Post on 10-Apr-2018
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McGraw-Hill/Irwin 2008,The McGraw-Hill Companies, All Rights Reserved
Competing with
Information Technology
Chapter 2
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Learning Objectives
1. Identify basic competitive strategies and explainhow a business can use IT to confront thecompetitive forces it faces.
2. Identify several strategic uses of IT and giveexamples of how they give competitiveadvantages to a business.
3. Give examples of how business processreengineering frequently involves the strategicuse of IT.
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Learning Objectives
4. Identify the business value of using Internettechnologies to become an agile competitor or toform a virtual company.
5. Explain how knowledge management systemscan help a business gain strategic advantages.
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Strategic IT
Technology is no longer an afterthought in formingbusiness strategy, but the actual cause and driver.
IT can change the way businesses compete.A strategic information system is
Any kind of information system
That uses IT to help an organization
Gain a competitive advantage Reduce a competitive disadvantage
Or meet other strategic enterprise objectives
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Competitive Forces and Strategies
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Competitive Forces
If a business wants to succeed must developstrategies to counter these forces: Rivalry of competitors within its industry
Threat of new entrants into an industry and its markets
Threat posed by substitute products which might capturemarket share
Bargaining power of customers
Bargaining power of suppliers
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Five Competitive Strategies
Cost Leadership Become low-cost producers
Help suppliers or customers reduce costs
Increase cost to competitors
Example, Priceline uses online seller bidding so buyer setsthe price
Differentiation Strategy Develop ways to differentiate a firms products from its
competitors
Can focus on particular segment or niche of market
Example, Moen uses online customer design
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Competitive Strategies (cont.)
Innovation Strategy Find new ways of doing business
Unique products or services
Or unique markets
Radical changes to business processes to alter the fundamentalstructure of an industry
Example, Amazon uses online full-service customer systems
Growth Strategy Expand companys capacity to produce
Expand into global markets
Diversify into new products or services
Example, Wal-Mart uses merchandise ordering by global satellitetracking
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Competitive strategies (cont.)
Alliance Strategy Establish linkages and alliances with
Customers, suppliers, competitors, consultants and other
companies
Includes mergers, acquisitions, joint ventures, virtualcompanies
Example, Wal-Mart uses automatic inventory
replenishment by supplier
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Using these strategies
The strategies are not mutually exclusive
Organizations use one, some or all
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Using IT for these strategies
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Other competitive strategies
Lock in customers and suppliersAnd lock out competitors
Deter them from switching to competitors
Build in switching costs
Make customers and suppliers dependent on the use ofinnovative IS
Barriers to entry Discourage or delay other companies from entering market
Increase the technology or investment needed to enter
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Other competitive strategies (cont.)
Include IT components in products Makes substituting competing products more difficult
Leverage investment in IT Develop new products or services not possible without IT
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Customer-focused business
What is the business value in being customer-focused? Keep customers loyal
Anticipate their future needs
Respond to customer concerns
Provide top-quality customer service
Focus on customer value Quality not price has become primary determinant of value
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How can we provide customer value?
Track individual preferences
Keep up with market trends
Supply products, services and information anytime,anywhere
Provide customer services tailored to individualneeds
Use Customer Relationship Management (CRM)systems to focus on customer
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Building customer value using the Internet
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Value Chain
View the firm as a chain of basic activities that addvalue to its products and services
Activities are either Primary processes directly related to manufacturing ordelivering products
Support processes help support the day-to-day running ofthe firm and indirectly contribute to products or services
Use the value chain to highlight where competitivestrategies can best be applied to add the mostvalue
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Using IS in the value chain
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Business Process Reengineering
Called BPR or Reengineering Fundamental rethinking and radical redesign
Of business processes
To achieve improvements in cost, quality, speed andservice
Potential payback high
Risk of failure is also high
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How BPR differs from business
improvement
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A cross-functional process
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Reengineering order management
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Agility
Agility is the ability of a company to prosper In a rapidly changing, continually fragmenting
Global market for high-quality, high-performance,customer-configured products and services
An agile company can make a profit with Broad product ranges
Short model lifetimes
Mass customization
Individual products in large volumes
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Four strategies for agility
An agile company:
Provides products as solutions to their customersindividual problems
Cooperates with customers, suppliers andcompetitors to bring products to market as quicklyand cost-effectively as possible
Organizes so that it thrives on change anduncertainty
Leverages the impact of its people and theknowledge they possess
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How IT helps a company be agile
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Virtual Company
A virtual company uses IT to link People,
Organizations,
Assets,
And ideas
Creates interenterprise information systems
to link customers, suppliers, subcontractors andcompetitors
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A virtual company
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Strategies of virtual companies
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Knowledge Creation
Knowledge-creating company or learningorganization Consistently creates new business knowledge
Disseminates it throughout the company
And builds in the new knowledge into its products andservices
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Two kinds of knowledge
Explicit knowledge Data, documents and things written down or stored on
computers
Tacit knowledge The how-to knowledge which reside in workers minds
A knowledge-creating company makes such tacit
knowledge available to others
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Knowledge issues
What is the problem with organizational knowledgebeing tacit?
Why are incentives to share this knowledgeneeded?
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Knowledge management techniques
Source: Adapted from Marc Rosenberg, e-Learning: Strategies forDelivering Knowledge in the DigitalAge(New York: McGraw-Hill, 2001), p.70.
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Knowledge management systems (KMS)
KMS manage organizational learning and businessknow-how
Goal: Help knowledge workers to create, organize, and make
available knowledge
Whenever and wherever its needed in an organization
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Case 1: FedEx Corporation: Investing in
IT for Competitive Advantage FedEx and many other companies know that proper
management and use of information technology can givethem a competitive advantage.
Their IT has to connect 39 hubs around the world with 677airplanes, over 90,000 vehicles, and more than 200,000employees delivering 6 million packages a day in 220countries.
FedEx spends more than $1 billion on IT every year.
FedEx focuses more on revenue generating, customersatisfying technology than operational technology.
FedEx is more of a innovator than a follower in ITapplications.
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Case Study Questions
1. How do the IT investment strategies and focus ofFedEx and its main competitor UPS differ? Whichcompany has the better strategy? Why?
2. Is FedExs move, communicate, and shoot ITstrategy a good one for its competitive battle withUPS? Why or why not? Is it a good model ofcompetitive IT strategy for other types ofcompanies? Defend your position.
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Case Study Questions
3. FedEx CIO Carter says his company is in thebusiness of engineering time. Is this a goodbusiness vision for FedEx? Why or why not? How
vital is IT to this definition of FedExs business?Use examples from the case to illustrate youranswer.
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Real World Internet Activity
1. Use the Internet to compare the current status ofFedEx, UPS, and DHL in terms of revenue,profitability, parcels delivered, and other
measures of business success. Who is winningthe competitive battle? Why?
Check out what business commentators and financialanalysts are reporting on the Web to help you answer.
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Real World Group Activity
2. Use the Internet to discover more about howFedEx is involved in fighting the war on terror,beyond what is reported in this case.
For example, FedEx has made some controversialdisclosures of customer information to intelligenceagencies.
Discuss FedExs corporate responsibility to assist in the
war on terror while protecting the privacy of itscustomers, as well as any other issues uncovered inyour research.
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Case 2: GE Energy and GE Healthcare:Using IT to Create Strategic Customer
Relationships
Networking and data storage & analysistechnologies enable companies like GE to gain
a competitive advantage by providing uniqueproducts and services to their customers.
This strategic investment in IT has a dramaticeffect on the profitability of GEs services.
The strategic business partnership results in alonger-term relationship than traditionalmethods.
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Case Study Questions
1. What are the business benefits of usinginformation technology to build strategic customerrelationships for GE Energy and GE Healthcare?
What are the business benefits for theircustomers?
2. What strategic uses of information technologydiscussed in this chapter and summarized inFigures 2.3 and 2.5 do you see implemented inthis case? Explain the reasons for your choices.
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Case Study Questions
3. How could other companies benefit from theuse of IT to build strategic customerrelationships? Provide or propose several
examples of such uses. Explain how eachbenefits the business and its customers.
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Real World Internet Activity
1. Use the Internet to discover if GE Energy and GEHealthcare are expanding or strengthening their uses of ITto build strategic customer relationships. What benefits are
they gaining for themselves and claiming for theircustomers?
2. Use the Internet to discover other companies whoseproducts are networked, monitored, diagnosed, andmanaged at customers sites like the GE companies in this
case. Alternatively, choose other companies you canresearch on the Internet and propose several ways theycould implement and benefit from similar uses ofinformation technology.
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Real World Group Activity
3. What business control and security concernsmight a business customer have with the extentof its dependency on GE for the use and
maintenance of assets that are vital to theoperation of the business?
Discuss the rationale for these concerns and whatmeasures both the business and GE could take to
reduce any security threats and improve a customerssecure control of the business assets it obtains from GE.
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Case 3: GE, Dell, Intel, GM, andOthers: Debating the Competitive
advantage of ITDoes IT matter?
No:
Nicholas Carr argues that IT is infrastructure like electricity Too commonplace to get competitive advantage
Yes: IT is not just networks and computers
The important part is the software and information and howIT is used
For Wal-Mart, GE, Dell, and many other companies, IT is ahuge advantage and will continue to be.
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Case Study Questions
1. Do you agree with the argument made by Nicholas Carr tosupport his position that IT no longer gives companies acompetitive advantage? Why or why not?
2. Do you agree with the argument made by the businessleaders in this case in support of the competitive advantagethat IT can provide to a business? Why or why not?
3. What are several ways that IT could provide a competitiveadvantage to a business? Use some of the companies
mentioned in this case as examples. Visit their Web sites togather more information to help you answer.
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Real World Internet Activity
1. Nicholas Carrs article created a storm of debatethat is still raging. Using the Internet, see if youcan find Carrs original article. Also, try to find
some more opinions for and against Carrsarguments beyond those provided in the case.
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Real World Group Activity
2. The core of Carrs arguments has somesignificant implications for businesses. Discussyour opinion of Carrs arguments. What are some
of the implications of the argument that come tomind? How might they serve to change the waywe use computers to support corporate strategy?