chapter 2 competing with information technology technology is no longer an afterthought in forming...

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2 Competing with Information TechnologyCompeting with Information TechnologyCompeting with Information TechnologyCompeting with Information Technology

Technology is no longer an afterthought in forming business strategy, but the actual cause and driver.

Why study Strategic Information Systems?Why study Strategic Information Systems?

IT can change the way businesses compete.

Information systems are a means of organizational restructuring to allow organizations to adapt

Information Systems are a necessary investment in technologies that help a company adopt strategies and business processes that enable it to reengineer or reinvent itself in order to survive and succeed in today’s dynamic business environment.

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What is a strategic IS?What is a strategic IS?

Any kind of information system that uses information technology to help an organization gain a competitive advantage, reduce a competitive disadvantage, or meet other strategic enterprise objectives.

These systems provide Competitive Advantage as opposed to Competitive Necessity

What’s the difference?

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What is the difference between What is the difference between competitive advantage and competitive competitive advantage and competitive

necessity?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 necessary simply to compete and do business in an industry

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Factors Influencing Competitive Factors Influencing Competitive ForcesForces

Competitors

Rivalry

Factors shaping the structure of competition in its industry.

• Number Competitors

• Capacity

• Growth Potential

• Complexity

• Intense rivalry if many companies

• Increased rivalry if growth potential and high profits

• Private Space Shuttles v. Airlines

• Genetic Research v. Hot Dog Stands

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Competitors

Rivalry

New Entrants

Factors discouraging/encouraging new competitors

• Economies of Scale

• Proprietary Products

• Distribution Channels

• Brand Identity

• Profit Margin

• Government Policy

• Retaliation

• Production of large outputs at lower costs than smaller rivals

• CPUs v. 7-11

• Coca-Cola v. Top Soil

• Easy Access?

• Supermarkets v. Jewelry Stores

• Network Broadcasting v. Lemonade Stands

• Operating Systems v. Slide-rule manufacture

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Competitors

Rivalry

New Entrants

Factors influencing supplier power• Concentration• Differentiation (branding)

• Switching Costs

• Volume

• DeBeers v. Diing Sen

• Rolls Royce

• Is the industry vital to the supplier?

• Microsoft for Linux?

Vendors

• Can suppliers easily find new customers?

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Competitors

Rivalry

New Entrants

Factors influencing buyer power• buyer concentration to

firm concentration ratio

• Information

• Price Sensitivity

• Importance of volume

• Many buyers/Few Suppliers

• Surfers v. unaware Customers.

• Calpers

• Necessary (electricity) v. impulse buying

Vendors Buyers

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Competitors

Rivalry

New Entrants

Factors influencing Substitutes• Switching Costs• Buyer inclination to

substitute

• Trade-off substitutes

• Price-Performance

• DVD v. VCR• iPod

• Does it give a good ‘bang for the buck?”

• Heating (necessary) v. impulse buying

Vendors Buyers

Substitutes

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What Competitive Strategies are available?What Competitive Strategies are available?

Cost Leadership• Becoming a low-cost producer of products and services

• Finding ways to help suppliers and customers reduce their costs

• Increase costs of competitors

Example?

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Differentiation• Developing ways to differentiate a firm’s products and

services from its competitors’

• Reduce the differentiation advantages of competitors

Examples?

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Innovation• Development of unique products and services

• Entry into unique markets or market niches

Examples?

• Making radical changes to the business processes for producing or distributing products and services that are so different from the way a business has been conducted that they alter the fundamental structure of an industry

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Growth• Significantly expanding a company’s capacity to produce

goods and services• Expanding into global markets

Examples?

• Diversifying into new products and services

• Integrating into related products and services

electrical and electronic equipment, plastics, aircraft engines, medical imaging equipment, and financial services

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Alliance• Establishing new business linkages and alliances with

customers, suppliers, competitors, consultants, and other companies

Examples?Proctor and Gamble

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How does that work?How does that work?

• In the early 1990’s, Wal-Mart invited its major suppliers to jointly develop powerful supply chain partnerships

• The Wal-Mart/Procter & Gamble (P&G) alliance incorporated vendor-managed inventory, category management, and other inter-company innovations.

• For example, P&G monitors and replenishes all of the merchandise at Wal-Mart Stores (Wal-Mart does not place any orders, although occasionally it reviews P&G’s orders)

• Based on in-store sales, P&G also modifies it product mix

• The outcome has been increased sales and JIT inventory, resulting in increased sales/profits for both Wal-Mart and P&G

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How do Information Systems help in This?How do Information Systems help in This?

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Additional Competitive Advantage TacticsAdditional Competitive Advantage Tactics Locking in customers or suppliers:

• McKesson Drugs, as well as others, have developed their own proprietary automated dispensing and reporting systems along with consulting services to deepen their relationships with clients.

• Airlines and hotels have benefited from frequent flier and frequent guest (Loyalty) programs

• These programs are possible because companies keep more information about their customers' historical purchasing patterns. Retailers collect detailed information on individual customers' buying patterns. These methods require tracking individual customer purchases over time, establishing accounts for each

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Additional Competitive Advantage TacticsAdditional Competitive Advantage Tactics Locking in customers or suppliers: Building switching costs:

• A firm’s customers or suppliers are reluctant to pay the costs in time, money, effort, and inconvenience that it would take to switch to a company’s competitors.

• The benefits (of Frequent Flier/Frequent guest programs) become part of the total switching costs: Either the customer loses them (a customer switching cost) or the new carrier matches them (a supplier switching cost).

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Additional Competitive Advantage TacticsAdditional Competitive Advantage Tactics Locking in customers or suppliers: Building switching costs: Raising barriers to entry:

• Without the technology in use by the industry (e.g., ATMs) new entrants would be at a severe disadvantage

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Additional Competitive Advantage TacticsAdditional Competitive Advantage Tactics Locking in customers or suppliers: Building switching costs: Raising barriers to entry:

• Using investments in information technology that have developed new products and services that can not be duplicated without a strong IT capability.

Leveraging investment :

• For example, the use of intranets and extranets which enables them to leverage previous investments in web browsers, PCs, servers and client-server networks.

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Customer Focused BusinessesCustomer Focused Businesses

Business that:

• respond to customer interests and concerns

• provide top-quality customer service

• anticipate customers’ future needs

Such as?Consider Hilton Hotels Reservations World-Wide (HRW)

• 2,400 hotels in 65 Countries

• 31M calls, 9M reservations annually

• Average time to complete reservation: less than 2 minutes

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How?

Customer Orders Placed Directly

Customer Orders Placed Directly

Distribution Partner Orders (e.g., Expedia, Priceline)

Distribution Partner Orders (e.g., Expedia, Priceline)

OR

Customer Database

Transaction Database

Create/Revise as necessary

Customers and Distribution Partners

Customers and Distribution Partners

Check/Revise Reservation

(Internet/Extranet)

EmployeesEmployees

View customer Information

(Intranet/Extranet)

Personalize Service

Personalize Service

(Internet/Extranet)

Build Web Community (Customers, Providers, Partners)

Build Web Community (Customers, Providers, Partners)

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Value ChainsValue Chains

Viewing a firm as a series, chain, or net-work of basic activities that add value to its products and services, and thus add a margin of value both to the firm and its customers.

• Primary processes add to revenues (Line)

• Support Processes are intended to assist primary processes (Staff)

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Value Chains and Strategic ISValue Chains and Strategic IS

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Using IT for Strategic AdvantageUsing IT for Strategic Advantage

Business Process Reengineering

• Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in cost, quality, speed, and service.

Organizational Redesign

• The use of self-directed cross-functional or multidisci-plinary process teams

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How to become an agile companyHow to become an agile company Agile Company

• A company that can make a profit in markets with broad product ranges and short model lifetimes, and can produce orders individually and in arbitrary lot sizes.

• Support mass customization: Providing individualized products while maintaining high volumes of production.

• Rely heavily on internet technologies to integrate and manage business processes.

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Creating a virtual companyCreating a virtual company

• An organization that uses information technology to link people, organizations, assets, and ideas.

• Creation of Interenterprise Information Systems:

• Information systems implemented on an extranet among a company and its suppliers, customers, subcontractors, and competitors with whom it has formed alliances.

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Virtual company strategiesVirtual company strategies

• Share infrastructure and risk with alliance partners.

• Link complementary core competencies

• Reduce concept-to-cash time through sharing.

• Increase facilities and market coverage.

• Gain access to new markets and share market or customer loyalty.

• Migrate from selling products to selling solutions

Example?

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Virtual company strategiesVirtual company strategies

• The world’s largest supplier of telecommunications product; manufacturer of none

• Online orders arrive simultaneously at Cisco (San Jose) and Jabil Circuit (St. Petersburg, FL).

• Jabil builds the product from 3 on-site warehouses: 1 owned by Jabil, 1-owned by Cisco, 1 owned by Hamilton Standard

• Product is tested, checked against the order (at Cisco) and shipped (by Jabil)

• Jabil and Hamilton Standard send bills to Cisco

Cisco Systems

• Cisco sends bill to customer

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Knowledge Creation CompaniesKnowledge Creation Companies• “learning organizations” or “organizational learning”

• Creating new business knowledge, disseminating it widely throughout the company, and quickly building the new knowledge into their products and services.

What does “knowledge” mean?• Explicit knowledge: data, documents, things written down

or stored on computers

• Tacit knowledge: the “how-tos” of knowledge, which reside in workers

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Knowledge ManagementKnowledge Management

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SummarySummary Information technologies can support many

competitive strategies including cost leader-ship, differentiation, innovation, growth and alliance

IT can help• Build customer-focused businesses

• Reengineer business processes

• Businesses become agile companies

• Create virtual companies

• Build knowledge-creating companies

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??? Any Questions ?????? Any Questions ???

You Moron!!I know I know EvrythinEvrythin!!!!!!

chapter 2 competing with information technology technology is no longer an afterthought in forming...

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