1

Introduction to Information Systems

Essentials for the Internetworked E-Business Enterprise
Eleventh Edition

James A. OBrien

Chapter

2
Competing with Information Technology

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

Chapter 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 information technology for electronic business and commerce, and give examples of how they give competitive advantages to business. Give examples of how business process reengineering frequently involves the strategic use of e-business technologies.
Irwin/McGraw-Hill
Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

Chapter Objectives
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 advantages.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

The Competitive Environment

Threat of New Entrants Bargaining Power of Suppliers Rivalry Among Existing Competitors Threat of Substitutes

Bargaining Power of Customers

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

Irwin/McGraw-Hill

James A. OBrien

Introduction to Information Systems

Eleventh Edition

The 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. As illustrated on the slide these forces include: 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. This is especially true as the effects of globalization increase the likelihood that previously "domestic only" competition will encounter new international competitors.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

The Competitive Environment

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. 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. For example, 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.
Irwin/McGraw-Hill
Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

Fundamental Competitive Strategies - Cont.

Cost Leadership Strategies Differentiation Strategies Innovation Strategies Growth Strategies Alliance Strategies

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

Fundamental Competitive Strategies - Cont.

Competitive Advantage 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: Cost Strategies. 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. Differentiation Strategies. 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.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

Fundamental Competitive Strategies - Cont.

Innovation Strategies. Unique products or services or changes in business processes can cause fundamental changes in the way an industry does business. Growth Strategies. 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. Alliance Strategies. Establishing new business linkages and alliances with customers, suppliers, former competitors, consultants, and others can create competitive advantage

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

10

Strategic Uses of Information Technology

Strategy
Improving Business Process Use IT to reduce costs of doing business Promote Business Innovation Locking in Customers and Suppliers Use IT to improve quality Use IT to link business to customers and suppliers

IT Role

Use IT to create new products or services

Outcome

Enhance Efficiency

Create New Business Opportunities

Maintain Valuable Customers and Relationships

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

11

Strategic Uses of Information Technology

Strategy
Raise Barriers to Entry Increase amount of investment or complexity of IT needed to compete Build a Strategic IT Platform Build a Strategic Information Base Use IT to provide information to support firms competitive strategy

IT Role

Leverage investment in IS resources from operational uses to strategic uses

Outcome

Increase Market Share

Create New Business Opportunities

Enhance Organizational Collaboration

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

12

The Value Chain

The Value Chain Concept developed 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: Support Activities. Support activities create the internal infrastructure that provides direction to and support for the specialized work of primary activities: Management and Administrative Services. The key role of SIS here is in automated office systems.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

13

The Value Chain

Human Resources Management. SIS role: Employee Skills Database. Technology Development. SIS role: Computer-Aided Design. Procurement of Resources. SIS role: EDI with suppliers. Primary Activities. These activities directly contribute to the transformation process of the organization. Inbound Logistics. SIS role: Automated Warehousing Operations. SIS role: Computer-Aided Manufacturing. Outbound Logistics. SIS role: Online Data Entry. Marketing and Sales. SIS role: Market Analysis. Service. SIS role: Diagnostic Expert System.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

14

The Value Chain

Administrative Coordination & Support Services Human Resource Management Technology Development Procurement of Resources

Inbound Outbound Operations Logistics Logistics

Marketing Customer and Service Sales

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

15

The Internet Value Chain

Internet Capability Marketing and Product Research Data for market research, establishes consumer responses Sales and Distribution Support and Customer Feedback Access to customer comments online Immediate response to customer problems Enhanced Customers Satisfaction

Benefits to Company

Low cost distribution Reaches new customers Multiplies contact points

Opportunity for Advantage

Increase Market Share

Lower Cost Margins

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

16

The Internet Value Chain

Value chains can be used to strategically position a companys Internet-based applications to gain competitive advantage. 1. This value chain model outlines several ways that a companys Internet connections with its customers could provide business benefits and opportunities for competitive advantage. Example: Company-managed Internet newsgroups, chat rooms, and e-commerce websites are powerful tools for market research and product development, direct sales, and customer feedback and support. 2. Company Internet connections with its suppliers could be used for competitive advantage.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

17

The Internet Value Chain

Example: Online auctions and exchanges at suppliers ecommerce websites and online shipping, scheduling, and status information at an e-commerce portal that gives employees immediate access to up-to-date information from a variety of vendors. This can substantially lower costs, reduce lead times, and improve the quality of products and services. Conclusion: Value chain concept can help you decide where and how to apply the strategic capabilities of information technology. Value chain shows various types of information technologies that might be applied to specific business processes to help a firm gain competitive advantages in the marketplace.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

18

Strategic Positioning of Internet Technologies

High
Global Market Penetration
E-Commerce Website Value-added IT Services

Product and Services Transformation

E-Business; Extensive Intranets and Extranets

Strategy Solution

Cost and Efficiency Improvements

E-Mail, Chat Systems

Performance Improvements in Business Effectiveness

Intranets and Extranets

Low
Irwin/McGraw-Hill

E-Business Processes Connectivity Internal Drivers

High

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

19

Strategic Positioning of Internet Technologies

For Internet technologies to be used strategically applications must be correctly positioned. The strategic positioning matrix shown can be used to help a company optimize the strategic impact of Internet Technologies. The matrix recognizes two major drivers: Internal Drivers. The amount of connectivity, collaboration and use of IT within a firm. External Drivers. The amount of connectivity, collaboration and use of IT by customers, suppliers, business partners, and competitors. Cost and Efficiency Improvements. When there is a low amount of connectivity, collaboration and use of IT within the company and by customers and competitors, a firm should focus on improving efficiency and lowering costs by using Internet technologies to enhance communications between the company and its customers and suppliers.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

20

Strategic Positioning of Internet Technologies

Performance Improvement in Business Effectiveness. When there is a high amount of internal connectivity, but external connectivity by customers and competitors is still low, a firm should focus on using Internet technologies like intranets and extranets to make major improvements in business effectiveness. Global Market Penetration. When there is a high degree of connectivity by customers and competitors and low internal connectivity, a firm should focus on developing Internet-based applications to optimize interactions with customers and build market share. Product and Service Transformation. When a company and its customers, suppliers, and competitors are extensively networked, Internet technologies should be used to develop and deploy products and services that strategically reposition it in the marketplace.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

21

Customer-Focused e-Business
Let customers place orders directly
Let customers check order history and delivery status Build a community of customers, employees, and partners

Let customers place orders thru distribution partners Transaction Database Link Employees and distribution partners

Customer Database

Give all employees a complete view of customers

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

22

Customer-Focused e-Business
There are other key strategies enabled by IT that can be used to enable a business to become successful and to maintain their success. These will be discussed on the next slides. A key strategy for becoming a successful e-business is to maximize customer value. This strategic focus on customer value recognizes that quality rather than price becomes the primary determinant in a customers 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. As the slide indicates, such 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,

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

23

Customer-Focused e-Business
marketing, delivery, service and technical support. A successful Customer-Focused e-business attempts to own 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. Teaching Tip: Encourage your students to describe the characteristics of a profitable customer. What makes a particular customer valuable to a specific business? Letting customers check order, history and delivery status Nurturing an online community of customers, employees, and business partners.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

24

Business Reengineering and Quality Management

Business Quality Improvement Business Reengineering Radically Redesigning Business Systems Strategic Business Processes 10-Fold Improvements High

Definition Target Potential Payback Risk

Incrementally Improving Existing Processes Any Process 10%-50% Improvements Low

Same Jobs - More Efficient Big Job Cuts; New Jobs; What Changes? Major Job Redesign

Primary Enablers
Irwin/McGraw-Hill

IT and Work Simplification

IT and Organizational Redesign

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

25

Business Reengineering and Quality Management

One of the most important competitive strategies today is business process reengineering (BPR) most often simply called reengineering. 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 cost, quality, speed, and service. 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. Business quality improvement is a less dramatic approach to enhancing business success.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

26

Business Reengineering and Quality Management

One important strategic thrust in this area is called Total Quality Management (TQM). TQM emphasizes quality improvement that focuses on the customer requirements and expectations of products and services. 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.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

27

The Customer- Focused Agile Competitor

Anticipation of future needs Customization

Cooperate with Business Partners and Competitors

Give Customers Solutions to Problems

Conformance Organize to Master Change

Leverage the Impact of People and IS Resources

Irwin/McGraw-Hill
Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

28

The Customer- Focused Agile Competitor

Agility 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. The four fundamental strategies of agile competition are: Enrich Customers. 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. Cooperate. 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. Organize. 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.
Irwin/McGraw-Hill
Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

29

The Customer- Focused Agile Competitor

Leverage People and Information. 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. The Free.Perfect.Now model developed by AVNET Marshall embodies these principles into a succinct model for serving its customers in the most agile and responsive way. Free Dimension. Emphasizes that most customers want the lower cost for value received, but are willing to pay more for a value-added service. Perfect Dimension. 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. Now Dimension. Emphasizes that customers want 24x7 accessibility to products and services, short delivery times, and consideration of the time-tomarket for their own products.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

30

Virtual Corporations
Adaptability Borderless Six Characteristics of Virtual Companies Excellence

Technology Opportunism

Trust-Based

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

31

Virtual Corporations
A Virtual Company (also called a virtual corporation or virtual organization) 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. To succeed the virtual company must possess six characteristics: Adaptability: Able to adapt to a diverse, fast-changing business environment. Virtual companies must further reduce concept-to-cash time through sharing.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

32

Virtual Corporations
Opportunism: 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. Excellence: 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. Technology: Provide world-class information technology and other required technologies in all customer solutions. They must migrate from selling products to selling solutions. Borderless: Easily and transparently synthesize the competencies and resources of business partners into integrated customer solutions. Trust-Based: Members are trustworthy and display mutual trust in their business relationships. They must be willing to share infrastructures and risks.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

33

Knowledge Management Systems

Technical Support Staff

Solution Knowledge

Customers
Development Engineers

Intranet
The Internet
Product Managers

Other Vendors

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

34

Knowledge Management Systems

Knowledge Management has become one of the major strategic uses of information technology. Knowledge Management Systems (KMS) are systems that are used to manage organizational learning and business knowhow. The goal of knowledge management systems is to help knowledge workers create, organize, and make available important business knowledge, whenever, and wherever its needed.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

35

Chapter Summary
Information systems can play several strategic roles in business. The Internet, intranets, extranets, and other Internet-based technologies can be used strategically for e-business and e-commerce that provide a competitive advantage. A key strategic use of Internet technologies is to build an e-business which develops its business value by making customer value its strategic focus.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

36

Chapter Summary (cont)

IT is a key ingredient in reengineering business operations, by enabling radical changes to business processes that dramatically improve their efficiency and effectiveness. IT can be strategically used to improve the quality of business performance. A business can use IT to help it become an agile company, that can respond quickly to changes in its environment.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.

James A. OBrien

Introduction to Information Systems

Eleventh Edition

37

Chapter Summary (cont) Forming virtual companies has become an important competitive strategy in todays dynamic global market. Lasting competitive advantages today can only come from innovative use and management of organizational knowledge by knowledge creating companies and learning organizations.

Irwin/McGraw-Hill

Copyright 2002, The McGraw-Hill Companies, Inc. All rights reserved.