Competing with Information Technology

CHAPTER 2

Lecture-3 / T. Nouf Almujally

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Outline

• Section 1:• Strategic IT• Competitive Strategy Concepts

• Section 2:• Creating a Virtual Company• Building a Knowledge Creating Company

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Strategic IT

• In Chapter 1 , we emphasized that a major role of IS applications in business is to provide effective support of a company’s strategies for gaining competitive advantage.

• IT can change the way businesses compete.

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Competitive Strategy Concepts

• The strategic roles of IS involves using information technology to develop products, services and capabilities that gives a company major advantages over the competitive forces it faces in the marketplace.

• This role is accomplished through a SIS’s.• A Strategic Information System is any

information system (e.g. TPS, MIS and DSS) 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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What Does Competitive Advantage Mean?

Competitive Advantage:• An advantage that a firm has over its

competitors, allowing it to generate greater sales or margins and/or retain more customers than its competitors.

• Developing products, services, processes, or capabilities that give a company a superior business position relative to its competitors and other competitive forces. 

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Competitive Forces

A company can survive and succeed in the long term only if it successfully develops strategies to confront five Competitive forces:

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Competitive Forces7

1. The rivalry of competitors within its industry. Rivalry among existing competitors takes many familiar forms,

including price discounting, new product introductions, advertising campaigns, and service improvements.

2. The threat of new entrants into an industry and its market.

Internet has created many ways to enter the market quickly with low cost

E-commerce enables a business to emerge overnight (ex. KrispyKreme)

3. The threat of substitutes products that might capture market share.

A substitute performs the same or a similar function as an industry’s product by a different means.

Ex. Videoconferencing is a substitute for travel. E-mail is a substitute for express mail.

Competitive Forces8

4. The bargaining power of customers. If the customers’ bargaining power gets too

strong, they can drive the price to low levels, or refuse to buy the product or service.

5. The bargaining power of suppliers. If the supplier’s bargaining power gets too

strong, it can force the price of goods and services to high level, or stop raw materials.

Competitive Strategies

• Businesses can develop the following competitive strategies to counter the actions of the competitive forces they confront in the marketplace:

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Strategies

Cost Leadership

Alliance

Growth

Innovation

Differentiation

Competitive Strategies

1- Cost Leadership: Produce lower price products and services, help suppliers or customers to reduce their

costs, increase the cost of competitors. Ex. eBay.com, Priceline.com

2- Products Differentiation: Developing ways to differentiate products from

those of its competitors Ex. Moen Inc, Starbuck vs. Dunkin Donuts

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Competitive Strategies

3- Business Innovation Produce new unique products and services, entering new markets, add some changes to the recent business processes Ex. Amazon.com

4- Growth Expanding a company's capacity to produce products and

services, expanding into global markets, diversifying into new products and services, Integrating into related products and services Ex. Wal-Mart

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Competitive Strategies

5- Alliances Establish new business linkages with customer,

suppliers, competitors, and other companies. These linkages could include:

Mergers. Acquisitions Joint ventures. Virtual companies. or other marketing , manufacturing or distribution

agreements between a business and its trading partners

Ex. Wal-Mart /Procter & Gamble.

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Competitive Forces and Strategies

Questions ..

Creating a Virtual Company15

Organizations Assets

IdeasPeople

Virtual company: organization that uses IT to link…

Suppliers Subcontractors

CompetitorsCustomers

Inter-enterprise information systems link…

Virtual Company

A virtual company uses the Internet, intranet, and extranets to form virtual workgroups and support alliances with business partners.

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Virtual Company Strategies

Basic Business Strategies

Reduce concept-to-cash time

through sharing

Share infrastructure & risk with alliance

partners

Link complimentary 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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Examples

• Jobs.com is one of the many virtual companies that have brought together job seekers with companies. • It allows job seekers and recruiters to come together

through the internet. • It allows an individual to search for a job by location,

salary range, and level of experience.  • Then submit job seekers resumes online to the

companies.• The site also offer job seekers helpful information on

preparing a resume, salary information and advice from the experts on searching for a job.

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Example:19

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Example:

Questions ..

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

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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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Successful 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 levels25

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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Knowledge Management Systems (KMS)

• Some technologies used by KMS: Internet and intranet, web sites , discussion groups. Knowledge bases, data mining.

• As the organizational learning process continues and its knowledge base expands, the company works to integrate its knowledge into its business process, products and services.

• This integration will help the company to become a more innovative provider of high-quality products and services , as well as a very strong competitor in the marketplace.

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Questions ..

Read from Chapter 2 (Section 1,2)

Resources ..