Competing withInformation Technology

Chapter 2

Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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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

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Learning Objectives

Identify the business value of using Internet technologies to become an agile competitoror to form a virtual company

Explain how knowledge management systems can help a business gain strategic advantages

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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

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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?

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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

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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 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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Five Competitive Strategies

Strategies

Cost Leadership

Alliance

Growth

Innovation

Differentiation

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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

Not everything innovative serves to differentiate one organization from another– Likewise, not everything that differentiates

organizations is innovative

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Ways to Implement Basic Strategies

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Other Competitive Strategies

Strategy

Lock in customers and suppliers

Raise barriers to entry

Create switching costs

Build strategic IT capabilities

Leverage investment in IT

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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

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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…

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Building Customer Value via the Internet

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The Value Chain and Strategic IS

View the firm as a chain of basic activities that add value to its products and services– Primary processes directly relate to

manufacturing or delivering products– Support processes support the day-to-day

running of the firm and indirectly contribute to products or services

Use the value chain to highlight where competitive strategies will add the most value

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Using IS in the Value Chain

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Strategic Uses of IT

Companies that emphasize strategic business useof IT use it to gain competitive differentiation

Products Services Capabilities

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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

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BPR vs. Business Improvement

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The Role of Information Technology

IT plays a major role in reengineering most business processes– Can substantially increase process efficiency– Improves communication – Facilitates collaboration

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Reengineering Order Management

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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…

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Becoming an Agile Company

Old Marketplace New Marketplace

Standardized mass-market products and

services

Long-lived

Information poor

Exchanged in one-time transactions

Global competition

Niche products

Individualized

Short-lived

Information rich

Exchanged on an ongoing basis

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Becoming an Agile Company

Agility is the ability to prosper– In rapidly changing, continually fragmenting global

markets

– By selling high-quality, high-performance, customer-configured products and services

– By using Internet technologies

An agile company profits in spite of– Broad product ranges

– Short model lifetimes

– Individualized products

– Arbitrary lot sizes

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Strategies for Agility

Presents products as solutions to customers’ problems

Brings products to market quickly and cost-effectively

Cooperates with customers, suppliers, competitors

An agile company…An agile company…

Organizes to thrive on change and uncertainty

Leverages the impact of its peopleand the knowledge they possess

Provides incentives for employeeresponsibility, adaptability, innovation

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How IT Helps a Company be Agile

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Creating a Virtual Company

Organizations Assets

IdeasPeople

A virtual company uses IT to link…

Suppliers Subcontractors

CompetitorsCustomers

Inter-enterprise information systems link…

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A Virtual Company

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Virtual Company Strategies

Basic Business Strategies

Reduce concept-to-cash

time through sharing

Share information &

risk with alliance partners

Link complimentary

core competencies

Migrate from selling products

to selling solutions

Increase facilities and

market coverage

Gain access to new markets & share market or customer loyalty

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Building a Knowledge-Creating Company

A knowledge-creating companyor learning organization…

Consistently creates new business knowledge

Disseminates it throughout the company

Builds it into its products and services

Builds it into its products and services

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Two Kinds of Knowledge

Explicit Knowledge

Data, documents, and things writtendown or stored in computers

Tacit Knowledge

The “how to” knowledge in workers’ minds

Represents some of the most important information within an organization

A knowledge-creating company makes tacit knowledge available to others

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Knowledge Management

Successful knowledge management– Creates techniques,

technologies, systems, & rewards for getting employees to share what they know

– Makes better use of accumulated workplace and enterprise knowledge

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Knowledge Management Techniques

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Knowledge Management Systems (KMS)

Knowledge management systems…

Are a major strategic use of IT

Manage organizational learning and know-how

Help knowledge workers create, organize, and

make available important knowledge

Make this knowledge available wherever and whenever it is needed

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Knowledge Management Systems (KMS)

Best practices

Reference works

Processes

Forecasts

Procedures

Fixes

Formulas

Patents

Knowledge includes…

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Case 3: Wachovia and Others

Trading Securities at the Speed of Light

– Investment companies rely on faster hardware and processing times to get an advantage over competitors

– Securities trading is one of the few business activities where a one-second processing delay can cost a company big bucks

– Wall Street’s quest for speed is not only putting floor traders out of work, but opening up space for new alternative exchanges and e-communications networks that compete with established stock markets

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Case Study Questions

What competitive advantages can the companies in the case derive from faster technology and co-location of servers with exchanges?

– Which would you say are sustainable, and which ones are temporary or easily imitable?

Tony Bishop of Wachovia stated that “Competitive advantage comes from your math, your workflow, and your processes through your systems”

– Referring to what you have learned in this chapter, develop opposing viewpoints as to the role of IT, if any, in the development of competitive advantage

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Case Study Questions

What companies in industries other than securities trading could benefit from technologies that focus on reducing transaction processing times?