Competing with

Information Technology
Chapter
2
McGraw-Hill/I rwin Copyright 2011 by The McGraw-Hill Companies, I nc. All rights reserved.

2-2
Identify several basic competitive
strategies and explain how they 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 help a business to gain competitive
advantages
Give examples of how business process
reengineering frequently involves the
strategic use of IT
Learning Objectives

2-3
Identify the business value of using
Internet technologies to become an agile
competitor or form a virtual company
Explain how knowledge management
systems can help a business gain
strategic advantages
Learning Objectives

2-4
A strategic information system uses IT to
help an organization
Gain a competitive advantage
Reduce a competitive disadvantage
Meet other strategic enterprise objectives
What is Competitive Advantage?
Capability for advantage over competitive forces
Leading the industry in some identifiable way
Sustains profits above the industry average
Hard to maintain over a long period of time
Competitive Strategy Concepts

2-5
Rivalry of Competitors
Positive, natural, healthy
Threat of new entrants
Apple, TRS 80, Commodore, IBM, HP,
Compaq, Gateway, Dell, Acer
Threat of substitutes
Salon shampoo vs Wal-Mart brand
VCR vs DVD vs BluRay
Customer bargaining power
Buy from competitors or dont buy
Suppliers bargaining power
Your competitor pays in days not weeks
Porters Five Forces of Competition

2-6
Cost Leadership
Become low-cost producers
Help suppliers or customers reduce costs
Increase cost to competitors
Example: Priceline
Differentiation Strategy
Set a firms products apart from competitors
Focus on a particular segment or niche market
Example: Dell
Five Competitive Strategies

2-7
Innovation Strategy
Unique products, services, or markets
Radical changes to business processes
Example: Dell
Growth Strategy
Expand companys capacity to produce
Expand into global markets
Diversify into new products or services
Example: Wal-Mart



Competitive Strategies (continued)

2-8
Alliance Strategy
Includes mergers, acquisitions, joint
ventures, virtual companies
Customers, suppliers, competitors,
consultants, and other companies
Example: Wal-Mart uses automatic inventory
replenishment by supplier
Competitive Strategies (continued)

2-9
Not mutually exclusive
One alone wont usually fix the problem
Generally need a combination
Innovation not necessarily differentiated
Kindle v. iPad
MP3 players vs iPod
Gateway made in US, relaxed office
Differentiation not necessarily innovative
Shipping more efficient but not different
Telecom companies compete

Using Competitive Strategies

2-10
Other Competitive Strategies
Lock in Customers and Suppliers
Deter them from switching to competitors
Create Switching Costs
Time, money, effort or inconvenience needed
to switch to a competitor
Raise Barriers to Entry
Discourage or delay other companies from
entering the market
Increase the technology or investment
needed to enter

2-11
Other Competitive Strategies
Build a strong IT department
Use IT to:
Take advantage of strategic opportunities
Improve efficiency of business practices
Develop products and services that would not
be possible without a strong IT capability
Use IT to do more than automate a system,
be creative

2-12
Called BPR or simply Reengineering
Radical
Seeks improvements
High potential
High risk
Important enabler of reengineering
IT
Process teams
Case managers
Business Process Reengineering

2-13
Presents products as solutions to problems
Can price as a solution not cost to produce
Cooperates with customers, suppliers and
competitors
Brings products to market as quickly and cost-
effectively as possible
Thrives on change and uncertainty
Responds to changing customer expectations
Leverages people and knowledge
Provides incentives for responsibility, adaptability,
and innovation
Strategies for Becoming an Agile Company

2-14
A virtual company uses IT to link
People
Organizations
Assets
Ideas
Inter-enterprise information systems
link
Customers
Suppliers
Subcontractors
Competitors

Creating a Virtual Company

2-15
A knowledge-creating company or learning
organization
Consistently creates new business knowledge
Disseminates it throughout the company
Builds it into its products and services
Building a Knowledge-Creating Company