Lecture 2
Competing with
Information Technology
Why Study Strategic Management of
Information Technology?
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This lecture is based on…
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Chapter 2 “Competing with Technology”
James A. O'Brien and George Marakas.
Book Title: Management Information
Systems (ISBN: 13 9780073323091)
A full electronic lecture by the authors
can be found at:
http://www.scribd.com/doc/4545728/Competing-withInformation-Technology
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Learning Objectives
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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.
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Learning Objectives
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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.
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Why Study Strategic IT?
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Technology is no longer an afterthought
in forming business strategy, but the
actual cause and driver.
IT can change the way businesses
compete.
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Strategic View of Information
Systems
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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.
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Case #1: Does IT Matter?
Nicholas Carr:
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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.
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Case #1: Does IT Matter?
How important is IT to GE?
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Business imperative
Lifeblood for productivity
20% return on technology investments and
GE invests $2.5 to $3 billion a year
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Case #1: Does IT Matter?
Nicholas Carr:
Today’s main risk is not under using IT but
overspending on it.
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Case #1: Does IT Matter?
Michael Dell, CEO of Dell Computers
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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.
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Case #1: Does IT Matter?
Andy Grove, Chairman of Intel Corp.
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Commercial-transaction processing in
the United States and some parts of
Europe has reach maturation but that’s
only one segment of IT.
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Case #1: Does IT Matter?
A bunch of networks and computers
OR
 Hardware plus the software that
mediates and manages human
knowledge or information
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Case #1: Does IT Matter?
Charles Fitzgerald, Microsoft General
Manager
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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?
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Case #1: Does IT Matter?
Paul Strassman, former CIO of General
Foods, Xerox, Pentagon, and NASA
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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.
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Case #1: Does IT Matter?
1.
2.
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?
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Case #1: Does IT Matter?
3.
4.
5.
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.
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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.
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Mission and Competitive
Strategies
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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
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Competitive Forces and
Strategies
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Competitive Forces
Definition:
 Shape the structure of competition in
its industry.
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Porter’s Competitive Forces
Model
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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
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Competitive Strategy
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Cost Leadership Strategy
Differentiation Strategy
Innovation Strategy
Growth Strategy
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Significantly expanding a company’s
capacity to produce goods and services
Alliance Strategy
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Cost Leadership Strategy
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Becoming a low-cost producer of
products and services
Finding ways to help suppliers and
customers reduce their costs
Increase costs of competitors
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Differentiation Strategy
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Developing ways to differentiate a firm’s
products and services from its
competitors’
Reduce the differentiation advantages
of competitors
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Innovation Strategy
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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
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Growth Strategy
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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
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Alliance Strategy
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Establishing new business linkages and
alliances with customers, suppliers,
competitors, consultants, and other
companies
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Competitive Strategy
Examples
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Other Competitive Strategies
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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.
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Other Competitive Strategies
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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.
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Advantage vs. Necessity
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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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Customer-Focused Business
A business that:
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can anticipate customers’ future needs.
responds to customer concerns.
provides top-quality customer service.
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IS in a Customer-Focused
Business
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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.
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Value Chain
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Value Chain
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Case #2: Using IT to tap
Expert Know-How
U.S. DOC AskMe Knowledge
Management System
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Automated best practices
Automated experts’ profile creation
Addition of numerous methods for accessing
and delivering knowledge
Integrated real-time collaborative services
Comprehensive analytic capabilities
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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
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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.
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Case #2: Using IT to tap
Expert Know-How
2.
3.
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.
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Case #2: Using IT to tap
Expert Know-How
4.
Is the AskMe system intended to help
the DOC become a knowledgecreating organization? Why or why
not?
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Business Process
Reengineering
Definition:
 Fundamental rethinking and radical
redesign of business processes to
achieve dramatic improvements in cost,
quality, speed, and service.
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Value Chain Analysis - Disintermediation to the Consumer
Cost/
Sweate
r
Manufacturer
Manufacturer
Manufacturer
Distributor
Retailer
Customer
$48.50
Retailer
Customer
$40.34
Customer
$20.45
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BPR vs. Business
Improvement
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Stockless Inventory Compared to Traditional and Just-in-time
Supply Methods
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Cross-Functional Processes
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Agility
Definition:
 The ability of a company to prosper in
rapidly changing, continually
fragmenting global markets for highquality, high performance, customerconfigured products and services.
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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.
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Becoming an Agile Company
Dell Computer – Agility in Action
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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
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Mass Customization
Definition:
 Providing individualized products while
maintaining high volumes of production
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Agile Competitor
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Virtual Company
Definition:
 An organization that uses information
technology to link people,
organizations, assets, and ideas.
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Inter-enterprise 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.
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Virtual Company Strategies
Cisco Systems: Virtual Manufacturing
Alliances
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Alliances Create a Virtual Manufacturing
Company
Three Companies Involved in the Alliance
Provides and Agile Build-to-Order
Capability in Fiercely Competitive Industry
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Virtual Company
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Virtual Company Strategies
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Share infrastructure and risk with
alliance partners.
Link complementary core competencies.
Reduce concept-to-cash time through
sharing.
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Virtual Company Strategies
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Increase facilities and market coverage.
Gain access to new markets and share
market or customer loyalty.
Migrate from selling products to selling
solutions.
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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.
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Types of Knowledge
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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
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
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Levels of Knowledge
Management
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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.
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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
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Case #3: Shareware Grows Up
Challenge
 Getting members to really collaborate
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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.
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Case #3: Shareware Grows Up
2.
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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.
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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.
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Case #4: Customer-Loyalty
Systems
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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.
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Case #4: Customer-Loyalty
Systems
How can IT help?
 Gathering customer experience data by email 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
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Case #4: Customer-Loyalty
Systems
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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.
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Summary
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Information technologies can support many
competitive strategies including cost
leadership, differentiation, innovation, growth
and alliance.
IT can help
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Build customer-focused businesses
Reengineer business processes
Businesses become agile companies
Create virtual companies
Build knowledge-creating companies
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