1. 1 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Chapter 2 Competing with Information Technology

2. 2 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 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?

3. 3 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. (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.

4. 4 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Section I Fundamentals of Strategic Advantage

5. 5 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. 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

6. 6 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Competitive Strategies & the Role of IT  Cost Leadership (low cost producer)  Reduce inventory (JIT)  Reduce manpower costs per sale (see Real World Case 1)  Help suppliers or customers reduce costs  Increase costs of competitors  Reduce manufacturing costs (process control)

7. 7 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Competitive Strategies & the Role of IT (continued)  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.

8. 8 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Competitive Strategies & the Role of IT (continued)  Innovation  New ways of doing business  Unique products or services  New ways to better serve customers  Reduce time to market  New distribution models

9. 9 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Competitive Strategies & the Role of IT (continued)  Growth  Expand production capacity  Expand into global markets  Diversify  Integrate into related products and services.

10. 10 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Competitive Strategies & the Role of IT (continued)  Alliance  Broaden your base of support  New linkages  Mergers, acquisitions, joint ventures, “virtual companies”  Marketing, manufacturing, or distribution agreements.

11. 11 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Competitive Strategies & the Role of IT (continued)  Other Competitive Strategies  Locking in customers or suppliers  Build value into your relationship  Creating switching costs  Extranets  Proprietary software applications

12. 12 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Competitive Strategies & the Role of IT (continued)  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

13. 13 McGraw-Hill/Irwin 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

14. 14 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Value Chain (continued)

15. 15 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Section II Using Information Technology for Strategic Advantage

16. 16 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Strategic Uses Of Information Technology  Major competitive differentiator  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

17. 17 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Strategic Uses of IT (continued)  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

18. 18 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Strategic Uses of IT (continued)  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

19. 19 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Strategic Uses of IT (continued)  Becoming 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

20. 20 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Strategic Uses of IT (continued)  The virtual company  Uses IT to link people, assets, and ideas  Forms virtual workgroups and alliances with business partners  Interorganizational information systems

21. 21 McGraw-Hill/Irwin 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

22. 22 McGraw-Hill/Irwin 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

23. 23 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Learning Organizations  Exploit two kinds of knowledge  Explicit  Tacit

24. 24 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Learning Organizations (continued)  Knowledge Management

25. 25 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Learning Organizations (continued)  Knowledge management systems  Help create, organize, and share business knowledge wherever and whenever needed within the organization

26. 26 McGraw-Hill/Irwin 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?

27. 27 McGraw-Hill/Irwin 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?

28. 28 McGraw-Hill/Irwin 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?

29. 29 McGraw-Hill/Irwin 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?

30. 30 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 1 – WESCO International, Inc.  Business-to-Business  Describe WESCO’s original system.  Describe WESCO’s new system.

31. 31 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 1 (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?

32. 32 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 1 (continued)  Does WESCO’s new system give the company a competitive advantage?  What other strategic moves could WESCO implement to gain competitive advantage?

33. 33 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 2 – 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 clicks and bricks capabilities?

34. 34 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 2 (continued)  Is an integrated clicks and bricks strategy the Internet strategy that most businesses, large and small, should adopt?  What competitive strategies is Staples pursuing?

35. 35 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 2 (continued)  What other e-business or e-commerce strategy would you recommend to Staples to help them gain a competitive advantage in their industry?

36. 36 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 3 – Enron Corp.  What mistakes did Enron make in the use or management of IT?  Did those mistakes play a part in the failure of Enron?

37. 37 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 3 (continued)  “Is it time to go back to the days when IT supported the business rather than became the business?” Explain your position.  What are the major lessons for the future use of IT in business that you gained from this case?

38. 38 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 3 (continued)  How would you apply one of the lessons from this case in your present job or in your future business career?

39. 39 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 4 – Delta Technology & FirstHealth Group  What are Delta Technology’s new requirements for IT investments?  What is the business value of Delta’s new requirements?

40. 40 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 4 (continued)  Explain FirstHealth’s “return on opportunity” guidelines.  Is FirstHealth’s “return on opportunity” guideline for IT investments a good way to evaluate investments in IT?

41. 41 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 4 (continued)  What should be the role of ROI in IT decision- making?  Are the IT investment guidelines of Delta and FirstHealth applicable to other companies, including small businesses?

42. 42 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 5 – Ford, Dow Chemical, IBM, et al.  What is Six Sigma?  What do critics of Six Sigma see as its shortcomings?

43. 43 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 5 (continued)  Is Six Sigma “an enterprise-wide business strategy?”  What role does information technology play in Six Sigma business initiatives?

44. 44 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 5 (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?