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Chapter

2
Competing with Information Technology

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Learning 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 Internet technologies and give examples of how they give competitive advantages to a business.
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Learning Objectives
Give examples of how business process reengineering frequently involves the strategic use of Internet technologies. Identify the business value of using Internet technologies to become an agile competitor or to form a virtual company

Explain how knowledge management systems can help a business gain strategic advantages.
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Why Study Strategic IT? Technology is no longer an afterthought in forming business strategy, but the actual cause and driver.

IT can change the way businesses compete.

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Strategic View of Information Systems

Information systems are vital competitive networks. Information systems are a means of organizational renewal. IS are a necessary investment in technologies that help a company adopt strategies and business processes that enable it to reengineer or reinvent itself in order to survive and succeed in todays dynamic business environment.
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Case #1: Does IT Matter?

Nicholas Carr: It is simply the infrastructure of modern business. Its equivalent to railroads, electricity, and internal combustion engineering. Once innovative applications of IT have become simply the cost of doing business.
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Case #1: Does IT Matter?

How important is IT to GE? Business imperative Lifeblood for productivity 20% return on technology investments and GE invests $2.5 to $3 billion a year

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Case #1: Does IT Matter?

Nicholas Carr: Todays main risk is not underusing IT but overspending on it.

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Case #1: Does IT Matter? Michael Dell, CEO of Dell Computers Anything in business can be either a sinkhole or a competitive advantage if you do it really, really bad or you do it really, really well. Youve got a lot of people who dont know what theyre doing and dont do it very well.
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Case #1: Does IT Matter? Andy Grove, Chairman of Intel Corp. Commercial-transaction processing in the United States and some parts of Europe has reach maturation but thats only one segment of IT.

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Case #1: Does IT Matter? What is IT? A bunch of networks and computers

OR
Hardware plus the software that mediates and manages human knowledge or information
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Case #1: Does IT Matter? Charles Fitzgerald, Microsoft General Manager The source of competitive advantage in business is what you do with the information that technology gives you access to. How do you apply that to some particular business problem?

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Case #1: Does IT Matter? Paul Strassman, former CIO of General Foods, Xerox, Pentagon, and NASA Information technology today is a knowledge-capital issue. Look at the business powers most of all Wal-Mart, but also companies like Pfizer or FedEx. Theyre all waging information warfare.
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Case #1: Does IT Matter? 1. Do you agree with the argument made by Nick Carr to support his position that IT no longer gives companies a competitive advantage? Why or why not? 2. Do you agree with the argument made by the business leaders in this case in support of the competitive advantage that IT can provide to a business? Why or why not?
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Case #1: Does IT Matter?

3. What are several ways that IT could provide a competitive advantage to a business? Use some of the companies mentioned in this case as examples. Visit their websites to gather more information to help you answer.

4. What does Mr. Strassman mean by information warfare?

5. Can information technology give a competitive advantage to a small business? Why or why not? Use an example to illustrate your answer.
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Strategic Information Systems Definition: Any kind of information system that uses information technology to help an organization gain a competitive advantage, reduce a competitive disadvantage, or meet other strategic enterprise objectives.

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Competitive Forces and Strategies

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Competitive Forces
Definition: Shape the structure of competition in its industry.

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Porters Competitive Forces Model

To survive and succeed, a business must develop and implement strategies to effectively counter the: Rivalry of competitors within its industry Threat of new entrants into an industry and its markets Threat posed by substitute products which might capture market share Bargaining power of customers Bargaining power of suppliers
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Competitive Strategies Cost Leadership Differentiation Innovation Growth Alliance

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Cost Leadership Strategy Becoming a low-cost producer of products and services Finding ways to help suppliers and customers reduce their costs Increase costs of competitors

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Differentiation Strategy Developing ways to differentiate a firms products and services from its competitors

Reduce the differentiation advantages of competitors

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Innovation Strategy
Development of unique products and services Entry into unique markets or market niches Making radical changes to the business processes for producing or distributing products and services that are so different from the way a business has been conducted that they alter the fundamental structure of an industry

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Growth Strategy Significantly expanding a companys capacity to produce goods and services Expanding into global markets Diversifying into new products and services Integrating into related products and services
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Alliance Strategy Establishing new business linkages and alliances with customers, suppliers, competitors, consultants, and other companies

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Competitive Strategy Examples

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Other Competitive Strategies Locking in customers or suppliers by building valuable new relationships with them.

Building switching costs so a firms customers or suppliers are reluctant to pay the costs in time, money, effort, and inconvenience that it would take to switch to a companys competitors.
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Other Competitive Strategies Raising barriers to entry that would discourage or delay other companies from entering a market.

Leveraging investment in information technology by developing new products and services that would not be possible without a strong IT capability.

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Advantage vs. Necessity Competitive Advantage developing products, services, processes, or capabilities that give a company a superior business position relative to its competitors and other competitive forces Competitive Necessity products, services, processes, or capabilities that are necessary simply to compete and do business in an industry
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Customer-Focused Business A business that: can anticipate customers future needs.

responds to customer concerns. provides top-quality customer service.

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IS in a Customer-Focused Business

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Value Chain Definition: View of a firm as a series, chain, or network of basic activities that add value to its products and services, and thus add a margin of value both to the firm and its customers.

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Value Chain

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Value Chain

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Business Process Reengineering Definition: Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in cost, quality, speed, and service.

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BPR vs. Business Improvement

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Cross-Functional Processes

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Agility Definition: The ability of a company to prosper in rapidly changing, continually fragmenting global markets for high-quality, high performance, customer-configured products and services.

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Agile Company Definition: A company that can make a profit in markets with broad product ranges and short model lifetimes, and can produce orders individually and in arbitrary lot sizes.

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Mass Customization Definition: Providing individualized products while maintaining high volumes of production

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Agile Competitor

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Virtual Company Definition: An organization that uses information technology to link people, organizations, assets, and ideas.

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Interenterprise Information Systems Definition: Information systems implemented on an extranet among a company and its suppliers, customers, subcontractors, and competitors with whom it has formed alliances.

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Virtual Company

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Virtual Company Strategies Share infrastructure and risk with alliance partners. Link complementary core competencies. Reduce concept-to-cash time through sharing.

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Virtual Company Strategies Increase facilities and market coverage. Gain access to new markets and share market or customer loyalty. Migrate from selling products to selling solutions.

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Knowledge-Creating Companies Definition: Consistently creating new business knowledge, disseminating it widely throughout the company, and quickly building the new knowledge into their products and services.

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Types of Knowledge Explicit Knowledge data, documents, things written down or stored on computers

Tacit Knowledge the how-tos of knowledge, which reside in workers

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Knowledge Management Definition: Techniques, technologies, systems, and rewards for getting employees to share what they know and to make better use of accumulated workplace and enterprise knowledge. Knowledge Management Systems manage organizational learning and business know-how
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Levels of Knowledge Management

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Summary
Information technologies can support many competitive strategies including cost leadership, differentiation, innovation, growth and alliance. IT can help
Build customer-focused businesses Reengineer business processes Businesses become agile companies Create virtual companies Build knowledge-creating companies

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Chapter

2
End of Chapter

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