Chapter 2: Competing with
Information Technology -Objectives
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Identify basic competitive strategies and explain
how IT may be used to gain competitive advantage.
Identify strategic uses of information technology.
Identify the business value of using e-business
technologies for reengineering the business
processes, total quality management, to become an
agile competitor, or to form a virtual company.
Explain how knowledge management systems can
help a business gain strategic advantage.
Real World Case 1 – WESCO
International, Inc.
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Describe WESCO’s original system.
Describe WESCO’s new system.
What are the business benefits to WESCO and its
suppliers of its new e-procurement system?
Is WESCO’s new system a strategic use of IT?
Does WESCO’s new system give the company a
competitive advantage?
Strategic Information
Systems
The
strategic role of IS involves using IT to
develop products, services, and capabilities that
give company major advantages over the
competitive forces it faces in the global
marketplace.
Porter’s Competitive Forces Model
One of the most well-known frameworks for
analyzing competitiveness is Porter’s competitive
forces model.
 The company must confront five competitive forces.
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Porter’s Competitive Forces Model
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1.
2.
3.
4.
5.
The five major forces can be generalized as follows:
The bargaining power of customers
The bargaining power of suppliers
The threat of new entrants to firm’s market
The threat of substitute products and services
The rivalry for competitors within the firm's
industry
Potential new entrants:
Foreign and US film
and camera
manufacturers
Bargaining power of customers:
Consumers in small town, USA
Consumers in metropolitan areas
in USA
Canadian and Mexican consumers
Other foreign consumers
Kodak
Film and film
processing
Competitors:
Canon, Fuji Photo Film
and Nikon
PORTER’S MODEL FOR
KODAK
Substitute products:
-Digital imaging
-Digital photos
-Photo-quality
digital printers
Bargaining power of suppliers:
U.S. film/camera component/imaging materials
manufacturers
Foreign film/camera component manufacturers
Porter’s Competitive Forces Model
(cont’d)
Competitive strategies:
1. Cost leadership strategy: Producing
products/services at the lowest cost in the
industry. Ex: Wal-Mart.
2. Differentiation strategy: Distinguish the
products and services from those of its
competitors. Ex: Dell.
3. Innovation strategy: Finding new ways of
doing business. Ex: Amazon.com.
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Competitive strategies (cont’d):
4. Growth strategies: Managing regional and global
business expansion. Ex: Wal-Mart.
5. Alliances: Working with business partners. Ex:
Drugstore.com (online pharmacy) and General
Nutrition Centers (GNC) (distributor of vitamins and
health foods) formed a partnership that gave
Drugstore.com the exclusive rights to sell GNCbranded products.
Examples of businesses defending themselves
against the five competitive forces:
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Via the Internet and other telecommunication networks, Fedex
offers self-tracking of packages, thereby reducing the chance of
new companies entering the overnight delivery business.
Automobile manufacturers use computerized quality-control
systems to make steel producers (the suppliers) more conscious
of quality and reduce their bargaining power.
J.C. Penny uses an information system which allows its male
customers to select fabric, cut and size at J.C. Penny store and
obtain a custom-made suit in a week, thus reducing the
customer’s bargaining power.
Many computer companies provide their customers with free
software and other computer services, thus reducing the
customer’s bargaining power.
Domino’s Pizza’s Competitive Strategy
1. Customer dials
a special number
2. The calls are received at the
AT&T Store Locator Service Node.
3. Using an automotive number
identification system, the Store Locator finds
the address of the caller. The computer
then matches the caller’s address with the
nearest open Domino’s Pizza restaurant.
6. Delivery
5. An employee at the restaurant picks up
the phone, talks with the customer, and arranges the delivery.
4. Dials the restaurant.
Value Chain Model
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According to Porter’s Value chain model, the activities
conducted in any manufacturing organizations can be
divided into two parts: Primary activities and support
activities.
This model highlights the primary or support activities
that add a margin of value to a firm’s products and
services where IT can best be applied to achieve a
competitive advantage.
Value Chain Model
Primary activities are most directly related to the
production and distribution of the firm’s products and
services that create value for the customer. Inbound
logistics, operations, outbound logistics, marketing
and sales, and customer service.
 Support activities include procurement of resources,
technology development, human resources
management, and administrative coordination.
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The value chain of a firm
Using IT for Strategic Advantage
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IT can be used
to build a customer focused business
to reengineer business processes
to improve quality
to become an agile company
to form a virtual company
To build a knowledge-creating company
Customer focused business
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Develop a focus on the customer
 Customer value
Best value
 Understand customer preferences
 Track market trends
 Supply products, services, & information anytime,
anywhere
 Tailored customer service
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How do Hilton Hotels use IT to build a customerfocused business? (mini case, on page 51.)
Reengineering the processes
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Business Process Reengineering (BPR)
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Rethinking & redesign of business processes
Combines innovation and process improvement
There are risks involved.
BEFORE REENGINEERING
A mortgage applicant
Bank
Entering the
application
into its computer
system
Filling out a
paper
loan application
Specialists
Accessing
the application
individually
closing
approved
17 DAYS
AFTER REENGINEERING
Loan originators
Entering the
Mortgagee
application into
Laptop computers
Software
Checking the
Application
transaction
Specialists
Accessing
the application
electronically
together, as a team
closing
approved
2 DAYS
Improving quality
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Total Quality Management (TQM)
 Quality from customer’s perspective
 Meeting or exceeding customer expectations
 Commitment to:
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Higher quality
Quicker response
Greater flexibility
Lower cost
IT can help firms to achieve quality goals by helping
them simplify products or processes, make improvements
based on customer demands, reduce cycle time and
increase the quality of design and production.
Agile company
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Old businesses: Low cost, low price, mass
production, economy of scale.
New businesses: Global competition, sophisticated
customers, customized production.
An agile company can offer customized production,
product variety, bring products to market rapidly and
cost effectively. Ex: Dell Computers is an agile
competitor.
It heavily depends on IT. Ex: Flexible
Manufacturing Systems (FMS) help companies
become an agile competitor.
A business can use IT to become an agile company.
Virtual company
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IT makes the virtual corporation possible.
A virtual company is an organization that uses IT to link
people, assets, and ideas to create and distribute products and
services without being limited to physical locations or
traditional boundaries.
Virtual company
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Major attributes of VC:
Each partner brings its core competency so an-all star
winning team is created.
No single company can match what the VC can
achieve.
Resources of the business partners can be put to use
more profitably.
It is difficult to identify the boundaries of a VC.
Turnstone
sells its products
through catalogs
Subcontracted
Carriers ship
the products to
customers
Excel Logistics located in Ohio
operates warehouses.
Excel’s computers handle all order
processing, shipment tracking, etc.
Third-party
Company designs
and prints catalogs
Send the orders
Virtual company
Tele-marketing company takes
the orders (Denver, CO) and
transmits the order data to
computers at the warehouses
Building a Knowledge-creating
company
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Knowledge management enable companies to learn faster than
their competitors giving them a sustainable competitive
advantage.
The goal of knowledge management systems is to help
organizations create, organize and make available important
business knowledge whenever and wherever it’s needed in an
organization.
KMSs collect all relevant knowledge and experience in the
firm and make it available whenever and wherever it is needed
to support management decisions and business processes.