Competing with Information Technology Chapter 2 McGraw-Hill/IrwinCopyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

2-2 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 Learning Objectives

2-3 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 Learning Objectives

2-4 Technology is no longer an afterthought in business strategy, but the cause and driver IT can change the way businesses compete –Vital competitive networks –Organizational renewal –Necessary investment Integral to success Strategic IT

2-5 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 Competitive Strategy Concepts

2-6 IT is a business asset, like buildings and land Quantify IT Value and Risks –How much would normal operations cost without IT systems? –How much would operations cost if the IT system goes down? IT is investment not cost Must align IT with company strategy RWC 1: Quantify IT Risks and Value

2-7 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 don’t buy Suppliers bargaining power –Your competitor pays in days not weeks Porter’s Five Forces of Competition

2-8 Competitive Forces and Strategies

2-9 Cost Leadership –Become low-cost producers –Help suppliers or customers reduce costs –Increase cost to competitors Example: Priceline Differentiation Strategy –Set a firm’s products apart from competitors’ –Focus on a particular segment or niche market Example: Dell Five Competitive Strategies

2-10 Innovation Strategy –Unique products, services, or markets –Radical changes to business processes Example: Dell Growth Strategy –Expand company’s capacity to produce –Expand into global markets –Diversify into new products or services Example: Wal-Mart Competitive Strategies (continued)

2-11 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 Competitive Strategies (continued)

2-12 Not mutually exclusive –One alone won’t 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 Using Competitive Strategies

2-13 Using IT to Implement Basic Strategies

2-14 Implementing Competitive Strategies

2-15 Other IT strategies

2-16 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

2-17 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

2-18 Competitive Advantage can become Competitive Necessity

2-19 Keep customers loyal –Anticipate their future needs –Respond to customer concerns –Provide top-quality customer service Focus on customer value –Quality, not price, has become the primary determinant of value Customer-Focused Business

2-20 Companies that consistently offer the best value from the customer’s perspective… –Track individual preferences –Keep up with market trends –Supply products, services, and information anytime, anywhere –Tailor customer services to the individual –Use Customer Relationship Management (CRM) systems to focus on the customer Providing Customer Value

2-21 Building Customer Value via the Internet

2-22 Activities that add value –Primary processes – direct –Support processes – indirect Value Chain and Strategic IS

2-23 Gain a competitive differentiation –Products –Services –Capabilities Somehow do things better –Just-in-time Strategic Uses of IT

2-24 Called BRP or simply Reengineering –Radical –Seeks improvements High potential High risk Important enabler of reengineering –IT –Process teams –Case managers Business Process Reengineering

2-25 Major role –Increase process efficiencies –Improves communication –Facilitates collaboration Role of Information Technology

2-26 CPS Energy –Smartphones with digital cameras –Cut response time –Reduced inventory Lloyd’s Construction –Smartphones with GPS –Mobile productivity software –Low cost –High return RWC 2: Running a Business on Smartphones

2-27 BPR Versus Business Improvement

2-28 Reengineered with… –Enterprise resource planning software –Web-enabled electronic business and commerce systems Cross-Functional Processes

2-29 Reengineering Order Management

2-30 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 Strategies for Becoming an Agile Company

2-31 How IT Helps a Company be Agile

2-32 A virtual company uses IT to link… –People –Organizations –Assets –Ideas Inter-enterprise information systems link… –Customers –Suppliers –Subcontractors –Competitors Creating a Virtual Company

2-33 A Virtual Company

2-34 Virtual Company Strategies

2-35 A knowledge-creating company or learning organization… –Consistently creates new business knowledge –Disseminates it throughout the company –Builds it into its products and services Building a Knowledge-Creating Company

2-36 Explicit Knowledge –Data, documents, and things written down or stored in computers Employee handbook Tacit Knowledge –The “how-to” knowledge in workers’ minds –Most important information Successful knowledge management –Rewards sharing –Makes better use of knowledge Knowledge Management

2-37 Knowledge Management Techniques

2-38 Investment companies rely on technology to gain competitive advantage One-second delay can be costly Wall Street –Fewer floor traders –New alternative exchanges and e- communications networks RWC 3: Trading Securities

2-39 Reliable and excellent IT services Innovative solutions Create new products and services New business models Lower cost Highest possible profit margins RWC 4: Reinventing IT