Chapter 2 Competing with Information Technology

1. Chapter 2 Competing with Information Technology Management Information Systems

2. 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.

3. 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.

4. 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.

5. 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.

6. Case #1: Does IT Matter? Nicholas Carr: • It is simply the infrastructure of modern business. • It’s equivalent to railroads, electricity, and internal combustion engineering. • Once innovative applications of IT have become simply the cost of doing business.

7. 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

8. Case #1: Does IT Matter? Nicholas Carr: Today’s main risk is not underusing IT but overspending on it.

9. 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.

10. 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.

11. 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

12. 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?

13. 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.

14. Case #1: Does IT Matter? • 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? • 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?

15. Case #1: Does IT Matter? • 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. • What does Mr. Strassman mean by information warfare? • Can information technology give a competitive advantage to a small business? Why or why not? Use an example to illustrate your answer.

16. 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.

17. Mission and Competitive Strategies • Corporate Mission or Objective • Competitive Strategy - Major policies to support the company to compete with other companies so it can survive in the long run

18. Competitive Forces and Strategies

19. Competitive Forces Definition: • Shape the structure of competition in its industry.

20. 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

21. Competitive Strategy • Cost Leadership Strategy • Differentiation Strategy • Innovation Strategy • Growth Strategy • Significantly expanding a company’s capacity to produce goods and services • Alliance Strategy

22. 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

23. Differentiation Strategy • Developing ways to differentiate a firm’s products and services from its competitors’ • Reduce the differentiation advantages of competitors

24. 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

25. 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

26. Alliance Strategy • Establishing new business linkages and alliances with customers, suppliers, competitors, consultants, and other companies

27. Competitive Strategy Examples

28. 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.

29. 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.

30. 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

31. Customer-Focused Business A business that: • can anticipate customers’ future needs. • responds to customer concerns. • provides top-quality customer service.

32. IS in a Customer-Focused Business

33. 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.

34. Value Chain

35. Value Chain

36. 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

37. 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

38. 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.

39. 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.

40. 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?

41. Business Process Reengineering Definition: • Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in cost, quality, speed, and service.

42. Cost/ Sweater Distributor Retailer Manufacturer Customer $48.50 $40.34 Manufacturer Retailer Customer Manufacturer $20.45 Customer Value Chain Analysis - Disintermediation to the Consumer

43. BPR vs. Business Improvement

44. Stockless Inventory Compared to Traditional and Just-in-time Supply Methods

45. Cross-Functional Processes

46. Agility 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.

47. 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.

48. Becoming an Agile Company Dell Computer – Agility in Action • Customer-Focused Company • Champion of Mass Customization • Build-to-Order Business Model • 25,000 on a Typical Day • Tight Supply Chain Management • Rarely More than Two Hours Worth of Parts Inventory

49. Mass Customization Definition: • Providing individualized products while maintaining high volumes of production

50. Agile Competitor