1. Chapter 2: Strategic and Competitive Opportunities Using IT for Competitive Advantage Management Information Systems for the Information Age

2. Chapter 2: Strategic & Competitive OpportunitiesSlide 2 Chapter Summary (1/2) It’s all about… Competitive Advantage Providing a product or service in such a way that customers value it more than what is offered by the competition.

3. Chapter 2: Strategic & Competitive OpportunitiesSlide 3 Chapter Summary (2/2) In perspective, however… It’s not the IT; it’s the People It is not the information technology that gives a company the competitive advantage… …it is the way people use the technology and work with information that makes the difference.

4. Chapter 2: Strategic & Competitive OpportunitiesSlide 4 Sustainable Competitive Advantage 1.SCA must be valued by the customer and impact a criterion used in the purchase decision 2.SCA must be unsubstitutable 3.Company must have resources and ability to deliver the SCA 4.SCA should not be easily duplicated (reverse-engineered) Competitive Advantage The ability to offer a superior and distinctive product or service… Sustainable Advantage …and doing so under competitive pressure, again and again, over time

5. Chapter 2: Strategic & Competitive OpportunitiesSlide 5 Sources of Competitive Advantage Shift in Operational Position MacDonald’s versus Eclectic Med Economies of Scale Reduce Costs and Increase Demand Brand Equity, Loyalty, and Quality Customer Relationships Spatial Preemption (Location) Competitive and Customer Intelligence Information and IT!!!

6. Chapter 2: Strategic & Competitive OpportunitiesSlide 6 SCA Example 1: Federal Express Problem/Opportunity: Tracking a package required customer to speak to a customer service rep (CSR) Person-to-person contact requires staff, time, training, offices, and ultimately money Goal: Increase productivity and decrease staff by enabling customers to process their own transactions Solution: Adopted Internet portal solution, which allowed customers to download documentation forms, pay invoices, check account balances, and schedule on-site pickups Adopted Internet Web site solution, accessible by any customer with a FedEx tracking number

7. Chapter 2: Strategic & Competitive OpportunitiesSlide 7 SCA 1 Continued: Federal Express CUSTOMER GAINS: - Easier and less painful - Less time-consuming - Better information COMPANY GAINS: - Lower staffing costs - Satisfied customers

8. Chapter 2: Strategic & Competitive OpportunitiesSlide 8 SCA Example 2: Dell Computer Problem/Opportunity: Too much inventory (and, hence money) tied up in distribution chain with BUY-HOLD-SELL retailing model Goal: Disintermediation Move sales model to a SELL-SOURCE-SHIP set of business processes Solution: Implement a Web-based customer-integrated order system (CIS) Implement an Internet- based Just-In-Time (JIT) inventory control & management system Ensure that “partners” are linked electronically and require them to use Electronic Data Interchange (EDI)

9. Chapter 2: Strategic & Competitive OpportunitiesSlide 9 SCA 2 Continued: Dell Computer CUSTOMER GAINS: - Easier and less painful - Less time-consuming - Customization - Online support COMPANY GAINS: - Lower staffing costs - Lower inventory costs - Cashflow timeliness - Satisfied customers

10. Chapter 2: Strategic & Competitive OpportunitiesSlide 10 Information Technology as an Enabler 1.Competitive Disadvantage Firm that has not yet adopted a technology- enabled process is often at a disadvantage 2.Competitive Advantage Early adoption is costly (development), but results in a temporary differentiator advantage 3.Competitive Parity Everyone has it; the technology-enabled process is a necessity (cost of doing business) 4.Sustainable Competitive Advantage Ability to learn, evolve, and innovate

11. Chapter 2: Strategic & Competitive OpportunitiesSlide 11 Adoption, Time, & Competitive Advantage

12. Chapter 2: Strategic & Competitive OpportunitiesSlide 12 Information Technology in Context “Over time, the benefits of a given technology- enabled process will fade as competitors develop, or adopt, similar process enablers. Thus, firms that wish to use technology as a competitive weapon must be prepared to continuously invest, both time and resources, in order to maintain a leadership position.” George Spafford KPMG Global June 11, 2003

13. Chapter 2: Strategic & Competitive OpportunitiesSlide 13 Harvard Professor, Michael Porter Competitive Forces Model (or Five Forces) Evaluates the relative attractiveness of an industry for entry or expansion Three Generic Strategies Cost Leadership Differentiation Focused Strategy (Narrower Target) Value Chain Model Primary and supporting business processes that add value to a product or service

14. Slide 14 Porter’s Competitive Forces Model If buyer power is high (many options fulfill needs/wants), industry is less attractive. If supplier power is high (e.g., oligopoly), industry is less attractive. Goal is to reduce supplier power. The threat is high when there are many alternatives available and low when there are few alternatives. Fewer substitutes, however, increases supplier power. The threat is high when it is easy for firms to enter the industry (e.g., low capital outlay). If rivalry is high (e.g., price wars), industry is less attractive.

15. Slide 15 Determinants of Degree Determinants of Supplier Power Switching costs of industry firms Presence of substitute inputs Impact of inputs on cost or differentiation Information available to buyers Technology-enabled processes (EDI) Barriers to Entry Economies of scale (capital required) Switching costs (relationships) Proprietary products/services Access to distribution Technology-enabled processes (Sabre) Determinants of Buyer Power Bargaining leverage (volume) Switching costs Price sensitivity Availability of substitutes Threat of backward integration Technology-enabled processes (CIS) Threat of Substitutes Relative price/performance Switching costs (relationships) Buyer propensity to switch/substitute Technology-enabled processes (TaxWiz) Degree of Rivalry Industry growth and life cycle Exit barriers (diversity of rivals) Brand identity & corp. stakes Technology-enabled cost efficiencies

16. Slide 16 Competitive Strategies Reducing the Power of Suppliers - Locate alternative sources of supply - Partner with or “take over” supplier - Supply and value chain management - Increasing integration and dependency - B2B technology marketplace Reducing Threat of New Entrants Blocking strategies: - performance guarantees - technology-enabled processes - controlling access and locations - high switching costs - satisfied customers (WOM) Reducing the Power of Buyers Increase brand loyalty Increase incentives and value-added Move purchase decision from price Increase switching costs - stress customer relationships - stress customization of service - stress experiential risks - stress social visibility Reducing the Threat of Rivalry Retaliation strategies: - focus on long-term contracts/relationships - fight aggressively using marketing mix - develop a reputation for being aggressive Reducing the Threat of Substitutes Adaptation strategies: - match new service offers/value-addedness - expand service package and differentiate - ensure sustainable competitive advantages

17. Chapter 2: Strategic & Competitive OpportunitiesSlide 17 Strategies in the Life Cycle

18. Chapter 2: Strategic & Competitive OpportunitiesSlide 18 Airlines and Competitive Forces Frequent flyer programs provide an example of how IT can alter Porter’s five forces: They reduced buyer power by making it less likely a traveler would choose another airline. They reduced the threat of substitute products or services by increasing switching costs. They erected entry barriers by making a frequent flyer program a practical necessity for any airline to compete effectively.

19. Chapter 2: Strategic & Competitive OpportunitiesSlide 19 Porter’s Value Chain Model Views the organization as a chain of business processes, each of which adds value to the product or service Gather information on how the customer perceives value is added in order to identify the key components Determine how to implement IT solutions to support and enhance the key components or business processes

20. Chapter 2: Strategic & Competitive OpportunitiesSlide 20 Components of the Value Chain Identify key components from customer’s perspective and then determine IT solutions to better support or enhance those component processes.

21. Chapter 2: Strategic & Competitive OpportunitiesSlide 21 New E-Economy New business models are still being created Many e-business successes and failures over the past several years INTERNET The primary difference between the Old and New economies is the INTERNET: The Internet is Global The Internet is Affordable The Internet is Accessible

22. Chapter 2: Strategic & Competitive OpportunitiesSlide 22 E-Commerce Strategies Mass Customization Customer customizes purchase to meet needs Mass Personalization Vendor customizes experience to serve customer Disintermediation By-passing distributors, wholesalers, & retailers Global Reach Easier to live well as a small fish in a big pond

23. Chapter 2: Strategic & Competitive OpportunitiesSlide 23 Other Strategic Areas for IT In supply chain management through just- in-time (JIT) inventory management In the customer interface via e-commerce In logistics through GPS/GIS In client management through groupware In marketing through data mining In internal management through intranets In financial position/cash flow through EDI

24. Chapter 2: Strategic & Competitive OpportunitiesSlide 24 Summary When using IT to solve a business problem, keep in mind: Be efficient and effective Competition is everywhere Push the state-of-the-art technology Competitive advantage through IT can be significant, but may also be costly and only temporary