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Competing withInformation Technology
Chapter 2
Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
2-2
Learning Objectives
Identify basic competitive strategies and explain how a business can use IT to confront the competitive forces it faces
Identify several strategic uses of IT and give examples of how they can help a business gain competitive advantages
Give examples of how business process reengineering frequently involves the strategic use of IT
2-3
Learning Objectives
Identify the business value of using Internet technologies to become an agile competitoror to form a virtual company
Explain how knowledge management systems can help a business gain strategic advantages
2-4
Strategic IT
IT can change the way businesses compete
A strategic information system is any information system (e.g. MIS) that uses IT to help an organization…
– Gain a competitive advantage– Reduce a competitive disadvantage– Or meet other strategic enterprise objectives
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Rivalry of competitors
Competition is a positive, natural and often healthy characteristic in business.
Encourages to gain competitive advantage
Requires significant resources
2-7
Threat of New Entrants
Work to create significant barriers to the entry of new competition
Significant organizational resources
Difficult to manage (internet :quick, less cost)
2-8
Threat of Substitutes
More apparent during periods of inflation
E.g. ( stakes vs. burgers)
Most products or services have substitutes
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Bargaining Power
Customers can reduce prices or not buy
Suppliers can increase the prices or not sell
2-10
Five Competitive Strategies
Strategies
Cost Leadership
Alliance
Growth
Innovation
Differentiation
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Five Competitive Strategies
Cost Leadership Strategy: low cost production or find ways to reduce suppliers costs, or increase the costs of competitors.
Differentiation Strategy: differentiate the company’s products or reduce the differentiation of competitors. E.g. (focus)
Innovation strategy: new ways of doing business. Developing unique products and services or entering unique markets. Also making radical changes e.g. superbasket
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Five Competitive Strategies
Growth Strategies: significant expand in the capacity to produce, expanding into global markets, diversify into new products or services or related ones.
Alliance Strategies: establishing new business linkages and alliances with suppliers or competitors. Including mergers, acquisitions, joint ventures.
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Using Competitive Strategies
These strategies are not mutually exclusive– Organizations use one, some, or all– A given activity could fall into one or more
categories (e.g. track shipment via computer and phone)
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Other Competitive Strategies
Strategy
Lock in customers and suppliers
Raise barriers to entry
Create switching costs
Leverage investment in IT
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Other Competitive StrategiesLock in Customers and Suppliers
– Prevent them from switching to competitors. Build loyalty.
Create Switching Costs
– Make customers and suppliers dependent on the use of innovative IS
Raise Barriers to Entry
– Discourage or delay other companies from entering the market
– Increase the technology or investment needed to enter
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Other Competitive Strategies
Leverage Investment in IT
– Develop products and service that would not be possible without a strong IT capability (e.g. Apple Technology)
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Customer-Focused Business
Business value in customer
focus
Focus on customer value
Keeps customers loyal
Anticipates their future needs
Quality, not price, has become the primary determinant of value
Responds to customer concerns
Provides top-quality customer service
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Providing Customer Value
Use CRM systems to focus on the customer
Track individual preferences
Keep up with market trends
Supply products, services, and information anytime, anywhere
Tailor customer services to the
individual
Companies that consistently offer the best value…
2-20
Strategic Uses of IT
Companies that emphasize strategic business useof IT use it to gain competitive differentiation
Products Services Capabilities
2-21
Reengineering Business Processes
Called BRP or Reengineering– Fundamental rethinking and radical redesign
of business processes– Seeks dramatic improvements in cost,
quality, speed, and service
Potential payback is high, but so is risk of disruption and failure
Organizational redesign approaches are an important enabler of reengineering– Includes use of IT, process teams, case
managers
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Old purchase process
1. Enter the super market
2. Push the cart between specialized lanes or aisles
3. Pick the desired products & quantities
4. Go to cashier to pay
5. Put the bags into the car
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New purchase process www.the-superbasket.com
1. Enter (the-super basket) web site
2. Register your information & home location
3. Click the desired list (category)
4. Choose the desired product and specify the quantity
5. Preview your purchases and confirm
6. Choose the appropriate time for delivery
7. Pay upon delivery
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The Role of Information Technology
IT plays a major role in reengineering most business processes– Can substantially increase process efficiency– Improves communication – Facilitates collaboration
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Reengineering Order Management
Supplier-managed inventory systems using the Internet and extranets
Cross-functional ERP software to integrate manufacturing, distribution, finance, HR processes
CRM systems using intranets and the Internet
Customer-accessible e-commerce websites for order entry, status checking, payment, and service
Customer, product, and order status databases accessed via intranets and extranets
IT that supports the reengineering process…
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