Chapter

2
Competing with
Information Technology

McGraw-Hill/Irwin Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
 Learning Objectives

Identify several basic competitive

strategies and explain how they 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 help a business to gain competitive
advantages
Give examples of how business process
reengineering frequently involves the
strategic use of IT
2-2
 Learning Objectives

Identify the business value of using

Internet technologies to become an agile
competitor or form a virtual company
Explain how knowledge management
systems can help a business gain
strategic advantages

2-3
 Competitive Strategy Concepts

A strategic information system uses IT to

help an organization
Gain a competitive advantage
Reduce a competitive disadvantage
Meet other strategic enterprise objectives
What is Competitive Advantage?
Capability for advantage over competitive forces
Leading the industry in some identifiable way
Sustains profits above the industry average
Hard to maintain over a long period of time

2-4
 Porters Five Forces of Competition

Rivalry of Competitors
Positive, natural, healthy
Threat of new entrants
Apple, TRS 80, Commodore, IBM, HP,
Compaq, Gateway, Dell, Acer
Threat of substitutes
Salon shampoo vs Wal-Mart brand
VCR vs DVD vs BluRay
Customer bargaining power
Buy from competitors or dont buy
Suppliers bargaining power
Your competitor pays in days not weeks
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 Five Competitive Strategies

Cost Leadership
Become low-cost producers
Help suppliers or customers reduce costs
Increase cost to competitors
Example: Priceline
Differentiation Strategy
Set a firms products apart from competitors
Focus on a particular segment or niche market
Example: Dell

2-6
 Competitive Strategies (continued)

Innovation Strategy
Unique products, services, or markets
Radical changes to business processes
Example: Dell
Growth Strategy
Expand companys capacity to produce
Expand into global markets
Diversify into new products or services
Example: Wal-Mart

2-7
 Competitive Strategies (continued)

Alliance Strategy
Includes mergers, acquisitions, joint
ventures, virtual companies
Customers, suppliers, competitors,
consultants, and other companies
Example: Wal-Mart uses automatic inventory
replenishment by supplier

2-8
 Using Competitive Strategies

Not mutually exclusive

One alone wont usually fix the problem
Generally need a combination
Innovation not necessarily differentiated
Kindle v. iPad
MP3 players vs iPod
Gateway made in US, relaxed office
Differentiation not necessarily innovative
Shipping more efficient but not different
Telecom companies compete

2-9
 Other Competitive Strategies

Lock in Customers and Suppliers

Deter them from switching to competitors
Create Switching Costs
Time, money, effort or inconvenience needed
to switch to a competitor
Raise Barriers to Entry
Discourage or delay other companies from
entering the market
Increase the technology or investment
needed to enter

2-10
 Other Competitive Strategies

Build a strong IT department

Use IT to:
Take advantage of strategic opportunities
Improve efficiency of business practices
Develop products and services that would not
be possible without a strong IT capability
Use IT to do more than automate a system,
be creative

2-11
 Business Process Reengineering

Called BPR or simply Reengineering

Radical
Seeks improvements
High potential
High risk
Important enabler of reengineering
IT
Process teams
Case managers

2-12
 Strategies for Becoming an Agile Company

Presents products as solutions to problems

Can price as a solution not cost to produce
Cooperates with customers, suppliers and
competitors
Brings products to market as quickly and cost-
effectively as possible
Thrives on change and uncertainty
Responds to changing customer expectations
Leverages people and knowledge
Provides incentives for responsibility, adaptability,
and innovation

2-13
 Creating a Virtual Company

A virtual company uses IT to link

People
Organizations
Assets
Ideas

Inter-enterprise information systems

link
Customers
Suppliers
Subcontractors
Competitors
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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

2-15