ch002

Competing withInformation Technology

Chapter 2

Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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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

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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

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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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Competitive Forces and Strategies

Michael Porter’s classic model for competition:

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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

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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)

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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

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Five Competitive Strategies

Strategies

Cost Leadership

Alliance

Growth

Innovation

Differentiation

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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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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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Ways to Implement Basic Strategies

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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…

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Strategic Uses of IT

Companies that emphasize strategic business useof IT use it to gain competitive differentiation

Products Services Capabilities

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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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BPR vs. Business Improvement

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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

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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…