Competitive Advantage
January 29 – February 2
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Introduction to Competitive Advantage:
o
Organizations may use information technology in creative ways to gain a
competitive advantage. A company gains a competitive advantage by providing
a product or service in a way that customers value more than what the
competition is able to do.
o
The textbook reiterates a point it made in the first chapter. Technology is not
nearly as important as what you do with it.
o
o
To gain a competitive advantage, you need to:

understand the business problem.

understand the available technologies capable of solving a problem.
A temporary advantage simply means that whatever you do, sooner or later the
competition duplicates what you’ve done, or even passes you with a better
system.
o
The fist mover is the company who is first to market with a new IT-based product
or service, may well capture new customers it never gives up, and it often gains
additional benefits by being viewed as an innovative market leader.

Gaining Competitive Advantage with IT Applications:
o
Businesses use four types of important IT applications to gain a competitive
advantage (p. 72):
o

Supply chain management (SCM)

Customer relationship management (CRM)
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Business intelligence (BI)

Integrated collaboration environments (ICE)
Supply chain management (SCM) tracks inventory and information among
business processes and across companies. An SCM system is an IT system that
supports supply chain management activities by automating the tracking of
inventory and information among business processes and across companies (p.
78).

A well-designed supply chain optimizes the following:

Fulfillment – ensuring the right quantity of parts for production
or products for sale arrive at the right time.

Logistics – keeping the cost of transporting materials as low as
possible consistent with safe and reliable delivery.

Production – ensuring production lines function smoothly
because high quality parts are available when needed.

Revenue and profit – ensuring no sales are lost because shelves
are empty.

Spend – keeping the cost of purchased parts and products at
acceptable levels.
o
A customer relationship management (CRM) system uses information about
customers to gain insights into their needs, wants, and behaviors in order to serve
them better (p. 81).

A front office system is the primary interface to customers and sales
channels; they send all the customer information they collect to the
database (p. 84).

A back office system is used to fulfill and support customer orders and
they also send all their customer information to the database (p. 84).
o
Business intelligence (BI) is knowledge about your customers, your competitors,
your business partners, your competitive advantage, and your own internal
operations. It gives your business the ability to make effective, important, and
often strategic business decisions (p. 85).

BI systems are the IT applications and tools that support the BI function
within an organization.
o
An integrated collaboration environment (ICE) is the environment in which
virtual teams do their work (p. 89).

Virtual teams are teams whose members are located in varied geographic
locations and whose work is supported by specialized ICE software or by
more basic collaboration systems.

Competitive Advantage Examples:
o
Federal Express created a tracking system that allowed customers to access their
database through the Internet and obtain up-to-date information about the
packages.
o
Charles Schwab offered its customers 24 hour-a-day services over the Internet in
addition to online stock trades.
o
Dell Computer allowed customers to configure their own computers directly
from the Web site.

Dell also has a competitive advantage in terms of the way it handles
inventory. Traditionally, most companies buy their supplies in advance
and leave the inventory on a shelf until someone decides to buy it.
Owning inventory can be costly because it takes money to operate a
warehouse.

Dell instead doesn’t assemble your computer until you order so that they
do not have to maintain any inventory. It does this by maintaining
information partnerships with alliance partners.

An alliance partner is a company you do business with on a regular basis
in a cooperative fashion.

An information partnership lets two or more companies cooperate by
integrating their IT systems, thereby providing customers with the best of
what they can offer.
o
Cisco Systems followed a similar path to Dell by allowing customers to
customize and configure their own products from a Web site.

Unlike Dell, Cisco is strictly a Business to Business (B2B) organization.
B2B refers to companies whose customers are primarily businesses.

Five Forces Model:
o The five forces model is used to help an organization determine if it should enter
or expand into a particular industry (p. 72).
o
Buyer power is high when your customers have many choices of whom to buy
from, and low when choices are few (p. 73).

In an industry where the buyers have a lot of power, you can use IT to
create loyalty programs that keep customers coming back to you.
o
Supplier power is high when you have few choices of whom to buy supplies
from, and low when there are many choices (p. 73).

One of the best ways to decrease supplier power is to use IT to locate
alternate sources of supply.
o
Threat of substitute products or services is high when there are many alternatives
to your product or services, and low when there are few choices (p. 74).

In many ways, IT actually is a hindrance because it makes easier for
others to create new products or services.
o
The threat of new entrants is high when it is easy for competitors to enter the
market, and low when it is hard for competitors to enter the market (p. 75).

IT can be used to create an entry barrier. An entry barrier is a product or
service feature that customers have come to expect from companies in a
particular industry. An entry barrier is a product or service feature that
customers have come to expect from companies in a particular industry.
o
High rivalry among existing competitors make an industry less attractive and low
rivalry among existing customers make an industry more attractive (p. 76).

Try to use IT to lower costs so that you can offer your products and
services cheaper than your competitors.