1 Chapter 2 Competing with Information Technology

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Chapter

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Competing with

Information Technology

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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?

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(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.

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Section I

Fundamentals of Strategic Advantage

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The Strategic CubeThe Strategic Cube

CustomerPower

SupplierPower

PresentCompetitors

PotentialCompetitors

SubstituteProducts

COMPETITIVECOMPETITIVEFORCES TOFORCES TO

CONTEND WITHCONTEND WITH

STRATEGIESSTRATEGIES

TACTICSTACTICS

StrategicAlliance

Merger orAcquisition

Internal Growth

InternalInnovation

Differ

entia

tion

Cost L

eade

rshi

pFo

cuse

d

Differ

entia

tion

Cost F

ocus

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Fundamentals of Strategic Advantage

Competitive Forces (Porter)Bargaining power of customersBargaining power of suppliersRivalry of competitorsThreat of new entrantsThreat of substitutes

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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 costsIncrease costs of competitorsReduce manufacturing costs (process

control)

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Competitive Strategies & the Role of IT (continued)

DifferentiationCreate 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.

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Competitive Strategies & the Role of IT (continued)

InnovationNew ways of doing business

Unique products or servicesNew ways to better serve customersReduce time to marketNew distribution models

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Competitive Strategies & the Role of IT (continued)

GrowthExpand production capacityExpand into global marketsDiversifyIntegrate into related products and services.

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Competitive Strategies & the Role of IT (continued)

AllianceBroaden your base of support

New linkagesMergers, acquisitions, joint ventures,

“virtual companies”Marketing, manufacturing, or distribution

agreements.

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Competitive Strategies & the Role of IT (continued)

Other Competitive StrategiesLocking in customers or suppliers

Build value into your relationshipCreating switching costs

ExtranetsProprietary software applications

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Competitive Strategies & the Role of IT (continued)

Other Competitive Strategies (continued)Raising barriers to entry

Improve operations or promote innovationLeveraging investment in IT

Allows the business to take advantage of strategic opportunities

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The Value Chain

Views a firm as a series, chain, or network of activities that add value to its products and services.Improved administrative coordinationTrainingJoint design of products and processesImproved procurement processesJIT inventoryOrder processing systems

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Value Chain (continued)

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Section II

Using Information Technology for Strategic Advantage

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Strategic Uses Of Information Technology

Major competitive differentiatorDevelop a focus on the customer

Customer valueBest valueUnderstand customer preferencesTrack market trendsSupply products, services, & information

anytime, anywhereTailored customer service

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Strategic Uses of IT (continued)

Business Process Reengineering (BPR)Rethinking & redesign of business processesCombines innovation and process improvementThere are risks involved.Success factors

Organizational redesignProcess teams and case managersInformation technology

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Strategic Uses of IT (continued)

Improve business qualityTotal Quality Management (TQM)

Quality from customer’s perspectiveMeeting or exceeding customer expectationsCommitment to:

Higher qualityQuicker responseGreater flexibilityLower cost

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Strategic Uses of IT (continued)

Becoming agileFour basic strategies

Customers’ perception of product/service as solution to individual problem

Cooperate with customers, suppliers, other companies (including competitors)

Thrive on change and uncertaintyLeverage impact of people and people’s

knowledge

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Strategic Uses of IT (continued)

The virtual companyUses IT to link people, assets, and ideasForms virtual workgroups and alliances

with business partnersInterorganizational information systems

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The Virtual Company (continued)

StrategiesShare infrastructure & risk with alliance

partnersLink complementary core competenciesReduce concept-to-cash time through

sharing

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The Virtual Company (continued)

Strategies (continued)Increase facilities and market coverageGain access to new markets and share

market or customer loyaltyMigrate from selling products to selling

solutions

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Learning Organizations

Exploit two kinds of knowledgeExplicitTacit

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Learning Organizations (continued)

Knowledge Management

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Learning Organizations (continued)

Knowledge management systemsHelp create, organize, and share business

knowledge wherever and whenever needed within the organization

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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?

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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?

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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?

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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?

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Strategies, Forces, and Tactics in Competitive Markets

B. Competitive ForcesThreat of new entrantsIntensifying realtyPressures from substitute productsBargaining power of customersBargaining power of suppliersZ-1998 Figure 3.12 p97

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Strategies, Forces, and Tactics in Competitive Markets

C.Process for uncovering strategic systems opportunities1. informal meetings to sell the idea2. a tutorial on the theory of strategic

information3. Discussion of case examples4. BRAINSTORMING5. Executive brainstorming

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Strategies, Forces, and Tactics in Competitive Markets

D. Tactical Moves in Pursuing a StrategyInternal innovationInternal growth (reengineering)economies of scale (large volume)economies of scope (Small volume)MergersStrategic alliances

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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

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Value Chain Analysis of Strategic Opportunities

Primary activities : the creation of product or serviceOutbound logistics - distribution & sales

data; storing products, Marketing sales - promotions, discounting;

establishing a customer needService activities - calls, returns, product

rotation and maintenance

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Value Chain with Typical Strategic IS Mapped onto it

Value Chain with Typical Strategic IS Mapped onto it

EDI-BasedPurchasingSystem

Computer-IntegratedMftg.

AutomatedOrderingSystem

ExpertSystems forSalespeople

TelemaintenanceExpertSystems

InboundLogistics Operations

OutboundLogistics

Marketingand Sales Service

Downstream Chains of Customers

Upstream Chainsof Suppliers

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Value Chain Analysis of Strategic Opportunities

Support activities: The required infrastructureOrg's infrastructureHuman resourcesTechnologyProcurement

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Value Chain Analysis of Strategic Opportunities

Z-1992 fig 5.5 & 5.6

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Strategies for CIM and BRP

Fjermestad & Chakrabarti, 1993

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Organizational Requirements for Successful Strategic Information Systems

Requirements for success Active support of Senior management Integrated Planning Direct reporting responsibilities of strategic Team Feedback & Control

budget Reward correction

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Organizational Requirements for Successful Strategic Information Systems

Feedback & ControlReadiness: Culture, Resistancesustainability

1. lead time will allow the achievement of CA2. Copy cats may fail because of Uniqueness3. If copied: Your organization will still have

Preempted the marketplace

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To ReengineerBusiness processes

The 1980' focus is on the Competitive advantage

The 1990's focus on internal outmode business practices

Today focus on alignment and strategy

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To ReengineerBusiness 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

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To Reengineer Business processes

B. The reason for the shifts 1. From competition

QualityCycle timecustomer serviceniche markets

2. Failures in implementing IT 3. Organizations are being forced to cut expenses 4. The cost/performance of computer

hardware/software has dropped

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To Reengineer Business processes

C. Where are we Headed? Sprague Fig 3.5 p83

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To Reengineer Business processes

D. Using IT as a Catalyst for CHANGE1. Informate rather than automate:

use the information gathered about automated processes to improve the process or change the work performed

2. Use different structurescentralizeddecentralizedboth

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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

processorder 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

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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 themwork in parallel rather than sequenced

6. Let doers be self managingthe lowest level makes the decision

7. Capture information once at its sourceYes!

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To Reengineer Business processes

F. Lesson about ReengineeringSynchronize:

aligning strategypeopletechnologybusiness processes

to cut cost, reduce non-valued-added- work, and streamline client organizations

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To Reengineer Business processes

1. Business integration is a Process, not a project

2. People need time to change3. Recognize the potential up front, get

people involved early4. Make job change throughout the

organization 5. Manage the pace of change

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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 processingEDI, Groupware, video conferencing, E-mail

5. Manage the technical architectureflexibilityadaptability

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Strategic Systems Can change how organizations work

Changing how decisions are madeTo match the increasing turbulence and

complexity organizational decision making will be:more frequentperformed fastermore complexAgility

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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

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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

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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

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Information Systemsin 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.

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Information Systemsin 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.

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Information Systemsin 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.

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Information Systemsin 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.

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Information Systemsin 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.

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Information Systemsin Strategic Thrusts

A. Redefining Company Business What business are we in?

Actually a "new vision" is created as an answerBuild on existing strengthsExamples:

B. Creating Products & Services based on IS C. Transforming Products/Processes with IS

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Strategies, Forces, and Tactics in Competitive Markets

A. Competitive SystemsThe watchwords for the 2000's

InnovationSpeedServiceQualityAgility

To Stay in Business

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Strategies, Forces, and Tactics in Competitive Markets

a. To Gain Market Share (Federal Express)Continuously improve qualityImprove the value of serviceGet closer to the customersMake an international business profitableProduce strong cash flow

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Strategies, Forces, and Tactics in Competitive Markets

b. Uncovering Strategic Use of SystemsAnalyze competitive forces Study strategic thrustsStudy the value chainTake the customer's view

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Competitive StrategiesCompetitive Strategies

Competitive AdvantageCompetitive Advantage

Competitive Competitive ScopeScope

Lower Cost Differentiation

BroadTarget

NarrowTarget

CostLeadership

CostFocus

Differentiation

FocusedDifferentiation

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Strategies, Forces, and Tactics in Competitive Markets

Strategies: Differentiation

Develop products & services which are different from what the competition offers

superior attributesdistinguishing features

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Strategies, Forces, and Tactics in Competitive Markets

Cost leadershipbased on efficient operationsbased on effective operationseconomies of scale

become a low cost producermarket segmentation (niche)

Focused differentiationMarket niche

Cost focusnarrow market & low cost