Competing with Information Technology

1. Competing with Information Technology

2. Learning Objectives • Identify several basic competitive strategies and explain how they can use information technologies to confront the competitive forces faced by a business. • Identify several strategic uses of Internet technologies, and give examples of how they give competitive advantages to a business. • Give examples of how business process reengineering frequently involves the strategic use of Internet technologies.

3. Learning Objectives 4. Identify the business value of using Internet technologies to become an agile competitor or to form a virtual company. 5. Explain how knowledge management systems can help a business gain strategic advantages.

4. Section I Fundamentalsof Strategic Advantage Strategic IT • Supports Efficient Business Operations • Workgroup or Enterprise Collaboration • Effective Business Decisions Real World Case 1- GE, Dell, Intel, and Others Click to go to Case 1

5. Strategic Advantage Competitive Strategy Concepts Strategic Information Systems • Support Competitive Position • Can Be Any Kind of Information System • Gain Competitive Advantage • Reduce a Competitive Disadvantage

6. Strategic Advantage Cost Leadership Differentia- tion Innovation Competitive Strategies Growth Alliance Other Strategies Rivalry of Competitors Threat of New Entrants Threat of Substitutes Bargaining Power of Customers Bargaining Power of Suppliers Competitive Forces

7. Strategic Advantage Other Competitive Strategies • Lock in Customers • Lock in Suppliers • Switching Costs • Barriers to Entry • Leverage Investment in IT

8. Strategic Advantage Wal-Mart and Others • Satellite Network Linking all Point-of-Sale Terminals • Immediate Sales and Inventory Information • Extended to Customers and Suppliers • Interenterprise Information Systems • Stockless Inventory Replenishment Systems

9. Value Chain & Strategic IT Support Processes • Administrative Coordination and Support Services • Human Resources Management • Technology Development • Procurement of Resources

10. Value Chain & Strategic IT Primary Business Processes • Inbound Logistics • Operations • Outbound Logistics • Marketing and Sales • Customer Service

11. COMPETITIVE ADVANTAGE Value Chain & Strategic IT The Value Chain of a Firm Administrative Coordination & Support Services Collaborative Workflow Intranet Human Resources Management Employee Benefits Intranet SUPPORT PROCESSES Technology Development Product Development Extranet with Partners Procurement of Resources E-Commerce Web Portals for Suppliers Inbound Logistics Outbound Logistics Marketing & Sales Customer Service Operations PRIMARY BUSINESS PROCESSES Computer- Aided Flexible Manufactu- ring Customer Relation- ship Manage- ment Online Point-of-Sale And Order Processing Automated Just-in-Time Warehousing Target Marketing

12. Using IT forStrategic Advantage Section II Strategic Uses of IT • Major Competitive Differentiator • Use IT to Develop Competitive Advantage Real World Case 2- Intec Engineering: Click to go to Case 2

13. Using IT forStrategic Advantage Building a Customer-Focused Business • Building Customer Value • Fast Response to Individual Customer Needs • Use of Internet, Intranets, and Extranets

14. Using IT forStrategic Advantage Hilton Hotels • Hilton.Com Reservation System • Services Tailored Automatically to Last Visit • High Level of Personalization • Deeper Personal Relationship • Direct-to-Customer Business Model Via the Web

15. Building Customer Value Customer Place Orders Directly Customer Orders Through Partners Customer Database by Preferences & Profitability Internet Intranets Extranets Transaction Database Customer Database Customers Linked With Distribution Web Personal- ization Builds Loyalty Customers Check Own History Employee View of Customer is Complete Intranets Extranets Internet Intranets Build a Web Community of Customers, etc.

16. Business Improvement Business Reengineering Incremental Radical Improved New Version of Process Brand New Process Existing Processes Clean Slate One-time or Continuous Periodic One-time Change Long Short Broad, Cross- Functional Narrow, Within Functions Past and Present Future Bottom-up Top-down Cultural Cultural Structural Statistical Control Information Technology Moderate High Reengineering Business Processes Level of Change Process Change Starting Point Frequency of Change Time Required Typical Scope Horizon Participation Path to Execution Primary Enabler Risk

17. Order Management Process CO NFIGURATION COLLECTIONS COMMITMENT P R O P O S A L CHECK ING DELIVERY BILLING C REDIT Business Processes SALES Business Functions MANUFACTURING FINANCE LOGISTICS

18. Order Management Process Johnson Controls: Success with Reengineering • Web-Based Reengineering Project • Fixing a Problem During Engineering Costs 1/10 of Correction at the Prototype Stage • Web-Based Collaboration Saved 80% on R&D Investments

19. Reengineering Order Management • Customer Relationships Using Intranets and the Internet • Supplier Managed Inventories Using the Internet • Cross-Functional ERP Software Integrating Manufacturing, Distribution, Finance, and Human Resource Processes • Customer-Access to Web Order Entry, Status-Checking, Payment, and Services • Customer, Product, and Order Status Databases accessed via Intranets and Extranets by Employees and Suppliers

20. Reengineering Order Management Agilent Technologies: Failure in Reengineering • Rocky ERP Reengineering Project • Lost $105 Million in Revenue and $70 Million in Profits • Implementation Disruptions More Extensive than Expected • ERP Changes Affect People, Processes, Policies, and Company Culture

21. Becoming an Agile Company • Customers Perceive Products and Services as Solutions to their Individual Problems • Cooperates with Customers, Suppliers, and Even Competitors to Bring Products to Market Quickly and at Lowest Cost • Organized to Thrive on Uncertainty • Leverages the Impact of its People and Knowledge

22. Becoming an Agile Company Dell Computer – Agility in Action • Customer-Focused Company • Champion of Mass Customization • Build-to-Order Business Model • 25,000 on a Typical Day • Tight Supply Chain Management • Rarely More than Two Hours Worth of Parts Inventory

23. The Virtual CompanyInterenterprise IS Alliance - Subcontractors Boundary of a Firm Alliance - Major Supplier Customer Response and Order- Fulfillment Teams Intranets Alliance - Major Customer Extranets Manufacturing Teams Alliance - Small Suppliers Alliance - Complementary Services Cross-Functional Teams Engineering Teams

24. Virtual Company Strategies • Share Infrastructure and Risk with Alliance Partners • Link Complementary Core Competencies • Reduce Concept-to-Cash Time Through Sharing • Increase Facilities and Market Coverage • Gain Access to New Markets and Share Market or Customer Loyalty • Migrate from Selling Products to Selling Solutions

25. Virtual Company Strategies Cisco Systems: Virtual Manufacturing Alliances • Alliances Create a Virtual Manufacturing Company • Three Companies Involved in the Alliance • Provides and Agile Build-to-Order Capability in Fiercely Competitive Industry

26. Knowledge Creating Company Learning Organizations Knowledge Management Explicit Knowledge Knowledge Management Systems (KMS)

27. Knowledge Management Enterprise Intelligence Information Creation, Sharing, and Management Document Management

28. Knowledge Management Siemens AG: Global Knowledge Management System • Stop Employee Problem of Knowledge Hoarding • Created ShareNet Web Site • Profitable Real-time Worldwide Collaboration Real World Case 3- Yellow, JetBlue and Gentex: Click to go to Case 3

29. Summary Strategic Uses of Information Technology • Cut Costs • Differentiate and Innovate Products and Services • Promote Growth • Develop Alliances • Lock in Customers & Suppliers • Create Switching Costs • Create Barriers to Entry • Leverage IT Investment • Develop Competitive Advantage

30. Summary Building a Customer-Focused Business • Develop Business Value • Make Customer Value the Strategic Focus • Use of Internet, Intranets, and Extranets to Track and Serve Customer Needs and Interests • Provide Services Tailored to Specific Customer Needs

31. Summary Reengineering Business Processes • Enable Radical Changes to Business Processes • Improves Efficiency and Effectiveness • IT Supports Innovative Changes in Work Flows, Job Requirements, and Organizational Structures in a Company

32. Summary Becoming an Agile Company • Rapid Response to Market Changes • Broad Product Ranges • Short Model Lifetimes • Heavy Dependence Upon IT to Respond to Customer’s Unique Situations • Enhance Cost Effectiveness

33. Summary Creating a Virtual Company • Use of Internet and IT Provide Computing and Communications Resources • IT Enables Management of a Network of People, Knowledge, Financial, and Physical Resources • Takes Advantage of Rapidly Changing Markets

34. Summary Building a Knowledge-Creating Company • Creates a Lasting Competitive Advantage • Innovative Use of Organization Knowledge • Supports Development and Management of New Organization Knowledge • Integrates Into New Products and Services

35. KEY TERMS Agile Competitor Business Process Reengineering Competitive Forces Competitive Strategies Creating Switching Costs Customer-Focused e-business Identifying e-business and e-commerce Strategies Knowledge-Creating Company Knowledge Management System

36. KEY TERMS Leveraging Investment in IT Locking in Customers and Suppliers Raising Barriers to Entry Strategic Information System Strategic uses of Information Technology Strategic uses of Internet Technologies Total Quality Management Value Chain Virtual Company

37. Optional Case Studies Click to go to Case 1 Real World Case 1 G.E., Dell, Intel, and Others: The Competitive Advantage of I.T. Real World Case 2 Intec Engineering Company: The Strategic Value of Knowledge Information Systems Click to go to Case 2 Real World Case 3 Yellow, JetBlue, and Gentex: Using I.T. for Competitive Advantage Click to go to Case 3 Real World Case 4 CDW and Harrah’s Entertainment: Developing Strategic Customer-Loyalty Systems Click to go to Case 4

38. Next... Computer Hardware Module II – Information Technologies Chapter 3

39. GE - Dell - Inteland Others: Case 1 • Do you agree with the argument made by Nick Carr to support his position that IT no longer gives companies a competitive advantage? Why or why not? The Competitive Advantage of Information Technology Return to Chapter 2 Return to Cases Page

40. GE - Dell - Inteland Others: Case 1 Discussion points would include the following: • IT costs now the same as other traditional costs and as such do not have as great an impact on a company’s strategic planning. • If all companies in an industry invest in similar levels of IT then IT cannot be a strategic advantage to a given company. • The IT infrastructure changes rapidly and requires a continual investment in new IT and impacts a company’s strategic planning. • The IT infrastructure’s continual improvements allow a company to adjust the mix of traditional resources such as physical and human resources.

41. GE - Dell - Inteland Others: Case 1 2. Do you agree with the argument made by the business leaders in this case in support of the competitive advantage that IT can provide to a business? Why or why not? The Competitive Advantage of Information Technology

42. GE - Dell - Inteland Others: Case 1 Discussion points would include the following: • The productivity lifeblood for a service oriented company is IT and not plants and equipment. • How it is used determines the competitive advantage of the IT infrastructure. • Some segments of the IT infrastructure are reaching maturity and not much can be gained by additional changes; however other areas aren’t close to maturity and gains in competitive advantage can still be made. • All companies are not at the same level of IT usage and you cannot generalize that increased IT expenditures no longer have value to a company.

43. GE - Dell - Inteland Others: Case 1 3. What are several ways that IT could provide a competitive advantage to a business? Use some of the companies mentioned in this case as examples. Visit their websites to gather more information to help you answer. The Competitive Advantage of Information Technology

44. GE - Dell - Inteland Others: Case 1 Ways to provide a competitive advantage may include: • Improve the customer relationship management system. • Create new uses for information to remain competitive. • Leveraging the knowledge-capital as an integral part of strategic planning. • Determining the best mix of knowledge, software and hardware to be highly competitive.

45. GE - Dell - Inteland Others: Case 1 Ways to provide a competitive advantage may include: • Improve the customer relationship management system. • Create new uses for information to remain competitive. • Leveraging the knowledge-capital as an integral part of strategic planning. • Determining the best mix of knowledge, software and hardware to be highly competitive. • Improve the value chain for the company. Return to Chapter 2 Return to Cases Page

46. Intec Engineering: Case 2 The Strategic Value of Knowledge Management Systems • What is the potential value for competitive advantage that a business might gain from knowledge management systems? Why might this value be difficult to measure? Return to Chapter 2 Return to Cases Page

47. Intec Engineering: Case 2 Discussion points would include the following: • Quickly building new knowledge into its products and services. • Facilitate organizational learning and knowledge creation. • Provide rapid feedback to knowledge workers by encouraging behavior changes in employees and improving business performance. • Help company become more innovative as an agile provider of high-quality products and customer services. • Help company become a formidable competitor in the marketplace.

48. Intec Engineering: Case 2 The Strategic Value of Knowledge Management Systems 2. Do you approve of how Intec Engineering is measuring the value of their KMS? Why or why not? How else could the strategic value of their KMS be measured?

49. Intec Engineering: Case 2 Points to consider would include: • The value of the KMS can be quantified. • The quality of the KMS is not adequately measured. • The focus on measuring the value of the KMS permits Intec to consider the value of their employees’ time. • The real value is one of Intec being able to expand its knowledge base through questions being answered.

50. Intec Engineering: Case 2 The Strategic Value of Knowledge Management Systems 3. Does Intec’s knowledge management system give them a competitive advantage? Give several examples from the case to support your answer.