Competing with Information Technology Chapter 2 Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

2-2 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 can help a business gain competitive advantages Give examples of how business process reengineering frequently involves the strategic use of IT

2-3 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

2-4 Case 1: Reinventing IT as a Strategic Business Partner Apart from providing reliable and excellent IT services, IT should provide innovative solutions to business challenges IT is no longer about supporting or automating a business –It’s about innovating, improving, and reinventing it IT is now a ground-floor business partner, rather than an after-the-fact business tool

2-5 Case Study Questions What business and political challenges are likely to occur as a result of the transformation of IT from a support activity to a partner role? What implications does this shift in the strategic outlook of IT have for traditional IT workers and the educational institutions that train them? –How does this change the emphasis on what knowledge and skills the IT person of the future should have?

2-6 Case Study Questions Do you agree with the idea that technology is embedded in just about everything a company does? –Provide examples, other than those in the case, of recent product introductions that could not have been possible without heavy reliance on IT

2-7 Strategic IT Technology is no longer an afterthought in business strategy, but the cause and driver IT can change the way businesses compete A strategic information system is any information system (e.g. MIS) that uses IT to help an organization… –Gain a competitive advantage –Reduce a competitive disadvantage –Or meet other strategic enterprise objectives

2-8 Competitive Forces and Strategies Michael Porter’s classic model for competition:

2-9 Rivalry of competitors Competition is a positive, natural and often healthy characteristic in business. Encourages to gain competitive advantage Requires significant resources

2-10 Threat of New Entrants Work to create significant barriers to the entry of new competition Significant organizational resources Difficult to manage (internet :quick, less cost)

2-11 Threat of Substitutes More apparent during periods of inflation E.g. ( stakes vs. burgers) Most products or services have substitutes

2-12 Bargaining Power Customers can reduce prices or not buy Suppliers can increase the prices or not sell

2-13 Five Competitive Strategies Strategies Cost Leadership Alliance Growth Innovation Differentiation

2-14 Five Competitive Strategies Cost Leadership Strategy: low cost production or find ways to reduce suppliers costs, or increase the costs of competitors. Differentiation Strategy: differentiate the company’s products or reduce the differentiation of competitors. E.g. (focus) Innovation strategy: new ways of doing business. Developing unique products and services or entering unique markets. Also making radical changes e.g. superbasket

2-15 Five Competitive Strategies Growth Strategies: significant expand in the capacity to produce, expanding into global markets, diversify into new products or services or related ones. Alliance Strategies: establishing new business linkages and alliances. Including mergers, acquisitions, joint ventures.

2-16 Using Competitive Strategies These strategies are not mutually exclusive –Organizations use one, some, or all –A given activity could fall into one or more categories (e.g. track shipment via computer and phone) Not everything innovative serves to differentiate one organization from another –Likewise, not everything that differentiates organizations is innovative

2-17 Ways to Implement Basic Strategies

2-18 Other Competitive Strategies Strategy Lock in customers and suppliers Raise barriers to entry Create switching costs Build strategic IT capabilities Leverage investment in IT

2-19 Other Competitive Strategies Lock in Customers and Suppliers –Prevent them from switching to competitors. Build loyalty. Create Switching Costs –Make customers and suppliers dependent on the use of innovative IS Raise Barriers to Entry –Discourage or delay other companies from entering the market –Increase the technology or investment needed to enter

2-20 Other Competitive Strategies Build Strategic IT Capabilities –Take advantage of strategic opportunities when they arise –Improve efficiency of business practices Leverage Investment in IT –Develop products and service that would not be possible without a strong IT capability (e.g. intranet and extranet)

2-21 Customer-Focused Business Business value in customer focus Focus on customer value Keeps customers loyal Anticipates their future needs Quality, not price, has become the primary determinant of value Responds to customer concerns Provides top-quality customer service

2-22 Providing Customer Value Use CRM systems to focus on the customer Track individual preferences Keep up with market trends Supply products, services, and information anytime, anywhere Tailor customer services to the individual Companies that consistently offer the best value…

2-23 Strategic Uses of IT Companies that emphasize strategic business use of IT use it to gain competitive differentiation ProductsServicesCapabilities

2-24 Reengineering Business Processes Called BRP or Reengineering –Fundamental rethinking and radical redesign of business processes –Seeks dramatic improvements in cost, quality, speed, and service Potential payback is high, but so is risk of disruption and failure Organizational redesign approaches are an important enabler of reengineering –Includes use of IT, process teams, case managers

2-25 BPR vs. Business Improvement

2-26

2-27 Old purchase process 1. Enter the super market 2. Push the cart between specialized lanes or aisles 3. Pick the desired products & quantities 4. Go to cashier to pay 5. Put the bags into the car

2-28 New purchase process 1. Enter (the-super basket) web site 2. Register your information & home location 3. Click the desired list (category) 4. Choose the desired product and specify the quantity 5. Preview your purchases and confirm 6. Choose the appropriate time for delivery 7. Pay upon delivery

2-29 The Role of Information Technology IT plays a major role in reengineering most business processes –Can substantially increase process efficiency –Improves communication –Facilitates collaboration

2-30 Reengineering Order Management

2-31 Reengineering Order Management Supplier-managed inventory systems using the Internet and extranets Cross-functional ERP software to integrate manufacturing, distribution, finance, HR processes CRM systems using intranets and the Internet Customer-accessible e-commerce websites for order entry, status checking, payment, and service Customer, product, and order status databases accessed via intranets and extranets IT that supports the reengineering process…