1 First Canadian Edition James A. O’BrienAli Montazemi 1 Management Information Systems Managing Information Technology in the Business Enterprise

2 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 2 Chapter 2 Competing with Information Technology

3 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 3 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?

4 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 4 (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.

5 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 5 Section I Fundamentals of Strategic Advantage

6 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 6 Fundamentals of Strategic Advantage  Competitive Forces (Porter)  Bargaining power of customers  Bargaining power of suppliers  Rivalry of competitors  Threat of new entrants  Threat of substitutes

7 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 7 Competitive Strategies & the Role of IT  Cost Leadership (low cost producer)  Differentiation  Innovation  Growth  Alliance  Other Competitive Strategies

8 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 8 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)

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

10 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 10 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Innovation  New ways of doing business  Unique products or services that include IT  New ways to better serve customers  Improve quality or efficiency  Reduce time to market  New distribution models

11 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 11 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Growth  Expand production capacity  Expand into global markets  Diversify  Integrate into related products and services.

12 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 12 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Alliance  Broaden your base of support with new linkages and alliances with customers, suppliers, competitors, and consultants  Mergers, acquisitions, joint ventures, virtual companies  Marketing, manufacturing, or distribution agreements.

13 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 13 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Other Competitive Strategies  Locking in customers or suppliers  Build value into your relationship  Creating switching costs  Extranets  Proprietary software applications

14 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 14 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Other Competitive Strategies (continued)  Raising barriers to entry  Improve operations or promote innovation  Leveraging investment in IT  Allows the business to take advantage of strategic opportunities

15 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 15 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. The Value Chain  Views a firm as a series, chain, or network of activities that add value to its products and services.  Improved administrative coordination  Training  Joint design of products and processes  Improved procurement processes  JIT inventory  Order processing systems

16 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 16 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Value Chain (continued)

17 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 17 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Section II Using Information Technology for Strategic Advantage

18 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 18 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Strategic Uses Of Information Technology  Develop a focus on the customer  Business Process Reengineering (BPR)  Improve business quality  Become agile  The virtual company  Build learning organizations

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

20 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 20 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Business Process Reengineering (BPR)  Rethinking & redesign of business processes  Combines innovation and process improvement  There are risks involved.  Success factors  Organizational redesign  Process teams and case managers  Information technology

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

22 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 22 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Become 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

23 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 23 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. The Virtual Company  Uses IT to link people, assets, and ideas  Forms virtual workgroups and alliances with business partners  Interorganizational information systems with Internet, extranets, and intranets

24 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 24 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. The Virtual Company (continued)  Strategies  Share infrastructure & risk with alliance partners  Link complementary core competencies  Reduce concept-to-cash time through sharing

25 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 25 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. The Virtual Company (continued)  Strategies (continued)  Increase facilities and market coverage  Gain access to new markets and share market or customer loyalty  Migrate from selling products to selling solutions

26 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 26 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Build Learning Organizations  Create, disseminate, and incorporate knowledge into products  Exploit two kinds of knowledge  Explicit documented knowledge  Tacit internal knowledge

27 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 27 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Build Learning Organizations (continued)  Knowledge Management

28 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 28 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Build Learning Organizations (continued)  Knowledge management systems  Help create, organize, and share business knowledge wherever and whenever needed within the organization

29 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 29 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Summary  Information technology has strategic value  Customer focused e-Business is key strategy  Re-engineer business processes radically  Improve quality from customer viewpoint  Agile companies capitalize on change  Virtual companies combine talents of others  Knowledge creation and incorporation are major competitive strategies

30 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 30 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Discussion Questions  You have been asked to develop e-business & e- commerce applications to gain competitive advantage. What reservations might you have about doing so?  How could a business use IT to increase switching costs and lock in its customers and suppliers?

31 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 31 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Discussion Questions (continued)  How could a business leverage its investment in IT to build strategic IT capabilities that serve as a barrier to entry by new entrants into its markets?  What strategic role can information technology play in business process reengineering and total quality management?

32 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 32 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Discussion Questions (continued)  How can Internet technologies help a business form strategic alliances with its customers, suppliers, and others?  How could a business use Internet technologies to form a virtual company or become an agile competitor?

33 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 33 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Discussion Questions (continued)  IT can’t really give a company a strategic advantage, because most competitive advantages don’t last more than a few years & soon become strategic necessities that just raise the stakes of the game. Discuss.  MIS author & consultant Peter Keen says: “We have learned that it is not technology that creates a competitive edge, but the management process that exploits technology.” What does he mean?

34 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 34 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 1 - Royal Bank Financial  Which of the strategic uses of information technology does RBFG use?  Is IT a strategic advantage or a strategic necessity for financial firms like RBFG?  What additional IT support do you suggest for RBFG’s customer service?

35 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 35 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 2 – WESCO International, Inc.  Business-to-Business  Describe WESCO’s original system.  Describe WESCO’s new system.

36 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 36 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 2 (continued)  What are the business benefits to WESCO and its suppliers of its new e-procurement system?  Is WESCO’s new system a strategic use of IT?

37 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 37 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 2 (continued)  Does WESCO’s new system give the company a competitive advantage?  What other strategic moves could WESCO implement to gain competitive advantage?

38 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 38 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 3 – Staples, Inc.  What is the strategic business value to Staples and their large business clients of the new web- based procurement system?  What is the strategic business value to Staples and the value proposition to their customers of their new bricks-and-clicks capabilities?

39 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 39 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 3 (continued)  Is an integrated bricks-and-clicks strategy the Internet strategy that most businesses, large and small, should adopt?  What competitive strategies is Staples pursuing?

40 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 40 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 3 (continued)  What other e-business or e-commerce strategy would you recommend to Staples to help them gain a competitive advantage in their industry?

41 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 41 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case – Ford, Dow Chemical, IBM, et al.  What is Six Sigma?  What do critics of Six Sigma see as its shortcomings?

42 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 42 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case (continued)  Is Six Sigma “an enterprise-wide business strategy?”  What role does information technology play in Six Sigma business initiatives?

43 McGraw-Hill Ryerson Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 43 Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case (continued)  What are the benefits and limitations of Six Sigma as a business strategy?  Can Six Sigma make up for poor management and faulty vision?