Introduction to InformationSystems

Lecture 02Competing with ITHow can a business use IT to compete?

Jaeki Song

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Learning Objectives1. 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.

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Today’s Business Environment

• Increased globalization

• Increased competitive pressure

• Frequent mergers

• Rapidly changing technology

• Evolving patterns of consumer demand

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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

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Formulation of Strategy

Analysis

Mission (What)

Objectiv

es

With plan

s

Strategy (how)

ImplementationVision (where)

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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

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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

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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

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Competitive Forces

Industry Competitors

Rivalry Among Existing Firms

Bargaining Power of Channel/Buyers

Threat of ..

Threat of ..

Suppliers

New Entrants

Substitute Products

CustomersBargaining Power of Channel/Suppliers

New Entrants

Suppliers

Substitute Products

Customers

Industry Competitors

Rivalry Among Existing Firms

Bargaining Power

BargainingPower

Threat of ..

Threat of ..

Determinants of entry Barriers: Economies of scale Brand identity Proprietary product differences Switching costs Absolute cost advantages (proprietary learning curve, low-cost prod design, etc.) Government policies Expected retaliation Capital requirements Access to distribution channels

Rivalry Determinants: Industry growth rate Intermittent over-capacity Fixed costs/value added Product differences Brand identity Exit barriers .. sunk costs Informational complexity Switching costs Diversity of competition

Determinants of Customer Power

Buyer Vs. Firm concentration Dependence .. Buyer Volume Relative switching costs Buyer informationSubstitute products availability

Determinants of Supplier Power

Supplier concentration Importance of Volume to supplier Relative switching costs Impact of inputs on cost or differentiation Costs relative to total industry-purchases Differentiation of inputs Substitute inputs availability Determinants of Threat of Substitution

Relative price/performance of substitutes Buyer propensity to substitute Switching costs

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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

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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

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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

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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

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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

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Using IT for these strategies

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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

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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

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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

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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

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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

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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

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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

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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

Porter’s Value Chain Model

Firm Infrastructure (Coordination & Support Services)Automated Office Systems; Electronic Scheduling/ messaging systems; Scanning/Planning Systems

Human Resource ManagementEmployee Skills Database; Workforce planning systems

CAD SystemsTechnology Development

Procurement of ResourcesEDI with Suppliers; Centralized purchase via On-Line Electronic Bulletin Board

On-Line Data Entry system;AutomatedWarehousing system

CAM /CNC Systems

On-Line Product/ Services Delivery;Automated Shipment Scheduling Systems

Market AnalysisSystems;Computerized ordering systems

Equpt. Diagnosis & MaintenanceSystem

InboundLogistics

Operations OutboundLogistics

Marketing & Sales

After SalesService

CA

CA

CA

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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

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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

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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

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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

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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

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Knowledge issues

• What is the problem with organizational knowledge being tacit?

• Why are incentives to share this knowledge needed?

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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.

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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