Chapter 2

Competing with
Information Technology

McGraw-Hill/Irwin Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
 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 competitor
or to form a virtual company
 Explain how knowledge management systems
can help a business gain strategic advantages

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Case 1: Reinventing IT as a Strategic Business Partner

 Apart from providing reliable and excellent

IT services, IT should provide innovative
solutions to business challenges
 IT is no longer about supporting or
automating a business
– It’s about innovating, improving, and
reinventing it
 IT is now a ground-floor business partner,
rather than an after-the-fact business tool

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 Case Study Questions

 What business and political challenges are

likely to occur as a result of the transformation
of IT from a support activity to a partner role?
 What implications does this shift in the strategic
outlook of IT have for traditional IT workers and
the educational institutions that train them?
– How does this change the emphasis on what
knowledge and skills the IT person of the future
should have?

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 Case Study Questions

 Do you agree with the idea that technology is

embedded in just about everything a company
does?
– Provide examples, other than those in the
case, of recent product introductions that could
not have been possible without heavy reliance
on IT

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 Strategic IT

 Technology is no longer an afterthought 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 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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 Five Competitive Strategies

Cost Leadership Differentiation

Strategies

Alliance Innovation

Growth

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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

 Not everything innovative serves to

differentiate one organization from another
– Likewise, not everything that differentiates
organizations is innovative

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Ways to Implement Basic Strategies

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Other Competitive Strategies

Strategy

Lock in customers and suppliers

Create switching costs

Raise barriers to entry

Build strategic IT capabilities

Leverage investment in IT

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 Customer-Focused Business

Business value Keeps customers loyal

in customer
Anticipates their future needs
focus
Responds to customer concerns

Provides top-quality customer service

Focus on Quality, not price, has become the

customer value primary determinant of value

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 Providing Customer Value

Companies that consistently offer the best value…

Track individual Keep up with market

preferences trends

Supply products,
services, and Tailor customer Use CRM
information services to the systems to focus
anytime, individual on the customer
anywhere

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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
– Support processes support the day-to-day
running of the firm and indirectly contribute
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

Companies that emphasize strategic business use

of 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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 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

IT that supports the reengineering 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, HR 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

Global competition
Standardized mass- Niche products
market products and
services Individualized
Long-lived Short-lived
Information poor Information rich
Exchanged in one-time
Exchanged on an
transactions
ongoing basis

Old Marketplace New Marketplace

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 Becoming an Agile Company

 Agility is the ability to prosper

– In rapidly changing, continually fragmenting global
markets
– By selling high-quality, high-performance, customer-
configured products and services
– By using Internet technologies
 An agile company profits in spite of
– Broad product ranges
– Short model lifetimes
– Individualized products
– Arbitrary lot sizes

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 Strategies for Agility

An agile company…

Presents products as solutions to customers’ problems

Cooperates with customers, suppliers, competitors

Brings products to market quickly and cost-effectively

Organizes to thrive on change and uncertainty

Leverages the impact of its people

and the knowledge they possess

Provides incentives for employee

responsibility, adaptability, innovation

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How IT Helps a Company be Agile

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 Creating a Virtual Company

A virtual company uses IT to link…

Organizations Assets

People Ideas

Inter-enterprise information systems link…

Customers Competitors

Suppliers Subcontractors

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A Virtual Company

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 Virtual Company Strategies

Basic Business Strategies

Share
Link Reduce
information &
complimentary concept-to-cash
risk with
core time through
alliance
competencies sharing
partners

Increase Gain access to Migrate from

facilities and new markets & selling products
market share market or to selling
coverage customer loyalty solutions

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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

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 tacit

knowledge available to others
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Knowledge Management

 Successful knowledge
management
– Creates techniques,
technologies, systems,
& rewards for getting
employees to share
what they know
– Makes better use
of accumulated
workplace and
enterprise knowledge
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Knowledge Management Techniques

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Knowledge Management Systems (KMS)

Knowledge management systems…

Are a major strategic use Manage organizational

of IT learning and know-how

Help knowledge workers

Make this knowledge
create, organize, and
available wherever and
make available important
whenever it is needed
knowledge

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Knowledge Management Systems (KMS)

Knowledge includes…

Processes Procedures Patents

Reference works Formulas

Best practices Forecasts Fixes

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 Case 3: Wachovia and Others

 Trading Securities at the Speed of Light

– Investment companies rely on faster hardware
and processing times to get an advantage over
competitors
– Securities trading is one of the few business
activities where a one-second processing delay
can cost a company big bucks
– Wall Street’s quest for speed is not only putting floor
traders out of work, but opening up space for new
alternative exchanges and e-communications
networks that compete with established stock
markets

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 Case Study Questions

 What competitive advantages can the companies

in the case derive from faster technology and
co-location of servers with exchanges?
– Which would you say are sustainable, and which
ones are temporary or easily imitable?
 Tony Bishop of Wachovia stated that
“Competitive advantage comes from your math,
your workflow, and your processes through your
systems”
– Referring to what you have learned in this chapter,
develop opposing viewpoints as to the role of IT, if
any, in the development of competitive advantage

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 Case Study Questions

 What companies in industries other than

securities trading could benefit from
technologies that focus on reducing
transaction processing times?

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