06-Feb-21

McGraw-Hill/Irwin Copyright © 2008

2008,The
TheMcGraw-Hill
McGraw-Hill Companies,
Companies,Inc.
Inc.All
Allrights
rightsreserved.
reserved.

Chapter

2
Competing with
Information Technology

McGraw-Hill/Irwin Copyright © 2008

2008,The
TheMcGraw-Hill
McGraw-Hill Companies,
Companies,Inc.
Inc.All
Allrights
rightsreserved.
reserved.

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 06-Feb-21

Objectives
1. Identify several basic competitive strategies and explain how
they use information technologies to confront the competitive
forces faced by a business.
2. Identify several strategic uses of Internet technologies and
give examples of how they can help a business gain
competitive advantages.
3. Give examples of how business process reengineering
frequently involves the strategic use of Internet technologies.
4. Identify the business value of using Internet technologies to
become an agile competitor or form a virtual company.
5. Explain how knowledge management systems can help a
business gain strategic advantages.

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Strategic IT

• Technology is no longer an afterthought(idea,

plan) in business strategy, but the cause and
driver
• IT can change the way businesses compete
• A strategic information system is any
information system that uses IT to help an
organization…
• Gain(receive) a competitive advantage
• Reduce a competitive disadvantage
• Or meet other strategic enterprise objectives
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Competitive Forces
• Competitive forces are the factors and variables that
threaten a company’s profitability and prevent its
growth
• To succeed, a business must develop strategies to
counter(react) these forces…
• Rivalry(compete with the same thing) of competitors
within its industry
• Threat of new entrants(new competitions) into an industry
and its markets
• Threat of substitute products that may capture market share
• Bargaining power of customers
• Bargaining power of suppliers
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Competitive Forces and Strategies

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Five Competitive Strategies

• Cost Leadership
• Become low-cost producers
• Find way to help suppliers or customers reduce costs
• Increase cost to competitors
• Example: Priceline uses online seller bidding(offer) so
the buyer sets the price
• Differentiation Strategy
• Differentiate a firm’s products from its competitors’
• Focus on a particular segment(part) or niche(suitable
position) of market

2-7

Competitive Strategies (continued)

• Innovation Strategy
• Unique products, services, or markets
• Radical(important) changes to business processes
• Example: full-service customer systems
• Growth Strategy
• Expand company’s capacity to produce goods
and services
• Expand into global markets
• Diversify(more difference) into new products or
services

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Competitive Strategies (continued)

• Alliance Strategy
• Establish linkages and alliances with customers,
suppliers, competitors, consultants, and other
companies
• Includes mergers, acquisitions, joint ventures,
formation of virtual(real) companies

2-9

Using Competitive Strategies

• These strategies are not mutually(interaction)

exclusive(only one)
• Organizations use one, some, or all
• A given activity could fall into one or more
categories of competitive strategy
• Not everything innovative(new idea) serves to
differentiate one organization from another
• Likewise, not everything that differentiates
organizations is necessarily innovative

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Ways IT Help to Implement Those 5 Basic Strategies

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Other Competitive Strategies

• Lock in Customers and Suppliers
• Deter(prevent) them from switching to
competitors by building new relationship with
them and improve quality of product/service
• Build in Switching Costs
• Make customers and suppliers dependent on the
use of innovative IS
• Erect(Build) 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

• Build Strategic IT Capabilities

• Take advantage of strategic opportunities when
they arise
• Improve efficiency of business practices
• Leverage(Action) Investment in IT
• Develop products and service that would not be
possible without a strong IT capability

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Competitive Advantage and Competitive Necessity

• Competitive Advantage is used when referring to a

firm that is leading an industry in some identifiable
way such as sales, revenues, or new products
• When a firm sustains profits that exceed the average
for its industry, the firm is said to possess
competitive advantage over its rivals
• In other words, competitive advantage is all about
profits.
• The move from innovation to competitive advantage
quickly becomes competitive necessity when other
firms learn how to respond strategically.

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Competitive Advantage and Competitive Necessity

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Customer-Focused Business

• What is the business value in being customer-

focused?
• Keep customers loyal(honest)
• Anticipate(imagine) their future needs
• Respond to customer concerns
• Provide top-quality customer service
• Focus on customer value
• Quality, not price, has become the primary
determinant(decision) of value
• Consistently (no change)

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Providing Customer Value

• Companies that consistently offer the best value

from the customer’s perspective…
• Track(follow) individual preferences(favorite)
• Keep up with market trends
• Supply products, services, and information
anytime, anywhere
• Tailor(prepare) customer services to the
individual
• Use Customer Relationship Management (CRM)
systems to focus on the customer

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Building Customer Value via the Internet

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The Value Chain and Strategic IS

• View the firm as a chain of basic activities that

add value to its products and services
• Primary processes directly relate to
manufacturing or delivering products to customer
• Support processes help support the day-to-day
running of the firm and indirectly
contribute(offer) to products or services
• Use the value chain to highlight where
competitive strategies will add the most value

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Using IS in the Value Chain

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Strategic Uses of IT

• A company that emphasizes strategic business

use of IT would use it to gain a competitive
differentiation
• Use of IT to develop products, services and
capabilities that give the company major
advantages in the markets in which it competes

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Reengineering Business Processes

• Called Business Process Reengineering(BPR) or

simply Reengineering
• Fundamental rethinking and radical redesign of
business processes
• Seeks to achieve 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 Versus Business Improvement

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The Role of Information Technology

• IT plays a major role in reengineering most

business processes
• The speed, information-processing capabilities,
and connectivity of computers and Internet
technologies…
• Can substantially increase process efficiencies
• Improves communication
• Facilitates collaboration

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A Cross-Functional Process

• Many processes are reengineered with…

• Enterprise resource planning software (ERP)
• Web-enabled electronic business and commerce
systems

The order management process consists of several business processes

and crosses the boundaries of traditional business functions.

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Reengineering Order Management

• IT that supports this process…

• CRM systems using intranets and the Internet
• Supplier-managed inventory systems using the
Internet and extranets
• Cross-functional ERP software to integrate
manufacturing, distribution, finance, and human
resource processes
• Customer-accessible e-commerce websites for
order entry, status checking, payment, and service
• Customer, product, and order status databases
accessed via intranets and extranets
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Becoming an Agile Company

• Agility is the ability to prosper(succeed)

• In rapidly changing, continually fragmenting
global markets
• By selling high-quality, high-performance,
customer-configured products and services
• By using Internet technologies

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Strategies for Agility

• To be an agile(active) company…
• Presents products as solutions to customers’
individual problems
• Cooperates with customers, suppliers and
competitors
 Brings products to market as quickly and cost-
effectively as possible
• Organizes to thrive(grow) on change and
uncertainty
• Leverages the impact of its people and the
knowledge they possess
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How IT Helps a Company be Agile

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Building a Knowledge-Creating Company

• A knowledge-creating company or learning

organization…
• Consistently creates new business knowledge
• Disseminates it throughout the company
• Builds it into its products and services

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Two Kinds of Knowledge

• Explicit Knowledge
• Data, documents, and things written down or
stored in computers
• Tacit Knowledge
• The “how-to” knowledge in workers’ minds
• Represents some of the most important
information within an organization
• A knowledge-creating company makes such tacit
knowledge available to others

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Knowledge Management

• Successful knowledge management

• Creates techniques, technologies, systems,
and rewards for getting employees to share
what they know
• Makes better use of accumulated(selected)
workplace and enterprise knowledge

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Knowledge Management Techniques

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Knowledge Management Systems (KMS)

• Knowledge management systems

• A major strategic use of IT
• Manages organizational learning and know-how
• Helps knowledge workers create, organize, and
make available important knowledge
• Makes this knowledge available wherever and
whenever it is needed
• Knowledge(information) includes
• Processes, procedures, patents, reference works,
formulas, best practices, forecasts, and fixes

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Summary

• Strategic Uses of Information Technology.

Information technologies can support many competitive
strategies.
• Building a Customer-Focused Business. A key
strategic use of Internet technologies is to build a
company that develops its business value by making
customer value its strategic focus.
• Reengineering Business Processes. Information
technology is a key ingredient in reengineering business
operations because it enables radical changes to business
processes that dramatically improve their efficiency and
effectiveness.

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Summary

• Becoming an Agile Company. A business can use

information technology to help it become an agile
company.
• Creating a Virtual Company. Forming virtual
companies has become an important competitive
strategy in today’s dynamic global markets.
• Building a Knowledge-Creating Company. Lasting
competitive advantage today can only come from the
innovative use and management of organizational
knowledge by knowledge-creating companies and
learning organizations.

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