Competitve Advantage of IT - June 2013

8/22/2019 Competitve Advantage of IT - June 2013

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Chapter 1

Strategic IT

Strategic Use of Information Technology for

Competitive Advantage

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Chapter 1

IT Eras

IT has evolved through 4 eras since the 1960s

Era I (1960s-70s) focused on using IT to

increase efficiency

Era II (1980s) focused on using IT to increaseworker productivity through the use of PCs

Era III (1990s) used client-server technologies to

improve the competitive position of theorganization

Era IV (now) is about using IT to create value for

the corporation.2


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Chapter 1

Eras of information usage in organizations

Primary

Role of IT

Efficiency Effectiveness Strategic Value creation

Justify ITexpenditure

ROI Increasingproductivity

and decisionmaking

Competitive

position

Adding

Value

Target ofsystems

Organization Individualmanager/

Group

Business

processes

Customer,

supplier,

ecosystem

Informationmodel

Applicationspecific

Data-driven Business-Driven

Knowledge-driven

Dominanttechnology

Mainframe-based

Minicomputer-based

Client-Serverdistributionintelligence

Internetubiquitousintelligence

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1960s 1970s 1980s 2000


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INFORMATION RESOURCES AS

STRATEGIC TOOLS

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Time-Based Competitive

Advantage

The Internet is increasing the pace oftechnological change by refocusing competitiveefforts towards creating time-based competitiveadvantage.

Information resources are the key to creatingthose advantages.

For example, Dells direct strategy has been to

build and deliver computers in as little as 5 days. Thus, the speed at which an organization adapts

its business processes will be the true measureof its ability to maintain competitive advantage.

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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

Q. What is a Strategic Information System?

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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Using IT for Strategic Advantage

IT can be used

- to build a customer focused business

- to reengineer business processes- to improve quality

- to become an agile company

- to form a virtual company- To build a knowledge-creating company


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Chapter 1

Customer focused business

Develop a focus on the customer

Customer value

o

Best valueo Understand customer preferences

o Track market trends

o Supply products, services, & information anytime,

anywhere

o Tailored customer service


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Reengineering the processes

Business Process Reengineering (BPR)

Rethinking & redesign of business processes

Combines innovation and process improvement

There are risks involved.


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Chapter 1Filling out a

paper

loan application

A mortgage applicant

BEFORE REENGINEERING

Entering the

applicationinto its computer

system

Bank Specialists

Accessing

the applicationindividually

closing

approved

AFTER REENGINEERING

Entering the

Mortgagee

application into

Laptop computers

Loan originators

Checking the

Applicationtransaction

Software

Accessing

the application

electronicallytogether, as a team

Specialists

17 DAYS

2 DAYS

closing

approved


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Improving quality

Total Quality Management (TQM)

Quality from customers perspective

Meeting or exceeding customer expectations

Commitment to:

o Higher qualityo Quicker response

o Greater flexibility

o Lower cost

IT can help firms to achieve quality goals by helping themsimplify products or processes, make improvements basedon customer demands, reduce cycle time and increase thequality of design and production.


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Agile company

Old businesses: Low cost, low price, massproduction, economy of scale.

New businesses: Global competition, sophisticatedcustomers, customized production.

An agile company can offer customized production,product variety, bring products to market rapidly andcost effectively. Ex: Dell Computers is an agilecompetitor.

It heavily depends on IT. Ex: Flexible ManufacturingSystems (FMS) help companies become an agilecompetitor.

A business can use IT to become an agile company.


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Virtual company

IT makes the virtual corporation possible.

A virtual company is an organization that uses IT to linkpeople, assets, and ideas to create and distribute products andservices without being limited to physical locations or

traditional boundaries.


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Chapter 1

Turnstone

sells its products

through catalogs

Third-party

Company designs

and prints catalogs

Tele-marketing company takes

the orders (Denver, CO) and

transmits the order data to

computers at the warehouses

Excel Logistics located in Ohio

operates warehouses.

Excels computers handle all order

processing, shipment tracking, etc.

Send the orders

Subcontracted

Carriers ship

the products to

customers

Virtual company


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Five Competitive Strategies

Cost Leadership

Become low-cost producers of Products & Services while

enhancing quality

Help suppliers or customers reduce costs

Increase cost to competitors

o Q. Any Example:

o Wal-Mart and Dell

Differentiation Strategy Differentiate a firms products from its competitors

Focus on a particular segment or niche of market

o Q. Any Example:

o Google, Apple iPhone-


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Competitive Strategies

(continued)

Innovation Strategy

Unique products, services, or markets

Radical changes to business processes

o Give an Example:

oAmazons online, full-service customer systems

Growth Strategy

Expand companys capacity to produce

Expand into global markets Diversify into new products or services

o Give an Example:

o Wal-Marts merchandise ordering via global satellite

tracking-

C i i S i


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(continued)

Focus on Market Niche

Use information systems to enable a focused

strategy on a single market niche; specialize

Example: Hilton Hotels

Strengthen customer and supplier intimacy

Use information systems to develop strong ties

and loyalty with customers and suppliers;

increase switching costs

Example: Chrysler, Amazon

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C titi St t i


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(continued)

Alliance Strategy

Establish linkages and alliances with customers,

suppliers, competitors, consultants, and other

companies

Includes mergers, acquisitions, joint ventures,

virtual companies

o Give an Example:

o Wal-Mart uses automatic inventory replenishment by

supplier

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xamp es o us nesses e en ng


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Chapter 1

xamp es o us nesses e en ngthemselves against the five competitive

forces:

Via the Internet and other telecommunication networks, Fedexoffers self-tracking of packages, thereby reducing the chance ofnew companies entering the overnight delivery business.

Automobile manufacturers use computerized quality-control

systems to make steel producers (the suppliers) more consciousof quality and reduce their bargaining power.

J.C. Penny uses an information system which allows its malecustomers to select fabric, cut and size at J.C. Penny store andobtain a custom-made suit in a week, thus reducing thecustomers bargaining power.

Many computer companies provide their customers with freesoftware and other computer services, thus reducing thecustomers bargaining power.


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Dominos Pizzas Competitive

Strategy

1. Customer dials

a special number2. The calls are received at the

AT&T Store Locator Service Node.

3. Using an automotive number

identification system, the Store Locator finds

the address of the caller. The computer

then matches the callers address with the

nearest open Dominos Pizza restaurant.

4. Dials the restaurant.5. An employee at the restaurant picks up

the phone, talks with the customer, and arranges the delivery.

6. Delivery

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W t I l t B i


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Ways to Implement Basic

Strategies

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Customer-Focused Business

Q. 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 the primary

determinant of value

Also provide it consistently

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Providing Customer Value

Companies that consistently offer the best

value from the customers perspective

Track individual preferences

Keep up with market trends

Supply products, services, and information

anytime, anywhere

Tailor customer services to the individual

Use Customer Relationship Management (CRM)

systems to focus on the customer

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Competitive Strategy Examples


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Advantage vs. Necessity

Competitive Advantage developing products,

services, processes, or capabilities that give a

company a superior business position relative

to its competitors and other competitive forces

Competitive Necessity products, services,

processes, or capabilities that are necessarysimply to compete and do business in an

industry


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Strategic Information Systems

1. Strategic information system (SIS)

A system that significantly shapes or

supports an organizations strategy

A famous SIS: Dells sell-source-shipapproach to the PC retailing process

o Approach was enabled by IS applications

IT for Competitive Advantage:


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IT for Competitive Advantage:

Dell Computer Example

Traditional RetailModel: Buy-Hold-Sell Buy: PC Retailer buys

from maker/distributor

Hold: PCs sit inwarehouse, sit on storeshelves

Sell: Sell PC

Note: Some PCs aresold and some are not

Direct Sell Model:Sell-Source-Ship Sell: Customer buys a

PC online

Source: PCcomponents arepurchased (sourced)& assembled using

Alliance Partners Ship: PC is shipped

to customer

Note: No unsold PCs only sold PCs

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St t i I f ti S t


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Strategic Information Systems

(cont.)

2. Sustainability of Strategic

Information Systems

Is a SIS going to providecompetitive advantage

forever???

o Not likely Business

landscape changes over time

Need to reanalyze VC and

competitive forces

periodically

o Modify/enhance SIS,

develop new SIS, etc.28

Achieving a Competitive


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Advantage

Competitive advantage is achieved when a

company increases its profits significantly,

usually through increased market share

Many initiatives can be used to gain competitiveadvantage

Strategic moves often combine two or more

initiatives The essence of strategy is innovation

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Advantage (continued)

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A hi i C titi


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Advantage (continued)

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Initiative #1: Reduce Costs

Customers wants to pay as little as possible for

products or services

Reduce costs to lower price

Automation greatly reduces manufacturing

costs

Web can automate customer service activities

Companies that are first to adopt advancedsystems that reduces labor enjoy competitive

advantage until their rivals do likewise

Example: Priceline uses online seller bidding so thebuyer sets the price 32

Initiative #2: Raise Barriers


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to Market Entrants

Less competition is better for company

Gain competitive advantage by making it

difficult or impossible for others to produce the

same product or service To lower competition, raise barriers to entrants

Obtain legal protection of intellectual property

(copyrights and patents on inventions,techniques, and services)

Examples: Amazons one-click, Pricelines

reverse auction

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to Market Entrants (continued)

Build unmatchable information systems

Rivals must do likewise or license your

technology

Example: State Street Corp.s pension fundmanagement ISs

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Initiative #3: Establish High


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Initiative #3: Establish High

Switching Costs

Switching costs: expenses incurred when

customer stops buying from one company and

starts buying from another

Explicit: charge customer for switching (earlytermination of contract)

Implicit: indirect costs over a period of time, such

as implementation of new product, staff retraining

High switching costs lock in customers

Example: proprietary software, such as ERP

systems, that have custom modifications

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Products

or Services

Having a unique product or service gives

competitive advantage for a period of time

First mover: organization that is first to offer a

new product or service Usually results in superior brand name, better

technology, more experience, or critical mass

Critical mass: body of clients that is largeenough to attract other clients

Examples: eBay, Apples iPhone

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Products

or Services (continued)

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Products


Being a first mover is not a guarantee of long-

term success

Netscape

Infoseek

Must continue to improve and innovate to

maintain competitive advantage

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Products

or Services

Product differentiation: persuading

customers that your product is better than

competitors

Usually achieved through advertising andcustomer experience

Exemplified by brand name success

Promotes brand name

Example: Skype, YouTube

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Products


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Initiative #5: Differentiate


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Initiative #5: Differentiate

Products or Services (continued)

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Initiative #6: Enhance Products


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or Services

Enhance existing products or services to

increase value to consumer

Many products and services have been

enhanced by use of the Web Examples: Charles Schwab, Progressive Groups

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Initiative #7: Establish Alliances

Alliance: two companies combining services

Makes product more attractive

Reduces costs

Provides one-stop shopping

Affiliate program: linking to other companies

and rewarding the linker for click-throughs

Q. Any Example? On the next slide

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Initiative #7: Establish Alliances


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Initiative #7: Establish Alliances(continued)

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Initiative #8: Lock in Suppliers


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Initiative #8: Lock in Suppliers

or Buyers

Accomplished by achieving bargaining power

Bargaining power: leverage to influence

buyers and suppliers

Achieved by being major competitor or eliminating

competitors

Uses purchase volume as leverage over suppliers

Lock in buyers by making them fear highswitching costs

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Creating a Strategic Information


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Creating a Strategic Information

System

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Reengineering and


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Reengineering and

Organizational Change

To implement SIS, organizations must rethink the

way they operate

Reengineering: Eliminating and rebuilding

operations from the ground up

Often involves new machinery and elimination of

management layers

Frequently involves information technology Goal is to achieve huge efficiency improvements

New SIS requires revamping business processes

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as a Moving Target

Competitive advantage is often short-lived

Competitors soon imitate the leader,

diminishing the advantage

SIS quickly becomes a standard business

practice

Must continually modify and enhance

technology to sustain competitive advantage

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Chapter 1

JetBlue: A Success Story

JetBlue: airline company that entered a

formerly hurting market with great success

Ticketless travel

Automation with IT Reduced costs

Improved service

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(continued)

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Massive Automation

JetBlue developed Open Skies software to

automate ticket handling

Avoids travel agents and their fees

Uses reservation agents who work from homeusing VoIP

Encourages Internet flight booking by customers

Maintenance information system used to log

airplane parts and time cycles for replacement

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M i A t ti ( ti d)


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Massive Automation (continued)

Flight planning to maximize occupied seats is

automated

Operational data is updated flight by flight and

available to management at all times Training management system eliminates need

for paper records, allows tracking of employee

training

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A f T diti


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Away from Tradition

JetBlue used innovative technique for routing

airplanes

Does not use hub-and-spokes method, only point

to point Take most profitable route between cities

Keeping flight manuals on laptop computers

allows for paperless cockpits

Saves preflight time associated with calculating

weight of plane (annual savings of ~4800 hours)

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A f T diti ( ti d)


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Away from Tradition (continued)

Uses biometrics for authentication and

authorization

Implemented a paperless frequent flier

program

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E h d S i


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Enhanced Service

Technology helps JetBlue offer better service

Real-time in-flight television

On-schedule departures and arrivals

Fewest mishandled bags in the industry Rapid check-in times and fast baggage retrieval

Better security

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I i P f


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Impressive Performance

Most important metric in airline industry is cost

per available seat-mile (CASM)

Measures how much it costs to fly a passenger

one mile

JetBlue had lowest or second-lowest CASM for

its first three years of operations

Less than 7 cents (industry average is 11 cents)

JetBlue fills 78% of its seats, while competitors

fill only 71%

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L t M Ad t


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Late Mover Advantage

Late mover: enters the market later than other

competitors

Can be viewed as advantage

Implements latest available technologies Not burdened with legacy systems

JetBlue used 40% beta software

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F d th W b A F il St


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Ford on the Web: A Failure Story

Some strategic moves end up being colossal

failures

May fail because of lack of attention to details

Unable to predict customer or business partnerresponse

Fords great failed initiative was undertaken by

Jacque Nasser, CEO of Ford

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Th Id


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The Ideas

Nasser was eager to push Ford to the Web; his

ideas included:

Install devices in vehicles to enable drivers and

passengers to access Web Establish Web site to market parts to auto

manufacturers via auctions to encourage price

competition among parts suppliers

Push vehicle sales to Web and bypass dealersand their fees

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Hitti th W ll


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Hitting the Wall

Customers not very interested in Web access

in vehicles in 2000

Other car companies learned to use online part

auctioning State franchising laws did not allow car

companies to bypass dealers

Online sales initiative failed

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Th R t t


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The Retreat

Ford abandoned plan to sell directly to

consumers online

Web site used to select proper model only, but

consumers must still utilize a dealer Web site sold cars, but not enough to save

Nassers job

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The Bleeding Edge


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The Bleeding Edge

Ford case shows that being a first mover is

risky

Pioneers sometimes get burned even with

careful planning Bleeding edge: failure occurring because of

company trying to be on leading edge

No prior experience from which to learn Implementation costs are greater than anticipated

Technology ends up losing money for company

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The Bleeding Edge (continued)


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The Bleeding Edge (continued)

Due to bleeding edge, companies often wait

before implementing newer technologies

Microsofts approach is to seize an existing

idea, improve it, and promote it with marketingpower

Also known as competing by emulating and

improving

Competitve Advantage of IT - June 2013

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