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Chapter 2: Competing with Information Technology -Objectives

Chapter 2: Competing with Information Technology -Objectives. Identify basic competitive strategies and explain how IT may be used to gain competitive advantage. Identify strategic uses of information technology.

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Chapter 2: Competing with Information Technology -Objectives

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  1. Chapter 2: Competing with Information Technology -Objectives • 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.

  2. Real World Case 1 – WESCO International, Inc. • 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?

  3. 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.

  4. 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.

  5. Porter’s Competitive Forces Model • 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

  6. PORTER’S MODEL FOR KODAK Bargaining power of customers: Consumers in small town, USA Consumers in metropolitan areas in USA Canadian and Mexican consumers Other foreign consumers Potential new entrants: Foreign and US film and camera manufacturers Substitute products: -Digital imaging -Digital photos -Photo-quality digital printers Kodak Film and film processing Competitors: Canon, Fuji Photo Film and Nikon Bargaining power of suppliers: U.S. film/camera component/imaging materials manufacturers Foreign film/camera component manufacturers

  7. 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.

  8. 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 GNC-branded products.

  9. Examples of businesses defending themselves against the five competitive forces: • 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.

  10. 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.

  11. Value Chain Model • 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.

  12. 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.

  13. The value chain of a firm

  14. Using IT for Strategic Advantage • 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

  15. Customer focused business • 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 • How do Hilton Hotels use IT to build a customer-focused business? (mini case, on page 51.)

  16. Reengineering the processes • Business Process Reengineering (BPR) • Rethinking & redesign of business processes • Combines innovation and process improvement • There are risks involved.

  17. BEFORE REENGINEERING A mortgage applicant Bank Specialists Entering the application into its computer system Accessing the application individually closing Filling out a paper loan application approved 17 DAYS AFTER REENGINEERING Loan originators Software Specialists Accessing the application electronically together, as a team closing Entering the Mortgagee application into Laptop computers Checking the Application transaction approved 2 DAYS

  18. Improving quality • Total Quality Management (TQM) • Quality from customer’s perspective • Meeting or exceeding customer expectations • Commitment to: • 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.

  19. Agile company • 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.

  20. Virtual company • 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.

  21. Virtual company • 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.

  22. Turnstone sells its products through catalogs Subcontracted Carriers ship the products to customers Third-party Company designs and prints catalogs Excel Logistics located in Ohio operates warehouses. Excel’s computers handle all order processing, shipment tracking, etc. Send the orders Virtual company Tele-marketing company takes the orders (Denver, CO) and transmits the order data to computers at the warehouses

  23. Building a Knowledge-creating company • 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.

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