Competing with Information Technology Chapter 2 Competing with Information Technology

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 give competitive advantages to a business. Give examples of how business process reengineering frequently involves the strategic use of IT.

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.

Case 1: FedEx Corporation: Investing in IT for Competitive Advantage FedEx and many other companies know that proper management and use of information technology can give them a competitive advantage. Their IT has to connect 39 hubs around the world with 677 airplanes, over 90,000 vehicles, and more than 200,000 employees delivering 6 million packages a day in 220 countries. FedEx spends more than $1 billion on IT every year. FedEx focuses more on revenue generating, customer satisfying technology than operational technology. FedEx is more of a innovator than a follower in IT applications.

Case Study Questions How do the IT investment strategies and focus of FedEx and its main competitor UPS differ? Which company has the better strategy? Why? Is FedEx’s “move, communicate, and shoot” IT strategy a good one for its competitive battle with UPS? Why or why not? Is it a good model of competitive IT strategy for other types of companies? Defend your position.

Case Study Questions FedEx CIO Carter says his company is in the business of engineering time. Is this a good business vision for FedEx? Why or why not? How vital is IT to this definition of FedEx’s business? Use examples from the case to illustrate your answer.

Real World Internet Activity Use the Internet to compare the current status of FedEx, UPS, and DHL in terms of revenue, profitability, parcels delivered, and other measures of business success. Who is winning the competitive battle? Why? Check out what business commentators and financial analysts are reporting on the Web to help you answer.

Real World Group Activity Use the Internet to discover more about how FedEx is involved in fighting the war on terror, beyond what is reported in this case. For example, FedEx has made some controversial disclosures of customer information to intelligence agencies. Discuss FedEx’s corporate responsibility to assist in the war on terror while protecting the privacy of its customers, as well as any other issues uncovered in your research.

Strategic IT Technology is no longer an afterthought in forming business strategy, but the actual cause and driver. IT can change the way businesses compete. A strategic information system is Any kind of information system That uses IT to help an organization Gain a competitive advantage Reduce a competitive disadvantage Or meet other strategic enterprise objectives

Competitive Forces and Strategies

Competitive Forces If a business wants to succeed must develop strategies to counter these forces: Rivalry of competitors within its industry Threat of new entrants into an industry and its markets Threat posed by substitute products which might capture market share Bargaining power of customers Bargaining power of suppliers According to Michael Porter’s classic model of competition, any business that wants to succeed must develop strategies to counter these 5 forces

Five Competitive Strategies Cost Leadership Become low-cost producers Help suppliers or customers reduce costs Increase cost to competitors Example, Priceline uses online seller bidding so buyer sets the price Differentiation Strategy Develop ways to differentiate a firm’s products from its competitors Can focus on particular segment or niche of market Example, Moen uses online customer design To counter the threats of competitive forces

Competitive Strategies (cont.) Innovation Strategy Find new ways of doing business Unique products or services Or unique markets Radical changes to business processes to alter the fundamental structure of an industry Example, Amazon uses online full-service customer systems Growth Strategy Expand company’s capacity to produce Expand into global markets Diversify into new products or services Example, Wal-Mart uses merchandise ordering by global satellite tracking

Competitive strategies (cont.) Alliance Strategy Establish linkages and alliances with Customers, suppliers, competitors, consultants and other companies Includes mergers, acquisitions, joint ventures, virtual companies Example, Wal-Mart uses automatic inventory replenishment by supplier

Using these strategies The strategies are not mutually exclusive Organizations use one, some or all Notice that Wal-Mart was an example in both growth and alliance A strategy can fall into one or more categories.

Using IT for these strategies Often use the Internet as the foundation for such strategies

Other competitive strategies Lock in customers and suppliers And lock out competitors Deter them from switching to competitors Build in switching costs Make customers and suppliers dependent on the use of innovative IS Barriers to entry Discourage or delay other companies from entering market Increase the technology or investment needed to enter

Other competitive strategies (cont.) Include IT components in products Makes substituting competing products more difficult Leverage investment in IT Develop new products or services not possible without IT

Customer-focused business What is the business value in being customer-focused? 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 primary determinant of value For classroom discussion: Do you agree that quality and not price is the customer’s primary determinant of value? Are there limits? Is it always quality rather than price?

How can we provide customer value? Track individual preferences Keep up with market trends Supply products, services and information anytime, anywhere Provide customer services tailored to individual needs Use Customer Relationship Management (CRM) systems to focus on customer

Building customer value using the Internet The Internet and Intranets create new channels for interactive communications within a company, with customers, with suppliers. Allows customers to ask questions, make complaints, evaluate products, request support, and make and track purchases

Value Chain View the firm as a chain of basic activities that add value to its products and services Activities are either Primary processes directly related to manufacturing or delivering products Support processes help 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 can best be applied to add the most value

Using IS in the value chain Examples of where IS can be used to provide value in both support and primary business processes

Case 2: GE Energy and GE Healthcare: Using IT to Create Strategic Customer Relationships Networking and data storage & analysis technologies enable companies like GE to gain a competitive advantage by providing unique products and services to their customers. This strategic investment in IT has a dramatic effect on the profitability of GE’s services. The strategic business partnership results in a longer-term relationship than traditional methods.

Case Study Questions What are the business benefits of using information technology to build strategic customer relationships for GE Energy and GE Healthcare? What are the business benefits for their customers? What strategic uses of information technology discussed in this chapter and summarized in Figures 2.3 and 2.5 do you see implemented in this case? Explain the reasons for your choices.

Case Study Questions How could other companies benefit from the use of IT to build strategic customer relationships? Provide or propose several examples of such uses. Explain how each benefits the business and its customers.

Real World Internet Activity Use the Internet to discover if GE Energy and GE Healthcare are expanding or strengthening their uses of IT to build strategic customer relationships. What benefits are they gaining for themselves and claiming for their customers? Use the Internet to discover other companies whose products are networked, monitored, diagnosed, and managed at customers’ sites like the GE companies in this case. Alternatively, choose other companies you can research on the Internet and propose several ways they could implement and benefit from similar uses of information technology.

Real World Group Activity What business control and security concerns might a business customer have with the extent of its dependency on GE for the use and maintenance of assets that are vital to the operation of the business? Discuss the rationale for these concerns and what measures both the business and GE could take to reduce any security threats and improve a customer’s secure control of the business assets it obtains from GE.

Business Process Reengineering Called BPR or Reengineering Fundamental rethinking and radical redesign Of business processes To achieve improvements in cost, quality, speed and service Potential payback high Risk of failure is also high

How BPR differs from business improvement

A cross-functional process Order management consists of several business processes Crosses the boundaries of traditional business functions

Reengineering order management

Agility Agility is the ability of a company to prosper In a rapidly changing, continually fragmenting Global market for high-quality, high-performance, customer-configured products and services An agile company can make a profit with Broad product ranges Short model lifetimes Mass customization Individual products in large volumes An agile company often uses the Internet to integrate and manage business processes while providing the processing power to treat masses of customers as individuals

Four strategies for agility An agile company: Provides products as solutions to their customers’ individual problems Cooperates with customers, suppliers and competitors to bring products to market as quickly and cost-effectively as possible Organizes so that it thrives on change and uncertainty Leverages the impact of its people and the knowledge they possess

How IT helps a company be agile

Virtual Company A virtual company uses IT to link People, Organizations, Assets, And ideas Creates interenterprise information systems to link customers, suppliers, subcontractors and competitors

A virtual company This company is using the Internet, intranet and extranets to link to business partners This creates interenterprise information systems to link customers, suppliers, subcontractors and competitors Flexible and adaptable virtual workgroups

Strategies of virtual companies A company facing a new market opportunity might not have the time or resources to develop the manufacturing and distribution infrastructures, the competencies or the IT needed. By forming a virtual company with an alliance with others it can quickly provide the solution needed.

Knowledge Creation Knowledge-creating company or learning organization Consistently creates new business knowledge Disseminates it throughout the company And builds in the new knowledge into its products and services To have lasting competitive advantage, a company must be a knowledge creating company or learning organization

Two kinds of knowledge Explicit knowledge Tacit knowledge Data, documents and things written down or stored on computers Tacit knowledge The “how-to” knowledge which reside in workers’ minds A knowledge-creating company makes such tacit knowledge available to others Tacit knowledge is often some of the most important information within a firm. But its not recorded anywhere since it’s in the employee’s mind.

Knowledge issues What is the problem with organizational knowledge being tacit? Why are incentives to share this knowledge needed? Issues: What if the person who has the knowledge leaves the company? What if someone in another part of the company could use the expertise? How do you know who knows what you need to know? How do you find what you need to know Company wastes money “re-inventing the wheel” Unless people are given incentive to share the knowledge, They won’t want to spend time doing something that they are not rewarded for They will worry about losing their status of having the expertise

Knowledge management techniques Three levels of techniques, technologies, and systems that promote the collection, organization, access, sharing and use of workplace and enterprise knowledge Create techniques, technologies, systems and rewards for getting employees to share what they know. Source: Adapted from Marc Rosenberg, e-Learning: Strategies for Delivering Knowledge in the Digital Age (New York: McGraw-Hill, 2001), p.70.

Knowledge management systems (KMS) KMS manage organizational learning and business know-how Goal: Help knowledge workers to create, organize, and make available knowledge Whenever and wherever it’s needed in an organization

Case 3: GE, Dell, Intel, GM, and Others: Debating the Competitive advantage of IT Does IT matter? No: Nicholas Carr argues that IT is infrastructure like electricity Too commonplace to get competitive advantage Yes: IT is not just networks and computers The important part is the software and information and how IT is used For Wal-Mart, GE, Dell, and many other companies, IT is a huge advantage and will continue to be.

Case Study Questions Do you agree with the argument made by Nicholas Carr to support his position that IT no longer gives companies a competitive advantage? Why or why not? Do you agree with the argument made by the business leaders in this case in support of the competitive advantage that IT can provide to a business? Why or why not? What are several ways that IT could provide a competitive advantage to a business? Use some of the companies mentioned in this case as examples. Visit their Web sites to gather more information to help you answer.

Real World Internet Activity Nicholas Carr’s article created a storm of debate that is still raging. Using the Internet, see if you can find Carr’s original article. Also, try to find some more opinions for and against Carr’s arguments beyond those provided in the case.

Real World Group Activity The core of Carr’s arguments has some significant implications for businesses. Discuss your opinion of Carr’s arguments. What are some of the implications of the argument that come to mind? How might they serve to change the way we use computers to support corporate strategy?