Introduction to Information
Systems
Lecture 02
Competing with IT
How can a business use IT to compete?
Jaeki Song
Learning Objectives
1. Identify basic competitive strategies and
explain how a business can use IT to confront
the competitive forces it faces.
2. Identify several strategic uses of IT and give
examples of how they give competitive
advantages to a business.
3. Identify the business value of using Internet
technologies to become an agile competitor or
to form a virtual company.
4. Explain how knowledge management systems
can help a business gain strategic advantages.
2-2
Today’s Business Environment
• Increased globalization
• Increased competitive pressure
• Frequent mergers
• Rapidly changing technology
• Evolving patterns of consumer demand
2-3
Strategy
• “the art of the general”
• What its business is, its objectives, how it defines and measures results,
who its customers are, and what its customers value
• Converts business into action by enabling an organization to achieve its
goals in an increasingly unpredictable business environment
• Strategy is about making choices that include:
• The selection of business goals
• The choice of products and services offer
• The design and configuration of policies that determine how the firm
positions itself to compete in its markets
• The appropriate level of scope and diversity
• The design of organization structure, administrative systems, and
policies used to define and coordinate work
2-4
Formulation of Strategy
Analysis
Implementation
Vision (where)
Strategy (how)
Mission (What)
2-5
Vision
• Creation of a vision
• Where the company wants to go
• What the company aspires to be
• To be clear, imaginable/compelling, exciting/desirable
• Focused: Is clear enough to provide guidance in decision making
• Feasible: comprises realistic
• Flexible:
• Communicable
• Measurable: Stake holders will clearly see that they have
attained the goal
2-6
Strategy
• How the vision will be accomplished over
specified time period
• Benchmarks to check strategy effectiveness
• Aligned with company mission and core
values
• Provides architectural bridge between
mission and vision
2-7
Mission
• What are we?
• Mission statement
• Reasons the IT function exists
• Concise statement of what business the group
is in
• Purpose and function of IT
• Review to identify for themes and ideas
• Identify core values
2-8
Competitive Forces
New
Entrants
Threat of ..
Industry
Bargaining Power of Competitors
Suppliers Channel/Suppliers
Bargaining Power
of Channel/Buyers Customers
Rivalry Among
Existing Firms
Threat of ..
Substitute
Products
2-9
Determinants of entry Barriers:
Rivalry Determinants:
Economies of scale
u Brand identity
u Proprietary product differences
u Switching costs
u Absolute cost advantages (proprietary
learning curve, low-cost prod design, etc.)
u Government policies
u Expected retaliation
u Capital requirements
u Access to distribution channels
u
u
Suppliers
Bargaining
Power
Determinants of Supplier Power
New
Entrants
Threat of ..
Industry
Competitors
Industry growth rate
u Intermittent over-capacity
u Fixed costs/value added
u Product differences
u Brand identity
u Exit barriers .. sunk costs
u Informational complexity
u Switching costs
u Diversity of competition
Bargaining
Power
Rivalry Among Determinants of Customer Power
Existing Firms
u Buyer Vs. Firm concentration
u Dependence .. Buyer Volume
Threat of u.. Relative switching costs
u Buyer information
Substitute
uSubstitute products availability
Supplier concentration
u Importance of Volume to supplier
u Relative switching costs
u Impact of inputs on cost or differentiation
u Costs relative to total industry-purchases
u Differentiation of inputs
Products
u Substitute inputs availability
Determinants of Threat of Substitution
u
Relative price/performance of substitutes
u Buyer propensity to substitute
u Switching costs
u
Customers
Competitive Forces
• If a business wants to succeed must
develop strategies to counter these forces:
• 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
2-11
Five Competitive Strategies
• Cost Leadership
•
•
•
•
Become low-cost producers
Help suppliers or customers reduce costs
Increase cost to competitors
Example, Priceline uses online seller bidding so buyer
sets the price
• Differentiation Strategy
• Develop ways to differentiate a firm’s products from
its competitors
• Can focus on particular segment or niche of market
• Example, Moen uses online customer design
2-12
Competitive Strategies (cont.)
• Innovation Strategy
• Find new ways of doing business
• Unique products or services
• Or unique markets
• Radical changes to business processes to alter the
fundamental structure of an industry
• Example, Amazon uses online full-service customer
systems
• Growth Strategy
• Expand company’s capacity to produce
• Expand into global markets
• Diversify into new products or services
• Example, Wal-Mart uses merchandise ordering by
global satellite tracking
2-13
Competitive strategies (cont.)
• Alliance Strategy
• Establish linkages and alliances with
• Customers, suppliers, competitors, consultants and other
companies
• Includes mergers, acquisitions, joint ventures, virtual
companies
• Example, Wal-Mart uses automatic inventory
replenishment by supplier
2-14
Other competitive strategies
• Lock in customers and suppliers
•
•
•
•
And lock out competitors
Deter them from switching to competitors
Build in switching costs
Make customers and suppliers dependent on the use of
innovative IS
• Barriers to entry
• Discourage or delay other companies from entering market
• Increase the technology or investment needed to enter
• Include IT components in products
• Makes substituting competing products more difficult
• Leverage investment in IT
• Develop new products or services not possible without IT
2-15
Using IT for these strategies
2-16
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.
• A strategic information system is
• Any kind of information system
• That uses IT to help an organization
• Gain a competitive advantage
• Reduce a competitive disadvantage
• Or meet other strategic enterprise objectives
2-17
Strategic IT
• IT managers need to know
•
•
•
•
Knowledgeable about new technologies
Privy to tactical and strategic plans
Be present in corporate strategy discussions
Understand technology’s strengths and weaknesses
2-18
IT Strategy
• Set of decisions made by IT and senior management
• Leads to develop technology infrastructures and human
competencies
• Relationship of technology choices to business choices
• Technology scope
• The important information applications and technologies
• Systematic competencies
• Those capabilities that distinguishes the IT services
• IT governance
• How the authority for resources, risk, conflict resolutions,
and responsibility for IT is hared among business partners,
IT management, and service providers
2-19
IT Infrastructure and Processes
• Architecture
• The technology priorities, policies, and choices that allow
applications, S/W, H/W, and data management to be
integrated into a cohesive platform
• Processes
• Those practices and activities carried out to develop and
maintain applications and manage IT infrastructure
• Skills
• IT human resource considerations
2-20
Planning IT Strategy
• Sequence of activities that transforms current
alignment state to future alignment state to
enable sustainable CA
• Actively involve IT (& business) management
in development of vision and strategies
• Strengthen degree of strategic alignment
2-21
Customer-focused business
• What is the business value in being
customer-focused?
•
•
•
•
Keep customers loyal
Anticipate their future needs
Respond to customer concerns
Provide top-quality customer service
• Focus on customer value
• Quality not price has become primary determinant of
value
2-22
How can we provide customer value?
• Track individual preferences
• Keep up with market trends
• Supply products, services and information
anytime, anywhere
• Provide customer services tailored to
individual needs
• Use Customer Relationship Management
(CRM) systems to focus on customer
2-23
Value Chain
• View the firm as a chain of basic activities
that add value to its products and services
• Activities are either
• Primary processes directly related to manufacturing
or delivering products
• Support processes help support the day-to-day
running of the firm and indirectly contribute to
products or services
• Use the value chain to highlight where
competitive strategies can best be applied
to add the most value
2-24
Porter’s Value Chain Model
Firm Infrastructure (Coordination & Support Services)
Automated Office Systems; Electronic Scheduling/
messaging systems; Scanning/Planning Systems
Human Resource Management
Employee Skills Database; Workforce planning systems
Technology Development
CA
CAD Systems
Procurement of Resources
EDI with Suppliers; Centralized purchase via On-Line Electronic Bulletin Board
Inbound Operations Outbound Marketing
Logistics
& Sales
Logistics
After Sales
Service
On-Line Data CAM /
On-Line Product/ Market Analysis Equpt. Diagnosis
Entry system; CNC Systems Services Delivery; Systems;
& Maintenance
CA
Automated
Computerized System
Automated
Warehousing
ordering systems
Shipment
system
Scheduling
Systems
CA
Business Process
Reengineering
• Called BPR or Reengineering
• Fundamental rethinking and radical redesign
• Of business processes
• To achieve improvements in cost, quality, speed and
service
• Potential payback high
• Risk of failure is also high
2-26
Agility
• Agility is the ability of a company to
prosper
• In a rapidly changing, continually fragmenting
• Global market for high-quality, high-performance,
customer-configured products and services
• An agile company can make a profit with
• Broad product ranges
• Short model lifetimes
• Mass customization
• Individual products in large volumes
2-27
Four strategies for agility
An agile company:
• Provides products as solutions to their
customers’ individual problems
• Cooperates with customers, suppliers and
competitors to bring products to market as
quickly and cost-effectively as possible
• Organizes so that it thrives on change and
uncertainty
• Leverages the impact of its people and the
knowledge they possess
2-28
Virtual Company
• A virtual company uses IT to link
•
•
•
•
People,
Organizations,
Assets,
And ideas
• Creates interenterprise information
systems
• to link customers, suppliers, subcontractors and
competitors
2-29
Knowledge Creation
• Knowledge-creating company or learning
organization
• Consistently creates new business knowledge
• Disseminates it throughout the company
• And builds in the new knowledge into its products and services
• Explicit knowledge
• Data, documents and things written down or stored on
computers
• Tacit knowledge
• The “how-to” knowledge which reside in workers’ minds
• A knowledge-creating company makes such tacit knowledge
available to others
2-30
Knowledge issues
• What is the problem with organizational
knowledge being tacit?
• Why are incentives to share this
knowledge needed?
2-31
Knowledge management techniques
Source: Adapted from Marc Rosenberg, e-Learning: Strategies for Delivering Knowledge in the Digital Age
(New York: McGraw-Hill, 2001), p.70.
2-32
Knowledge management systems
(KMS)
• KMS manage organizational learning and
business know-how
• Goal:
• Help knowledge workers to create, organize, and
make available knowledge
• Whenever and wherever it’s needed in an
organization
2-33