3.1 © 2007 by Prentice Hall 3 Chapter Achieving Competitive Advantage with Information Systems

3.2 © 2007 by Prentice Hall Using Information Systems to Achieve Competitive Advantage There are four ways companies can create or keep the competitive advantage: 1.Barriers to entry that restrict supply create supply monopolies. 2.Demand control create and control the switching costs customers would experience if they moved to another supplier.create and control the switching costs customers would experience if they moved to another supplier. Types of Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.3 © 2007 by Prentice Hall Using Information Systems to Achieve Competitive Advantage 3.Economies of scale keep operating costs low while expanding sales by increasing the amount of product or service you provide with the same equipment.keep operating costs low while expanding sales by increasing the amount of product or service you provide with the same equipment. 4.Process efficiency improve business processes to make them more efficient and cheaper. Some companies use just one of these to maintain a competitive advantage but most companies will use a combination of them. Types of Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.4 © 2007 by Prentice Hall Porter’s competitive forces model contends that much of the success or failure of a business depends on its ability to respond to its external environment. Figure 3- 1 shows four external forces that every business must contend with at one time or another. Porter’s Competitive Forces Model Using Information Systems to Achieve Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.5 © 2007 by Prentice Hall Traditional competitorsTraditional competitors o always nipping at your heals with new products and services trying to steal your customers. New market entrantsNew market entrants oCan lure customers away with cheaper or better products and services. Porter’s Competitive Forces Model Using Information Systems to Achieve Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.6 © 2007 by Prentice Hall Substitute products and servicesSubstitute products and services oIf your price is too high or the quality of your products and services is too low. CustomersCustomers oIT empowers customers with new information resources that make it easier for them to jump to your competitors, new market entrants, or substitute products. Porter’s Competitive Forces Model Using Information Systems to Achieve Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.7 © 2007 by Prentice Hall SuppliersSuppliers onumber of suppliers used may determine how easy or difficult your business will have in controlling the supply chain. oToo few suppliers and you lose a lot of control. Porter’s Competitive Forces Model Using Information Systems to Achieve Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.8 © 2007 by Prentice Hall Figure 3-1 In Porter’s competitive forces model, the strategic position of the firm and its strategies are determined not only by competition with its traditional direct competitors but also by four forces in the industry’s environment: new market entrants, substitute products, customers, and suppliers. Porter’s Competitive Forces Model Using Information Systems to Achieve Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.9 © 2007 by Prentice Hall Information System Strategies for Dealing with Competitive Forces Many companies have found that effective and efficient information systems allow them to deal with external forces in one of four ways: 1.Low-cost leadership 2.Product differentiation 3.Focus on market niche 4.Strengthen customer and supplier intimacy Using Information Systems to Achieve Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.10 © 2007 by Prentice Hall Information System Strategies for Dealing with Competitive Forces 1.Low-cost leadership –IT can help lower operational costs and lower prices. –Makes it difficult for traditional competitors and new market entrants to match your prices. –strategy works best with commodities such as computers or with household products retailers such as Wal-Mart. –Efficient customer response systems provide a company and its suppliers with an integrated view of customers. Using Information Systems to Achieve Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.11 © 2007 by Prentice Hall Information System Strategies for Dealing with Competitive Forces 2.Product differentiation –IT helps to create products or services that are so different that they create barriers for the competition. –Dell Computer Corporation vs. its competitors success Using Information Systems to Achieve Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.12 © 2007 by Prentice Hall Information System Strategies for Dealing with Competitive Forces 3.Focus on market niche –In a fiercely competitive market, a firm can choose to focus on a very narrow segment of the market rather than a broad general audience. –Using data mining techniques a firm can gather very specific information about its customers and create a focused differentiation business strategy to market directly to those consumers. –Apple Computer uses focused differentiation to help sell its computers to a narrow target market of graphic designers and educators rather than the general population of computer users. Using Information Systems to Achieve Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.13 © 2007 by Prentice Hall Information System Strategies for Dealing with Competitive Forces 4.Strengthen customer and supplier intimacy –Supply chain management (SCM) systems increase supplier intimacy while customer relationship management systems increase customer intimacy. –Customer relationship management systems allow companies to learn details about customers that give them the competitive advantage over traditional competitors and new market entrants. Using Information Systems to Achieve Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.14 © 2007 by Prentice Hall The Internet’s Impact on Competitive Advantage Using Information Systems to Achieve Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.15 © 2007 by Prentice Hall Highlights specific activities in a business where competitive strategies can best be applied and where information systems are likely to have a strategic impact 1.Primary activities o the activities that go into getting the products made, from procuring raw materials to actual production plus activities that get the products to the factory and store shelves. The Business Value Chain Model Using Information Systems to Achieve Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.16 © 2007 by Prentice Hall 2.Support activities osupport the primary functions of production, shipping, and sales and marketing. oE.g., human resources, accounting, and finance, etc Benchmarking oprovides a way for businesses to determine how they stand up against their competitors within the same industry. Best practices The Business Value Chain Model Using Information Systems to Achieve Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.17 © 2007 by Prentice Hall Using Information Systems to Achieve Competitive Advantage Figure 3-2 This figure provides examples of systems for both primary and support activities of a firm and of its value partners that would add a margin of value to a firm’s products or services. The Value Chain Model Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.18 © 2007 by Prentice Hall More and more companies are incorporating the Internet in their business strategies through the use of value webs. A firm’s value chain is linked to the value chains of its suppliers, distributors, and customers A value web is a collection of independent firms that use information technology to coordinate their value chains to produce a product collectively Value webs are flexible and adapt to changes in supply and demand Extending the Value Chain: The Value Web Using Information Systems to Achieve Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.19 © 2007 by Prentice Hall Using Information Systems to Achieve Competitive Advantage Figure 3-3 The value web is a networked system that can synchronize the value chains of business partners within an industry to respond rapidly to changes in supply and demand. The Value Web Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.20 © 2007 by Prentice Hall Very seldom will you find a business that provides all of its own services, supplies, and processes throughout the entire chain. It isn’t practical or efficient to do so. Most businesses rely on partnerships with other companies to produce goods and services. The most successful companies will determine the best synergies, core competencies and network- based strategies to reduce costs, improve products and services, and increase profits. Synergies, Core Competencies, and Network-Based Strategies Using Information Systems to Achieve Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.21 © 2007 by Prentice Hall Synergies Information systems tie together disparate units so they act as a whole Enhancing core competencies Network-based strategies Network economics Virtual company Synergies, Core Competencies, and Network-Based Strategies Using Information Systems to Achieve Competitive Advantage Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.22 © 2007 by Prentice Hall Firms that sell products on a global scale reach a much larger market Firms that produce on a global scale achieve extraordinary savings in labor costs The Internet and globalization The world just keeps getting smaller and smaller. No company can afford to ignore foreign markets or the impact of foreign competition on the domestic business environment. Globalization Opportunities Competing on a Global Scale Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.23 © 2007 by Prentice Hall Global Business and System Strategies Competing on a Global Scale Scale economies and resource cost reduction Higher utilization rates, fixed capital costs, and lower cost per unit of production Speeding costs to market Transnational business organizations Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.24 © 2007 by Prentice Hall What Is Quality? Competing on Quality and Design For the producer: conformance to specifications and absence of variation from specs For the customer: physical quality, quality of service, psychological quality Total quality management (TCM) Six sigma Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.25 © 2007 by Prentice Hall Simplify the product and the production process Benchmarking Use customer demand to improve products and services Reduce cycle time Improve design quality and precision Improve production precision and tighten production tolerances How Information Systems Improve Quality Competing on Quality and Design Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.26 © 2007 by Prentice Hall Tasks are streamlined to eliminate repetitive and redundant work Mortgage banks have been great beneficiaries of BPR, achieving remarkable leaps forward in efficiency Workflow management facilitates streamlining tasks Business Process Reengineering Competing on Business Processes Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems

3.27 © 2007 by Prentice Hall Understanding what business processes need improvement Understanding how the improvements will help the firm execute its strategy Understanding and measuring the performance of existing processes Managing change Steps in Effective Reengineering Competing on Business Processes Essentials of Business Information Systems Chapter 3 Achieving Competitive Advantage with Information Systems