Competing with Information Technology

Learning Objectives
Identify several basic competitive strategies and

explain how they can 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 give competitive advantages to a business.

Learning Objectives
Give examples of how business process reengineering frequently involves the strategic use of Internet technologies. 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.

Why Study 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.

Case #1: Does IT Matter?

Nicholas Carr:
It is simply the infrastructure of modern business. Its equivalent to railroads, electricity, and internal combustion engineering.

Once innovative applications of IT have become simply the cost of doing business.

Case #1: Does IT Matter?

How important is IT to GE?
Business imperative Lifeblood for productivity 20% return on technology investments and GE invests

$2.5 to $3 billion a year

Case #1: Does IT Matter?

Nicholas Carr:
Todays main risk is not underusing IT but overspending on it.

Case #1: Does IT Matter?

Michael Dell, CEO of Dell Computers
Anything in business can be either a sinkhole or a

competitive advantage if you do it really, really bad or you do it really, really well.
Youve got a lot of people who dont know what theyre

doing and dont do it very well.

Case #1: Does IT Matter?

Andy Grove, Chairman of Intel Corp.
Commercial-transaction processing in the United

States and some parts of Europe has reach maturation but thats only one segment of IT.

What is IT?

Case #1: Does IT Matter? A bunch of networks and computers

OR
Hardware plus the software that mediates and

manages human knowledge or information

Case #1: Does IT Matter?

Charles Fitzgerald, Microsoft General Manager
The source of competitive advantage in business is

what you do with the information that technology gives you access to. How do you apply that to some particular business problem?

Case #1: Does IT Matter?

Paul Strassman, former CIO of General Foods, Xerox, Pentagon, and NASA
Information technology today is a knowledge-capital

issue.
Look at the business powers most of all Wal-Mart,

but also companies like Pfizer or FedEx. Theyre all waging information warfare.

Case #1: Does IT Matter?

1.

Do you agree with the argument made by Nick Carr to support his position that IT no longer gives companies a competitive advantage? Why or why not?
Do you agree with the argument made by the business leaders in this case in support of the competitive advantage that IT can provide to a business? Why or why not?

2.

Case #1: Does IT Matter?

3.

What are several ways that IT could provide a competitive advantage to a business? Use some of the companies mentioned in this case as examples. Visit their websites to gather more information to help you answer.
What does Mr. Strassman mean by information warfare? Can information technology give a competitive advantage to a small business? Why or why not? Use an example to illustrate your answer.

4.

5.

Strategic View of Information Systems

Information systems are vital competitive networks.
Information systems are a means of organizational

renewal.
IS are a necessary investment in technologies that help

a company adopt strategies and business processes that enable it to reengineer or reinvent itself in order to survive and succeed in todays dynamic business environment.

Strategic Information Systems

Definition: Any kind of information system that uses information technology to help an organization gain a competitive advantage, reduce a competitive disadvantage, or meet other strategic enterprise objectives.

Competitive Forces and Strategies

Competitive Forces
Definition: Shape the structure of competition in its industry.

Porters Competitive Forces Model

To survive and succeed, a business must develop and implement strategies to effectively counter the:
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

Competitive Strategies
Cost Leadership
Differentiation Innovation Growth Alliance

Cost Leadership Strategy

Becoming a low-cost producer of products and services
Finding ways to help suppliers and customers reduce

their costs
Increase costs of competitors

Differentiation Strategy
Developing ways to differentiate a firms products and

services from its competitors

Reduce the differentiation advantages of competitors

Innovation Strategy
Development of unique products and services
Entry into unique markets or market niches Making radical changes to the business processes for producing or distributing products and services

that are so different from the way a business has been conducted that they alter the fundamental structure of an industry

Growth Strategy
Significantly expanding a companys capacity to

produce goods and services

Expanding into global markets Diversifying into new products and services

Integrating into related products and services

Alliance Strategy
Establishing new business linkages and alliances with

customers, suppliers, competitors, consultants, and other companies

Competitive Strategy Examples

Other Competitive Strategies

Locking in customers or suppliers by building valuable

new relationships with them.

Building switching costs so a firms customers or

suppliers are reluctant to pay the costs in time, money, effort, and inconvenience that it would take to switch to a companys competitors.

Other Competitive Strategies

Raising barriers to entry that would discourage or

delay other companies from entering a market.

Leveraging investment in information technology by

developing new products and services that would not be possible without a strong IT capability.

Advantage vs. Necessity

Competitive Advantage developing products,

services, processes, or capabilities that give a company a superior business position relative to its competitors and other competitive forces
Competitive Necessity products, services, processes,

or capabilities that are necessary simply to compete and do business in an industry

Customer-Focused Business
A business that:
can anticipate customers future needs. responds to customer concerns. provides top-quality customer service.

IS in a Customer-Focused Business

Value Chain
Definition: View of a firm as a series, chain, or network of basic activities that add value to its products and services, and thus add a margin of value both to the firm and its customers.

Value Chain

Value Chain

Know-How
U.S. DOC AskMe Knowledge Management System Automated best practices Automated experts profile creation Addition of numerous methods for accessing and delivering knowledge Integrated real-time collaborative services Comprehensive analytic capabilities

Case #2: Using IT to tap Expert Know-How

Benefits Experts knowledge is organized Experts are more easily contacted Information is reusable saving 750 hours of repetitive work Return on investment is tracked Popular topics are identified so DOC can beef up its expertise in those areas

Case #2: Using IT to tap Expert Know-How

1.

What are the key business challenges facing companies in supporting their global marketing and expansion efforts? How is the AskMe knowledge management system helping to meet this challenge? Explain.

Case #2: Using IT to tap Expert Know-How

2.

How can the AskMe system help to identify weaknesses in global business knowledge within the Department of Commerce? What other global trade situations could the AskMe system provide information about? Provide some examples.

3.

Case #2: Using IT to tap Expert Know-How

4.

Is the AskMe system intended to help the DOC become a knowledge-creating organization? Why or why not?

Business Process Reengineering

Definition: Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in cost, quality, speed, and service.

BPR vs. Business Improvement

Cross-Functional Processes

Agility
Definition: The ability of a company to prosper in rapidly changing, continually fragmenting global markets for high-quality, high performance, customer-configured products and services.

Agile Company
Definition: A company that can make a profit in markets with broad product ranges and short model lifetimes, and can produce orders individually and in arbitrary lot sizes.

Mass Customization
Definition: Providing individualized products while maintaining high volumes of production

Agile Competitor

Virtual Company
Definition: An organization that uses information technology to link people, organizations, assets, and ideas.

Interenterprise Information Systems

Definition: Information systems implemented on an extranet among a company and its suppliers, customers, subcontractors, and competitors with whom it has formed alliances.

Virtual Company

Virtual Company Strategies

Share infrastructure and risk with alliance partners.
Link complementary core competencies. Reduce concept-to-cash time through sharing.

Virtual Company Strategies

Increase facilities and market coverage.
Gain access to new markets and share market or

customer loyalty.
Migrate from selling products to selling solutions.

Knowledge-Creating Companies
Definition: Consistently creating new business knowledge, disseminating it widely throughout the company, and quickly building the new knowledge into their products and services.

Types of Knowledge
Explicit Knowledge data, documents, things written

down or stored on computers

Tacit Knowledge the how-tos of knowledge, which

reside in workers

Knowledge Management
Definition: Techniques, technologies, systems, and rewards for getting employees to share what they know and to make better use of accumulated workplace and enterprise knowledge.
Knowledge Management Systems manage organizational learning and business know-how

Levels of Knowledge Management

Case #3: Shareware Grows Up

How a software cooperative works Companies pay a membership which entitles them to use any of the intellectual property of the co-op.
Member companies will donate intellectual property,

cooperate in adapting it for other companies, help troubleshoot problems and form sub-groups to develop needed niche software for the library.

Case #3: Shareware Grows Up

Benefits Decrease in the total cost of ownership of software
Co-op becomes responsible for assets and also ensure

that theres a clear title so member companies cant be sued later

The larger the installation base, the lower the cost of

ongoing maintenance

Case #3: Shareware Grows Up

Challenge Getting members to really collaborate

Case #3: Shareware Grows Up

1.

Organizations are constantly striving to achieve competitive advantage, often through their information technologies. Given this constant, why does Hansen suggest that competition among members shouldnt be an issue because the shared assets dont bring competitive advantage? Explain.

Case #3: Shareware Grows Up

2.

What do you see as the potential risks associated with the Avalanche approach? Provide some examples. How could other companies apply the cooperative model used by Avalanche to achieve efficiencies in areas other than software support? Explain.

3.

Systems
Satisfaction vs. Loyalty A satisfied customer is one who sees you as meeting expectations.
A loyal customer, on the other hand, wants to do

business with you again and will recommend you to others.

Case #4: Customer-Loyalty Systems

A good loyalty program combines customer feedback

and business information with sophisticated analytics to produce actionable results.

With good customer loyalty technology, IT can wire

the voice of the customer back into the enterprise.

Case #4: Customer-Loyalty Systems

How can IT help? Gathering customer experience data by e-mail rather than telephone dramatically reduces survey cycle times Can build in validated, multivariate measures of loyalty into the software Software-generated models can accurately predict customers purchasing behavior IT can be used to deliver rewards to customers based on predictive analysis

Case #4: Customer-Loyalty Systems

1.

Does CDWs customer loyalty program give them a competitive advantage? Why or why not? What is the strategic value of Harrahs approach to determining and rewarding customer loyalty? What else could CDW and Harrahs do to truly become a customer-focused businesses? Visit their websites to help you suggest several alternatives.

2.

3.

Summary
Information technologies can support many competitive strategies including cost leadership, differentiation, innovation, growth and alliance.
IT can help
Build customer-focused businesses Reengineer business processes Businesses become agile companies Create virtual companies Build knowledge-creating companies

End of Chapter