1

Chapter
2
Competing
with
Information Technology

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 2

Objectives
Identify basic competitive strategies and explain
how IT may be used to gain competitive
advantage.

Identify strategic uses of information technology.

How does business process engineering

frequently use e-business technologies for
strategic purposes?
McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 3

(Objectives – continued)

Identify the business value of using e-business

technologies for total quality management, to
become an agile competitor, or to form a virtual
company.

Explain how knowledge management systems

can help a business gain strategic advantage.

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 4

Section I

Fundamentals of Strategic Advantage

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 5

Fundamentals of Strategic Advantage

Competitive Forces (Porter)

Rivalry of competitors
Threat of new entrants

Threat of substitutes

Bargaining power of customers

Bargaining power of suppliers

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 6

Fundamentals of Strategic Advantage

Rivalry of competitors
 Competition is a positive characteristic in
business and competitors share a natural, and
often healthy, rivalry.
 This rivalry encourages and sometimes requires

a constant effort to gain competitive advantage

in the marketplace.
 This ever-present competitive forces requires

significant resources on the part of a firm.

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 7

Fundamentals of Strategic Advantage

Threat of new entrants
 Firms must work on creating significant
barriers to the entry of new competition.
 Guarding against the threat of new entrants also

expends significant organizational resources.

 The internet has created many ways for a new

entrants to enter the marketplace quickly and

relatively low cost of entry.

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 8

Fundamentals of Strategic Advantage

Threat of substitutes
 Strongest during periods of rising costs or
Inflation.
 People have the rights of choice to select

substitute ( product/ service) for any market

product or service.
 Most products or services have some sort of

substitute available in the market.

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 9

Fundamentals of Strategic Advantage

Bargaining power of customers
 If the customer’s bargaining power gets too
strong, they can drive prices to unmanageably
low levels or simply refuse to buy the product
or service.
 A business must guard against the often

opposing forces of customers.

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 10

Fundamentals of Strategic Advantage

Bargaining power of Suppliers
 If a key supplier’s bargaining power gets too
strong, it can force the price of goods and
services to unmanageably high levels or can
simply starve a business by controlling the flow
of parts or raw materials essential to the
manufacture of a product.
A business must guard against the often
opposing forces of customers.

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 11

Fundamentals of Strategic Advantages

Competitive Strategies
Cost Leadership
Differentiation

Innovation

Growth

Alliance

Other Strategies

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 12

Competitive Strategies & the Role of IT

Cost Leadership (Low cost producer)

Reduce inventory (JIT)
Reduce manpower costs per sale

Help suppliers or customers reduce costs

Increase costs of competitors

Reduce manufacturing costs (process control)

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 13

Competitive Strategies & the Role of IT (continued)

Differentiation

Create a positive difference between your

products/services & the competition.
May allow you to reduce a competitor’s

differentiation advantage.
May allow you to serve a niche market.

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 14

Competitive Strategies & the Role of IT (continued)

Innovation

New ways of doing business

Unique products or services

New ways to better serve customers

Reduce time to market

New distribution models

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 15

Competitive Strategies & the Role of IT (continued)

Growth

Expand production capacity

Expand into global markets

Diversify

Integrate into related products and services.

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 16

Competitive Strategies & the Role of IT (continued)

Alliance

Broaden your base of support

New linkages

Mergers, acquisitions, joint ventures, “virtual

companies”
Marketing, manufacturing, or distribution

agreements.

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 17

Competitive Strategies & the Role of IT (continued)

Other Competitive Strategies

 Locking in customers or suppliers by
Building new valuable relationships

 Creating switching costs into the relationships

between a firm and its customers or suppliers
using
Extranets

Proprietary software applications

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 18

Competitive Strategies & the Role of IT (continued)

Other Competitive Strategies (continued)

Raising barriers to entry
Improve operations or promote innovation

that would discourage or delay other

companies from entering a market.

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 19

Competitive Strategies & the Role of IT (continued)

Leveraging investment in IT
Allows the business to take advantage of
strategic opportunities when they arise
Develops new products and services that
would not be possible without a strong IT
capability.

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 20

The Value Chain

Views a firm as a series, chain, or network of
activities that add value to its products and
services and thus add a margin of value both to
firm and its customers.
 In the Value Chain conceptual Framework, some
business activities are primary processes, others
are support processes.

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 21

Value Chain
Primary processes are those business activities
that are directly related to the manufacturing of
products or the delivering of services to the
customer.

Support processes are those business activities

that help support the day-to-day running of the
business and that indirectly contribute to the
products and services of the organization.
McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 22

Value Chain
Primary Business Processes Examples
 Inbound Logistics
Automated Just-In-Time (JIT) Warehousing
 Operations
Computer Aided Flexible Manufacturing
 Outbound Logistics
Online Point of Sale and Order Processing

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 23

Value Chain

Primary Business Processes Examples (cont’d)

 Marketing and Sales
Targeted Marketing
 Customer Services
Customer Relationship Management

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 24

Value Chain

Support Processes Examples

Administrative coordination and Support
services
Collaborative workflow Intranet

Human Resource Management

Employee benefits Intranet

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 25

Value Chain

Support Processes Examples (cont’d)

Technology Development
Product Development Intranet with partners

Procurement of Resources
E-Commerce web portals for suppliers

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 26

Value Chain (continued)

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 27

Section II

Using Information Technology

for Strategic Advantage

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 28

Strategic Uses Of Information Technology

 Major Competitive Differentiator

If a company emphasized strategic business uses of
information technology, its management would view IT
as a major competitive differentiator

They would then devise business strategies that

would use IT to develop products, services and
capabilities that would give the company major
advantages in the markets in which it competes.

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 29

Customer focus

Develop a focus on the customer

 Customer value
 Best value

 Understand customer preferences

 Track market trends

 Supply products, services, & information anytime,

anywhere
 Tailored customer service

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 30

Strategic Uses of IT (continued)

Business Process Reengineering (BPR)

 Rethinking & radical redesign of business processes
 Combines innovation and process improvement

 There are risks involved.

 Success factors

 Organizational redesign

 Process teams and case managers

 Information technology

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 31

Strategic Uses of IT (continued)

Improve Business Quality

 Total Quality Management (TQM)
 Quality from customer’s perspective
 Meeting or exceeding customer expectations
 Commitment to:
 Higher quality
 Quicker response
 Greater flexibility
 Lower cost

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 32

Strategic Uses of IT (continued)

Becoming agile
Four basic strategies
 Customers’ perception of product/service as

solution to individual problem

 Cooperate with customers, suppliers, other

companies (including competitors)

 Thrive on change and uncertainty

 Leverage impact of people and people’s knowledge

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 33

Strategic Uses of IT (continued)

The virtual company

 Uses IT to link people, organizations, assets, and ideas
 Forms virtual workgroups and alliances with business
partners
those are interlinked by the internet, intranets and
extranets
 Develops alliances and extranets links that form
Interenterprise information systems with suppliers,
customers, subcontractors and competitors
McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 34

The Virtual Company (continued)

 Basic business strategies of Virtual Companies

 Share infrastructure & risk with alliance partners
 Link complementary core competencies

 Reduce concept-to-cash time through sharing

 Increase facilities and market coverage

 Gain access to new markets and share market or

customer loyalty
 Migrate from selling products to selling solutions

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 35

Learning Organizations
Exploit two kinds of knowledge
Explicit Knowledge
- data, documents and things written down or
stored in computers
Tacit Knowledge
- the “ How-to” knowledge which reside in
workers

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 36

Learning Organizations ( cont’d)

Exploit two kinds of knowledge

Tacit Knowledge
- sometime represent some of the most
important information within an organization

- not recorded in or codified anywhere because

it has evolved in the employees mind through
years of experience.

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 37

Learning Organizations (continued)

 Knowledge Management

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 38

Learning Organizations (continued)

Knowledge Management Systems (KMS)

 Help create, organize, and share business
knowledge wherever and whenever needed
within the organization
 KMS includes processes, procedures, patents,
reference works, formulas, “best practices”,
forecasts and fixes

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.
 39

Learning Organizations (continued)

Knowledge Management Systems (KMS)

 KMS is designed to provide:

- rapid feedback to knowledge worker
- encourage behavior changes by employees
- significantly improve business performance

McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved.