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Chapter Objectives
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Àhe Competitive Environment

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Competitive Forces and Strategies

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Àhe Competitive Environment

‡ A firm can survive in the long run if it successfully develops
strategies to confront five generic competitive forces that operate
in the firm's relevant environment.
‡ Threat of New Entrants. Many threats to long run survival come
from companies that do not yet exist or have a presence in a given
industry or market. The threat of new entrants forces top
management to monitor the trends, especially in technology, that
might give rise to new competitors.
‡ "domestic only" competition will encounter new international
competitors.
‡ Bargaining Power of Suppliers. Suppliers with access to key or
limited resources, or who dominate their industries, may exert
undue influence on the firm. Many firms seek to reduce their
dependence on a single firm to limit the suppliers' bargaining
power.
Àhe Competitive Environment
‡ Rivalry Among Existing Firms. In mature industries, existing
competitors are not much of the threat: typically each firm has
found its "niche". However, changes in management, ownership,
or "the rules of the game" can give rise to serious threats to long
term survival from existing firms.
‡ the airline industry faces serious threats from airlines operating in
bankruptcy, who do not pay on the debts while slashing fares
against those healthy airlines who do pay on debt.
‡ Bargaining Power of Customers. Customers can grow large and
powerful as a result of their market share. For example, Wal-
Mart is the largest customer for consumer package goods and
often dictates terms to the makers of those goods -- even a giant
like Procter & Gamble.
‡ Threat of Substitutes. To the extent that customers can use
different products to fulfill the same need, the threat of substitutes
exists.
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Fundamental Competitive Strategies - Cont.

  


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Fundamental Competitive Strategies - Cont.

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 is created or maintained with the
company succeeds in performing some activity of value to
customers significantly better than does its competition.
According to Porter, competitive advantage can be developed by
following one or more of these strategies:
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. Becoming a low-cost producer in the industry
allows the company to lower prices to customers. Competitors
with higher costs cannot afford to compete with the low-cost
leader on price.
‡
   
. Some companies create competitive
advantage by distinguishing their products on one or more
features important to their customers. Unique features or benefits
may justify price differences and/or stimulate demand
 |

Fundamental Competitive Strategies - Cont.

‡ ’   
. Unique products or services or changes
in business processes can cause fundamental changes in the way
an industry does business. E.g. applying TQM, originally
developed for manufacturing, to the service industry helped Ritz
Carlton when the Malcolm Balridge Award for excellence.
‡   
. Significantly expanding production capacity,
entering new global markets, diversifying into new areas, or
integrating related products or services can all be a springboard to
strong company growth. Intel has increased its capacity (and
lowered its costs) just as competitors were close to matching its
previous technology in integrated chip manufacturing and design.
‡   
. Establishing new business linkages and
alliances with customers, suppliers, former competitors,
consultants, and others can create competitive advantage
 ||

`asic strategies in the `usiness use of IÀ

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Strategic Uses of Information Àechnology

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 Use IÀ to Use IÀ to ‡Use IÀ to

reduce costs create new improve quality
of doing products or ‡Use IÀ to link
business services business to
customers and
suppliers

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Strategic Uses of Information Àechnology

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 Increase Leverage Use IÀ to

amount of investment in provide
investment or IS resources information to
complexity of from operat- support firm¶s
IÀ needed to ional uses to competitive
compete strategic uses strategy

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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
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Other competitive strategies  


‡ Include IT components in products

± Makes substituting competing products more
difficult
‡ Leverage (Influence) investment in IT
± Develop new products or services not possible
without IT
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Àhe Value Chain





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Strategic Use of IÀ
‡ Porter and Millar¶s Value Chain Concept
provides a means to evaluate business activities
and the use of information technology.
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Strategic Use of Information

  
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‡ Value Activities = those activities a firm must do

to do business
‡ Primary activities create, market, deliver, and
service a product
‡ Support activities make the primary activities
possible. Information Systems is a support
activity
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Value Chain
‡ The way one activity in chain is performed may
affect the performance of other.
‡ Example; superior product design may reduce
after sales service costs.
‡ Activities are linked. Information systems help
managers to manage the linkages between
activities.
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Value Chain: Primary Activities

‡ Inbound Logistics: material handling, logistics.
‡ Operations: Manufacturing, parts assembly.
‡ Outbound Logistics: Order processing, shipping
‡ Marketing and Sales: advertising, promotion.
‡ Service: after sales service and repair.
‡ Organization: gerneral management, accounting,
legal work.
‡ Human Resources: Acquiring the right perso
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Àhe Value Chain

‡
å
  
   by Michael Porter views a firm
as a series of basic activities (the "chain") that add value to its products
and services that support a profit margin for the firm.
‡ In the value chain concept, some business activities are primary
activities and others support activities. For each activity, the role of
strategic information systems (SIS) can contribute significantly to that
activity's contribution to the value chain:
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Support activities create the internal infrastructure
that provides direction to and support for the specialized work of primary
activities:
‡ Management and Administrative Services. Àhe key role of SIS
here is in automated office systems.
‡ Human Resources Management. SIS role: Employee Skills
Database.
‡ Àechnology Development. SIS role: Computer-Aided Design.
‡ Procurement of Resources. SIS role: EDI with suppliers.
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Àhe Value Chain











  
 
  

   
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Àhe Internet Value Chain

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Data for ‡Low cost ‡Access to


 customer com-
market distribution
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research, ‡Reaches new
 ‡Immediate re-
establishes customers
consumer ‡Multiplies sponse to
responses contact points customer
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Customer-Focused e-`usiness


   

 


  
 
  
 

   








  



 
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Customer-Focused e-`usiness
‡ A key strategy for becoming a successful e-business is to
maximize 
 . This strategic focus on customer
value recognizes that    becomes the
primary determinant in a customer¶s perception of value. A
Customer-Focused e-business, then, is one that uses Internet
technologies to keep customer loyal by anticipating their future
needs, responding to concerns, and providing top quality
customer service.
‡ technologies like intranets, the Internet, and extranet websites
create new channels for interactive communications within a
company, with customers, and with suppliers, business partners,
and others in the external business environment. Thereby,
encouraging cross-functional collaboration with customers in
product development, marketing, delivery, service and technical
support.
‡ A successful Customer-Focused e-business attempts to µown¶ the
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Customer-Focused e-`usiness
A successful Customer-Focused e-business attempts to µown¶ the
customer's total business experience through such approaches as:
‡ Letting the customer place orders directly, and through
distribution partners
‡ Building a customer database that captures customers' preferences
and profitability, and allowing all employees access to a complete
view of each customer.
‡ Letting customers check order, history and delivery status
‡ Nurturing an online community of customers, employees, and
business partners.
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`usiness Reengineering and Quality Management


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`usiness Reengineering and Quality Management

‡ One of the most important competitive strategies today is J


  


  !"#$most often simply called reengineering%#  
is more than automating business processes to make modest improvements in
the efficiency of business operations. Reengineering is a fundamental
rethinking and radical redesign of business processes to achieve dramatic
improvements in 
& &
&
 %BPR combines a
strategy of promoting business innovation with a strategy of making major
improvements to business processes so that a company can become a much
stronger and more successful competitor in the marketplace.
‡ However, while many companies have reported impressive gains, many others
have failed to achieve the major improvements they sought through
reengineering projects.
‡ "


     is a less dramatic approach to enhancing
business success. One important strategic thrust in this area is ' 
(  (TQM).
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`usiness Reengineering and Quality Management

‡ '(emphasizes quality improvement that focuses on the customer
 
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. This may involve
many features and attributes, such as performance, reliability, durability,
responsiveness etc.
TQM uses a variety of tools and methods to provide:
‡ More appealing, less-variable quality of products or services
‡ Quicker less-variable turnaround from design to production and distribution
‡ Greater flexibility in adjusting to customer buying habits and preferences
‡ Lower costs through rework reductions, and non-value-adding waste
elimination.
 

Àhe Customer- Focused Agile Competitor

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Àhe Customer- Focused Agile Competitor

‡    in competitive performance is the ability of a business to prosper in
rapidly changing, continually fragmenting global markets for high-quality,
high-performance, customer-configured products and services. Agile
companies depend heavily on information technology to support and manage
business processes. ' 
 
      
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%Agile companies enrich customers with solutions to their
problems. Long term value-added products and services succeed when they
solve problems based on customer needs. As conditions change, the agile
competitor establishes a relationship based on the ability and willingness to
change to meet new customer problem situations.
‡ p %Agile companies cooperate to enhance competitiveness. This
means internal cooperation and, where necessary, cooperation with competitors
in order to bring products and services to market more quickly.
‡ , -%Agile companies organize to master change and uncertainty. This is
a key component of agile competition because it seeks development of the
anticipation and rapid response to changing conditions, not an attempt to stifle
change itself.
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Àhe Customer- Focused Agile Competitor

‡ 6 ’  %Agile companies leverage the impact of
people and information by nurturing an entrepreneurial spirit and providing
incentives to employees to exercise responsibility, adaptability, and innovation.
‡ .

%Emphasizes that most customers want the lower cost for
value received, but are willing to pay more for a value-added service.
‡ 

%Emphasizes that products and services should not only be
defect free, but should be enhanced by customization, added features and
should further anticipate future customer needs.
‡ / 

%Emphasizes that customers want 24x7 accessibility to
products and services, short delivery times, and consideration of the time-to-
market for their own products.
‡ Example Dell page 54
 

Virtual Corporations

 



      

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Virtual Corporations
‡ A  p   is an organization that uses information
technology to link people, assets, and ideas.
‡ People and corporations are forming virtual companies in order to
take advantage of strategic opportunities that require time, people
competencies and information technologies resources that may
not exist within a single company.
‡ By making strategic alliances with other companies and quickly
forming a virtual company of all-star partners, the virtual
company is best able to assemble the components needed to
provide a world-class solution for customers and capture the
opportunity.
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Virtual Corporations
To succeed the virtual company must possess
) characteristics:
‡  J  : Able to adapt to a diverse, fast-changing business
environment. Virtual companies must further reduce concept-to-
cash time through sharing.
‡ , 
: Created, operated, and dissolved to exploit
business opportunities when they appear. They must gain access
to new markets and share market or customer loyalty, while
increasing facilities and market coverage.
‡ +): Possess all-star, world-class excellence in the core
competencies that are needed. These competencies must be
seamlessly linked through the use of Internet technologies.
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Virtual Corporations
‡ '  : Provide world-class information technology and
other required technologies in all customer solutions. They must
migrate from selling products to selling solutions.
‡ " 

: Easily and transparently synthesize the
competencies and resources of business partners into integrated
customer solutions.
‡ '
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: Members are trustworthy and display mutual trust
in their business relationships. They must be willing to share
infrastructures and risks.
 

onowledge Management Systems


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onowledge Management Systems

‡ o  has become one of the major strategic uses of
information technology. o 

!o$ are
systems that are used to manage organizational learning and business know-
how. The goal of knowledge management systems is to help knowledge
workers create, organize, and make available important business knowledge,
whenever, and wherever its needed.
‡ Such knowledge may include à
 knowledge like reference works,
formulas, and processes, or  knowledge like ³best practices´, and fixes.
Internet and intranet technologies, along with such other technologies like
GroupWare, data mining, and online discussion groups are used by KMS to
collect, edit, evaluate and disseminate knowledge within the organization.
‡ Knowledge management systems are sometimes called 
à à

systems, because they create cycles of organizational learning called adaptive
learning loops, which allow the knowledge company to continually build and
integrate knowledge into business processes, products, and services. Thereby,
helping the company to become a more innovative, agile provider of goods and
services.
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Chapter Summary
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Chapter Summary (cont)

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Chapter Summary (cont)

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