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Chapter

2

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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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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Real World Case 1 – WESCO International, Inc.

Business-to-Business

Describe WESCO’s original system.

Describe WESCO’s new system.

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Real World Case 1 (continued)

What are the business benefits to WESCO and its suppliers of its new e-procurement system?

Is WESCO’s new system a strategic use of IT?

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Real World Case 1 (continued)

Does WESCO’s new system give the company a competitive advantage?

What other strategic moves could WESCO implement to gain competitive advantage?

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Real World Case 2 – Staples, Inc.

What is the strategic business value to Staples and their large business clients of the new web-based procurement system?

What is the strategic business value to Staples and the value proposition to their customers of their new clicks and bricks capabilities?

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Real World Case 2 (continued)

Is an integrated clicks and bricks strategy the Internet strategy that most businesses, large and small, should adopt?

What competitive strategies is Staples pursuing?

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Real World Case 2 (continued)

What other e-business or e-commerce strategy would you recommend to Staples to help them gain a competitive advantage in their industry?

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Real World Case 3 – Enron Corp.

What mistakes did Enron make in the use or management of IT?

Did those mistakes play a part in the failure of Enron?

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Real World Case 3 (continued)

“Is it time to go back to the days when IT supported the business rather than became the business?” Explain your position.

What are the major lessons for the future use of IT in business that you gained from this case?

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Real World Case 3 (continued)

How would you apply one of the lessons from this case in your present job or in your future business career?

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Real World Case 4 – Delta Technology & FirstHealth Group

What are Delta Technology’s new requirements for IT investments?

What is the business value of Delta’s new requirements?

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Real World Case 4 (continued)

Explain FirstHealth’s “return on opportunity” guidelines.

Is FirstHealth’s “return on opportunity” guideline for IT investments a good way to evaluate investments in IT?

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Real World Case 4 (continued)

What should be the role of ROI in IT decision-making?

Are the IT investment guidelines of Delta and FirstHealth applicable to other companies, including small businesses?

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Real World Case 5 – Ford, Dow Chemical, IBM, et al.

What is Six Sigma?

What do critics of Six Sigma see as its shortcomings?

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Real World Case 5 (continued)

Is Six Sigma “an enterprise-wide business strategy?”

What role does information technology play in Six Sigma business initiatives?

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Real World Case 5 (continued)

What are the benefits and limitations of Six Sigma as a business strategy?

Can Six Sigma make up for poor management and faulty vision?