Competing withInformation Technology

Chapter2

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

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• Identify several basic competitive strategies and explain how they use information technologies to confront the competitive forces faced by a business

• Identify several strategic uses of Internet technologies and give examples of how they help a business to gain competitive advantages

• Give examples of how business process reengineering frequently involves the strategic use of IT

Learning Objectives

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

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

Learning Objectives

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• A strategic information system uses IT to help an organization…– Gain a competitive advantage

– Reduce a competitive disadvantage

– Meet other strategic enterprise objectives

• What is Competitive Advantage?

– Capability for advantage over competitive forces

– Leading the industry in some identifiable way

– Sustains profits above the industry average

– Hard to maintain over a long period of time

Competitive Strategy Concepts

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• Rivalry of Competitors– Positive, natural, healthy

• Threat of new entrants– Apple, TRS 80, Commodore, IBM, HP,

Compaq, Gateway, Dell, Acer

• Threat of substitutes– Salon shampoo vs Wal-Mart brand– VCR vs DVD vs BluRay

• Customer bargaining power– Buy from competitors or don’t buy

• Suppliers bargaining power– Your competitor pays in days not weeks

Porter’s Five Forces of Competition

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• Cost Leadership– Become low-cost producers

– Help suppliers or customers reduce costs

– Increase cost to competitors• Example: Priceline

• Differentiation Strategy– Set a firm’s products apart from competitors’

– Focus on a particular segment or niche market• Example: Dell

Five Competitive Strategies

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• Innovation Strategy– Unique products, services, or markets

– Radical changes to business processes• Example: Dell

• Growth Strategy– Expand company’s capacity to produce

– Expand into global markets

– Diversify into new products or services• Example: Wal-Mart

Competitive Strategies (continued)

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• Alliance Strategy

– Includes mergers, acquisitions, joint ventures, virtual companies

– Customers, suppliers, competitors, consultants, and other companies

• Example: Wal-Mart uses automatic inventory replenishment by supplier

Competitive Strategies (continued)

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• Not mutually exclusive– One alone won’t usually fix the problem– Generally need a combination

• Innovation not necessarily differentiated– Kindle v. iPad – MP3 players vs iPod– Gateway made in US, relaxed office

• Differentiation not necessarily innovative– Shipping more efficient but not different– Telecom companies compete

Using Competitive Strategies

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Other Competitive Strategies

• Lock in Customers and Suppliers– Deter them from switching to competitors

• Create Switching Costs– Time, money, effort or inconvenience needed

to switch to a competitor

• Raise Barriers to Entry– Discourage or delay other companies from

entering the market– Increase the technology or investment

needed to enter

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Other Competitive Strategies

• Build a strong IT department• Use IT to:

– Take advantage of strategic opportunities– Improve efficiency of business practices– Develop products and services that would not

be possible without a strong IT capability

• Use IT to do more than automate a system, be creative

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• Called BPR or simply Reengineering– Radical– Seeks improvements

• High potential• High risk• Important enabler of reengineering

– IT– Process teams– Case managers

Business Process Reengineering

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• Presents products as solutions to problems– Can price as a solution not cost to produce

• Cooperates with customers, suppliers and competitors– Brings products to market as quickly and cost-

effectively as possible

• Thrives on change and uncertainty– Responds to changing customer expectations

• Leverages people and knowledge– Provides incentives for responsibility, adaptability,

and innovation

Strategies for Becoming an Agile Company

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• A virtual company uses IT to link…– People– Organizations– Assets– Ideas

• Inter-enterprise information systems link…– Customers– Suppliers– Subcontractors– Competitors

Creating a Virtual Company

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• A knowledge-creating company or learning organization…

– Consistently creates new business knowledge

– Disseminates it throughout the company

– Builds it into its products and services

Building a Knowledge-Creating Company