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McGraw-Hill/Irwin 2008,The McGraw-Hill Companies, All Rights Reserved

Competing with

Information Technology

Chapter 2

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Learning Objectives

1. Identify basic competitive strategies and explainhow a business can use IT to confront thecompetitive forces it faces.

2. Identify several strategic uses of IT and giveexamples of how they give competitiveadvantages to a business.

3. Give examples of how business processreengineering frequently involves the strategicuse of IT.

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Learning Objectives

4. Identify the business value of using Internettechnologies to become an agile competitor or toform a virtual company.

5. Explain how knowledge management systemscan help a business gain strategic advantages.

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Strategic IT

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

IT can change the way businesses compete.A strategic information system is

Any kind of 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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Competitive Forces

If a business wants to succeed must developstrategies to counter these forces: Rivalry of competitors within its industry

Threat of new entrants into an industry and its markets

Threat posed by substitute products which might capturemarket share

Bargaining power of customers

Bargaining power of suppliers

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Five Competitive Strategies

Cost Leadership Become low-cost producers

Help suppliers or customers reduce costs

Increase cost to competitors

Example, Priceline uses online seller bidding so buyer setsthe price

Differentiation Strategy Develop ways to differentiate a firms products from its

competitors

Can focus on particular segment or niche of market

Example, Moen uses online customer design

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Competitive Strategies (cont.)

Innovation Strategy Find new ways of doing business

Unique products or services

Or unique markets

Radical changes to business processes to alter the fundamentalstructure of an industry

Example, Amazon uses online full-service customer systems

Growth Strategy Expand companys capacity to produce

Expand into global markets

Diversify into new products or services

Example, Wal-Mart uses merchandise ordering by global satellitetracking

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Competitive strategies (cont.)

Alliance Strategy Establish linkages and alliances with

Customers, suppliers, competitors, consultants and other

companies

Includes mergers, acquisitions, joint ventures, virtualcompanies

Example, Wal-Mart uses automatic inventory

replenishment by supplier

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Using these strategies

The strategies are not mutually exclusive

Organizations use one, some or all

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Using IT for these strategies

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Other competitive strategies

Lock in customers and suppliersAnd lock out competitors

Deter them from switching to competitors

Build in switching costs

Make customers and suppliers dependent on the use ofinnovative IS

Barriers to entry Discourage or delay other companies from entering market

Increase the technology or investment needed to enter

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Other competitive strategies (cont.)

Include IT components in products Makes substituting competing products more difficult

Leverage investment in IT Develop new products or services not possible without IT

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Customer-focused business

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 primary determinant of value

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How can we provide customer value?

Track individual preferences

Keep up with market trends

Supply products, services and information anytime,anywhere

Provide customer services tailored to individualneeds

Use Customer Relationship Management (CRM)systems to focus on customer

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Building customer value using the Internet

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Value Chain

View the firm as a chain of basic activities that addvalue to its products and services

Activities are either Primary processes directly related to manufacturing ordelivering products

Support processes help support the day-to-day running ofthe firm and indirectly contribute to products or services

Use the value chain to highlight where competitivestrategies can best be applied to add the mostvalue

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Using IS in the value chain

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Business Process Reengineering

Called BPR or Reengineering Fundamental rethinking and radical redesign

Of business processes

To achieve improvements in cost, quality, speed andservice

Potential payback high

Risk of failure is also high

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How BPR differs from business

improvement

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A cross-functional process

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Reengineering order management

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Agility

Agility is the ability of a company to prosper In a rapidly changing, continually fragmenting

Global market for high-quality, high-performance,customer-configured products and services

An agile company can make a profit with Broad product ranges

Short model lifetimes

Mass customization

Individual products in large volumes

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Four strategies for agility

An agile company:

Provides products as solutions to their customersindividual problems

Cooperates with customers, suppliers andcompetitors to bring products to market as quicklyand cost-effectively as possible

Organizes so that it thrives on change anduncertainty

Leverages the impact of its people and theknowledge they possess

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How IT helps a company be agile

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Virtual Company

A virtual company uses IT to link People,

Organizations,

Assets,

And ideas

Creates interenterprise information systems

to link customers, suppliers, subcontractors andcompetitors

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A virtual company

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Strategies of virtual companies

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Knowledge Creation

Knowledge-creating company or learningorganization Consistently creates new business knowledge

Disseminates it throughout the company

And builds in the new knowledge into its products andservices

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Two kinds of knowledge

Explicit knowledge Data, documents and things written down or stored on

computers

Tacit knowledge The how-to knowledge which reside in workers minds

A knowledge-creating company makes such tacit

knowledge available to others

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Knowledge issues

What is the problem with organizational knowledgebeing tacit?

Why are incentives to share this knowledgeneeded?

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Knowledge management techniques

Source: Adapted from Marc Rosenberg, e-Learning: Strategies forDelivering Knowledge in the DigitalAge(New York: McGraw-Hill, 2001), p.70.

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Knowledge management systems (KMS)

KMS manage organizational learning and businessknow-how

Goal: Help knowledge workers to create, organize, and make

available knowledge

Whenever and wherever its needed in an organization

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Case 1: FedEx Corporation: Investing in

IT for Competitive Advantage FedEx and many other companies know that proper

management and use of information technology can givethem a competitive advantage.

Their IT has to connect 39 hubs around the world with 677airplanes, over 90,000 vehicles, and more than 200,000employees delivering 6 million packages a day in 220countries.

FedEx spends more than $1 billion on IT every year.

FedEx focuses more on revenue generating, customersatisfying technology than operational technology.

FedEx is more of a innovator than a follower in ITapplications.

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Case Study Questions

1. How do the IT investment strategies and focus ofFedEx and its main competitor UPS differ? Whichcompany has the better strategy? Why?

2. Is FedExs move, communicate, and shoot ITstrategy a good one for its competitive battle withUPS? Why or why not? Is it a good model ofcompetitive IT strategy for other types ofcompanies? Defend your position.

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3. FedEx CIO Carter says his company is in thebusiness of engineering time. Is this a goodbusiness vision for FedEx? Why or why not? How

vital is IT to this definition of FedExs business?Use examples from the case to illustrate youranswer.

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Real World Internet Activity

1. Use the Internet to compare the current status ofFedEx, UPS, and DHL in terms of revenue,profitability, parcels delivered, and other

measures of business success. Who is winningthe competitive battle? Why?

Check out what business commentators and financialanalysts are reporting on the Web to help you answer.

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Real World Group Activity

2. Use the Internet to discover more about howFedEx is involved in fighting the war on terror,beyond what is reported in this case.

For example, FedEx has made some controversialdisclosures of customer information to intelligenceagencies.

Discuss FedExs corporate responsibility to assist in the

war on terror while protecting the privacy of itscustomers, as well as any other issues uncovered inyour research.

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Case 2: GE Energy and GE Healthcare:Using IT to Create Strategic Customer

Relationships

Networking and data storage & analysistechnologies enable companies like GE to gain

a competitive advantage by providing uniqueproducts and services to their customers.

This strategic investment in IT has a dramaticeffect on the profitability of GEs services.

The strategic business partnership results in alonger-term relationship than traditionalmethods.

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1. What are the business benefits of usinginformation technology to build strategic customerrelationships for GE Energy and GE Healthcare?

What are the business benefits for theircustomers?

2. What strategic uses of information technologydiscussed in this chapter and summarized inFigures 2.3 and 2.5 do you see implemented inthis case? Explain the reasons for your choices.

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3. How could other companies benefit from theuse of IT to build strategic customerrelationships? Provide or propose several

examples of such uses. Explain how eachbenefits the business and its customers.

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1. Use the Internet to discover if GE Energy and GEHealthcare are expanding or strengthening their uses of ITto build strategic customer relationships. What benefits are

they gaining for themselves and claiming for theircustomers?

2. Use the Internet to discover other companies whoseproducts are networked, monitored, diagnosed, andmanaged at customers sites like the GE companies in this

case. Alternatively, choose other companies you canresearch on the Internet and propose several ways theycould implement and benefit from similar uses ofinformation technology.

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3. What business control and security concernsmight a business customer have with the extentof its dependency on GE for the use and

maintenance of assets that are vital to theoperation of the business?

Discuss the rationale for these concerns and whatmeasures both the business and GE could take to

reduce any security threats and improve a customerssecure control of the business assets it obtains from GE.

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Case 3: GE, Dell, Intel, GM, andOthers: Debating the Competitive

advantage of ITDoes IT matter?

No:

Nicholas Carr argues that IT is infrastructure like electricity Too commonplace to get competitive advantage

Yes: IT is not just networks and computers

The important part is the software and information and howIT is used

For Wal-Mart, GE, Dell, and many other companies, IT is ahuge advantage and will continue to be.

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1. Do you agree with the argument made by Nicholas Carr tosupport his position that IT no longer gives companies acompetitive advantage? Why or why not?

2. Do you agree with the argument made by the businessleaders in this case in support of the competitive advantagethat IT can provide to a business? Why or why not?

3. What are several ways that IT could provide a competitiveadvantage to a business? Use some of the companies

mentioned in this case as examples. Visit their Web sites togather more information to help you answer.

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1. Nicholas Carrs article created a storm of debatethat is still raging. Using the Internet, see if youcan find Carrs original article. Also, try to find

some more opinions for and against Carrsarguments beyond those provided in the case.

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2. The core of Carrs arguments has somesignificant implications for businesses. Discussyour opinion of Carrs arguments. What are some

of the implications of the argument that come tomind? How might they serve to change the waywe use computers to support corporate strategy?

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