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Chapter 2. Competing with Information Technology. Learning Objectives. Identify several basic competitive strategies and explain how they can use information technologies to confront the competitive forces faced by a business.

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Chapter 2

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Chapter 2


Competing with

Information Technology

Learning objectives

Learning Objectives

  • 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 objectives1

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.

Why study strategic it

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

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.

Strategic information systems

Strategic Information Systems


  • 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

Competitive Forces and Strategies

Competitive forces

Competitive Forces


  • Shape the structure of competition in its industry.

Porter s competitive forces model

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

Competitive strategies

Competitive Strategies

  • Cost Leadership

  • Differentiation

  • Innovation

  • Growth

  • Alliance

Cost leadership strategy

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

Differentiation strategy

Differentiation Strategy

  • Developing ways to differentiate a firm’s products and services from its competitors’

  • Reduce the differentiation advantages of competitors

Innovation strategy

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

Growth strategy

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

Alliance Strategy

  • Establishing new business linkages and alliances with customers, suppliers, competitors, consultants, and other companies

Competitive strategy examples

Competitive Strategy Examples

Other competitive strategies

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.

Other competitive strategies1

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

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

Customer focused business

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

IS in a Customer-Focused Business

Value chain

Value Chain


  • 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 chain1

Value Chain

Value chain2

Value Chain

Case 2 using it to tap expert know how

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

Case 2 using it to tap expert know how1

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


  • 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 how2

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

  • 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.

Case 2 using it to tap expert know how3

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

  • How can the AskMe system help to identify weaknesses in global business knowledge within the Department of Commerce?

  • What other global trade situations could the AskMe system provide information about? Provide some examples.

Case 2 using it to tap expert know how4

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

  • Is the AskMe system intended to help the DOC become a knowledge-creating organization? Why or why not?

Business process reengineering

Business Process Reengineering


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

Bpr vs business improvement

BPR vs. Business Improvement

Cross functional processes

Cross-Functional Processes




  • The ability of a company to prosper in rapidly changing, continually fragmenting global markets for high-quality, high performance, customer-configured products and services.

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.

Mass customization

Mass Customization


  • Providing individualized products while maintaining high volumes of production

Agile competitor

Agile Competitor

Virtual company

Virtual Company


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

Interenterprise information systems

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.

Virtual company1

Virtual Company

Virtual company strategies

Virtual Company Strategies

  • Share infrastructure and risk with alliance partners.

  • Link complementary core competencies.

  • Reduce concept-to-cash time through sharing.

Virtual company strategies1

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.

Knowledge creating companies

Knowledge-Creating Companies


  • 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

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

Knowledge management

Knowledge Management


  • 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

Levels of Knowledge Management

Case 3 shareware grows up

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 up1

Case #3: Shareware Grows Up


  • 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 up2

Case #3: Shareware Grows Up


  • Getting members to really collaborate

Case 3 shareware grows up3

Case #3: Shareware Grows Up

  • 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.

Case 3 shareware grows up4

Case #3: Shareware Grows Up

  • What do you see as the potential risks associated with the Avalanche approach? Provide some examples.

  • 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

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.

Case 4 customer loyalty systems1

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 systems2

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

Case 4 customer loyalty systems3

Case #4: Customer-Loyalty Systems

  • Does CDW’s customer loyalty program give them a competitive advantage? Why or why not?

  • What is the strategic value of Harrah’s approach to determining and rewarding customer loyalty?

  • 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

Chapter 21


End of Chapter

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