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Competing with Information Technology
Why study Strategic Information Systems?
 Technology is no longer an afterthought in forming
business strategy, but the actual cause and driver.
 IT can change the way businesses compete.
 Information systems are a means of organizational
restructuring to allow organizations to adapt
 Information Systems 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.
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What is a strategic IS?
 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.
 These systems provide Competitive Advantage as
opposed to Competitive Necessity
What’s the difference?
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What is the difference between competitive
advantage and competitive 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
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Entering into a Market
 Product Life Cycle /Innovation Adoption
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Entering into a Market
 Top 5 reasons why most product launches fail*
#1: The company can’t support fast growth
•
Mosquito Magnet: The timing was perfect: The West Nile virus scare had elevated
mosquitoes from irritating nuisances to life-threatening disease carriers. Mosquito
Magnet quickly became one of the top-selling products. When it expanded
manufacturing from its low-volume Rhode Island facility to a mass-production plant in
China, quality dropped. Consumers became angry, and a product that was saving lives
almost went off the market.
#2: The product falls short of claims and gets bashed.
•
Microsoft Vista: In 2007, when Microsoft launched Windows Vista, the media and the
public had high expectations. So did the company, which allotted $500 million for
marketing and predicted that 50% of users would run the premium edition within two
years. But the software had so many compatibility and performance problems that even
Microsoft’s most loyal customers revolted.
#3: The new item exists in “product limbo.”
•
Coca-Cola C2 (2004): The product had half the calories and carbs and all the taste of
original Coke, was introduced with a $50 million advertising campaign. However, the
budget couldn’t overcome the fact that C2’s benefits weren’t distinctive enough. Men
rejected the hybrid drink; they wanted full flavor with no calories or carbs, not half the
calories and carbs. And the low-carb trend turned out to be short-lived.
* Harvard Business Review, April 2011
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Entering into a Market
 Top 5 reasons why most product launches fail*
#4: The product defines a new category and requires substantial consumer
education—but doesn’t get it.
•
Febreze Scentstories: In 2004 P&G launched a scent “player” that looked like a
CD player and emitted scents (contained on $5.99 discs with names like
“Relaxing in the Hammock”) every 30 minutes. The company hired the singer
Shania Twain for its launch commercials. This confused consumers, many of
whom thought the device involved both music and scents, and the ambiguity
caused Scentstories to fail.
#5: The product is revolutionary, but there’s no market for it.
•
The Segway: Ads showing riders who looked like circus performers perching on
weird-looking chariots didn’t help, nor did the price tag—$5,000. Instead of selling
10,000 machines a week, as Kamen had predicted, the Segway sold about
24,000 in its first five years.
* Harvard Business Review, April 2011
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Entering into a Market
 Advantages for Early Adopters
•
Reaping of product benefits
•
Rogers, who studied the diffusion of new technologies such as hybrid seeds and
chemical fertilizers among farmers found that by adopting early they were able
see increases in profits early, thus gaining an advantage over later adopters
 Problems for Early Adopters
•
The ‘early adopter tax’
•
•
In September 2007, Apple dropped the US price of its new 8GB iPhone
(introduced June 29, 2007) from $599 to $399.
The bugs associated with early versions of new products
•
•
Microsoft Vista, Google TV (Meant to revolutionize the way we watched both streaming
and live TV content, Google announced its $299.99 set top box in June of 2010., but
failed to establish relationships with any content providers. Still available but Google is
now championing Chromecast as its stream-to-TV solution.
The chance that the technology in question may be quickly usurped by
another
•
as HD DVD was by Blu-ray
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Factors Influencing Competitive Forces
 Factors influencing industry Competition
• Number Competitors
• Growth Potential
• Capacity
Competitors
• Complexity
Rivalry
• Intense rivalry if many
companies
• ↑ rivalry if ↑ growth
potential & high profits
• Private Space Shuttles
v. Commercial Airlines
• Genetic Research v.
Hot Dog Stands
• Flexibility through customization, volume
and variety
• Agile Companies
• Sustainable Advantage through Innovation
• Apple
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Factors Influencing Competitive Forces
 Factors discouraging/encouraging new competitors
• Economies of Scale
New Entrants
• Proprietary Products
• Brand Identity
Competitors
• Distribution Channels
• Production of large
outputs at lower costs
than smaller rivals
• Patents
• Coca-Cola v. Top Soil
• Easy Access?
• Capital Requirements
• Supermarkets v.
Jewelry Stores
• Network Broadcasting
v. Lemonade Stands
• Cost to start new Bank
• Retaliation
• Airlines v. Slide-rulers
• Profit Margin
• Government Policy
Rivalry
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Factors Influencing Competitive Forces
 Factors influencing supplier power
• Concentration
• Differentiation (branding)
New Entrants
• Volume
Competitors
Vendors
• DeBeers v. Diing Sen
• Rolls Royce
• Is the industry vital to
the supplier? Can
suppliers easily find
new customers?
Rivalry
• Strength of Distribution Channels
• Lowest cost?
• Switching Costs
• Microsoft for Linux?
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Factors Influencing Competitive Forces
 Factors influencing buyer power
• buyer concentration to
firm concentration ratio
• Information
New Entrants
• Many buyers/Few
Suppliers
Competitors
• Surfers v. unaware
Customers.
Vendors
• Importance of volume
• Price Sensitivity
Buyers
Rivalry
• Calpers/Walmart
• Necessary (electricity)
v. impulse buying
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Factors Influencing Competitive Forces
 Factors influencing Substitutes
• Switching Costs
• Buyer inclination to
substitute
New Entrants
• DVD v. VCR
• iPod
Competitors
Vendors
• Price-Performance
Buyers
Rivalry
Substitutes
• Trade-off substitutes
• Does it give a good
‘bang for the buck?”
• Heating (necessary) v.
impulse buying
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What Competitive Strategies are available?
 Cost Leadership
• Becoming a low-cost producer of products and services
• Finding ways to help suppliers and customers reduce
their costs
• Increase costs of competitors
Example?
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What Competitive Strategies are available?
 Differentiation
• Developing ways to differentiate a firm’s products and
services from its competitors’
• Reduce the differentiation advantages of competitors
Examples?
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What Competitive Strategies are available?
 Innovation
• 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
Examples?
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What Competitive Strategies are available?
 Growth
• 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
Examples?
electrical and electronic equipment, plastics,
aircraft engines, medical imaging
equipment, and financial services
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What Competitive Strategies are available?
 Alliance
• Establishing new business linkages and alliances with
customers, suppliers, competitors, consultants, and other
companies
Examples?
Proctor and Gamble
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How does that work?
• In the early 1990’s, Wal-Mart invited its major suppliers to
jointly develop powerful supply chain partnerships
• The Wal-Mart/Procter & Gamble (P&G) alliance incorporated
vendor-managed inventory, category management, and
other inter-company innovations.
• For example, P&G monitors and replenishes all of the
merchandise at Wal-Mart Stores (Wal-Mart does not place
any orders, although occasionally it reviews P&G’s orders)
• Based on in-store sales, P&G also modifies it product mix
• The outcome has been increased sales and JIT inventory,
resulting in increased sales/profits for both Wal-Mart and
P&G
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How do Information Systems help in This?
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Additional Competitive Advantage Tactics
 Locking in customers or suppliers:
• McKesson Drugs, as well as others, have developed
their own proprietary automated dispensing and
reporting systems along with consulting services to
deepen their relationships with clients.
• Airlines and hotels have benefited from frequent flier
and frequent guest (Loyalty) programs
• These programs are possible because companies
keep more information about their customers'
historical purchasing patterns. Retailers collect
detailed information on individual customers' buying
patterns. These methods require tracking individual
customer purchases over time, establishing accounts
for each
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Additional Competitive Advantage Tactics
 Locking in customers or suppliers:
 Building switching costs:
• 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.
• The benefits (of Frequent Flier/Frequent guest programs)
become part of the total switching costs: Either the
customer loses them (a customer switching cost) or the
new carrier matches them (a supplier switching cost).
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Additional Competitive Advantage Tactics
 Locking in customers or suppliers:
 Building switching costs:
 Raising barriers to entry:
• Without the technology in use by the industry (e.g.,
ATMs) new entrants would be at a severe disadvantage
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Additional Competitive Advantage Tactics




Locking in customers or suppliers:
Building switching costs:
Raising barriers to entry:
Leveraging investment :
• Using investments in information technology that have
developed new products and services that can not be
duplicated without a strong IT capability.
• For example, the use of intranets and extranets which
enables them to leverage previous investments in web
browsers, PCs, servers and client-server networks.
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An early example of SIS
 American Airlines/SABRE Systems*
•
In the late 1950s, IBM and American Airlines team up to form SABRE (the SemiAutomatic Business Research Environment), the first major system to use interactive,
real-time computing, reservation system.
•
In 1960 the system was installed, the system processed 84,000 telephone calls/day
•
In 1964, the SABRE system becomes the largest (nationwide) commercial real-time
data-processing system in the world. American Airlines saves 30% on labor costs.
•
In 1976, the SABRE system is installed in a travel agency for the first time, triggering
a wave of travel automation, known as Global Distribution Systems (GDSs), or
computerized reservation systems.
•
In a 1984 study it was found that travel agents selected the flight appearing first more
than half the time (which of course was AA). Tsk-Tsk
•
In 1985, easySABRE intended for PC use was released
•
In 1986, AMR spins-off SABRE as an independent entity
•
In 2000, AMR sells its remaining shares.
* Taken from various sources
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An early example of SIS
 AMR’s Decision on SABRE: Good/Bad Choice??*
•
With the popularity of the Internet, Airlines assumed that the middlemen (agents) were
headed for extinction, and that customers would go to their websites or websites
which hooked-up directly to their computers. Why pay agents?? Why continue their
own websites which were expensive to develop and maintain??
•
The loss of direct commissions from airlines made agents more reliant on GDSs, who
provided them with commissions (ultimately provided by airlines) and back-office
computing
• The result??
•
According to Take Travel Forward (an airline lobby group), most flights booked
through a GDS costs the airline about $12 per round trip
•
This costs the airlines about $7B per year, more than double the (projected, 2012)
airline industry net profits of $3B.
* Taken mostly from The Economist, August 25th, 2012
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Another example of SIS
 JetBlue Airlines
• At a time when airlines (especially
low-cost airlines) have failed
JetBlue (founded 1999) has
prospered.
• 2009 Revenues: $3.286 billion
• JD Powers 2010 rankings of low-cost carriers:
1. JetBlue Airways
2. Southwest Airlines
3. WestJet
4. AirTran Airways
5. Frontier Airlines
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Another example of SIS
 Some Reasons
• Combination reservation system and accounting system
• Supports customer services and sales tracking
• Electronic tickets
• No paper handling or expense
• Encourages online ticket purchases
• Avoids travel agents
• Significant cost savings
• Automated Maintenance Systems
• Logs all airplane parts and time cycles
• Reduced tracking costs
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Another example of SIS
 Some Reasons
• Flight planning software
• Maximize seats occupied on a flight
• Reduced planning costs
• In-house software for tracking operational data
• Updated on a flight by flight basis
• Systems are accessible by all employees
• Employees are given wireless devices so they can
Report and respond to irregular events
• All training records are stored electronically
• Do not use the hub and spoke routing
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Another example of SIS
 Some Reasons
•
•
•
•
•
•
•
•
Paperless Cockpits
Pilots provided with laptops
Live TV through contract with DirecTV
Excellent on-schedule arrivals/departures
Fewest mishandled baggage
Rapid check-in times
Partnership
In 2009, signed a 6 year strategic agreement with
Verizon Business to manage its IT data center and
network needs, as well as provide security and IT
consulting services.
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Customer Focused Businesses
 Business that:
• provide top-quality customer service
• respond to customer interests and concerns
• anticipate customers’ future needs
Such as?
Consider Hilton Hotels Reservations World-Wide (HRW)
• 2,400 hotels in 65 Countries
• 31M calls, 9M reservations annually
• Average time to complete reservation: less than 2 minutes
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How?
Customer Orders
Placed Directly
Create/Revise
as necessary
Customer
Database
OR
Distribution Partner Orders
(e.g., Expedia, Priceline)
Transaction
Database
View customer
Information
Employees
(Intranet/Extranet)
Build Web
Community
(Customers,
Providers,
Partners)
Check/Revise
Reservation
Personalize
Service
(Internet/Extranet)
Customers and
Distribution Partners
(Internet/Extranet)
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Value Chains
 Viewing 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.
• Primary processes add to revenues (Line)
• Support Processes are intended to assist primary
processes (Staff)
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Value Chains and Strategic IS
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Using IT for Strategic Advantage
 Organizational Redesign
• The use of self-directed cross-functional or multidisciplinary process teams
 Business Process Reengineering
• Fundamental rethinking and radical redesign of business
processes to achieve dramatic improvements in cost,
quality, speed, and service.
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Using IT for Strategic Advantage
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Agile Companies
• Agility is the ability to prosper:
• In rapidly changing, continually fragmenting global markets
• By selling high-quality, high-performance, customerconfigured products and services
• By using Internet technologies to integrate and manage
business processes.
• An agile company profits in spite of:
• Broad product ranges
• Short model lifetimes
• Arbitrary lot sizes
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Agile Companies
• Support mass customization: Providing individualized
products while maintaining high volumes of production.
• Presents products as solutions to customers’ problems
• Cooperates with customers, suppliers and competitors
• Brings products to market as quickly and cost-effectively as
possible
• Organizes to thrive on change and uncertainty
• Leverages the impact of its people and the knowledge they
possess
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2
Agile vs. ‘Staid’ companies
Performance
Agile
Staid
Measurement
New Products
8.8
3.2
Percent of 2004 sales from new products introduced in
previous three years. Average = 5.6%
Modified
Products
35
13
Average percent of 2004 sales from modified products
introduced in previous three years. Average = 22.5%
Growth
+7
-10
Average annual percentage growth 2002-2004 (relative to
industry average). Average growth = 6.8% per annum
Profit Growth
+37
-13
Average annual percent change in ROE 2002-2004
(relative to industry average). Average = 0.5%
From: "Business Agility & IT Portfolios," MIT Sloan School of Management, Center for Information Systems Research, Summer Session
3, June 2006, data from 649 firms, National Science Foundation grant number IIS- 0085725. Agile = Average of firms above sample
mean on percent of sales from new products (i.e., 5.6%). Staid = Average of firms below sample mean. Copyright © Massachusetts
Institute of Technology, 2006. This work was created by MIT’s Sloan Center for Systems Research (CISR)
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IT and Agile Companies
Agile companies are IT Savvy. An IT Savvy firm uses a digital platform to integrate a set of
electronic business processes and the technologies, applications, and data supporting these
processes. Managers in these companies elevate their firm's performance by a consistent
use of IT. They use disciplined core processes and then apply the resulting data to both
operational and strategic decision-making tasks
• Business Value – firms with above average IT spending & IT Savvy had net margins 20%
above their industry's median
• Profitability via sharing – firms with above average percentage of shared applications & it
savvy have return on assets 30% above their industry's median
• Time to market – firms with above average IT infrastructure spending & IT savvy grew 3
percentage points higher than their industry's average
• IT-enabled business investments – top-performing companies (IT savvy) can get up to 40%
more value
"IT Savvy – What Top Executives Must Know to Go from Pain to Gain," Peter Weill & Jeanne W. Ross, Harvard Business Press, 2009,
pp. 4–5
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IT and Agile Companies
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Creating a virtual company
• An organization that uses information technology to link
people, organizations, assets, and ideas.
• Creation of 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.
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Virtual company strategies
•
•
•
•
Share infrastructure and risk with alliance partners.
Link complementary core competencies
Reduce concept-to-cash time through sharing.
Increase facilities and market coverage.
• Gain access to new markets and share market or customer
loyalty.
• Migrate from selling products to selling solutions
Example?
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Virtual company strategies
 Cisco Systems
• The world’s largest supplier of telecommunications product; manufacturer of
none
• Online orders arrive simultaneously at
Cisco (San Jose) and Jabil Circuit (St.
Petersburg, FL).
• Jabil builds the product from 3 on-site warehouses: 1 owned
by Jabil, 1-owned by Cisco, 1 owned by Hamilton Standard
• Product is tested, checked against the order (at Cisco) and
shipped (by Jabil)
• Jabil and Hamilton Standard send bills to Cisco
• Cisco sends bill to customer
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Knowledge Creation Companies
• “learning organizations” or “organizational learning”
• Creating new business knowledge, disseminating it widely
throughout the company, and quickly building the new
knowledge into their products and services.
What does “knowledge” mean?
• Includes processes, procedures, patents, reference works,
formulas, best practices, forecasts, and fixes
• Explicit knowledge: data, documents, things written down
or stored on computers
• Tacit knowledge: the “how-tos” of knowledge, which
reside in workers
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Knowledge Management Systems (KMS)
• Manages organizational learning and know-how
• Helps knowledge workers create, organize, and make
available important knowledge
• Makes this knowledge available wherever and whenever it
is needed
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Knowledge Management
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Summary
 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
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??? Any Questions ???
You Moron!!
I know Evrythin!!!