Chapter 2

Competing with Information Technology

McGraw-Hill/Irwin

Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Strategic IT
Technology is no longer an afterthought in business strategy, but the cause and driver

IT can change the way businesses compete

Vital competitive networks Organizational renewal Necessary investment

Integral to success

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Competitive Strategy Concepts A strategic information system uses IT to help an organization

Gain a competitive advantage
Reduce a competitive disadvantage Meet other strategic enterprise objectives

What is Competitive Advantage?

Capability for advantage over competitive forces Leading the industry in some identifiable way Sustains profits above the industry average Hard to maintain over a long period of time
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Porters Five Forces of Competition

Rivalry of Competitors
Positive, natural, healthy

Threat of new entrants

Apple, TRS 80, Commodore, IBM, HP, Compaq, Gateway, Dell, Acer

Threat of substitutes
Salon shampoo vs Wal-Mart brand VCR vs DVD vs BluRay

Customer bargaining power

Buy from competitors or dont buy

Suppliers bargaining power

Your competitor pays in days not weeks
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Competitive Forces and Strategies

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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

Differentiation Strategy
Set a firms products apart from competitors Focus on a particular segment or niche market
Example: Dell

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Competitive Strategies (continued)

Innovation Strategy
Unique products, services, or markets Radical changes to business processes
Example: Dell

Growth Strategy
Expand companys capacity to produce
Expand into global markets Diversify into new products or services
Example: Wal-Mart

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Competitive Strategies (continued)

Alliance Strategy
Includes mergers, acquisitions, joint ventures, virtual companies Customers, suppliers, competitors, consultants, and other companies
Example: Wal-Mart uses automatic inventory replenishment by supplier

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Using Competitive Strategies

Not mutually exclusive
One alone wont usually fix the problem Generally need a combination

Innovation not necessarily differentiated

Kindle v. iPad MP3 players vs iPod Gateway made in US, relaxed office

Differentiation not necessarily innovative

Shipping more efficient but not different Telecom companies compete

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Using IT to Implement Basic Strategies

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Implementing Competitive Strategies

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Other Competitive Strategies

Lock in Customers and Suppliers
Deter them from switching to competitors

Create Switching Costs

Time, money, effort or inconvenience needed to switch to a competitor

Raise Barriers to Entry

Discourage or delay other companies from entering the market Increase the technology or investment needed to enter

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Other Competitive Strategies

Build a strong IT department Use IT to:
Take advantage of strategic opportunities Improve efficiency of business practices Develop products and services that would not be possible without a strong IT capability

Use IT to do more than automate a system, be creative

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Customer-Focused Business
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 the primary determinant of value

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Providing Customer Value

Companies that consistently offer the best value from the customers perspective
Track individual preferences Keep up with market trends Supply products, services, and information anytime, anywhere Tailor customer services to the individual

Use Customer Relationship Management (CRM) systems to focus on the customer

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Building Customer Value via the Internet

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Strategic Uses of IT
Gain a competitive differentiation
Products Services Capabilities

Somehow do things better

Just-in-time

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Business Process Reengineering

Called BRP or simply Reengineering
Radical Seeks improvements

High potential High risk Important enabler of reengineering

IT Process teams Case managers

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Role of Information Technology

Major role
Increase process efficiencies Improves communication Facilitates collaboration

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BPR Versus Business Improvement

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Cross-Functional Processes
Reengineered with
Enterprise resource planning software Web-enabled electronic business and commerce systems

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Strategies for Becoming an Agile Company Presents products as solutions to problems

Can price as a solution not cost to produce

Cooperates with customers, suppliers and competitors

Brings products to market as quickly and costeffectively as possible

Thrives on change and uncertainty

Responds to changing customer expectations

Leverages people and knowledge

Provides incentives for responsibility, adaptability, and innovation
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Creating a Virtual Company

A virtual company uses IT to link
People Organizations Assets Ideas

Inter-enterprise information systems link

Customers Suppliers Subcontractors Competitors

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Virtual Company Strategies

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