1. Strategic IT AIMS 2710 R. Nakatsu

2. The Temporary Competitive Advantage A company gains a competitive advantage by providing a product or service in a way that customers value more than the competition’s. First Mover Advantage refers to a company that is first to market with a new product or service. A company has a sustainable competitive advantage when its financial performance consistently outperforms its industry peers.

3. The Competitive Forces Model... 1. Buyer power 2. Supplier power 3. Substitute force 4. New competition force 5. Current competition force is a tool to formulate strategy by examining the environment in which your organization competes. Five forces create the competitive environment:

4. The Competitive Environment Threat of New Entrants Rivalry Among Existing Competitors Bargaining Power of Customers Bargaining Power of Suppliers Threat of Substitutes

5. Countering Competitive Forces Four strategies: Low-cost leadership Product differentiation Focus on market niche Linkage (strengthen customer loyalty, strengthen supplier intimacy)

6. Creating Linkage with Customers Linkage refers to creating a tighter relationship with customers. Some forms of linkage: Build in switching costs –Question: What are the sources of switching costs? Create “sticky” web sites –See Business Week article, “Creating Web Addicts For $10,000 a Month” Network Effects (also known as network externalities)

7. The Value Chain Method Primary activities Support activities views the organization as a set of activities through which a product or service is created and delivered to customers. Value chain processes fall into two categories:

8. The Value Chain Administrative Coordination & Support Services Human Resource Management Technology Development Procurement of Resources Inbound Logistics Inbound Logistics Operations Outbound Logistics Outbound Logistics Marketing and Sales Marketing and Sales Customer Service Customer Service Competitive Advantage

9. How does a firm use the Value Chain Method? 1.An analysis of a firm’s value chain can reveal operational weaknesses. Technology can be used to improve and address the weaknesses. 2.Firms can use the value chain as a framework to differentiate its business processes from its competitors. Question: How does a firm use the value chain method to create a sustainable competitive advantage?

10. Achieving Operational Excellence Using information technology to achieve the lowest operational costs, and develop the most efficient customer response. JIT (just in time): The principle of production and inventory control in which goods arrive when needed for production or use.  This approach minimizes inventory costs.

11. Case Study: Walmart Continuous Replenishment System:  Point of sale terminals record the bar code whenever a customer purchases a product.  A database stores inventory data  Suppliers can access Walmart’s sales and inventory data online using the Web.

12. RECAP Definition of competitive advantage Two frameworks for understanding organizational competitiveness –Five Forces Model –The Value Chain Enhancing competitiveness through operational excellence