
Implementation
Vision (where)
Objectives
With plans
Strategy (how)
Mission (What)

6. Vision Creation of a vision
Where the company wants to go
What the company aspires to be
To be clear, imaginable/compelling, exciting/desirable
Focused: Is clear enough to provide guidance in decision making
Feasible: comprises realistic
Flexible:
Communicable
Measurable: Stake holders will clearly see that they have attained the goal

7. Strategy
How the vision will be accomplished over specified time period
Benchmarks to check strategy effectiveness
Aligned with company mission and core values
Provides architectural bridge between mission and vision

8. Mission What are we? Mission statement Reasons the IT function exists
Concise statement of what business the group is in
Purpose and function of IT
Review to identify for themes and ideas
Identify core values

9. Competitive Forces New Entrants Industry Competitors Customers
Threat of ..
Industry
Competitors
Bargaining Power of Channel/Suppliers
Bargaining Power of Channel/Buyers
Suppliers
Customers
Rivalry Among
Existing Firms
Threat of ..
Substitute Products

10. New Entrants Industry Competitors Substitute Products
Rivalry Determinants:
Industry growth rate
Intermittent over-capacity
Fixed costs/value added
Product differences
Brand identity
Exit barriers .. sunk costs
Informational complexity
Switching costs
Diversity of competition
Determinants of entry Barriers:
Economies of scale
Brand identity
Proprietary product differences
Switching costs
Absolute cost advantages (proprietary
learning curve, low-cost prod design, etc.)
Government policies
Expected retaliation
Capital requirements
Access to distribution channels
New Entrants
Threat of ..
Industry
Competitors
Suppliers
Bargaining
Power
Bargaining
Power
Customers
Determinants of Supplier Power
Supplier concentration
Importance of Volume to supplier
Relative switching costs
Impact of inputs on cost or differentiation
Costs relative to total industry-purchases
Differentiation of inputs
Substitute inputs availability
Rivalry Among
Existing Firms
Determinants of Customer Power
Buyer Vs. Firm concentration
Dependence .. Buyer Volume
Relative switching costs
Buyer information
Substitute products availability
Threat of ..
Substitute Products
Determinants of Threat of Substitution
Relative price/performance of substitutes
Buyer propensity to substitute
Switching costs

11. 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
According to Michael Porter’s classic model of competition, any business that wants to succeed must develop strategies to counter these 5 forces

12. 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
To counter the threats of competitive forces

13. Competitive Strategies (cont.)
Innovation Strategy
Find new ways of doing business
Unique products or services
Or unique 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

14. Competitive strategies (cont.)
Alliance Strategy
Establish linkages and alliances with
Customers, suppliers, competitors, consultants and other companies
Includes mergers, acquisitions, joint ventures, virtual companies
Example, Wal-Mart uses automatic inventory replenishment by supplier

15. 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
Include IT components in products
Makes substituting competing products more difficult
Leverage investment in IT
Develop new products or services not possible without IT

16. Using IT for these strategies
Often use the Internet as the foundation for such strategies

17. Strategic IT
Technology is no longer an afterthought 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

18. Strategic IT IT managers need to know
Knowledgeable about new technologies
Privy to tactical and strategic plans
Be present in corporate strategy discussions
Understand technology’s strengths and weaknesses

19. IT Strategy Set of decisions made by IT and senior management
Leads to develop technology infrastructures and human competencies
Relationship of technology choices to business choices
Technology scope
The important information applications and technologies
Systematic competencies
Those capabilities that distinguishes the IT services
IT governance
How the authority for resources, risk, conflict resolutions, and responsibility for IT is hared among business partners, IT management, and service providers

20. IT Infrastructure and Processes
Architecture
The technology priorities, policies, and choices that allow applications, S/W, H/W, and data management to be integrated into a cohesive platform
Processes
Those practices and activities carried out to develop and maintain applications and manage IT infrastructure
Skills
IT human resource considerations

21. Planning IT Strategy
Sequence of activities that transforms current alignment state to future alignment state to enable sustainable CA
Actively involve IT (& business) management in development of vision and strategies
Strengthen degree of strategic alignment

22. 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
For classroom discussion:
Do you agree that quality and not price is the customer’s primary determinant of value?
Are there limits?
Is it always quality rather than price?

23. 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

24. 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

25. Porter’s Value Chain Model
Firm Infrastructure (Coordination & Support Services)
Automated Office Systems; Electronic Scheduling/ messaging systems; Scanning/Planning Systems
Human Resource Management
Employee Skills Database; Workforce planning systems
CAD Systems
Technology Development
Procurement of Resources
EDI with Suppliers; Centralized purchase via On-Line Electronic Bulletin Board
On-Line Data Entry system;
Automated
Warehousing system
CAM /
CNC Systems
On-Line Product/ Services Delivery;
Automated Shipment Scheduling Systems
Market Analysis
Systems;
Computerized ordering systems
Equpt. Diagnosis
& Maintenance
System
Inbound
Logistics
Operations
Outbound
Marketing & Sales
After Sales
Service CA

26. 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

27. 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
An agile company often uses the Internet to integrate and manage business processes while providing the processing power to treat masses of customers as individuals

28. 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

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. 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
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
To have lasting competitive advantage, a company must be a knowledge creating company or learning organization

31. Knowledge issues
What is the problem with organizational knowledge being tacit?
Why are incentives to share this knowledge needed?
Issues:
What if the person who has the knowledge leaves the company?
What if someone in another part of the company could use the expertise?
How do you know who knows what you need to know?
How do you find what you need to know
Company wastes money “re-inventing the wheel”
Unless people are given incentive to share the knowledge,
They won’t want to spend time doing something that they are not rewarded for
They will worry about losing their status of having the expertise

32. Knowledge management techniques
Three levels of techniques, technologies, and systems that promote the collection, organization, access, sharing and use of workplace and enterprise knowledge
Create techniques, technologies, systems and rewards for getting employees to share what they know.
Source: Adapted from Marc Rosenberg, e-Learning: Strategies for Delivering Knowledge in the Digital Age
(New York: McGraw-Hill, 2001), p.70.

33. 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