Chapter 2
STRATEGIC AND COMPETITIVE
OPPORTUNITIES
Using IT for Competitive Advantage
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It is all about …
Competitive Advantage
Providing a product or service in a way that customers
value more than what the competition is able to do.
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Management Information Systems
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Second Canadian Edition
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In perspective (do not be fooled) …
Its not the IT, it’s the People
It is not the information technology that gives a
company the competitive advantage; it is the way
people use the technology that makes the difference.
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Management Information Systems
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Think about it …
Like the car and its driver
The car is a Ferrari. The drivers are a regular average
everyday Chevrolet car driver, and a race-car driver.
Only the race-car driver can take full advantage of the
Ferrari by using the technology embodied into it
more effectively and appropriately.
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Management Information Systems
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Like an Architect …
The house and the Architect
To build a house to meet a certain objective you need
an Architect. To build / have an information system
(IS) you need an IS Architect that understands the
business problem and the available technologies.
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Management Information Systems
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… Main Chapter Menu…
Competitive Advantage Examples




FedEx
Schwabs
Dell
Cisco
Developing A Strategy For The Internet Age



The five forces model
The three generic strategies
The value chain
Key E-Commerce Strategies



Mass customization
Disintermediation
Global reach
The U.S. Airline Industry
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Management Information Systems
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Competitive Advantage Examples
In this book, we feel that the best way to understand
competitive advantage is by seeing it in action.
Here you have 4 examples showing you how IT is used to
gain a competitive advantage
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Management Information Systems
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Competitive Advantage Examples
Federal Express

Before






Call a 1 800 number
Listen to some music
Get your tracking number from your order ready
After a while you end up speaking with a customer service clerk
The clerk will access the database
The clerk will tell you
•
•
Whether the product has arrived or not
Who signed for the product if it has arrived to its destination
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Management Information Systems
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Competitive Advantage Examples
Federal Express

Strategy


Build an information system to allow the customer to access the
database.
Use the internet as the vehicle to deploy the information system
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Management Information Systems
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Competitive Advantage Examples
Federal Express

Now



Go to www.fedex.ca
Enter customer service area
Enter you tracking number to access the database and obtain all
the information you need
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Management Information Systems
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Competitive Advantage Examples
Federal Express

Gains

To the customer
•
•
•

Easier and less painful process to track your shipment
Less time consuming
Better information
To FedEx
•
•
Cheaper, as they would need now less customer service clerks
Happier customers
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Management Information Systems
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Competitive Advantage Examples
Federal Express
Figure 2.2
FedEx Package
Tracking Screen
page 45
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Management Information Systems
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Competitive Advantage Examples
Charles Schwab

Before





Typical brokerage business
Call offices
Speak with an agent
Get advice
Make buy/sell decisions
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Management Information Systems
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Competitive Advantage Examples
Charles Schwab

Strategy




Pioneer in the discount brokerage business
Target investors that are comfortable making their
own trades
Develop and deploy an information system to
accommodate the target investor
Embrace the internet as the technology vehicle for
attaining objectives
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Management Information Systems
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Competitive Advantage Examples
Charles Schwab

Now



www.schwab.com
Internet brokerage service
Buy/sell and get information online, in realtime and 24hrs a day.
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Management Information Systems
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Competitive Advantage Examples
Dell Computer

Before


Dell would sell its computers via retailers
Buy-hold-sell approach
•
•
•

Build computers
Stock computers on shelves in warehouse
Sell computers
Customer service all by telephone
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Management Information Systems
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Competitive Advantage Examples
Dell Computer

Strategy



Eliminate the retail middle man and sell
directly to customer
Build and deploy an information system for
purchasing
Use internet as the technology vehicle to
reach its customer for sales and service
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Management Information Systems
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All rights reserved
Competitive Advantage Examples
Dell Computer

Now


www.dell.ca
Sell-source-ship
•
•
•

Dell receives an order by internet
Dell outsources to initiate the construction of the computer
sold
Dell then ships the product
Top of the line automated customer care component
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Management Information Systems
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Competitive Advantage Examples
Dell Computer
On Your Own

Information
partnership - lets two
or more companies
cooperate by
integrating their IT
systems.
Looking for
Opportunities
Close to Home
(p. 47)
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Management Information Systems
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Competitive Advantage
Examples
Dell Computer
Figure 2.3
Buy-hold-sell versus
sell-source-ship
page 48
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Management Information Systems
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Competitive Advantage Examples
Cisco Systems

Cisco Systems - a leader in utilizing the direct sell model
over the Internet.

Business to Business (B2B) - companies whose
customers are primarily other businesses.

Business to Consumer (B2C) -companies whose
customers are primarily individuals.
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Management Information Systems
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Developing A Strategy For The
Internet Age
1.
Business people quite often use the three frameworks of
Professor Michael Porter to think about business strategies.
2.
Professor McFarland showed how these three frameworks can
also be used in coming with ideas on how information technology
can be harnessed to create a competitive advantage.
3.
Professor Porter observed that the internet provides better
opportunities for companies to establish business strategies than
previous IT.
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Developing A Strategy For The Internet Age

Porter’s three frameworks are:



The Five Forces model
The Three Generic Strategies
The Value Chain
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Management Information Systems
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Developing A Strategy For The Internet Age
The Five Forces Model
Figure 2.4
The Five Forces
Model
page 50
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Management Information Systems
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Developing A Strategy For The Internet Age
The Five Forces Model


Five forces model - determines the relative
attractiveness of an industry.
This model was intended to be used as a tool for
managers to use in deciding whether they
should enter a new market or expand in the one
they are already in.
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Developing A Strategy For The Internet Age
The Five Forces Model

Buyer power - high when buyers have many choices of
whom to buy from, and low when the choices are few.
(Less attractive market if buyer power is high)

Supplier power - high when buyers have few choices of
whom to buy from, and low when there are many
choices. (Less attractive market if supplier power is high)
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Management Information Systems
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Developing A Strategy For The Internet Age
The Five Forces Model

Threat of substitute products or services - low if there are very
few alternatives to using the product or service.



Switching costs - costs that can make customers reluctant to switch to
another product or service. If there are switching costs then it is an
advantage to the supplier.
Threat of new entrants - high when it is easy for competitors to
enter the market.
Rivalry among existing competitors – An industry is less
attractive to enter when the rivalry is high and more attractive when
it is low.
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Management Information Systems
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Developing A Strategy For The Internet Age
Using the Five Forces Model

Buyer power


Giving choices to the buyer
For example: hotel chains
•
•
•

Give points
Other loyalty programs
Cash the points for free hotel stays at one of their resort
hotels
Such programs have the effect of increasing the
likelihood that a traveler will stay at a single chain.
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Management Information Systems
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Developing A Strategy For The Internet Age
Using the Five Forces Model

Supplier power


The objective is to reduce supplier power.
How to reduce supplier power
•
•
B2B marketplace - an Internet-based service
which brings together many buyers and sellers.
Find a way to put more information into the buyer’s
hands
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Management Information Systems
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All rights reserved
Developing A Strategy For The Internet Age
Using the Five Forces Model

Threat of substitute products or services




Consider the introduction of alternative IT
products such as income tax preparation
software.
Consumers now use it.
Accountant has less clients.
Accountant livelihood is threatened.
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Management Information Systems
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Developing A Strategy For The Internet Age
Using the Five Forces Model

Threat of new entrants




It is not a good thing when it is very easy for others to enter into
your market.
Companies can use IT to develop and create barriers for others.
Entry barrier - a product or service feature that customers have
come to expect from companies in a particular industry.
A good example is what banks did:
•
•
Introduce the bank card and as many ATMs around the world as
possible.
Banking on the internet to pay bills, transfer funds and print reports.
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Management Information Systems
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Developing A Strategy For The Internet Age
Using the Five Forces Model

Rivalry among existing competitors


Using IT systems to be more efficient and
compete more strongly with others.
An example would be PRICE.
•
•
Computer systems can be bought from two
different stores but one is cheaper than the other.
This is possible when one company uses IT in
such a way to reduce its price.
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Developing A Strategy For The Internet Age
The Three Generic Strategies

Porter says that a business should adopt
only one of the three generic strategies:



Cost leadership
Differentiation
Focused strategy
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Management Information Systems
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Developing A Strategy For The Internet Age
The Three Generic Strategies
Trying to follow more than one of these
strategies at the same time is almost
always unsuccessful.
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Management Information Systems
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Developing A Strategy For The Internet Age
The Three Generic Strategies
Figure 2.5
The Three
Generic
Strategies
page 52
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Management Information Systems
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Developing A Strategy For The Internet Age
Using the Three Generic Strategies


Companies can use the three generic strategies
to change the basis of their competition to their
advantage.
If they find that they are caught in a fierce
marketplace of low pricing then they could
modify their strategy to compete of the basis of
differentiation.
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Management Information Systems
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Developing A Strategy For The Internet Age
Using the Three Generic Strategies

Amazon.com is a good example of this.




Provides competitive low prices
Informative
Easy to navigate and
Uses sophisticated software to personalize
the site for each individual.
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Management Information Systems
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Developing A Strategy For The Internet Age
The Value Chain
Once you understand how IT can help
you develop business strategy, you can
ensure that IT supports all important
business processes.
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Management Information Systems
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Developing A Strategy For The Internet Age
The Value Chain



Business process - a standardized set of activities that
accomplishes a specific task, such as processing a customer’s
order.
An important tool to visualize the important processes is Porters’
value chain.
Value chain - views the organization as a chain – or series – of
processes, each of which adds value to the product or service for
the customer.
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Management Information Systems
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Developing A Strategy For The Internet Age
The Value Chain
Figure 2.6
The Components
of a Value Chain
page 54
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Management Information Systems
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Developing A Strategy For The Internet Age
The Value Chain

Talbott (a premier necktie manufacturer in
North America) used the value chain to
better meet customer demands:



Plan for a better way of meeting customer
demands.
Identifying processes that add value.
Identifying processes that reduce value.
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Management Information Systems
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Developing A Strategy For The Internet Age
The Value Chain
Figure 2.7
The ValueAdded View of a
Necktie
Manufacturer
page 55
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Management Information Systems
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Developing A Strategy For The Internet Age
The Value Chain
Figure 2.8
The ValueReduced View
of a Necktie
Manufacturer
page 55
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Management Information Systems
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Key E-Commerce Strategies




With the Internet and the WWW, new wave of
creative entrepreneurship developed.
New ways were found to reach out to
customers and suppliers.
New never have been seen business models
were created.
A time of experimentation with some
spectacular successes and failures.
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Management Information Systems
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Key E-Commerce Strategies

The main difference between the NEW and
OLD economies is the INTERNET.

The Internet is global.

The Internet is affordable.
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Management Information Systems
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Key E-Commerce Strategies

Three capabilities made possible by the
Internet should be kept in mind by
companies searching for ways to use the
new economy to gain competitive advantage:



Mass customization and personalization
Disintermediation
Global reach
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Management Information Systems
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Key E-Commerce Strategies
Mass Customization and Personalization

Mass customization - a business gives its customers the
opportunity to tailor its product or service to the customer’s
specifications.

Personalization - a Web site can know enough about your likes and
dislikes that it can fashion offers that are more likely to appeal to
you.

Collaborative filtering - a method of placing you in an affinity group
of people with the same characteristics.
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Management Information Systems
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Key E-Commerce Strategies
Disintermediation

Disintermediation – using the Internet as
a delivery vehicle, intermediate players in
a distribution channel can be bypassed.
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Management Information Systems
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Key E-Commerce Strategies
Disintermediation
Figure 2.10
Disintermediation at
Work
page 58
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Management Information Systems
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Key E-Commerce Strategies
Global Reach

Global reach - the
ability to extend a
company’s reach to
customers anywhere
there is an Internet
connection, and at a
much lower cost.
Team Work
Finding the Best IT
Strategy for your
Industry
(p. 56)
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Management Information Systems
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The U.S. Airline Industry
Airline Reservation Systems

The airlines really began using IT in a
significant way when American Airlines
and United Airlines introduced the first
airline reservations systems.


SABRE
APPOLO
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Management Information Systems
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The U.S. Airline Industry
Airline Reservation Systems

American and United got a tremendous
competitive advantage from being the
owners of the reservation systems.


They were very profitable
They had access to information on the sales
volumes of their competitors
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Management Information Systems
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The U.S. Airline Industry
Frequent Flyer Programs

Frequent flyer programs are a great example of
using IT to alter Porter’s five forces.



They reduced buyer power by making it less likely a
traveler would choose another airline.
They reduced the threat of substitute products or
services by increasing switching costs.
They erected entry barriers by making a frequent flyer
program a practical necessity for any airline to
compete effectively.
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The U.S. Airline Industry
Yield Management Systems

Yield management systems are designed
to maximize the amount of revenue that an
airline generates on each flight.

Yield management systems are the reason
that an airfare you’re quoted over the
phone can be $100 higher when you call
back an hour later.
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Management Information Systems
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The U.S. Airline Industry
Yield Management Systems
Figure 2.11
The Payoff From Yield Management
page 61
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The U.S. Airline Industry
Disintermediating the Travel Agent


Airlines realized that agents
commissions were their third-highest
cost after payroll and fuel.
They decided to first reduce and then
eliminate travel agents commissions.
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The U.S. Airline Industry
Disintermediating the Travel Agent

What airlines did?



Offered up to 1000 frequent flyers miles to
travelers that use the web for reservation.
Toll free 800 numbers for frequent flyers
elite groups with shorter waiting times.
Introduced e-tickets.
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The U.S. Airline Industry
Disintermediating the Travel Agent

Expert surveys have
estimated that the
number of travel agents
in the U.S. will be
sharply reduced as a
result of
disintermediation.
Team Work
Helping the Little
Guy Compete
(p. 62)
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The U.S. Airline Industry
Utilizing Emerging Technologies

Permission marketing - when you have
given a merchant your permission to send
you special offers.
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Second Canadian Edition
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Summing It Up

Important considerations you should keep in
mind as you work to bring an IT competitive
advantage to your organization include:




Be efficient and effective.
Competition is all around you.
Push the state-of-the-art.
IT competitive advantages are only temporary.
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Summing It Up
On Your Own
Building on the
State of the Art
(p. 64)
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Management Information Systems
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Second Canadian Edition
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The McGraw-Hill Companies, Inc.
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Closing Case Study One
GM Tries to Lure Customers with OnStar

GM added an in-car cellular service,
OnStar, to update its image and increase
sales.

Did the OnStar system give GM a
competitive advantage?
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M
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2-62
Management Information Systems
for the Information Age
Second Canadian Edition
Copyright 2004
The McGraw-Hill Companies, Inc.
All rights reserved
Closing Case Study Two
Speedpass: Throw Away Your Plastic?

Speedpass offers a short plastic cylinder, called
a Key Tag, that transfers customer billing
information automatically.

Speedpass is an alternative to a credit card.

How is Speedpass an example of a first mover?
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2-63
Management Information Systems
for the Information Age
Second Canadian Edition
Copyright 2004
The McGraw-Hill Companies, Inc.
All rights reserved
Summary
Student Learning Outcomes
1.
2.
3.
Describe how the creative use of information
technology can give an organization a
competitive advantage.
Demonstrate how to generate ideas for using
information technology in innovative ways, and
apply tools that can help.
Describe how e-commerce technologies “up
the stakes” and give organizations even more
opportunities.
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M
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2-64
Management Information Systems
for the Information Age
Second Canadian Edition
Copyright 2004
The McGraw-Hill Companies, Inc.
All rights reserved
Summary
Student Learning Outcomes
4.
5.
Summarize how one specific industry
has consistently used information
technology for competitive advantage.
Describe how to use information
technology for competitive advantage in
an organization.
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M
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2-65
Management Information Systems
for the Information Age
Second Canadian Edition
Copyright 2004
The McGraw-Hill Companies, Inc.
All rights reserved
Summary
Assignments & Exercises
1.
2.
3.
Evaluating telemedicine
Comparing parcel delivery services
Disintermediation in the travel agent
industry
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Management Information Systems
for the Information Age
Second Canadian Edition
Copyright 2004
The McGraw-Hill Companies, Inc.
All rights reserved
Real Hot Electronic Commerce
Ordering Products On The Internet
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Books and music
Clothing and accessories
Internet auction houses
Automobiles
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Management Information Systems
for the Information Age
Second Canadian Edition
Copyright 2004
The McGraw-Hill Companies, Inc.
All rights reserved
Visit the Web to Learn More
www.mcgrawhill.ca/college/haag
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Auction houses
Books and music
Clothing and accessories
Computers
Automobiles
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M
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2-68
Management Information Systems
for the Information Age
Second Canadian Edition
Copyright 2004
The McGraw-Hill Companies, Inc.
All rights reserved