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Competing withInformation Technology
Chapter 2
Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
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Learning Objectives
Identify basic competitive strategies and explain how a business can use IT to confront the competitive forces it faces
Identify several strategic uses of IT and give examples of how they can help a business gain competitive advantages
Give examples of how business process reengineering frequently involves the strategic use of IT
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Learning Objectives
Identify the business value of using Internet technologies to become an agile competitoror to form a virtual company
Explain how knowledge management systems can help a business gain strategic advantages
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Case 1: Reinventing IT as a Strategic Business Partner
Apart from providing reliable and excellent IT services, IT should provide innovative solutions to business challenges
IT is no longer about supporting or automating a business
– It’s about innovating, improving, and reinventing it
IT is now a ground-floor business partner, rather than an after-the-fact business tool
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Case Study Questions
What business and political challenges are likely to occur as a result of the transformation of IT from a support activity to a partner role?
What implications does this shift in the strategic outlook of IT have for traditional IT workers and the educational institutions that train them?
– How does this change the emphasis on what knowledge and skills the IT person of the future should have?
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Case Study Questions
Do you agree with the idea that technology is embedded in just about everything a company does?
– Provide examples, other than those in the case, of recent product introductions that could not have been possible without heavy reliance on IT
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Strategic IT
Technology is no longer an afterthought in business strategy, but the cause and driver
IT can change the way businesses compete
A strategic information system is any information system that uses IT to help an organization…– Gain a competitive advantage– Reduce a competitive disadvantage– Or meet other strategic enterprise objectives
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Competitive Forces and Strategies
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Five Competitive Strategies
Strategies
Cost Leadership
Alliance
Growth
Innovation
Differentiation
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Using Competitive Strategies
These strategies are not mutually exclusive– Organizations use one, some, or all– A given activity could fall into one or more
categories
Not everything innovative serves to differentiate one organization from another– Likewise, not everything that differentiates
organizations is innovative
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Ways to Implement Basic Strategies
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Other Competitive Strategies
Strategy
Lock in customers and suppliers
Raise barriers to entry
Create switching costs
Build strategic IT capabilities
Leverage investment in IT
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Customer-Focused Business
Business value in customer
focus
Focus on customer value
Keeps customers loyal
Anticipates their future needs
Quality, not price, has become the primary determinant of value
Responds to customer concerns
Provides top-quality customer service
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Providing Customer Value
Use CRM systems to focus on the customer
Track individual preferences
Keep up with market trends
Supply products, services, and information
anytime, anywhere
Tailor customer services to the
individual
Companies that consistently offer the best value…
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Building Customer Value via the Internet
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The Value Chain and Strategic IS
View the firm as a chain of basic activities that add value to its products and services– Primary processes directly relate to
manufacturing or delivering products– Support processes 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 will add the most value
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Using IS in the Value Chain
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Strategic Uses of IT
Companies that emphasize strategic business useof IT use it to gain competitive differentiation
Products Services Capabilities
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Reengineering Business Processes
Called BRP or Reengineering– Fundamental rethinking and radical redesign
of business processes– Seeks dramatic improvements in cost,
quality, speed, and service
Potential payback is high, but so is risk of disruption and failure
Organizational redesign approaches are an important enabler of reengineering– Includes use of IT, process teams, case
managers
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BPR vs. Business Improvement
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The Role of Information Technology
IT plays a major role in reengineering most business processes– Can substantially increase process efficiency– Improves communication – Facilitates collaboration
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Reengineering Order Management
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Reengineering Order Management
Supplier-managed inventory systems using the Internet and extranets
Cross-functional ERP software to integrate manufacturing, distribution, finance, HR processes
CRM systems using intranets and the Internet
Customer-accessible e-commerce websites for order entry, status checking, payment, and service
Customer, product, and order status databases accessed via intranets and extranets
IT that supports the reengineering process…
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Becoming an Agile Company
Old Marketplace New Marketplace
Standardized mass-market products and
services
Long-lived
Information poor
Exchanged in one-time transactions
Global competition
Niche products
Individualized
Short-lived
Information rich
Exchanged on an ongoing basis
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Becoming an Agile Company
Agility is the ability to prosper– In rapidly changing, continually fragmenting global
markets
– By selling high-quality, high-performance, customer-configured products and services
– By using Internet technologies
An agile company profits in spite of– Broad product ranges
– Short model lifetimes
– Individualized products
– Arbitrary lot sizes
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Strategies for Agility
Presents products as solutions to customers’ problems
Brings products to market quickly and cost-effectively
Cooperates with customers, suppliers, competitors
An agile company…An agile company…
Organizes to thrive on change and uncertainty
Leverages the impact of its peopleand the knowledge they possess
Provides incentives for employeeresponsibility, adaptability, innovation
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How IT Helps a Company be Agile
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Creating a Virtual Company
Organizations Assets
IdeasPeople
A virtual company uses IT to link…
Suppliers Subcontractors
CompetitorsCustomers
Inter-enterprise information systems link…
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A Virtual Company
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Virtual Company Strategies
Basic Business Strategies
Reduce concept-to-cash
time through sharing
Share information &
risk with alliance partners
Link complimentary
core competencies
Migrate from selling products
to selling solutions
Increase facilities and
market coverage
Gain access to new markets & share market or customer loyalty
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Building a Knowledge-Creating Company
A knowledge-creating companyor learning organization…
Consistently creates new business knowledge
Disseminates it throughout the company
Builds it into its products and services
Builds it into its products and services
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Two Kinds of Knowledge
Explicit Knowledge
Data, documents, and things writtendown or stored in computers
Tacit Knowledge
The “how to” knowledge in workers’ minds
Represents some of the most important information within an organization
A knowledge-creating company makes tacit knowledge available to others
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Knowledge Management
Successful knowledge management– Creates techniques,
technologies, systems, & rewards for getting employees to share what they know
– Makes better use of accumulated workplace and enterprise knowledge
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Knowledge Management Techniques
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Knowledge Management Systems (KMS)
Knowledge management systems…
Are a major strategic use of IT
Manage organizational learning and know-how
Help knowledge workers create, organize, and
make available important knowledge
Make this knowledge available wherever and whenever it is needed
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Knowledge Management Systems (KMS)
Best practices
Reference works
Processes
Forecasts
Procedures
Fixes
Formulas
Patents
Knowledge includes…
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Case 3: Wachovia and Others
Trading Securities at the Speed of Light
– Investment companies rely on faster hardware and processing times to get an advantage over competitors
– Securities trading is one of the few business activities where a one-second processing delay can cost a company big bucks
– Wall Street’s quest for speed is not only putting floor traders out of work, but opening up space for new alternative exchanges and e-communications networks that compete with established stock markets
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Case Study Questions
What competitive advantages can the companies in the case derive from faster technology and co-location of servers with exchanges?
– Which would you say are sustainable, and which ones are temporary or easily imitable?
Tony Bishop of Wachovia stated that “Competitive advantage comes from your math, your workflow, and your processes through your systems”
– Referring to what you have learned in this chapter, develop opposing viewpoints as to the role of IT, if any, in the development of competitive advantage
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Case Study Questions
What companies in industries other than securities trading could benefit from technologies that focus on reducing transaction processing times?