Introduction to Information Systems Lecture 02 Competing with IT How can a business use IT to compete? Jaeki Song

1. Introduction to Information Systems Lecture 02 Competing with IT How can a business use IT to compete? Jaeki Song

2. 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 give competitive advantages to a business. • Identify the business value of using Internet technologies to become an agile competitor or to form a virtual company. • Explain how knowledge management systems can help a business gain strategic advantages.

3. Today’s Business Environment • Increased globalization • Increased competitive pressure • Frequent mergers • Rapidly changing technology • Evolving patterns of consumer demand

4. 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

5. Formulation of Strategy Analysis Implementation Vision (where) Objectives With plans Strategy (how) Mission (What)

6. 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

7. 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

8. 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

9. Competitive Forces New Entrants Threat of .. Industry Competitors Bargaining Power of Channel/Suppliers Bargaining Power of Channel/Buyers Customers Suppliers Rivalry Among Existing Firms Threat of .. Substitute Products

10. 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 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 New Entrants Threat of .. Industry Competitors Suppliers Bargaining Power Bargaining Power Customers Rivalry Among Existing Firms • 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 Customer Power • Buyer Vs. Firm concentration • Dependence .. Buyer Volume • Relative switching costs • Buyer information • Substitute products availability Threat of .. Substitute Products • Determinants of Threat of Substitution • Relative price/performance of substitutes • Buyer propensity to substitute • Switching costs

11. 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

12. 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

13. 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

14. 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

15. 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

16. Using IT for these strategies

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. Firm Infrastructure (Coordination & Support Services) Automated Office Systems; Electronic Scheduling/ messaging systems; Scanning/Planning Systems Human Resource Management Employee Skills Database; Workforce planning systems CA Technology Development CAD Systems Procurement of Resources EDI with Suppliers; Centralized purchase via On-Line Electronic Bulletin Board CA Operations Outbound Logistics Marketing & Sales After Sales Service Inbound Logistics On-Line Data Entry system; Automated Warehousing system Market Analysis Systems; Computerized ordering systems On-Line Product/ Services Delivery; Automated Shipment Scheduling Systems CAM / CNC Systems Equpt. Diagnosis & Maintenance System CA Porter’s Value Chain Model

26. 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

27. 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

28. 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

29. 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

30. 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

31. Knowledge issues • What is the problem with organizational knowledge being tacit? • Why are incentives to share this knowledge needed?

32. 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.

33. 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