Chapter Competing with

2 Information Technology

Chapters 2 Identify Competitive

Advantages
and 3 Strategic Initiatives For
Implementing Competitive Advantages
(Baltzan)
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
• Identify basic competitive strategies
• Explain how a business can use IT to
confront the competitive forces it faces
• Business process management concept
• Business process reengineering (BPR) and
business process improvement (BPI)
scheme as the strategic use of IT

2-2
 Strategic IT
• Technology is no longer an afterthought in
business strategy, but the cause and driver
• IT can change the way businesses compete
• A strategic information system is any
information system that uses IT to help an
organization…
– Gain a competitive advantage
– Reduce a competitive disadvantage
– Or meet other strategic enterprise objectives

2-3
 THE FIVE FORCES MODEL –
EVALUATING BUSINESS SEGMENTS
• Porter’s Five Forces Model determines the
relative attractiveness of an industry
Competitive
Forces and
Strategies

2-5
 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 the buyer sets the
price
• Differentiation Strategy
– Differentiate a firm’s products from its competitors’
– Focus on a particular segment or niche of market
• Example: Moen.com (Bathroom& Kitchen store) uses online
customer design

2-6
 Competitive Strategies (continued)
• Innovation Strategy
– Unique products, services, or markets
– Radical changes to business processes
• Example: Amazon’s 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’s merchandise ordering via
global satellite tracking
• Ebay.com
2-7
 Competitive Strategies (continued)

• 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
https://www.tradegecko.com/blog/incredibly-successful-
supply-chain-management-walmart
• Thai airways’s Star alliance
http://www.thaiairways.com/en_NZ/about_thai/company
_profile/star_alliance.page
2-8
 Using Competitive Strategies

• These strategies are not mutually exclusive

– Organizations use one, some, or all
– A given activity could fall into one or more
categories of competitive strategy
• Not everything innovative serves to
differentiate one organization from another
– Likewise, not everything that differentiates
organizations is necessarily innovative

2-9
 Other Competitive Strategies
• Lock in Customers and Suppliers
– Deter them from switching to competitors, e.g.
iphone cheap price + post-paid program
• Build in Switching Costs
– Make customers and suppliers dependent on the
use of innovative IS, e.g. stock trading: streaming
vs i2trade
• Erect Barriers to Entry
– Discourage or delay other companies from
entering the market
– E.g. brand loyalty, predatory pricing, legal patent,
etc.
http://www.economicshelp.org/microessays/marke
ts/barriers-entry/ 2-10
Strategic Uses of IT

• A company that emphasizes

strategic business use of IT would
use it to gain a competitive
differentiation
– Products
– Services
– Capabilities

2-11
The Value Chain and Strategic IS

• View the firm as a chain of basic

activities that add value to its products
and services
– Primary processes directly relate 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 will add the most
value
2-12
Using IS in the Value Chain

2-13
BUSINESS PROCESS
IMPROVEMENT METHOD

REENGINEERING –VS-
IMPROVEMENT
 USING MIS TO IMPROVE BUSINESS
PROCESSES

• Business process – a standardized set of

activities that accomplish a specific task, such
as processing a customer’s order

• Workflow – Includes the tasks, activities, and

responsibilities required to execute each step in
a business process
MANAGING BUSINESS PROCESSES

• Businesses
gain a
competitive
edge when they
minimize costs
and streamline
business
processes
 MANAGING BUSINESS PROCESSES

• Customer facing  Business facing

process - Results in a process - Invisible to the
product or service that is external customer but
received by an essential to the effective
organization’s external management of the
customer business
MANAGING BUSINESS PROCESSES

The Order-to-Delivery Process

 BUSINESS PROCESS MODELING

• Business process modeling (or mapping) - The

activity of creating a detailed flow chart or process
map of a work process showing its inputs, tasks,
and activities, in a structured sequence
• Business process model - A graphic description
of a process, showing the sequence of process
tasks, which is developed for a specific
– As-Is process model
– To-Be process model
BUSINESS PROCESS MODELING
BUSINESS PROCESS MODELING
BUSINESS PROCESS MODELING
BUSINESS PROCESS REENGINEERING

• Business process reengineering (BPR) – the

analysis and redesign of workflow within and
between enterprises
Reengineering Business Processes

• Called BPR or simply Reengineering

– Fundamental rethinking and radical redesign
of business processes
– Seeks to achieve improvements in cost,
quality, speed, and service
• Potential payback is high, but so is risk
of disruption and failure
• Organizational redesign approaches are
an important enabler of reengineering
– Includes use of IT, process teams, case
managers
2-24
EXAMPLE BUSINESS PROCESS REENGINEER
The Role of Information Technology

• IT plays a major role in

reengineering most business
processes
– Can substantially increase process
efficiencies
– Improves communication
– Facilitates collaboration

2-26
A Cross-Functional Process

• Many processes are reengineered

with…
– Enterprise resource planning software
– Web-enabled electronic business and
commerce systems

2-27
Level of Business Process Changes

2-28
Summary
• 5-force business pressures: existing competition,
threat of new entrants, threat of substitute
products, negotiating power of customers and
suppliers.
• Major competitive strategies, e.g. cost leader,
differentiation, customer and alliance intimacy
• IT can align the business process in every level
(esp. in value chain) to achieve business goals.
• Business process reengineering and business
improvement scheme as the strategic use of IT
 Further readings

• Business Plugin B2, BaltZan 7th edition, 2016.

• Management Information Systems 9th edition. James O'Brien,
George Marakas, McGraw Hill, 2010
• The falling of Wachovia http://www.joshuakennon.com/the-
collapse-of-wachovia-how-a-bank-with-38-in-book-value-per-
share-became-almost-worthless-overnight/
• IT aligning Walmart’s stock management
http://www.bloomberg.com/news/articles/2013-09-25/wal-
mart-cutting-orders-as-unsold-merchandise-piles-up
• Video clip (Online short-term accomodation, Roomorama)
http://www.nationtv.tv/main/program/SawasdeeAsian/378411
945/
• Compare Roomorama against AirBNB
https://www.tripping.com/industry/rental-companies/airbnb-vs-
roomorama
• Nasdaq direct connect
http://www.nasdaqtrader.com/Trader.aspx?id=DirectConnect
End of Lecture