Chapter 2: Competing with Information Technology -Objectives

Identify basic competitive strategies and explain how IT may be used to gain competitive advantage.

Identify strategic uses of information technology. Identify the business value of using e-business

technologies for reengineering the business processes, total quality management, to become an agile competitor, or to form a virtual company.

Explain how knowledge management systems can help a business gain strategic advantage.

Real World Case 1 – WESCO International, Inc. Describe WESCO’s original system. Describe WESCO’s new system. What are the business benefits to WESCO and its

suppliers of its new e-procurement system? Is WESCO’s new system a strategic use of IT? Does WESCO’s new system give the company a

competitive advantage?

Strategic Information Systems

The strategic role of IS involves using IT to develop products, services, and capabilities that give company major advantages over the competitive forces it faces in the global marketplace.

Porter’s Competitive Forces Model

One of the most well-known frameworks for analyzing competitiveness is Porter’s competitive forces model.

The company must confront five competitive forces.

Porter’s Competitive Forces Model The five major forces can be generalized as follows:1. The bargaining power of customers2. The bargaining power of suppliers3. The threat of new entrants to firm’s market4. The threat of substitute products and services5. The rivalry for competitors within the firm's

industry

KodakFilm and film

processing

Substitute products:-Digital imaging-Digital photos-Photo-quality digital printers

Competitors:Canon, Fuji Photo Film

and Nikon

Bargaining power of suppliers:U.S. film/camera component/imaging materials

manufacturersForeign film/camera component manufacturers

Bargaining power of customers:Consumers in small town, USAConsumers in metropolitan areas in USACanadian and Mexican consumersOther foreign consumers

PORTER’S MODEL FORKODAK

Potential new entrants:Foreign and US filmand cameramanufacturers

Porter’s Competitive Forces Model (cont’d)

Competitive strategies:

1. Cost leadership strategy: Producing products/services at the lowest cost in the industry. Ex: Wal-Mart.

2. Differentiation strategy: Distinguish the products and services from those of its competitors. Ex: Dell.

3. Innovation strategy: Finding new ways of doing business. Ex: Amazon.com.

Competitive strategies (cont’d):

4. Growth strategies: Managing regional and global business expansion. Ex: Wal-Mart.

5. Alliances: Working with business partners. Ex: Drugstore.com (online pharmacy) and General Nutrition Centers (GNC) (distributor of vitamins and health foods) formed a partnership that gave Drugstore.com the exclusive rights to sell GNC-branded products.

Examples of businesses defending themselves against the five

competitive forces:

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

Automobile manufacturers use computerized quality-control systems to make steel producers (the suppliers) more conscious of quality and reduce their bargaining power.

J.C. Penny uses an information system which allows its male customers to select fabric, cut and size at J.C. Penny store and obtain a custom-made suit in a week, thus reducing the customer’s bargaining power.

Many computer companies provide their customers with free software and other computer services, thus reducing the customer’s bargaining power.

Domino’s Pizza’s Competitive Strategy

1. Customer dials a special number

2. 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 caller’s address with the nearest open Domino’s Pizza restaurant.

4. Dials the restaurant.5. An employee at the restaurant picks upthe phone, talks with the customer, and arranges the delivery.

6. Delivery

Value Chain Model According to Porter’s Value chain model, the activities

conducted in any manufacturing organizations can be divided into two parts: Primary activities and support activities.

This model highlights the primary or support activities that add a margin of value to a firm’s products and services where IT can best be applied to achieve a competitive advantage.

Value Chain Model Primary activities are most directly related to the

production and distribution of the firm’s products and services that create value for the customer. Inbound logistics, operations, outbound logistics, marketing and sales, and customer service.

Support activities include procurement of resources, technology development, human resources management, and administrative coordination.

The value chain of a firm

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

Customer focused business Develop a focus on the customer

Customer value Best value Understand customer preferences Track market trends Supply products, services, & information anytime,

anywhere Tailored customer service

How do Hilton Hotels use IT to build a customer-focused business? (mini case, on page 51.)

Reengineering the processes Business Process Reengineering (BPR)

Rethinking & redesign of business processes Combines innovation and process

improvement There are risks involved.

Filling out a paper

loan application

A mortgage applicantBEFORE REENGINEERING

Entering the application

into its computer system

Bank Specialists

Accessing the application

individually

closing

approved

AFTER REENGINEERING

Entering the Mortgagee

application intoLaptop computers

Loan originators

Checking theApplication transaction

Software

Accessing the applicationelectronically

together, as a team

Specialists

17 DAYS

2 DAYS

closing

approved

Improving quality Total Quality Management (TQM)

Quality from customer’s perspective Meeting or exceeding customer expectations Commitment to:

Higher quality Quicker response Greater flexibility Lower cost

IT can help firms to achieve quality goals by helping them simplify products or processes, make improvements based on customer demands, reduce cycle time and increase the quality of design and production.

Agile company Old businesses: Low cost, low price, mass

production, economy of scale. New businesses: Global competition, sophisticated

customers, customized production. An agile company can offer customized production,

product variety, bring products to market rapidly and cost effectively. Ex: Dell Computers is an agile competitor.

It heavily depends on IT. Ex: Flexible Manufacturing Systems (FMS) help companies become an agile competitor.

A business can use IT to become an agile company.

Virtual company IT makes the virtual corporation possible. A virtual company is an organization that uses IT to link

people, assets, and ideas to create and distribute products and services without being limited to physical locations or traditional boundaries.

Virtual company Major attributes of VC:• Each partner brings its core competency so an-all star

winning team is created.• No single company can match what the VC can

achieve. • Resources of the business partners can be put to use

more profitably. • It is difficult to identify the boundaries of a VC.

Turnstonesells its productsthrough catalogs

Third-partyCompany designsand 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.

Excel’s computers handle all orderprocessing, shipment tracking, etc.

Send the orders

Subcontracted Carriers ship

the products to customers

Virtual company

Building a Knowledge-creating company Knowledge management enable companies to learn faster than

their competitors giving them a sustainable competitive advantage.

The goal of knowledge management systems is to help organizations create, organize and make available important business knowledge whenever and wherever it’s needed in an organization.

KMSs collect all relevant knowledge and experience in the firm and make it available whenever and wherever it is needed to support management decisions and business processes.