Lecture Management information systems - Chater 2: Competing with information technology

In this chapter you will: Identify several basic competitive strategies and explain how they use information technologies to confront the competitive forces faced by a business, identify several strategic uses of Internet technologies and give examples of how they help a business to gain competitive advantages, give examples of how business process reengineering frequently involves the strategic use of IT,...

2 - 1

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Competing withInformation Technology

Chapter

2

Chapter

2

2 - 3

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

• Identify several basic competitive

strategies and explain how they can use information technologies to confront the

competitive forces faced by a business

• Identify several strategic uses of Internet

technologies and give examples of how

they give competitive advantages to a

business

Learning Objectives

Learning Objectives

• Give examples of how business process

reengineering frequently involves the strategic use of Internet technologies.

• Identify the business value of using Internet

technologies to become an agile competitor or

to form a virtual company

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

2 - 5

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Why Study Strategic IT?

• Technology is no longer an afterthought in

forming business strategy, but the actual cause and driver

• IT can change the way businesses

compete

Strategic View of Information Systems

• Information systems are vital competitive

networks.

• Information systems are a means of

organizational renewal.

• IS 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.

• It’s equivalent to railroads, electricity, and

internal combustion engineering.

• Once innovative applications of IT have become simply the cost of doing business.

Case #1: Does IT Matter?

How important is IT to GE?

• Business imperative

• Lifeblood for productivity

• 20% return on technology investments and

GE invests $2.5 to $3 billion a year

Case #1: Does IT Matter?

Michael Dell, CEO of Dell Computers

• Anything in business can be either a

sinkhole or a competitive advantage if you

do it really, really bad or you do it really,

really well

• You’ve got a lot of people who don’t know

what they’re doing and don’t do it very

well

2 - 11

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Case #1: Does IT Matter?

Andy Grove, Chairman of Intel Corp.

• Commercial-transaction processing in the

United States and some parts of Europe has reach maturation but that’s only one segment of IT

Case #1: Does IT Matter?

What is IT?

• A bunch of networks and computers

OR

• Hardware plus the software that mediates

and manages human knowledge or

information

2 - 13

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Case #1: Does IT Matter?

Charles Fitzgerald, Microsoft General

Manager

• The source of competitive advantage in

business is what you do with the

information that technology gives you

access to How do you apply that to

some particular business problem?

Case #1: Does IT Matter?

Paul Strassman, former CIO of General

Foods, Xerox, Pentagon, and NASA

• Information technology today is a

knowledge-capital issue

• Look at the business powers – most of all

Wal-Mart, but also companies like Pfizer

or FedEx They’re all waging information warfare

2 - 15

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Case #1: Does IT Matter?

1 Do you agree with the argument made

by Nick Carr to support his position that

IT no longer gives companies a

competitive advantage? Why or why

not?

2 Do you agree with the argument made

by the business leaders in this case in

support of the competitive advantage

that IT can provide to a business? Why

or why not?

Case #1: Does IT Matter?

3 What are several ways that IT could provide a

competitive advantage to a business? Use

some of the companies mentioned in this case

as examples Visit their websites to gather

more information to help you answer.

4 What does Mr Strassman mean by

information warfare?

5 Can information technology give a competitive

advantage to a small business? Why or why not? Use an example to illustrate your

answer.

2 - 17

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Strategic Information Systems

Definition:

• 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

Competitive Forces and Strategies

Porter’s Competitive Forces Model

To survive and succeed, a business must

develop and implement strategies to effectively counter the:

• Rivalry of competitors within its industry

• Threat of new entrants into an industry and its markets

• Threat posed by substitute products which

might capture market share

• Bargaining power of customers

• Bargaining power of suppliers

Cost Leadership Strategy

• Becoming a low-cost producer of products

and services

• Finding ways to help suppliers and

customers reduce their costs

• Increase costs of competitors

2 - 23

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Differentiation Strategy

• Developing ways to differentiate a firm’s

products and services from its

competitors’

• Reduce the differentiation advantages of

competitors

Innovation Strategy

• Development of unique products and services

• Entry into unique markets or market niches

• 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

2 - 25

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Growth Strategy

• Significantly expanding a company’s

capacity to produce goods and services

• Expanding into global markets

• Diversifying into new products and

services

• Integrating into related products and

services

Alliance Strategy

• Establishing new business linkages and

alliances with customers, suppliers,

competitors, consultants, and other

companies

2 - 27

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Competitive Strategy Examples

Other Competitive Strategies

• Locking in customers or suppliers by

building valuable new relationships with

them

• Building switching costs so 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

2 - 29

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Other Competitive Strategies

• Raising barriers to entry that would

discourage or delay other companies from entering a market

• Leveraging investment in information

technology by developing new products

and services that would not be possible

without a strong IT capability

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 necessary simply to compete and do business in an industry

2 - 31

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Customer-Focused Business

A business that:

• can anticipate customers’ future needs.

• responds to customer concerns.

• provides top-quality customer service.

IS in a Customer-Focused Business

2 - 33

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Value Chain

Definition:

• View of a firm as a series, chain, or

network 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

Value Chain

2 - 35

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Value Chain

Case #2: Using IT to tap Expert Know-How

U.S DOC AskMe Knowledge

Management System

• Automated best practices

• Automated experts’ profile creation

• Addition of numerous methods for

accessing and delivering knowledge

• Integrated real-time collaborative services

• Comprehensive analytic capabilities

2 - 37

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Case #2: Using IT to tap Expert Know-How

Benefits

• Experts’ knowledge is organized

• Experts’ are more easily contacted

• Information is reusable saving 750 hours

of repetitive work

• Return on investment is tracked

• Popular topics are identified so DOC can

beef up its expertise in those areas

Case #2: Using IT to tap Expert Know-How

1 What are the key business challenges

facing companies in supporting their

global marketing and expansion efforts? How is the AskMe knowledge

management system helping to meet

this challenge? Explain

2 - 39

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Case #2: Using IT to tap Expert Know-How

2 How can the AskMe system help to

identify weaknesses in global business knowledge within the Department of

Commerce?

3 What other global trade situations could

the AskMe system provide information

about? Provide some examples

Case #2: Using IT to tap Expert Know-How

4 Is the AskMe system intended to help

the DOC become a knowledge-creating organization? Why or why not?

2 - 41

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Business Process Reengineering

Definition:

• Fundamental rethinking and radical

redesign of business processes to

achieve dramatic improvements in cost, quality, speed, and service

BPR vs Business Improvement

2 - 43

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Cross-Functional Processes

Definition:

• The ability of a company to prosper in

rapidly changing, continually fragmenting global markets for high-quality, high

performance, customer-configured

products and services

2 - 45

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Agile Company

Definition:

• 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

Mass Customization

Definition:

• Providing individualized products while

maintaining high volumes of production

2 - 47

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Agile Competitor

Virtual Company

Definition:

• An organization that uses information

technology to link people, organizations, assets, and ideas

2 - 49

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Interenterprise Information Systems

Definition:

• Information systems implemented on an

extranet among a company and its

suppliers, customers, subcontractors, and competitors with whom it has formed

alliances

Virtual Company

2 - 51

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Virtual Company Strategies

• Share infrastructure and risk with alliance

partners

• Link complementary core competencies.

• Reduce concept-to-cash time through

sharing

Virtual Company Strategies

• Increase facilities and market coverage.

• Gain access to new markets and share

market or customer loyalty

• Migrate from selling products to selling

solutions

2 - 53

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Knowledge-Creating Companies

Definition:

• Consistently creating new business

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

Types of Knowledge

• Explicit Knowledge – data, documents, things written down or stored on

computers

• Tacit Knowledge – the “how-tos” of

knowledge, which reside in workers

2 - 55

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Knowledge Management

Definition:

• Techniques, technologies, systems, and

rewards for getting employees to share

what they know and to make better use of accumulated workplace and enterprise

knowledge

Knowledge Management Systems –

manage organizational learning and

business know-how

Levels of Knowledge Management

2 - 57

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Case #3: Shareware Grows Up

How a software cooperative works

• Companies pay a membership which

entitles them to use any of the intellectual property of the co-op

• Member companies will donate

intellectual property, cooperate in

adapting it for other companies, help

troubleshoot problems and form

sub-groups to develop needed niche software for the library

Case #3: Shareware Grows Up

Benefits

• Decrease in the total cost of ownership of

software

• Co-op becomes responsible for assets

and also ensure that there’s a clear title

so member companies can’t be sued later

• The larger the installation base, the lower

the cost of ongoing maintenance

Case #3: Shareware Grows Up

1 Organizations are constantly striving to

achieve competitive advantage, often

through their information technologies Given this constant, why does Hansen

suggest that competition among

members shouldn’t be an issue because the shared assets don’t bring

competitive advantage? Explain

2 - 61

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Case #3: Shareware Grows Up

2 What do you see as the potential risks

associated with the Avalanche

approach? Provide some examples

3 How could other companies apply the

cooperative model used by Avalanche to achieve efficiencies in areas other than software support? Explain

Case #4: Customer-Loyalty Systems

Satisfaction vs Loyalty

• A satisfied customer is one who sees you

as meeting expectations

• A loyal customer, on the other hand,

wants to do business with you again and will recommend you to others

2 - 63

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Case #4: Customer-Loyalty Systems

• A good loyalty program combines

customer feedback and business

information with sophisticated analytics to produce actionable results

• With good customer loyalty technology, IT

can wire the voice of the customer back

into the enterprise

Case #4: Customer-Loyalty Systems

How can IT help?

• Gathering customer experience data by e-mail rather than telephone dramatically reduces

survey cycle times

• Can build in validated, multivariate measures of loyalty into the software

• Software-generated models can accurately

predict customer’s purchasing behavior

• IT can be used to deliver rewards to customers based on predictive analysis

2 - 65

Copyright © 2006, The McGraw­Hill Companies, Inc. All rights reserved.

Case #4: Customer-Loyalty Systems

1 Does CDW’s customer loyalty program give

them a competitive advantage? Why or why

not?

2 What is the strategic value of Harrah’s

approach to determining and rewarding

customer loyalty?

3 What else could CDW and Harrah’s do to truly

become a customer-focused businesses?

Visit their websites to help you suggest

several alternatives.

• Information technologies can support many

competitive strategies including cost leadership, 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